UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
      10-K
                
                (Mark
      One)þANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the fiscal year ended
      December 31, 2009oTRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the transition period
      from  to
  Commission
file number:  333-4028LA
 
 MINISTRY
PARTNERS INVESTMENT COMPANY, LLC
 (Exact
name of small business issuer  in its charter)
 
 CALIFORNIA
                (State
      or other jurisdiction of
                incorporation
      or organization)
              26-3959348
                (I.R.S.
      Employer Identification No.)
 
 915
West Imperial Highway, Suite 120, Brea, California  92821
 (Address
of principal executive offices)
 
 Issuer’s
telephone number:  (714) 671-5720
 
 Securities
registered under 12(b) of the Exchange Act:  None
 
 Securities
registered under 12(g) of the Exchange Act:  None
 
 Indicate
by check mark if the registrant  is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes  o No þ.
 
 Indicate
by check mark if the registrant  is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes
o  No
þ.
 
 Indicate
by check mark whether the issuer (1)  has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes þ  No o.
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes  oNo o.
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.þ.
  Indicate
by check mark whether registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer or a smaller reporting company.  See the
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large
      accelerated filer o
              Accelerated
      filer o
              Non-accelerated
      filer o
              Smaller
      reporting company filer þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o  No þ.
 
 As of
June 30, 2009, the aggregate market value of the registrant’s Class A common
units held by non-affiliates was $1,809,572, based upon the
most recent sale of the registrant’s Class A common units.  The
registrant has sold no Class A common units within the past sixty days and there
is no public market value for the registrant’s Class A common
units.  The number of Class A common units outstanding, as of March
29, 2010, was 146,522.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 None.
 
 MINISTRY
PARTNERS INVESTMENT COMPANY, LLC
 FORM
10-K
 
 TABLE
OF CONTENTS
 
 
 Page No.Part IItem
      1.
              Business
              3Item
      1A.
              Risk
      Factors
              30Item
      1B.
              Unresolved
      Staff Comments
              42Item
      2.
              Properties
              42Item
      3.
              Legal
      Proceedings
              42Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              42Part IIItem
      5.
              Market
      for our Common Equity, Related Stockholder Matters and Issuer Purchases of
      Equity Securities
              43Item
      6.
              Selected
      Financial Data
              45Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              45Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              68Item
      8.
              Financial
      Statements and Supplementary Data
              71Financial Reports
              F-1
      - F-29Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              72Item
      9A.
              Controls
      and Procedures
              72Item
      9B.
              Other
      Information
              73Part IIIItem
      10.
              Directors
      and Executive Officers of the Registrant
              73Item
      11.
              Executive
      Compensation
              78Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              80Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              81Item
      14.
              Principal
      Accountant Fees and Services
              82Part IVItem
      15.
              Exhibits
      and Financial Statements Schedules
              83SIGNATURES
              
              85
 
 
 Explanatory
Note for Purposes of the “Safe Harbor Provisions” of Section 21E of the
Securities Exchange Act of 1934, as amended
 
 Certain
statements in this report, other than purely historical information, including
estimates, projections, statements relating to our business plans, objectives
and expected operating results, and the assumptions upon which those statements
are based, are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are included with respect to, among other things, our
current business plan, business strategy and portfolio management. These
forward-looking statements generally are identified by the words “believe,”
“project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,”
“may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely
result,” and similar expressions. Forward-looking statements are based on
current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results or outcomes to differ materially from those
contained in the forward-looking statements. Important factors that we believe
might cause such differences are discussed in the section entitled, “Risk
Factors” in Part I, Item 1A of this Form 10-K or otherwise
accompany the forward-looking statements contained in this Form 10-K. We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
In assessing all forward-looking statements, readers are urged to read carefully
all cautionary statements contained in this Form 10-K.
 
 PART
I
 
 Item
1.   BUSINESS
 
 Overview
 
 Unless
otherwise indicated or the context otherwise requires, all references below in
this filing to “we”, “us”, and the “Company” are to Ministry Partners Investment
Company, LLC, a California limited liability company, together with its
wholly-owned subsidiary, Ministry Partners Funding, LLC, a Delaware limited
liability entity that was formed as a special purpose entity to purchase
qualifying mortgage loans.
 
 Our
History
 
 We were
incorporated in California in 1991 as a credit union service organization
(“CUSO”) that would
invest in and purchase mortgage loans originated by Evangelical Christian Credit
Union, a California chartered not-for-profit credit union (“ECCU”).  Since
inception, we have carried out our operations as a CUSO specializing in
providing mortgage loan financing to churches and ministry
organizations.  We are a privately owned California limited liability
company consisting of 13 federal and state chartered credit union equity owners,
none of which owns a majority of our voting common equity
units.  Effective as of December 31, 2008, we converted our form of
organization from a California corporation to a California limited liability
company (an “LLC”). This
conversion was a statutory conversion authorized under Section 1150 of the
California Beverly Killea Limited Liability Company Act (the “LLC Act”). Upon conversion, we
became, by operation of law, a California limited liability company. As a result
of the conversion, our name changed to “Ministry Partners Investment Company,
LLC”.
 -3-
 As a
CUSO, we invest in and originate loans made to evangelical churches and ministry
organizations.  Our loan investments are generally secured by a first
lien on church properties and/or ministry related
properties.  Although we have expanded our role as an originator of
church mortgage loans, ECCU remains our primary source of mortgage loan
investments.  We also use ECCU as our primary servicer for our
mortgage loans and to provide underwriting and loan processing services for most
of our loans.
  Our
mission is to make loan financing available to the evangelical Christian
community and serve as the preferred ministry lender in the United States for
the acquisition and improvement of church and ministry-related properties. We do
this by investing in mortgage loans made to churches and ministries. These loans
are typically originated by ECCU (or us) and secured by church and
church-related real property owned by and/or maintained for the benefit of
churches or church-related organizations such as Christian schools and
ministries.  As of December 31, 2009, we owned a total of 153 mortgage
loans, with an outstanding balance of $199.1 million.  The average
loan balance for our mortgage loan investments is $1.3 million, and our loans
have a weighted average life to maturity period of 2.28 years at December 31,
2009.
  Since
inception, our primary business has focused on the acquisition of special
purpose mortgage loans that were granted to Christian churches and organizations
in connection with the acquisition, development and/or renovation of churches or
church-related properties.  Funds to acquire these mortgage loans have
been provided through the sale of our debt securities to investors and from
equity investments.  In 2007, we created a wholly-owned special
purpose subsidiary, Ministry Partners Funding, LLC (“MPF”), to purchase and
warehouse church and ministry mortgages from us and ECCU for later
securitization.
 
 In the
fourth quarter of 2007, we also expanded our capabilities to originate and
securitize qualifying church mortgage loans by entering into two borrowing
facilities which authorized us to borrow up to $260 million to purchase
qualifying mortgage loans.  Because of the collapse of the
mortgage-backed securities market and severe credit crisis that has impacted
global financial markets since 2008, we have not securitized any of the mortgage
loans that our wholly-owned subsidiary, MPF, purchased and we do not anticipate
securitizing any of our mortgage loans until conditions in the credit
markets  improve.
 
 We are a
California limited liability company and our principal executive offices are
located at 915 West Imperial Highway, Suite 120, Brea,
California  92821.  Our telephone number is
(714) 671-5720, and our website address is
www.ministrypartners.org.
 
 Our
Business
 
 We are
one of the few organizations within the western United States formed to assist
evangelical Christian churches and organizations by providing financing for the
acquisition, development and/or renovation of churches or church-related
properties. To date, we have not charged off any of our mortgage loan
investments and we have not defaulted on or been delinquent on any interest or
principal payment on our debt securities or any of our borrowing
facilities.  We expanded the scope of our operations in 2007 to
include warehousing loans with the intent of reselling them in mortgage-backed
securities offerings.  However, we have not been able to make any such
offerings due to the credit crisis and collapse of mortgage-backed securities
markets that became acute in 2008.  We may resume our securitization
strategy when conditions in the credit markets have sufficiently improved and
pricing becomes economically feasible.
 -4-
 We were
formed in 1991 by ECCU for the purpose of providing financial resources that
could assist in meeting the demand for mortgage financing by churches,
ministries and church-related organizations. Since then, this market segment has
continued to grow, and both the size of the loans and number of qualified
borrowers in this sector has steadily increased. Prior to the 2008 global
financial crisis that has sharply affected real estate values in the United
States, the size of the church and ministry mortgage financing market in the
United States was estimated to range between $20 billion and $40 billion
annually. While there is no assurance that the size of this market will continue
at these estimated levels, we believe that the demand for ministry loans will
continue to exceed available lending and financing sources for this sector. We
base our belief on our past experience with making loans to this market segment.
Also, because the financial base and resources of church and ministry
organizations has grown larger and these organizations increasingly employ more
sophisticated accounting and budgetary practices, more financial institutions
are now willing to originate, participate in or purchase loans in this market
segment. As a result, a limited secondary market for these loans has developed
among financial institutions.  We are an active participant in that
market.  In addition, since the advent of the global credit crisis in
2008, some church bond underwriters and ministry finance lenders who had
previously originated church and ministry mortgages have now left or curtailed
their activities in this market, leaving greater opportunities for lenders with
access to reliable funding.
 
 Our
general practice in recent years has been to fund loan acquisitions with
borrowings under our bank facilities. We then repay borrowings on our bank
facilities with proceeds from the sale of investor notes, mortgage loan
prepayments and repayments, and from our operating income. Our ability to access
capital to repay borrowings under our bank facilities is subject to variability
based upon a number of factors, including volatility in the capital markets, the
relative interest rates that we are prepared to pay for our debt facilities, the
ability of our borrowers to access capital to repay or prepay their obligations
to us and our ability to sell our mortgage loan assets. Any occurrence that
disrupts our ability to access capital from these sources may have a material
adverse effect on our ability to grow our business, meet our commitments and
make distributions or payments to our equity owners and debt securities
investors.
 
 2009
Developments
 
 During
2009, we focused on the following major initiatives:
 
 (i) enhance the profitability of our
company for our equity investors;
 
 (ii) improve our liquidity and balance
sheet strength;
  (iii) develop capital funding sources
that are not dependent on the sale of mortgage-backed securities or
institutional credit facilities; and
 
 (iv) expand the scope of revenue
generating services we provide to make us less dependent on a favorable net
interest rate margin from our mortgage loan investments.
 -5-
 Conversion
to LLC
 
 Effective
as of December 31, 2008, we converted from a corporation organized under
California law to a limited liability company organized under the laws of the
State of California.  Under California law, a corporation that
converts to a limited liability company remains the same entity that existed
before the conversion, except it will be subject to the LLC Act and will be
taxed as an LLC under the applicable provisions of the California Revenue and
Taxation Code. Prior to the conversion, we were taxed as a C corporation under
both federal and state income tax laws. Following the conversion, we have
elected to be taxed as a partnership under both federal and state income tax
laws.  By implementing our conversion to an LLC, we enhanced the
opportunity to increase our profits for the benefit of our equity investors,
simplified and reduced our tax reporting obligations, and gained flexibility in
structuring our business and economic affairs for the benefit of our equity
owners.
 
 Improved
Balance Sheet
 
 In 2009,
despite a challenging economic environment for financial institutions that
primarily invest in church mortgage loans, we were able to pay off MPF’s $150
million credit facility that was entered into with Fairway Finance Company, LLC,
as lender, and BMO Capital Market Corp., as agent, on October 30, 2007 (the
“BMO Facility”) and
complete two financing transactions that strengthened our balance sheet,
improved our liquidity and effectively decreased our borrowings from financial
institutions from $185.1 million at December 31, 2008 to $125.7 million at
December 31, 2009.  On May 19, 2009, we sold $19.3 million in
mortgage loan participation interests to Western Federal Credit Union, a federal
credit union located in Hawthorne, California (“Western”).  We used
the proceeds of this sale, together with other funds, to purchase 21 mortgage
loans from MPF and make a principal payment of $21.9 million to reduce our
indebtedness under the BMO Facility.
 
 On
November 30, 2009, we entered into a $28 million credit facility with
Western Corporate Federal Credit Union, a federal credit union located in San
Dimas, California (“WesCorp”), and pledged
approximately $59.2 million of our mortgage loans as collateral for this
facility (the “WesCorp
Loan”).  WesCorp is a corporate credit union whose members
include other credit unions and CUSOs.  The WesCorp Loan bears
interest at a fixed rate of 3.95% and is payable in monthly installments equal
to accrued interest plus a principal payment of $116,667 until the loan matures
on March 30, 2012, when the entire balance of principal and interest is due
and payable.
 
 As of
December 31, 2008, MPF owed $85.3 million on our BMO Facility.  With
the proceeds we received from the sale of $19.3 million in loan participation
interests to Western and, together with additional smaller loan sales, proceeds
from loan prepayments, and cash purchases from MPF and ending with consummation
of the $28 million WesCorp Loan, we were able to make five principal reductions
payments on the BMO Facility in 2009, with a final payment of $24.6 million
paid to retire and terminate the BMO Facility on November 30,
2009.
 -6-
 On
October 12, 2007, we entered into two credit facility arrangements for a $10
million and $50 million revolving credit line with Members United Corporate
Federal Credit Union, a federally chartered credit union located in Warrenville,
Illinois (“Members
United”) and we later entered into an amendment to the facility on May 8,
2008, which increased the $50 million line of credit to $100
million.  As of December 31, 2009, there was $10 million outstanding
on the $10 million credit facility and $87.9 million outstanding on the $100
million credit facility.  Our $10 million credit facility has a
maturity date of August 26, 2011, and our $100 million credit facility has an
expiration date of September 1, 2012.  During 2009, Members United
agreed to roll over tranches of the $100 million credit facility in the amounts
of $40.8 million, $2.8 million and $24.0 million, at an interest rate of 6.5%,
1.3% and 1.3%, respectively.  On February 1, 2010, Members United
agreed to combine these tranches into a lump sum amount at a combined rate of
4.49% for an additional three months.
 
 Through
the sale of loan participation interests to Western, the successful negotiation
of rollover arrangements of our $100 million credit facility with Members United
and execution of our $28 million credit facility with WesCorp in 2009, we
substantially strengthened our balance sheet, enhanced our liquidity and
successfully managed the deleveraging of our balance sheet while earning a net
profit for the year.
 
 Capital
Funding Efforts
 
 Prior to
launching MPF in October 2007, we primarily relied on selling debt securities
and raising funds from our equity owners to generate the capital sources needed
to fund our mortgage loan investments.  By entering into the Members
United and BMO Facility credit arrangements in late 2007, we were able to
rapidly increase our mortgage loan investments and benefit from the favorable
net interest rate margin we were carrying on our mortgage loan investments held
in MPF.  As a result of adverse economic conditions facing U.S. and
global financial institutions in 2008, both of our institutional lenders sought
to reduce their exposure under these credit facilities.  The rapid
paydown and retirement of the BMO Facility, in particular, has heightened our
need to find alternative sources of capital, including increasing sales of our
debt securities.
 
 Our
mortgage loan investments are funded from available cash resources we obtain
from the sale of our debt securities, investments in our equity interests,
operating income and available credit facilities.  With the credit
market for a securitization offering backed by our church mortgage loans likely
to be unavailable or cost prohibitive in the foreseeable future, we have taken
steps to increase the sale of our debt securities through the efforts of our
officers and key employees.  Each of our officers and key employees
who assist us in marketing our debt securities are employees who are compensated
with a salary but do not receive any sales commissions or fees for their efforts
in marketing our debt securities.  In October 2009, we hired a
director of investor relations who has extensive experience in working with
ministry minded investors who have expressed an interest in supporting
church-related projects.  In addition, we have conducted due diligence
and undertaken efforts to analyze the feasibility of acquiring a broker-dealer
firm or forming a de novo broker-dealer firm as an affiliated entity to assist
us in our efforts in marketing our debt securities.
 -7-
 At
December 31, 2009, our outstanding investor notes totaled $69.5 million, as
compared to $75.7 million as of December 31, 2008.  While 79% of our
investors renewed their notes in 2009, as compared to 76% and 72% in 2008 and
2007, respectively, our liquidity could be significantly impacted if a
substantial note investor requests a withdrawal that we are required to
honor.  We are not required to honor all such requests.  As
of December 31, 2009, 55% of our debt securities will mature within the next
twelve months, as compared to 66% of our investor debt securities held at
December 31, 2008.
 
 On
December 23, 2009, we filed a registration statement on Form S-1 with the U.S.
Securities and Exchange Commission (“SEC”) to register an
additional $100 million of our investor notes, consisting of a combination of a
fixed series, flex series and variable series notes (the “Class A Notes”).  On
March 9, 2010, we filed a Pre-Effective Amendment No. 1 on Form S-1/A with the
SEC.  We will use the proceeds of this offering to improve our capital
resources and fund our mortgage loan investments.
 
 Additional
Revenue Sources
 
 Since
inception, our primary source of revenue has come from the net interest margin
we earn on our mortgage loan investments.  With the availability of
financing and mortgage-backed loan facilities being curtailed as global
financial markets adjust to a lack of liquidity in credit markets and the
uncertainty of pending U.S. financial reform legislation, we have primarily
relied upon generating profits from our mortgage loan
investments.  Growth in our investment portfolio and expansion of
origination and loan participation investments in member business loans
originated by credit unions will necessarily depend upon raising additional
capital and/or obtaining new borrowing facilities.
 
 In
addition, a substantial portion of our favorable net interest margin earned in
2008 and 2009 was generated from our BMO Facility due to a higher weighted
average yield on the mortgage loan assets held in this facility and favorable
borrowing costs we paid on the facility.  With the termination of our
BMO Facility on November 30, 2009, we will need to increase the mortgage loan
investments we own and develop new revenue generating services we can provide as
a result of our knowledge, expertise and experience in the church mortgage
lending business.
 
 To that
end, we formed a wholly-owned subsidiary, MP Realty Services, Inc., a California
corporation on November 13, 2009 (“MP Realty”).  MP
Realty will provide loan brokerage and other real estate services to churches
and ministries in connection with our mortgage financing
activities.  On February 23, 2010, the California Department of Real
Estate issued MP Realty a license to operate as a corporate real estate broker
under corporate identification number 01526509.
 
 -8-
 Strategic
Priorities for 2010
 
 In 2009,
we focused on improving our balance sheet, addressing our liquidity needs and
desire of our two major institutional credit facility lenders to unwind their
lending arrangements with us or our wholly-owned subsidiary, MPF.  For
2010, we intend to focus on the following strategic initiatives:
 
 ·
              expand
      the number of debt investors we have and amount of debt securities we
      issue through targeted marketing initiatives and more effective
      interactions with our investors while reducing our dependence on
      institutional financing sources;
  ·
              improve
      the asset quality of our loan investments by reducing the amount of our
      non-performing assets and improving our underwriting
      procedures;
  ·
              successfully
      complete negotiations with Members United on the interest rate and terms
      for the pay-off of our $100 million credit
  facility;
  ·
              increase
      operating earnings while maintaining adequate
  liquidity;
  ·
              expand
      our scope of revenue sources with the launch of MP
  Realty;
  ·
              form
      a de novo broker-dealer firm or acquire a broker-dealer firm to serve as
      an underwriter and investment broker for church-related investment
      products;
  ·
              implement
      a core data processing system, accounting system, portfolio management and
      enterprises resources planning system that will enhance our relationships
      with churches, ministries, lenders, investors and financial institutions
      and enable us to act as a full service originator and servicer of our
      mortgage loan investments for credit unions;
and
  ·
              expand
      our capital funding sources through the registration with the SEC of a
      secured debt security that will complement our Class A Notes and develop
      alternative sources of funding from other credit unions, religious
      foundations and institutional
investors.
  Our
primary lever to accomplish these priorities continues to be our ability to
raise debt and equity capital.
 Lending
Activities
 
 Loan
Origination, Acquisition and Underwriting
 
 For any
church mortgage loans that we or our wholly-owned subsidiary, MPF, acquire from
ECCU, we rely upon ECCU’s underwriting capabilities and experience in providing
church and ministry related financing.  Historically, we have relied
upon ECCU’s extensive experience as an originator and underwriter of mortgage
loans in making our mortgage loan investments.  We are expanding our
in-house staff, improving our operational systems and loan origination
capabilities and are progressively reducing our reliance on ECCU to originate,
underwrite and service our mortgage loan investments.  If we originate
a loan, we receive an origination fee and loan processing fee at the inception
of each loan.  For any mortgage loans and participation interests we
purchase from ECCU, we review ECCU’s underwriting and apply our internally
developed underwriting criteria in purchasing a loan or loan participation
interest from ECCU.  In 2009, we or our wholly-owned subsidiary, MPF,
purchased $10.5 million in mortgage loans from ECCU, as compared to $156.7
million in 2008.  Due to requirements to reduce the outstanding
principal balance on the BMO Facility, we (and MPF) reduced our purchase of
mortgage loans from ECCU in 2009.  We have also increased our in-house
staff and have devoted more resources to originating loans.  We rely
upon internally developed loan and investment policies in originating our church
loans.
 -9-
 Servicing
 
 Historically,
in making our mortgage loan investments, we have relied upon ECCU’s ability to
originate mortgage loans made to churches, schools, ministries and other
non-profit organizations to purchase land, develop facilities, construct or
renovate worship facilities or refinance existing
indebtedness.  Because ECCU has been making mortgage loans for
ministry related projects for over 40 years and has originated and currently
provides loan servicing arrangements for more than $2.1 billion in mortgages
held by investors, we have relied upon ECCU’s successful record in underwriting
profitable and performing mortgage loans and have entered into a servicing
agreement with ECCU for our mortgage loan investments.  As of December
31, 2009, ECCU was servicing 153 loans for us, which totals approximately $199.1
million in loan principal outstanding.
 
 As a
credit union service organization, our mission is to provide funds that are used
to originate  ministry loans made to credit union
members.  Before 2007, we relied on ECCU for both the origination and
underwriting of our mortgage loan investments. We have since expanded our
operations to include direct loan origination services to evangelical
organizations, churches, schools and ministries.  ECCU acts as our
primary servicing agent for such loans under a servicing
agreement.  In the future, we intend to expand our loan investment
activities to include arrangements with other credit unions that originate
church and ministry loans.  In that instance, the originating credit
union may continue to service any loan we purchase under such an
arrangement.  With the implementation of an enterprise resource
planning system in 2010 that will enable us to process, record, transmit and
account for all financial and operational data for the benefit of other credit
unions, finance lenders, churches, financial institutions and investors, we also
believe we will be able to expand our loan servicing capabilities.
 
 Types
of Loans
 
 We invest
primarily in mortgage loans secured by liens on churches, church-related and/or
ministry related properties.  Generally, our loans are secured by
first mortgage liens, but we may invest in loans secured by second liens or
which are guaranteed junior secured obligations, or in unsecured loans, if such
loans meet our loan criteria.
  -10-
 Permanent
Loans
 
 We
acquire or originate mortgage loans that may have an adjustable interest rate or
fixed rate.  The term for a mortgage loan may not exceed 30 years and
the maximum loan to value ratio may not exceed 90%.
 
 Construction
Loans
 
 Construction
loans may be made to finance the construction or restoration of facilities for
schools, worship facilities or ministry related purposes.  These loans
normally will have a final maturity that will not exceed five years, with a
construction draw period that will not exceed 12 months.  In most
instances, construction loans are interest-only on the outstanding balance drawn
for construction.  Under our Church and Ministry Loan Policy, the
maximum loan to value ratio for a construction loan is 90%.
 
 Participation
Interests
 
 From time
to time, we also invest in participation interests in secured mortgage loans,
whereby we own an undivided participation interest in a mortgage with a credit
union or other lender.  By investing in a participation interest, we
can participate in a larger loan investment and diversify our mortgage loans
investment portfolio while minimizing our exposure to the aggregate amount of
the loan.  When we invest in a “participation interest”, we purchase
an undivided interest in a loan that has been originated by a credit union and
we share principal and interest payments received from the borrower in an agreed
upon manner.  When we purchase a participation interest, the purchase
transaction is governed by a participation agreement entered into by the
originator and the participant containing guidelines as to ownership, control
and servicing rights.  In most instances, the originator retains all
rights with respect to enforcement, collection and administration of the
loan.  When we enter into a participation agreement with ECCU, we may
have more limited access to the borrower and ECCU is generally entitled to
exercise discretionary power in administering performing loans and undertaking
collection efforts in connection with any of its non-performing
loans.  As of December 31, 2009, approximately
$70.17 million, or 35.24% of our total loan portfolio, consisted of loan
participations we purchased from ECCU.
 
 Line
of Credit
 
 We may
make line of credit arrangements available to borrowers to meet their temporary
working capital needs.  The term of such arrangements typically will
not exceed one year and provide for minimum interest payments during the term of
the loan.  For loans made to members of credit unions that are secured
by real property, accounts receivable, and/or inventory, the maximum loan to
value ratio is 90% based upon the current value of the collateral.
 
 Letters
of Credit
 
 Under our
Church and Ministry Loan Policy, we are authorized to issue letters of credit
granting the person named in the letter the right to demand payment from us for
up to a specified amount provided the conditions set out in the letter are
met.  We require that a letter of credit be fully secured by funds on
deposit or restricted funds on a line of credit with a draw period on the line
of credit that meets or exceeds the draw period on the letter of
credit.
 
 -11-
 Our
Loan Policies
 
 Historically,
we have relied upon ECCU to originate a sufficient supply of mortgage loans made
to churches, schools, ministries and other non-profit corporations to purchase
land, develop facilities, construct or renovate worship facilities or refinance
existing indebtedness.  Because ECCU has been making mortgage loans
for ministry related projects for over 40 years, we have relied upon ECCU’s
successful record in underwriting profitable and performing mortgage loans and
have contracted with ECCU to service such loans.
 
 In recent
years, we have expanded our operations to include our own independent loan
origination activities, offering loans with fixed and variable interest
rates.  We receive an origination fee and loan processing fee at the
inception of each loan.  These fees may be added to the principal
amount of the loan or paid at closing of the loan.  Our loan
underwriting process involves a review and analysis of the church or ministry’s
financial operation, the strength of the organization’s leadership team, prior
history, financial capability, value of collateral and general
creditworthiness.
 
 Our
Mortgage Loan Investment Standards
 
 Our
policy is to require each of our mortgage loan investments to meet the following
criteria:
 
 ·
              Demonstration
      of Ability to Pay. The borrower must
      support its overall ability to timely pay principal and interest by its
      operational and cash flow history. For these purposes, "cash flow"
      includes donations and other revenue which the borrower can demonstrate to
      be continuing. Generally, debt service payments of the mortgage loan may
      not exceed a reasonable percentage of the borrower's cash flow over the
      expected term of the loan.
 
 ·
              Term
      of Loan.
      The remaining term of each mortgage loan must be thirty (30) years or less
      from the date we acquire or originate the
loan.
 
 ·
              Priority
      of Secured Interest. The mortgage loan must
      be evidenced by a written obligation and must be secured by a deed of
      trust on the mortgaged property.
 
 ·
              Funding
      Escrow.
      Mortgage loans must be funded through a formal escrow in a customary
      manner in order to assure that we receive good title to our security
      interest in the loan at the time the loan is
  funded.
 
 ·
              Value
      of Security. Each mortgage loan
      must be secured by real property for which there is available for review a
      recent independent appraisal or other independent valuation which supports
      the value of the property.
 
 -12-
 ·
              Title
      Insurance.
      Each mortgage loan must be covered by a standard lender's title insurance
      policy.
  ·
              Application
      of Loan Proceeds. Procedures must be
      established to assure the loan proceeds will be used for the purposes
      authorized. Unless we waive the requirement for good cause, loan proceeds
      must be available only for expenditures on account of the project for
      which the loan was made.
 
 ·
              Inspection. We, the original
      lender, or the lender's representative must have made a personal on-site
      inspection of the property securing the
loan.
 
 ·
              Insurance. We require our
      borrowers to obtain standard insurance protection customary in the
      industry, including title insurance (to insure against title defects and
      some forms of documentation), and liability and casualty insurance in
      customary amounts. We may also require special insurance in connection
      with particular mortgage loans, including earthquake, flood and
      environmental hazard insurance.
 
 ·
              Lines
      of Credit and Letters of Credit.Our typical
      mortgage loan investment is a conventional real estate loan. However, from
      time to time we may make a loan commitment or loan funds pursuant to a
      line of credit or a letter of credit. These commitments and loans are
      typically secured by real property or funds pledged by the
      borrower.  We require that our Loan Investment Committee approve
      the transaction.
 
 ·
              Credit
      Union Members.  Loans can
      be only made to credit union members or our investors, unless otherwise
      permitted by our Church and Ministry Loan
  Policy.
 
 ·
              Location of
      Collateral.Each mortgage loan
      must be secured by real property located in the United
      States.  Unsecured loans may be made without a geographical
      limitation provided that all payments are made in U.S. dollars and the
      financial statements of the borrower are in
  English.
 
 ·
              Loan Limits.The aggregate
      total of all construction loans or loans secured by junior liens on real
      property may not exceed 200% of our tangible net worth.  The
      maximum aggregate amount of any loan or loans to one borrower (or to
      related entities) may not exceed 25% of our tangible net
      worth.  The maximum aggregate amount of unsecured loans to any
      one borrower  may not exceed 10% of our tangible net
      worth.  For any loan that exceeds 25% of our tangible net worth
      or 5% of our loan portfolio, whichever is less, the loan must be approved
      by our managers prior to funding.
 
 All loan
applicants must complete an application and provide suitable documentation
demonstrating an ability to repay the loan and submit this application to our
offices in Brea, California.  For new loans greater than $500,000, we
or our designated representative will conduct a site visit to inspect the
collateral and conduct our due diligence review of the
applicant.  Each loan must meet our Church Ministry and Loan Policy
guidelines.
 
 -13-
 With our
conversion from a corporation to a limited liability company, effective as of
December 31, 2008, our business and affairs are governed by a group
of seven managers that serve as our Board of Managers (“Board”).  Our Board
establishes our loan policies and review them periodically and have authorized
designated loan officers and our President to make loans within certain limits
established by our managers from time to time.  The Board also
appointed a Credit Review Committee to review and carry out our loan
policy.  The Credit Review Committee may approve loans up to 25% of
our tangible net worth or 5% of our aggregate loan portfolio, whichever is
less.  For loans exceeding the threshold, our Board has established an
Investment Committee that reviews our loans and loan requests which exceed
certain prescribed limits under our loan policies.   Upon
approval, we issue a written loan commitment to the applicant that specifies the
material terms of the loan.
 
 Based in
part on the foregoing criteria, we have adopted a risk rating system for rating
the risk of our mortgage loan investments. Our Board and management team monitor
portfolio composition regularly and may, from time to time, establish guidelines
for management regulating the fraction of the portfolio that may be invested in
each risk category.  We monitor the risk ratings of our mortgage loan
portfolio on a regular basis.
 
 Our
Loan Investment Portfolio
 
 We invest
primarily in mortgage loans secured by liens on churches, church-related and/or
ministry-related properties. Generally, our mortgage loans are secured by first
liens, but under limited circumstances, we may invest in loans secured by junior
liens. The payment of our mortgage loan investments is not insured and, in
general, is not guaranteed by any person or by any government agency or
instrumentality. We must, therefore, look to foreclosure on the property
securing the loan as the primary source of recovery in the event the loan is not
repaid as required. Some of our mortgage loan investments are partial
participation ownership in a mortgage loan, whereby we own an undivided interest
in the loan investments with other institutions. Generally, our percentage of
our ownership interest in our mortgage loans has ranged from 1.0% to 100%. Joint
ownership allows us to participate in larger loans and in a greater number of
loans than we would otherwise be able to afford, and therefore allows us to
achieve greater diversification for our mortgage loan investment
portfolio.
 
 Set forth
below are the amounts of our cash and loan investments at December 31, 2009
and 2008.
 
 Year
      Ended
                December
      31,
                (Dollars
      in Thousands)2009
              
              
              2008AssetsCash
              
              $
              9,980
              
              
              $
              14,889Loans,
      net of allowance for loan losses of $1,701 and $489 in 2009 and 2008,
      respectively
              
              
              196,858
              
              
              
              257,176Accrued
      interest receivable
              
              
              956
              
              
              
              1,374
 
 -14-
 Set forth
below are the amounts we invested in each category of loan at December 31, 2009
and 2008.
  
 December
      31, 2009
              
              
              December
      31, 2008Loan
      Category
              
              Amount
              
              
              Percent
      of Portfolio
              
              
              Amount
              
              
              Percent
      of PortfolioCommercial
      Mortgage Loans
              
              $
              194,068
              
              
              
              97.5
              %
              
              $
              254,869
              
              
              
              98.8
              %Construction
      Loans
              
              
              3,052
              
              
              
              1.5
              %
              
              
              1,042
              
              
              
              0.4
              %Unsecured
      Commercial Loans
              
              
              2,002
              
              
              
              1.0
              %
              
              
              2,000
              
              
              
              0.8
              %Total
              
              $
              199,122
              
              
              
              100.0
              %
              
              $
              257,891
              
              
              
              100.0
              %
 
 Our
Net Interest Income and Interest Margin
 
 Our
earnings depend largely upon the difference between the income we receive from
interest-earning assets, which are principally mortgage loan investments and
interest-earning accounts with other financial institutions, and the interest
paid on our investor notes and lines of credit. This difference is net interest
income. Net interest margin is net interest income expressed as a percentage of
average total interest-earning assets.
 
 Please
see the discussion under the section “Management Discussion and Analysis of
Financial Condition −  Results of Operations” for information
regarding our historical interest costs, interest income and yields realized on
our mortgage loan investments for the years ended December 31, 2009 and
2008.
 
 Loan
Maturities
 
 The
following table sets forth the future maturities of our mortgage loan portfolio
at December 31, 2009.
  Dollar
      Amount of Mortgage Loans
                Maturing
      During Year:2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              2014
              
              
              After
                2014Mortgage
      Loan Portfolio at:December
      31, 2009
              
              
              39,445
              
              
              
              37,764
              
              
              
              43,800
              
              
              
              72,842
              
              
              
              1,905
              
              
              
              3,366
 
 Included
in the table above are two adjustable rate loans for $1,839 thousand due in
2010, and one adjustable rate loan for $2,485 thousand due in 2012.
 
 -15-
 Diversification
of Our Mortgage Loan Portfolio
 
 The
following table sets forth, as of December 31,  each state in which:
(i) the unpaid balance of our mortgage loans was 10% or more of the total
unpaid balance of our mortgage loan portfolio; and (ii) the number of our
mortgage loans was 10% or more of our total mortgage loans.
 
 California2009
              
              2008Unpaid
      Balance of Mortgage Loans
              
              $
              54,267
              
              $
              78,814%
              
              
              27.25%
              
              
              30.56%Number
      of Loans
              
              
              43
              
              
              57%
              
              
              28.10%
              
              
              30.98%Texas2009
              
              
              2008Unpaid
      Balance of Mortgage Loans
              
              $
              22,234
              
              $
              24,042%
              
              
              11.17%
              
              
              9.32%Number
      of Loans
              
              
              13
              
              
              13%
              
              
              8.50%
              
              
              7.07%
 
 Our
Rollover Policy
 
 We offer
to renew, re-underwrite or otherwise continue (i.e. roll over) a maturing loan
on a case by-case basis, based on the terms of the maturing loan, the
credit status of the borrower and our liquidity needs at the time. Prior to
maturity, each loan is analyzed and re-underwritten to determine if it is a
possible rollover candidate. Management then reviews our liquidity needs and
conditions in determining whether to recommend to our Loan Investment Committee
to roll over the loan.
 
 Master
Loan Purchase and Sale Agreement
 
 On May 1,
2009, we entered into a Master Loan Participation Purchase and Sale Agreement
with Western Federal Credit Union, a federal credit union located in Hawthorne,
California (the “Western
Participation Agreement”).  Pursuant to the Western
Participation Agreement, Western is authorized, but not obligated, to purchase
loan participations from us on a non-recourse basis.  When Western
purchases a participation interest, a certificate is delivered and agreed upon
which identifies the name of the borrower, the principal amount due under the
loan, purchase price, interest rate, maturity date and participation percentage
acquired under the loan.  We have appointed ECCU to serve as our
servicing agent for the initial pool of loans available for purchase under the
Western Participation Agreement.  Our agreement with Western includes
standard representations and warranties for a loan participation purchase
agreement that are typical for a transaction of this nature.  In
addition, we are obligated to monitor the loans in which Western purchases a
participation interest and alert Western of certain material events which might
affect the financial condition of the borrower and collectability of the
loan.
 -16-
 If we
breach any of the representations or warranties under the Western Participation
Agreement, we are obligated to repurchase the loan participation interest at an
amount equal to the outstanding balance of such loan participation or substitute
another loan participation interest as payment for such interest.  In
the event of a default under the loan, we, Western, and ECCU are required to
consult together in an effort to agree upon a mutually agreeable course of
action.  If the parties are unable to agree upon a desired course of
action, Western is entitled to purchase the outstanding undivided interest held
in the loan, provided that Western holds at least a 50% interest in the
loan.  In the event that the parties fail to agree on an acceptable
course of action to address the event of default, we have the right, at our sole
option, to repurchase Western’s undivided interest in the principal, plus
accrued interest, outstanding as of the date of repurchase.
  On May
19, 2009, Western purchased 12 loan participation interests in the principal
amount of $19.3 million under the terms of the Western Participation
Agreement.  We used the proceeds from this sale, together with
available cash, to purchase 21 mortgage loans from MPF in the principal amount
of $21.9 million.  We then pledged these 21 mortgage loans to Members
United to replace the participation interests in the portfolio we sold to
Western.
  Western
is an equity holder of our Class A Common Units (the “Class A Units”) and has been
deemed a related party with respect to this purchase agreement.  Our
Board has ratified the Western Participation Agreement under the procedures
provided for in our Related Party Transaction Policy.
  Securitization
 
 In 2007,
we formed MPF to pursue our strategy of obtaining funding by purchasing and
warehousing church and ministry mortgage loans and reselling them in securitized
debt transactions.  Upon formation, MPF obtained the $150 million BMO
Facility and, as of December 31, 2008, had used borrowings under this credit
facility to acquire approximately $122.7 million of mortgage
loans.  However, due to subsequent and continuing deterioration of the
market for securitized debt transactions, we have been unable to implement this
strategy because MPF has been unable to complete any securitized debt
transactions.
 
 In May
2009, we began selling MPF’s loan portfolio assets to pay down the BMO Facility,
and we paid off and terminated the facility on November 30, 2009, using $24.6
million of the $28 million credit facility we entered into with WesCorp
under the WesCorp Loan.  We pledged approximately $59.2 million of
MPF’s mortgage loans released as security for the BMO Facility upon its
repayment as collateral for the WesCorp Loan. We plan to maintain MPF for
possible future use as a financing vehicle to effect securitized debt
transactions. MPF’s ability in the future to successfully complete securitized
debt transactions will depend, in large part, on prevailing financial market
conditions, which, in recent months, have been adversely affected by various
economic developments, including the subprime mortgage crisis.
 
 -17-
 Recent
Developments in Credit Markets
 
 The
United States is in the midst of a severe economic downturn that has and may
continue to affect liquidity in the credit markets and liquidity and prices in
the real estate markets. Commencing in late 2007, the credit markets that
we depend on for warehouse lending for origination, acquisition and
securitization for our church mortgage loans began to deteriorate, and that
deterioration has continued and even worsened in 2008 and 2009. This has
adversely impacted our plan to complete our proposed securitized debt
transactions through MPF. Despite actions by the Federal Reserve Bank to lower
interest rates and increase liquidity, uncertainty among lenders and investors
has continued to reduce liquidity, drive up the cost of lending and drive down
the value of mortgage loan and real estate assets in these markets. Under these
conditions, U.S. banks and other financial institutions have reported large
losses, have demanded that borrowers reduce credit exposure to these illiquid
assets resulting in “margin calls” or reductions in borrowing availability, and
the collective effect of these events has caused massive sales of underlying
assets that collateralize mortgage-backed loans.  In addition, the
need to deleverage the balance sheets of U.S. financial institutions and find
buyers for illiquid real estate related assets has resulted in further downward
pressure on market values of the underlying assets of financial institutions
that hold substantial investments in residential and commercial real
property.
 
 At the
federal level, uncertainty surrounding pending financial reform legislation and
more restrictive regulatory oversight has limited the willingness of financial
institutions to deploy new capital.  Further, many U.S. financial
institutions are faced with significant write downs and necessity of having to
redeploy their human resources capital to address deteriorations in their
existing loan portfolios which hinders their ability to allocate resources to
the origination of new business.
  Asset
Quality
 
 As of
December 31, 2009, all of our mortgage loan investments are serviced by ECCU
and  subject to ECCU’s collection policies.  Under the terms
of our servicing agreement with ECCU, we monitor each mortgage loan or
participation interest we acquire to ensure full payments are received as
scheduled.  We also receive monthly reports from ECCU regarding our
mortgage loan investments, including delinquent loan status
reports.  These status reports are included in monthly and quarterly
reports management prepares for our Board.
 
 Due to
adverse economic conditions in the U.S., many churches have been materially
impacted by high unemployment rates, foreclosures on homes owned by their
members, collapsing real estate values and diminished net worths of their
congregations and members.  Contributions to churches and ministries
are especially sensitive to these economic trends facing the U.S.
 
 Delinquent
Loans
 
 Over the
past year, we have experienced fluctuating but generally increasing rates in
delinquencies on our mortgage loan investments. During 2009, delinquency rates
have ranged from approximately 1.06% to more than 5.48% of the total amount of
our mortgage loan investment portfolio. We report a mortgage loan as delinquent
if it is 90 days or more in arrears. At December 31, 2009, 5.48% of our
portfolio qualified as delinquent.  We have adopted a proactive
approach in responding to delinquencies in our loan portfolio. Our servicing
agent, ECCU, or our staff makes direct contact with the borrower within ten (10)
days of an initial late payment. If the situation progresses to 30 days or more,
we follow up with an onsite visit to discuss the borrower’s circumstances and
how the borrower can bring the loan current.
 
 -18-
 From time
to time, we have restructured a mortgage loan in light of the borrower’s
circumstances and capabilities.  If we decide to accept a loan
restructure, however, our policy does not permit us to forgive or reduce the
principal amount owed on the loan.  In the event that an acceptable
workout of a delinquent mortgage cannot be reached, ECCU will generally proceed
with a foreclosure proceeding on any collateral securing the loan.  As
of December 31, 2009, ECCU has initiated four foreclosure actions on mortgage
loans which we own or hold a participation interest, representing $9.2 million
in outstanding indebtedness.  Since inception, we have had no loan
losses that have been charged off on our mortgage loan
investments.  In addition, we have never taken an ownership interest
in real property or collateral after a foreclosure has been initiated and no
judicial or foreclosure sales have been held on any mortgage we have acquired or
originated.
 
 Non-performing
Loans
 
 The table
below sets forth the amounts and categories of non-performing assets in our
portfolio.  Loans are placed on non-accrual status when the collection
of principal and/or interest becomes doubtful or other factors involving the
loan or the borrower warrant placing the loan on non-accrual
status.  Non-accrual loans represent loans on which interest accruals
have been discontinued.  Troubled debt restructuring (or “restructured
loans”), which are accounted for under Accounting Standards Codification (“ASC”) 310-44, are loans which
include renegotiated loan terms to assist borrowers who are unable to meet the
original terms of their loans.  Such modifications may include a lower
interest rate, an extension of the maturity date or reduction in accrued
interest.  All troubled debt restructurings (restructured loans) are
initially placed on non-accrual status regardless of whether the loan was
performing at the time it was restructured.
  The
following is a summary of our non-performing mortgage loans at December 31, 2009
and 2008:
  December
      31, 2009
              
              December
      31,
                2008Non-accrual
      loans
              $
              25,3371
              
              $
              2,700Loans
      90 days or more past due and still accruing
              
              --
              
              
              --Restructured
      loans on accrual status
              
              3,714
              
              
              2,287Total
      non-performing loans
              $
              29,051
              
              $
              4,987Non-performing
      loans as a percentage of total loans
              
              14.6%
              
              
              1.9%1Includes
      $17.0 million of restructured loans on non-accrual
  status.
  For the
year ended December 31, 2009, gross interest income which would have been
recorded had the non-accrual loans been current in accordance with their
original terms amounted to $397 thousand.  Interest in the amount
of $208 thousand was included in income during 2009 on such loans through the
accretion of loan discount and net present value impairment.  We
monitor our non-performing loans on an ongoing basis as part of our loan review
and work-out process.  The potential risk of loss on these loans is
evaluated by comparing the loan balance to the fair value of any underlying
collateral or the present value of projected future cash flows.
  -19-
 As of
December 31, 2009, four of our non-performing loans were the subject of
foreclosure proceedings.  We have set aside a reserve of $597 thousand
for these four loans.  We are actively working with ECCU and the
borrower in each of these foreclosure actions in an effort to minimize any
losses on these loans.  Since inception, we have never had a
foreclosure sale or judicial sale ordered on a loan we have acquired or
originated.
 
 Restructured
Loans
 
 We
classify a loan as a restructured loan when we make concessions we would not
otherwise consider if offering a loan to a borrower.  A restructuring
of  a loan usually involves an interest rate modification, extension
of the maturity date, or reduction of accrued interest owed on the loan on a
contingent or absolute basis.  Our policy on restructuring
arrangements does not permit us to forgive or reduce the principal amount owed
on a mortgage loan we hold.
 
 The
following table shows the number and balance of restructured loans in our
mortgage loan portfolio, as well as the percentage of our total portfolio those
loans represented and the amount of allowance for loan losses associated with
restructured loans as of December 31 (dollars in thousands).
 
 2009
              
              2008Number
      of restructured loans
              
              
              12
              
              
              2Balance
      of restructured loans
              
              $
              20,748
              
              $
              2,285Percentage
      of loan portfolio
              
              
              10.42%
              
              
              .89%Allowance
      for loan losses associated withrestructured
      loans
              
              $
              275
              
              $
              0
 
 In the
current economic market, loan restructures often produce a better outcome for
our loan portfolio than a foreclosure action.  Given our specialized
knowledge and experience working with churches and ministries, entering into a
loan modification often enables the borrower to keep their ministries intact and
avoid foreclosure.  With a successful loan restructure, we avoid a
loan charge-off and protect the interests of our investors and borrowers we
serve.
 
 The
delinquency and default rates we are currently experiencing, while higher than
historical levels, are within our manageable limits, and the delinquency rates
on our mortgage portfolio appear to have stabilized. We believe we have
established adequate levels of reserves for any foreseeable losses, and we
continue to evaluate the adequacy of such reserves in the light of current
economic and operational conditions.
 
 -20-
 Allowance
for Loan Losses
 
 We
establish provisions for loan losses, which are charged to earnings, at a level
reflecting estimated credit losses on our loan portfolio.  In
evaluating the level of the allowance for loan losses, we consider the type of
loan, amount of loans in our portfolio, adverse situations that may affect our
borrowers’ ability to pay and estimated value of underlying collateral and
credit quality trends (including trends in non-performing loans expected to
result from existing conditions).  Since inception, we have never
recorded a charge-off on our mortgage loan investments.  As a result,
we have no historical loss experience to assist us in assessing estimated future
losses.
 
 The
allowance for loan loss is monitored by our senior management on an ongoing
basis and we use the methodology provided in ASC 450-20-25 regarding loss
contingencies and in ASC 310-10-35 regarding impaired loans. We apply
ASC 450-20-25 by examining the performance characteristics of our portfolio
loans, including charge-offs, delinquency ratios, loan restructurings and
modifications and other significant factors that, in management’s judgment, may
affect our ability to collect loans in the portfolio as of the evaluation
date.  In 2009, we also added a factor relating to the portion of our
loan portfolio that is held in a loan participation interest.  The net
effect of adding this factor in our ASC 450-20-25 analysis for 2009
resulted in an increase in the allowance for loan losses reflecting the greater
risk of loss associated with holding a loan participation interest in which we
do not serve as the lead lender for the loan.  Our senior executive
team monitors these ASC 450-20-25 factors on a regular basis and reviews
are conducted quarterly with our Board.
 
 Our
senior executive team also evaluates our allowance for loan losses based
upon a review of individual loans in our loan portfolio in accordance with
ASC 310-10-35.  This evaluation is inherently subjective as it
requires material estimates including the amounts and timing of future cash
flows we expect to receive on an impaired loan that may be susceptible to
significant change.  Once a loan becomes a delinquent or
non-performing loan, the borrower reports a material adverse financial condition
or we determine that the value of the collateral underlying an impaired loan has
substantially declined, we assess all information available to us to determine
the estimated loss for a particular loan.  We monitor these individual
impaired loans on a regular basis.
 
 If we
restructure a loan, we establish an allowance for loan loss for that individual
loan based on the difference between the net present value of the future receipt
of cash payments from the restructured loan as compared to the net present value
of  cash flows which we would have received from the original loan,
discounted at the original interest rate of the loan.  As the
restructured loan performs according to its modified terms, the allowance for
loan loss on that individual loan is amortized into interest income over the
life of the loan.
 
 For 2009,
our provision for loan losses was $1.322 million, or .66% of our total loan
portfolio.  Assessing the adequacy of our allowance for loan losses is
inherently subjective as it requires us to make material estimates, including
the amount and timing of future cash flows we expect to receive on impaired
loans that may be susceptible to significant change.  In the opinion
of management, the allowance, when taken as a whole, reflects all known and
inherent credit losses in our mortgage loan portfolio as of December 31,
2009.
 
 -21-
 Our
Credit Facilities
 
 Members
United Facilities
 
 On
October 12, 2007, we entered into two note and security agreements with
Members United. Members United is a federally chartered credit union located in
Warrenville, Illinois, which provides financial services to its member credit
unions. One note and security agreement is for a secured $10 million revolving
line of credit, which we refer to as the “$10 Million LOC,” and the
other is for a secured $50 million revolving line of credit. The $50 million
facility was amended on May 14, 2008 to allow us to borrow up to $100
million through the revolving line of credit. We refer to this as the “$100 Million CUSO
Line”.  Both credit facilities are secured by eligible mortgage
loans we own. We used the $10 Million LOC for short-term liquidity purposes and
the $100 Million CUSO Line for mortgage loan investments.
 
 Each
credit facility is a secured, recourse obligation. We maintain collateral in the
form of eligible mortgage loans we own, based on a maximum margin of 90%. This
means we must maintain eligible collateral equal to 1.11 times the loan balance.
At December 31, 2009, approximately $108.9 million of loans were pledged as
collateral for the $100 Million CUSO Line and the $10 Million LOC.  We
have the right to substitute or replace one or more of the mortgage loans
serving as collateral for these credit facilities.  The loan documents
for these credit facilities contain affirmative covenants typical for this type
of credit facility, including requirements that we keep our collateral free of
liens and encumbrances, timely pay the amounts due under the facility and
provide current financial statements and reports to the lender. Other covenants
prevent us from selling all of our assets, from consolidating with or merging
into another entity, from impairing or incurring a lien on the collateral
securing these loans or from incurring certain additional
indebtedness.
 
 On
August 27, 2008, we borrowed the entire $10 million available on our $10
Million LOC at a rate of 3.47%.  This credit facility expired on
September 1, 2008. Effective as of the facility termination date, our $10
Million LOC was converted to a term loan with a maturity date of August 26,
2011. This loan bears interest payable monthly at a floating rate based on the
one month LIBOR plus 100 basis points. The interest rate on this loan is reset
monthly. As of December 31, 2009, there was a $10.0 million outstanding
balance on this loan.
 
 Under the
$100 Million CUSO Line, we may request advances under a “demand loan” or “term
loan”.  A demand loan is a loan with a maximum term of one year and a
variable rate based upon the prime rate quoted by the Wall Street Journal, as
adjusted by a spread as determined by Members United.  A term loan is
a fixed or variable interest rate loan that has a set maturity date not to
exceed twelve years.  During the period when draws may be made, each
advance on the $100 Million CUSO Line will accrue interest at either the offered
rate by Members United for a fixed term draw or the  rate quoted by
Bloomberg for the Federal Funds open rate plus 125 basis points for a variable
rate draw.  On the third Friday of each month, we are obligated to
make interest payments on the outstanding principal balance of all demand loans
and term loan advances at the applicable demand loan rate or term loan
rate.
 
 -22-
 Once the
draw period on the $100 Million CUSO Line expires, the loan documents provide
that the total outstanding balance on the facility will be termed out over a
five year period with payments based on a 30 year amortization payment
schedule.  As of December 31, 2009, the balance on the $100 Million
CUSO Line was $87.9 million, and the weighted average interest rate on the
facility draws that have been made was 4.29%.
 
 Since
2009, we have been in discussions with Members United regarding the interest
rate to be charged on the $100 Million CUSO Line once the outstanding amount due
is termed out over a five year period, with payments based on a 30 year
amortization schedule.  Although we were unable to reach  an
arrangement with Members United in 2009 on the interest rate to be charged on
the facility, we were able to enter into an agreement on April 3, 2009 to extend
the interest rate on a $24.0 million tranche on a month-to-month basis at a
variable rate equal to the Federal Funds open rate plus 1.25%.  During
2009, Members United also agreed to roll over tranches in the $100 Million CUSO
Line in the amounts of $40.8 million, $2.8 million and $24.0 million at an
interest rate of 6.5%, 1.3% and 1.3%, respectively.  On February 1,
2010, Members United agreed to combine these tranches into a lump sum amount of
$67.6 million at a combined rate of 4.49% for an additional three
months.
 
 In 2010,
we expect to reach an agreement with Members United on the interest rate to be
charged under the facility on the outstanding balance owed on the $100 Million
CUSO Line for the following tranches:
  Interest
      RateRedetermination Date
              Interest Rate
              Outstanding BalanceApril
      1, 2010
              4.49%
              $40.8
  millionApril
      1, 2010
              4.49%
              $  2.8
      millionApril
      1, 2010
              4.49%
              $24.0
  millionMay
      21, 2010
              3.47%
              $  3.0
      millionMay
      3, 2010
              3.73%
              $  5.4
      millionMay
      20, 2011
              3.89%
              $11.9 millionTotal
              
              $87.9
  million
  Members
United has advised us that the maturity date on the $100 Million CUSO Line is
September 1, 2012.  While we are optimistic that we will be able to
successfully complete negotiations with Members United to establish the interest
rate on this credit facility in 2010, we can give no assurances or guarantees
that we will be able to reach an agreement on a mutually acceptable interest
rate, maturity term or other loan modification terms.  Failure to
reach an agreement with Members United could have a material adverse effect on
our earnings if the interest rate on the facility exceeds our expected interest
income from our mortgage loan investments.
 -23-
 WesCorp
Facility
 
 On
November 30, 2009, we entered into a Loan and Security Agreement with
WesCorp.  WesCorp is a federally chartered credit union located in San
Dimas, California.  The agreement provides for a secured $28 million
term loan, referred to as the “WesCorp Loan.”  We used
$24.6 million of the proceeds from the WesCorp Loan to pay the remaining
principal and interest on the BMO Facility.  The remainder of the
proceeds was advanced in cash and will be used to make monthly payments on the
WesCorp Loan, as well as for our other cash needs as they arise.
 
 This
credit facility loan bears interest at the fixed rate of 3.95%. The loan is
payable in monthly installments equal to accrued interest plus a principal
payment of $116,667 until the maturity date, March 30, 2012, when the
entire balance of principal and interest is due and payable.  As of
December 31, 2009, there was $27.9 million outstanding on the WesCorp
Loan.  This loan was initially secured by approximately $59.2 million
of mortgage loans we previously pledged to secure the BMO Facility. Thus, the
loan was initially secured by excess collateral of approximately
$30.8 million. This amount of excess collateral will decrease as we receive
amortized payments of principal and interest from the mortgagors of these
pledged mortgage loans, which we are entitled to receive and use so long as we
are not in default under the WesCorp Loan.
 
 We are
obliged upon the lender’s request to replace a pledged mortgage loan if it
becomes materially impaired. We are otherwise under no obligation to replace a
pledged mortgage loan, unless it is sold or is prepaid. We may replace a pledged
mortgage loan either by pledging a mortgage loan having an equal unpaid
principal balance or with cash of an equivalent amount. Upon any prepayment,
collateral having an equal unpaid principal balance will be released, and all of
the remaining collateral will be released upon full repayment of the loan. As a
result, until the WesCorp Loan is retired in full, we do not have a right to
require the release of the excess collateral.
 
 Under the
WesCorp Loan documents, we furnished covenants customarily required by lenders
for commercial loans of this kind, including covenants regarding our authority
and compliance with applicable law, and we agreed to deliver future financial
statements, provide insurance for coverage for the collateral, provide for
adequate servicing of the collateral, and to give the lender at least 30 days’
prior written notice before we enter into any additional or replacement line of
credit with an institutional or commercial lender that would replace, in whole
or in part, our Members United credit facilities. We also furnished certain
negative covenants, including agreeing not to enter into certain transactions
without the lender’s prior consent, including mergers and material changes in
our Members United credit facilities. In addition, we agreed to maintain a
debt-to-tangible net worth ratio of not greater than 15 to 1 as determined in
general under GAAP, with certain exceptions including the exclusion from total
liabilities of any unsecured debt securities with a maturity date after
March 30, 2012.
 
 In the
event of default, the lender may call the entire balance of the loan due and
payable, upon which event the lender will have available all remedies provided
under applicable law, including the right to foreclose on the collateral. In
addition to our failure to pay any amount due and payable under the loan within
the prescribed grace period, events of default include if a judgment or
attachment in excess of $250,000 is entered against us; a material change in our
financial condition, business or operations occurs; or we fail to make any
payment of debt due and owing to another creditor in the aggregate of more than
$500,000. The loan is full recourse and upon default the lender may seek
recovery of the loan balance and its related costs against the collateral and/or
us.
 -24-
 Our
Former BMO Facility
 
 In 2007,
we formed a wholly-owned special purpose subsidiary, MPF, for the sole purpose
to purchase and warehouse church and ministry mortgage loans bought from us or
ECCU for later securitization.  On October 30, 2007, we expanded our
capabilities to originate and securitize qualifying church mortgage loans by
entering into a $150 million credit facility with Fairway Finance Company, LLC,
as lender, and BMO Capital Markets Corp., as agent.  The Bank of
Montreal agreed to serve as liquidity agent for the BMO
Facility.  Under the BMO Facility loan documents, MPF agreed to enter
into a term securitization or takeout financing transaction in an amount not
less than $50 million prior to April 30, 2009.  Due to the disruption
of credit markets which became acute in 2008 and continued in 2009, we were
unable to complete a securitization or takeout financing
transaction.
 
 On May 5,
2009, MPF entered into a Waiver Agreement with BMO Capital pursuant to which BMO
Capital (i) agreed to waive certain hedging requirements under the BMO Facility
for a limited period; (ii) agreed to waive certain provisions requiring that
“eligible mortgage loans” in the BMO Facility be held in the facility for not
more than 18 months (the “Vintage Loan Requirement”);
and (iii) confirmed that no event of default had occurred under the facility due
to MPF’s inability to complete a $50 million takeout financing
transaction.  On June 5, 2009, MPF and BMO Capital entered into an
Omnibus Amendment to the BMO Facility which provided that:
 
 ·
              the
      $50 million takeout financing requirement would be
    eliminated;·
              MPF
      was granted a reduction in the amount of working capital it was required
      to maintain under the facility from $10 million to $3
    million;·
              MPF
      agreed to pay down the principal amount due on the BMO Facility from $78.9
      million to $50.7 million;·
              MPF
      was granted an extension of time to comply with the Vintage Loan
      Requirement;·
              the
      hedging requirement imposed under the BMO Facility would be deleted and,
      in its place, MPF would be required to deliver funds sufficient in amount
      to purchase a LIBOR cap to protect against unexpected changes in interest
      rates; and·
              the
      “spread” on the BMO Facility was set at 1.75% over the commercial paper
      rate, unless an event of default
occurred.
 
 -25-
 Effective
September 30, 2009, MPF and BMO Capital entered into Omnibus Amendment No. 2 to
the BMO Facility pursuant to which the parties agreed to:
  ·
              eliminate
      the Vintage Loan Requirement and replace it with a payoff schedule that
      required the BMO Facility to be paid off by March 14,
  2010;·
              relax
      certain geographical concentration requirements for eligible mortgage
      loans and ratios for eligible mortgage loans held in the BMO Facility;
      and·
              increase
      the borrowing rate on the BMO Facility after January 1, 2010 to
      3.00%.
 
 Effective
as of November 30, 2009, MPF paid off and retired the BMO Facility using funds
obtained from the WesCorp Loan.  As of December 31, 2009, there
was no outstanding balance due on the BMO Facility and all mortgage loans held
in the facility were transferred to our loan portfolio or to WesCorp to serve as
collateral for the WesCorp Loan.
  Competition
 
 Although
the demand for church financing is both broad and fragmented, no one firm has a
dominant competitive position in the market.  We compete with church
bond financing companies, banks, savings and loan associations, denominational
loan funds, REITs, insurance companies and other financial institutions to
service this market.  Many of these entities have greater marketing
resources, extensive networks of offices and locations, larger staffs and lower
cost of operations due to their size.  We believe, however, we have
developed an efficient, effective and economical operation that (i) specializes
in identifying and creating a diversified portfolio of church mortgage loans
that we or ECCU originate and (ii) preserves our capital base and generates
consistent income for distribution to our note holders and equity
investors.
 
 We rely
upon the extensive experience of our officers, management and managers in
working with ministry related financing transactions, loan origination,
investment in churches, schools, ministries and non-profit
organizations.
 
 Subsidiaries
 
 At
December 31, 2009, we did not have any active subsidiaries.  On
November 13, 2009, we formed MP Realty as a wholly-owned subsidiary for the
purpose of providing loan brokerage and other real estate services to churches
and ministries.
 
 Employees
 
 Effective
as of January 1, 2009, we renewed our staffing agreement with Administaff
Companies, II, L.P. for personnel and administrative services.  As of
December 31, 2009, we had a total of eleven full-time employees we engage under
this arrangement.  None of our employees are covered by a collective
bargaining agreement, and we believe that we have an excellent relationship with
our employees and staff.
 -26-
 Regulation
 
 General
 
 We are
organized as a credit union service organization and, as a result, are subject
to the regulations promulgated by the National Credit Union Administration
(“NCUA”) that apply to
CUSOs.  As a CUSO, we primarily serve the interests of our credit
union equity holders and members of such credit unions.  We are also
subject to various laws and regulations which govern: (i) credit granting
activities; (ii) establishment of maximum interest rates; (iii) disclosures
to borrowers and investors in our equity securities; (iv) secured transactions;
(v) foreclosure, judicial sale and creditor remedies that are available to
a secured lender; and (vi) the licensure requirements of mortgage lenders,
finance lenders, brokers and financiers.
 
 As a
CUSO, we are limited in the scope of activities we may provide.  In
addition, our federal credit union equity investors are permitted to invest in
or lend to a CUSO only if the CUSO primarily serves credit unions, its
membership or the membership of credit unions contracting with the
CUSO.  While NCUA lacks direct supervisory authority over our
operations, our federal credit union equity owners are subject to regulations
which govern the rules and conditions of an investment or loan they make or sell
to a CUSO.  In addition, state chartered credit unions must follow
their respective state’s guidelines which govern investments by a state
chartered credit union.  Our equity owners that are regulated by the
California Department of Financial Institutions (“DFI”), in particular, must
comply with DFI regulations that govern their investment in or loans they make
to a CUSO.
 
 Tax
Status
 
 Effective
with our conversion from a corporate form of organization to an LLC organized
under the laws of the State of California on December 31, 2008, we have chosen
to be treated as a partnership rather than a corporation for U.S. tax law
purposes.  As a result, profits and losses will flow directly to our
equity investors under the provisions of our governing documents.  If
we fail to qualify as a partnership in any taxable year, we will be subject to
federal income tax on our net taxable income at regular corporate tax
rates.  As an LLC organized under California law, we are also subject
to an annual franchise fee plus a gross receipts tax on our gross revenues from
our California based activities if our income is in excess of $250 thousand per
year.
 
 Congress
has also held hearings examining the tax exempt status of credit unions and
CUSOs, including CUSOs that are organized as an LLC.  As Congress
continues to consider tax legislation affecting financial institutions, credit
unions and CUSOs, we will continue to monitor the effect of any tax and
legislative changes that affect our operations.
 
 Regulation
of Mortgage Lenders
 
 Congress
is currently considering various financial regulatory reform
proposals.  If new legislation is enacted, the regulation and
operations of financial institutions and bank holding companies will be
significantly impacted.  While the primary thrust of proposed
legislation is directed to financial depository institutions that hold a
national or state bank charter, we will continue to monitor the effect of
financial regulatory reform proposals on our business.  Any
legislative or regulatory change enacted at the federal level in the future
could affect our method of operations and financial condition.
 
 -27-
 We
conduct loan originating activities for churches and related ministry
projects.  Many states regulate the investment in or origination of
mortgage loans.  Under the California Finance Lender’s Law, no lender
may engage in the business of providing services as a “finance lender” or
“broker” without obtaining a license from the California Department of
Corporations (“DOC”), unless otherwise exempt under the law.  We
conduct our commercial lending activities under California Finance Lender
License # 603F994.
 
 As a
finance lender, we are licensed with DOC and file reports from time to time with
DOC.  Accordingly, DOC has enforcement authority over our operations
as a finance lender, which includes, among other things, the ability to assess
civil monetary penalties, issue cease and desist orders and initiate injunctive
actions.  We also are subject to licensing requirements in other
jurisdictions in connection with our mortgage lending
activities.  Various laws and judicial and administrative decisions
may impose requirements and restrictions that govern secured transactions,
require specific disclosure to our borrowers and customers, establish
collection, foreclosure, and repossession standards and regulate the use and
reporting of certain borrower and customer financial information.
 
 As we
expand our loan originations outside of the state of California, we will need to
comply with laws and regulations of those states.  The statutes which
govern mortgage lending and origination activities vary from state to
state.  Because these laws are constantly changing, due in part, to
the challenge facing the real estate industry and financial institutions from
residential lending activities, it is difficult to comprehensively identify,
accurately interpret and effectively train our staff with respect to all of
these laws and regulations.  We intend to comply with all applicable
laws and regulations wherever we do business, and will undertake a best efforts
program to do so, including the engagement of professional consultants, legal
counsel, and other experts as deemed necessary by our management.
 
 Loan
Brokerage Services
 
 In 2009,
we created a new subsidiary, MP Realty, which will provide loan brokerage and
other real estate services to churches and ministries in connection with our
mortgage financing activities. The California Department of Real Estate issued
MP Realty Services, Inc. a license to operate as a Corporate Real Estate Broker
on February 23, 2010, under Corporate Identification Number
01526509.  As we expand our loan brokerage activities to other states,
we may be required to register with these states as a commercial mortgage broker
if we are directly or indirectly marketing, negotiating or offering to make or
negotiate a mortgage loan.  We intend to monitor these regulatory
requirements as necessary in the event MP Realty provides services to a
borrower, lender, broker or agent outside the state of California.
 
 -28-
 Environmental
Issues Associated with Real Estate Lending
 The
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), a federal statute,
generally imposes strict liability on all prior and current “owners and
operators” of sites containing hazardous waste. However, Congress acted to
protect secured creditors by providing that the term “owner and operator”
excludes a person whose ownership is limited to protecting its security interest
in the site. Since the enactment of the CERCLA, this “secured creditor
exemption” has been the subject of judicial interpretations which have left open
the possibility that lenders could be liable for clean-up costs on contaminated
property that they hold as collateral for a loan. To the extent that legal
uncertainty exists in this area, all creditors that have made loans secured by
properties with potential hazardous waste contamination (such as petroleum
contamination) could be subject to liability for cleanup costs, which costs
often substantially exceed the value of the collateral property.  In
addition, state and local environmental laws, ordinances and regulations can
also impact the properties underlying our mortgage loan
investments.  An owner or control party of a site may also be subject
to common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site.
 
 Privacy
Standards
 The
Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (“GLBA”) modernized the
financial services industry by establishing a comprehensive framework to permit
affiliations among commercial banks, insurance companies, securities firms and
other financial service providers. We are subject to regulations implementing
the privacy protection provisions of the GLBA. These regulations require us to
disclose our privacy policy, including identifying with whom we share
“non-public personal information” to our investors and borrowers at the time of
establishing the customer relationship and annually thereafter. The State of
California’s Financial Information Privacy Act also regulates consumer’s rights
under California law to restrict the sharing of financial data.
 
 Patents,
Trademarks and Licensing
 
 We do not
rely upon any significant patent, trademark, license or franchise to operate our
business.  We own the rights to the trademarks “Ministry Partners
Investment Corporation®” and “Ministry Partners®” and design and have obtained
U.S. trademark registrations for both marks with the U.S. Patent and Trademark
Office.  We also have filed for and expect to receive a U.S. trademark
registration for the mark “Ministry Partners Investment
Company”.
 
 -29-
 Item
1A.  RISK FACTORS
 
 Our
business, financial condition, and results of operations could be harmed by any
of the following risks or other risks which have not been identified or which we
believe are immaterial or unlikely.  The U.S. economy is still
recovering from an economic recession and we expect this to have a significant
impact on our business and operations, including, without limitation, the credit
quality of our loan portfolio, our liquidity and our earnings. The risks and
uncertainties described below are not the only risks that may have a material,
adverse effect on us.  Additional risks and uncertainties also could
adversely affect our business, financial condition and results of
operations.  The risks discussed below include forward-looking
statements, and our actual results may differ substantially from those discussed
in these forward-looking statements. Investors should carefully consider the
risks described below in conjunction with the other information in this Form
10-K and the information incorporated by reference in this Form
10-K.
 
 Risks
Related to the Company
 
 We
may be unable to obtain sufficient capital to meet the financing requirements of
our business.
 
 Our
ability to finance our operations and repay maturing obligations to our
investors and credit facility lenders depends, to a substantial degree, on our
ability to borrow money and raise capital from the sale of our debt
securities.  Our ability to borrow money and sell our debt securities
is affected by a variety of factors including:
 
 ·
              quality
      of the mortgage loan assets we own;
  ·
              limitations
      imposed under our credit facility arrangements and trust indenture
      agreement that contain restrictive and negative covenants that may limit
      our ability to borrow additional sums or sell our investor debt
      securities;
  ·
              strength
      of the lenders from whom we borrow;
and
  ·
              borrowing
      limitations imposed under our credit
facilities.
  An event
of default, lack of liquidity or a general deterioration in the economy that
affects the availability of credit may increase our cost of funding, make it
difficult for us to renew or restructure our credit facilities and obtain new
lines of credit.  We are also susceptible to withdrawals by investors
in our debt securities that can cause unexpected liquidity
problems.
 
 We are
actively expanding our methods of raising capital, including institutional
financing, conduit financing, the sale of secured notes and launch of a
broker-dealer firm to assist us in increasing sales of our debt
securities.  If our strategy to raise additional capital through the
sale of debt securities is not viable, we will need to find alternative sources
of borrowing to finance our operations.  To the extent we are unable
to raise the capital we need to implement our strategic objectives, we may have
to sell assets, further deleverage our balance sheet, and reduce operational
expenses, thereby reducing cash available to distribute to our equity and debt
securities investors.  In the current challenging credit and liquidity
environment, our ability to match the funding of our assets and liabilities will
be more difficult than what we faced prior to 2008.
  -30-
 Our
growth is dependent on leverage, which may create other risks.
  Our
success is dependent, in part, upon our ability to grow our balance sheet assets
through the use of leverage. Our organizational and governing documents do not
limit the amount of indebtedness which we may incur. Our Board has overall
responsibility for our financing strategy. Leverage creates an opportunity for
increased net income, but at the same time creates risks. For example,
leveraging magnifies changes in our net worth. We will incur leverage only when
we expect that it will enhance our investment returns. There can be no assurance
that we will be able to meet our debt service obligations and, to the extent
that we cannot, we risk the loss of some or all of our assets, or a financial
loss if we are required to liquidate assets at a commercially inopportune time.
At December 31, 2009, we had $195.3 million of total outstanding debt
obligations, of which approximately 21%, 10% and 60% of the principal amount of
thisdebt is due and
payable in the years 2010, 2011 and 2012, respectively.
  We
have fluctuating earnings.
 
 As a
mortgage financing lender, we make provisions for losses relating to our loan
portfolio and we could be forced to take impairment charges due to a borrower’s
default.  Since inception, we have never had a foreclosure sale or
charge-off on a loan.  With the nationwide economic crisis that has
affected unemployment figures, residential and commercial foreclosures, and
availability of credit, many churches have been adversely impacted in their
ability to meet their financial obligations.  While we have remained
profitable during this crisis, our earnings have been adversely affected by
increases in our allowance for loan losses.
 
 We
may be required to repurchase loans that we have sold.
 
 If any of
the loans we originate or acquire do not comply with representations and
warranties that we make about certain characteristics of the loans, the
borrowers and the underlying properties, the terms of our mortgage loan sale
agreements or participation interest purchase agreements require us, and the
terms of any future agreements will likely require us, to repurchase those loans
or replace them with substitute loans. In addition, in the case of loans that we
have sold instead of retained, we may be required to indemnify purchasers for
losses or expenses incurred as a result of a breach of a representation or
warranty. Repurchased loans typically require a significant allocation of
working capital to carry on our books, and our ability to borrow against such
assets is limited. Any significant repurchases or indemnification payments could
materially and adversely affect our financial condition and operating
results.
  Our
reserves for loan losses may prove inadequate, which could have a material
adverse effect on us.
  The
continuation of the economic recession that began in 2007, and the deterioration
in real estate values, has adversely impacted the performance of our loan
portfolio.  Over the last 12 months, our nonperforming assets
have increased substantially due to the economic downturn, collapsing real
estate values and economic challenges facing many of our
borrowers.  In response, our senior management has analyzed our loan
portfolio for any value-at-risk and increased our loan loss provisions
accordingly.  Although we regularly evaluate our financial reserves to
protect against future losses based on the probability and severity of the
losses, there is no guarantee that our assessment of this risk will be adequate
to cover any future potential losses.   Unanticipated adverse
changes in the economy or events adversely affecting specific assets, borrowers,
mismanaged construction, loss of a senior pastor, rising interest rates, failure
to sell properties or assets, or geographical regions in which our borrowers or
their properties are located may negatively impact our assessment of this risk
and result in reserves that will be inadequate over time to protect against
potential future losses. Maintaining the adequacy of our allowance for loan
losses may require that we make significant and unanticipated increases in our
provisions for loan losses, which would materially affect our results of
operations and capital adequacy.  Given the total amount of our
allowance for loan losses, an adverse collection experience in a small number of
loans could require an increase in our allowance.
  -31-
 The
interest rate and terms of our Members United $100 Million CUSO Line are subject
to adjustment and modification.
 
 In 2010,
$76 million of our $100 Million CUSO Line is subject to adjustment as to the
interest rate charged on the facility.  In 2011, the interest rate on
an additional $11.9 million in this facility will be subject to
adjustment.  If we are unable to reach an acceptable agreement with
Members United as to the interest rate and pay off terms for the facility, our
borrowing costs could substantially increase, thereby negatively affecting our
earnings, liquidity and ability to make distributions to our equity investors
and payments to our note investors.
 
 Significant
over collateralization of WesCorp Loan may affect our ability to issue
additional debt securities and/or pay our unsecured obligations.
 
 At
December 31, 2009, we had pledged approximately $58.7 million of our mortgage
loans to secure our $28 million WesCorp Loan, an initial
collateralization-to-debt ratio of approximately 210%. While the principal
amount of this collateral will decrease as we receive amortized payments on
these mortgage loans, the principal balance owed on this collateral will remain
significantly higher than the balance we owe on the WesCorp Loan. Also, the
lender is not required to release a proportionate amount of the excess
collateral upon our partial prepayment of the WesCorp Loan. As a result, the
lender will retain all of the excess collateral until the WesCorp Loan is repaid
in full. We will not have this excess collateral available to pay our other
obligations, including our Class A Notes, until we repay the WesCorp
Loan.
 
 Our
systems may experience an interruption or breach in security which could subject
us to increased operating costs as well as litigation and other
liabilities.
 
 We rely
heavily on communications and information systems to conduct our business and we
intend to launch an enterprise resources planning system in 2010 that will
enable us to implement a core data processing system that is independent from
ECCU’s operating system.  Any failure, interruption or breach in
security of these systems could result in failures or disruptions in our
customer and investor relationship management, general ledger, deposit, loan and
other systems.  While we have policies and procedures designed to
prevent or limit the effect of the possible failure, interruption or security
breach of our information systems, there can be no assurance that any such
failure, interruption or security breach will not occur or, if they do occur,
that they will be adequately addressed.  The occurrence of any
failure, interruption or security breach of our information systems could damage
our reputation, result in a loss of a borrower, investor or customer’s business
or expose us to civil litigation and possible financial liability.
 
 -32-
 Risks
Related to the Financial Services Industry and Financial Markets
 
 We
do not know what impact the U.S. government’s plans to purchase large amounts of
illiquid, mortgage-backed and other securities, or its plans to modify the terms
of outstanding loans, will have on the financial markets or our
business.
 
 In
response to the financial crises affecting the banking system, financial
markets, investment banks and other financial institutions, the U.S. government
enacted the Emergency Economic Stabilization Act of 2008 (“EESA”) on October 3, 2008.
Pursuant to the EESA, the U.S. Treasury has the authority to, among other
things, purchase up to $700 billion of mortgage-backed and other securities from
financial institutions for the purpose of stabilizing the financial markets. As
part of this plan, the U.S. government also recently made preferred equity
investments in a number of the largest financial institutions. More recently,
the U.S. government has approved an additional financial stimulus package, and
President Obama and members of Congress have proposed modifying the terms of
certain loans, including real estate mortgages and asset-backed securities. On
March 23, 2009, President Obama announced new initiatives that address major
regulatory changes in the manner that financial institutions will be governed in
an effort to remove distressed assets from the balance sheet of banks and
financial institutions that have substantial investments in mortgage-backed
securities.  It is not clear what impact these initiatives will have
on the financial markets, including the illiquidity in the global credit markets
and the downward trends and extreme levels of volatility in the global equity
markets. Moreover, while the details of some of these initiatives are not yet
finalized, it appears that these initiatives will not directly benefit our
business.
 
 Continuance
of current economic conditions could further harm our financial condition,
income and ability to make distributions to our equity holders.
 
 Beginning
in mid-2007 and continuing through the date of this report, the financial system
in the United States, including credit markets and markets for real estate and
real estate-related assets, has been subject to unprecedented turmoil. This
turmoil has resulted in severe limitations on the availability of credit,
significant declines in the value of real estate and real estate related assets,
impairment of the ability of many borrowers to repay their obligations and
illiquidity in the markets for real estate and real estate-related assets. These
events have had significant adverse effects on our business including
significant increases in our provision for loan losses and the unavailability of
financing for our acquisition and warehousing of our mortgage loan investments.
Continuation of current economic conditions could further harm our financial
condition, income and ability to make distributions to our equity and debt
securities investors.
 
 -33-
 Deterioration
of market conditions will likely continue to negatively impact our business,
results of operations and financial condition, including liquidity.
 
 The
market in which we operate is affected by a number of factors that are largely
beyond our control but can nonetheless have a potentially significant, negative
impact on our business. These factors include, among other things:
 
 •
              Interest
      rates and credit spreads;
 
 •
              The
      availability of credit, including the price, terms and conditions under
      which it can be obtained;
 
 •
              Loan
      values relative to the value of the underlying real estate
      assets;
 
 •
              Default
      rates on special purpose mortgage loans for churches and ministries and
      the amount of the related losses;
 
 •
              The
      actual and perceived state of the real estate markets for church
      properties and special use facilities;
and
 
 •
              Unemployment
      rates.
 
 Changes
in these factors are difficult to predict, and a change in one factor can affect
other factors. For example, during 2007, increased default rates in the subprime
mortgage market played a role in causing credit spreads to widen, reducing
availability of credit on favorable terms, reducing liquidity and price
transparency of real estate-related assets, resulting in difficulty in obtaining
accurate mark-to-market valuations, and causing a negative perception of the
state of the real estate markets generally.  These conditions worsened
during 2008 as a result of the ongoing global credit and liquidity crisis.
Although some easing of these conditions has taken place over the last half of
2009, they continue to have a significantly negative impact on our ability to
obtain capital at attractive borrowing rates.  We do not currently
know the full extent to which this market disruption will affect us or the
markets in which we operate, and we are unable to predict its length or ultimate
severity.  If the challenging conditions continue, we may experience
further tightening of liquidity, additional impairment charges as well as
additional challenges in raising capital and obtaining investment or other
financing on attractive terms or at all.  In addition, if current
market conditions continue or deteriorate and we are unable to restructure our
short-term borrowing facilities, we could experience a rapid, significant
deterioration of our liquidity, business, results of operations and financial
condition.
 
 A
prolonged economic slowdown, a lengthy or severe recession, or declining real
estate values could harm our operations.
 
 We
believe the risks associated with our business are more severe during periods
similar to those we are currently experiencing in which an economic slowdown or
recession is accompanied by declining real estate values. Declining real estate
values generally reduce the level of new mortgage loan originations, since
borrowers often use increases in the value of their existing properties to
support the purchase of, or investment in, or renovation of their worship
facilities. Borrowers may also be less able to pay principal and interest on our
loans, and the loans underlying our securities, if the real estate economy
weakens. Further, declining real estate values significantly increase the
likelihood that we will incur losses on our loans in the event of default
because the value of our collateral may be insufficient to cover our investment
in such loans. Any sustained period of increased payment delinquencies,
foreclosures or losses could adversely affect both our net interest income from
loans as well as our ability to originate, sell and securitize loans, which
would significantly harm our revenues, results of operations, financial
condition, liquidity, business prospects and our ability to make distributions
to our equity investors.
 
 -34-
 Interest
rate fluctuations and shifts in the yield curve may cause losses.
 
 Our
primary interest rate exposures relate to our mortgage loan investments,
floating rate debt obligations and interest rate swaps. Changes in interest
rates, including changes in expected interest rates or “yield curves,” affect
our business in a number of ways. Changes in the general level of interest rates
can affect our net interest income, which is the difference between the interest
income we earn on our interest-earning assets and the interest expense we incur
in connection with our interest-bearing liabilities and hedges. Changes in the
level of interest rates also can affect, among other things, our ability to
originate and acquire mortgages and the value of our mortgage
investments.
 
 In the
event of a significant rising interest rate environment and/or economic
downturn, loan defaults may increase and result in credit losses that would
adversely affect our liquidity and operating results. Interest rates are highly
sensitive to many factors, including governmental monetary and tax policies,
domestic and international economic and political conditions, and other factors
beyond our control.
 
 Our
ability to execute our business strategy, particularly the growth of our
mortgage loan investments portfolio, depends to a significant degree on our
ability to obtain additional capital. Our financing strategy is dependent on our
ability to obtain debt financing at rates that provide a positive net spread. If
spreads for such liabilities widen or if availability of credit facilities
ceases to exist, then our ability to execute future financings will be severely
restricted.
  Risks
of our Business
  Our
ability to obtain additional liquidity and capital resources has been, and may
continue to be, adversely affected by the global recessionary economic
conditions and adverse developments in the capital markets.
  Our
business requires a substantial amount of liquidity to fund investments, to pay
expenses, to increase our total mortgage loan investments, make interest
payments to our note investors, and to acquire and hold assets. Developments in
the capital markets have substantially reduced the debt and equity capital
available to us and have adversely affected our ability to raise additional
funds for investment.
  -35-
 We
may not be able to finance our investments on a long-term basis on attractive
terms, including by means of securitization, which may require us to seek more
costly financing for our investments or to liquidate assets.
 
 When we
acquire mortgage loans that we finance on a short-term basis with a view to
securitization or other long-term financing through our wholly-owned subsidiary,
MPF, we bear the risk of being unable to securitize the assets or otherwise
finance them on a long-term basis at attractive prices or in a timely matter, or
at all. If it is not possible or economical for us to securitize or otherwise
finance such assets on a long-term basis, we may be unable to pay down our
short-term credit facilities, or be required to liquidate the assets at a loss
in order to do so. For example, as a result of the continued deterioration in
the credit markets beginning in 2007, financing investments with securitizations
or other long-term non-recourse financing not subject to margin requirements has
not been available or economical for the past year, and we do not expect it to
be possible or economical to complete a securitization financing transaction for
the foreseeable future. These conditions make it highly likely that we will have
to use less efficient forms of financing for any new investments, which will
result in fewer loan acquisitions or originations of profitable mortgages and
thereby reduce the amount of our earnings available for distribution to our
equity investors and funds available for operations and
investments.
 
 Although
we seek to favorably match the interest rate return on our mortgage loan
investments with our debt financing commitments, we are subject to significant
interest rate risk.
 
 Our
investment and business strategy depends on our ability to successfully finance
our investments in mortgage loans that provide a positive spread as compared to
our cost of borrowing. A substantial portion of our loan investments provide for
a fixed interest rate with a typical five year maturity. Most of our borrowing
arrangements with our note investors and credit facility lenders, however,
provide for variable rates of interest that are indexed to short-term borrowing
rates. To mitigate our interest rate risks, we have entered into, and may enter
into in the future, interest rate hedging transactions that include, but are not
limited to, interest rate caps and interest rate swaps.  The results
of using these types of instruments to mitigate interest rate risks are not
guaranteed, and as a result, the volatility of interest rates could result in
reduced earnings or losses for us and negatively affect our ability to make
distributions of earnings to our equity investors.
  Our
financing arrangements contain covenants that restrict our operations, and any
default under these arrangements would inhibit our ability to grow our business,
increase revenue and make distributions to our equity investors.
  Our
financing arrangements contain extensive restrictions, covenants and events of
default. Failure to meet or satisfy any of these covenants could result in an
event of default under these agreements. Any event of default may materially
adversely affect us. These agreements may contain cross-default provisions so
that an event of default under any agreement will trigger an event of default
under other agreements, giving our lenders the right to declare all amounts
outstanding under their particular credit agreement to be immediately due and
payable, and enforce their rights by foreclosing on or otherwise liquidating
collateral pledged under these agreements.
 
 -36-
 These
restrictions may interfere with our ability to obtain financing or to engage in
other business activities. Furthermore, our default under any of our financing
arrangements could have a material adverse effect on our business, financial
condition, liquidity and results of operations and our ability to make
distributions to our equity investors.
 
 Default
under one credit facility will result in a default under our other credit
facilities.
 
 Our
various credit facilities and debt securities generally provide for
cross-default provisions whereby a default under one agreement will trigger an
event of default under other agreements, giving our lenders the right to declare
all amounts outstanding under their particular credit agreement to be
immediately due and payable, and enforce their rights by foreclosing on or
otherwise liquidating collateral pledged under these agreements. For example,
our default under one of our credit facilities would also constitute our default
under our other credit facilities, and generally under our debt securities,
including our Class A Notes. Thus, to maintain these credit facilities, there
cannot be a default under either one.
 
 Increases
in interest rates during the term of a loan may adversely impact a borrower’s
ability to repay a loan at maturity or to prepay a loan.
  If
interest rates increase during the term of our loan, a borrower may not be able
to obtain the necessary funds to repay our loan at maturity through refinancing.
Increasing interest rates may hinder a borrower’s ability to refinance our loan
because the underlying property cannot satisfy the debt service coverage
requirements necessary to obtain new financing or because the value of the
property has decreased. If a borrower is unable to repay our loan at maturity,
we could suffer a loss and we will not be able to reinvest proceeds in assets
with higher interest rates. As a result, our financial performance and ability
to make distributions and payments to our equity or debt securities investors
could be materially adversely affected.
  We
are subject to the risks associated with loan participations, such as less than
full control rights, if the lead lender chooses not to undertake the actions and
remedies that we would take or would refrain from taking if we were the primary
lender for the loan.
  Some of
our assets are participation interests in loans or co-lender arrangements in
which we share the rights, obligations and benefits of the loan with other
lenders. We may need the consent of these parties to exercise our rights under
such loans, including rights with respect to amendment of loan documentation,
undertake enforcement proceedings in the event of default and the institution
of, and control over, foreclosure proceedings. Similarly, a majority of the
participants may be able to take actions to which we object but to which we will
be bound if our participation interest represents a minority interest. As of
December 31, 2009 our investments included $70.17 million in loan
participations, representing 35.24% of our portfolio.
 -37-
 Church
revenues fluctuate and may substantially decrease during times of economic
hardship.
 
 Generally,
to pay their loans, churches depend largely on revenues from church member
contributions. Donations typically fluctuate over time for a number of reasons,
including, but not limited to, fluctuations in church membership, local economic
conditions including unemployment rates and local real estate and market and
credit conditions.
  Quality
of our mortgage loans depends on consistent application of sound underwriting
standards.
  The
quality of the mortgage loans in which we invest depends largely on the adequacy
and implementation of sound underwriting standards used to make the loans. Even
where the lender has sound underwriting standards, these standards must be
properly observed and implemented in order to obtain the target loan risk
levels.
  We may not have
all of the material information relating to a potential borrower at the time
that we make a credit decision with respect to that potential borrower or at the
time we advance funds to the borrower. As a result, we may suffer losses on
loans or make advances that we would not have made if we had all of the material
information.
 
 There is
generally no publicly available information about the churches and ministries to
which we lend. Therefore, we must rely on our borrowers and the due diligence
efforts of our staff to obtain the information that we consider when making our
credit decisions. To some extent, our staff depends and relies upon the pastoral
staff to provide full and accurate disclosure of material information concerning
their operations and financial condition. We may not have access to all of the
material information about a particular borrower’s operations, financial
condition and prospects, or a borrower’s accounting records may be poorly
maintained or organized. The financial condition and prospects of a church may
also change rapidly in the current economic environment. In such instances, we
may not make a fully informed credit decision which may lead, ultimately, to a
failure or inability to recover our loan in its entirety.
 
 We
may be unable to recognize or act upon an operational or financial problem with
a church  in a timely fashion so as to prevent a loss of our loan to
that church.
 
 Our
borrowers may experience operational or financial problems that, if not timely
addressed by us, could result in a substantial impairment or loss of the value
of our loan to the church. We may fail to identify problems because our
borrowers did not report them in a timely manner or, even if the borrower did
report the problem, we may fail to address it quickly enough or at all. Although
we attempt to minimize our credit risk through prudent loan approval practices
in all categories of our lending, we cannot assure you that such monitoring and
approval procedures will reduce these lending risks or that our credit
administration personnel, policies and procedures will adequately adapt to
changes in economic or any other conditions affecting our borrowers and the
quality of our loan portfolio. As a result, we could suffer loan losses which
could have a material adverse effect on our revenues, net income and results of
operations.
  -38-
 Any
hedging transactions that we enter into may limit our gains or result in
losses.
  We use
derivatives to hedge a portion of our interest rate exposure, and this approach
has certain risks, including the risk that losses on a hedge position will
reduce the cash available for distribution to our equity investors and that such
losses may exceed the amount invested in such instruments. We have adopted a
general policy with respect to the use of derivatives, which generally allows us
to use derivatives where appropriate, but does not set forth specific policies
and procedures or require that we hedge any specific amount of risk. From time
to time, we use derivative instruments in our risk management strategy to limit
the effects of changes in interest rates on our mortgage loan investments. A
hedge may not be effective in eliminating all of the risks inherent in any
particular position. Our profitability may be adversely affected during any
period as a result of the use of derivatives.
  Because
we invest only in specialized purpose mortgage loans, our loan portfolio is
generally more risky than if it were diversified.
 
 We are
among a limited number of institutions specialized in providing loans to
evangelical churches and church organizations. Even though the number of
institutions making and/or investing in mortgage loans to churches and
church-related organizations has increased in recent years, these loans are
secured by specialized properties and the secondary market for these loans
remains regional and limited. Our mortgage loan agreements require the borrower
to adequately insure the property securing the loan against liability and
casualty loss. However, certain types of losses, generally those of a
catastrophic nature such as earthquakes, floods or storms, and losses due to
civil disobedience, are either uninsurable or are not economically insurable. If
a property was destroyed by an uninsured loss, we could suffer loss of all or a
substantial part of our mortgage loan investment.  Moreover, a
majority of our loans are to California borrowers or are secured by properties
located in California, a market that has been negatively impacted by the
collapse of the residential real estate market and decrease in real estate
prices.
 
 Our
loan portfolio is concentrated geographically and focused on loans to churches
and religious organizations.
 
 We are
among a limited number of institutions specialized in providing loans to
evangelical churches and church organizations.  Moreover, a majority
of our loans are to California, Colorado, Illinois and Texas, states which to
varying degrees have been negatively impacted by the depressed real estate
market and resulting decrease in real estate prices. Even though the number of
institutions making and/or investing in mortgage loans to churches and
church-related organizations has increased in recent years, these loans are
secured by special purpose facilities.  As a result, if the properties
securing such mortgages must be sold, there may be a limited number of buyers
available for such properties. Nevertheless, we believe that there is a great
deal of diversity in the types of not-for-profit organizations and entities that
could be potential acquirers of properties of this nature, including, but not
limited to, other churches, schools, clinics, community development agencies,
universities and educational institutions, day care, social services, assisted
living facilities and relief organizations.
 
 -39-
 We
may need, from time to time, to sell or hypothecate our mortgage loan
investments.
 
 Because
the market for our mortgage loans is specialized, the prices at which our
portfolio could be liquidated are uncertain. The amount we would realize is
dependent on several factors, including the quality and yield of similar
mortgage loans and the prevailing financial market and economic conditions. It
is possible that we could realize substantially less than the face amount of our
mortgage loans, should we be required to sell or hypothecate them. Thus, the
amount we could realize for the liquidation of our mortgage loan investments is
uncertain and cannot be predicted.
 
 We
depend on reinvestments by our investors to maintain and increase our asset
base.
 
 In the
past, we have sold a significant amount of our new debt securities to our
existing investors when their debt securities matured. Historically, we have
enjoyed a significant rate of reinvestment by our investors upon maturity of
their debt obligations. For example, during the years 2009 and 2008, 79% and
76%, respectively, of our investors extended their investments or reinvested in
new debt securities upon maturity of their notes. There is no assurance that
these past rates of reinvestment will continue in the future. If our investors
do not reinvest in substantial amounts, our ability to maintain or grow our
asset base could be impaired.
 
 In
the event a borrower defaults on one of our mortgage loan investments, we will
generally need to recover our investment through the sale of the property
securing the loan.
 
 In that
event, the value of the real property security may prove insufficient, in which
case we would not recover the amount of our investment. Even though an appraisal
of the property may be obtained at the time the loan is originated, the
property’s value could decline as a result of a number of subsequent events,
including:
 
 •
              uninsured
      casualty loss (such as an earthquake or
flood);
 •
              a
      decline in the local real estate
market;
 •
              undiscovered
      defects on the property;
 •
              waste
      or neglect of the property;
 •
              a
      downturn in demographic and residential
trends;
 •
              a
      decline in growth in the area in which the property is located.
 
 Also,
churches and church-related properties are generally not as marketable as more
common commercial, retail or residential properties. The occurrence of any of
these factors could severely impair the value of our security for our mortgage
loan investment.
 
 There
is a possibility that we could incur foreclosures and losses in connection with
our mortgage loan investments during recessionary or depressed economic
periods.
 
 Recessionary
or depressed periods typically occur on a cyclic basis by an unpredictable time
and with uncertain lengths. Also, such events can be triggered by terrorist
acts, war, large scale economic dislocations, or widespread and large corporate
bankruptcies. The effects of these events cannot presently be predicted. We
could incur losses as a result of borrower defaults and foreclosures on our
mortgage loan investments. Also, during times of recession or depression, the
demand for our mortgage loans, even in times of declining interest rates, is
likely to decline. Also, in connection with any sale or hypothecation of a
mortgage loan, we would likely have to agree to be responsible in whole or in
part for a limited period of time for any delinquencies or default. If we should
experience significant delinquency rates, our revenues would materially decrease
and, subject to our other available cash resources at the time, our ability to
timely pay our debt securities obligations or our other indebtedness may be
substantially impaired.
 
 -40-
 Competition
may limit our business opportunities and ability to operate
profitably.
 
 We
compete with church bond financing companies, banks, savings and loan
associations, denominational loan funds, certain real estate investment trusts,
insurance companies and other financial institutions to serve this market
sector. Many of these entities have greater marketing resources, more extensive
networks of offices and locations, and lower costs in proportion to their size
due to economies of scale.
 We
engage in transactions with related parties and our policies and procedures
regarding these transactions may be insufficient to address any conflicts of
interest that may arise.
 
 Under our
code of business conduct, we have established procedures regarding the review,
approval and ratification of transactions which may give rise to a conflict of
interest between us and any employee, officer, trustee, their immediate family
members, other businesses under their control and other related persons. In the
ordinary course of our business operations, we have ongoing relationships and
have engaged in transactions with several related entities. These procedures may
not be sufficient to address any conflicts of interest that may
arise.
 
 Because
we share some common Board members and officers with ECCU, our management has
conflicts of interest with the interests of ECCU.
 
 We have
Board members and officers who are also directors and/or officers of
ECCU.  Conflicts of interest are inherent in mortgage loan
transactions between ourselves and ECCU.  These conflicts of interest
are inherent in:
 
 •
              our
      decisions as to which mortgage loans ECCU will make available to
      us;•
              our
      decisions as to the price and terms of mortgage loans ECCU offers to
      us;•
              our
      determinations as to the creditworthiness of borrowers of mortgage loans
      ECCU offers to us;•
              our
      Chairman and Chief Executive Officer is a full time employee of
      ECCU;•
              one
      of our Board members is also a director of ECCU;•
              we
      acquire most of our mortgage loan investments from or through
      ECCU;•
              we
      contract with ECCU for our office facilities; and•
              we
      contract with ECCU to underwrite, process and service most of our mortgage
      loan investments.
 
 -41-
 Item
1B.  UNRESOLVED STAFF COMMENTS
 
 None.
 
 Item
2.  PROPERTIES
 
 Our
business offices are located at 915 West Imperial Highway, Suite 120, Brea,
California 92821.  Our telephone number is (714)
671-5720.
 
 We
currently rent our offices (approximately 4,970 square feet of rentable space)
from ECCU under the terms of an Office Lease dated November 4,
2008.  The lease has an initial term of five years and we have an
option to renew for two additional periods of five years each.  For
2009, base rent was $8,946 per month.  In the second year of the
lease, base rent will increase to $9,443 per month.
 
 Item
3. LEGAL PROCEEDINGS
 
 None.
 
 Item
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 On
February 11, 2010, we held our annual meeting of Class A Members to consider a
proposal to amend our Operating Agreement to provide for staggered terms for our
managers and to elect Class I Managers to serve for a one year period ending on
February 11, 2011, Class II Managers for the two year term ending on February
11, 2012, and Class III Managers for the three year term ending on February 11,
2013.
 
 To
approve the First Amendment to the Operating Agreement and elect the Class I,
Class II and Class III Managers, an affirmative vote by holders of a majority of
our Class A Units was required to approve the amendment and elect
managers.  At the annual meeting, the holders of our Class A Units
approved the First Amendment to the Operating Agreement to provide for staggered
terms for our managers and approved the following persons to serve as Class I,
Class II and Class III Managers for one year, two year and three year
terms, respectively:
 
 Class I Managers
              One Year Term Ending OnArthur
      G. Black
              February
      11, 2011Van
      C. Elliott
              February
      11, 2011Jeffrey
      T. Lauridsen
              February
      11, 2011
  Class II Managers
              Two Year Term Ending OnScott
      T. Vandeventer
              February
      11, 2012Randolph
      P. Shepard
              February
      11, 2012
 
 -42-
 Class III Managers
              Three Year Term Ending
OnR.
      Michael Lee
              February
      11, 2013Mark
      G. Holbrook
              February
      11, 2013Juli
      Anne S. Callis
              February
      11, 2013
 
 Prior to
the annual meeting of the holders of Class A Units, Shirley M. Bracken and Mark
A. Johnson each informed our Board that they would not stand for re-election as
a manager and member of the Board upon expiration of their terms on February 11,
2010.  Effective as of March 23, 2010, Scott T. Vandeventer
resigned from the Board.  See “Our Board of Managers - Audit
Committee”.
 
 PART
II
 
 Item
5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 
 Price
Range of Common Stock
 
 There is
no public market for our Class A Units and Series A Preferred Units (the “Series A
Units”).  Effective as of December 31, 2008, we converted our
form of organization from a California corporation to a California limited
liability company.  As a result of the conversion, each share our
common stock immediately outstanding prior to the conversion date was converted
into one fully paid and non-assessable unit of our Class A Units and each holder
of our Class I and Class II Preferred Stock received one Series A Unit for each
share of Class I and Class II Preferred Stock exchanged.  As of
December 31, 2009, a total of 146,522 Class A Units were issued, with 11 holders
of record.
 
 Sale
of Equity Securities by Issuer
 
 During
the year ended December 31, 2009, we sold no Class A Units, Series A Units or
equity units.
 
 Purchases
of Equity Securities by Issuer
 
 During
the year ended December 31, 2009, we purchased no Class A Units or Series A
Units.
 
 Dividends
and Distributions
 
 Prior to
our conversion from a corporation to a limited liability company, we paid
regular dividends on our Class I and Class II Preferred Stock.  For
2009, we made no distributions to the holders of our Class A Units.
 
 -43-
 During
2008, we declared dividends on our Class I and Class II Preferred Stock and for
2009 made or will make distributions on our Series A Units as
follows:
  SERIES
      A UNITSQuarter
              
              Distributions
      Declared per Unit2009
              
              
              2008Fourth
              
              $
              0.727
              
              
              
              --Third
              
              $
              0.797
              
              
              
              --Second
              
              $
              0.872
              
              
              
              --First
              
              $
              0.958
              
              
              
              --Total
      distributions made per Unit
              
              $
              3.354
              
              
              
              --
  CLASS
      I PREFERRED STOCKQuarter
              
              Dividends
      Declaredand Paid per Share2009
              
              
              2008Fourth
              
              
              --
              
              
              $
              1.029Third
              
              
              --
              
              
              $
              1.469Second
              
              
              --
              
              
              $
              1.316First
              
              
              --
              
              
              $
              1.101Total
      dividends declared
              
              
              --
              
              
              $
              4.915
  CLASS
      II PREFERRED STOCKQuarter
              
              Dividends
      Declared
                and Paid per Share2009
              
              
              2008Fourth
              
              
              --
              
              
              $
              0.252Third
              
              
              --
              
              
              $
              0.252Second
              
              
              --
              
              
              $
              0.249First
              
              
              --
              
              
              $
              0.249Total
      dividends declared
              
              
              --
              
              
              $
              1.002
 
 Our
profits and losses are allocated to the holders of our Class A Units and Series
A Units in a manner that provides for a preferential return to the Series A Unit
holders.  Each holder of a Series A Unit will be entitled to receive a
quarterly preferred return payment that is equal to a percentage of the $100 per
unit liquidation preference, which percentage will be one hundred ninety (190)
basis points higher than the LIBOR for one year in effect on the last day of the
calendar month for which the preferred return is declared by the Board (“Preferred Income
Payment”).  This percentage will be applied to the liquidation
preference of the Series A Units in the amount of $100 per unit.
 
 -44-
 Preferred
Income Payments will have priority over the distribution of profits or income to
the Class A Unit holders and any series or class of common units that are
hereafter issued.  In the event that we accrue, but do not distribute,
a Preferred Income Payment, no distribution of earnings may be made to the
holders of our Class A Units until such Preferred Income Payments have been
made.
 
 In
addition to quarterly Preferred Income Payments, we have also agreed to set
aside funds for payment to the holders of the Series A Units an amount equal to
10% of the our net profits earned for any fiscal year, after subtracting the
amount of quarterly Preferred Income Payments made during such
year.  This priority distribution of our net profits after payment of
quarterly Preferred Income Payments will be made to holders of the Series A
Units on a pro rata basis.  The balance of any profits, taking into
consideration the preferred distribution to the holders of Series A Units, will
be allocated to all holders of our Class A Units in proportion to their
percentage interests in our Class A Units.
 
 In the
event of a loss, the Operating Agreement provides that losses will be allocated
first to the holders of common units and then to the Series A Unit holders until
their respective capital accounts have been reduced to zero.  If the
capital accounts of the members cannot offset the entire loss, the balance will
be allocated, pro rata, to the holders of common units in proportion to their
respective ownership interest in the Company.
 
 Item 6.  SELECTED FINANCIAL
DATA
 
 We are a
“smaller reporting company” as defined by Regulation S-K and as such, are not
providing the information contained in this item pursuant to Regulation
S-K.
 
 Item
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 Cautionary
Notice Regarding Forward Looking Statements
 
 We desire
to take advantage of the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995. This filing contains a number of forward-looking
statements which reflect management’s current views and expectations with
respect to our business, strategies, products, future results and events, and
financial performance. All statements made in this filing other than statements
of historical fact, including statements addressing operating performance,
events, or developments which management expects or anticipates will or may
occur in the future, including statements related to volume growth, revenues,
profitability, new services, adequacy of funds from operations, statements
expressing general optimism about future operating results, and non-historical
information, are forward looking statements. In particular, the words “believe,”
“expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words,
and similar expressions identify forward-looking statements, but are not the
exclusive means of identifying such statements, and their absence does not mean
that the statement is not forward-looking.
 
 -45-
 These
forward-looking statements reflect the current views of our management and are
not guarantees of future performance and involve certain risks and uncertainties
that are subject to change based upon various factors (many of which are beyond
our control).  The following risk factors, among others, could cause
our financial performance to differ materially from the expectations expressed
in such forward-looking statements:
 
 ·
              we
      are a highly leveraged company and our indebtedness could adversely affect
      our financial condition and business;·
              we
      depend on the sale of our debt securities to finance our business and have
      relied on the renewals or reinvestments made by our holders of debt
      securities when their debt securities mature to fund our
      business;·
              we
      need to raise additional capital to fund and implement our business
      plan;·
              we
      rely upon our largest equity holder to originate profitable church and
      ministry related mortgage loans and service such loans;·
              because
      we rely on credit facilities collateralized by church mortgage loans we
      acquire, disruptions in the credit markets, financial markets and economic
      conditions that adversely impact the value of church mortgage loans can
      negatively affect our financial condition and
  performance;·
              we
      are required to comply with certain covenants and restrictions in our
      lines of credit and our financing facility that, if not met, could trigger
      repayment obligations of the outstanding principal balance on short
      notice;·
              we
      have recently experienced an increase in our non-performing loans as a
      percentage of total loans due to the economic downturn in the U.S. that
      accelerated in the fall of 2008 and continued in 2009;·
              in
      2009, we entered into several loan modification agreements and
      arrangements to restructure certain mortgage loans we hold where the
      borrowers have been negatively impacted by adverse economic conditions in
      the U.S.; and·
              we
      are subject to credit risk due to default or non-performance of the
      churches or ministries that have entered into mortgage loans and
      counterparties that we enter into an interest rate swap agreement with to
      manage our cash flow requirements.
 
 Any
forward-looking statement speaks only as of the date on which that statement is
made.  We disclaim any obligation to furnish any revisions to a
forward-looking statement to reflect events or circumstances that occur after
the date on which the statement is made.
 -46-
 Overview
 
 We are a
Brea, California based LLC organized in 1991 with a primary mission to make loan
financing available to the evangelical Christian community, primarily for the
acquisition and improvement of church-related properties. We do this by
originating and investing in mortgage loans made to churches, most of which are
secured by church and church-related real property owned by and/or maintained
for the benefit of evangelical churches or church organizations, including
Christian schools, ministries and related organizations.  We believe
that we are one of the major lenders in the western United States investing in
ministry loans to churches and ministries, with a committed and experienced team
of employees, senior management and Board members who have extensive experience
in providing financial solutions to Christian ministries, churches and
organizations.
 
 As a
CUSO, our goal is to provide funds for loans to evangelical churches and church
organizations that are members of a credit union on a cost effective basis, and
provide funds for business loans originated by our equity investors and other
credit unions. In addition, we intend to operate in such a way as to provide
competitive yields to purchasers of our investor notes, generate earnings for
our Class A Unit and Series A Unit holders, and a general increase in the value
of our Class A Units and Series A Units for the benefit of our
investors.  Since inception, the mortgage loans we have acquired for
investment have been originated by ECCU.  We generally purchase these
mortgage loans on a servicing retained basis pursuant to which ECCU acts as the
servicing agent for our loans.  As of December 31, 2009, we have 153
mortgage loans outstanding with an aggregate principal balance of $199.1
million.
 
 We obtain
funds for our mortgage loan investments from the sale of our debt securities,
which are sold primarily to investors who are in or associated with the
Christian community, including individuals, ministries and organizations
associated with evangelical churches and their governing associations. We also
have relied upon credit facilities with institutional lenders to increase the
size of our balance sheet, improve our earnings and increase our purchase of
mortgage loan assets.  After entering into the Members United and BMO
Facility loan agreements in October 2007, our total assets grew from $67.7
million at December 31, 2006 to $275.1 million at December 31,
2008.  During 2009, we deleveraged our balance sheet by making several
principal paydowns on our BMO Facility and paid off the facility on
November 30, 2009.  Our total assets as of December 31, 2009
decreased to $208.8 million, as compared to $262.3 million at December 31,
2008.  Our total liabilities were $195.9 million at December 31, 2009,
as compared to $262.3 million at December 31, 2008.
 
 The
following table sets selected measures of our financial performance for the
years ended December 31 (dollars in thousands):
  2009
              
              
              2008Total
      income
              
              $
              14,715
              
              
              $
              13,873Net
      income
              
              
              54
              
              
              
              744Total
      assets
              
              
              208,754
              
              
              
              275,095Borrowings
      from financial institutions
              
              
              125,759
              
              
              
              185,146Investor
      notes
              
              
              69,527
              
              
              
              75,774Total
      equity
              
              
              12,854
              
              
              
              12,751
  -47-
 Like most
financial institutions, we derive substantially all of our income from interest
we receive on our interest-earning assets, primarily mortgage loan
investments.  Historically, our primary source of funds for making
these investments is the investor notes we offer for sale on which we pay
interest.  In late 2007, we expanded our capabilities to originate,
acquire and warehouse church mortgage loans for securitization by entering into
two credit facilities which authorized us to borrow up to $260 million to
purchase qualifying mortgage loans.  Using the proceeds from our
investor notes, the BMO Facility and Members United credit arrangements, our
balance sheet assets and liabilities rapidly increased.  In addition,
interest income received from our mortgage loan investments increased from $3.1
million in fiscal year 2006 to $14.7 million for the year ended December 31,
2009.
 
 Because
of the collapse of the mortgage-backed securities market and severe credit
crisis that has impacted global financial markets since 2008, we were unable to
securitize the mortgage loan assets we held in our wholly-owned subsidiary, MPF,
as originally provided for in our BMO Facility.  When the Bank of
Montreal, acting as the liquidity bank for the BMO Facility, decided that it
would not renew its commitment to serve as the liquidity bank for the BMO
Facility in October 2008, a “facility termination date” occurred under the BMO
Facility loan documents.  With the collapse of credit markets and the
Bank of Montreal’s decision to withdraw its balance backing for the
facility, we were unable to complete a securitization transaction in 2009 and
were forced to begin an accelerated paydown of principal owed under the BMO
Facility.
 
 As of
December 31, 2008, MPF owed $85.3 million on the BMO Facility.  For
the year ended December 31, 2009, we undertook efforts to sell mortgage loan
assets and arrange for an additional credit facility, thereby enabling us to pay
off the principal balance owed on the BMO Facility on November 30,
2009.  Despite the rapid paydown and pay off of the BMO Facility, the
substantial reduction in our total assets and liabilities on our balance sheet
and increase in our allowance for loan losses, we earned a net income of $54
thousand in 2009.
 
 Because
we face risks in our mortgage loan investments, we maintain an allowance for
loan losses that may become uncollectible.  We maintain this allowance
by charging a provision for loan losses against our operating
earnings.  With an increase in our non-performing and restructured
loans, we recorded a $1.322 million provision for loan losses in 2009, as
compared to $363 thousand in 2008.
 
 We have
been adversely affected by the continued weakness in the U.S. economy, the
difficulties of obtaining credit on favorable terms and increase in our
non-performing loans, as compared to our total mortgage loan
investments.  In response to these challenges, we have:
 
 ·
              effectively
      converted our form of organization from a corporation to an LLC,
      simplified and reduced our tax reporting obligations and recovered
      approximately $140 thousand in 2009 for federal income taxes paid in
      previous years;·
              sold
      $19.3 million in mortgage loan interests to a California credit union,
      with the proceeds used, in part, to make a $21.9 million principal
      reduction on the BMO Facility;  -48-
 ·
              entered
      into a $28 million credit facility with a California credit union for a
      three year term at a fixed interest rate of 3.95%, with the proceeds of
      the loan used to make a final principal payment of $24.6 million to retire
      the BMO Facility;·
              consummated
      the rollover of $40.8, $2.8 and $24.0 million in tranches of our Members
      United credit facility at an interest rate of 6.5%, 1.3% and 1.3%,
      respectively;·
              expanded
      our efforts to raise capital through the sale of investor notes by hiring
      additional personnel that are compensated on a salary basis and not based
      upon sales or brokerage commissions and laying the foundation for
      acquiring or forming a de novo broker-dealer firm as an affiliated entity
      to assist us in our efforts in raising additional
  capital;·
              enhanced
      our loan underwriting, debt restructuring and work-out capabilities by
      committing additional resources to managing our loan portfolio
      investments;·
              expanded
      efforts to diversify our sources of income and improve our mix of revenue
      received from non-interest earning assets by (i) forming MP Realty, an
      entity that will enable us to generate additional fees and commissions
      using our expertise in ministry loans; and (ii) expanding our consulting
      services for debt restructuring, troubled debt restructurings and
      financial services provided to borrowers and financial institutions;
      and·
              taken
      steps to reduce our operating costs, including servicing fees we incur on
      our mortgage loan assets by launching an enterprises resources planning
      system, core data processing system, and enhancements to our accounting,
      portfolio management and  credit system software in 2010 that
      will enable us to enhance the services we provide to the investors,
      ministries, credit unions and members we
serve.
 
 By
focusing on these strategic objectives, we believe that we can become the
preferred ministry lender in the U.S. for the acquisition and improvement of
church and ministry-related properties.
  Consolidated
Results of Operations
 
 Our
Balance Sheet for the Years Ended December 31, 2009 and 2008
 
 At
December 31, 2009 and 2008, we held mortgage loans representing $196.9 and
$257.2 million, respectively.  Mortgage loans constituted 94.3% and
93.5% of our total assets at December 31, 2009 and 2008,
respectively.  During the year ended December 31, 2009, we acquired or
originated $10.8 million of loans, including $105.1 thousand by
MPF.  Because we were unable to complete a securitization transaction
in 2009, our BMO Facility required substantial paydowns in the principal owed
under the facility and thereby reduced our cash sums available for investment
and made it difficult to acquire new mortgage loans.  As a result, we
acquired only $10.5 million in loans from ECCU in 2009, as compared to $156.7
million in 2008.
 
 -49-
 As of
December 31, 2009, approximately 90% of all loans that we owned were originated
by ECCU and purchased in whole or as a participation interest.  The
remainder were originated directly through our loan origination
services.  As of December 31, 2009, we had fourteen loans with a total
balance of $25.3 million that were on non-accrual status.  Ten of
these non-accrual loans with an aggregate balance of $17.0 million have been
restructured.  At December 31, 2009, we had an additional two
restructured loans with principal balances totaling $3.7 million that are not on
non-accrual status.  All of these loans are considered
impaired.  One of the restructured loans is over 90 days past due at
December 31, 2009.  At December 31, 2008, we had two restructured
loans, and one loan past due more than 90 days.  We have had no
write-offs of our loans.
 
 As of
December 31, 2009, there was no balance owed on the BMO Facility, as it was paid
off in full on November 30, 2009.  While we intend to keep MPF active
and in good standing to warehouse mortgage loans in the future, there were no
assets in MPF as of December 31, 2009.  We paid off the BMO
Facility in part using proceeds from the $28 million WesCorp Loan.  At
December 31, 2009, we owed $27.9 million on the WesCorp Loan.  We also
had $10.0 million outstanding on the Members United $10 Million LOC and the
balance on our $100 Million CUSO Line was $87.9 million.
 
 Obligations
to our note investors decreased from $75.8 million at December 31, 2008 to
$69.5 million at December 31, 2009.  Our total liabilities at
December 31, 2009 and 2008 were $195.9 and $262.3 million,
respectively.  Our total equity was $12.9 and $12.8 million at
December 31, 2009 and 2008, respectively.
 
 Results of Operations for the Years
Ended December 31, 2009 and December 31, 2008
 
 We
experienced continued challenges presented by the credit market and the economy
as a whole in 2009 that reduced our earnings compared to 2008 levels, Despite
these issues, we remained profitable for 2009.  As further described
below, the most significant factors influencing our consolidated results for the
year ended December 31, 2009, as compared to 2008 were:
 
 •
              the
      decrease of our loan portfolio from $257.2 million to $196.9 million kept
      our net interest income from growing as
  anticipated;
 
 •
              despite
      lower rates on our borrowings, we fully amortized all remaining deferred
      costs related the BMO Facility during the year resulting from the payoff
      and termination of the facility, which amounted to $517.9 thousand of
      additional interest and legal
expense;
 
 •
              our
      delinquency rate and our number of impaired loans increased in 2009,
      causing us to increase our allowance for loan loss and increasing our
      provision expense by 264%;
 
 •
              in
      the fourth quarter of 2009, we increased our loan loss reserve by $993
      thousand, taking into account updated property valuations of properties on
      several of our non-performing loans, and monitoring the factors affecting
      the performance of our loan
portfolio;
 
 -50-
 •
              increased
      operating costs as we added new personnel and increased our rent costs
      with our first  full year in our new offices;
  and
 
 •
              decreased
      benefit from income tax credits resulting from our conversion to an LLC as
      we utilized the last of our tax benefit in
2008.
 
 Interest
income on loans increased from $13.5 million to $14.4 million for the year ended
December 31, 2009 as we had a higher average loan portfolio throughout the year
than in 2008.  Most of our loan sales occurred in the third and fourth
quarters as we paid down the BMO Facility.  Total interest income
increased from $13.8 million to $14.7 million during the year ended December 31,
2009, as compared to the year ended December 31, 2008, despite lower yields
received on interest-bearing accounts.
 
 Interest
expense on our lines of credit increased from $6.1 million in 2008 to $6.6
million in 2009 due to $156 thousand of additional amortization expense, $228
thousand of points paid to restructure the BMO Facility, as well maintaining a
higher average borrowing balance on our credit facilities than in
2008.  Interest expense to our note investors decreased from $3.6
million to $3.3 million for the year ended December 31, 2009, due to a decrease
in the total amount of notes outstanding as well as a decrease in the rates
offered on new investments.
 
 Net
interest income increased to $4.8 million for 2009, as compared to $4.1 million
in 2008.  Provision for loan losses increased from $363 thousand in
2008 to $1.322 million for 2009, an increase of $959 thousand.  This
increase was due to recording a provision expense for ten loans that underwent
troubled debt restructures in 2009.  It was also related to additional
allowance recorded for specific loans, as well as an increase in general
reserves related to our delinquency rate for non-performing loans that rose from
1.05% to 5.48% and additional risk of loss due to the poor economic
climate.  Non-interest income decreased from $39 thousand in 2008 to
$13 thousand in 2009, primarily due to a decrease in the amount of loan referral
fees received, as there was very little new lending throughout the
industry.
 
 Personnel
expenses for salaries increased $103 thousand, or 9.38%, to $1.2 million for
2009, as compared to $1.1 million during 2008.  This increase reflects
the expense of a full year of the additional support personnel added during
2008. It also reflects the addition of  a Director of Investor
Relations, as well as a Vice President of Lender Relations in connection with
the formation of MP Realty.  Our office expenses, insurance and
related operations expenses decreased by $79 thousand, or 6.0%, to $1.2 million,
as compared to $1.3 million for the year ended December 31, 2008.  The
decrease in these expenses is related mainly to a decrease in loan servicing
fees being paid for MPF loans, as those loans were either sold or transferred to
us and pledged as collateral for the WesCorp Loan.
 
 Professional
costs for legal, accounting and consulting services increased by $285
thousand,  or 51.8%, to $835 thousand, as compared to $550
thousand.   These increased expenses were partially due to $127
thousand of additional amortization of costs related to the termination of the
BMO Facility.  The remaining additional expense was related to
increased audit fees and legal expenses incurred in connection with renewing the
registration of our investor notes.   Office occupancy expenses
increased from $62 thousand to $127 thousand, an increase of $65 thousand
or 103.2%, due to our occupation in a new, larger building for an entire year,
since we only occupied this building for two months in 2008.  The
increase in salary expense, occupancy costs, and expenses related to legal and
accounting services, even offset by lower office operations expense, caused
non-interest expenses to increase from $3.0 million during 2008 to $3.4 million
during 2009, an increase of 12.8%.
 
 -51-
 For the
year ended December 31, 2009, we earned net income of $54 thousand, as compared
to net income of $744 thousand for the year ended December 31, 2008, a decrease
of $690 thousand.  This decrease was entirely attributed to the
increase in our provision for loan loss.
 
 Comparison
of the Years Ended December 31, 2008 and December 31, 2007
 
 Despite a
challenging credit market, primarily driven by a collapse in the liquidity of
mortgage-backed securities, we had a record year of earnings and net income for
our company.  As further described below, the most significant factors
influencing our consolidated results for the year ended December 31, 2008, as
compared to 2007 were:
 
 •
              the
      growth in our total assets and mortgage loan investments from $121 million
      at December 31, 2007 to $275 million at December 31,
      2008;
 
 •
              for
      most of 2008, we were able to benefit from lower borrowing costs for our
      credit facilities;
 
 •
              our
      conversion from a corporation form of organization to a limited liability
      company, thereby providing significant income tax
  savings;
 
 •
              an
      increased provision for loan
losses;
 
 •
              increased
      operating costs incurred as a result of expanding our office facilities
      and added complexity of our operations;
and
 
 •
              the
      increase in net interest income resulting from the growth in our mortgage
      loan assets.
 
 Interest
income on loans increased from $4.6 million to $13.5 million for the year ended
December 31, 2008 due to increases in mortgage loans that we
acquired.  Total interest income increased from $4.9 million to $13.8
million during the year ended December 31, 2008, as compared to the year ended
December 31, 2007.
 
 Interest
expense on our lines of credit increased from $377 thousand in 2007 to $6.1
million due to increases on our borrowings under the BMO Facility and Members
United loan facilities.  Our interest expense payable to our note
investors increased from $3.2 million to $3.6 million for the year ended
December 31, 2008, primarily due to an increase in the amount of investor notes
outstanding.
 
 Total
interest expense increased from $3.6 million to $9.8 million as a result of
these increased borrowing obligations.  Net interest income increased
to $4.1 million for 2008, as compared to $1.3 million in
2007.  Non-interest income increased from $8 thousand in 2007 to $39
thousand in 2008, primarily due to an increase in late fees and loan referral
fees received.
 
 -52-
 Personnel
expenses for salaries increased $211 thousand, or 23.8%, to $1.1 million for
2008, as compared to $886 thousand during 2007.  This increase is the
result of adding support personnel in the finance and accounting, loan, and
investor relations departments during 2008.  Our office expenses,
insurance and related operations expenses increased by $809 thousand, or 163.4%,
to $1.3 million, as compared to $495 thousand for the year ended December 31,
2007.  The increase in office expenses is related to an increase in
the size of our company.
 
 Professional
costs for legal, accounting and consulting services increased by $237
thousand,  or 75.7%, to $550 thousand, as compared to $313
thousand.   These increased expenses were due to a full year of
amortization of costs related to opening the BMO Facility and Members United
financing transactions, as well as additional legal and accounting services
required as our company has grown in size, complexity and in our regulatory and
reporting obligations.  During 2008, we completed a new securities
offering of our Class A Notes, entered into a new trust indenture relationship
with US Bank as trustee, consummated a conversion of our company to a limited
liability company and completed a restructuring of our capital structure and
have adapted to increasing reporting and accounting complexities as our
operations have expanded.   The increase in salary expense,
office operations expense, and expenses related to legal and accounting services
caused non-interest expenses to increase from $1.8 million during 2007 to $3.0
million during 2008, an increase of 68.9%.
 
 For the
year ended December 31, 2008, we earned net income of $744 thousand, as compared
to a net loss of $299 thousand for the year ended December 31, 2007, an increase
of $1.0 million.  This increase was primarily due to the increase in
our balance sheet and acquisition of higher yielding mortgage loan investments
acquired during the year, as compared to interest rates paid on the additional
debt incurred.
 
 Net
Interest Income and Net Interest Margin
 
 Our
earnings depend largely upon the difference between the income we receive from
interest-earning assets, which are principally mortgage loan investments and
interest-earning accounts with other financial institutions, and the interest
paid on notes payable and lines of credit. This difference is net interest
income. Net interest margin is net interest income expressed as a percentage of
average total interest-earning assets.
 -53-
 The
following tables provide information, for the periods indicated, on the average
amounts outstanding for the major categories of interest-earning assets and
interest-bearing liabilities, the amount of interest earned or paid, the yields
and rates on major categories of interest-earning assets and interest-bearing
liabilities, and the net interest margin:
 
 Distribution,
      Rate and Yield Analysis of Net Interest IncomeFor
      the Years Ended December 31,2009
              
              
              
              
              
              
              
              
              2008Average
      Balance
              
              
              Interest
      Income/
                Expense
              
              
              Average
      Yield/ Rate
              
              
              Average
      Balance
              
              
              Interest
      Income/ Expense
              
              
              Average
      Yield/ RateAssets:Interest-earning
      accounts
                with
      other financial institutions
              
              $
              12,950
              
              
              $
              308
              
              
              
              2.38
              %
              
              $
              11,549
              
              
              $
              383
              
              
              
              3.32
              %Total
      loans [1]
              
              
              226,089
              
              
              
              14,394
              
              
              
              6.37
              %
              
              
              202,420
              
              
              
              13,451
              
              
              
              6.65
              %Total
      interest-earning assets
              
              
              239,039
              
              
              
              14,702
              
              
              
              6.15
              %
              
              $
              213,969
              
              
              $
              13,834
              
              
              
              6.47
              %Liabilities:Public
      offering notes – Alpha Class
              
              $
              17,342
              
              
              $
              943
              
              
              
              5.44
              %
              
              $
              34,860
              
              
              $
              1,875
              
              
              
              5.38
              %Public
      offering notes –Class A
              
              
              42,695
              
              
              
              1,734
              
              
              
              4.06
              %
              
              
              15,444
              
              
              
              761
              
              
              
              4.93
              %Special
      offering notes
              
              
              9,733
              
              
              
              454
              
              
              
              4.66
              %
              
              
              18,476
              
              
              
              968
              
              
              
              5.24
              %International
      notes
              
              
              479
              
              
              
              24
              
              
              
              5.01
              %
              
              
              514
              
              
              
              28
              
              
              
              5.45
              %Subordinated
      notes
              
              
              2,447
              
              
              
              153
              
              
              
              6.25
              %
              
              
              --
              
              
              
              --
              
              
              
              --Financial
      institutions borrowings
              
              
              153,634
              
              
              
              6,609
              
              
              
              4.30
              %
              
              
              133,428
              
              
              
              6,123
              
              
              
              4.59
              %Total
      interest-bearing liabilities
              
              $
              226,330
              
              
              $
              9,917
              
              
              
              4.38
              %
              
              $
              202,722
              
              
              $
              9,755
              
              
              
              4.81
              %Net
      interest income
              
              
              
              
              
              $
              4,785
              
              
              
              
              
              
              
              
              
              
              $
              4,079Net
      interest margin [2]
              
              
              
              
              
              
              
              
              
              
              2.00
              %
              
              
              
              
              
              
              
              
              
              
              1.91
              %[1]
      Loans are gross of deferred loan fees and the allowance for loan
      losses.[2]
      Net interest margin is equal to net interest income as a percentage of
      average interest-earning assets.
 
 Average
interest-earning assets increased to $239.0 million during the year ended
December 31, 2009, from $214.0 million, an increase of $25.0 million or 11.8%.
The average yield on these assets decreased to 6.15% for the year ended December
31, 2009 from 6.47% for the year ended December 31, 2008. This average yield
decrease was mainly due to an increased number of impaired loans in our
portfolio at the end of the year, which resulted in foregone interest income of
$397 thousand. The decrease in our average yield on our investment loans also
was affected by the sale of some of our higher yielding mortgage loans that had
been maintained in the MPF loan portfolio.  Average interest-bearing
liabilities, consisting primarily of investor and credit facility notes payable,
increased to $226.3 million during the year ended December 31, 2009, from $202.7
million during 2008. The average rate paid on these notes decreased to 4.38% for
the year ended December 31, 2009, from 4.81% for 2008. The decrease in the rate
paid on interest-bearing liabilities was the result of substantially decreased
rates on all of our borrowings, except for our Alpha Class notes, as the indices
to which these rates are tied all decreased in 2009.  While we did
begin to offer subordinated notes at a higher interest rate in 2009, they did
not comprise a large portion of our interest-bearing
liabilities.
 -54-
 Net
interest income for the year ended December 31, 2009 was $4.8 million, which was
an increase of $706 thousand, or 17.3% over the prior year. The net interest
margin increased 9 basis points to 2.00% for the year ended December 31, 2009,
as compared to 1.91% for 2008.  This increase was a result a large
drop in the interest rates paid on our interest-bearing
liabilities.
 
 The
following table sets forth, for the periods indicated, the dollar amount of
changes in interest earned and paid for interest-earning assets and
interest-bearing liabilities, the amount of change attributable to changes in
average daily balances (volume), changes in interest rates (rate), and changes
attributable to both the volume and rate (rate/volume):
 
 Rate/Volume
      Analysis of Net Interest IncomeYear Ended December 31, 2009 vs.
      2008Increase (Decrease) Due to Change
      inIncrease
      in Interest Income:
              
              Volume
              
              
              Rate
              
              
              TotalInterest-earning
      account with other financial institutions
              
              $
              42
              
              
              $
              (117
              )
              
              $
              (75
              )Total
      loans
              
              
              1,539
              
              
              
              (596
              )
              
              
              943$
              1,581
              
              
              $
              (713
              )
              
              $
              868Increase
      (Decrease) in Interest Expense:Public
      offering notes – Alpha Class
              
              
              (952
              )
              
              
              20
              
              
              
              (932
              )Public
      offering notes – Class A
              
              
              1,128
              
              
              
              (155
              )
              
              
              973Special
      offering notes
              
              
              (417
              )
              
              
              (97
              )
              
              
              (514
              )International
      notes
              
              
              (2
              )
              
              
              (2
              )
              
              
              (4
              )Subordinated
      notes
              
              
              153
              
              
              
              --
              
              
              
              153Lines
      of credit and other borrowings
              
              
              886
              
              
              
              (400
              )
              
              
              486$
              796
              
              
              $
              (634
              )
              
              $
              162Change
      in net interest income
              
              $
              785
              
              
              $
              (79
              )
              
              $
              706
 
 Rate/Volume
      Analysis of Net Interest IncomeYear Ended December 31, 2008 vs.
      2007Increase (Decrease) Due to Change
      inIncrease  in
      Interest Income:
              
              Volume
              
              
              Rate
              
              
              TotalInterest-earning
      account with other financial institutions
              
              $
              203
              
              
              $
              (114
              )
              
              $
              89Total
      loans
              
              
              8,833
              
              
              
              (21
              )
              
              
              8,812$
              9,036
              
              
              $
              (135
              )
              
              $
              8,901Increase
      (Decrease) in Interest Expense:Public
      offering notes – Alpha Class
              
              
              450
              
              
              
              (22
              )
              
              
              428Public
      offering notes – Class A
              
              
              761
              
              
              
              -
      -
              
              
              
              761Special
      offering notes
              
              
              (696
              )
              
              
              (84
              )
              
              
              (780
              )International
      notes
              
              
              1
              
              
              
              (2
              )
              
              
              (1
              )Lines
      of credit
              
              
              5,997
              
              
              
              (251
              )
              
              
              5,746$
              6,513
              
              
              $
              (359
              )
              
              $
              6,154Change
      in net interest income
              
              $
              2,523
              
              
              $
              224
              
              
              $
              2,747
 
 -55-
 Credit
Quality and Allowance for Loan Losses
 
 We
maintain an allowance for loan losses, through charges to earnings, at a level
reflecting estimated credit losses on our loan portfolio.  In
evaluating the level of the allowance for loan losses, we consider the type of
loan, amount of loans in our portfolio, adverse situations that may affect our
borrowers’ ability to pay and estimated value of underlying collateral and
credit quality trends (including trends in non-performing loans expected to
result from existing conditions).
 
 Our
delinquency rate and number of impaired loans increased in 2009, causing us to
increase our allowance for loan losses and increasing our provision expense for
loan losses.  We also took into account updated property valuations of
properties on a few of our non-performing loans in our loan
portfolio.  For 2009, our provision for loan losses was $1.322
million, or .66% of our total loan portfolio.
 
 The
activity in the allowance for loan losses for the years ended December 31
was as follows:
  2009
              
              
              2008Balance,
      beginning of year
              
              $
              489
              
              
              $
              126Provisions for loan
      losses
              
              
              1,322
              
              
              
              363Accretion of allowance related
      to
                restructured
loans
              
              
              (110
              )
              
              
              --Charge-offs
              
              
              --
              
              
              
              --Balance,
      end of year
              
              $
              1,701
              
              
              $
              489
 
 Impaired
Loans
 
 As of
December 31, the principal balances of impaired loans were as
follows:
  2009
              
              
              2008Impaired
      loans with an  allowance for
                loan losses
              
              $
              8,215
              
              
              $
              --Impaired
      loans for which there is no related
                allowance for loan
      losses
              
              
              22,314
              
              
              
              4,025Total impaired
      loans
              
              $
              30,529
              
              
              $
              4,025Allowance
      for loan losses related to
                impaired loans
              
              $
              809
              
              
              $
              --Total
      non-accrual loans
              
              $
              25,337
              
              
              $
              2,700Total
      loans past due 90 days or more
                and still
accruing
              
              $
              --
              
              
              $
              --
 
 -56-
 Information
about impaired loans for the years ended December 31 is as follows:
  2009
              
              
              2008Average
      investment in impaired loans
              
              $
              18,381
              
              
              $
              1,216Interest
      income recognized on impaired
                loans
              
              $
              912
              
              
              $
              --
 
 No
additional funds were committed to be advanced in connection with impaired loans
as of December 31, 2009.
 
 Cash
and Cash Equivalents
 
 We
experienced a decrease in our cash during the twelve months ended December 31,
2009 in the amount of $4.9 million, as compared to a net increase of $12.6
million for the twelve months ended December 31, 2008. This decrease was due to
a large decrease in cash flows from financing activities.
 
 Net cash
provided by operating activities totaled $2.4 million for the twelve months
ended December 31, 2009, an increase of $1.4 million from $1.0 million provided
by operating activities during the twelve months ended December 31,
2008.  This is related primarily to the fact that we recorded a
substantial increase in allowance for loan losses and loan discounts in
2009.
 
 Net cash
provided by investing activities totaled $59.3 million during the twelve months
ended December 31, 2009, compared to $(141.4) million used during the twelve
months ended December 31, 2008, an increase in cash provided of $200.6
million. This difference is attributable to the sale of loans by MPF and us in
2009 as we paid off and retired the BMO Facility.   In 2008, we
acquired $156.7 million in mortgage loans from ECCU.
 
 Net cash
used in financing activities totaled $(66.6) million for the twelve-month period
in 2009, a decrease of $219.5 million from $153.0 million provided by financing
activities during the twelve months ended December 31, 2008. This difference is
primarily attributable to the payoff of the BMO Facility as opposed to an
increase in our credit facilities in 2008 when we purchased a large amount of
loans.
 
 Liquidity
and Capital Resources
 
 The U.S.
economy is currently in a recession that began in 2007.  We
successfully reduced leverage in our balance sheet in 2009 with the payoff of
the BMO Facility and the subsequent borrowings from WesCorp.  We
continued to experience higher costs and less advantageous financing terms for
financing our mortgage loan portfolio in 2009, as compared to the short-term
borrowing costs and financing terms that were available in prior years before
the financial crisis that began in 2007.  Financing our portfolio of
mortgage loan assets also has become more challenging to us as a result of the
expressed desire of Members United to reduce their exposure to our mortgage loan
assets and unwind the $100 Million CUSO Line.
 
 -57-
 We rely
on cash generated from our operations, cash reserves, and proceeds from the sale
of investor notes to meet our obligations as they arise.  From time to
time, we also generate funds from the sale of mortgage loans and loan
participations and raise additional capital through the sale of debt and equity
securities.  We require cash to originate and acquire new mortgage
loans, repay indebtedness, make interest payments to our note investors and pay
expenses related to our general business operations.  We intend to
continue our current liquidity plan which relies primarily on cash generated by
operations, cash reserves, and proceeds from the sale of debt securities. We are
continuing our efforts to rollover or restructure our Members United credit
facility, with the expectation that we will reach an agreement on the interest
rate and terms for the payoff of this facility.  In 2010, we expect to
work out an acceptable arrangement with Members United to payoff the
facility.   Even though we anticipate we will be able to
negotiate favorable terms with Members United, we cannot guarantee that the
outcome will not have an adverse impact on our liquidity or
earnings.
 
 Our
management prepared liquidity forecasts which indicate that we have adequate
liquidity to conduct our business.  While we believe that these
expected cash inflows and outflows are reasonable, we cannot assure you that our
forecasts or assumptions will prove to be accurate, particularly in this
volatile credit and financial environment.  While our liquidity
sources that include cash, reserves and net cash from operations are generally
available on an immediate basis, our ability to sell mortgage loan assets, and
raise additional debt or equity capital is less certain and less
immediate.  We are also susceptible to a withdrawal request made by a
large note investor that can adversely affect our liquidity.  As a
result, we can give no assurances that we will be able to access these
additional liquidity sources quickly enough to meet our needs.
 
 Historically,
we have experienced high rates of reinvestment or renewal by our debt security
investors upon maturity of their investments. However, should these sources
prove insufficient to fund our operations and obligations, we also have an
existing portfolio of performing mortgage loans and believe that we can generate
additional liquidity through the sale of participation interests and mortgage
loan assets to make payments on our credit facilities, pay interest to our note
investors and pay operating expenses.
 
 We base
this belief on the size and quality of our mortgage loan investments and
management’s experience in 2009 of finding purchasers of those loans on a timely
basis.  Any sales transactions are dependent on and subject, however,
to market and economic conditions and our ability to consummate an acceptable
purchase commitment.
 
 Further,
in 2010, we anticipate issuing a new class of debt securities that are secured
by church and ministry loans with a collateralization rate of
102%.  We believe that this new class of notes will enable us to raise
additional working capital to either retire existing credit facilities or
originate new church and ministry loans.
 
 -58-
 Credit
Facilities Developments
 
 The
ongoing credit and liquidity crisis has adversely affected our ability to
finance the origination of new church mortgages and acquisition of other
profitable church mortgage loans.  When we formed MPF and entered into
the $150 million BMO Facility in October 2007, we anticipated that any mortgage
investments made by our wholly-owned subsidiary, MPF, would be warehoused for
future securitization in a mortgage-backed securities financing
transaction.  Credit market developments prevented us from pursuing
this strategy, and we subsequently retired the facility on November 30, 2009
through loan sales and through borrowing of $28 million under the WesCorp
Loan.  As of December 31, 2009, MPF holds no loans.
 
 We also
have two credit facilities with Members United that we use to originate, acquire
and finance our mortgage loan investments and for general operating
expenses.  Through 2009, we were unable to securitize any of the loan
assets that are held by MPF in the BMO Facility and we expect the term debt
securitization market to remain inaccessible in 2010.  For further
information on our credit facilities, see Note 5,Borrowings from Financial
Institutions, in our accompanying audited consolidated financial
statements for the year ended December 31, 2009.
 
 As of
December 31, 2009, our credit facilities’ commitments, amounts available and
principal amounts outstanding were as follows:
 
 Credit Facility
              Maximum
      FacilityCapacity
              
              Facility
      Amount
                Available
              
              Principal
                OutstandingMembers
      United Line of Credit
              $  10
      million
              
              
              -0-
              
              $10.0
      millionMembers
      United CUSO Line
              $100
      million
              
              
              -0-
              
              $87.9
      millionWesCorp
      Loan
              $  28
      million
              
              $100
      thousand
              
              $27.9
      million
 
 Members
United Facilities
 
 On August
27, 2008, we borrowed the entire $10 million available on our Members United $10
Million LOC at a rate of 3.47%.  As a result of this financing, the
$10 Million LOC was converted to a term loan with a maturity date of August 26,
2011.  The loan bears interest payable monthly at a floating rate
based on the one month LIBOR plus 100 basis points.  The interest rate
on the $10 Million LOC will be reset monthly. Since the credit facility expired
on September 1, 2008, no new borrowings may be made under this loan
facility.  As of December 31, 2009, there was a $10.0 million
outstanding balance on the $10 Million LOC.
 
 On May
15, 2008, we entered into a CUSO Line of Credit Facility Note and Security
Agreement with Members United Corporate Federal Credit Union.  The
$100 million loan facility replaced the $50 million credit facility that was
entered into with Members United on October 8, 2007.  Funds used on
the $100 million facility may be used to acquire mortgage loan investments that
we or our wholly-owned subsidiary, MPF, acquire.  Under the $100
Million CUSO Line, we may request advances under a “demand loan” or “term
loan”.  A demand loan is a loan with a maximum term of one year and a
variable rate based upon the prime rate quoted by the Wall Street Journal, as
adjusted by a spread as determined by Members United.  A term loan is
a fixed or variable loan that has a set maturity date not to exceed twelve
years.
 
 -59-
 During
the period when draws may be made, each advance on the $100 Million CUSO Line
will accrue interest at either the offered rate by Members United for a fixed
term draw or the  rate quoted by Bloomberg for the Federal Funds open
rate plus 125 basis points for a variable rate draw.  Once the $100
Million CUSO Line is fully drawn, the total outstanding balance will be termed
out over a five year period with a 30 year amortization payment
schedule.  We are obligated to make interest payments on the
outstanding principal balance of all demand loans and term loan advances at the
applicable demand loan rate or term loan rate on the third Friday of each
month.
 
 As of
December 31, 2009, the balance on the $100 Million CUSO Line was $87.9 million,
and the weighted average interest rate on our borrowings under this facility was
4.29%.  Pursuant to the terms of our loan documents with Members
United, once the loan is fully drawn, the total outstanding balance will be
termed out over a five year period, with payments based upon a 30 year
amortization schedule.  In addition, the term loan interest rate will
be repriced to a market fixed or variable rate to be determined at the time the
loan is restructured.
 
 As
permitted under the $100 Million CUSO Line, we have requested advances for term
loans in the following amounts:
 
 Date of Advance
              
              Amount
              
              CurrentInterest
                Rate
              
              RateAdjustmentDateMay
      2, 2008
              
              $
              5,400,000
              
              3.73%
              
              May
      3, 2010May
      21, 2008
              
              $
              11,900,000
              
              3.84%
              
              May
      20, 2011December
      27, 2009
              
              $
              40,816,455
              
              6.50%
              
              January
      10, 2010May
      21, 2008
              
              $
              3,000,000
              
              3.47%
              
              May
      21, 2010August
      8, 2008
              
              $
              2,800,000
              
              1.31%
              
              January
      10, 2010February
      27, 2009
              
              $
              23,958,849
              
              1.31%
              
              January
      10, 2010
 
 In
September 2008, Members United decided that it would not advance any additional
funds on the $100 Million CUSO Line and we entered into discussions with Members
United to convert the line of credit facility to a term loan arrangement with a
mutually acceptable interest rate.
 
 Since
2009, we have been in discussions with Members United regarding the interest
rate to be charged on the $100 Million CUSO Line once the outstanding amount due
is termed out over a five year period, with payments based on a 30 year
amortization schedule.  Although we were unable to reach  an
arrangement with Members United in 2009 on the interest rate to be charged on
the facility, we were able to enter into an agreement on April 3, 2009 to extend
the interest rate on a $24.0 million tranche on a month-to-month basis at a
variable rate equal to the Federal Funds open rate plus 1.25%.  During
2009, Members United also agreed to roll over tranches in the $100 Million CUSO
Line in the amounts of $40.8 million, $2.8 million and $24.0 million at an
interest rate of 6.5%, 1.3% and 1.3%, respectively.  On February 1,
2010, Members United agreed to combine these tranches into a lump sum amount of
$67.6 million at a combined rate of 4.49% for an additional three
months.
 
 -60-
 In 2010,
we expect to reach an agreement with Members United on the interest rate to be
charged under the facility on the outstanding balance owed on the $100 Million
CUSO Line for the following tranches:
  Interest
      Rate
                Redetermination Date
              Interest Rate
              Outstanding BalanceApril
      1, 2010
              4.49%
              $40.8
  millionApril
      1, 2010
              4.49%
              $  2.8
      millionApril
      1, 2010
              4.49%
              $24.0
  millionMay
      21, 2010
              3.47%
              $  3.0
      millionMay
      3, 2010
              3.73%
              $  5.4
      millionMay
      20, 2011
              3.89%
              $11.9 millionTotal
              
              $87.9
  million
  Members
United has advised us that the maturity date on the $100 Million CUSO Line is
September 1, 2012.  While we are optimistic that we will be able to
successfully complete negotiations with Members United to establish the interest
rate on this credit facility in 2010, we can give no assurances or guarantees
that we will be able to reach an agreement on a mutually acceptable interest
rate, maturity term or other loan modification terms.  Failure to
reach an agreement with Members United could have a material adverse effect on
our earnings if the interest rate on the facility exceeds our expected interest
income from our mortgage loan investments.
 
 WesCorp
Facility
 
 On
November 30, 2009, we funded a $28 million WesCorp Loan. WesCorp is a credit
union whose members are credit unions and CUSOs. We used approximately $24.63
million of the WesCorp Loan to pay off and retire the BMO Facility, which we
have repaid in full. We used the remainder of this loan for working capital. We
intend to repay the WesCorp Loan by its maturity date using the proceeds from
the sale of our additional debt securities, a replacement credit facility,
and/or the sale of the collateral pledged to secure this credit facility. This
credit facility loan bears interest at the fixed rate of 3.95%. The loan is
payable in monthly installments equal to accrued interest plus a principal
payment of $116,667 until the maturity date, March 30, 2012, when the entire
balance of principal and interest is due and payable. We have the right to
prepay the loan in whole or in part at any time with a prepayment penalty equal
to the prepayment rate assessed against the amount of the prepayment for the
time remaining from the prepayment date to the maturity date.
 
 This loan
was initially secured by the approximately $59.2 million of mortgage loans we
previously pledged to secure our previous BMO Facility. Thus, the loan is
initially secured by excess collateral of approximately $30.8 million. This
amount of excess collateral will decrease as we receive amortized payments of
principal and interest from the mortgagors of these pledged mortgage loans,
which we are entitled to receive and use so long as we are not in default under
the WesCorp Loan. We are obliged upon the lender’s request to replace a pledged
mortgage loan if it becomes materially impaired. We are otherwise under no
obligation to replace a pledged mortgage loan, unless it is sold or is prepaid.
We may replace a pledged mortgage loan either by pledging a mortgage loan having
an equal unpaid principal balance or with cash of an equivalent amount. Upon any
prepayment, collateral having an equal unpaid principal balance will be
released, and all of the remaining collateral will be released upon full
repayment of the loan. Thus, until the WesCorp Loan is retired in full, we do
not have a right to require the release of the excess
collateral.
 -61-
 Under the
loan documents, we make covenants customarily required by lenders for commercial
loans of this kind, including covenants regarding our authority and compliance
with applicable law, and we agree to deliver future financial statements,
provide insurance for coverage for the collateral, provide for adequate
servicing of the collateral, and to give the lender at least 30 days’ prior
written notice before we enter into any additional or replacement line of credit
with an institutional or commercial lender that would replace, in whole or in
part, our Members United credit facilities. We also make certain negative
covenants, including our not entering into certain transactions without the
lender’s prior consent, including mergers and material changes in our Members
United credit facilities. In addition, we covenant to maintain a
debt-to-tangible net worth ratio of not greater than 15 to 1 as determined in
general under GAAP, with certain exceptions including the exclusion from total
liabilities of any unsecured debt securities with a maturity date after March
30, 2012.
 
 Investor
Notes
 
 We also
rely on our investor notes to make investments in mortgage loan assets and fund
our general operations.  As of December 31, 2009, a total of $69.5
million was owed under these notes.  For further information on our
investor notes, see Notes 5 and 8, “Borrowings from Financial
Institutions” and “Notes Payable” in our
accompanying audited consolidated financial statements for the year ended
December 31, 2009.  We have offered our investor notes under
registered offerings with the SEC and in private placements that are exempt
under the provisions of the Securities Act of 1933, as amended.  Our
Alpha Class Notes were initially registered with the SEC in July 2001 and an
additional $75.0 million of new Alpha Notes were registered with the SEC in May
2007.  As of December 31, 2009, $11.8 million of these notes were
outstanding.
 
 In
addition to our Alpha Class Notes, in April 2008, we registered with the SEC
$80.0 million of new Class A Notes that consists of three series of notes,
including a fixed series, flex series and variable series.  All of our
Class A Notes are unsecured.  The interest rates we pay on the fixed
series notes and the flex series notes are determined by reference to the “swap
index”, an index that is based upon a weekly average swap rate reported by the
Federal Reserve Board, and is in effect on the date they are issued, or in the
case of the flex series notes, on the date the interest rate is reset. These
notes bear interest at the swap index plus a rate spread of 1.7% to 2.5% and
have maturities ranging from 12 to 84 months.  The interest rates we
pay on the variable series notes are determined by reference to the variable
index in effect on the date the interest rate is set and bear interest at a rate
of the swap index plus a rate spread of 1.50% to 1.80%.  Effective as
of January 5, 2009, the variable index is defined under the Class A Notes as the
three month LIBOR rate.
 
 -62-
 The Class
A Notes were issued under a Trust Indenture we entered into with U.S. Bank
National Association.  The notes are part of up to $200 million of
Class A Notes we may issue pursuant to the US Bank Indenture.  The
Trust Indenture covering the Class A Notes contains covenants pertaining to a
minimum fixed charge coverage ratio, maintenance of tangible net worth,
limitation on issuance of additional notes and incurrence of
indebtedness.  At December 31, 2009, $46 million of these Class A
Notes were outstanding.
 
 Of the
$69.5 million in investor notes that are outstanding at December 31, 2009, $38.7
million and $7.5 million will mature in 2010 and 2011,
respectively.  Historically, we have a high rate of renewal or
reinvestment by our note holders upon maturity of their notes.  In
2009 and 2008, 79% and 76%, respectively, of our note investors renewed their
investments in new notes.  While we cannot assure our investors that
we will be able to continue this trend, we have a solid historical record of
experience that supports our investor note program.
 
 Debt
Covenants
 
 Our
investor notes require that we comply with certain financial covenants
including, without limitation, minimum net worth, interest coverage,
restrictions on the distribution of earnings to our equity investors and
incurring other indebtedness that is not permitted under the provisions of our
loan and trust indenture.  If an event of default occurs under our
investor notes, the trustee may declare the principal and accrued interest on
all notes to be due and payable and may exercise other available remedies to
collect payment on such notes.  We believe that we are in compliance
with our debt covenants under the investor notes.
 
 We are
also required to comply with financial and non-financial covenants under our
Members United credit facilities.  The Members United credit
facilities contain certain affirmative covenants that are routine for a credit
facility of this nature, including requiring that we keep the collateral free of
liens and encumbrances, timely pay the amounts due under the facility and
provide Members United with current financial statements and
reports.  Other negative covenants prevent us from selling all of our
assets, from consolidating with or merging into another entity, from impairing
or incurring a lien on the collateral securing the credit facility or creating
new indebtedness incurred outside ordinary borrowings in the sale of debt and
note securities, loans entered into for purchasing or originating mortgage
loans, or borrowings entered into by our wholly-owned subsidiary, MPF, to
acquire eligible mortgage loans.  We believe that we are in compliance
with these covenants.
 
 We are
required to comply with financial and non-financial covenants under our WesCorp
Loan. Under the agreement, the permitted ratio of debt to tangible net worth for
us and our controlled entities may not exceed 15 to 1.  We are in
compliance with this covenant at December 31, 2009.
 
 -63-
 Special
Purpose Entity
 
 In
October 2007, we entered into the BMO Facility and formed MPF as our
wholly-owned subsidiary.  MPF was formed as a special purpose limited
liability company whose activities are restricted in its organizational and
governing documents to invest in and hold qualifying church mortgage
loans.  We formed this special purpose entity in order to legally
isolate us from loans  we transfer to MPF in the event that a
bankruptcy petition is filed by us or if we are subjected to bankruptcy
proceedings.
 
 We
evaluate our special purpose entity, MPF, to determine whether this entity must
be consolidated for financial purposes.  Under generally accepted
accounting principles, we are required to evaluate whether MPF is a variable
interest entity, as defined by ASC 810.  If we determine that we are
the primary beneficiary of the special purpose entity, we consolidate the assets
and liabilities of MPF for financial statement purposes.  In
accordance with the provisions of ASC 810, we determined that we were the
primary beneficiary of MPF and, therefore, consolidated this entity for
financial statement purposes.  As a result, the accounts of MPF were
included in our audited consolidated financial statements as of December 31,
2009 and 2008.
 
 Significant
Accounting Estimates and Critical Accounting Policies
 
 Critical
Accounting Policies
 
 Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and the related disclosures. On an on-going basis, we evaluate these
estimates, including those related the allowance for loan losses, and estimates
are based on historical experience, information received from third parties and
on various other assumptions that are believed to be reasonable under the
circumstances, which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under conditions
different from our assumptions. We believe the following critical accounting
policies affect our more significant judgments and estimates used in the
preparation of our consolidated financial statements.
 
 Accounting
for Derivative Financial Investments and Hedging Activities
 
 We use
derivatives to hedge, fix and cap interest rate risk and we account for our
derivative and hedging activities under ASC 815, which requires all derivative
instruments to be carried at fair value on the balance sheet. Derivative
instruments designated in a hedge relationship to mitigate exposure to changes
in the fair value of an asset, liability, or firm commitment attributable to a
particular risk, are considered fair value hedges. Derivative instruments
designated in a hedge relationship to mitigate exposure to variability in
expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges. We document all relationships between hedging
instruments and hedged items, as well as our risk-management objective and
strategy for undertaking each hedge transaction.
 
 -64-
 We use
interest rate swap agreements to hedge our exposure to interest rate risks on
our balance sheet.  Interest rate swaps are contracts in which a
series of interest rate flows are exchanged over a prescribed
period.  Interest rate caps are option contracts that protect the
Company from increases in short-term interest rates by entitling the Company to
receive a payment when an underlying interest rate exceeds a specified strike
rate.  Derivative instruments that convert a portion of our variable
rate debt or variable rate preferred units to a fixed rate are commonly referred
to as cash flow hedges and when we convert a portion of our fixed rate loans to
a variable rate, we refer to that as a fair value hedge.
 
 When a
cash flow hedge is considered to be effective, we record the fair value of the
derivative instrument on our balance sheet as either an asset or liability, with
a corresponding amount recorded as a component of other comprehensive
income.  Amounts are reclassified from other comprehensive income to
the income statements in the period or periods that the hedged transaction
affects earnings.
 
 Under a
cash flow hedge, derivative gains and losses that do not offset changes in the
value of hedged asset or liability are recognized immediately in non-interest
income.  For hedges that offset changes in the net value of the hedged
liabilities, we defer the net settlement amount and amortize this amount into
net interest income over the life of the hedged debt.
 
 Valuation
of Loans
 
 We
classify loans that we intend to hold for the foreseeable future at their
outstanding principal balance, less an allowance for loan losses and loan
discount, and adjusted for deferred loan fees and costs.  We defer
loan origination fees and costs and recognize those amounts as an adjustment to
the related loan yield on the asset using the straight line method, which
results in an amortization that is materially the same as the interest
method.  Loan discounts reflect an offset against accrued interest
that has been added to a loan balance under a restructuring
arrangement.  Loan discounts are accreted to interest income as a
yield adjustment using the straight-line method.
 
 Allowance
for Loan Losses
 
 Determining
an appropriate allowance for loan losses involves a significant degree of
estimation and judgment. The process of estimating the allowance for loan losses
may result in either a specific amount representing the impairment estimate or a
range of possible amounts. ASC 450-20-25 provides guidance on accounting
for loan losses associated with pools of loans and requires the accrual of a
loss when it is probable that an asset has been impaired and the amount of the
loss can be reasonably estimated.  ASC 310-10-35 provides guidance for
accounting for impaired loans, and requires that a loss be recorded when the
outstanding balance of an impaired loan is greater than either 1) the value of
the underlying collateral less estimated selling costs for collateral dependent
loans, or 2) the present value of expected cash flows for other impaired
loans.
 
 -65-
 When
management confirms that a loan is uncollectible, a loan loss is charged against
our allowance for loan losses.  If there are subsequent recoveries, we
credit such amounts to the allowance.  ASC 450-20-25 states that a
creditor should recognize the amount that is the best estimate within the
estimated range of loan losses. Accordingly, the determination of an amount
within the calculated range of losses is in recognition of the fact that
historical charge-off experience, without adjustment, may not be representative
of current impairment of the current portfolio of loans because of changed
circumstances. Such changes may relate to changes in the age of loans in the
portfolio, changes in the creditor’s underwriting standards, changes in economic
conditions affecting borrowers in a geographic region, or changes in the
business climate in a particular industry.
 
 Management
regularly evaluates our allowance for loan losses based upon our periodic review
of the collectibility of the loans, historical experience, nature and volume of
our loan portfolio, adverse situations that may affect the borrower’s ability to
repay, value of the collateral and prevailing economic
conditions.  Since an evaluation of this nature is inherently
subjective, we may have to adjust our allowance for loan losses as conditions
change and new information becomes available.
 
 Recent
Accounting Pronouncements
 
 In August
2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2009-05, “Fair Value Measurements and Disclosures
(Topic 820) – Measuring Liabilities at Fair Value”.  This ASU provides
amendments for fair value measurements of liabilities.  It provides
clarification that in circumstances in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more techniques.  ASU 2009-05 also
clarifies that when estimating a fair value of a liability, a reporting entity
is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability.  ASU 2009-05 is effective for years beginning on October 1,
2009.   Management is assessing the impact of ASU 2009-05 on the
consolidated financial condition, results of operations, and
disclosures.
 
 In June
2009, the FASB issued ASU No. 2009-01 (formerly Statement No. 168), “Topic 105 -
Generally Accepted Accounting Principles - FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles.” The
Codification is the single source of authoritative nongovernmental U.S.
generally accepted accounting principles (GAAP).  The Codification
does not change current GAAP, but is intended to simplify user access to all
authoritative GAAP by providing all the authoritative literature related to a
particular topic in one place.  All existing accounting standard
documents are superseded and all other accounting literature not included in the
Codification is considered nonauthoritative.  The Codification is
effective for interim or annual reporting periods ending after September 15,
2009.  Management has made the appropriate changes to GAAP references
in the consolidated financial statements.
 
 In June
2009, the FASB issued Statement No. 167, “Amendments to FASB Interpretation No.
46(R)” (SFAS 167).  SFAS 167 amends the consolidation guidance
applicable to variable interest entities.  The amendments to the
consolidation guidance affect all entities currently within the scope of FIN
46(R), as well as qualifying special-purpose entities (QSPEs) that are currently
excluded from the scope of FIN 46(R).  SFAS 167 is effective as of the
beginning of the first annual reporting period that begins after November 15,
2009.  Management does not believe that the adoption of SFAS 167 will
have an impact on the consolidated financial statements.
 
 -66-
 In June
2009, the FASB issued Statement No. 166, “Accounting for Transfers of Financial
Assets, an amendment of FASB Statement No. 140” (SFAS No. 166).  SFAS
166 amends the derecognition accounting and disclosure guidance relating to SFAS
140.  SFAS 166 eliminates the exemption from consolidation for QSPEs.
It also requires a transferor to evaluate all existing QSPEs to determine
whether they must be consolidated in accordance with SFAS 166.  SFAS
166 is effective as of the beginning of the first annual reporting period that
begins after November 15, 2009.  Management is assessing the impact of
SFAS 166 on the Company’s consolidated financial condition, results of
operations, and disclosures.
 
 In April
2009, the FASB issued ASC 825 (formerly FASB Staff Position (FSP) 107-1 and APB
28-1), “Interim Disclosures about Fair Value of Financial
Instruments.”  ASC 825 requires a public entity to provide disclosures
about fair value of financial instruments in interim financial
information.  ASC 825 is effective for interim and annual financial
periods ending after June 15, 2009.  As a result of adopting the
provisions of ASC 825 on June 30, 2009, management is now disclosing information
about the fair value of the financial instruments on a quarterly
basis.
 
 In April
2009, the FASB issued ASC 320 (formerly Staff Position FAS 115-2, FAS 124-2 and
EITF 99-20-2), “Recognition and Presentation of
Other-Than-Temporary-Impairment.”  ASC 320 (i) changes existing
guidance for determining whether an impairment of debt securities is other than
temporary and (ii) replaces the existing requirement that the entity’s
management assert it has both the intent and ability to hold an impaired
security until recovery with a requirement that management assert: (a) it does
not have the intent to sell the security; and (b) it is more likely than not it
will not have to sell the security before recovery of its cost
basis.  Under ASC 320, declines in the fair value of held-to-maturity
and available-for-sale securities below their cost that are deemed to be other
than temporary are reflected in earnings as realized losses to the extent the
impairment is related to credit losses.  The amount of impairment
related to other factors is recognized in other comprehensive
income.  ASC 320 is effective for interim and annual periods ending
after June 15, 2009.   The adoption of ASC 320 effective as of
April 1, 2009 did not have a material impact on the consolidated financial
statements.
 
 In April
2009, the FASB issued ASC 820 (formerly FSP FAS 157-4), “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly.”  ASC 820 affirms the objective of fair value when a market
is not active, clarifies and includes additional factors for determining whether
there has been a significant decrease in market activity, eliminates the
presumption that all transactions are distressed unless proven otherwise, and
requires an entity to disclose a change in valuation technique.  ASC
820 is effective for interim and annual periods ending after June 15,
2009.  The adoption of ASC 820 on April 1, 2009 did not have a
material impact on our consolidated financial condition and results of
operations.
 
 -67-
 Item
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 Market
Risk Management
  Market
Risk Management
  Market
risk arises from changes in interest rates, exchange rates, commodity prices and
equity prices.  Our market risk exposure primarily consists of
interest rate risk, which is mitigated by policies and procedures which monitor
and limit our earnings and balance sheet exposure to changes in interest
rates.  We have also utilized various financial hedging instruments
such as interest rate swaps and interest rate caps which allow us to diminish
some of our interest rate risk associated with some of our variable rate assets
and liabilities. Further, we do not have any exposure to currency exchange
rates.  Our earnings depend primarily upon the difference between the
income we receive from our interest earning assets and our cost of funds,
principally interest expense incurred on interest-bearing
liabilities.  Interest rates charged on our loans are affected
principally by the demand for loans, the supply of money available for lending
purposes, and competitive factors.  In turn, these factors are
influenced by general economic conditions and other constraints beyond our
control such as governmental economic and tax policies, general supply of money
in the economy, governmental budgetary actions, and the actions of the Federal
Reserve Board.
  Interest
Rate Risk Management
  In an
effort to manage our exposure to interest rate risk, our Board has formed an
Asset/Liability Management Committee (the “ALM Committee”) that meets on
a regular basis.  The core investment objectives of the ALM Committee
are to coordinate, control and perform oversight of our portfolio consistent
with our business plan and board approved policies.  The ALM Committee
establishes and monitors our mix of assets and funding sources, taking into
account relative costs and spreads, interest rate sensitivity and cash flow
requirements in an effort to produce results consistent with our liquidity,
capital adequacy, level of risk and profitability goals.
  The
principal objective of interest rate risk management (often referred to as
“asset/liability management”) is to manage the financial components of our
statement of condition in a manner that will optimize the risk/reward equation
for earnings and capital in relation to changing interest rates.  We
are in the process of adopting formal policies and have adopted standard
industry practices to monitor and manage interest rate risk
exposure.  As part of this effort, we construct interest rate risk
scenarios utilizing an asset/liability program from a third party provider of
financial data monitoring and reporting systems, enabling us to better manage
economic risk and interest rate risk.
  Our
fundamental asset and liability objective is to maximize our economic value
while maintaining adequate liquidity and exposure to interest rate risk deemed
by our Board to be acceptable. We believe an acceptable degree of exposure to
interest rate risk results from the management of assets and liabilities through
the maturities, repricing and mix of our mortgage loan investments,
borrowing facilities and investor notes to attempt to neutralize the
potential impact of changes in market interest rates.  Our
profitability is dependent to a large extent upon our net interest income, which
is the difference between our interest income on interest-earning assets such as
loans and interest-bearing assets, and our interest expense on interest-bearing
liabilities, such as our investor notes and financial institution
borrowings.  Unlike other financial institutions which have access to
other sources of liquidity such as the Federal Reserve Discount Window or the
Federal Home Loan Bank, we are dependent upon the issuance of investor notes,
capital investments by our equity holders, the sale of mortgage assets and to a
lesser extent, credit facilities.  Further, we manage our maturity
risk between assets and liabilities with the goal of limiting our exposure to
interest rate risk, ensuring adequate liquidity.  Interest income and
interest expense are affected by general economic conditions and by competition
in the marketplace.  Our interest and pricing strategies are driven by
our asset/liability management analyses and by local market
conditions.
  -68-
 In
connection with the above-mentioned strategy, we simulate the change in net
interest income and net interest margin given immediate and parallel interest
rate shocks over a 12-month horizon.  Shown below are possible changes
to net interest income and the net interest margin based
upon the model’s program under a 200 basis point increase in the interest rates
as of December 31, 2009:
  Change
                (in Basis Points)
              
              Net
      Interest Income
                (next twelve months)
              
              Change
      in Net
                Interest Income
              
              %
      Change in Net Interest
      Income
              
              Net
      Interest
                Margin(Dollars
      in Thousands)+
      200
              
              $
              4,033
              
              $
              (62)
              
              (1.52%)
              
              1.84%
 
 These
results indicate the effect of immediate rate changes and do not consider the
yield from reinvesting in short-term versus long-term
instruments.  The above profile illustrates that, if there were an
immediate and sustained increase of 200 basis points in interest rates, our net
interest income would decrease by $62 thousand over the “base case” (i.e., no
interest rate change), and our net interest margin would decrease from 1.87% to
1.84%.  This shows that our net interest income is not expected to
change significantly under a 200 basis point rise.  Our net interest
margin will decline modestly if rates rise.  Based upon the review of
management and our Board, we consider the results indicated by the report to be
acceptable.
       -69-
 The
following table sets forth our maturity gap for interest-earning assets and
interest-bearing liabilities as of the period indicated.  For purposes
of the following table, an asset or liability is considered to mature based on
its contractual terms.  Actual payment patterns may differ from
contractual payment patterns.
 Maturity
      Analysis
                as
      of December 31, 2009
                Amounts
      Subject to Maturity WithinYear 1
              Year 2
              Year 3
              Year 4
              Year 5
              After 5 Years
              Non
                Maturity
              TotalAssetsCash
                with banks
              
              $9,980
              
              
              
              
              
              
              9,980Interest
      rate caps
              
              60
              13
              
              
              
              
              
              73Loans,
      net of deferred fees
              
              39,417
              37,736
              43,772
              72,814
              1,877
              3,365
              
              198,981Allowance
      for loan losses and
                loan
      discount
              
              
              
              
              
              
              
              (2,123)
              (2,123)Noninterest
      earning assets
              
              
              
              
              
              
              
              1,843
              1,843Total assets
              
              49,457
              37,749
              43,772
              72,814
              1,877
              3,365
              (280)
              208,754LiabilitiesBorrowings
      from financial
                institutions
              
              1,400
              11,400
              112,959
              
              
              
              
              125,759Notes
      payable
              
              38,700
              7,473
              4,392
              5,833
              7,683
              5,446
              
              69,527Other
      liabilities
              
              --
              
              
              
              
              
              614
              614Members’
      equity
              
              --
              
              
              
              
              
              12,854
              12,854Total liabilities
and
                members’ equity
              
              40,100
              18,873
              117,351
              5,833
              7,683
              5,446
              13,468
              208,754Maturity
      gap
              
              9,357
              18,876
              (73,579)
              66,981
              (5,806)
              (2,081)
              (13,748)
              --Cumulative
      maturity gap
              
              9,357
              28,233
              (45,346)
              21,635
              15,829
              13,748
              --
              --
 
 The
preceding table indicates that we have a positive one-year cumulative gap of
$9.4 million at December 31, 2009.  This indicates that the funds
expected to become available in the next year due to maturing assets are greater
than the interest-bearing liabilities coming due in the next
year.  Certain notes payable have contractual maturities of 72 months
but can be withdrawn in whole or in part at any time prior to maturity without
restriction.  In our experience, investors tend not to withdraw these
notes prior to maturity.  Nonetheless, for purposes of the maturity
analysis above, these notes are included in the Year 1 maturity
column.
 
 -70-
 Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 Included
herewith are the following financial statements:
 
 Table
of Contents
 PageReport
      of Independent Registered Public Accounting Firm
              F-1Financial
      StatementsConsolidated
      Balance Sheets
              F-2Consolidated
      Statements of Income
              F-3Consolidated
      Statements of Equity
              F-4Consolidated
      Statements of Cash Flows
              F-5Notes
      to Consolidated Financial Statements
              F-6
 
 -71-
 Report
of Independent Registered Public Accounting Firm
 
 
 To The
Members
 Ministry
Partners Investment Company, LLC
 Brea,
California
 
 
 We have
audited the accompanying consolidated balance sheets of Ministry Partners
Investment Company, LLC and subsidiary as of December 31, 2009 and 2008 and the
related consolidated statements of income, equity and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Ministry Partners Investment
Company, LLC and subsidiary as of December 31, 2009 and 2008 and the results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
 
 /s/
Hutchinson and Bloodgood LLP
    F-1
 
 Ministry
Partners Investment Company, LLC and Subsidiary
 Consolidated
Balance Sheets
 December
31, 2009 and 2008
 (Dollars
in Thousands)
  Assets
              
              2009
              
              
              2008Cash
              
              $
              9,980
              
              
              $
              14,889Loans,
      net of allowance for loan lossesof
      $1,701 and $489 in 2009 and 2008, respectively
              
              
              196,858
              
              
              
              257,176Accrued
      interest receivable
              
              
              956
              
              
              
              1,374Property
      and equipment, net
              
              
              247
              
              
              
              262Debt
      issuance costs
              
              
              419
              
              
              
              979Other
      assets
              
              
              294
              
              
              
              415Total
      assets
              
              $
              208,754
              
              
              $
              275,095Liabilities
      and EquityLiabilitiesBorrowings
      from financial institutions
              
              $
              125,759
              
              
              $
              185,146Notes
      payable
              
              
              69,527
              
              
              
              75,774Accrued
      interest payable
              
              
              142
              
              
              
              292Other
      liabilities
              
              
              472
              
              
              
              1,132Total
      liabilities
              
              
              195,900
              
              
              
              262,344Commitments and
      contingencies (Note 7)Members'
      equitySeries
      A preferred units, 1,000,000 units authorized, 117,600
    unitsissued
      and outstanding at December 31, 2009 and 2008 (liquidation
      preferenceof
      $100 per unit)
              
              
              11,760
              
              
              
              11,760Class
      A common units, 1,000,000 units authorized, 146,522 units issued
      and
              
              
              1,509
              
              
              
              1,509outstanding
      at December 31, 2009 and 2008Accumulated
      deficit
              
              
              (343
              )
              
              
              --Accumulated
      other comprehensive loss
              
              
              (72
              )
              
              
              (518
              )Total
      equity
              
              
              12,854
              
              
              
              12,751Total
      liabilities and equity
              
              $
              208,754
              
              
              $
              275,095
 
 The Notes
to Consolidated Financial Statements are an integral part of these financial
statements.
  F-2
 Ministry
Partners Investment Company, LLC and Subsidiary
 Consolidated
Statements of Income
 Years
Ended December 31, 2009 and 2008
 (Dollars
in Thousands)
 
 2009
              
              
              2008Interest
      incomeLoans
              
              $
              14,394
              
              
              $
              13,451Interest
      on interest-bearing accounts
              
              
              308
              
              
              
              383Total
      interest income
              
              
              14,702
              
              
              
              13,834Interest
      expenseBorrowings
      from financial institutions
              
              
              6,609
              
              
              
              6,123Notes
      payable
              
              
              3,308
              
              
              
              3,632Total
      interest expense
              
              
              9,917
              
              
              
              9,755Net
      interest income
              
              
              4,785
              
              
              
              4,079Provision
      for loan losses
              
              
              1,322
              
              
              
              363Net
      interest income after provision for loan losses
              
              
              3,463
              
              
              
              3,716Non-interest
      income
              
              
              13
              
              
              
              39Non-interest
      expensesSalaries
      and benefits
              
              
              1,200
              
              
              
              1,097Marketing
      and promotion
              
              
              35
              
              
              
              21Office
      occupancy
              
              
              127
              
              
              
              62Office
      operations and other expenses
              
              
              1,225
              
              
              
              1,304Legal
      and accounting
              
              
              835
              
              
              
              550Total
      non-interest expenses
              
              
              3,422
              
              
              
              3,034Income
      before benefit from income taxes
              
              
              54
              
              
              
              721Benefit
      from income taxes
              
              
              --
              
              
              
              (23
              )Net
      income
              
              $
              54
              
              
              $
              744
 
 The Notes
to Consolidated Financial Statements are an integral part of these financial
statements.
 
 F-3
 Ministry
Partners Investment Company, LLC and Subsidiary
 Consolidated
Statements of Equity
 Years
Ended December 31, 2009 and 2008
 (Dollars
in Thousands)
  Series A Preferred Units
              
              Class A Common Units
              
              Preferred Stock
              
              Common StockNumber
                of
                Units
              
              Amount
              
              Number
                of
                Units
              
              Amount
              
              Number
                of
                Shares
              
              Amount
              
              Number
                of
                Shares
              
              Amount
              
              Retained
                Earnings
                (Accumulated
                Deficit)
              
              Accumulated
                Other
                Comprehensive
                Loss
              
              TotalBalance,
      December 31, 2007
              
              --
              
              $
              --
              
              
              --
              
              $
              --
              
              
              107,922
              
              $
              10,792
              
              
              146,522
              
              $
              1,809
              
              $
              (579
              )
              $
              (113
              )
              $
              11,909Purchase
      of Class I
                preferred stock
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (1,900
              )
              
              (190
              )
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (190
              )Sale
      of Class I
                preferred
      stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,578
              
              
              1,158
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              1,158Comprehensive
      income:Net
      income
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              744
              
              
              --
              
              
              744Change
      in value of
                interest
      rate swap
              
              
              
              
              
              
              
              
              
              
              
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (405
              )
              
              (405
              )Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              339Dividends
      on preferred
                stock
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (465
              )
              
              --
              
              
              (465
              )Conversion
      of
                preferred stock into
                Series A preferred
                units
              
              117,600
              
              
              11,760
              
              
              --
              
              
              --
              
              
              (117,600
              )
              
              (11,760
              )
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --Conversion
      of
                common stock  into
                Class A Units
              
              --
              
              
              --
              
              
              146,522
              
              
              1,509
              
              
              --
              
              
              --
              
              
              (146,522
              )
              
              (1,809
              )
              
              300
              
              
              --
              
              
              --Balance,
      December 31, 2008
              
              117,600
              
              
              11,760
              
              
              146,522
              
              
              1,509
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (518
              )
              
              12,751Comprehensive
      income:Net
      income
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              54
              
              
              --
              
              
              54Change
      in value of
                interest
      rate swap
              
              
              
              
              
              
              
              
              
              
              
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              
              
              
              518
              
              
              518Change
      in value of
                interest
      rate caps
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (72
              )
              
              (72
              )Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              500Dividends
      on
                preferred units
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (397
              )
              
              --
              
              
              (397
              )Balance,
      December 31, 2009
              
              117,600
              
              $
              11,760
              
              
              146,522
              
              $
              1,509
              
              
              --
              
              $
              --
              
              
              --
              
              $
              --
              
              $
              (343
              )
              $
              (72
              )
              $
              12,854
 
 The Notes
to Consolidated Financial Statements are an integral part of these financial
statements.
  F-4
 Ministry
Partners Investment Company, LLC and Subsidiary
 Consolidated
Statements of Cash Flows
 Years
Ended December 31, 2009 and 2008
 (Dollars
in Thousands)
 2009
              
              
              2008Cash
      Flows from Operating ActivitiesNet
      income
              
              $
              54
              
              
              $
              744Adjustments
      to reconcile net incometo
      net cash provided by operating activitiesDepreciation
              
              
              48
              
              
              
              14Provision
      for loan losses
              
              
              1,322
              
              
              
              363Amortization
      of deferred loan fees
              
              
              (86
              )
              
              
              (94
              )Amortization
      of debt issuance costs
              
              
              928
              
              
              
              401Accretion
      of allowances for loan losses onrestructured
      loans
              
              
              (110
              )
              
              
              --Accretion
      of loan discount
              
              
              (98
              )
              
              
              --Net
      change in:Deferred
      income tax benefit
              
              
              --
              
              
              
              116Accrued
      interest receivable
              
              
              418
              
              
              
              (856
              )Other
      assets
              
              
              194
              
              
              
              118Other
      liabilities
              
              
              (274
              )
              
              
              241Net
      cash provided by operating activities
              
              
              2,396
              
              
              
              1,047Cash
      Flows from Investing ActivitiesLoan
      purchases
              
              
              (10,540
              )
              
              
              (156,731
              )Loan
      originations
              
              
              (292
              )
              
              
              (19,309
              )Loan
      sales
              
              
              33,697
              
              
              
              843Loan
      principal collections, net
              
              
              36,425
              
              
              
              34,064Purchase
      of property and equipment
              
              
              (33
              )
              
              
              (252
              )Net
      cash provided by (used in)  investing activities
              
              
              59,257
              
              
              
              (141,385
              )Cash
      Flows from Financing ActivitiesNet
      change in borrowings from financial institutions
              
              
              (59,387
              )
              
              
              138,846Net
      change in notes payable
              
              
              (6,247
              )
              
              
              13,717Debt
      issuance costs
              
              
              (368
              )
              
              
              (41
              )Net
      proceeds from issuance of preferred stock
              
              
              --
              
              
              
              1,158Purchase
      of preferred stock
              
              
              --
              
              
              
              (190
              )Dividends
      paid on preferred stock
              
              
              (412
              )
              
              
              (506
              )Purchase
      of interest rate caps
              
              
              (148
              )
              
              
              --Net
      cash provided by (used in) financing activities
              
              
              (66,562
              )
              
              
              152,984Net
      increase (decrease) in cash
              
              
              (4,909
              )
              
              
              12,646Cash
      at beginning of year
              
              
              14,889
              
              
              
              2,243Cash
      at end of year
              
              $
              9,980
              
              
              $
              14,889Supplemental
      Disclosures of Cash Flow InformationInterest
      paid
              
              $
              10,051
              
              
              $
              9,642Income
      taxes paid
              
              
              --
              
              
              
              140Change
      in value of interest rate swap
              
              
              (518
              )
              
              
              405Change
      in value of market cap
              
              
              72
              
              
              
              --
  The Notes
to Consolidated Financial Statements are an integral part of these financial
statements.
 F-5
 Note
      1.
              Summary
      of Significant Accounting Policies
 
 Nature
      of Business
 
 Ministry
      Partners Investment Company, LLC (the “Company”) was
      incorporated in California in 1991 as a C corporation and converted to a
      limited liability company on December 31, 2008.  The Company is
      owned by a group of 13 federal and state chartered credit unions, none of
      which owns a majority of the voting equity units of the
      Company.  Two of
      the credit unions own only preferred units while the others own both
      common and preferred units.Offices of the Company are
      located in Brea, California.  The Company provides funds for
      real property secured loans for the benefit of evangelical churches and
      church organizations.  The Company funds its operations
      primarily through the sale of debt and equity securities and through other
      borrowings.  Most of the Company’s loans are purchased from its
      largest equity investor, the Evangelical Christian Credit Union (“ECCU”),
      of Brea, California. The Company also originates church and ministry loans
      independently. Nearly all of the Company’s business and operations
      currently are conducted in California and its mortgage loan investments
      cover approximately 33 states, with the largest number of loans made to
      California borrowers.
 
 In 2007
the Company created a wholly-owned special purpose subsidiary, Ministry Partners
Funding, LLC (“MPF”), for the purpose of warehousing church and ministry
mortgages purchased from ECCU or originated by the Company for later
securitization.  MPF’s loan purchasing activity continued through
early 2009, after which its operations ceased and its assets, including loans,
were transferred to the Company.  All liabilities have been paid
off.  MPF is now inactive as of December 31, 2009. The Company plans
to maintain MPF for possible future use as a financing vehicle to effect
securitized debt transactions.  MPF did not securitize any of its
loans.
 
 On
      November 13, 2009, the Company formed a wholly-owned subsidiary, MP Realty
      Services, Inc., a California corporation (“MP
      Realty”).  MP Realty will provide loan brokerage and
      other real estate services to churches and ministries in connection with
      the Company’s mortgage financing activities. On February 23, 2010, the
      California Department of Real Estate issued MP Realty a license to operate
      as a corporate real estate broker. As of December 31, 2009, MP Realty was
      inactive, and had no assets, liabilities or
  equity.
 
 Principles
      of Consolidation
 
 The
      consolidated financial statements include the accounts of Ministry
      Partners Investment Company, LLC and its wholly-owned subsidiary,
      MPF.  All significant inter-company balances and transactions
      have been eliminated in
consolidation.
 
 Use
      of Estimates
 
 The
      preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosures of contingent assets and
      liabilities as of the date of the financial statements and the reported
      amounts of revenues and expenses during the reporting period. Actual
      results could differ from those estimates. The allowance for loan losses
      represents a significant estimate by
management.
 
 Cash
 
 The
      Company maintains deposit accounts with other institutions with balances
      that may exceed federally insured limits.  The Company has not
      experienced any losses in such
accounts.
 
 F-6
 Loans
      Receivable
 
 Loans
      that management has the intent and ability to hold for the foreseeable
      future are reported at their outstanding unpaid principal balance adjusted
      for an allowance for loan losses, deferred loan fees and costs, and loan
      discounts. Interest income on loans is accrued on a daily basis using the
      interest method. Loan origination fees and costs are deferred and
      recognized as an adjustment to the related loan yield using the
      straight-line method, which results in an amortization that is materially
      the same as the interest method.  Loan discounts represent an
      offset against interest income which has been added to loans that have
      been restructured.  Loan discounts are accreted to interest
      income over the restructured term of the loans using the straight-line
      method, which approximates the interest
method.
 
 The
      accrual of interest is discontinued at the time the loan is 90 days past
      due.  Past due status is based on contractual terms of the loan.
      In all cases, loans are placed on nonaccrual or charged off at an earlier
      date if collection of principal or interest is considered
      doubtful.
 
 All
      interest accrued but not collected for loans that are placed on nonaccrual
      or charged off are reversed against interest income. The interest on these
      loans is accounted for on the cash basis or cost-recovery method, until
      qualifying for return to accrual. Loans are returned to accrual status
      when all the principal and interest amounts contractually due are brought
      current and future payments are reasonably
  assured.
 
 Allowance for
Loan Losses
 
 The
      Company sets aside an allowance or reserve for loan losses through charges
      to earnings, which are shown in the Company’s Consolidated Statements of
      Income as the provision for loan losses.  Loan losses are
      charged against the allowance when management believes the
      uncollectability of a loan balance is confirmed. Subsequent recoveries, if
      any, are credited to the allowance.
 
 The
      allowance for loan losses is evaluated on a regular basis by management
      and is based upon management’s periodic review of the collectability of
      the loans in light of historical experience, the nature and volume of the
      loan portfolio, adverse situations that may affect the borrower’s ability
      to repay, estimated value of any underlying collateral and prevailing
      economic conditions. This evaluation is inherently subjective as it
      requires estimates that are susceptible to significant revision as more
      information becomes available.
 
 The
      allowance consists of general and specific components. The general
      component covers non-classified loans and is based on historical loss
      experience adjusted for qualitative factors.  The specific
      component relates to loans that are classified as impaired.  For
      such loans, an allowance is established when the discounted cash flows (or
      collateral value or observable market price) of the impaired loan is lower
      than the carrying value of that
loan.
 
 A
      loan is considered impaired when, based on current information and events,
      it is probable that the Company will be unable to collect the scheduled
      payments of principal and interest when due according to the contractual
      terms of the loan agreement.  Factors considered by management in
      determining impairment include payment status, collateral value, and the
      probability of collecting future scheduled principal and interest payments
      when due.  Loans that experience insignificant payment delays and
      payment shortfalls generally are not classified as impaired. 
      Management determines the significance of payment delays and payment
      shortfalls on a case-by-case basis, taking into consideration all of the
      circumstances surrounding the loan and the borrower, including the length
      of the delay, the reasons for the delay, the borrower's prior payment
      record, and the amount of the shortfall in relation to the principal and
      interest owed.  Impairment is measured on a loan-by-loan basis by
      either the present value of expected future cash flows discounted at the
      loan's effective interest rate, the obtainable market price, or the fair
      value of the collateral if the loan is collateral
      dependent.  Loans for which the terms have been modified and for
      which the borrower is experiencing financial difficulties are considered
      troubled debt restructurings and are classified as
      impaired.  Troubled debt restructurings are measured at the
      present value of estimated future cash flows using the loan’s effective
      rate at inception.
 
 F-7
 Interest
      Rate Swaps and Caps
 
 For
      asset/liability management purposes, the Company uses interest rate swaps
      and caps to hedge various exposures or to modify interest rate
      characteristics of various balance sheet accounts.  Interest
      rate swaps are contracts in which a series of interest rate flows are
      exchanged over a prescribed period.  Interest rate caps are
      option contracts that protect the Company from increases in short-term
      interest rates by entitling the Company to receive a payment when an
      underlying interest rate exceeds a specified strike rate.  The
      notional amount on which the interest payments are based is not
      exchanged.  These agreements are derivative instruments that
      convert a portion of the Company’s variable rate debt and variable rate
      preferred units to a fixed rate (cash flow
  hedges).
 
 The
      effective portion of the gain or loss on a derivative designated and
      qualifying as a cash flow hedging instrument is initially reported as a
      component of other comprehensive income and subsequently reclassified into
      earnings in the same period or periods during which the hedged transaction
      affects earnings.  The ineffective portion of the gain or loss
      on the derivative instrument, if any, is recognized currently in
      earnings.
 
 For
      cash flow hedges, the net settlement (upon close-out or termination) that
      offsets changes in the value of the hedged debt is deferred and amortized
      into net interest income over the life of the hedged debt.  The
      portion, if any, of the net settlement amount that did not offset changes
      in the value of the hedged asset or liability is recognized immediately in
      non-interest income.
 
 Interest
      rate derivative financial instruments receive hedge accounting treatment
      only if they are designated as a hedge and are expected to be, and are,
      effective in substantially reducing interest rate risk arising from the
      assets and liabilities identified as exposing the Company to
      risk.  Those derivative financial instruments that do not meet
      specified hedging criteria would be recorded at fair value with changes in
      fair value recorded in income.  If periodic assessment indicates
      derivatives no longer provide an effective hedge, the derivative contracts
      would be closed out and settled, or classified as a trading
      activity.
 
 Cash
      flows resulting from the derivative financial instruments that are
      accounted for as hedges of assets and liabilities are classified in the
      cash flow statement in the same category as the cash flows of the items
      being hedged.
 
 Transfers
      of Financial Assets
 
 Transfers
      of financial assets are accounted for as sales when control over the
      assets has been surrendered.  Control over transferred assets is
      deemed to be surrendered when (1) the assets have been isolated from the
      Company, (2) the transferee obtains the right (free of conditions that
      constrain it from taking advantage of that right) to pledge or exchange
      the transferred assets, and (3) the Company does not maintain effective
      control over the transferred assets through an agreement to repurchase
      them before their maturity.
 
 F-8
 Property
      and Equipment
 
 Furniture,
      fixtures, and equipment are stated at cost, less accumulated depreciation.
      Depreciation is computed on a straight-line basis over the estimated
      useful lives of the assets, which range from three to five
      years.
 
 Debt
      Issuance Costs
 
 Debt
issuance costs are related to borrowings from financial institutions as well as
public offerings of unsecured notes, and are amortized into interest expense
over the contractual terms of the debt.
 
 Conversion
to LLC
 
 Effective
as of December 31, 2008, the Company has converted its form of organization from
a corporation organized under California law to a limited liability company
organized under the laws of the State of California.  With the filing
of Articles of Organization-Conversion with the California Secretary of State,
the separate existence of Ministry Partners Investment Corporation ceased and
the entity continued by operation of law under the name Ministry Partners
Investment Company, LLC.
 
 By
operation of law, the converted entity continued with all of the rights,
privileges and powers of the corporate entity and is managed by a group of
managers that previously served as the Board of Directors.  The
executive officers and key management team remained intact.  The
converted entity by operation of law possessed all of the properties and assets
of the converted corporation and remains responsible for all of the notes,
debts, contract claims and obligations of the converted
corporation.
 
 With the
conversion to the limited liability company form of organization, the Company
has combined in a single entity the best features of other organizational
structures, thereby permitting the owners to obtain the benefit of a corporate
limited liability shield, the pass-through tax and distribution benefits of a
partnership, the avoidance of a corporate level tax and the flexibility of
making allocations of profit, loss and distributions offered
by  partnership treatment under the Internal Revenue
Code.
 
 Since the
conversion became effective, the Company is managed by a group of managers that
provides oversight of the affairs and carries out their duties similar to the
role and function that the Board of Directors performed under the previous
bylaws.  Operating like a Board of Directors, the managers have full,
exclusive and complete discretion, power and authority to oversee the management
of Company affairs.  Instead of Articles of Incorporation and Bylaws,
management structure and governance procedures are now governed by the
provisions of an Operating Agreement that has been entered into by and between
the Company’s managers and members.
 
 Income
      Taxes
 
 Through
      December 30, 2008, the Company was a C corporation, and thus recorded all
      current and deferred income taxes arising from its operations through that
      date. Deferred income tax assets and liabilities were determined based on
      the tax effects of temporary differences between the book and tax bases of
      the various assets and liabilities of the
  Company.
 
 Effective
      December 31, 2008, the Company converted from a C corporation to a
      California limited liability company (LLC). As a result, the stockholders
      of the Company became members of the LLC on the conversion date. The LLC
      is treated as a partnership for income tax purposes; therefore, the
      Company will no longer be a tax-paying entity for federal or state income
      tax purposes, and thus no federal or state income tax will be recorded in
      the financial statements after the date of conversion. Income and expenses
      of the Company are passed through to the members of the LLC for tax
      reporting purposes. The Company is subject to a California gross receipts
      fee of approximately $12,000 per year for years ending on and after
      December 31, 2009.
 
 F-9
 Although
      the Company is no longer a U.S. income tax-paying entity beginning in
      2009, it is nonetheless subject to Accounting Standards Codification 740,
      Income Taxes, for all “open” tax periods for which the statute of
      limitations has not yet run.  The Company uses a recognition
      threshold and a measurement attribute for the consolidated financial
      statement recognition and measurement of a tax position taken in a tax
      return. Benefits from tax positions are recognized in the financial
      statements only when it is more likely than not that the tax position will
      be sustained upon examination by the appropriate taxing authority that
      would have full knowledge of all relevant information. A tax position that
      meets the more-likely-than-not recognition threshold is measured at the
      largest amount of benefit that is greater than 50 percent likely of being
      realized upon ultimate settlement. Tax positions that previously failed to
      meet the more-likely-than-not recognition threshold are recognized in the
      first subsequent financial reporting period in which that threshold is
      met. Previously recognized tax positions that no longer meet the
      more-likely-than-not recognition threshold are derecognized in the first
      subsequent financial reporting period in which that threshold is no longer
      met.
 
 Comprehensive
Income
 
 Accounting
principles generally accepted in the United States of America require that
recognized revenue, expenses, gains and losses be included in net
income.  Although certain changes in assets and liabilities, such as
derivatives classified as cash flow hedges, are reported as a separate component
of the equity section of the balance sheet, such items, along with net income,
are components of comprehensive income.  Changes in the value of
derivatives classified as cash flow hedges are included in interest expense as a
yield adjustment in the same period in which the related interest on the hedged
item affects earnings.
 
 Employee
Benefit Plan
 
 Contributions
      to the qualified employee retirement plan are recorded as compensation
      cost in the period incurred.
 
 Recent
      Accounting Pronouncements
 
 In
      August 2009, the Financial Accounting Standards Board (FASB) issued
      Accounting Standards Update (ASU) No. 2009-05, “Fair Value
      Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair
      Value”.  This ASU provides amendments for fair value
      measurements of liabilities.  It provides clarification that in
      circumstances in which a quoted price in an active market for the
      identical liability is not available, a reporting entity is required to
      measure fair value using one or more techniques.  ASU 2009-05
      also clarifies that when estimating a fair value of a liability, a
      reporting entity is not required to include a separate input or adjustment
      to other inputs relating to the existence of a restriction that prevents
      the transfer of the liability.  ASU 2009-05 is effective
      beginning on October 1, 2009.   Management is
      assessing the impact of ASU 2009-05 on the consolidated financial
      condition, results of operations, and
  disclosures.
 
 In
      June 2009, the FASB issued ASU No. 2009-01 (formerly Statement No. 168),
      “Topic 105 - Generally Accepted Accounting Principles - FASB Accounting
      Standards Codification and the Hierarchy of Generally Accepted
      Accounting Principles.” The Codification is the single source of
      authoritative nongovernmental U.S. generally accepted accounting
      principles (GAAP).  The Codification does not change current
      GAAP, but is intended to simplify user access to all authoritative GAAP by
      providing all the authoritative literature related to a particular topic
      in one place.  All existing accounting standard documents are
      superseded and all other accounting literature not included in the
      Codification is considered nonauthoritative.  The Codification
      is effective for interim or annual reporting periods ending after
      September 15, 2009.  Management has made the appropriate changes
      to GAAP references in the consolidated financial
    statements.
 
 F-10
 In
      June 2009, the FASB issued Statement No. 167, “Amendments to FASB
      Interpretation No. 46(R)” (SFAS 167).  SFAS 167 amends the
      consolidation guidance applicable to variable interest
      entities.  The amendments to the consolidation guidance affect
      all entities currently within the scope of FIN 46(R), as well as
      qualifying special-purpose entities (QSPEs) that are currently excluded
      from the scope of FIN 46(R).  SFAS 167 is effective as of the
      beginning of the first annual reporting period that begins after November
      15, 2009.  Management does not believe that the adoption of SFAS 167
      will have an impact on the consolidated financial
    statements.
 
 In
      June 2009, the FASB issued Statement No. 166, “Accounting for Transfers of
      Financial Assets, an amendment of FASB Statement No. 140” (SFAS No.
      166).  SFAS 166 amends the derecognition accounting and
      disclosure guidance relating to SFAS 140.  SFAS 166 eliminates
      the exemption from consolidation for QSPEs. It also requires a transferor
      to evaluate all existing QSPEs to determine whether they must be
      consolidated in accordance with SFAS 166.  SFAS 166 is effective
      as of the beginning of the first annual reporting period that begins after
      November 15, 2009.  Management is assessing the impact of SFAS
      166 on the Company’s consolidated financial condition, results of
      operations, and disclosures.
 
 In
      April 2009, the FASB issued ASC 825 (formerly FASB Staff Position (FSP)
      107-1 and APB 28-1), “Interim Disclosures about Fair Value of Financial
      Instruments.”  ASC 825 requires a public entity to provide
      disclosures about fair value of financial instruments in interim financial
      information.  ASC 825 is effective for interim and annual
      financial periods ending after June 15, 2009.  As a result of
      adopting the provisions of ASC 825 on June 30, 2009, management is now
      disclosing information about the fair value of the financial instruments
      on a quarterly basis.
 
 In
      April 2009, the FASB issued ASC 320 (formerly Staff Position FAS 115-2,
      FAS 124-2 and EITF 99-20-2), “Recognition and Presentation of
      Other-Than-Temporary-Impairment.”  ASC 320 (i) changes existing
      guidance for determining whether an impairment of debt securities is other
      than temporary and (ii) replaces the existing requirement that the
      entity’s management assert it has both the intent and ability to hold an
      impaired security until recovery with a requirement that management
      assert: (a) it does not have the intent to sell the security; and (b) it
      is more likely than not it will not have to sell the security before
      recovery of its cost basis.  Under ASC 320, declines in the fair
      value of held-to-maturity and available-for-sale securities below their
      cost that are deemed to be other than temporary are reflected in earnings
      as realized losses to the extent the impairment is related to credit
      losses.  The amount of impairment related to other factors is
      recognized in other comprehensive income.  ASC 320 is effective
      for interim and annual periods ending after June 15, 2009.   The
      adoption of ASC 320 effective as of April 1, 2009 did not have a material
      impact on the consolidated financial
statements.
 
 In
      April 2009, the FASB issued ASC 820 (formerly FSP FAS 157-4), “Determining
      Fair Value When the Volume and Level of Activity for the Asset or
      Liability Have Significantly Decreased and Identifying Transactions That
      Are Not Orderly.”  ASC 820 affirms the objective of fair value
      when a market is not active, clarifies and includes additional factors for
      determining whether there has been a significant decrease in market
      activity, eliminates the presumption that all transactions are distressed
      unless proven otherwise, and requires an entity to disclose a change in
      valuation technique.  ASC 820 is effective for interim and
      annual periods ending after June 15, 2009.  The adoption of ASC
      820 on April 1, 2009 did not have a material impact on the consolidated
      financial condition and results of
operations.
 
 F-11
 Note
      2.
              Related
      Party Transactions
 
 The
      Company maintains most of its cash at ECCU. Total funds held with ECCU
      were $5.9 million and $12.0 million at December 31, 2009 and 2008,
      respectively. Interest earned on these funds totaled approximately $303.7
      thousand and $310.9 thousand for the years ended December 31, 2009 and
      2008, respectively.
 
 The
      Company leases physical facilities from ECCU pursuant to an Office Lease
      dated November 4, 2008, and purchases other services from ECCU. Charges of
      approximately $197.6 thousand and $164.2 thousand for the years ended
      December 31, 2009 and 2008, respectively, were made for these services and
      are included in Office Operations expense. The method used to arrive at
      the periodic charge is based on the fair market value of services
      provided. Management believes that such method is
    reasonable.
 
 In
      accordance with a mortgage loan purchase arrangement between the Company
      and ECCU, the Company purchased $10.5 million and $156.7 million of loans
      from ECCU during the years ended December 31, 2009 and 2008,
      respectively.  This includes $105.0 thousand and $60.3 million
      purchased by MPF during the years ended December 31, 2009 and 2008,
      respectively.  The Company recognized $13.0 million and $11.8
      million of interest income on loans purchased from ECCU during the years
      ended December 31, 2009 and 2008, respectively.  ECCU retains
      the servicing rights on loans it sells to the Company.  The
      Company paid loan servicing fees to ECCU of $593.3 and $732.5 thousand in
      the years ended December 31, 2009 and 2008,
    respectively.
 
 From
      time to time, the Company or its wholly-owned subsidiary, MPF, has sold
      mortgage loan investments to ECCU in isolated sales for short term
      liquidity purposes.  The Company or MPF also has sold loans to
      other credit unions.  Federal credit union regulations require
      that a borrower must be a member of a participating credit union in order
      for a loan participation to be an eligible investment for a federal
      chartered credit union.  ECCU has from time to time repurchased
      from the Company fractional participations in the loan investments which
      ECCU already services, usually around 1% of the loan balance, to
      facilitate compliance with NCUA rules when participations in those loans
      were sold to federal credit unions.  During the year ended
      December 31, 2009, $145.2 thousand in loan participation interests were
      sold to ECCU.  During the years ended December 31, 2009 and
      2008, an additional $2.2 million and $843 thousand, respectively, of whole
      loans were sold back to ECCU. Each sale or purchase of a mortgage loan
      investment or participation interest was consummated under our Related
      Party Transaction Policy that has been adopted by our
      managers.  No gain or loss was incurred on these
      sales.
 
 On
      December 14, 2007, the Board of Directors appointed R. Michael Lee to
      serve as a Company director.  Mr. Lee serves as Vice President
      Member Relations, Midwest Region, of Members United Corporate Federal
      Credit Union (Members United).  See Note 6 for information
      regarding the Company’s borrowings from Members United.  The
      Company has $556 thousand on deposit with Members United as of
      December 31, 2009, which is pledged as security for the Members
      United borrowings.
 
 On
      May 19, 2009, the Company sold $19.3 million of loans to Western Federal
      Credit Union, which is an equity holder of the Company’s Class A
      Units.  The loans were sold to Western at
      par.  Proceeds from the sale were used to pay down the BMO
      Facility.
 
 From
      time to time, managers and management have purchased investor notes from
      the Company.  Investor notes payable to related parties total
      $734 thousand at December 31, 2009.
 
 F-12
 Note
3.    Loans
 
 A
      summary of loans as of December 31
follows:
 
 2009
              
              
              2008Loans
      to evangelical churches andrelated
      organizations:Real
      estate secured
              
              $
              194,068
              
              
              $
              254,869Construction
              
              
              3,052
              
              
              
              1,042Unsecured
              
              
              2,002
              
              
              
              2,000Total
      Loans
              
              $
              199,122
              
              
              $
              257,911Deferred
      loan fees, net
              
              
              (141
              )
              
              
              (210
              )Loan
      discount
              
              
              (422
              )
              
              
              (36
              )Allowance
      for loan losses
              
              
              (1,701
              )
              
              
              (489
              )Loans,
      net
              
              $
              196,858
              
              
              $
              257,176
 
 The
      loans fall into three categories:  loans purchased in whole from
      ECCU, loan participations purchased from ECCU, and loans originated
      directly by the Company.  All of the loans are made to various
      evangelical churches and related organizations, primarily to purchase,
      construct or improve facilities. Loan maturities extend through 2018. The
      loans earn interest at rates between 2.88% and 8.50%, with a weighted
      average yield of 6.21% as of December 31,
2009.
 
 Allowance
for Loan Losses
 
 The
Company has had no experience of loan loss. Management believes that the
allowance for loan losses as of December 31, 2009 and 2008 is appropriate.
Changes in the allowance for loan losses are as follows for the years ended
December 31:
 
 2009
              
              
              2008Balance,
      beginning of year
              
              $
              489
              
              
              $
              126Provisions
      for loan losses
              
              
              1,322
              
              
              
              363Accretion
      of allowance related torestructured
      loans
              
              
              (110
              )
              
              
              --Balance,
      end of year
              
              $
              1,701
              
              
              $
              489
 
 F-13
 Impaired
      Loans
 
 Information
      about impaired loans for the years ended December 31 is as
      follows:
 
 2009
              
              
              2008Impaired
      loans with anallowance
      for loan losses
              
              $
              8,215
              
              
              $
              --Impaired
      loans without anallowance
      for loan losses
              
              
              22,314
              
              
              
              4,025Total
      impaired loans
              
              $
              30,529
              
              
              $
              4,025Allowance
      for loan losses related toimpaired
      loans
              
              $
              809
              
              
              $
              --Total
      non-accrual loans
              
              $
              25,337
              
              
              $
              2,700Total
      loans past due 90 days or moreand
      still accruing
              
              $
              --
              
              
              $
              -- Information
      about impaired loans for theyears
      ended December 31 is as
follows:
 2009
                
                
                
                2008Average
      investment in impaired loans
                
                $
                18,381
                
                
                $
                1,216Interest
      income recognized onimpaired
      loans
                
                $
                912
                
                
                $
                --
 
 No
      additional funds were committed to be advanced in connection with impaired
      loans as of December 31, 2009 or
2008.
 
 Note
4.           Premises and
Equipment
  Premises and equipment consisted of the
following at December 31:
  2009
              
              
              2008Furniture
      and office equipment
              
              $
              270
              
              
              $
              237Computer
      system
              
              
              17
              
              
              
              17Leasehold
      improvements
              
              
              25
              
              
              
              25312
              
              
              
              279Less
      accumulated depreciation and amortization
              
              
              (65
              )
              
              
              (17
              )$
              247
              
              
              $
              262
 
 Depreciation
      and amortization expense for the years ended December 31, 2009 and 2008
      amounted to $48 thousand and $14 thousand,
  respectively.
 
 F-14
 Note
      5.
              Borrowings
      from Financial Institutions
 
 Outstanding
      balances of borrowings from financial institutions are summarized by
      lender at December 31 as
follows:
 
 Lender
              
              2009
              
              
              2008Members
      United
              
              $
              97,876
              
              
              $
              99,875WesCorp
              
              
              27,883
              
              
              
              --BMO
              
              
              --
              
              
              
              85,271$
              125,759
              
              
              $
              185,146
  
 Future
      maturities of borrowings from financial institutions are as follows at
      December 31:
 
 2010
              
              $
              1,4002011
              
              
              11,4002012
              
              
              112,959$
              125,759
  Members
      United Facilities
 
 On
      October 12, 2007, the Company entered into two note and security
      agreements with Members United. Members United is a federally chartered
      credit union located in Warrenville, Illinois, which provides financial
      services to member credit unions. One note and security agreement is for a
      secured $10 million revolving line of credit, which is referred to as the
      “$10 Million LOC,” and the other is for a secured $50 million revolving
      line of credit.  The latter was amended on May 8, 2008 to allow
      the Company to borrow up to $100 million through the revolving line of
      credit. The Company refers to this as the “$100 Million CUSO Line.” Both
      credit facilities are secured by certain mortgage loans. The Company
      intends to use the $10 Million LOC for short-term liquidity purposes and
      the $100 Million CUSO Line for mortgage loan investments.  The
      Company may use proceeds from either loan to service other debt
      securities.
 
 On
      August 27, 2008, the Company borrowed the entire $10 million available on
      the $10 Million LOC at a rate of 3.47%.  As a result of this
      financing, the $10 Million LOC was converted to a term loan with a
      maturity date of August 26, 2011.  The loan bears interest
      payable monthly at a floating rate based on the one month LIBOR plus 100
      basis points.  The interest rate on the Members United term loan
      will be reset monthly.  Since the credit facility expired on
      September 1, 2008, no new borrowings may be made under this loan
      facility.  As of December 31, 2009, there was a $10.0 million
      outstanding balance on the Members United term
  loan.
 
 Under the
$100 Million CUSO Line, the Company may request advances under a “demand loan”
or “term loan”.  A demand loan is a loan with a maximum term of one
year and a variable rate based upon the prime rate quoted by the Wall Street
Journal, as adjusted by a spread as determined by Members United.  A
term loan is a fixed or variable loan that has a set maturity date not to exceed
twelve years.
 During
the period when draws may be made, each advance on the $100 Million CUSO Line
will accrue interest at either the offered rate by Members United for a fixed
term draw or the  rate quoted by Bloomberg for the Federal Funds open
rate plus 125 basis points for a variable rate draw.  Once the $100
Million CUSO Line is fully drawn, the total outstanding balance will be termed
out over a five year period with a 30 year amortization payment
schedule.  The Company is obligated to make interest payments on the
outstanding principal balance of all demand loans and term loan advances at the
applicable demand loan rate or term loan rate on the third Friday of each
month.
 
 F-15
 
 As of
December 31, 2009 and 2008, the balance on the $100 Million CUSO Line was $87.9
million and $89.9 million, respectively, and the weighted average interest rate
on the Company’s borrowings under this facility was 4.29% and 4.33%,
respectively.  Pursuant to the terms of the Company’s promissory note
with Members United, once the loan is fully drawn, the total outstanding balance
will be termed out over a five year period with a 30 year amortization payment
schedule.  In addition, the term loan interest rate will be specified
by Members United and will be repriced to a market fixed or variable rate to be
determined at the time the loan is restructured.
 
 In
September 2008, Members United decided that it would not advance any additional
funds on the $100 Million CUSO Line and the Company entered into negotiations
with Members United to convert the line of credit facility to a term loan
arrangement with a mutually acceptable interest rate.  On January 10,
2010, the interest rates on four tranches of these term loans in the amounts of
$157.9 thousand, $2.8 million, $40.8 million and $23.8 million are scheduled to
be adjusted.
 
 Future
interest rate re-set dates of the tranches of the $10 Million LOC and $100
Million CUSO Line during the twelve months ending December 31 are as
follows:
  
 2010
              
              $
              75,9752011
              
              
              21,901$
              97,876
 
 The
      Company is continuing to negotiate with Members United regarding the
      interest rate to be charged on this facility once the outstanding amounts
      that become due are termed out over a five year period with a 30 year
      amortization schedule.  The interest rate on the $24 million
      tranche that was scheduled for adjustment on July 6, 2009 has been
      extended on a month-to-month basis at a variable rate equal to the Federal
      Funds open rate plus 1.25%.  The $42 million tranche that
      was scheduled to be adjusted in July 2009 has been adjusted to a rate of
      6.5%.  While the Company anticipates that it will be able to
      successfully restructure the debt obligations with Members United on the
      $76.0 million and $11.9 million tranches on the $100 Million CUSO Line
      that mature in 2010 and 2011, respectively, failure to reach acceptable
      terms on this facility could have a material adverse effect on results of
      operations.
 
 Both
      credit facilities are recourse obligations secured by designated mortgage
      loans. The Company must maintain collateral in the form of eligible
      mortgage loans, as defined in Member United line of credit agreements, of
      at least 111% of the outstanding balance on the lines, after the initial
      pledge of $5 million of mortgage loans. As of December 31, 2009 and
      December 31, 2008, approximately $108.9 million and
      $111.4 million of loans, respectively, were pledged as collateral for
      the $100 Million CUSO Line and the $10 Million Members United term loan.
      The Company has the right to substitute or replace one or more of the
      mortgage loans serving as collateral for these credit
      facilities.
 
 Both
      credit facilities contain a number of standard borrower covenants,
      including affirmative covenants to maintain the collateral free of liens
      and encumbrances, to timely pay the credit facilities and the Company’s
      other debt, and to provide Members United with current financial
      statements and reports.
 
 F-16
 BMO
Facility
 
 In 2007,
the Company formed a wholly-owned special purpose subsidiary, MPF, for the sole
purpose of purchasing and warehousing church and ministry mortgage loans bought
from the Company or ECCU for later securitization.  On October 30,
2007, the Company expanded its capabilities to originate and securitize
qualifying church mortgage loans by entering into a $150 million credit facility
with Fairway Finance Company, LLC, as lender, and BMO Capital Markets Corp., as
agent.  The Bank of Montreal agreed to serve as liquidity agent for
the BMO Facility. The line was secured by a first priority interest in eligible
receivables of MPF. All of MPF’s loans receivable were pledged as collateral for
the BMO Capital line.
 
 Under the
BMO Facility loan documents, MPF agreed to enter into a term securitization or
takeout financing transaction in an amount not less than $50 million prior to
April 30, 2009.  Due to the disruption of credit markets which became
acute in 2008 and continued in 2009, the Company was unable to complete a
securitization or takeout financing transaction.
 
 On May 5,
2009, MPF entered into a Waiver Agreement with BMO Capital pursuant to which BMO
Capital (i) agreed to waive certain hedging requirements under the BMO Facility
for a limited period; (ii) agreed to waive certain provisions requiring that
“eligible mortgage loans” in the BMO Facility be held in the facility for not
more than 18 months (the “Vintage Loan Requirement”); and (iii) confirmed that
no event of default had occurred under the facility due to MPF’s inability to
complete a $50 million takeout financing transaction.  On June 5,
2009, MPF and BMO Capital entered into an Omnibus Amendment to the BMO Facility
which provided that:
 
 •      the
$50 million takeout financing requirement would be eliminated;
 
 •
              MPF
      was granted a reduction in the amount of working capital it was required
      to maintain under the facility from $10 million to $3
    million;
 
 •
              MPF
      agreed to pay down the principal amount due on the BMO Facility from $78.9
      million to $50.7 million;
 
 •
              MPF
      was granted an extension of time to comply with the Vintage Loan
      Requirement;
 
 •
              the
      hedging requirement imposed under the BMO Facility would be deleted and,
      in its place, MPF would be required to deliver funds sufficient in amount
      to purchase a LIBOR cap to protect against unexpected changes in interest
      rates; and
 
 •
              the
      “spread” on the BMO Facility was set at 1.75% over the commercial paper
      rate, unless an event of default
occurred.
 
 Effective
September 30, 2009, MPF and BMO Capital entered into Omnibus Amendment No. 2 to
the BMO Facility pursuant to which the parties agreed to:
 
 •
              eliminate
      the Vintage Loan Requirement and replace it with a payoff schedule that
      required the BMO Facility to be paid off by March 14,
  2010;
 
 F-17
 •
              relax
      certain geographical concentration requirements for eligible mortgage
      loans and ratios for eligible mortgage loans held in the BMO Facility;
      and
 
 •
              increase
      the borrowing rate on the BMO Facility after January 1, 2010 to
      3.00%.
 
 Effective
as of November 30, 2009, MPF paid off and retired the BMO Facility using funds
obtained from the WesCorp Loan.  As of December 31, 2009, there was no
outstanding balance due on the BMO Facility and all mortgage loans held in the
facility were transferred to the Company’s loan portfolio or to WesCorp to serve
as collateral for the WesCorp Loan.
 
 For the
year ended December 31, 2008 and through June 5, 2009, interest on the BMO
Facility was calculated at the rate at which BMO issued commercial paper plus
0.90%. The interest rate on the amount outstanding as of December 31, 2008 was
2.09%. Effective June 5, 2009, the interest rate was increased to the rate at
which BMO issued commercial paper plus 1.75%. Effective September 30, 2009 and
through the date of pay-off on November 30, 2009, a new interest rate was
established at the one month commercial paper LIBOR rate plus
1.75%.
 
 WesCorp
Facility
 
 On
November 30, 2009, the Company entered into a Loan and Security agreement with
WesCorp.  WesCorp is a federally chartered credit union located in San
Dimas, California.  The agreement provides for a secured $28 million
term loan, referred to as the “WesCorp Facility.”  $24.6 million of
the proceeds were used to pay the remaining principal and interest on the BMO
Facility.  The remainder of the proceeds were advanced in cash and
will be used to make monthly payments on the WesCorp Facility, as well as for
other cash needs of the Company as they arise.
 
 The
WesCorp Facility carries a fixed interest rate of 3.95% per
year.  Interest on the outstanding balance of the loan is payable on
the last day of each month, along with a fixed principal payment of $116.7
thousand.  The balance of the principal, $24.7 million, is due in full
when the Facility matures on March 30, 2012.  The Company has the
option to prepay any or all of the principal balance at any point prior to the
maturity date subject to a prepayment penalty.  The loan is secured by
the remaining eligible loans pledged to BMO at the time of the
payoff.  These loans totaled $58.7 million at December 31,
2009.  As of December 31, 2009 there was $27.9 million outstanding on
the WesCorp Facility.
 
 The
agreement contains a number of standard borrower covenants, including
affirmative covenants that require the Company to refrain from making certain
guarantees or endorsements, refrain from making material changes to other credit
facilities, and maintain a debt to tangible net worth ratio of less than 15 to
one.  The agreement also obtains negative covenants requiring the
Company to obtain consent for certain transactions related to pledged
loans.  The Company was in compliance with these covenants as of
December 31, 2009.
 
 Note
      6.
              Interest
      Rate Swaps and Caps
 
 The
      Company has stand-alone derivative financial instruments in the form of
      interest rate swap agreements and interest rate cap agreements, which
      derive their value from underlying interest rates.  These
      transactions involve both credit and market risk.  The notional
      amounts are amounts on which calculations, payments, and the value of the
      derivative are based.  Notional amounts do not represent direct
      credit exposures.  Direct credit exposure is limited to the net
      difference between the calculated amounts to be received and paid, if
      any.  Such differences, which represent the fair value of the
      derivative instruments, are reflected on the Company’s balance sheet as
      other assets and other liabilities.
 
 F-18
 The
      Company is exposed to credit-related losses in the event of nonperformance
      by the counterparties to these agreements.  The Company controls
      the credit risk of its financial contracts through credit approvals,
      limits and monitoring procedures, and does not expect any counterparties
      to fail their obligations.  The Company deals only with primary
      dealers.
 
 Derivative
      instruments are generally either negotiated over-the-counter (OTC)
      contracts or standardized contracts executed on a recognized
      exchange.  Negotiated OTC derivative contracts are generally
      entered into between two counterparties that negotiate specific agreement
      terms, including the underlying instrument, amount, exercise prices and
      maturity.
 
 Risk
      Management Policies – Hedging
Instruments
 
 The
      primary focus of the asset/liability management program is to monitor the
      sensitivity of the Company’s net portfolio value and net income under
      varying interest rate scenarios to take steps to control the Company’s
      risks.  The Company evaluates the effectiveness of entering into
      any derivative instrument agreement by measuring the cost of such an
      agreement in relation to the reduction in net portfolio value and net
      income volatility within an assumed range of interest
    rates.
 
 Interest
      Rate Risk Management – Cash Flow Hedging
  Instruments
 
 The
Company has used long-term variable rate debt and variable rate preferred units
as sources of funds for use in its lending and investment activities and other
general business purposes.  These debt obligations expose the Company
to variability in interest payments due to changes in interest
rates.  If interest rates increase, interest expense
increases.  Conversely, if interest rates decrease, interest expense
decreases.  Management believes it is prudent to limit the variability
of a portion of the Company’s interest payments and, therefore, generally hedges
a portion of the Company’s variable rate interest payments.  To meet
this objective, the Company has entered into interest rate swap agreements
whereby it receives variable interest rate payments and makes fixed interest
rate payments during the contract period.  However, the interest rate
swaps the Company entered in 2007 expired in 2009.
 
 The
information pertaining to outstanding interest rate swap agreements used to
hedge variable rate debt is as follows at December 31, 2008:
 
 Notional
      amount (in thousands)
              
              $
              85,760Weighted
      average pay rate
                Weighted
      average receive rate
                Weighted
      average maturity in years
                Unrealized
      loss relating to interest rate swaps (in thousands)
              
              
              3.17%0.96%.28$
              (518
              )
 
 
 At December 31, 2009, there were no
outstanding interest rate swap contracts.  Changes in the fair value
of interest rate swaps designed as hedging instruments of the variability of
cash flows associated with long-term debt are reported in other comprehensive
income (loss).  These amounts subsequently are reclassified into
interest expense as a yield adjustment in the same period in which the related
interest on the long-term debt affects earnings.The net amount of other
comprehensive income reclassified into interest expense related to interest rate
swaps during the year ended December 31, 2009 was $566 thousand.
 
 Another
way to hedge exposure to variable interest rates is through the purchase of
interest rate caps.  An interest rate cap is an option contract that
protects the holder from increases in short-term interest rates by making a
payment to such holder when an underlying interest rate (the "index" or
"reference" interest rate) exceeds a specified strike rate (the "cap rate").
Similar to an interest rate swap, the notional amount on which the payment is
made is never exchanged. Interest rate caps are purchased for a premium and
typically have expirations between 1 and 7 years. With the purchase of an
interest rate cap, payments are made to the holder on a monthly, quarterly or
semiannual basis, with the period generally set equal to the maturity of the
index interest rate.  In essence, the financial exposure to the holder
of an interest rate cap is limited to the initial purchase price.  The
objective of this type of instrument is to mitigate the exposure to rising
interest rates by “capping” the rate ( the strike price) for a specific period
of time.
 
 At
December 31, 2009, information pertaining to outstanding interest rate cap
agreements that the Company has used to hedge variable rate debt is as
follows (dollars in thousands):
 
 Notional
      amount
              $
              20,000Strike
      Price
              
              1.50%Weighted
      average maturity in years
              
              1.50Fair
      value of interest rate caps
              $
              73Unrealized
      loss relating to interest rate caps
              $
              72
 
 These
agreements provide for the Company to receive payments at a variable
rate determined by a specified index (one month London Inter-Bank Offered Rate
(“LIBOR”)) when the index interest rate exceeds 1.50%. This rate was 0.23% at
December 31, 2009.
 
 At
December 31, 2009, the fair value of interest rate caps was recorded in other
assets.  Changes in the fair value of interest rate caps and preferred
units designed as hedging instruments of the variability of cash flows
associated with long-term debt and preferred units are reported in other
comprehensive income (loss).  These amounts subsequently are
reclassified against income available to common unit holders in the same period
in which the related interest on the long-term debt affects
earnings.
  The
Company reclassified $2.3 thousand of comprehensive income related to
interest caps against retained earnings during the year ended December 31,
2009.
 
 Risk
management results for the year ended December 31, 2009 related to the balance
sheet hedging of our long-term debt indicate that the hedges were highly
effective and that there was no component of the derivative instruments’ gain or
loss which was excluded from the assessment of hedge effectiveness.
 
 F-19
 Note
      7.
              Commitments
      and Contingencies
 
 Unfunded
      Commitments
 
 Unfunded
      commitments are commitments for possible future extensions of credit to
      existing customers of us or ECCU. Unfunded commitments totaled $3.0
      million at December 31, 2009 and $3.7  million at December 31,
      2008.
 
 Note
      8.
              Notes
      Payable
 
 A
      summary of notes payable at December 31 is as
  follows:
  WeightedAverage
                Interest
      Rateat
                December
      31,2009
              
              
              2008
              
              
              2009
              
              2008National
      Alpha Offering (Note 9)
              
              $
              11,829
              
              
              $
              24,208
              
              
              
              5.45%
              
              
              5.38%Class
      A Offering (Note 9)
              
              
              46,012
              
              
              
              36,480
              
              
              
              3.70%
              
              
              4.57%Special
      offering notes
              
              
              8,578
              
              
              
              14,508
              
              
              
              4.66%
              
              
              4.88%Special
      Subordinate notes
              
              
              2,700
              
              
              
              --
              
              
              
              7.00%
              
              
              --International
      notes
              
              
              408
              
              
              
              578
              
              
              
              4.41%
              
              
              5.40%$
              69,527
              
              
              $
              75,774
  The
following are maturities of notes payable for each of the next five
years:
 
 Year Ending December
31,
 
 2010
              
              $
              38,7002011
              
              
              7,4732012
              
              
              4,3922013
              
              
              5,8332014
              
              
              7,683Thereafter
              
              
              5,446$
              69,527
 
 Notes
      are payable to investors who have purchased the securities, including
      individuals, churches, and Christian ministries, many of whom are members
      of ECCU. All notes payable are unsecured. Notes pay interest at stated
      spreads over an index rate that is adjusted every month. Interest can be
      reinvested or paid at the investor's option. The Company may repurchase
      all or a portion of notes at any time at its sole discretion, and may
      allow investors to redeem their notes prior to maturity at its sole
      discretion.
 
 The
      Alpha Class Notes contain covenants pertaining to limitations on
      restricted payment, maintenance of tangible net worth, limitation on
      issuance of additional notes and incurrence of indebtedness.  The
      Alpha Class Notes require the Company to maintain a minimum tangible
      adjusted net worth, as defined in the Loan and Standby Trust Agreement, of
      not less than $4.0 million.  The Company is not permitted to issue
      any Alpha Class Notes if, after giving effect to such issuance, the Alpha
      Class Notes then outstanding would have an aggregate unpaid balance
      exceeding $100.0 million.  The Company’s other indebtedness, as
      defined in the Loan and Standby Trust Agreement, and subject to certain
      exceptions enumerated therein, may not exceed $10.0 million outstanding at
      any time while any Alpha Class Note is outstanding.  The Company is
      in compliance with these covenants as of December 31, 2009 and December
      31, 2008.  Effective April 18, 2008, the Company has
      discontinued the sale of Alpha Class
Notes.
 
 F-20
 The
      Class A Notes also contain restrictive covenants pertaining to paying
      dividends, making redemptions, acquiring, purchasing or making certain
      payments, requiring the maintenance of minimum tangible net worth,
      limitations on the issuance of additional notes and incurring of
      indebtedness.  The Class A Notes require the Company to maintain a
      minimum tangible adjusted net worth, as defined in the Class A Notes Trust
      Indenture Agreement, of not less than $4.0 million.  The Company is
      not permitted to issue any Class A Notes if, after giving effect to such
      issuance, the Alpha Class Notes then outstanding would have an aggregate
      unpaid balance exceeding $100.0 million.  The Company’s other
      indebtedness, as defined in the Class A Notes Trust Indenture Agreement,
      and subject to certain exceptions enumerated therein, may not exceed $20.0
      million outstanding at any time while any Alpha Class Note is
      outstanding.  The Company was in compliance with these covenants as
      of December 31, 2009.
 
 Historically,
      most of the Company’s unsecured notes have been renewed by investors upon
      maturity.  Because the Company has discontinued its sale of
      Alpha Class Notes effective April 18, 2008, all holders of such notes that
      mature in the future may reinvest such sums by purchasing Class A Notes
      that have been registered with the Securities and Exchange Commission (see
      Note 9 below).  For matured notes that are not renewed, the
      Company funds the redemption in part through proceeds from the repayment
      of loans, and issuing new notes
payable.
 
 Note
      9.
              Public
      Offerings
 
 In
      July 2001, the Company registered with the Securities and Exchange
      Commission (the SEC) the sale of $25.0 million of Alpha Class Notes issued
      pursuant to a Loan and Standby Trust Agreement authorizing the issuance of
      up to $50.0 million of such notes.  In April 2003, the Company
      registered with the SEC the sale of an additional $25.0 million of Alpha
      Class Notes.  In April 2005, the Company registered with the SEC
      the sale of up to $50.0 million of a new Alpha Class Notes issued pursuant
      to a Trust Indenture authorizing the issuance of up to $200.0 million of
      such notes.  In May 2007, the Company registered with the SEC
      the sale of an additional $75.0 million of the new Alpha Class Notes. With
      the registration of its Class A Notes, the Company has discontinued the
      sale of the Alpha Class Notes effective as of April 18,
      2008.  At December 31, 2009 and December 31, 2008, $11.8 million
      and $24.2 million of these notes were outstanding,
      respectively.
 
 In
      April 2008, the Company registered with the SEC $80.0 million of new Class
      A Notes in three series, including a Fixed Series, Flex Series and
      Variable Series.  This is a "best efforts" offering and is
      expected to continue through April 30, 2010.  The offering
      includes three categories of notes, including a fixed interest note, a
      variable interest note, and a flex note, which allows borrowers to
      increase their interest rate once a year with certain
      limitations.  The interest rates the Company pays on the Fixed
      Series Notes and the Flex Series Notes are determined by reference to the
      Swap Index, an index that is based upon a weekly average Swap rate
      reported by the Federal Reserve Board, and is in effect on the date they
      are issued, or in the case of the Flex Series Notes, on the date the
      interest rate is reset. These notes bear interest at the Swap Index plus a
      rate spread of 1.7% to 2.5% and have maturities ranging from 12 to 84
      months.  The interest rates the Company pays on the Variable
      Series Notes are determined by reference to the Variable Index in effect
      on the date the interest rate is set and bear interest at a rate of the
      Swap Index plus a rate spread of 1.50% to 1.80%.  Effective as
      of January 5, 2009, the Variable Index is defined under the Class A Notes
      as the three month LIBOR rate.  The Notes were issued under a
      Trust Indenture between the Company and U.S. Bank National Association (US
      Bank).  The Notes are part of up to $200 million of Class A
      Notes the Company may issue pursuant to the US Bank
      Indenture.  The Trust Indenture covering the Class A Notes
      contains covenants pertaining to a minimum fixed charge coverage ratio,
      maintenance of tangible net worth, limitation on issuance of additional
      notes and incurrence of indebtedness.  At December 31, 2009 and
      2008, $46.0 million and $36.5 million of these notes were outstanding,
      respectively.
 
 F-21
 Note
      10.
              Preferred StockUnder C Corporation
Structure
 
 The
      Class I Preferred Stock was entitled to annual cumulative dividends,
      payable quarterly, equal to the liquidation preference times a dividend
      rate of 190 basis points over the 1-year LIBOR rate in effect on the last
      day of the calendar month in which the dividend was declared.  The
      Class I Preferred Stock had a liquidation preference of $100 per share;
      had no voting rights except as required under California law; and was
      subject to redemption for an amount equal to the liquidation preference of
      each share, plus any accrued and unpaid dividends on such shares, in whole
      or in part, at the Company’s election. The resale of the Company’s common
      stock and preferred stock was subject to the Company’s first right of
      refusal to purchase shares proposed to be transferred.  During 2008,
      the Company purchased 1,900 shares of Class I Preferred stock from two
      different shareholders.  The Company also sold 11,578 shares of
      Class I Preferred stock to ECCU, resulting in 98,600 shares of that class
      of stock outstanding just prior to December 31,
  2008.
 
 The
      Class II Preferred Stock had right preferences and privileges identical to
      the Class I Preferred Stock, except it was entitled to dividends equal to
      the liquidation preference of $100 per share times a dividend rate of one
      percent (1%) per annum, and the holders of the Class I Preferred Stock did
      not have the right to appoint directors upon the Company’s failure to pay
      dividends.
 
 Note
      11.
              Preferred
      and Common Units Under LLC
Structure
 
 On
      December 31, 2008, the Company’s Class I Preferred Stock and Class II
      Preferred Stock were converted into Series A Preferred Units. The Series A
      Preferred Units are entitled to a cumulative Preferred Return, payable
      quarterly in arrears, equal to the liquidation preference times a dividend
      rate of 190 basis points over the 1-year LIBOR rate in effect on the last
      day of the calendar month in which the Preferred Return is paid.  In
      addition, the Series A Preferred Units are entitled to an annual Preferred
      Distribution, payable in arrears, equal to 10% of the Company’s profits,
      after subtracting from profits the Preferred
  Return.
 
 The
      Series A Preferred Units have a liquidation preference of $100 per unit;
      have no voting rights; and are subject to redemption in whole or in part
      at the Company’s election on December 31 of any year, for an amount equal
      to the liquidation preference of each unit, plus any accrued and unpaid
      Preferred Return and Preferred Distribution on such units. The Preferred
      Units have priority as to earnings and distributions over the Common
      Units. The resale of the Company’s Preferred Units and Common Units are
      subject to the Company’s first right of refusal to purchase units proposed
      to be transferred.  Upon the Company’s failure to pay a Preferred
      Return for four consecutive quarters, the holders of the Series A
      Preferred Units have the right to appoint two
  managers.
 
 On
      December 31, 2008, the Company’s Common Stock was converted into the Class
      A Common Units. The Class A Common Units have voting
    rights.
 
 F-22
 Note
      12.
              Income
      Taxes
 
 Effective
      December 31, 2008, the Company converted from a C corporation to a
      California limited liability company (LLC). The conversion gave rise to a
      loss for the year ended December 31, 2008 for income tax purposes only.
      The Company will be able to recover $140 thousand of federal taxes paid in
      prior years through the carryback of the tax loss. The deferred tax asset
      has been eliminated as of December 31, 2008 since the Company is no
      longer an income tax-paying entity.
 
 The
components of the benefit from income taxes at December 31, 2008 were as
follows:
 2008Current:Federal
              
              $
              --State
              
              
              1Federal
      tax carryback
              
              
              (140
              )139Deferred:Federal
              
              
              90State
              
              
              26Change
      in valuation allowance
              
              
              --116Benefit
      from income taxes
              
              $
              (23
              )
 
 The
      reason for the differences between the statutory federal income tax rate
      and the effective tax rates at December 31, 2008 are summarized as
      follows:
 
 Statutory
      tax rate
              
              
              34.0%Increase
      (decrease) resulting from:Loss
      on conversion to LLC
              
              
              (53.3
              )Elimination
      of net deferred tax asset
              
              
              16.1Effective
      tax rate
              
              
              (3.2%
              )
 
 Note
13.         Comprehensive
Income
 
 Comprehensive
income consists of net income and other comprehensive income or
loss.  The components of other comprehensive income (loss) are shown
below for the years ended December 31.  No tax effect is
recognized since the Company is not a tax-paying entity.
 
 2009
              
              
              2008Change
      in fair value of derivatives used for
                cash
      flow hedgesInterest rate
    swaps
              
              $
              518,000
              
              
              $
              (405,000
              )Interest rate
    caps
              
              
              (72,000
              )
              
              
              --446,000
              
              
              
              (405,000
              )Tax effect
              
              
              --
              
              
              
              --Net of tax
    amount
              
              $
              446,000
              
              
              $
              (405,000
              )
  F-23
 Note
      14.
              Retirement
      Plans
 
 The
      Company’s employees participated in ECCU's defined contribution plan that
      included two components: a 401(k) plan and a profit sharing plan. In
      addition, until December 31, 2007, certain officers participated in a long
      term incentive program through the leased employee arrangement with
      ECCU.  Effective January 1, 2008, the Company terminated its
      employee leasing arrangement with ECCU and the Company’s officers no
      longer participate in ECCU’s defined contribution plan and incentive
      program.  However, some of the benefits related to the long-term
      incentive program carried over into 2008.  Employee benefits
      related to the long-term incentive program totaled
      $43.2  thousand for the year ended December 31,
      2008.  None of the benefits carried over into
    2009.
 
 401(k)
 
 Employees
      who are at least 21 years of age are eligible to participate in the
      Administaff 401(k) plan upon the hire date. No minimum service is required
      and the minimum age is 21. Each employee may elect voluntary contributions
      not to exceed 60% of salary, subject to certain limits based on Federal
      tax law. The plan has a matching program, the percent of which is annually
      determined by the managers. Matching contributions for the plan years
      ended December 31, 2009 and 2008 were $35.7 and $39.3 thousand,
      respectively.
 
 Profit
      Sharing
 
 The
      profit sharing plan is for all employees who, at the end of the calendar
      year, are at least 21 years old, still employed, and have at least 900
      hours of service during the plan year. The amount annually contributed on
      behalf of each qualified employee is determined by the managers, and is
      calculated as a percentage of the eligible employee's annual earnings.
      Plan forfeitures are used to reduce the Company’s annual contribution.
      Contributions for the plan years ended December 31, 2009 and 2008
      were $10.3 thousand and $8.8 thousand,
  respectively.
 
 Note
      15.
              Fair
      Value
 
 Fair
      Value of Financial Instruments
 
 The
carrying amounts and estimated fair values of financial instruments at December
31 are as follows:
 
 2009
              
              
              2008Carrying
              
              
              Estimated
              
              
              Carrying
              
              
              EstimatedAmount
              
              
              Fair
      Value
              
              
              Amount
              
              
              Fair
      ValueFinancial
      Assets:Cash
              $
              9,980
              
              
              $
              9,980
              
              
              $
              14,889
              
              
              $
              14,889Loans
              
              196,858
              
              
              
              194,713
              
              
              
              257,176
              
              
              
              252,192Accrued
      interest receivable
              
              956
              
              
              
              956
              
              
              
              1,374
              
              
              
              1,374Interest
      rate caps
              
              73
              
              
              
              73
              
              
              
              --
              
              
              
              --Financial
      Liabilities:Notes
      payable
              
              69,527
              
              
              
              69,117
              
              
              
              75,774
              
              
              
              76,748Borrowings
      from financial institutions
              
              125,759
              
              
              
              123,997
              
              
              
              185,146
              
              
              
              186,303Accrued
      interest payable
              
              142
              
              
              
              142
              
              
              
              292
              
              
              
              292Dividends
      payable
              
              85
              
              
              
              85
              
              
              
              103
              
              
              
              103Interest
      rate swaps
              
              --
              
              
              
              --
              
              
              
              518
              
              
              
              518
  F-24
 Management
      uses judgment in estimating the fair value of the Company’s financial
      instruments; however, there are inherent weaknesses in any estimation
      technique. Therefore, for substantially all financial instruments, the
      fair value estimates presented herein are not necessarily indicative of
      the amounts the Company could have realized in a sales transaction at
      December 31, 2009 and 2008.
 
 The
      following methods and assumptions were used to estimate the fair value of
      financial instruments:
 
 Cash
      – The carrying amounts reported in the balance sheets approximate fair
      value for cash.
 
 Loans
      – Fair value is estimated by discounting the future cash flows using the
      current average rates at which similar loans would be made to borrowers
      with similar credit ratings and for the same remaining
      maturities.
 
 Notes
Payable – The fair value of fixed maturity notes is estimated by discounting the
future cash flows using the rates currently offered for notes payable of similar
remaining maturities.
 
 Borrowings
from Financial Institutions – The fair values of borrowings from financial
institutions are estimated using discounted cash flow analyses based on current
incremental borrowing rates for similar types of borrowing
arrangements.
 
 Derivative
      Financial Instruments – The fair values for interest rate swap agreements
      and interest rate caps are based upon the amounts required to settle the
      contracts.
 
 Off-Balance
Sheet Instruments – The fair value of loan commitments is based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing. The
fair value of loan commitments is insignificant at December 31, 2009 and
2008.
 
 Fair
Value Measurements Using Fair Value Hierarchy
 
 Effective
January 1, 2009, the Company fully adopted ASC 820, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. ASC 820 applies only to fair
value measurements already required or permitted by other accounting standards
and does not impose requirements for additional fair value
measures.
 
 Measurements
of fair value are classified within a hierarchy based upon valuation inputs that
gives the highest priority to quoted prices in active markets for identical
assets or liabilities and the lowest priority to unobservable inputs. The fair
value hierarchy is as follows:
 
 ·
              Level
      1 inputs are quoted prices (unadjusted) for identical assets or
      liabilities in active markets.
 
 ·
              Level
      2 inputs include quoted prices for similar assets and liabilities in
      active markets, quoted prices for identical assets and liabilities in
      inactive markets, inputs that are observable for the asset or liability
      (such as interest rates, prepayment speeds, credit risks, etc.), or inputs
      that are derived principally from or corroborated by observable market
      data by correlation or by other
means.
 
 ·
              Level
      3 inputs are unobservable and reflect an entity’s own assumptions about
      the assumptions that market participants would use in pricing the assets
      or liabilities.
 
 F-25
 The
      following section describes the valuation methodologies used for assets
      measured at fair value, as well as the general classification of such
      instruments pursuant to the valuation
hierarchy.
 
 Fair
      Value Measured on a Recurring Basis
 
 The
      table below presents the balance of assets and liabilities measured at
      fair value on a recurring basis and the level of inputs used to measure
      fair value:
 
 Fair
      Measurement UsingQuoted
      Prices
              
              SignificantIn Active
              
              Other
              
              
              SignificantMarkets
      for
              
              Observable
              
              
              UnobservableIdentical
      Assets
              
              Inputs
              
              
              Inputs(Level
      1)
              
              (Level
      2)
              
              
              (Level
      3)
              
              
              TotalAt
      December 31, 2009Interest rate caps(asset)$
              --
              
              $
              73
              
              
              $
              --
              
              
              $
              73At December 31, 2008Interest rate
    swaps(liability)
              $
              --
              
              $
              518
              
              
              $
              --
              
              
              $
              518
 
 Fair
value of interest rate caps and interest rate swaps are estimated by the
counterparties using market expectations of future interest rates, which
constitute Level 2 inputs.
  Fair
      Value Measured on a Nonrecurring
Basis
 
 Certain
      assets are measured at fair value on a nonrecurring basis; that is, the
      assets are not measured at fair value on an ongoing basis but are subject
      to fair value adjustments in certain circumstances (for example, when
      there is evidence of impairment). The following table presents such assets
      carried on the balance sheet by caption and by level within the valuation
      hierarchy:
 
 Fair
      Measurement UsingQuoted
      Prices
                
                SignificantIn Active
                
                Other
                
                
                SignificantMarkets
      for
                
                Observable
                
                
                UnobservableIdentical
      Assets
                
                Inputs
                
                
                Inputs(Level
      1)
                
                (Level
      2)
                
                
                (Level
      3)
                
                
                TotalAt
      December 31, 2009Impaired loans$
                --
                
                $
                8,086
                
                
                $
                22,443
                
                
                $
                30,529At December 31, 2008Impaired loans$
                --
                
                $
                --
                
                
                $
                4,025
                
                
                $
                4,025
 Impaired Loans
 
 Collateral-dependent
      impaired loans are carried at the fair value of the collateral less
      estimated costs to sell. The fair value of collateral is determined based
      on appraisals. In some cases, adjustments were made to the appraised
      values for various factors including age of the appraisal, age of
      comparables included in the appraisal, and known changes in the market and
      in the collateral. When significant adjustments were based on unobservable
      inputs, the resulting fair value measurement has been categorized as a
      Level 3 measurement. Otherwise, collateral-dependent impaired loans are
      categorized under Level 2.
 
 F-26
 Impaired
loans that are not collateral dependent are carried at the present value of
expected future cash flows discounted at the loan’s effective interest rate.
Troubled debt restructurings are also carried at the present value of expected
future cash flows. However, expected cash flows for troubled debt restructurings
are discounted using the loan’s original effective interest rate rather than the
modified interest rate. Since fair value of these loans is based on management’s
own projection of future cash flows, the fair value measurements are categorized
as Level 3 measurements.
 
 Note
      16.
              Condensed
      Financial Statements of Parent
Company
 
 Financial
      information pertaining only to the parent company, Ministry Partners
      Investment Company, LLC, is as
follows:
 
 
 Balance
      Sheets
                
                December 31,2009
                
                
                2008AssetsCash
                
                $
                9,980
                
                
                $
                11,829Loans,
      net of allowance for loan losses
                
                
                196,858
                
                
                
                143,206Accrued
      interest receivable
                
                
                956
                
                
                
                664Property
      and equipment, net
                
                
                247
                
                
                
                262Investment
      in MPF
                
                
                --
                
                
                
                32,027Debt
      issuance costs
                
                
                419
                
                
                
                532Other
      assets
                
                
                294
                
                
                
                423Total
      assets
                
                $
                208,754
                
                
                $
                188,943
 December 31,2009
                
                
                2008Liabilities
      and equityBorrowings
      from financial institutions
                
                $
                125,759
                
                
                $
                99,875Notes
      payable
                
                
                69,527
                
                
                
                75,774Accrued
      interest payable
                
                
                142
                
                
                
                141Other
      liabilities
                
                
                472
                
                
                
                402Total
      liabilities
                
                
                195,900
                
                
                
                176,192Equity
                
                
                12,854
                
                
                
                12,751Total
      liabilities and equity
                
                $
                208,754
                
                
                $
                188,943
  F-27
 Statements
      of Income
                
                Years Ended December 31,2009
                
                
                2008Income:Interest
      income
                
                $
                9,009
                
                
                $
                7,008Other
      income
                
                
                11
                
                
                
                33Total
      income
                
                
                9,020
                
                
                
                7,041Interest
      expense:Interest
      on lines of credit
                
                
                4,496
                
                
                
                2,434Interest
      on notes payable
                
                
                3,308
                
                
                
                3,632Total
      interest expense
                
                
                7,804
                
                
                
                6,066Provision
      for loan losses
                
                
                1,268
                
                
                
                328Other
      operating expenses
                
                
                2,327
                
                
                
                1,468Loss
      before benefit from income taxes
                
                
                (2,379
                )
                
                
                (821
                )Benefit
      from income taxes
                
                
                --
                
                
                
                (23
                )(2,379
                )
                
                
                (798
                )Equity
      in undistributed net income of MPF
                
                
                2,433
                
                
                
                1,542Net
      income
                
                $
                54
                
                
                $
                744Statements
      of Cash Flows
                
                Years Ended December 31,2009
                
                
                
                2008Cash
      Flows from Operating ActivitiesNet
      income
                
                $
                54
                
                
                $
                744Adjustments
      to reconcile net incometo
      net cash provided by (used in) operating activities:Equity
      in undistributed net income of MPF
                
                
                (2,433
                )
                
                
                (1,542
                )Depreciation
                
                
                48
                
                
                
                14Provision
      for loan losses
                
                
                1,268
                
                
                
                28Accretion
      of allowance for loan losses onrestructured
      loan
                
                
                (110
                )
                
                
                --Accretion
      of loan discount
                
                
                (98
                )
                
                
                --Amortization
      of deferred loan (fees) costs
                
                
                (86
                )
                
                
                (94
                )Amortization
      of debt issuance costs
                
                
                253
                
                
                
                176Net
      change in:Interest
      receivable
                
                
                (292
                )
                
                
                (370
                )Other
      assets
                
                
                202
                
                
                
                (192
                )Other
      liabilities
                
                
                71
                
                
                
                (319
                )Net
      cash used in operating activities
                
                
                (1,123
                )
                
                
                (1,255
                )
  F-28
 Cash
      Flows from Investing ActivitiesLoan
      purchases from ECCU
                
                
                (10,435
                )
                
                
                (96,427
                )Loan
      purchases from MPF
                
                
                (72,308
                )
                
                
                --Loan
      originations
                
                
                (292
                )
                
                
                (19,309
                )Loan
      sales
                
                
                33,697
                
                
                
                --Loan
      principal collections, net
                
                
                29,708
                
                
                
                26,706Investment
      in MPF
                
                
                --
                
                
                
                (8,506
                )Purchase
      of property and equipment
                
                
                (33
                )
                
                
                (252
                )Net
      cash used in investing activities
                
                
                (19,663
                )
                
                
                (97,788
                )Cash
      Flows from Financing ActivitiesNet
      change in borrowings from financial institutions
                
                
                25,884
                
                
                
                95,159Net
      change in notes payable
                
                
                (6,247
                )
                
                
                13,717Debt
      issuance costs
                
                
                (140
                )
                
                
                (41
                )Net
      proceeds from issuance of preferred stock
                
                
                --
                
                
                
                1,158Purchase
      of interest rate caps
                
                
                (148
                )
                
                
                --Purchase
      of preferred stock
                
                
                --
                
                
                
                (190
                )Dividends
      paid on preferred stock
                
                
                (412
                )
                
                
                (506
                )Net
      cash provided by financing activities
                
                
                18,937
                
                
                
                109,297Net
      increase (decrease) in cash
                
                
                (1,849
                )
                
                
                10,254Cash
      at beginning of year
                
                
                11,829
                
                
                
                1,575Cash
      at end of year
                
                $
                9,980
                
                
                $
                11,829
 
 F-29
 Item
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 
 None.
 
 Item
9A. CONTROLS AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 
 Our
Principal Executive Officer and Principal Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal period ending
December 31, 2009 covered by this Annual Report on Form 10-K. Based upon such
evaluation, our Principal  Executive Officer and Principal Financial
Officer have concluded that our disclosure controls and procedures were
effective as of December 31, 2009. This conclusion by our Principal Executive
Officer and Principal Financial Officer does not relate to reporting periods
after December 31, 2009.
 
 Changes
in Internal Control Over Financial Reporting
 
 There
have been no changes in our internal controls over financial reporting during
the year ended December 31, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
our financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act). Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of
America.
 
 Our
internal controls over financial reporting include those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that our
receipts and expenditures are being made only in accordance with authorizations
of management and the Board; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
our assets that could have a material effect on our financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 -72-
 Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009.  In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission Internal Control-Integrated Framework. Based on this assessment,
management believes that, as of December 31, 2009, our internal control over
financial reporting is effective.
 
 This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this Annual Report on Form 10-K.
 
 Item
9B. OTHER INFORMATION
 
 None.
 
 PART
III
 
 Item
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
 Set forth
below are the members of our Board of Managers and executive
officers:
 
 Name
              Age
              ManagersMark
      G. Holbrook
              59
              Chairman
      of the Board, Chief Executive OfficerBilly
      M. Dodson
              49
              President,
      Assistant SecretaryVan
      C. Elliott
              72
              Secretary,
      ManagerSusan
      B. Reilly
              53
              Vice
      President of Finance and Principal Accounting OfficerRobert
      Schepman
              70
              Vice
      President, Lender RelationsHarold
      D. Woodall
              63
              Vice
      President for LendingArthur
      G. Black
              71
              ManagerJuli
      Anne S. Callis
              57
              ManagerJeffrey
      T. Lauridsen
              60
              ManagerR.
      Michael Lee
              51
              ManagerRandolph
      P. Shepard
              54
              Manager
 
 The
following is a summary of the business experience of our officers and
managers.  With our conversion from a corporation to an LLC on
December 31, 2008, we are governed by a Board of Managers that supervises our
affairs.
 
 MARK G. HOLBROOK has served as
our Chairman and Chief Executive Officer since inception. Mr. Holbrook also
serves as President and Chief Executive Officer of ECCU. He began his career
with ECCU in 1975 and has served as its President since 1984. ECCU currently has
assets under management of over $2.5 billion and more than 10,000 members in 50
states and 100 foreign countries. Mr.
Holbrook has served as Chairman of the Board of Christian Management
Association. He received his Bachelor of Arts degree from Biola University in
1973 and has completed post-graduate studies at Chapman
College.  Mr. Holbrook brings to our board extensive experience
in the credit union industry, a deep understanding of our business and our
investments, and relationships with the credit unions which comprise our equity
members.
 
 -73-
 BILLY (BILL) M. DODSON became
our President on May 8, 2006, and was elected Assistant Secretary in October
2007. Before joining us, he served as Vice President of Sales for California
Plan of Church Finance, Inc., a registered broker-dealer starting in August
2000. While at that company, he managed all aspects of a brokerage operation,
which annually distributed to investors between $125 and $175 million of church
mortgage bonds. Prior to joining California Plan of Church Finance, Inc., Mr.
Dodson served as Pastor for the West Valley Church in Sherwood, Oregon. Mr.
Dodson received his Bachelor of Journalism degree from the University of Texas
and a Master of Divinity degree from Southwestern Baptist Theological Seminary.
In the past, Mr. Dodson has held numerous securities and insurance licenses. He
is a graduate of the Securities Industry Institute at the Wharton School,
University of Pennsylvania.
 
 VAN C. ELLIOTT has served as a
member of our Board since 1991. He has served as director for ECCU, from April
1991 until the present (except from March 1997 to March 1998 and March 2004 to
March 2005). Mr. Elliott served as associate director of the Conservative
Baptist Association of Southern California from 1980 to 1994, where he was
responsible for the general administrative oversight of the association’s
activities. Since that time, he has been self-employed as a consultant providing
financial and fund raising consultation services to church and church-related
organizations. He received his Bachelor’s and Master’s degrees in mathematics
and speech from Purdue University and spent seven years in the computer
industry.  Mr. Elliott holds a Master of Divinity from Denver Seminary
and has spent fourteen years in local church ministries serving in the area of
Christian education and administration.  He has completed
post-graduate instruction at the College for Financial planning.  Mr.
Elliott is a member of the Financial Planning Association and holds the
professional designation of Certified Financial planner.®   Mr.
Elliott brings to our board his extensive experience as a credit union board
member, and intimate knowledge of church and ministry financial
operations.  He serves on our Executive Committee and on our Audit
Committee.
 
 SUSAN B. REILLY has served as
our Vice President of Finance and Principal Accounting Officer since December
2007. Prior to joining us, Ms. Reilly served as Controller for Pacific Rim
Capital, a private equity investment firm. Before joining that firm in 2007, she
was Senior Vice President and Treasurer for East West Bank. Prior to joining
East West Bank in 2004, Ms. Reilly served as Treasurer for Catalina Restaurant
Group. Before joining that company in 2003, she worked for Parson Consulting
Group. Ms. Reilly holds a Bachelor of Science Degree from the University of
California Riverside. She completed post-graduate work at California State
Fullerton and attended the University of Southern California - Marshall School
of Business - East West Bank Leadership Program.
 
 ROBERT SCHEPMAN has served as
our Vice President for Lender Relations since August of 2009.  Mr.
Schepman has originated church mortgages for twenty years, beginning with
Christian Mutual Life in 1987, and serving as a Ministry Development Officer for
ECCU for 17 years until his retirement in 2008. From 1981 to 1987 Mr.
Schepman originated commercial loans and commercial real estate syndications as
a partner in Commercial Capital Resources. Prior to that time, Mr. Schepman
owned and operated a commercial metal fabrications business for nine years, and
enjoyed earlier successes as a securities salesperson and in various other
product sales capacities. Mr. Schepman earned his Bachelor of Business
Administration degree from Woodbury University, Los Angeles, in
1960.  He has held the California Real Estate Broker license since
1990.
 
 -74-
 HAROLD D. WOODALL has served
as our Vice President for Lending since May 2007. His responsibilities include
the general management of development, underwriting, and processing of loan
origination and mortgage investment. Mr. Woodall previously served as Vice
President for Lending Services at the California Baptist Foundation from 1996 to
2006, where he was responsible for general management of a $130 million loan
fund, including origination of over $500 million in church and ministry loans
during that period.  His previous experience also includes commercial
lending, medical equipment manufacturing, real estate sales, oil and gas
production and agribusiness consulting. Mr. Woodall is a graduate of Oklahoma
State University in Stillwater Oklahoma with a B.S. in Agricultural
Economics.
 
 ARTHUR G. BLACK has served as
a member of our Board since 1997.  Mr. Black was initially elected to
our board to replace the seat previously held by Mr. Paul A.
Kienel.  He also currently serves as Chairman of the Board of
Directors for Haven Ministries. Mr. Black previously served as Director of
Ministry Support for Ambassador Advertising Agency from 1998 to 2007. Prior to
joining that firm, he had served as a ministry development officer at ECCU. Mr.
Black served as Executive Vice President of Truth For Life from 1994 to 1996.
Truth For Life is a nationally-syndicated radio Bible teaching ministry. He held
similar positions with the Biola Hour from 1981 to 1991 and Solid Rock Radio
from 1991 to 1993, and he served as director of U.S. broadcasting for Insight
For Living from 1993 to 1994. Mr. Black has been in Christian ministry
management since 1974. Prior to that, he served in various corporate sales and
marketing management positions and was for six years owner/President of two
consumer product/service companies. He is a General Partner for Rancho Sierra
Acres, Christian Investors, P/L Properties and Ocean View Investors. Mr. Black
has completed the equivalent to two years of business courses towards a degree
in business at UCLA.  Mr. Black’s long history of working for and with
evangelical ministries provides us with keen insights into the needs and
operations of the ministries who are our borrowers and investors.  Mr.
Black serves as Chairman of our Investment Committee.
 
 JULI ANNE S. CALLIS has served
as a member of our Board since 2007.  She is currently Chief Executive
Officer of the National Institute of Health Federal Credit Union. Prior to her
current engagement, she was Executive Vice President and Chief Operating Officer
of KeyPoint Credit Union and the President of its subsidiary, KeyPoint Financial
Services. Before joining KeyPoint Credit Union, Ms. Callis served as Vice
President for Business Development, Marketing and Legislative Affairs from
1988-1995 at Langley Federal Credit Union. Prior to joining the credit union
industry, Ms. Callis served as the Director of Sales for the US Navy Mid
Atlantic Region, which included the direct responsibility for public relations
and sales for all Navy Exchange and Commissary Operations in the Mid Atlantic
States, Europe, Iceland and Bermuda. Ms. Callis received her Bachelor of Science
degree in Community Health and Education from East Carolina University and
received a Master’s degree in Organizational Development from the University of
San Francisco, where she is pursuing a Ph.D. She also serves as Chair for the
Executive Committee of the Open Solutions, Inc. Client Association, and as a
Trustee of the International Mission board of the Southern Baptist
Convention.  Mrs. Callis provides our board with the benefit of her
extensive experience in financial institution operations and technology, and
especially asset-liability management expertise.  Mrs. Callis serves
as our Vice Chair of our Board, Chair of the Asset-Liability Management
Committee, and is also a member of our Executive Committee.
 
 -75-
 JEFFREY T. LAURIDSEN has
served as a member of our Board since October 2007.  He is an attorney
in private practice with the Law Offices of Anh Quoc Duy Nguyen in Garden Grove,
California. Before establishing his current practice, Mr. Lauridsen served
with several other law firms in the Orange County area, as partner and senior
associate. Mr. Lauridsen’s 17 years of law practice have focused on corporate
law, and encompassed both trial and appellate work in diverse areas of law,
including business litigation, construction defect, general liability, premises
liability, products, medical malpractice, ERISA, insurance coverage, automobile
liability, insurance bad faith, employment and labor law, sexual harassment,
sexual molestation and others. Prior to entering into the practice of law, Mr.
Lauridsen worked as a claim representative in the insurance industry for 19
years. Mr. Lauridsen received his Associate of Arts degree in Political
Science from Fullerton College. He received his Bachelor of Science in Law and
Juris Doctorate degrees from California Southern Law School. He has served as
Elder at Grace Church in Orange, California for 18
years.  Mr. Lauridsen brings to our board the perspective of an
experienced attorney, as well as intimate knowledge of ministry
governance.  Mr. Lauridsen serves on our Investment Committee and
Audit Committee.
 
 R. MICHAEL LEE has served as a
member of our Board since January 2008. Mr. Lee currently serves as Vice
President Member Relations, Midwest Region, of Members United Corporate Federal
Credit Union. Mr. Lee joined Mid-States Corporate Federal Credit Union in 2005,
prior to the merger that created Members United. He has served as Senior Vice
President of Sales for Corporate Network eCom, Senior Vice President of
Marketing and Member Services at U.S. Central Credit Union, and Senior Vice
President, Marketing and Member Services at Corporate One Credit Union,
Inc.  Prior to this, he spent 15 years in the insurance industry,
serving the needs of business owners. Mr. Lee attended Southern Illinois
University, CUNA’s Financial Management School, and has completed numerous
industry training sessions throughout his career.  Mr. Lee adds
special expertise to our board with his years of experience as an executive of a
large financial institution, and with deep knowledge of marketing and
sales.  Mr. Lee serves as a member of our Governance Committee and
Asset-Liability Management Committee.
 
 RANDOLPH (RANDY) P. SHEPARD
has served as a member of our Board since January 2008. Mr. Shepard is
currently the Senior Vice President/Investments and Subsidiary Companies of
Western Federal Credit Union. Prior to assuming this position in 2003,
Mr. Shepard was the Vice President and Chief Financial Officer of Western
Federal Credit Union. He attended the University of Redlands and has a
certificate of Executive Management from Claremont Graduate
School.  Mr. Shepard brings to our board his long experience as both a
Chief Financial Officer and a Chief Investment Officer of a large financial
institution, providing deep knowledge of accounting, finance and credit
subjects.  Mr. Shepard serves as the Chairman of our Audit
Committee and qualifies as a financial expert as defined in Item 401(e) of
Regulation S-K.
 
 -76-
 Our
Board of Managers
 
 Under our
Operating Agreement, our Board and officers are charged with governing and
conducting our business and affairs. The Operating Agreement charges our Board
with essentially the same duties, obligations and responsibilities as a board of
directors of a corporation. The Board establishes our policies and reviews them
periodically and has authorized designated officers and our President the
authority to carry out those policies.
 
 The Board
has elected Mr. Holbrook as our chairman every year since our inception in
1991.  When initially formed, we were a wholly-owned subsidiary of
ECCU.  At that time, the board consisted of ECCU executives and a
number of independent directors.   In 2006, upon our
recapitalization, our shareholders elected a new board of directors consisting
of ten members.  Four of those members were affiliated with ECCU,
two with other credit unions that owned our shares, and four were
independent.  At our latest meeting of the holders of our Class A
Units, held on February 11, 2010, the holders of Class A Units elected
eight managers to the Board.  Three of the newly elected managers are
affiliated with ECCU, one with a member credit union, and four are independent.
As a result of Mr. Vandeventer's
resignation from the Board of Directors effective as of March 23, 2010, our
Board consists of seven managers, a majority of which are independent
managers.
 
 The Board
has established the following committees to help oversee various aspects of our
business:
 
 ·
              Our
      Executive Committee is charged with responsibility for determining the
      President’s compensation and undertaking other matters of an executive
      nature;·
              Our
      Audit Committee is chartered to oversee the annual audit of our financial
      reports, oversee the establishment and maintenance of internal controls,
      and oversee compliance with our Ethics Policy;·
              Our
      Investment Committee is authorized to oversee compliance with our Loan
      Policy and to review the performance and management of our loan
      portfolio;·
              Our
      Asset Liability Committee is chartered to oversee the maintenance of our
      asset liability strategy and process, as well as our asset liability,
      liquidity, and other policies relating to the mitigation of risks to our
      earnings and capital; and·
              Our
      Governance Committee is charged with responsibility for the board
      governance policies, including our Related Parties Transaction Policy, and
      with the periodic task of nominating persons for election to the
      board.
 
 The Board
is actively involved in and regularly meets with members of our senior
management to discuss capital adequacy, use of leverage, and liquidity issues we
face.  Our ALM Committee regularly meets with the objective of
performing oversight of interest rate risk, future net interest income and
expense, capital and liquidity forecasts and review of trends impacting our
balance sheet.  For 2010, the Board has committed to expanding and
further developing a system for measuring, monitoring, managing and reporting
the portfolio risks we face in our balance sheet.
 
 -77-
 Our
Chief Executive Officer
 
 Since
inception, Mr. Holbrook has served both as our Chairman and our Chief Executive
Officer.  In his role as our Chief Executive Officer, Mr. Holbrook
provides high level strategic leadership to the company and a professional
accountability relationship for our President.  He brings to his role
a deep knowledge of ministry lending, financial institution management, and the
credit union regulatory environment.  Mr. Holbrook devotes a small
portion of his time to our affairs and receives no compensation for the services
he renders on our behalf.  While Mr. Holbrook serves as both
our  Chief Executive Officer and Chairman of the Board, he has
delegated the primary task of carrying out the management and leadership of the
Company on a day-to-day basis to our President.  The Board has chosen
not to appoint a lead independent manager and has appointed Juli Anne Callis, an
independent member of the Board, to serve as Vice Chair of the
Board.
 
 Code
of Ethics
 
 On
November 6, 2009, our Board adopted a Code of Ethics for our principal officers
and members of the Board.
 
 Audit
Committee
 
 In May
2005, our Board established a standing audit committee. For the year ended
December 31, 2009, the Audit Committee was comprised of two members,
including Randolph P. Shepard and Scott T.
Vandeventer.  Mr. Randolph P. Shepard serves as Chairman
of  the Committee and is an independent manager as defined in our
Related Party Transaction Policy.  Subsequent to Mr. Vandeventer’s
resignation from the Board on March 23, 2010, Van Elliott and Jeffrey Lauridsen
have been appointed to serve on our Audit Committee.
 
 Our Board
has adopted a formal charter for our Audit Committee.  Under this
charter, the Audit Committee oversees our accounting policies and practices,
financial reporting procedures and audits of our financial
statements.
 
 Audit
Committee Financial Expert
 
 The Board
has determined that Mr. Shepard is an “audit committee financial expert” as
defined in Item 401(e) of Regulation S-K.
 
 Item
11. EXECUTIVE COMPENSATION
 
 None of
our Board members currently receives compensation for services rendered as a
manager. Each, however, is entitled to be reimbursed for expenses incurred in
performing duties on our behalf.
 
 -78-
 The
following table sets forth certain information regarding compensation we paid
for services rendered to us during the years ended December 31, 2009 and 2008 by
our senior executive officers.  Mr. Dodson was appointed President by
the Board  effective May 8, 2006.
 
 Summary
Compensation Table
 Annual
Compensation
 
 Name
      and Principal Position
              Year
      Ended
              
              Salary
              
              
              Bonus
              
              Non-Equity
      Incentive Plan Compensation
              
              
              All
      Other
                CompensationMark
      G. Holbrook,
                Chairman,
      CEO (1)
              2009
              
              
              -0-
              
              
              
              -0-
              
              
              -0-
              
              
              
              -0-2008
              
              
              -0-
              
              
              
              -0-
              
              
              -0-
              
              
              
              -0-Billy
      M. Dodson, President
              2009
              
              $
              190,516
              
              
              $
              58,106
              (2)
              
              -0-
              
              
              $
              24,066
              (5)2008
              
              
              183,500
              
              
              
              73,217
              
              $
              43,229
              (3)
              
              
              21,943
              (4)Susan
      B. Reilly,
                Vice
      President Finance
              2009
              
              
              140,192
              
              
              
              40,163
              
              
              -0-
              
              
              
              17,100
              (5)2008
              
              
              135,000
              
              
              
              40,500
              
              
              -0-
              
              
              
              14,704
              (4)Harold
      Woodall, Vice President Lending
              2009
              
              
              133,867
              
              
              
              39,375
              
              
              -0-
              
              
              
              17,807
              (5)2008
              
              
              120,000
              
              
              
              23,159
              
              
              -0-
              
              
              
              15,046
              (4)
 
 (1) Mr.
Holbrook is a full-time employee of ECCU. Since December 1, 1994, Mr. Holbrook
has expended, on the average, approximately 2% of his time as an officer and
member of our Board.  We reimburse ECCU for that portion of Mr.
Holbrook's time devoted to service to us as an officer (but not as a Board
member). Mr. Holbrook currently devotes less than 1% of his time serving the
Company as an officer.
 
 (2) An
aggregate bonus amount of $58,106 and $73,217 was accrued for Mr. Dodson for the
fiscal years 2009 and 2008, respectively.
 
 (3) In
2008, Mr. Dodson received a long-term incentive award that he earned as a
participant in the ECCU Long-Term Incentive Plan. Mr. Dodson’s award was
earned for the year ending December 31, 2006, but did not vest until his service
as an ECCU leased employee was terminated effective as of December 31,
2007.  With the restructuring of our employee leasing arrangements
with ECCU, Mr. Dodson became fully vested in his long-term incentive award and
entitled to receive this payment.  As provided under our leasing and
administrative services agreement with ECCU, we were responsible for making this
payment.  The incentive award was fully paid by the end of
2008.
 
 (4) We
contributed an aggregate amount of $21,943 for Mr. Dodson's 401(k) retirement
plan, medical benefits and life and disability insurance for
2008.   We also contributed an aggregate amount of $14,704 for
Ms. Reilly's 401(k) retirement plan, medical benefits and life and disability
insurance for 2008.  Finally, we contributed an aggregate amount of
$15,046 for Mr. Woodall's 401(k) retirement plan, medical benefits and life and
disability insurance for 2008.
 
 (5)
We contributed an aggregate amount of $24,066 for Mr. Dodson's 401(k) retirement
plan, medical benefits and life and disability insurance for
2009.   We also contributed an aggregate amount of $17,100 for
Ms. Reilly's 401(k) retirement plan, medical benefits and life and disability
insurance for 2009.  We also contributed an aggregate amount of
$17,807 for Mr. Woodall's 401(k) retirement plan, medical benefits and life and
disability insurance for 2009.
 
 No
options, warrants or other rights to purchase our equity securities have been
issued to our officers.
 
 -79-
 Item
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
 
 The
following table sets forth information available to us, as of December 31, 2009,
with respect to our Class A Units owned by each of our executive officers and
members of our Board, and by our Board and executive officers as a group, and by
each person who is known to us to be the beneficial owner of more than 5.0% of
our Class A Units.
 
 Name
              
              Beneficial
                Ownership
              
              Percentage
                Owned(1)Billy
      M. Dodson
                915
      W. Imperial Hwy., Suite 120
                Brea,
      CA 92821
              
              --
              
              --%Mark
      G. Holbrook
                955
      W. Imperial Hwy.
                Brea,
      CA 92821
              
              --
              
              --%Van
      C. Elliott
                955
      W. Imperial Hwy.
                Brea,
      CA 92821
              
              --
              
              --%Arthur
      G. Black
                955
      W. Imperial Hwy.
                Brea,
      CA 92821
              
              --
              
              --%Juli
      Anne S. Callis
                955
      W. Imperial Hwy.
                Brea,
      CA 92821
              
              --
              
              --%Jeffrey
      T. Lauridsen
                955
      W. Imperial Hwy.
                Brea,
      CA 92821
              
              --
              
              --%Randolph
      P. Shepard
                955
      W. Imperial Hwy.
                Brea,
      CA  92821
              
              --
              
              --%R.
      Michael Lee
                955
      W. Imperial Hwy.
                Brea,
      CA  92821
              
              --
              
              --%All
      officers and members of the Board as a group
              
              --
              
              --%Other
      5% or greater beneficial owners (seven):
                
                Evangelical
      Christian Credit Union
              
              62,000
              
              42.31%Financial
      Partners Credit Union
              
              12,000
              
              8.19%USA
      Federal Credit Union
              
              11,905
              
              8.13%Western
      Federal Credit Union
              
              11,905
              
              8.13%Wescom
      Credit Union
              
              11,905
              
              8.13%Credit
      Union of Southern California
              
              11,900
              
              8.12%Keypoint
      Credit Union
              
              8,000
              
              5.46%
 
 (1)           Based
on 146,522 Class A Units outstanding.
 
 -80-
 Item
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
 
 From time
to time, we purchase participation interests in mortgage loans from ECCU, our
largest shareholder.  During the years ended December 31, 2009 and
2008, we or our wholly-owned subsidiary, MPF, purchased $10.5 million and $156.7
million, respectively, of loans from ECCU.  We recognized interest
income on loans purchased from ECCU of $13.0 million and $11.8 million during
the years ended December 31, 2009 and 2008, respectively.  Currently,
ECCU services all of the mortgage loans we own pursuant to the terms of a
servicing agreement.
 
 From time
to time, ECCU has repurchased mortgage loans from us as part of our liquidity
management practices. Although ECCU has accommodated us in responding to such
repurchase requests, ECCU is under no contractual obligation to do
so.  During the year ended December 31, 2009, $145.2 thousand in
loan participation interests were repurchased by ECCU.  During this
period, an additional $2.2 million of whole loans were sold back to ECCU, as
compared to $843.3 thousand of mortgage loans for the year ended December
31,  2008. Each sale or purchase of a mortgage loan investment or
participation interest with ECCU was consummated under our Related Party
Transaction Policy that has been adopted by our Board.  No gain or
loss was incurred on these sales.
 
 We
maintain most of our cash balances with ECCU.  Total funds held with
ECCU at December 31, 2009 and 2008 were $5.9 million and $12.0 million,
respectively.  We earned interest on these cash balances for the years
ended December 31, 2009 and 2008 in the amount of $303.7 thousand and $310.9
thousand.
 
 Pursuant
to an administrative services agreement, we purchase certain professional
services from ECCU and we rent our administrative offices from ECCU pursuant to
an office lease entered into on November 4, 2008.  We paid ECCU
$197.6 thousand and $164.2 thousand for the years ended December 31, 2009
and 2008, respectively, for these services and facilities.  We
negotiated these charges and terms of the office lease with ECCU based upon the
fair market value of such services and rental rates for comparable office space
in Brea, California.
 
 -81-
 On
December 14, 2007, R. Michael Lee was appointed to serve as a member of the
Board.  Mr. Lee serves as Vice President Member Relations,
Midwest Region, of Members United Corporate Federal Credit Union (Members
United), which is one of our lenders.  See Note 5 of the accompanying
audited consolidated financial statements for December 31, 2009.  In
addition, Mark G. Holbrook, our Chairman and Chief Executive Officer, is a full
time employee of ECCU.
 
 From time
to time, our Board and members of our executive management team have purchased
investor notes from us.  One of our Board members, Mr. Art Black, is
the beneficial owner of a living trust that holds $220,863 of our Class A
Notes.
 
 On
October 30, 2007, we completed the BMO Facility as our first warehouse mortgage
financing facility.  Our wholly-owned subsidiary, MPF, was formed to
acquire mortgage loans from us or ECCU.  As part of the BMO Facility,
MPF entered into a Mortgage Loan Purchase Agreement with ECCU.  For
the years ended December 31, 2009 and 2008, MPF acquired $105.0 thousand and
60.3 million in mortgage loans from ECCU, respectively.  ECCU
continues to service all mortgage loans that it sells to us or MPF under a
servicing agreement.  For the year ended December 31, 2009, we paid
ECCU a total of $593.3 thousand in servicing fees.
 
 On May
19, 2009, we sold $19.3 million of loans to Western Federal Credit Union,
which is an equity holder of the Company’s Class A Units.  The loans
were sold to Western at par.  Proceeds from the sale were used to pay
down the BMO Facility.
 
 To assist
in evaluating any related transactions we may enter into with a related party,
our Board has adopted a Related Party Transaction Policy.  Under this
policy, a majority of the members of our Board and majority of our independent
Board members must approve a material transaction that we enter into with a
related party.  As a result, we anticipate that all future
transactions that we undertake with an affiliate or related party will be on
terms believed by our management to be no less favorable than are available from
unaffiliated third parties and will be approved by a majority of our independent
Board members.
 
 Item
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 The
aggregate fees billed by our accounting firm, Hutchinson and Bloodgood LLP, for
the years ended December 31 were as follows:
  2009
              
              
              2008Audit
      and audit-related fees
              
              $
              127,300
              
              
              $
              97,400Tax
      fees
              
              
              17,700
              
              
              
              28,600All
      other fees
              
              
              6,100
              
              
              
              2,300Total
              
              $
              151,100
              
              
              $
              128,300
 
 -82-
  Item
15. EXHIBITS
 
 Exhibit No.
                  Description3.1
                  Articles
      of Organization - Conversion of Ministry Partners Investment Company, LLC,
      dated as of December 31, 2008 (1)3.2
                  Operating
      Agreement of Ministry Partners Investment Company, LLC, dated as of
      December 31, 2008 (1)3.3
                  Plan
      of Conversion of Ministry Partners Investment Corporation, dated September
      18, 2008 (1)3.4
                  Series
      A Preferred Unit Certificate of Ministry Partners Investment Company, LLC,
      dated as of December 31, 2008 (1)3.5
                  Articles
      of Incorporation of Ministry Partners Investment Corporation
      (2)3.6
                  Bylaws
      of Ministry Partners Investment Corporation (2)3.7
                  Certificate
      of Amendment to Articles of Incorporation dated December 11, 2001
      (3)3.8
                  Certificate
      of Amendment to Bylaws dated August 17, 2006 (4)3.9
                  Certificate
      of Determination of Class I Preferred Stock (4)3.10
                  Amendatory
      Certificate of Determination for Class I Preferred Stock dated September
      6, 2006 (4)3.11
                  Amendatory
      Certificate of Determination for Class I Preferred Stock dated October 19,
      2006 (4)3.12
                  Certificate
      of Determination of Class II Preferred Stock (4)3.13
                  Amendatory
      Certificate of Determination of Class II Preferred Stock dated September
      6, 2006 (4)3.14
                  Certificate
      of Amendment to Articles of Incorporated dated October 30, 2007
      (5)3.15
                  Certificate
      of Amendment to Bylaws dated October 30, 2007 (5)3.16
                  First
      Amendment to the Operating Agreement of Ministry Partners Investment
      Company, LLC, effective as of February 11, 2010 (6)3.17
                  Code
      of Ethics for Ministry Partners Investment Company, LLC, effective as of
      February 11, 2010(6)4.1
                  Supplemental
      Agreement with Consent of Holders to Loan and Trust Agreement, dated
      September 30, 2008, by and between Ministry Partners Investment
      Corporation and U.S. Bank National Association (7)4.2
                  Agreement
      of Resignation, Appointment and Acceptance, dated as of August 7, 2008, by
      and among Ministry Partners Investment Corporation, King Trust Company,
      N.A. and U.S. Bank National Association (7)10.1
                  Evangelical
      Christian Credit Union Subordination Agreement dated April 20, 2005
      (4)10.2
                  Evangelical
      Christian Credit Union Loan Agreement Extension dated April 5, 2007
      (4)10.3
                  Residential
      Purchase Agreement, dated July 1, 2007, by and between Ministry Partners
      Investment Corporation and Billy M. Dodson
(8)
 -83-
 10.4
              $10
      Million Committed Line of Credit Facility and Security Agreement, dated
      October 8, 2007, executed by Ministry Partners Investment Corporation
      in favor of Members United Corporate Federal Credit Union
    (9)10.5
              $50
      Million CUSO Committed Line of Credit Facility and Security Agreement,
      dated October 8, 2007, executed by Ministry Partners Investment
      Corporation in favor of Members United Corporate Federal Credit Union
      (9)10.6
              Mortgage
      Loan Purchase Agreement, dated October 30, 2007, by and between
      Evangelical Christian Credit Union and Ministry Partners Funding, LLC
      (10)10.7
              Mortgage
      Loan Purchase Agreement, dated October 30, 2007, by and between Ministry
      Partners Investment Corporation and Ministry Partners Funding, LLC
      (10)10.8
              Loan,
      Security and Servicing Agreement, dated October 30, 2007, by and among
      Ministry Partners Funding, LLC, as Borrower, Fairway Finance Company, LLC,
      as Lender, Evangelical Christian Credit Union, as Servicer, BMO Capital
      Markets Corp., as Agent, U.S. Bank National Association, as Custodian and
      Account Bank, and Lyon Financial Services, Inc., as Back up Servicer (10)
      (*)10.9
              Promissory
      Note, dated October 30, 2007, in the amount of $150,000,000 executed by
      Ministry Partners Funding, LLC to and in favor of Fairway Finance Company,
      LLC (10)10.10
              Custodial
      Agreement, dated as of October 30, 2007, by and among Ministry Partners
      Funding, LLC, as Borrower, Evangelical Christian Credit Union, as
      Servicer, BMO Capital Markets Corp., as Agent, Lyon Financial Services,
      Inc., as Back-Up Servicer, and U.S. Bank National Association, as
      Custodian (10)10.11
              Collection
      Account Control Agreement, dated as of October 30, 2007, by and among
      Ministry Partners Funding, LLC, as Borrower, Evangelical Christian Credit
      Union, as Servicer, BMO Capital Markets Corp., as Agent, and U.S. Bank
      National Association, as Account Bank (10)10.12
              Reserve
      Account Control Agreement, dated as of October 30, 2007, by and among
      Ministry Partners Funding, LLC, as Borrower, BMO Capital Markets Corp., as
      Agent, and U.S. Bank National Association, as Account Bank
      (10)10.13
              ISDA
      Master Agreement, dated as of October 22, 2007, by and between Ministry
      Partners Funding, LLC and Bank of Montreal (10)10.14
              CUSO
      Line of Credit Facility Note and Security Agreement, dated May 14, 2008,
      executed by Ministry Partners Investment Corporation in favor of Members
      United Corporate Federal Credit Union (11)10.15
              Office
      Lease, dated November 4, 2008, by and between Ministry Partners Investment
      Corporation and Evangelical Christian Credit Union (11)10.16
              Equipment
      Lease, dated as of January 1, 2009, by and between Ministry Partners
      Investment Company, LLC and Evangelical Christian Credit Union
      (11)10.17
              Professional
      Services Agreement, dated as of January 1, 2009, by and between Ministry
      Partners Investment Company, LLC and Evangelical Christian Credit Union
      (11)10.18
              Waiver
      by and among Ministry Partners Funding, LLC, Evangelical Christian Credit
      Union and BMO Capital Markets Corp., effective as of May 5, 2009
      (12)10.19
              Mortgage
      Loan Participation Purchase and Sale Agreement by and between Ministry
      Partners Investment Company, LLC, and Western Federal Credit Union, dated
      May 1, 2009 (13)10.20
              Omnibus
      Amendment to Loan, Security and Servicing Agreement and Fee Agreement,
      effective as of June 5, 2009, by and among Ministry Partners Funding, LLC,
      Fairway Finance Company, LLC, as Lender, Evangelical Christian Credit
      Union, as Servicer, BMO Capital Markets Corp., as Agent, U.S. Bank
      National Association and Lyon Financial Services, Inc.
  (14)10.21
              Waiver
      by and among Ministry Partners Funding, LLC, Evangelical Christian Credit
      Union and BMO Capital Markets Corp., effective as of July 15, 2009
      (15)10.22
              Omnibus
      Amendment No. 2 to Loan, Security and Servicing Agreement and Fee
      Agreement, effective as of September 30, 2009, by and among Ministry
      Partners Funding, LLC, Fairway Finance Company, LLC, as Lender,
      Evangelical Christian Credit Union, as Servicer, BMO Capital Markets
      Corp., as Agent, U.S. Bank National Association and Lyon Financial
      Services, Inc. (16)10.23
              Loan
      and Security Agreement by and between Ministry Partners Investment
      Company, LLC, and Western Corporate Federal Credit Union, dated November
      30, 2009 (17)10.24
              Promissory
      Note by and between Ministry Partners Investment Company, LLC, and Western
      Corporate Federal Credit Union, dated November 30, 2009
    (17)10.25
              Payoff
      and Bailee Letter entered into by and among Ministry Partners Funding,
      LLC, and BMP Capital Markets Corp., as agent, Fairway Finance Company,
      LLC, as lender, MPF, as borrower; Evangelical Christian Credit Union, as
      servicer; Lyon Financial Services, Inc., d/b/a U.S. Bank Portfolio
      Services, as back-up servicer; U.S. Bank National Association, as
      custodian; and Western Corporate Federal Credit Union, as the replacement
      lender, dated November 30, 2009 (17)21.1
              List
      of Subsidiaries (6)23.1
              Consent
      of Hutchinson and Bloodgood LLP (6)31.1
              Certification
      of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule
      15(d)-14(a)  (6)31.2
              Certification
      of Principal Financial and Accounting Officer pursuant to
      Rule 13a-14(a) or Rule 15(d)-14(a) (6)32.1
              Certification
      of Principal Executive Officer and Principal Accounting Officer pursuant
      to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (6) _____________________________
 
 (1)
                Incorporated
      by reference to the Current Report on Form 8-K filed by the Company on
      December 22, 2008.(2)
                Incorporated
      by reference to Registration Statement on Form SB-2 filed on November 19,
      1997, as amended.(3)
                Incorporated
      by reference to Registration Statement on Form SB-2 filed on May 24, 2001,
      as amended.(4)
                Incorporated
      by reference to Registration Statement on Form SB-2 filed on April 10,
      2007, as amended.(5)
                Incorporated
      by reference to the Current Report on Form 8-K filed on November 26,
      2007.(6)
                Filed
      herewith(7)
                Incorporated
      by reference to the Definitive Schedule 14C Information Statement filed by
      the Company on September 8, 2008.(8)
                Incorporated
      by reference to the Report on Form 10-QSB filed by the Company on November
      16, 2007.(9)
                Incorporated
      by reference to the Current Report on Form 8-K filed by the Company on
      October 15, 2007.(10)
                Incorporated
      by reference to the Report on Form 10-KSB filed by the Company on April
      11, 2008.(11)
                Incorporated
      by reference to the Report on Form 10-KSB filed by the Company on April
      14, 2009.(12)
                Incorporated
      by reference to the Current Report on Form 8-K filed by the Company
      on May 12, 2009.(13)
                Incorporated
      by reference to the Current Report on Form 8-K filed by the Company on May
      15, 2009.(14)
                Incorporated
      by reference to the Current Report on Form 8-K filed by the Company on
      June 17, 2009.(15)
                Incorporated
      by reference to the Report on Form 10-Q filed by the Company on
      August 14, 2009.(16)
                Incorporated
      by reference to the Current Report on Form 8-K filed by the Company on
      October 13, 2009.(17)
                Incorporated
      by reference to the Current Report on Form 8-K filed by the Company on
      December 4, 2009.*
                Confidential
      treatment requested for certain portions of this exhibit, which portions
      are omitted and filed separately with the Securities and Exchange
      Commission.
  
 -84-
 
 
 SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 MINISTRY PARTNERS INVESTMENT COMPANY,
LLC
 
 Dated:  March
      29, 2010
              By:
      /s/Billy M.
      DodsonBilly
      M. Dodson,President(Principal
      Executive Officer)Dated:  March
      29, 2010
              By:
      /s/Susan B.
      ReillySusan
      B. Reilly,Vice
      President of Finance(Principal
      Accounting Officer)
 
 -85-
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed by the following persons on behalf of the Company and in the capacities
and on the dates indicated.
 
 
 /s/Billy M.
Dodson
 President
(Principal Executive Officer)
 Date:  March
29, 2010
 
 /s/Susan B.
Reilly
 Vice
President of Finance
 (Principal
Accounting Officer)
 Date:  March
29, 2010
 
 /s/Mark G.
Holbrook
 Chairman,
Board of Managers, Chief
 Executive
Officer
 Date:  March
29, 2010
 
 /s/Van C.
Elliott
 Secretary,
Manager
 Date:  March
29, 2010
 
 /s/Arthur
G. Black
 Manager
 Date:  March
29, 2010
 
 /s/Juli
Anne S. Callis
 Manager
 Date:  March
29, 2010
 
 /s/Jeffrey
T. Lauridse
 Manager
 Date:  March
29, 2010
 
 /s/R.
Michael Lee
 Manager
 Date:  March
29, 2010
 
 /s/Randolph
P. Shepard
 Manager
 Date:  March
29, 2010
 
 -86-