Notes Unaudited Financial Statements
June 30, 2020
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial
statements and the notes thereto have been prepared in accordance with generally accepted accounting principles in the United States
(“GAAP”). In the opinion of management, the accompanying unaudited interim financial statements contain all normal
recurring adjustments necessary to present fairly the financial positions result of operations, changes in equity and cash flows
for the periods presented.
The accompanying unaudited financial statements
and related notes should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on May 8,
2020.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
American Church Mortgage Company, a Minnesota
corporation, was incorporated on May 27, 1994. The Company is engaged primarily in the business of making mortgage loans to churches
and other nonprofit religious organizations throughout the United States, on terms established for individual organizations.
Accounting Estimates
Management uses estimates and assumptions in
preparing these financial statements in accordance with accounting principles generally accepted in the United States of America.
Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. The most sensitive estimates
relate to the realizability of the mortgage loans receivable, the valuation of the bond portfolio and the valuation of real estate
held for sale. It is at least reasonably possible that these estimates could change in the near term and that the effect of the
change, if any, may be material to the financial statements.
Concentration of Credit Risk
The Company's loans have been granted to churches and other non-profit
religious organizations. The ability of the Company’s debtors to honor their contracts is dependent on member contributions
and the involvement in the church or organization of its senior pastor.
Cash and Cash Equivalents
The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be cash equivalents.
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
The Company maintains accounts primarily at
two financial institutions. At times throughout the year, the Company’s cash and equivalents balances may exceed amounts
insured by the Federal Deposit Insurance Corporation. Cash in money market funds is not federally insured. Management believes
these financial institutions have strong credit ratings and that the credit related to these deposits is minimal. The Company has
not experienced any losses in such accounts.
Bond Portfolio
The Company accounts for the bond portfolio
under the Accounting Standards Codification (ASC) 320, Investments-Debt and Equity Securities. The Company classifies the bond
portfolio as “available-for sale” and measures the portfolio at fair value. While the bonds are generally held until
contractual maturity, the Company classifies them as available for sale as the bonds may be used to repay secured investor certificates
or provide additional liquidity or working capital in the short term.
Allowance for Loan Losses on Mortgage
Loans Receivable
The Company records mortgage loans receivable
at estimated net realizable value, which is the unpaid principal balances of the mortgage loans receivable, less the allowance
for loan losses on mortgage loans receivable and less deferred loan origination fees. The Company’s loan policy provides
an allowance for estimated uncollectible loans based on an evaluation of the current status of the loan portfolio with application
of reserve percentages to specific loans based on payment status. This policy reserves for principal amounts outstanding on a specific
loan if cumulative interruptions occur in the normal payment schedule of the loan, therefore, the Company recognizes a provision
for losses and an allowance for the outstanding principal amount of the loan in the Company’s portfolio if the amount is
in doubt of collection. Additionally, no interest income is recognized on impaired loans that are declared to be in default and
are in the foreclosure process. At June 30, 2020, the Company reserved $1,477,194 for fourteen mortgage loans. Ten of these loans
are three or more mortgage payments in arrears of which three are declared to be in default. The total principal amount of these
fourteen loans totaled approximately $6,582 ,000 at June 30, 2020. At December 31, 2019,
the Company reserved $1,429,487 for fourteen mortgage loans. Ten of these loans are three or more mortgage payments in arrears
of which three are declared to be in default. The total principal amount of these fourteen loans totaled approximately $5,987 ,000
at December 31, 2019.
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
A summary of transactions in the allowance
for mortgage loans for the period ended June 30, 2020 and 2019 is as follows:
Balance at December 31, 2019
|
$ 1,429,487
|
Provisions for loan losses
|
47,708
|
Loan charge-offs
|
-
|
Balance at June 30, 2020
|
$ 1,477,195
|
Balance at December 31, 2018
|
$ 1,672,003
|
Provisions for loan losses
|
48,741
|
Loan charge-offs
|
(100,537)
|
Balance at June 30, 2019
|
$ 1,620,207
|
The total impaired loans, which are loans that
are in the foreclosure process or are declared to be in default, were approximately $975,000 and $810,000 at June 30, 2020 and
December 31, 2019, respectively, which the Company believes are adequately secured by the underlying collateral and the allowance
for mortgage loans. Approximately $665,000 of the Company’s allowance for mortgage loans was allocated to these loans for
the period ended June 30, 2020. Approximately $555,000 of the Company’s allowance for mortgage loans was allocated to impaired
loans for the year ended December 31, 2019.
The Company will declare a loan to be in default
and will place the loan on non-accrual status when the following thresholds have been met: (i) the borrower has missed three consecutive
mortgage payments; (ii) the borrower has not communicated to the Company any legitimate reason for delinquency in its payments
to the Company and has not arranged for the re-continuance of payments; (iii) lines of communication to the borrower have broken
down such that any reasonable prospect of rehabilitating the loan and return of regular payments is gone.
The Company’s policies on payments received
and interest accrued on non-accrual loans are as follows: (i) The Company will accept payments on loans that are currently on non-accrual
status when a borrower has communicated to us that they intend to meet their mortgage obligations. The accrual of interest on a
loan is discontinued when the loan becomes 90 consecutive days delinquent or whenever management believes the borrower will be
unable to make payments as they become due. The interest on these loans is subsequently accounted for on the cash basis or using
the 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 or restructured and future payments are reasonably assured. No interest
income was recognized on non-accrual loans for the periods ended June 30, 2020 and 2019, respectively.
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
When a loan is declared in default according
to the Company’s policy or deemed to be doubtful of collection, the loan committee of the Advisor to the Company will direct
the staff to charge-off the uncollectable receivables.
Loans totaling approximately $3,695,000 and
$3,263,000 exceeded 90 days past due but continued to accrue interest for the period ended June 30, 2020 and December 31, 2019,
respectively. The Company believes that continued interest accruals are appropriate because the loans are well secured, not deemed
to be in technical default and the Company is actively pursuing collection of past due payments.
Real Estate Held for Sale
The Company records real estate held for sale
at the estimated fair value, which is net of the expected expenses related to the sale of the real estate. The fair value
of our real estate held for sale, which represents the carrying value, totaled $550,045 and $651,398 for the periods ended June
30, 2020 and December 31, 2019, respectively.
Carrying Value of Long-Lived Assets
The Company tests long-lived assets or asset
groups for recoverability when events or changes in circumstances indicate that the carrying amount may not be recoverable. Circumstances
which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history
of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed of significantly before the end of the estimated useful life.
Recoverability is assessed based on the carrying
amount of the asset compared to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal
of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is
deemed not recoverable and exceeds fair value as determined through various valuation techniques including, but not limited to,
discounted cash flow models, quoted market values, and third party independent appraisals.
Revenue Recognition
Interest income on mortgage loans receivable
and the bond portfolio is recognized as earned per the terms of the specific asset. Other income included with interest represents
cash received for loan origination fees, which are recognized over the life of the loan as an adjustment to the yield on the loan.
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
Gain (Losses) on Real Estate Held For
Sale
The Company records a gain or loss from real
estate held for sale when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.
When the Company finances real estate held for sale to the buyer, the Company assesses whether the buyer is committed to perform
their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met,
real estate held for sale is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property
to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction prices and related gain (loss) on
sale if a significant financing component is present.
Deferred Financing Costs
The Company defers the costs related to obtaining
financing. These costs are amortized over the life of the financing using the straight line method, which approximates the effective
interest method.
Income (Loss) Per Common Share
There were no dilutive shares for the periods
ended June 30, 2020 and December 31, 2019, respectively.
Recent Accounting Pronouncements
In 2016 the FASB issued ASU 2016-13,
“Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” ASU
2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit
losses on financial instruments and other commitments to extend credit. For public entities, deemed smaller reporting
companies, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years. The Company has not yet fully evaluated the potential effects of adopting ASU 2016-13 on the
Company’s results of operations, financial position or cash flows.
Income Taxes
The Company elected to be taxed as a Real Estate
Investment Trust (REIT). Accordingly, the Company is not subject to Federal income tax to the extent of distributions to its shareholders
if the Company meets all the requirements under the REIT provisions of the Internal Revenue Code.
The Company evaluated its recognition of income
tax benefits using a two-step approach to recognizing and measuring tax benefits when realization of the benefits is uncertain.
The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step
is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. Primarily due to the Company’s
tax status as a REIT, the Company does not have any significant tax uncertainties that would require recognition or disclosure.
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
Subsequent Events
The Company has evaluated events and transactions
through August 13, 2020, the date the financial statements were available to be issued. The outbreak of the coronavirus (COVID-19)
pandemic has affected churches due to shelter-in-place directives which has ceased social gatherings such as church worship services.
The Company’s borrowers have experienced financial duress during the Covid-19 shelter in place restrictions, amplified by
the financial setbacks for many of the church members who have lost their jobs, been furloughed, or had their incomes diminished.
The Company has provided some temporary relief by allowing its borrower’s to either make interest only payments for a period
of ninety days or forgo one monthly mortgage payment (forbearance). This relief will impact the Company’s revenue and the
Company will experience declines in payments due from borrowers and missed bond payments on the bonds owned by the Company which
will impact operating income and may potentially impact future distributions and the ability to make payments due on the Company’s
certificates and dividends to its shareholders.
The (COVID-19) has severely exacerbated deal
procurement challenge since churches, who cannot meet and worship at previous attendance levels has unfortunately caused American
Investors Group, Inc. to withdraw as a broker-dealer and is no longer qualified to conduct securities transactions. The subsequent
closing of American Investors Group, Inc. has not had an immediate effect on the Company. However, the Company will no longer have
this resource for interim loan financings or new church bond product in the foreseeable future.
3. FAIR VALUE MEASUREMENT
The Company measures certain financial instruments
at fair value in our balance sheets. The fair value of these instruments is based on valuations that include inputs that can be
classified within one of the three levels of a hierarchy. Level 1 inputs include quoted market prices in an active market for identical
assets or liabilities. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level
2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other
observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no
market data.
Except for the bond portfolio, which is required
by authoritative accounting guidance to be recorded at fair value in our balance sheets, the Company elected not to record any
other financial assets or liabilities at fair value on a recurring basis. We recorded an aggregate other than temporary impairment
for losses on our Agape and Soul Repears bonds (Note 4), which totaled $693,000 and $658,000 for the periods ended June 30, 2020
and December 31, 2019, respectively. The following table summarizes the Company’s financial instruments that were measured
at fair value on a recurring basis:
|
|
Fair Value Measurement
|
June 30, 2020
|
Fair Value
|
Level 3
|
|
|
|
Bond portfolio
|
$17,619,937
|
$17,619,937
|
|
|
Fair Value Measurement
|
December 31, 2019
|
Fair Value
|
Level 3
|
|
|
|
Bond portfolio
|
$16,055,937
|
$16,055,937
|
We determine the fair value of the bond portfolio
shown in the table above by comparing the bonds with similar instruments in inactive markets. The analysis reflects the contractual
terms of the bonds, which are callable at par by the issuer at any time, and the anticipated cash flows of the bonds and uses observable
and unobservable market-based inputs. Unobservable inputs include our internal credit rating and selection of similar bonds for
valuation.
The change in Level 3 assets measured at fair value
on a recurring basis is summarized as follows:
|
|
Bond Portfolio
|
Balance at December 31, 2019
|
|
$
|
16,055,937
|
|
Other than temporary impairment losses on bond portfolio
|
|
|
(35,000
|
)
|
Purchases
|
|
|
1,721,000
|
|
Proceeds
|
|
|
(122,000
|
)
|
Balance at June 30, 2020
|
|
$
|
17,619,937
|
|
Real estate held for sale and impaired loans
are recorded at fair value on a nonrecurring basis. The fair value of real estate held for sale was based upon the listed sales
price less expected selling costs, which is a Level 3 input. The resulting impairment charges were $0 for both periods ended June
30, 2020 and December 31, 2019, respectively.
The following table summarizes the Company’s financial
instruments that were measured at fair value on a nonrecurring basis:
|
|
June 30, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value at June 30,
2020
|
Impaired Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,105,245
|
|
|
$
|
5,105,245
|
|
Real estate held for resale
|
|
|
—
|
|
|
|
—
|
|
|
|
550,045
|
|
|
|
550,045
|
|
Totals
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,655,290
|
|
|
$
|
5,655,290
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
|
|
December 31, 2019
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value at December 31,
2019
|
Impaired Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,557,326
|
|
|
$
|
4,557,326
|
|
Real estate held for resale
|
|
|
—
|
|
|
|
—
|
|
|
|
651,398
|
|
|
|
651,398
|
|
Totals
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,208,724
|
|
|
$
|
5,208,724
|
|
Loans with a carrying amount of $6,582,440
were considered impaired and written down to their fair market value of $5,105,245 as of June 30, 2020. As a result, the Company
recognized a specific valuation allowance against these impaired loans totaling $1,477,194 as of June 30, 2020. Loans with a carrying
amount of $5,986,813 were considered impaired and written down to their fair market value of $4,557,326 as of December 31, 2019.
As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $1,429,487 as of December
31, 2019.
The Company held real estate for sale which
was acquired through foreclosure or via deed in lieu of foreclosure with a fair value less costs to sell of $550,045 and $651,398
for the periods ended June 30, 2020 and December 31, 2019, respectively.
|
|
Fair Value
|
|
Valuation Technique
|
|
Significant Unobservable Inputs(s)
|
|
Range/Weighted
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
5,105,245
|
|
|
Market or Income Approach
|
|
Discount to Appraised Values
|
|
|
10-20%
|
|
Real Estate Held for Sale
|
|
$
|
550,045
|
|
|
Market or Income Approach
|
|
Discount to Appraised Values
|
|
|
10-20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
4,557,326
|
|
|
Market or Income Approach
|
|
Discount to Appraised Values
|
|
|
10-20%
|
|
Real Estate Held for Sale
|
|
$
|
651,398
|
|
|
Market or Income Approach
|
|
Discount to Appraised Values
|
|
|
10-20%
|
|
The fair value of impaired loans referenced
above was determined by obtaining independent third-party appraisals and/or internally developed collateral valuations to support
the Company’s estimates and judgments in determining the fair value of the underlying collateral supporting impaired loans.
The fair value of real estate held for resale
referenced above was determined by obtaining market price valuations from independent third parties wherever such quotes were available
for the other collateral owned. The Company utilized independent third party appraisals to support the Company’s estimates
and judgments in determining fair value for other real estate owned.
4. MORTGAGE LOANS RECEIVABLE AND BOND PORTFOLIO
At June 30, 2020, the Company had mortgage
loans receivable totaling $19,436,425. The loans bear interest ranging from 0% to 10.25% with a weighted average of approximately
7.69% at June 30, 2020. At December 31, 2019, the Company hadmortgage loans receivable totaling $22,425,178. The
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
loans bear
interest ranging from 0% to 10.25% with a weighted average of approximately 7.86% at December 31, 2019.
The Company has a portfolio of secured church
bonds at June 30, 2020 and December 31, 2019, which are carried at fair value. The bonds pay either semi-annual or quarterly interest
ranging from 3.75% to 9.75%. The aggregate par value of secured church bonds equaled approximately $18,312,937 at June 30, 2020
with a weighted average interest rate of 6.83% and approximately $16,713,937 at December 31, 2019 with a weighted average interest
rate of 6.43%. These bonds are due at various maturity dates through February 2047. The Company has recorded an aggregate other
than temporary impairment of $693,000 and $658,000 for the periods ended June 30, 2020 and December 31, 2019, respectively for
the First Mortgage Bonds issued by Agape Assembly Baptist Church and Soul Reapers Worship Center. These bond series in the aggregate
constitute approximately 10.51% and 6.13% of the bond portfolio at June 30, 2020 and December 31, 2019, respectively. The Company
had maturities and redemptions of bonds of approximately $122,000 and $1,137,000 for the periods ended June 30, 2020 and December
31, 2019, respectively.
The contractual
maturity schedule for mortgage loans receivable and the bond portfolio as of June 30, 2020, is as follows:
|
Mortgage Loans
|
Bond Portfolio
|
|
|
|
July 1, 2020 through December 31, 2020
|
$ 1,302,687
|
$ 80,000
|
2021
|
645,876
|
224,000
|
2022
|
1,440,414
|
139,000
|
2023
|
797,511
|
263,000
|
2024
|
1,731,671
|
455,000
|
Thereafter
|
13,518,267
|
17,151,937
|
|
19,436,426
|
18,312,937
|
Less loan loss and other than temporary impairment on bonds allowance
|
(1,477,195)
|
(693,000)
|
Less deferred origination fees
|
(266,033)
|
___-____
|
Totals
|
$17,693,198
|
$17,619,937
|
The Company currently owns $529,000 First Mortgage
Bonds and $497,000 Second Mortgage Bonds issued by Agape Assembly Baptist Church located in Orlando, Florida. The total principal
amount of First Mortgage Bonds issued by Agape is $7,200,000, and the total principal amount of Second Mortgage Bonds issued is
$715,000. Agape defaulted on its payment obligations to bondholders in September 2010. The church subsequently commenced a Chapter
11 bankruptcy reorganization proceeding regarding the property that secures the First Mortgage Bonds in December 2010. In October
2014, the bondholders of Agape agreed to a modification in the terms of their bonds which resulted in the temporary resumption
of both principal and interest payments to both the first and second mortgage bond holders. Both the First Mortgage Bonds and Second
Mortgage Bonds were modified to a fully amortized fixed rate, quarterly interest payment of 6.25% with a new maturity date of September
2037 for all the
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
issued and outstanding bonds. The
Company, along with all other bondholders, has a superior lien over all other creditors. The Church subsequently defaulted on
their modification agreement in 2016 and no interest payments were made to bondholders during the period ended June 30, 2020.
However, the trustee made a distribution to bondholders during 2017 of $18.54 per $1,000 bond as a repayment of principal
only, effectively reducing the outstanding balance of each $1,000 bond to approximately $826. The trustee again initiated
foreclosure action against the Church and prevailed in its pursuit to foreclose on the Church’s property on November 1,
2019. However, on the eve of the foreclosure sale, the Church again filed for bankruptcy protection. The trustee is
monitoring the bankruptcy proceedings and will keep the bondholders informed when a material event transpires.
The Company currently owns $900,000 First Mortgage
Bonds issued by Soul Reapers Worship Center International located in Raleigh, North Carolina. The total principal amount of First
Mortgage Bonds issued by Soul Reapers is $1,920,000. The Church has failed to make payments as required under the terms of the
Trust Indenture. As a Bondholder, the Company expected to receive interest and principal payment(s) on time and according to the
terms of the Bonds. The Company has not received two consecutive quarterly interest payments from the issuer as of June 30, 2020.
The Company has an aggregate other than temporary
impairment of $693,000 and $658,000 for the First and Second Mortgage Bonds at June 30, 2020 and December 31, 2019, respectively,
which effectively reduces the bonds to the fair value amount management believes will be recovered.
The Company did not restructure any loans
during the periods ended June 30, 2020 and December 31, 2019, respectively. A summary of loans re-structured or modified for
the periods ended June 30, 2020 and December 31, 2019 are shown below. All of the loans, except two, shown are currently
performing under the terms of the modifications for their mortgage obligations. The first non-performing loan is a second
mortgage loan with a current unpaid principal balance of approximately $45,000. This loan has been declared to be in default.
The second non-performing loan is a first mortgage loan with current unpaid principal balance of approximately $1,283,000.
This loan is located in the boroughs of New York City and the Church has not been able to meet due to the Coronavirus
(COVID-19) shelter in place requirements.
|
June 30, 2020
|
|
|
|
|
|
|
Type of Loan
|
Number of Loans
|
Original Principal Balance
|
Original Average Interest Rate
|
Unpaid Principal Balance
|
Modified Average Interest Rate
|
Mortgage Loans
|
6
|
$4,100,544
|
7.892%
|
$3,164,006
|
5.58%
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
|
December 31, 2019
|
|
|
|
|
|
|
Type of Loan
|
Number of Loans
|
Original Principal Balance
|
Original Average Interest Rate
|
Unpaid Principal Balance
|
Modified Average Interest Rate
|
Mortgage Loans
|
6
|
$4,100,544
|
7.892%
|
$3,185,720
|
5.58%
|
|
|
|
|
|
|
5. SECURED INVESTOR CERTIFICATES
Secured investor certificates are collateralized
by certain mortgage loans receivable or secured church bonds of approximately the same value as the certificates. The weighted
average interest rate on the certificates was 6.25% and 6.33% for the periods ended June 30, 2020 and December 31, 2019, respectively.
Holders of the secured investor certificates may renew certificates at the current rates and terms upon maturity at the Company’s
discretion. Renewals upon maturity are considered neither proceeds from nor issuance of secured investor certificates. Renewals
totaled approximately $530,000 and $793,000 for the periods ended June 30, 2020 and December 31, 2019, respectively. The secured
investor certificates have certain financial and non-financial covenants identified in the respective series’ trust indentures.
The estimated maturity schedule for the secured
investor certificates at June 30, 2020 is as follows:
July 1, 2020 through December 31, 2020
|
$ 2,128,000
|
|
2021
|
2,168,000
|
|
2022
|
1,042,000
|
|
2023
|
3,384,000
|
|
2024
|
1,335,000
|
|
Thereafter
|
15,510,250
|
|
|
$25,567,250
|
|
Less deferred offering costs
|
(816,939)
|
|
Totals
|
$24,750,311
|
|
6. TRANSACTIONS WITH AFFILIATES
The Company has an Advisory Agreement with
Church Loan Advisors, Inc. (the “Advisor”). The Advisor is responsible for the day-to-day operations of the Company
and provides office space and administrative services. The Advisor and the Company are related through common ownership and common
management. For its services, the Advisor is entitled to receive a management fee equal to 1.25% annually of the Company's Average
Invested Assets, plus one-half of any origination fee charged to borrowers on mortgage loans made by the Company. A majority of
the independent board members approve the Advisory Agreement on an annual basis. The Company paid the Advisor management and
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
origination fees of approximately
$145,000 and $159,000 for the periods ended June 30, 2020 and June 30, 2019, respectively. The Company paid the Advisor
management and origination fees of approximately $71,000 and $80,000 for the three months periods ended June 30, 2020 and
June 30, 2021, respectively.
7. LINE OF CREDIT
On April 9, 2018, the Company entered into
a Loan and Security Agreement (the “Loan Agreement”) with Alerus Financial, N.A., as lender (the “Lender”),
and a Revolving Note (the “Note”) evidencing a $4,000,000 revolving loan (the “Revolving Loan”). The Lender
agrees to make loans to the Company from time to time and after the date of the loan agreement and the Company may repay and re-borrow
pursuant to the terms and conditions of the Revolving Loan as long as no borrowing causes that dollar limit to be exceeded and
the Company is not otherwise in default on the Revolving Loan. The Revolving Loan is secured by a first priority security interest
in substantially all of the Company’s assets other than collateral pledged to secure the Company’s secured investor
certificates, both those currently issued and any potentially issued in the future. The Company borrowed against the line of credit
and has an outstanding balance of $1,199,000 and $1,145,000 for the periods ended June 30, 2020 and December 31, 2019, respectively.
The original maturity date of the Note was April 9, 2019 and the interest rate is the prevailing London Interbank Offering Rate
(LIBOR) plus 2.70% adjusted monthly. On July 22, 2019 the revolving loan was extended for an additional year to July 22, 2020.
On July 22, 2020 the revolving loan was extended for an additional 90 day period to October 20, 2020.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose the fair
value information about financial instruments, where it is practicable to estimate that value. Because assumptions used in these
valuation techniques are inherently subjective in nature, the estimated fair values cannot always be substantiated by comparison
to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an immediate sale
or settlement of the instrument.
The fair value estimates presented herein are
based on relevant information available to management for the periods ended June 30, 2020 and December 31, 2019, respectively.
Management is not aware of any factors that would significantly affect these estimated fair value amounts. As these reporting requirements
exclude certain financial instruments and all non-financial instruments, the aggregate fair value amounts presented herein do not
represent management’s estimate of the underlying value of the Company.
AMERICAN CHURCH MORTGAGE COMPANY
Notes Unaudited Financial Statements
June 30, 2020
The estimated fair values of the Company’s
financial instruments, none of which are held for trading purposes, are as follows:
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
50,583
|
|
|
$
|
50,583
|
|
|
$
|
191,987
|
|
|
$
|
191,987
|
|
Accounts receivable
|
|
|
90,806
|
|
|
|
90,806
|
|
|
|
125,539
|
|
|
|
125,539
|
|
Interest receivable
|
|
|
174,702
|
|
|
|
174,702
|
|
|
|
185,190
|
|
|
|
185,190
|
|
Mortgage loans receivable
|
|
|
19,436,426
|
|
|
|
23,748,139
|
|
|
|
22,425,177
|
|
|
|
24,573,176
|
|
Bond portfolio
|
|
|
17,619,937
|
|
|
|
17,619,937
|
|
|
|
16,055,937
|
|
|
|
16,055,937
|
|
Secured investor certificates
|
|
|
25,567,250
|
|
|
|
31,893,329
|
|
|
|
26,850,000
|
|
|
|
32,389,253
|
|