Company Quick10K Filing
Quick10K
American Church Mortgage
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2018-06-20 Shareholder Vote
8-K 2018-04-10 Enter Agreement, Off-BS Arrangement, Exhibits
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ACMC 2018-09-30
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 exhibit311.htm
EX-31.2 exhibit312.htm
EX-32.1 exhibit321.htm
EX-32.2 exhibit322.htm

American Church Mortgage Earnings 2018-09-30

ACMC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 frm10q093018.htm AMERICAN CHURCH MORTGAGE COMPANY 3RD QTR 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended 09/30/2018

or

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 000-25919

AMERICAN CHURCH MORTGAGE COMPANY

(Exact Name of Registrant as Specified in its Charter)

Minnesota   41-1793975

State or Other Jurisdiction of

Incorporation or Organization

  I.R.S. Employer Identification No.
     
10400 Yellow Circle Drive, Suite 102, Minnetonka, MN   55343
Address of Principal Executive Offices   Zip Code

(952) 945-9455

Registrant’s Telephone Number, Including Area Code

 

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐  (Do not check if a smaller reporting company) Smaller reporting company ☒
Emerging growth company ☐    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐ No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes ☐    No ☐ 

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding at November 14, 2018
Common Stock, $0.01 par value per share   1,677,798 shares
 
 
AMERICAN CHURCH MORTGAGE COMPANY
 
INDEX

Page

No.

 
PART I.  FINANCIAL INFORMATION
   
   
Item 1.  Financial Statements:  
   
Balance Sheets.…………………………………………………………….………… F-2 - F-3
   
Statements of Operations…….……………………………………………………… F-4- F-5
   
Statements of Cash Flows……..…………………………………………………….. F-6 - F-7
   
Notes to Financial Statements …………………………………………………………. F-8 -F-19
   
Item 2.  Management’s Discussion and Analysis of Financial  
Condition and Results of Operations………………………………………………….. 20 – 24
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk……………….. 25
   
Items 4.  Controls and Procedures…………..…………………………………………  25
   
PART II.  OTHER INFORMATION
   
Item 1.  Legal Proceedings……………………………………………………………. 26
   
Item 1A.  Risk Factors…………………………………………………………………... 26
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds……………….. 26
   
Item 3.  Defaults Upon Senior Securities………………………………………..……. 26
   
Item 4.  Mine Safety Disclosures……………………..…………………………..…… 26
   
Item 5.  Other Information……………………………………………………………. 26
   
Item 6.  Exhibits……………………………………………….………………………. 26 -27
   
Signatures………………………………………………….…………………..……… 28

 

 

 

 

 

 

 

 

 

 

 

 

AMERICAN CHURCH MORTGAGE COMPANY

 

Minnetonka, Minnesota

 

Financial Statements

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 
 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Balance Sheets
       
ASSETS September 30, 2018   December 31, 2017
  (unaudited)    
Current Assets      
    Cash and cash equivalents  $            2,675,119    $               502,490
    Accounts receivable                   268,670                     260,785
    Interest receivable                   184,218                     176,365
    Investments                       2,410                         2,410
    Current maturities of mortgage loans receivable, net of      
       allowance for loan losses of $84,838 and $88,113 and deferred       
       origination fees of $20,642 and $28,956 at September 30, 2018      
        and December 31, 2017, respectively                1,057,362                  1,373,463
 Current maturities of bond portfolio                   154,000                     139,000
    Prepaid expenses                     15,121                         2,598
            Total current assets                4,356,900                  2,457,111
       
       
Mortgage Loans Receivable, net of current maturities,      
    allowance of $1,561,045 and $1,340,042 and deferred      
    origination fees of $264,892 and $256,578 at September 30, 2018      
     and December 31, 2017, respectively              19,570,699                21,071,635
       
Bond Portfolio, net of current maturities              15,211,807                14,090,755
       
Real Estate Held for Sale                   225,872                     225,872
       
Deferred Offering Costs, net of accumulated amortization      
    of  $1,032,371 and $1,222,243 at September 30, 2018 and       
    December 31, 2017, respectively                   871,926                     839,377
            Total Assets  $          40,237,204    $          38,684,750
       
       
Notes to Financial Statements are an integral part of this Statement.

 

 

 F-2 

 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Balance Sheets
       
LIABILITIES AND STOCKHOLDERS’ EQUITY                          September 30, 2018   December 31, 2017
  (unaudited)    
Current Liabilities      
    Current maturities of secured investor certificates  $            4,259,000    $            4,116,000
    Accounts payable                     92,262                       30,216
    Management fee payable                     25,548                       26,631
    Dividends payable                     67,112                     117,446
            Total current liabilities                4,443,922                  4,290,293
       
Secured Investor Certificates, Series B, net of current maturities                 8,281,000                  8,825,000
Secured Investor Certificates, Series C, net of current maturities                6,126,000                  6,148,000
Secured Investor Certificates, Series D                8,234,000                  8,234,000
Secured Investor Certificates, Series E                2,320,000                               -   
           Total liabilities              29,404,922                27,497,293
       
Stockholders’ Equity      
    Common stock, par value $.01 per share       
        authorized, 30,000,000 shares,      
        issued and outstanding, 1,677,798 shares at      
          September 30, 2018 and December 31, 2017, respectively                     16,778                       16,778
    Additional paid-in capital              19,113,458                19,113,458
    Accumulated deficit              (8,297,954)                (7,942,779)
            Total stockholders’ equity              10,832,282                11,187,457
       
            Total liabilities and stockholders' equity  $          40,237,204    $          38,684,750
       
       
Notes to Financial Statements are an integral part of this Statement.  

 

 

 F-3 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Statements of Operations
       
  For the Nine Months Ended
  September 30, 2018   September 30, 2017
  (unaudited)
       
Interest and Other Income  $             1,942,501    $             2,059,857
       
Interest Expense                 1,467,597                   1,436,104
       
Net Interest Income                    474,904                      623,753
       
Provision for losses on mortgage loans receivable                    217,728                        80,323
       
Net Interest Income after Provision for Mortgage Losses                    257,176                      543,430
       
Operating Expenses                    394,237                      449,921
       
Net (Loss) Income   $              (137,061)    $                  93,509
       
Basic and Diluted (Loss) Income Per Share  $                    (0.08)    $                      0.06
       
Dividends Declared Per Share  $                      0.13    $                      0.21
       
Weighted Average Common Shares Outstanding -      
    Basic and Diluted                 1,677,798                   1,677,798
       
       
Notes to Financial Statements are an integral part of this Statement.

 

 

 F-4 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Statements of Operations
       
  For the Three Months Ended
  September 30, 2018   September 30, 2017
  (unaudited)
       
Interest and Other Income  $                637,133    $                677,065
       
Interest Expense                    498,619                      480,351
       
Net Interest Income                    138,514                      196,714
       
Provision for losses on mortgage loans receivable                      60,994                        28,524
       
Net Interest Income after Provision for Mortgage Losses                      77,520                      168,190
       
Operating Expenses                    113,322                      106,616
       
Net (Loss) Income   $                (35,802)    $                  61,574
       
Basic and Diluted (Loss) Income Per Share  $                    (0.02)    $                      0.04
       
Dividends Declared Per Share  $                      0.04    $                      0.07
       
Weighted Average Common Shares Outstanding -      
    Basic and Diluted                 1,677,798                   1,677,798
       
       
Notes to Financial Statements are an integral part of this Statement.

 

 F-5 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Statements of Cash Flows
       
  For the Nine Months Ended
  September 30, 2018   September 30, 2017
  (unaudited)
Cash Flows from Operating Activities      
    Net (loss) income  $              (137,061)    $                  93,509
    Adjustments to reconcile net (loss) income to net cash      
        from operating activities:      
        Net loss on sales and impairment on real estate held for sale                                -                        66,971
        Provision for losses on mortgage loans receivable                    217,728                        80,323
        Accretion of deferred loan origination fees                                -                        18,562
        Amortization of deferred offering costs                      83,188                        90,460
        Change in assets and liabilities      
            Accounts receivable                      (7,885)                      (51,124)
            Interest receivable                      (7,853)                        (2,181)
            Prepaid expenses                    (12,523)                        (5,364)
            Accounts payable                      62,046                        43,184
            Management fee payable                      (1,083)                                  -
            Net cash provided by operating activities                    196,557                      334,340
       
Cash Flows from Investing Activities      
    Investment in mortgage loans                                -                 (3,110,103)
    Collections of mortgage loans                 1,599,309                   2,895,195
    Investments purchased                                -                        48,029
    Investment in bonds               (1,238,052)                 (1,702,000)
    Proceeds from bonds                    102,000                      143,000
            Net cash provided by (used for) investing activities                    463,257                 (1,725,879)
       
Cash Flows from Financing Activities      
    Proceeds from secured investor certificates                 2,320,000                      930,000
    Payments on secured investor certificate maturities                  (423,000)                 (1,320,000)
    Payments for deferred costs                  (115,737)                      (65,041)
    Dividends paid                  (268,448)                    (335,560)
            Net cash provided by (used for) financing activities                 1,512,815                    (790,601)
       
Net Increase (Decrease) in Cash and Cash Equivalents                 2,172,629                 (2,182,140)
       
Cash and Cash Equivalents - Beginning of Period                    502,490                   3,382,994
       
Cash and Cash Equivalents - End of Period  $             2,675,119    $             1,200,854
       
Notes to Financial Statements are an integral part of this Statement.

 

 F-6 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Statements of Cash Flows - Continued
       
  For the Nine Months Ended
  September 30, 2018   September 30, 2017
  (unaudited)
Supplemental Cash Flow Information      
       
    Dividends payable  $                  67,112    $                    117,446
       
    Interest paid  $             1,467,597    $                 1,345,644
       
Notes to Financial Statements are an integral part of this Statement.    

 

 

 F-7 

 

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited financial statements have been prepared in accordance with the instructions for interim statements and, therefore, do not include all information and disclosures necessary for fair presentation of results of operations, financial position, and changes in cash flow in conformity with generally accepted accounting principles in the United States of America. However, in the opinion of management, such statements reflect all adjustments (which include only normal recurring adjustments) necessary for fair presentation of financial position, results of operations, and cash flows for the period presented.

 

The unaudited financial statements of the Company should be read in conjunction with the December 31, 2017 audited financial statements included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission for the year ended December 31, 2017. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

 

Nature of Business

 

American Church Mortgage Company, a Minnesota corporation, was incorporated on May 27, 1994. The Company was organized to engage 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 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.

 

 F-8 

 

 

Cash and Equivalents

 

The Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents.

 

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. The Company had $628,048 and $15,428 in money market fund accounts at September 30, 2018 and December 31, 2017, respectively. 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. 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. The Company has classified $154,000 and $139,000 in bonds as current assets as of September 30, 2018 and December 31, 2017, respectively, based on management’s estimates for liquidity requirements and contractual maturities of certain bonds maturing in 2018 and 2017, respectively.

 

Allowance for 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 mortgage loans. The Company’s loan loss policy provides an allowance for estimated uncollectible loans based on an evaluation of the current status of the loan portfolio. This policy provides for principal amounts outstanding on a particular loan if cumulative interruptions occur in the normal payment schedule of a loan; therefore, the Company recognizes a provision for losses and an allowance for the outstanding principal amount of a loan in the Company’s portfolio if the amount is in doubt of collection. Additionally, no additional interest income is recognized on impaired loans that are declared to be in default and are in the foreclosure process. At September 30, 2018, the Company provided $1,645,883 for eighteen  mortgage loans, of which eight totaling approximately $3,998,000 are three or more mortgage payments in arrears, three loans totaling approximately $810,000 are declared to be in default and three loans totaling approximately $801,000 are in the foreclosure process. At December 31, 2017, the Company provided approximately $1,428,000 for nineteen mortgage loans, of which seven totaling approximately $3,364,000 were three or more mortgage payments in arrears, five loans totaling approximately $1,403,000 were declared to be in default and two loans totaling approximately $641,000 were in the foreclosure process.

 

 F-9 

 

 

A summary of transactions in the allowance for credit losses for the nine months ended September 30, 2018 is as follows:

 

Balance at December 31, 2017   $  1,428,155
Provision for additional losses      217,728
Balance at September 30, 2018   $  1,645,883

 

The total impaired loans, which are loans that are in the foreclosure process or are declared to be in default, were approximately $1,611,000 and $2,044,000 at September 30, 2018 and December 31, 2017, respectively, which the Company believes are adequately secured by the underlying collateral and the allowance for mortgage loans. Approximately $827,000 and $723,000 of the Company’s allowance for mortgage loans was allocated to impaired loans at September 30, 2018 and December 31, 2017, respectively.

 

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. A payment made on a non-accrual loan is considered a good faith deposit as to the intent to resume their mortgage payment obligation. This good faith deposit is credited back to interest first then principal as stated in the mortgage loan documentation. (ii) A letter outlining the re-payment terms or the restructure terms (if any) of the loan is provided to the borrower. This letter will be signed by the Senior Pastor and all board members of the borrower. This letter resumes the obligation to make payments on non-accrual loans. (iii) The borrower must meet all its payment obligations for the next 120 days without interruption in order to be removed from non-accrual status.

 

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 $3,998,000 and $3,364,000 exceeded 90 days past due but continued to accrue interest at September 30, 2018 and December 31, 2017, respectively. The Company believes that the loans are well secured, not deemed to be in default and the Company is actively pursuing collection of past due payments.

 

 F-10 

 

  

Real Estate Held for Sale

 

As of September 30, 2018, the Company had one property located in Pine Bluff, Arkansas acquired via deed in lieu of foreclosure, with an outstanding loan balance totaling $225,872. The Church is still occupying this property and paying rent while trying to either sell the building or obtain refinancing. 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, is $225,872 both at September 30, 2018 and December 31, 2017.

 

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 allowance for losses 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. 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.

 

As of January 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers - Topic 606 and all subsequent ASUs that modified ASC 606. The Company has elected to apply the ASU and all related ASUs using the modified retrospective implementation method. The implementation of the guidance had no material impact on the measurement or recognition of revenue of prior periods, however, additional disclosures have been added in accordance with the ASU.

 

The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the

 

 F-11 

 

 

transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers. The main types of revenue contracts included in non-interest income within the consolidated statements of operations are as follows:

 

Gain Losses on Sale of OREO

 

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO 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, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determine 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

 

No adjustments were made to income for the purpose of calculating income (loss) per share, as there were no potential dilutive shares outstanding.

 

Recent Accounting Pronouncements

 

In June, 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 excepted credit losses on financial instruments and other commitments to extend credit. For public entities, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, 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.

 

Recent Accounting Pronouncements – Adopted

 

In the first quarter of 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606).  Under the ASU, revenue is recognized when a customer obtains control of promised services in an amount that reflects the consideration the entity expects to receive in exchange for those services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.  The Company applied the five-step method outlined in the ASU to all revenue streams scoped-in by the ASU and elected the modified retrospective implementation method. Substantially all

 

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of the Company’s interest income and certain non-interest income were not impacted by the adoption of this ASU because either the revenue from those contracts with customers is covered by other guidance in U.S. GAAP or the revenue recognition outcomes were similar to our current revenue recognition practices. We reviewed non-interest sources of income and related contracts to document the impact of the new standard on our service offerings that are in the scope of the ASU including gains (losses) on sale of OREOs. Upon our analysis we concluded that the adoption of the ASC 606 did not change the timing and pattern of revenue recognition related to scoped in non-interest income source and only required additional disclosures. In addition, we reviewed, and where necessary, enhanced our business processes, systems and controls to support recognition and disclosures under the new standard. The additional disclosures required by the ASU have been included above.

 

2. FAIR VALUE MEASUREMENTS

 

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 allowance for losses on our Agape bonds (see Note 3), which totaled $458,000 for both periods ended September 30, 2018 and December 31, 2017.

 

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring basis:

 

Fair Value

Measurement

September 30, 2018 Fair Value Level 3
     
Bond portfolio $15,365,807 $15,365,807

 

 

Fair Value

Measurement

December 31, 2017 Fair Value Level 3
     
Bond portfolio $14,229,755 $14,229,755

 

We determine the fair value of the bond portfolio shown in the table above by comparing it with similar instruments in inactive markets. The analysis reflects the contractual terms of the bonds, which

 

 F-13 

 

 

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, 2017   $14,229,755 
 Purchases    1,238,052 
 Proceeds    (102,000)
 Balance at September 30, 2018   $15,365,807 

 

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 the periods ended September 30, 2018 and December 31, 2017.

 

The following table summarizes the Company’s financial instruments that were measured at fair value on a nonrecurring basis:

   September 30, 2018
   Level 1  Level 2  Level 3  Fair Value at
September 30,
2018
Impaired Loans  $—     $—     $784,602   $784,602 
Real estate held for resale   —      —      225,872    225,872 
   $—     $—     $1,010,474   $1,010,474 

 

 

   December 31, 2017
   Level 1  Level 2  Level 3  Fair Value at December 31,
2017
Impaired Loans  $—     $—     $1,321,500   $1,321,500 
Real estate held for resale   —      —      225,872    225,872 
   $—     $—     $1,547,372   $1,547,372 

 

 F-14 

 

 

 

The change in Level 3 assets measured at fair value on a nonrecurring basis is summarized as follows:

     
  Impaired Loans Real Estate Held for Sale
     
Balance at December 31, 2017 $1,321,500 $  225,872
Dispositions/Proceeds (432,961) -
Impairment    (103,937)            -  
Balance at September 30, 2018 $  784,602 $  225,872

 

3. MORTGAGE LOANS RECEIVABLE AND BOND PORTFOLIO

 

At September 30, 2018, the Company had mortgage loans receivable totaling $22,559,478. The loans bear interest ranging from 0% to 10.25% with a weighted average of approximately 8.22% at September 30, 2018. The Company had mortgage loans receivable totaling $24,158,787 that bore interest ranging from 0% to 10.25% with a weighted average of approximately 8.19% at December 31, 2017.

 

The Company has a portfolio of secured church bonds at September 30, 2018 and December 31, 2017, which are carried at fair value. The bonds pay quarterly interest ranging from 3.25% to 9.75%. The aggregate value of secured church bonds equaled approximately $15,842,000 at September 30, 2018 with a weighted average interest rate of 6.82% and approximately $14,688,000 at December 31, 2017 with a weighted average interest rate of 6.82%. These bonds are due at various maturity dates through May 2046.

 

The contractual maturity schedule for mortgage loans receivable and the bond portfolio as of September 30, 2018, is as follows:

 

  Mortgage Loans Bond Portfolio
     
October 1, 2018 through September 30, 2019 $     1,162,842 $  154,000
October 1, 2019 through December 31, 2019 179,555 59,000
2020 875,857 228,000
2021 756,395 254,000
2022 1,554,461 176,000
Thereafter 18,030,368   14,952,807
             22,559,478  15,823,807
Less loan and bond loss other than temporary impairment (1,645,883)   (458,000)
Less deferred origination income     (285,534) ______-__
            Totals $20,628,061 $ 15,365,807

 

 

 F-15 

 

 

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, a minimum of 80% of 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 issued and outstanding bonds. The Company, along with all other bondholders, has a superior lien over all other creditors. The Company has an aggregate other than temporary impairment of $458,000 for the First and Second Mortgage Bonds at September 30, 2018 and December 31, 2017, which effectively reduces the bonds to the fair value amount management believes will be recovered. The Church subsequently defaulted on their modification agreement in 2016 and no interest payments were made to bondholders during the period ended September 30, 2018. However, the trustee made a distribution to bondholders during 2017 of $18.75 per $1,000 bond as a repayment of principal only, effectively reducing the outstanding balance of each $1,000 bond to approximately $826.

 

The Company restructured one mortgage loan during the nine month period ended September 30, 2018. The restructured loan was a $669,544 first mortgage loan located in Indianapolis, Indiana. The Church was unable to meet its monthly debt obligations. The Company reduced the Church’s monthly mortgage obligation to interest only payments for a period of three years. After the three year period, the Church will resume its regular monthly mortgage payments. The Church accepted the restructured loan terms. The modification had no effect on the Company’s financial statements.

 

 

4. SECURED INVESTOR CERTIFICATES

 

Secured investor certificates are collateralized by certain mortgage loan receivables or secured church bonds of approximately the same value as the certificates. The weighted average interest rate on the certificates was 6.43% and 6.45% at September 30, 2018 and December 31, 2017, 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 $136,000 and $656,000 for the three months ended September 30, 2018 and December 31, 2017, respectively. The secured investor certificates have certain financial and non-financial covenants identified in the respective series’ trust indentures.

 

 F-16 

 

 

The estimated maturity schedule for the secured investor certificates at September 30, 2018 is as follows:

 

     
October 1, 2018 through September 30, 2019 $    4,259,000  
October 1, 2019 through December 31, 2019 1,291,000  
2020 4,167,000  
2021 2,056,000  
2022 952,000  
Thereafter  16,495,000  
     
           Totals $29,220,000  

 

 

In July 2014, the Company filed a registration statement with the Securities and Exchange Commission to offer $10,000,000 worth of Series D secured investor certificates. The offering was declared effective by the SEC on August 12, 2014. The offering was renewed with an effective date of September 23, 2016. The certificates were offered in multiples of $1,000 with interest rates ranging from 4.00% to 6.50%, subject to changing market rates and maturities from 5 and 7 to 15 years. The certificates are collateralized by certain mortgage loans receivables and church bonds of approximately the same value. At September 30, 2018, approximately 8,234 Series D certificates had been issued and were outstanding for $8,234,000. The offering terminated in August 2017.

 

In September 2017, the Company filed a registration statement with the Securities and Exchange Commission to offer $10,000,000 worth of Series E secured investor certificates. The offering was declared effective by the SEC on November 6, 2017. The certificates are being offered in multiples of $1,000 with interest rates ranging from 4.00% to 6.50%, subject to changing market rates, and maturities from 5 to 15 years. The certificates are collateralized by certain mortgage loan receivables and church bonds of approximately the same value. At September 30, 2018, approximately 2,320 Series E certificates had been issued and were outstanding for $2,320,000.

 

5. 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. A majority of the independent board members approve the advisory agreement on an annual basis. The Company paid the Advisor management fees of approximately $242,000 and $162,000 during the nine months ended September 30, 2018 and 2017, respectively.

 

 F-17 

 

 

6. 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 reborrow 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 has not yet borrowed against the line of credit as of September 30, 2018. The maturity date of the Note is April 9, 2019 and the interest rate is the prevailing London Interbank Offering Rate (LIBOR) plus 2.70% adjusted monthly.

 

 

7. 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 as of September 30, 2018 and December 31, 2017, 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.

 

The estimated fair values of the Company’s financial instruments, none of which are held for trading purposes, are as follows:

 

   September 30, 2018  December 31, 2017
   Carrying  Fair  Carrying  Fair
   Amount  Value  Amount  Value
             
Cash and equivalents  $2,675,119   $2,675,119   $502,490   $502,490 
Accounts receivable   268,670    268,670    260,785    260,785 
Interest receivable   184,218    184,218    176,365    176,365 
Mortgage loans receivable   22,559,478    21,943,917    24,158,787    25,353,731 
Bond portfolio   15,823,807    15,823,807    14,687,775    14,687,775 
Secured investor certificates   29,220,000    36,201,383    27,323,000    34,811,519 

 

 F-18 

 

 

The following methods and assumptions were used by the Company to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:

 

Cash and equivalents

 

Due to their short-term nature, the carrying amount of cash and cash equivalents approximates fair value.

 

Accounts receivable

 

Due to the short term nature, the carrying amount of accounts receivable approximates fair value.

 

Interest receivable

 

Due to the short term nature, the carrying amount of interest receivable approximates fair value.

 

Mortgage loans receivable

 

The fair value of the mortgage loans receivable is currently less than the carrying value as the portfolio is currently yielding less than similar mortgages with similar terms for borrowers with similar credit quality.

 

Bond portfolio

 

We determine the fair value of the bond portfolio shown in the table above by comparing 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.

 

Secured investor certificates

 

The fair value of the secured investor certificates is currently greater than the carrying value due to higher interest rates than current market rates.

 

 F-19 

 

 

 

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

 

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

 

Certain statements contained in this section and elsewhere in this Form 10-Q constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, (i) trends affecting our financial condition or results of operations; (ii) our business and growth strategies; (iii) the mortgage loan industry and the financial status of religious organizations; (iv) our financing plans; and other risks detailed in the Company’s other periodic reports filed with the Securities and Exchange Commission. The words “believe”, “expect”, “anticipate”, “may”, “plan”, “should”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made and are not guarantees of future performance.

 

A detailed statement of risks and uncertainties is contained in our reports to the SEC, including, in particular, our Annual Report on Form 10-K for the year ended December 31, 2017 and other public filings and disclosures.  Investors and shareholders are urged to read these documents carefully.

 

Plan of Operation

 

We were founded in May 1994 and commenced active business operations on April 15, 1996 after the completion of our initial public offering.

 

We currently have fifty-seven first mortgage loans aggregating $22,376,945 in principal amount, three second mortgage loans totaling $222,533 in principal amount and a first mortgage bond portfolio with par values aggregating $15,823,807. Funding of additional first mortgage loans and purchase of first mortgage bonds issued by churches is expected to continue on an on-going basis as more investable assets become available through: (i) future sales of securities; (ii) prepayment and repayment at maturity of existing loans and bonds; and (iii) borrowed funds. These capital sources and interest received on loans and bonds provide general working capital to the Company.

 

Results of Operations

 

Fiscal 2018 Nine Months Ended September 30, 2018 Compared to Fiscal 2017 Nine Months Ended September 30, 2017

 

Our net (loss) income for the nine months ended September 30, 2018 and 2017 was $(137,061) and $93,509, respectively, on total interest and other income of $1,942,501 and $2,059,857, respectively. Interest and other income is comprised of interest from loans, interest from bonds, amortization of bond discounts and amortization of loan origination fees. As of September 30, 2018, our loans receivables have interest rates ranging from 0% to 10.25%, with an average, principal-adjusted interest rate of 8.22%. Our bond portfolio has an average current yield of 6.82% as of September 30, 2018. As of September 30, 2017, the average, principal-adjusted interest rate on our portfolio of loans was 8.20% and our portfolio of bonds had an average current yield of 6.80%. The decrease in interest and other income during the nine months ended September 30, 2018 versus the nine months ended September 30, 2017 was due to a decrease in interest income on our loan portfolio.

 

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Interest expense was $1,467,597 and $1,436,104 for the nine months ended September 30, 2018 and 2017, respectively. The increase in interest expense was due to an increase in Secured Investor Certificates outstanding during the nine month period ended September 30, 2018. Net interest margin decreased from 30.28% to 24.45% resulting primarily from an decrease in interest and other income of approximately 6.04% and an increase in interest expense of approximately 2.19%.

 

We follow a loan loss allowance policy on our portfolio of loans outstanding. This critical policy requires complex judgments and estimates. We record mortgage loans receivable at their estimated net realizable value, which is the unpaid principal balance less the allowance for mortgage loans. Our loan policy provides an allowance for estimated uncollectible loans based on an evaluation of the current status of the loan portfolio. This policy provides for principal amounts outstanding on a particular loan if cumulative interruptions occur in the normal payment schedule of a loan. Our policy will provide for the outstanding principal amount of a loan in our portfolio if the amount is in doubt of being collected. Additionally, no interest income is recognized on impaired loans or loans that are in the foreclosure process.

 

We 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.

 

Our policies on payments received and interest accrued on non-accrual loans are as follows: (i) We 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. A payment made on a non-accrual loan is considered a good faith deposit as to the intent to resume their mortgage payment obligation. This good faith deposit is credited back to interest first then principal as stated in the mortgage loan documentation. (ii) A letter outlining the re-payment terms or the restructure terms (if any) of the loan is provided to the borrower. This letter will be signed by the Senior Pastor and all board members of the borrower. This letter resumes the obligation to make payments on non-accrual loans. (iii) The borrower must meet all its payment obligations for the next 120 days without interruption in order to be removed from non-accrual status.

 

When a loan is declared in default according to our policy or deemed to be doubtful of collection, the loan committee of our Advisor will direct the staff to charge-off the uncollectable receivables.

 

Allowance for losses on mortgage loans receivable increased during the nine months ended September 30, 2018 as we recorded additional provisions against the mortgage loans. We recorded an additional provision for losses on loans during the nine months ended September 30, 2018 of approximately $217,728 compared to approximately $80,323 for the nine months ended September 30, 2017. At September 30, 2018, we provided approximately $1,646,000 for eighteen mortgage loans, of which eight are three or more mortgage payments in arrears, three loans are declared to be in default and three were in the foreclosure process. At September 30, 2017, we provided approximately $1,392,000 for seventeen mortgage loans, of which eight were three or more mortgage payments in arrears, three were declared to be in default and two were in the foreclosure process.

 

Our lending practices limit deployment of our capital to churches and other non-profit religious organizations. The total principal amount of our second mortgage loans is limited to 20% of our average invested assets. We currently have three second mortgage loans totaling approximately $223,000 in principal amount outstanding. We do not loan to any borrower who has been in operation for less than two years and the borrower must demonstrate they can service the debt outstanding for the prior three

 

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years based on historical financial statements. We do not loan money based on projections or pledge programs. The loan amount to any borrower cannot exceed 75% loan to appraised value. Typically, we do not loan over 70% loan to value except in extenuating circumstances. In addition, the borrower’s long-term debt (including the proposed loan) cannot exceed four times the borrower’s gross income for the previous twelve month period.

 

Historically, loans in our portfolio are outstanding for an average of eight years. Our borrowers are typically small independent churches with little or no borrowing history. Once a church establishes a payment history with us, they look to refinance their loan with a local bank, credit union or other financial institution which is willing to provide financing since the borrower has established a payment history and have demonstrated they can meet their mortgage debt obligations.

 

Operating expenses for the nine months ended September 30, 2018 decreased approximately $56,000 to $394,000 compared to $450,000 at September 30, 2017. The decrease was primarily the result of a decrease in realized loan losses.

 

Fiscal 2018 Third Quarter Compared to Fiscal 2017 Third Quarter

 

The Company had a net loss of approximately $(35,802) for the three months ended September 30, 2018 compared to net income of $197,000 for the three months ended September 30, 2017, on total interest and other income of approximately $637,000 and $677,000 three months ended September 30, 2018 and 2017, respectively. Interest expense was approximately $499,000 and $480,000 for the three months ended September 30, 2018 and 2017, respectively. The decrease in net interest income was approximately $58,000 due to a decrease in interest income on our loan portfolio and an increase in our interest expense on our Secured Investor Certificates.

 

Operating expenses for the three months ended September 30, 2018 increased to approximately $113,000 compared to $107,000 at September 30, 2017. The increase in operating expenses was due to an increase in the recognition of our accounting expenses.

 

Mortgage Loans and Bond Portfolio

 

No new loans were funded during the nine months ended September 30, 2018.

 

We currently own $529,000 First Mortgage Bonds and $497,000 Second Mortgage Bonds issued by Agape Assembly Baptist Church located in Orlando, Florida. Agape defaulted on its payment obligations to bondholders in September 2010. The aggregate amount of the defaulted bonds equals $7,915,000; 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. The church commenced a Chapter 11 bankruptcy reorganization proceeding regarding the property that secures the First Mortgage Bonds in December 2010. In October 2014, Agape bondholders 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 issued and outstanding bonds. We, along with all other bondholders, have a superior lien over all other creditors. We recorded an aggregate other than temporary impairment of $458,000 for the First and Second Mortgage Bonds at September 30, 2018, which effectively reduces the bonds to the fair value amount management believes will be recovered. The Church subsequently defaulted on their modification agreement in 2016 and no interest payments were made to bondholders during the six month period ended September 30, 2018. However, the trustee made a distribution to bondholders during the twelve month period ended December 31, 2017 of $18.54 per

 

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$1,000 bond as a repayment of principal only, effectively reducing the outstanding balance of each $1,000 bond to approximately $826.

 

Real Estate Held for Sale

 

We record 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. We did not record any additional impairment on our real estate held for sale for the nine month period ended September 30, 2018 and 2017.

 

Dividends

 

We have elected to operate as a real estate investment trust (REIT), therefore we are required, among other things, to distribute to shareholders at least 90% of “Taxable Income” in order to maintain our REIT status. The dividends declared and paid to shareholders may include cash from origination fees even though they are not recognized as income in their entirety for the period under generally accepted accounting principles in the United States. We earned $0 and $40,772 in origination fees for the nine months ended September 30, 2018 and 2017, respectively.

 

We paid a dividend of $.07 for each share held of record on April 30, 2018. The dividend was paid May 1, 2018.

 

We paid a dividend of $.02 for each share held of record on July 30, 2018. The dividend was paid July 31, 2018.

 

We paid a dividend of $.04 for each share held of record on October 29, 2018. The dividend was paid October 31, 2018.

 

Liquidity and Capital Resources

 

We generate revenue through implementation of our business plan of making mortgage loans to, and acquiring first mortgage bonds issued by, churches and other non-profit religious organizations. Our revenue is derived principally from interest income, and secondarily through the origination fees and renewal fees generated by the mortgage loans we make. We also earn income through interest on funds that are invested pending their use in funding mortgage loans and on income generated on church bonds. Our principal recurring expenses are advisory fees, legal and accounting fees and interest payments on secured investor certificates. Our liabilities as of September 30, 2018 are primarily comprised of accounts payable, management fee payable and dividends declared as of September 30, 2018 but not yet paid and our secured investor certificates.

 

Our current funding sources are expected to provide adequate cash for our operations for the next twelve months. Future capital needs are expected to be met by: (i) the additional sale of securities; (ii) prepayment and repayment at maturity of mortgage loans we make; and (iii) bonds that mature or we sell from our bond portfolio. We believe that the “rolling” effect of mortgage loans maturing and bond repayments will provide a supplemental source of capital to fund our business operations in future years. We continually review the market for other sources of capital. There can be no assurance we will be able to raise additional capital on terms acceptable for such purposes.

 

During the nine months ended September 30, 2018, total assets increased by approximately $1,552,000 due to an increase in our cash position from the sale of our Secured Investor Certificates. Current liabilities increased by approximately $153,000 for the nine months ended September 30, 2018 due to an increase in current maturities of our secured investor certificates. Non-current liabilities also increased by

 

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approximately $1,754,000 for the nine months ended September 30, 2018 due to an increase of secured investor certificates outstanding.

 

For the nine months ended September 30, 2018, net cash provided by operating activities decreased to approximately $197,000 from $334,000 from the comparative period ended September 30, 2017, primarily due to an increase in our provision for losses on our loan portfolio.

 

For the nine months ended September 30, 2018, net cash provided by (used for) investing activities was approximately $463,000 compared to $(1,726,000) from the comparative nine months ended September 30, 2017, due to a decrease in both investment in mortgage loans and in bonds.

 

For the nine months ended September 30, 2018, net cash provided by (used for) financing activities decreased to approximately $1,513,000 from $(791,000) for the comparative nine months ended September 30, 2017, primarily due to the sale of our secured investor certificates.

 

Critical Accounting Estimates

 

Preparation of our financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. We evaluate these estimates based on assumptions we believe to be reasonable under the circumstances.

 

The difficulty in applying these policies arises from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions. As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.

 

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. 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 and the valuation of the bond portfolio and 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.

 

We estimate the value of real estate we hold pending re-sale based on a number of factors. We look at the current condition of the property as well as current market conditions in determining a fair value, which will determine the listing price of each property. Each property is valued based on its current listing price less any anticipated selling costs, including for example, realtor commissions. Since churches are single use facilities the listing price of the property may be lower than the total amount owed to us. Attorney fees, taxes, utilities along with real estate commission fees will also reduce the amount we collect from the sale of a property we have acquired through foreclosure. The fair value of the real estate held for sale includes estimates of expenses related to the sale of the real estate.

 

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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

N/A

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the principal executive officer and the principal accounting officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the quarter ended September 30, 2018. Based on that evaluation, the principal executive officer and the principal accounting officer concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal accounting officer, to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls Over Financial Reporting

 

During the three months ended September 30, 2018, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II

 

OTHER INFORMATION

 

 

Item 1.  Legal Proceedings.

 

None.

 

Item 1A.  Risk Factors.

 

Not applicable.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

(a)Not Applicable

 

(b)Not Applicable

 

(c)Not Applicable

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits

 

Exhibit

Number Title of Document

 

31.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the of the Sarbanes-Oxley Act of 2002.

 

32.2Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the of the Sarbanes-Oxley Act of 2002.
 26 

 

 

101The following financial information from our Quarterly Report on Form 10-Q for the third quarter of fiscal year 2018 filed with the Securities and Exchange Commission on November 14, 2018, is formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets at September 30, 2018 and December 31, 2017; (ii) Consolidated Statements of Operations for the nine and three months ended September 30, 2018 and 2017; (iii) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017; and (iv) the Notes to Financial Statements (Unaudited).

 

 

 

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SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated:       November 14, 2018

 

  AMERICAN CHURCH MORTGAGE COMPANY
   
By:   /s/ Philip J. Myers
    Philip J. Myers
    Chief Executive Officer
   (Principal Executive Officer)
   
By:   /s/ Scott J. Marquis
   Scott J. Marquis
   Chief Financial Officer and Treasurer
  (Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

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