Company Quick10K Filing
American Church Mortgage
Price1.99 EPS-0
Shares2 P/E-70
MCap3 P/FCF-16
Net Debt-0 EBIT1
TEV3 TEV/EBIT2
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-13
10-Q 2020-03-31 Filed 2020-05-14
10-K 2019-12-31 Filed 2020-04-23
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-04-01
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-03-30
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-15
10-K 2016-12-31 Filed 2017-03-31
10-Q 2016-09-30 Filed 2016-11-15
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-13
10-K 2015-12-31 Filed 2016-03-30
10-Q 2015-09-30 Filed 2015-11-16
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-14
10-K 2014-12-31 Filed 2015-03-31
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-28
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-15
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-03-28
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-12
10-Q 2011-03-31 Filed 2011-05-13
10-K 2011-03-30 Filed 2011-03-31
10-Q 2010-09-30 Filed 2010-11-12
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-05-13 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-31
8-K 2020-06-25 Shareholder Vote
8-K 2019-12-31
8-K 2019-07-23
8-K 2019-07-02
8-K 2019-06-25
8-K 2019-04-29
8-K 2018-06-20
8-K 2018-04-10

ACMC 10Q Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 2020-06-30

Balance SheetIncome StatementCash Flow

10-Q 1 frm10q063020.htm ACMC FORM 10Q 2ND QTR 2020

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 06/30/2020

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol Name of exchange on which registered
Common Stock, $0.01 par value per share N/A N/A

 

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 every Interactive Data File required to be submitted 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 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 ☒ 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   At August 13, 2020
Common Stock, $0.01 par value per share   1,676,598 shares
 
 
AMERICAN CHURCH MORTGAGE COMPANY
 
INDEX

Page

No.

 
PART I.  FINANCIAL INFORMATION
   
Item 1.  Financial Statements:  
   
Balance Sheets.…………………………………………………………….………… F-2 - F- 3
   
Statement of Operations.…………………………………… ………………………   F-4 – F-5
   
Statement of Stockholders’ Equity……………………………………………………… F-6  
   
Statements of Cash Flows……..…………………………………………………….. F-7 - F-8
   
Notes to Financial Statements …………………………………………………………. F-9 - F-21
   
Item 2.  Management’s Discussion and Analysis of Financial  
Condition and Results of Operations………………………………………………….. 22 – 26
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk……………….. 26
   
Items 4.  Controls and Procedures…………..…………………………………………  27
   
PART II.  OTHER INFORMATION
   
Item 1.  Legal Proceedings……………………………………………………………. 28
   
Item 1A.  Risk Factors…………………………………………………………………... 28
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds……………….. 28
   
Item 3.  Defaults Upon Senior Securities………………………………………..……. 28
   
Item 4.  Mine Safety Disclosures……………………..…………………………..…… 28
   
Item 5.  Other Information……………………………………………………………. 28
   
Item 6.  Exhibits……………………………………………….………………………. 29
   
Signatures………………………………………………….…………………..……… 30

 

 

 

 

 

 

 

  

 

AMERICAN CHURCH MORTGAGE COMPANY

 

Minnetonka, Minnesota

 

Unaudited Financial Statements

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Balance Sheets
       
ASSETS June 30, 2020   December 31, 2019
  (unaudited)    
       
Assets      
    Cash and cash equivalents  $                50,853    $              191,987
    Accounts receivable                    90,806                    125,539
    Interest receivable                  174,702                    185,190
    Investments                              -                        2,410
    Prepaid expenses                    13,117                      13,121
            Total current assets                  329,478                    518,247
       
       
Mortgage Loans Receivable, net of allowance of $1,477,195 and $1,429,487      
    at June 30, 2020 and December 31, 2019 and deferred origination fees       
    of $266,033 and $278,633 at June 30, 2020 and December 31, 2019, respectively             17,693,198               20,717,058
       
Bond Portfolio             17,619,937               16,055,937
       
Real Estate Held for Sale                  550,045                    651,398
            Total Assets  $         36,192,658    $         37,942,640
       
       
Notes to Financial Statements are an integral part of this Statement.      

 

 F-2 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Balance Sheets
       
LIABILITIES AND STOCKHOLDERS’ EQUITY                          June 30, 2020   December 31, 2019
  (unaudited)    
       
Liabilities      
    Accounts payable                      3,950                      12,311
    Management fee payable                    23,289                      27,255
    Line of Credit               1,199,000                 1,445,000
    Dividends payable                    16,766                    125,835
       
Secured Investor Certificates, Series B               7,486,250                 8,855,000
Secured Investor Certificates, Series C               6,289,000                 6,324,000
Secured Investor Certificates, Series D               8,054,000                 8,109,000
Secured Investor Certificates, Series E               3,738,000                 3,562,000
       
(Less) Deferred Offering Costs, net of accumulated amortization      
    of  $1,018,170 and $956,811 at June 30, 2020 and       
    December 31, 2019, respectively                 (816,939)                   (865,533)
           Total liabilities             25,993,316               27,594,868
       
Stockholders’ Equity      
    Common stock, par value $.01 per share       
        authorized, 30,000,000 shares,      
        issued and outstanding, 1,676,598 shares at June 30, 2020 and      
        1,677,798 at December 31, 2019, respectively                    16,766                      16,778
    Additional paid-in capital             19,111,060               19,113,458
    Accumulated deficit              (8,928,484)                (8,782,464)
            Total stockholders’ equity             10,199,342               10,347,772
       
            Total liabilities and stockholders' equity  $         36,192,658    $         37,942,640
       
       
Notes to Financial Statements are an integral part of this Statement.  

 

 F-3 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Statements of Operations
       
  For the Six Months Ended
  June 30, 2020   June 30, 2019
  (unaudited)
       
Interest and Other Income  $            1,232,224    $            1,346,023
       
Interest Expense                   902,325                     920,803
       
Net Interest Income                   329,899                     425,220
       
Provision for losses on mortgage loans receivable                     47,708                       48,741
       
Net Interest Income after Provision for Mortgage                   282,191                     376,479
       
Operating Expenses      
   Other than temporary impairment on bond portfolio                     35,000                     100,000
Other operating expenses                   309,333                     310,559
                    344,333                     410,559
       
Net (Loss)  $                (62,142)    $                (34,080)
       
Basic and Diluted Earnings (Loss) Per Share  $                    (0.04)    $                    (0.02)
       
Dividends Declared Per Share  $                     0.05    $                     0.12
       
Weighted Average Common Shares Outstanding -      
    Basic and Diluted                1,677,198                  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
  June 30, 2020   June 30, 2019
  (unaudited)
       
Interest and Other Income  $               604,247    $               648,471
       
Interest Expense                   438,835                     457,333
       
Net Interest Income                   165,412                     191,138
       
Provision for losses on mortgage loans receivable                     64,284                       30,463
       
Net Interest Income after Provision for Mortgage                   101,128                     160,675
       
Operating Expenses      
   Other than temporary impairment on bond portfolio                     35,000                       50,000
Other operating expenses                   196,672                     183,975
                    231,672                     233,975
       
Net (Loss)  $              (130,544)    $                (73,300)
       
Basic and Diluted Earnings (Loss) Per Share  $                    (0.08)    $                    (0.04)
       
Dividends Declared Per Share  $                     0.01    $                     0.06
       
Weighted Average Common Shares Outstanding -      
    Basic and Diluted                1,676,598                  1,677,798
       
       
Notes to Financial Statements are an integral part of this Statement.

 

 

 F-5 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Statements of Operations
       
  For the Three Months Ended
  June 30, 2020   June 30, 2019
  (unaudited)
       
Interest and Other Income  $               604,247    $               648,471
       
Interest Expense                   438,835                     457,333
       
Net Interest Income                   165,412                     191,138
       
Provision for losses on mortgage loans receivable                     64,284                       30,463
       
Net Interest Income after Provision for Mortgage                   101,128                     160,675
       
Operating Expenses      
   Other than temporary impairment on bond portfolio                     35,000                       50,000
Other operating expenses                   196,672                     183,975
                    231,672                     233,975
       
Net (Loss)  $              (130,544)    $                (73,300)
       
Basic and Diluted Earnings (Loss) Per Share  $                    (0.08)    $                    (0.04)
       
Dividends Declared Per Share  $                     0.01    $                     0.06
       
Weighted Average Common Shares Outstanding -      
    Basic and Diluted                1,676,598                  1,677,798
       
       
Notes to Financial Statements are an integral part of this Statement.  

 

 

 F-6 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
                
Statements of Stockholders’ Equity
Unaudited
         Additional      
   Common Stock  Paid-In  Accumulated   
   Shares  Amount  Capital  Deficit  Totals
                
Balance, December 31, 2018   1,677,798   $16,778   $19,113,458   $(8,353,688)  $10,776,548 
                          
    Net loss   —      —      —      (3,594)   (3,594)
                          
    Dividends declared   —      —      —      (92,279)   (92,279)
                          
Balance, March 31, 2019   1,677,798    16,778    19,113,458    (8,449,561)  $10,680,675 
                          
    Net loss   —      —      —      (30,486)   (30,486)
                          
    Dividends declared   —      —      —      (100,668)   (100,668)
                          
Balance, June 30, 2019   1,677,798   $16,778   $19,113,458   $(8,580,715)  $10,549,521 
                          
    Net loss   —      —      —      91,866    91,866 
                          
    Dividends declared   —      —      —      (293,615)   (293,615)
                          
Balance, December 31, 2019   1,677,798   $16,778   $19,113,458   $(8,782,464)  $10,347,772 
                          
    Net Income   —      —      —      68,402    68,402 
                          
    Dividends declared   —      —      —      (67,112)   (67,112)
                          
Balance, March 31, 2020   1,677,798    16,778    19,113,458    (8,781,174)  $10,349,062 
                          
     Re-purchase 1,200 shares   (1,200)   (12)   (2,398)   —      (2,410)
                          
    Net (Loss)   —      —      —      (130,544)   (130,544)
                          
    Dividends declared   —      —      —      (16,766)   (16,766)
                          
Balance, June 30, 2020   1,676,598    16,766    19,111,060    (8,928,484)   10,199,342 
                          
Notes to Financial Statements are an integral part of this Statement. 

 

   

 F-7 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Statements of Cash Flows
       
  For the Six Months Ended
  June 30, 2020   June 30, 2019
  (unaudited)
       
Cash Flows from Operating Activities      
    Net (loss)  $                (62,142)    $                (34,080)
    Adjustments to reconcile net (loss) income to net cash      
        from operating activities:      
         Net loss on sales and impairment on real estate held for sale                   101,352                       12,734
        Provision for losses on mortgage loans receivable                     47,708                       48,741
        Other than temporary impairment on bond portfolio                     35,000                     100,000
        Amortization of loan origination discounts                    (12,600)                       40,000
        Amortization of deferred offering costs                     61,359                       54,420
        Change in assets and liabilities      
            Accounts receivable                     34,733                      (22,360)
            Interest receivable                     10,488                      (12,152)
            Prepaid expenses                              4                        (6,510)
            Accounts payable                      (8,361)                    (400,855)
            Management fee payable                      (3,966)                           (196)
            Net cash provided by (used for) operating activities                   203,575                    (220,258)
       
Cash Flows from Investing Activities      
    Net decrease in loans                2,988,752                     376,318
    Investment in bonds               (1,721,000)                    (895,000)
    Proceeds from bonds                   122,000                       83,870
    Proceeds from real estate held for sale                               -                    (100,537)
            Net cash provided by (used for) investing activities                1,389,752                    (535,349)
       
Cash Flows from Financing Activities      
    Net decrease in secured investor certificates               (1,282,750)                 (2,024,000)
    Payments for deferred costs                    (12,764)                      (27,528)
    Net change in short term borrowings                  (246,000)                  2,000,000
    Dividends paid                  (192,947)                    (234,893)
            Net cash (used for) financing activities               (1,734,461)                    (286,421)
       
Net (Decrease) in Cash and Cash Equivalents                  (141,134)                 (1,042,028)
       
Cash and Cash Equivalents - Beginning of Year                   191,987                  2,183,441
       
Cash and Cash Equivalents - End of Year  $                 50,853    $            1,141,413
       
Notes to Financial Statements are an integral part of this Statement.

 

 F-8 

 

 

AMERICAN CHURCH MORTGAGE COMPANY
       
Statements of Cash Flows - Continued
       
  For the Six Months Ended
  June 30, 2020   June 30, 2019
  (unaudited)
       
Supplemental Cash Flow Information      
       
    Interest paid  $               902,325    $                   920,803
       
Notes to Financial Statements are an integral part of this Statement.    

 

 F-9 

 

 

AMERICAN CHURCH MORTGAGE COMPANY

 

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.

 

 F-10 

 

 

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.

 

 F-11 

 

 

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.

 

 F-12 

 

 

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.

 

 F-13 

 

 

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.

 

 F-14 

 

 

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 

 

 

 F-15 

 

 

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

 

 F-16 

 

 

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

 

 F-17 

 

 

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%

 

 

 F-18 

 

 

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

 

 F-19 

 

 

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.

 

 F-20 

 

  

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 

 

 F-21 

 

 

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) The uncertainty and economic slowdown caused by the Covid-19 pandemic; (v) 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, 2019 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-one mortgage loans aggregating $19,436,425 in principal amount and a first and second mortgage bond portfolio with par values aggregating $18,312,937. 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.

 

Impact of Covid-19

 

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 and may continue to experience severe 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 has impacted the Company’s revenue and will continue impact the Company’s operations. The Company may continue to 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.

 

 

 22 

 

 

Results of Operations

 

Fiscal 2020 Six Months Ended June 30, 2020 Compared to Fiscal 2019 Six Months Ended June 30, 2019

 

Our net (loss) for the six months ended June 30, 2020 and 2019 was approximately $(62,000) and $(34,000), respectively, on total interest and other income of approximately $1,232,000 and $1,346,000, 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 June 30, 2020, our loans receivable have interest rates ranging from 0% to 10.25%, with an average, principal-adjusted interest rate of 7.69%. Our bond portfolio has an average current yield of 6.83% as of June 30, 2020. As of June 30, 2019, the average, principal-adjusted interest rate on our portfolio of loans was 8.09% and our portfolio of bonds had an average current yield of 6.87%. The decrease in interest income was due predominantly to a decrease in assets under management.

 

Interest expense was approximately $902,000 and $921,000 for the six months ended June 30, 2020 and 2019, respectively. The decrease in interest expense was due to the decrease in interest paid on our Secured Investor Certificates resulting from a dec333333333rease in the amount of Secured Investor Certificates outstanding. Net interest margin decreased from 31.59% to 26.77% for the six months ended June 30, 2020 versus the prior year’s comparative period, resulting primarily from a decrease in interest income of approximately 8.45% along with a decrease in interest expense of approximately 2.00%.

 

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.

 

The accrual of interest on a loan is discontinued when the loan becomes 90 days delinquent or whenever management believes the borrower will be unable to make payments as they become due. When loans are placed on nonaccrual status or charged off, all unpaid accrued interest is reversed against interest income. 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 and future payments are reasonably assured.

 

Allowance for losses on mortgage loans receivable increased during the six months ended June 30, 2020 as we recorded additional provisions against the mortgage loans. We recorded an additional provision for losses on loans during the six months ended June 30, 2020 of approximately $48,000 compared to approximately $49,000 for the six months ended June 30, 2019. At June 30, 2020, we provided approximately $1,477,000 for fourteen mortgage loans, of which ten are three or more mortgage payments in arrears of which three of these loans are declared to be in default. At December 31, 2019, we provided approximately $1,429,000 for fourteen mortgage loans, of which eleven 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 $218,000 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 years

 

 23 

 

 

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 seven years. Our borrowers are typically small independent churches with little or no borrowing history. Once a church establishes a payment history with us, they typically 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 six months ended June 30, 2020 decreased to approximately $344,000 compared to $411,000 for the six months ended June 30, 2019. The decrease was the result of a decrease in other than temporary impairment on our bond portfolio.

 

Fiscal 2020 Second Quarter Compared to Fiscal 2019 Second Quarter

 

The Company had a net loss of approximately $131,000 for the three months ended June 30, 2020 compared to a net loss of approximately $73,000 for the three months ended June 30, 2019, on total interest and other income of approximately $604,000 and $648,000, respectively. Interest expense was approximately $439,000 and $457,000 for the three months ended June 30, 2020 and 2019, respectively. The decrease in net interest income from the prior three month period was approximately $26,000.

 

Operating expenses for the three months ended June 30, 2020 decreased to approximately $232,000 compared to $234,000 at June 30, 2019. The decrease in operating expenses was due to a decrease in other than temporary impairment on our bond portfolio.

 

Mortgage Loans and Bond Portfolio

 

Two new bridge loans were funded during the six months ended June 30, 2020 for approximately $737,000. A bridge loan typically has a maturity of one year or less.

 

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, 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. We, along with all other bondholders, have 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 six-month period ended June 30, 2020.

 

We currently own $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

 

 24 

 

 

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.

 

We have an aggregate other than temporary impairment of $693,000 and $658,000 for the First and Second Mortgage Bonds issued by Agape Assembly and Soul Reapers Worship Center International at June 30, 2020 and December 31, 2019, respectively, which effectively reduces the bonds to the fair value amount management believes will be recovered.

 

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 loss on our real estate held for sale for the six month period ended June 30, 2020 and 2019, respectively.

 

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.

 

We paid a dividend of $.01 for each share held of record on July 29, 2020. The dividend, which was paid July 31, 2020.

 

We paid a dividend of $.06 for each share held of record on July 29, 2019. The dividend, which was paid July 31, 2019.

 

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 June 30, 2020 are primarily comprised of dividends declared as of June 30, 2020 but not yet paid, our line of credit 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) prepayment and repayment at maturity of mortgage loans we make; (ii) bonds that mature; and (iii) funds available from our line of credit. 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 six months ended June 30, 2020, total assets decreased by approximately $1,750,000 due to a decrease in our loan and bond portfolio outstanding. Liabilities decreased by approximately $1,602,000 for the six months ended June 30, 2020 due to a decrease in our secured investor certificates and our line of credit.

 25 

 

 

For the six months ended June 30, 2020, net cash provided by (used for) operating activities increased to $203,575 from $(220,258) from the comparative period ended June 30, 2019, primarily due to an decrease in our accounts payable and an increase in our sale of real estate held for sale.

 

For the six months ended June 30, 2020, net cash provided by (used for) investing activities was $1,389,753 compared to $(535,349) from the comparative six months ended June 30, 2019, due to a decrease in investments in our mortgage loans.

 

For the six months ended June 30, 2020, net cash (used for) financing activities increased to $(1,734,462) from $(286,421) for the comparative six months ended June 30, 2019, primarily due to pay-down on our line of credit.

 

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.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

N/A

 

 

 26 

 

 

Items 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 June 30, 2020. Based on that evaluation, the principal executive officer and the principal accounting officer concluded that the Company’s disclosure controls and procedures were not 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. We have limited number of personnel performing finance and accounting functions. Were there a larger staff, it would be possible to provide for enhanced disclosure of financial reporting matters. Management is required to apply its judgement in evaluating the cost benefit relationship of possible controls and procedures. Management realizes this is a material weakness.

 

Changes in Internal Controls Over Financial Reporting

 

During the three months ended June 30, 2020, 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.

 27 

 

 

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)Purchases of equity securities during the quarter ended June 30, 2020 are described below:

 

Issuer Purchases of Equity Securities

Dates of
Shares Purchased
  Total Number of
Shares Purchased
  Average Price
Paid per Share
  Total Number of Shares
Purchased as Part of
Public Announced
Plans or Programs
  Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
April 1 - April 30, 2020       0   NA      NA   
May 1 - May 30, 2020       0   NA      NA   
June 1 - June 30, 2020   1,200      $2.00   NA      NA   

 

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable

 

Item 5. Other Information.

 

None.

 

 28 

 

 

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 302 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 302 of the Sarbanes-Oxley Act of 2002.

 

101The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal year 2020 filed with the Securities and Exchange Commission on August 14, 2020, is formatted in eXtensible Business Reporting Language (XBRL): (i) the Balance Sheets at June 30, 2020 and December 31, 2019; (ii) Statements of Operations for the six months and three months ended June 30, 2020 and 2019; (iii) the Statements of Cash Flows for the six months ended June 30, 2020 and 2019; and (iv) the Notes to Financial Statements (Unaudited).

 

 29 

 

 

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:       August 13, 2020

 

  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)

 

 

 

 

 

 

 

 

 30