Notes to Unaudited Financial Statements
March 31, 2021
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements
and the notes thereto have been prepared in accordance with generally accepted accounting principals in the United States of America (“GAAP”).
In the opinion of management, the accompanying unaudited interim financial statements contain all normal recurring adjustments necessary
to present fairly the financial positions, results 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, 2020, as filed with the Securities and Exchange Commission on March 31, 2021.
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.
Risks and Uncertainties
The United States and world economies continue to
suffer adverse effects from the COVID-19 virus pandemic (“COVID-19”). The Company has not experienced a material adverse impact
to the financial statements. Future potential impacts to the Company may include disruptions or restrictions on employers and contracted
agents’ ability to work, reduced demand for new loans and increased repurchase risk of loan or bond defaults. The future impact
of the COVID-19 pandemic on the Company cannot be reasonably estimated at this time.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
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.
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
Bonds that management has the intent to hold to maturity
are classified as held to maturity and recorded at amortized costs. Amortization of premiums and accretion of discounts (if any) are recognized
in interest income using the interest method over the estimated lives of the securities.
Declines in fair value of bonds that are deemed to
be other than temporary, if applicable, are reflected in earnings as realized losses. In estimating other-than temporary impairment losses,
management considered the length of time and the extent to which fair value has been less than cost, the financial condition and near-term
prospects of the issuer, and the interest and the ability of the Company to retain its investment in the issuer for a period of time sufficient
to allow for any anticipated recovery in fair value. Gains and losses on the sales of securities are recorded on the trade date and determined
using the specific-identification method.
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 March 31, 2021, the Company reserved $1,501,095
for fourteen mortgage loans. Nine of these loans are three or more mortgage payments in arrears of which two are declared to be
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
in default.
The total principal amount of these fourteen loans totaled approximately $6,445 ,000 at March
31, 2021. At December 31, 2020, the Company reserved $1,493,996 for fourteen mortgage loans. Nine of these loans are three or more mortgage
payments in arrears of which two are declared to be in default. The total principal amount of these fourteen loans totaled approximately
$6,498 ,000 at December 31, 2020.
A summary of transactions in the allowance for mortgage
loans for the period ended March 31, 2021 and 2020 is as follows:
Balance at December 31, 2020
|
$ 1,493,996
|
Provisions for loan losses
|
7,099
|
Loan charge-offs
|
-
|
Balance at March 31, 2021
|
$ 1,501,095
|
Balance at December 31, 2019
|
$ 1,429,487
|
Provisions for loan losses
|
-
|
Loan charge-offs
|
-
|
Balance at March 31, 2020
|
$ 1,429,487
|
Loans that are in the foreclosure process or are declared
to be in default, had a principal balance of $588,787 and were considered impaired and written down to their estimated fair value of $37,771
as of March 31, 2021. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $551,016
as of March 31, 2021.
Loans that are in the foreclosure process or are declared
to be in default, had a principal balance of $588,787 and were considered impaired and written down to their estimated fair value of $37,771
as of December 31, 2020. As a result, the Company recognized a specific valuation allowance against these impaired loans totaling $551,016
as of December 31, 2020.
The outbreak of COVID-19 has affected churches due
to shelter-in-place directives which has ceased or greatly curtailed 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 borrowers to either make interest only payments for a period of ninety days or forgo one monthly mortgage payment
(forbearance). The Company provided eight churches totaling approximately $2,625,000, in principal outstanding, ninety days interest only
payments and four churches totaling approximately $2,161,000, in principal outstanding, one-month forbearance of their mortgage payments.
As of March 31, 2021, all churches, except four, have returned to full monthly amortization payments. These four churches totaling approximately
$755,000, in principal outstanding, have remained on interest only payments. 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
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
impact future distributions and the ability to make payments due on the Company’s certificates
and dividends to its shareholders. The future impact of COVID-19 on the Company’s investments or operations cannot be reasonably
estimated at this time.
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: 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 March 31, 2021 and 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 $2,771,000 and $2,795,000
exceeded 90 days past due but continued to accrue interest as of March 31, 2021 and December 31, 2020, 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 $328,996 and $428,996 as of March 31, 2021 and December 31, 2020, 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
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
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.
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
March 31, 2021 and 2020.
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, 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.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
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.
Subsequent Events
The Company has evaluated events and transactions
through May 14, 2021, the date the financial statements were available to be issued.
3. FAIR VALUE MEASUREMENT
Some assets and liabilities are measured at fair value
on a recurring basis under accounting principles generally accepted in the United States of America. The Company has no such assets or
liabilities that are measured at fair value on a recurring basis. Other assets and liabilities may be measured at fair value on a nonrecurring
basis. Below is a description of the valuation methodology and significant inputs used for each asset and liability measured at fair value
on a nonrecurring basis, as well as the classification of the asset or liability within the fair value hierarchy.
Bonds held to maturity
Securities held to maturity are not measured at fair
value on a recurring basis. However, securities deemed other-than-temporarily impaired are measured at fair value. The fair value measurement
of such securities is obtained from an independent firm and is based on a valuation model that incorporates various assumptions market
participants would use to value the securities, such as current interest rates, estimated credit and liquidity spreads, conditional default
and loss severity rates, and available credit support. Since some of these assumptions are unobservable in the current market environment,
the fair value measurement of other-than-temporarily impaired securities held to maturity is considered a Level 3 measurement.
Loans
Loans are not measured at fair value on a recurring
basis. However, loans considered to be impaired (see Note 1) may be measured at fair value on a nonrecurring basis. The fair value measurement
of an impaired loan that is collateral dependent is based on the fair value of the underlying collateral. Independent appraisals are obtained
that utilize one or more valuation methodologies - typically they will incorporate a comparable
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
sales approach and an income approach.
Management routinely evaluates the fair value measurements of independent appraisers and adjusts those valuations based on differences
noted between actual selling prices of collateral and the most recent appraised value. Such adjustments are usually significant, which
results in a Level 3 classification. All other impaired loan measurements are based on the present value of expected future cash flows
discounted at the applicable effective interest rate.
Real estate held for sale
Real estate and other property acquired through or
in lieu of loan foreclosure are not measured at fair value on a recurring basis. However, foreclosed assets are initially measured at
fair value (less estimated costs to sell) when they are acquired and may also be measured at fair value (less estimated costs to sell)
if they become subsequently impaired. The fair value measurement for each asset may be obtained from an independent appraiser or prepared
internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable
assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates
fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines
significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level
3 measurements. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets, but include
significant unobservable data and are therefore considered Level 3 measurements.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
Information regarding the fair value of assets and liabilities
measured at fair value on a nonrecurring basis as of March 31, 2021 and December 31, 2020 follows:
|
Nonrecurring Fair Value at March 31, 2021
|
Assets:
|
Quoted Prices in Active Markets for Identical Instruments
Level 1
|
|
Significant Other Observable Inputs
Level 2
|
|
Significant Unobservable Inputs
Level 3
|
|
Total
|
Bond portfolio
|
$ -
|
|
$ -
|
|
$3,690,090
|
|
$3,690,090
|
Impaired loans
|
$ -
|
|
$ -
|
|
$4,944,136
|
|
$4,944,136
|
Real estate held for sale
|
$ -
|
|
$ -
|
|
$ 328,996
|
|
$ 328,996
|
|
|
|
|
|
|
|
|
|
Nonrecurring Fair Value at December 31, 2020
|
Assets:
|
Quoted Prices in Active Markets for Identical Instruments
Level 1
|
|
Significant Other Observable Inputs
Level 2
|
|
Significant Unobservable Inputs
Level 3
|
|
Total
|
Bond portfolio
|
$ -
|
|
$ -
|
|
$4,650,372
|
|
$4,650,372
|
Impaired loans
|
$ -
|
|
$ -
|
|
$5,004,424
|
|
$5,004,424
|
Real estate held for sale
|
$ -
|
|
$ -
|
|
$ 428,996
|
|
$ 428,996
|
|
|
|
|
|
|
|
|
As of March 31, 2021, bonds held to maturity with
a carrying value of $4,576,598 were written down to their fair value of $3,690,000 by recognizing an other than temporary impairment of
$886,508. As of December 31, 2020, bonds held to maturity with a carrying value of $5,484,988 were written down to their fair value of
$4,650,372 by recognizing an other than temporary impairment of $834,226.
As of March 31, 2021, loans with a carrying amount
of $6,445,231 were considered impaired and were written down to their estimated fair value of $4,994,136 by recognizing a specific valuation
allowance of $1,501,095. As of December 31, 2020, loans with a carrying amount of $6,498,421 were considered impaired and were written
down to their estimated fair value of $5,004,424 by recognizing a specific valuation allowance of $1,493,996.
Real estate held for sale is recognized at fair value,
less costs to sell. Impairment charges of $100,000 and $0 were recognized in earnings for the periods ended March 31, 2021 and March 31,
2020, respectively.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
The following presents quantitative information about nonrecurring Level
3 fair value measurements as of March 31, 2021 and December 31, 2020:
|
Fair Value
|
Valuation Technique
|
Significant Unobservable Inputs(s)
|
Range/Weighted
|
|
|
|
|
|
March 31, 2021
|
|
|
|
|
Bond Portfolio
|
$3,690,090
|
Market or Income Approach
|
Discount to Appraised Values
|
10-20%
|
Impaired Loans
|
$4,944,136
|
Market or Income Approach
|
Discount to Appraised Values
|
10-20%
|
Real Estate Held for Sale
|
$328,996
|
Market or Income Approach
|
Discount to Appraised Values
|
10-20%
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
Bond Portfolio
|
$4,650,372
|
Market or Income Approach
|
Discount to Appraised Values
|
10-20%
|
Impaired Loans
|
$5,004,424
|
Market or Income Approach
|
Discount to Appraised Values
|
10-20%
|
Real Estate Held for Sale
|
$428,996
|
Market or Income Approach
|
Discount to Appraised Values
|
10-20%
|
The carrying values of the Company’s financial
instruments are as follows:
|
|
March 31, 2021
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Carrying Value at March 31, 2021
|
Cash and equivalents
|
|
$
|
190,937
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
190,937
|
|
Accounts receivable
|
|
|
97,572
|
|
|
|
—
|
|
|
|
—
|
|
|
|
97,572
|
|
Interest receivable
|
|
|
225,959
|
|
|
|
—
|
|
|
|
—
|
|
|
|
225,959
|
|
Mortgage loans receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
15,485,422
|
|
|
|
15,485,422
|
|
Bond portfolio
|
|
|
—
|
|
|
|
—
|
|
|
|
18,040,429
|
|
|
|
18,040,429
|
|
Line of credit
|
|
|
1,243,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,243,000
|
|
Secured investor certificates
|
|
|
—
|
|
|
|
23,885,500
|
|
|
|
—
|
|
|
|
23,885,500
|
|
|
|
December 31, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Carrying Value
at December 31, 2020
|
Cash and equivalents
|
|
$
|
87,702
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87,702
|
|
Accounts receivable
|
|
|
101,532
|
|
|
|
—
|
|
|
|
—
|
|
|
|
101,532
|
|
Interest receivable
|
|
|
242,019
|
|
|
|
—
|
|
|
|
—
|
|
|
|
242,019
|
|
Mortgage loans receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
16,605,967
|
|
|
|
16,605,967
|
|
Bond portfolio
|
|
|
—
|
|
|
|
—
|
|
|
|
18,100,711
|
|
|
|
18,100,711
|
|
Line of credit
|
|
|
2,288,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,288,000
|
|
Secured investor certificates
|
|
|
—
|
|
|
|
23,916,500
|
|
|
|
—
|
|
|
|
23,916,500
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
Limitations
The fair value of a financial instrument is the current
amount that would be exchanged between market participants, other than in a forced liquidation. Fair value is best determined based upon
quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In
cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly,
the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts
presented may not necessarily represent the underlying fair value of the Company.
Fair value estimates are made at a specific point
in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time the Company's entire holdings of a particular instrument. Because no
market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are
based on existing on balance-sheet financial instruments without attempting to estimate the value of anticipated future business.
4. MORTGAGE LOANS RECEIVABLE AND BOND PORTFOLIO
At March 31, 2021, the Company had mortgage loans
receivable totaling $17,151,407. The loans bear interest ranging from 0% to 10.25% with a weighted average of approximately 7.70% at March
31, 2021. At December 31, 2020, the Company had mortgage loans receivable totaling $18,298,779. The loans bear interest ranging from 0%
to 10.25% with a weighted average of approximately 7.68% at December 31, 2020.
The Company has a portfolio of secured church bonds
at March 31, 2021 and December 31, 2020, which are carried at amortized cost. 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 $18,926,937 at March 31, 2021 with a weighted average interest
rate of 6.76% and $18,934,937 at December 31, 2020 with a weighted average interest rate of 6.70%. These bonds are due at various maturity
dates through February 2047. The Company has recorded an aggregate other than temporary impairment of $886,508 and $834,226 as of March
31, 2021 and December 31, 2020, respectively. The Company had maturities and redemptions of bonds of approximately $8,000 and $59,000
for the periods ended March 31, 2021 and March 31, 2020, respectively.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
The contractual
maturity schedule for mortgage loans receivable and the bond portfolio as of March 31, 2021, is as follows:
|
Mortgage Loans
|
Bond Portfolio
|
|
|
|
April 1, 2021 through December 31, 2021
|
$ 629,095
|
$ 275,000
|
2022
|
994,908
|
144,000
|
2023
|
664,353
|
275,000
|
2024
|
1,657,677
|
471,000
|
2025
|
1,174,383
|
261,000
|
Thereafter
|
12,030,991
|
17,500,937
|
|
17,151,407
|
18,926,937
|
Less loan loss and other than temporary impairment on bonds allowance
|
(1,501,095)
|
(886,508)
|
Less deferred origination fees
|
(164,890)
|
___-____
|
Totals
|
$15,485,422
|
$18,040,429
|
Total other than temporary impairment related to the
bond portfolio was $886,508 and $834,226 as of March 31, 2021 and December 31, 2020, respectively. During the periods ended March 31,
2021, and March 31, 2020, the Company recognized impairment losses of $52,282 and $0, respectively. The fair value of these securities
was $3,690,090 and $4,650,372 as of March 31, 2021 and December 31, 2020, respectively.
Below is a rollforward of the amount of other than
temporary impairment related to credit loss that has been recognized in earnings as of March 31, 2021 and 2020:
|
March 31,
|
March 31,
|
|
2021
|
2020
|
|
|
|
Beginning Balance
|
$834,226
|
$658,000
|
Additions to other than temporary impairment
|
__52,282
|
-
|
Ending Balance
|
$886,508
|
$658,000
|
The Company did not restructure any loans during the
period ended March 31, 2021 and restructured one loan during the year ended December 31, 2020. A summary of loans re-structured or modified
for the as of March 31, 2021 and December 31, 2020 are shown below. All of the loans, except two, are currently performing under the terms
of the modifications for their mortgage obligations. The first loan that is not performing under the modification agreement 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
loan is a first mortgage loan with an outstanding balance of $378,000. The Church is no longer holding services due to COVID-19 and has
agreed to list the building for sale.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
|
March 31, 2021
|
|
|
|
|
|
|
Type of Loan
|
Number of Loans
|
Original Principal Balance
|
Original Average Interest Rate
|
Unpaid Principal Balance
|
Modified Average Interest Rate
|
Mortgage Loans
|
7
|
$4,696,544
|
8.127%
|
$3,506,692
|
6.458%
|
|
December 31, 2020
|
|
|
|
|
|
|
Type of Loan
|
Number of Loans
|
Original Principal Balance
|
Original Average Interest Rate
|
Unpaid Principal Balance
|
Modified Average Interest Rate
|
Mortgage Loans
|
7
|
$4,696,544
|
8.193%
|
$3,523,123
|
6.059%
|
|
|
|
|
|
|
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 6.17% and 6.19% as of March 31, 2021 and December 31, 2020, 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 $61,000 and $262,000
as of March 31, 2021 and March 31, 2020, 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 March 31, 2021 is as follows:
April 1, 2021 through December 31, 2021
|
$ 2,076,000
|
|
2022
|
1,042,000
|
|
2023
|
3,404,000
|
|
2024
|
1,403,000
|
|
2025
|
1,093,000
|
|
Thereafter
|
14,867,500
|
|
|
$23,885,500
|
|
Less deferred offering costs
|
(745,456)
|
|
Totals
|
$23,140,044
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
March 31, 2021
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. The board members of the Company approve the
Advisory Agreement on an annual basis. The Company paid the Advisor management and origination fees of approximately $76,000 and $74,000
for the periods ended March 31, 2021 and March 31, 2020, 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 $3,000,000 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 Revolving Loan and has an outstanding balance of $1,243,000 and $2,288,000
as of ended March 31, 2021 and December 31, 2020, respectively. The interest rate on the Revolving Loan is based on the Wall Street Journal
U.S. Prime Rate plus 1.00%. The Revolving Loan matures on January 19, 2022.