AMERICAN CHURCH MORTGAGE COMPANY The following discussion regarding our financial statements should be read in conjunction with the financial statements and notes thereto included in this Annual Report beginning at page F-1 and our forward-looking statement disclosure at the beginning of Part I to this Annual Report.
21 Financial Condition
Our total assets decreased from
Comparison of the Fiscal Years ended
The following table shows the results of our operations for fiscal 2021 and
2020:
For the Year Ended December 31,
Statement of Operations Data 2021 2020
Interest and other income $ 1,917,145 $ 2,543,507
Interest expense 1,591,372 1,776,427
Net interest income 325,773 777,080
Total provision (credit) for losses on
mortgage loans (3,242 ) 64,509
Net interest income after provision for
mortgage loans 329,015 712,571
Operating expenses 1,624,216 838,430
Net (loss) $ (1,295,201 ) $ (125,859 )
Basic and diluted (loss) income per share $ (0.77 ) $ (0.08 )
Results of Operations
Since we began active business operations on
Net (loss) for our year ended
Net interest income earned on our portfolio of loans was
Our operating expenses for our fiscal year ended
Our Board of Directors declared dividends of
22
forward) loss of approximately
We choose to distribute income from ongoing operations in the form of dividends
to shareholders. As a Real Estate Investment Trust we are required to distribute
up to 90% of our taxable income. The table below reflects taxable income, net
income from operations, dividend distributions and the effect of the
distributions to shareholders for the periods ended
December 31, 2021 December 31, 2020
Net Taxable (loss) Income $ (1,295,201 ) $ 18,484
Net (Loss) Income From Operations (EBITA) $ (112,926 ) $ 125,317 Total Dividend Distributions
$ 16,766 $ 134,176
Principal Distribution $ 16,766 $ 8,859
Number of Shares Outstanding 1,676,598 1,676,598
Amount of Principal Distributed per Share $ 0.01 $ 0.00
Liquidity and Capital Resources
Our revenue is derived principally from interest income, and secondarily, from origination fees and renewal fees generated by mortgage loans that we make. We also earn income through interest on funds that are invested pending their use in funding mortgage loans or distributions of dividends to our shareholders, and on income generated on church bonds we may purchase and own. We generate revenue through (i) permitted temporary investments of cash, and (ii) making mortgage loans to churches and other non-profit religious organizations. Our principal expenses are interest on our secured investor certificates, advisory fees, legal and auditing fees, communications costs with our shareholders, and the expenses of our transfer agent and registrar.
Our loan portfolio consists primarily of long-term fixed rate loans. Historically, loans in our portfolio are outstanding for an average of approximately seven and a half years. Our borrowers are typically small independent churches with little or no borrowing history. Once a church establishes a payment history with us, they often look to re-finance their loan with a local bank, credit union or other financial institution that is willing to provide financing since the borrower has established a payment history and has demonstrated they can meet their mortgage debt obligations.
Currently, our performing bond portfolio comprises 38% of our assets under
management. The total principal amount of mortgage- secured debt securities we
purchase from churches and other non-profit religious organizations is limited
to 40% of our Average Invested Assets. Excluded from this ratio of 40% for the
year ended
In addition, we are able to borrow funds in an amount up to 300% of shareholder's equity (in the absence of a satisfactory showing that a higher level of borrowing is appropriate; any excess in borrowing over such 300% level must be approved by a majority of the Independent Directors and disclosed to shareholders in the next quarterly report along with justification for such excess) in order to increase our lending capacity.
In
In
23
The table below shows the principal amount of loans and bonds to be paid during
2022 and the number of secured investor certificates maturing in 2022. We may
need to obtain additional funds from other sources to meet our certificate
maturity obligations. One source is the potential sale of bonds in our
portfolio. In addition, at
Fiscal Year 2022
Contractual maturity schedule mortgage loans $ 779,884
Contractual maturity schedule bond portfolio 257,000
Total $ 1,036,884
Contractual maturity schedule secured investor certificates 1,042,000
Holders of our secured investor certificates may renew certificates at the
current rates and terms upon maturity at our discretion. Renewals upon maturity
are considered neither proceeds from nor issuance of secured investor
certificates. Renewals totaled
Loan Loss Reserve Policy
We follow a loan loss reserve 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 reserves for principal amounts outstanding on a particular loan if cumulative interruptions occur in the normal payment schedule of a loan. Our policy will reserve 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 that are declared to be in default and are in the foreclosure process.
The Company will declare a loan to be in default and will place the loan on non-accrual status when the following thresholds have been met: (i) the borrower has missed three consecutive mortgage payments; (ii) the borrower has not communicated to the Company any legitimate reason for delinquency in its payments to the Company and has not arranged for the re-continuance of payments; (iii) lines of communication to the borrower have broken down such that any reasonable prospect of rehabilitating the loan and return of regular payments is gone.
The Company's policies on payments received and interest accrued on non-accrual loans are as follows: (i) The Company will accept payments on loans that are currently on non-accrual status when a borrower has communicated to us that they intend to meet their mortgage obligations. A payment made on a non-accrual loan is considered a good faith deposit as to the intent to resume their mortgage payment obligation. This good faith deposit is credited back to interest first then principal as stated in the mortgage loan documentation. (ii) A letter outlining the re-payment terms or the restructure terms (if any) of the loan is provided to the borrower. This letter will be signed by the Senior Pastor and all board members of the borrower. This letter resumes the obligation to make payments on non-accrual loans. (iii) The borrower must meet all its payment obligations for the next 120 days without interruption in order to be removed from non-accrual status.
When a loan is declared in default according to the Company's policy or deemed to be doubtful of collection, the loan committee of the Advisor to the Company will direct the staff to charge-off uncollectable receivables.
At
The total value of impaired loans, which are loans that are in the foreclosure
process or are declared to be in default, was approximately
24
Of the eight loans which were three or more payments in arrears, the first
impaired loan has an outstanding balance of
The second impaired loan has an outstanding balance of
The third impaired loan has an outstanding balance of
The fourth impaired loan has an outstanding balance of
The fifth impaired loan has an outstanding balance of
The sixth impaired loan has an outstanding balance of
The seventh impaired loan has an outstanding balance of
The eighth impaired loan has an outstanding balance of
We presently expect our allowance for mortgage loans to be adequate to cover all losses incurred and probable. Listed below is our current loan loss reserve policy:
Incident Percentage of Loan Status of Loan
Reserved
1. None Loan is current, no interruption in payments
during history of the loan, ("interruption" means
receipt by us more than 30 days after scheduled
payment date).
2. None Loan current, previous interruptions experienced,
but none in the last six month period. Applies to
restructured loans or loans given forbearance.
3. None Loan current, previous interruptions experienced,
but none in the last 90 day period.
4. 1.00% Loan serviced regularly, but 2 or 3 payments
cumulative in arrears. Delinquency notice has
been sent.
5. 5.00% Loan serviced regularly, but 4 or 5 payments
cumulative in arrears. Repayment plan requested.
6. 10.00% Loan is declared to be in default. Legal counsel
engaged to begin foreclosure. Additional accrual
of overdue payments and penalties ceased.
7. The greater of: (i) Foreclosure proceeding underway. Accrual of all
accumulated reserve overdue interest and principal payments including
during default period penalties to be expensed. Reserve amount
equal to principal loan dependent on value of collateral. All expenses
balance in excess of related to enforcing loan agreements are
65% of original expensed.
collateral value; or
(ii) 1% of the
remaining principal
balance each quarter
during which the
default remains in
effect.
25
The Company's Advisor, on an ongoing basis, reviews reserve amounts under the policy stated above and determines the need, if any, to reserve amounts in excess of its current policy. Any additional reserve amounts will be equal to or greater than its current reserve policy. Allowance for mortgage loans are calculated on the remaining principal balance on the date of calculation and recorded on a quarterly basis.
Our borrowers are typically small independent churches with little or no borrowing history. Small independent churches have limited resources to pay missed mortgage payments. We continually monitor these missed payments and determine on a case by case basis if a restructure of the current loan terms will help the church recover from its payment issues or by communication with the church, or lack thereof, if we should foreclose on the property. We did not see a substantial increase in delinquent payments in 2020. However, we can provide no assurance that delinquent loan payments will be paid or a restructure of the loan will result in the borrowing church meeting their payment obligations.
The Novel Coronavirus (COVID-19) has recently affected global markets, supply chains, employees of companies, and the communities of our borrowers. Specific to us, COVID-19 may impact various parts of our 2022 operations and financial results including potential reduced revenue caused by new public health mandates including shelter in place orders, material supply chain interruption, economic hardships effecting our borrowers and effects on our workforce. Management believes we are taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated as the date of this report.
Our loan loss reserve policy requires removal of a borrower from accrual status if the borrowing church misses three payments over a twenty-four month period.
Bond Loss Policy
Other than the temporary impairment, the impairment on bonds is estimated by management and is determined by reviewing: (i) payment history, (ii) our experience with defaulted bond issues, (iii) the issuer's payment history as well as (iv) historical trends.
We currently own
We currently own
26
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 year ended
We currently own
We have an aggregate other than temporary impairment of
Critical Accounting Policies and 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 generally
accepted in
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 have no off-balance sheet arrangements, that have or are reasonably likely to have a current or future effect that is material to investors on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.
© Edgar Online, source
