Notes to Unaudited Financial Statements
September 30, 2019
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements
of American Church Mortgage Company, (the “Company”) were prepared in accordance with instructions for Form 10-Q and
Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results
of operations, changes in equity and cash flows in conformity with accounting principles generally accepted in the United States
of America.
In the opinion of management, all adjustments
necessary for a fair presentation of the financial statements have been included. The results of operations for the nine month
period ended September 30, 2019 are not necessarily indicative of the results which may be expected for the entire year. These
statements should be read in conjunction with the Financial Statements and notes thereto for the year ended December 31, 2018 filed
with the U.S. Securities and Exchange Commission (“SEC”) as part of American Church Mortgage Company’s Annual
Report on Form 10-K for the year ended December 31, 2018.
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.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
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. The Company had $1,483
and $974,346 in a money market fund account at September 30, 2019 and December 31, 2018, respectively. The Company has not experienced
any losses in such accounts.
Bond Portfolio
The Company accounts for the bond portfolio
under the Accounting Standards Codification (ASC) 320, 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 September 30, 2019, the Company reserved $1,644,571 for sixteen mortgage loans. Ten of these
loans are three or more mortgage payments in arrears of which three are declared to be in default and one is in the foreclosure
process. The total principal amount of these sixteen loans totaled approximately $6,764 ,000
at September 30, 2019. At December 31, 2018, the Company reserved $1,672,003 for seventeen mortgage loans. Eleven of these loans
are three or more mortgage payments in arrears of which three are declared to be in default and two are in the foreclosure process.
The total principal amount of these seventeen loans totaled approximately $6,893 ,000
at December 31, 2018.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
A summary of transactions in the allowance
for mortgage loans for the period ended September 30, 2019 is as follows:
Balance at December 31, 2018
|
|
$
|
1,672,003
|
|
Provision for additional losses
|
|
|
73,105
|
|
Proceeds from sale of property held for sale
|
|
|
(100,537
|
)
|
Balance at September 30, 2019
|
|
$
|
1,644,571
|
|
The total impaired loans, which are loans that
are in the foreclosure process or are declared to be in default, were approximately $1,358,000 and $1,498,000 at September 30,
2019 and December 31, 2018, respectively, which the Company believes are adequately secured by the underlying collateral and the
allowance for mortgage loans. Approximately $771,000 of the Company’s allowance for mortgage loans was allocated to these
loans at September 30, 2019. Approximately $833,000 of the Company’s allowance for mortgage loans was allocated to impaired
loans at December 31, 2018.
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 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. No interest income was recognized on non-accrual
loans as of September 30, 2019.
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 $2,878,000 and
$2,853,000 exceeded 90 days past due but continued to accrue interest as of September 30, 2019 and December 31, 2018, 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.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
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 $327,925 and $340,659 as of September 30, 2019 and
December 31, 2018, 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.
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.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
Deferred Financing Costs
The Company defers the costs related to obtaining
financing. These costs are amortized over the life of the financing using the straight line method, which approximates the effective
interest method.
Income (Loss) Per Common Share
No adjustments were made to income (loss) for
the purpose of calculating earnings per share, as there were no potential dilutive shares outstanding.
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, 2019, including interim periods within those fiscal years. The Company has not yet fully evaluated the potential effects of
adopting ASU 2016-13 on the Company’s results of operations, financial position or cash flows.
Recent Accounting Pronouncements –
Adopted
In the first quarter of 2018, the Company adopted
Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). Under the ASU, revenue
is recognized when a customer obtains control of promised services in an amount that reflects the consideration the entity expects
to receive in exchange for those services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers. The Company applied the five-step method outlined in
the ASU to all revenue streams scoped-in by the ASU and elected the modified retrospective implementation method. Substantially
all of the Company’s interest income and certain non-interest income were not impacted by the adoption of this ASU because
either the revenue from those contracts with customers is covered by other guidance in U.S. GAAP or the revenue recognition outcomes
were similar to our current revenue recognition practices. We reviewed non-interest sources of income and related contracts to
document the impact of the new standard on our service offerings that are in the scope of the ASU including gains (losses) on sale
of real estate held for sale. Upon our analysis we concluded that the adoption of the ASC 606 did not change the timing and pattern
of revenue recognition related to scoped in non-interest income source and only required additional disclosures. In addition, we
reviewed, and where necessary, enhanced our business processes, systems and controls to support recognition and disclosures under
the new standard. The additional disclosures required by the ASU have been included above.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
Subsequent Events
The Company has evaluated events and transactions
through the date the financial statements were available to be issued. No material events or transactions occurred in the time
period referenced above requiring adjustment to or disclosure in the September 30, 2019 financial statements.
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 bonds (Note 4), which totaled $608,000 and $458,000 for the periods ended September 30, 2019 and December
31, 2018, respectively.
The following table summarizes the Company’s financial
instruments that were measured at fair value on a recurring basis:
|
|
Fair Value Measurement
|
September 30, 2019
|
Fair Value
|
Level 3
|
|
|
|
Bond portfolio
|
$16,023,937
|
$16,023,937
|
|
|
Fair Value Measurement
|
December 31, 2018
|
Fair Value
|
Level 3
|
|
|
|
Bond portfolio
|
$15,389,807
|
$15,389,807
|
We determine the fair value of the bond portfolio
shown in the table above by comparing it with similar instruments in inactive markets. The analysis reflects the contractual terms
of the bonds, which 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.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
The change in Level 3 assets measured at fair value
on a recurring basis is summarized as follows:
|
|
|
Bond Portfolio
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
15,389,807
|
|
Additional losses on bond portfolio
|
|
|
(150,000
|
)
|
Purchases
|
|
|
895,000
|
|
Proceeds
|
|
|
(110,870
|
)
|
Balance at September 30, 2019
|
|
$
|
16,023,937
|
|
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 and $114,787 for the periods
ended September 30, 2019 and December 31, 2018, respectively.
The following table summarizes the Company’s financial
instruments that were measured at fair value on a nonrecurring basis:
|
|
September 30, 2019
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value at September 30,
2019
|
Impaired Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
586,973
|
|
|
$
|
586,973
|
|
Real estate held for resale
|
|
|
—
|
|
|
|
—
|
|
|
|
327,925
|
|
|
|
327,925
|
|
Totals
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
914,898
|
|
|
$
|
914,898
|
|
|
|
December 31, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value at December 31,
2018
|
Impaired Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
665,267
|
|
|
$
|
665,267
|
|
Real estate held for resale
|
|
|
—
|
|
|
|
—
|
|
|
|
340,659
|
|
|
|
340,659
|
|
Totals
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,005,926
|
|
|
$
|
1,005,926
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
The change in Level 3 assets measured at fair value
on a nonrecurring basis is summarized as follows:
|
|
|
|
|
Impaired Loans
|
|
|
|
Real Estate Held for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
$
|
665,267
|
|
|
$
|
340,659
|
|
|
Dispositions/Proceeds
|
|
|
|
(39,730
|
)
|
|
|
—
|
|
|
Impairment
|
|
|
|
(38,564
|
)
|
|
|
(12,734
|
)
|
|
Balance at September 30, 2019
|
|
|
$
|
586,973
|
|
|
$
|
327,925
|
|
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 appraisal 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 September 30, 2019, the Company had first
mortgage loans receivable totaling $24,272,651. The loans bear interest ranging from 0% to 10.25% with a weighted average of approximately
7.98% at September 30, 2019. At December 31, 2018, the Company had first mortgage loans receivable totaling $23,607,655. The loans
bear interest ranging from 0% to 10.25% with a weighted average of approximately 8.15% at December 31, 2018.
The Company has a portfolio of secured church
bonds at September 30, 2019 and December 31, 2018, 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 $16,631,937 at September
30, 2019 with a weighted average interest rate of 6.87% and approximately $15,847,807 at December 31, 2018 with a weighted average
interest rate of 6.80%. These bonds are due at various maturity dates through February 2047. The Company has recorded an aggregate
other than temporary impairment of $608,000 and $458,000 for September 30, 2019 and December 31, 2018, respectively for the First
Mortgage Bonds issued by Agape Assembly Baptist Church. This bond series in the aggregate constitute approximately 6.17% and 6.47%
of the bond portfolio at September 30, 2019 and December 31, 2018, respectively. The Company had maturities and redemptions of
bonds of approximately $111,000 for the nine months ended September 30, 2019 and $723,000 for the year ended December 31, 2018,
respectively.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
The contractual
maturity schedule for mortgage loans receivable and the bond portfolio as of September 30, 2019, is as follows:
|
Mortgage Loans
|
Bond Portfolio
|
|
|
|
October 1, 2019 through December 31, 2019
|
$ 290,077
|
$ 66,000
|
2020
|
5,007,492
|
246,000
|
2021
|
683,844
|
270,000
|
2022
|
1,481,816
|
192,000
|
2023
|
842,656
|
295,000
|
Thereafter
|
15,966,767
|
15,562,937
|
|
24,272,651
|
16,631,937
|
Less loan loss and other than temporary impairment on bonds allowance
|
(1,644,571)
|
(608,000)
|
Less deferred origination fees
|
(339,912)
|
___-____
|
Totals
|
$22,288,168
|
$16,023,937
|
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 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 September 30, 2019. However, the trustee made a distribution to bondholders during 2017 of $18.75 per $1,000
bond as a repayment of principal only, effectively reducing the outstanding balance of each $1,000 bond to approximately $826.
The Company has an aggregate other than temporary impairment of $608,000 and $458,000 for the First and Second Mortgage Bonds at
September 30, 2019 and December 31, 2018, respectively, which effectively reduces the bonds to the fair value amount management
believes will be recovered.
The Company restructured two mortgage loans
during the year ended December 31, 2018. The first restructured loan was a $669,544 first mortgage loan located in Indianapolis,
Indiana. The Church was unable to meet its monthly debt obligations. The Company reduced the Church’s monthly mortgage obligation
to interest only payments for a period of three years. After the initial three-year period, the Church will resume its regular
monthly mortgage payments. The Church accepted the restructured loan terms. The modification had no effect on the Company’s
financial statements.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
The second restructured loan was a $470,000
first mortgage loan located in Cincinnati, Ohio. The Church was unable to meet its monthly debt obligations. The Company reduced
the Church’s monthly mortgage obligation to interest only for a period of three years which included a reduction in their
interest rate. After the initial three-year term, the rate of interest will increase for an additional three-year period. At the
end of the sixth year, the Church will resume its regular monthly mortgage payments at the original rate of interest. The Church
accepted the restructured loan terms. The modification had no effect on the Company’s financial statements.
The Company did not restructure any loans during
the nine month period ended September 30, 2019. A summary of loans re-structured or modified for the nine month period ended September
30, 2019 and the year ended December 31, 2018 are shown below. All of the loans, except one, shown are currently performing under
the terms of the modifications for their mortgage obligations. The one 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.
|
September 30, 2019
|
|
|
|
|
|
|
Type of Loan
|
Number of Loans
|
Original Principal Balance
|
Original Average Interest Rate
|
Unpaid Principal Balance
|
Modified Average Interest Rate
|
First Mortgage Loan
|
7
|
$4,415,544
|
8.014%
|
$3,416,056
|
6.03%
|
|
December 31, 2018
|
|
|
|
|
|
|
Type of Loan
|
Number of Loans
|
Original Principal Balance
|
Original Average Interest Rate
|
Unpaid Principal Balance
|
Modified Average Interest Rate
|
First Mortgage Loan
|
7
|
$4,415,544
|
8.014%
|
$3,838,819
|
6.03%
|
|
|
|
|
|
|
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 6.32% and 6.35% at September 30, 2019 and December 31, 2018, 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 $296,000 and $1,671,000 at September 30, 2019 and December 31, 2018, respectively. The secured investor certificates
have certain financial and non-financial covenants identified in the respective series’ trust indentures.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
The estimated maturity schedule for the secured
investor certificates at September 30, 2019 is as follows:
October 1, 2019 through December 31, 2019
|
$ 1,041,000
|
|
2020
|
4,117,000
|
|
2021
|
2,168,000
|
|
2022
|
996,000
|
|
2023
|
3,383,000
|
|
Thereafter
|
15,579,000
|
|
|
$27,284,000
|
|
Less deferred offering costs
|
(865,399)
|
|
Totals
|
$26,418,601
|
|
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 origination
fees of approximately $240,000 and $322,000 at September 30, 2019 and December 31, 2018, 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
during the nine month period ended September 30, 2019 and has and outstanding balance of $2,200,000 as of September 30, 2019. 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.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Unaudited Financial Statements
September 30, 2019
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 as of September 30, 2019 and December 31, 2018, respectively. Management
is not aware of any factors that would significantly affect these estimated fair value amounts. As these reporting requirements
exclude certain financial instruments and all non-financial instruments, the aggregate fair value amounts presented herein do not
represent management’s estimate of the underlying value of the Company.
The estimated fair values of the Company’s
financial instruments, none of which are held for trading purposes, are as follows:
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
120,593
|
|
|
$
|
120,593
|
|
|
$
|
2,183,441
|
|
|
$
|
2,183,441
|
|
Accounts receivable
|
|
|
263,710
|
|
|
|
263,710
|
|
|
|
251,535
|
|
|
|
251,535
|
|
Interest receivable
|
|
|
196,234
|
|
|
|
196,234
|
|
|
|
184,869
|
|
|
|
184,869
|
|
Mortgage loans receivable
|
|
|
24,272,651
|
|
|
|
27,489,894
|
|
|
|
23,607,655
|
|
|
|
23,905,564
|
|
Bond portfolio
|
|
|
16,023,937
|
|
|
|
16,023,937
|
|
|
|
15,389,807
|
|
|
|
15,389,807
|
|
Secured investor certificates
|
|
|
26,418,601
|
|
|
|
34,788,901
|
|
|
|
29,386,000
|
|
|
|
34,099,540
|
|