Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this section and elsewhere in this Form 10-Q
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve a number of known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, but are not
limited to, (i) trends affecting our financial condition or results of
operations; (ii) our business and growth strategies; (iii) the mortgage loan
industry and the financial status of religious organizations; (iv) our financing
plans; and other risks detailed in the Company's other periodic reports filed
with the
A detailed statement of risks and uncertainties is contained in our reports to
the
Plan of Operation
We were founded in
We currently have forty-five mortgage loans aggregating
Results of Operations
2021 Six Months Ended
Our net loss for the six months ended
Interest expense was approximately
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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 an allowance for the outstanding principal amount of a loan in our portfolio in the amount that is in doubt of being collected. Additionally, no interest income is recognized on impaired loans or loans that are in the foreclosure process.
We will declare a loan to be in default and will place the loan on non-accrual status when the following thresholds have been met: (i) the borrower has missed three consecutive mortgage payments; (ii) the borrower has not communicated to the Company any legitimate reason for delinquency in its payments to the Company and has not arranged for the re-continuance of payments; (iii) lines of communication to the borrower have broken down such that any reasonable prospect of rehabilitating the loan and the return to regular monthly mortgage payments is gone.
Our policies on payments received and interest accrued on non-accrual loans are as follows: (i) We will accept payments on loans that are currently on non-accrual status when a borrower has communicated to us that they intend to meet their mortgage obligations. A payment made on a non-accrual loan is considered a good faith deposit as to the intent to resume their mortgage payment obligation. This good faith deposit is credited back to interest first then principal as stated in the mortgage loan documentation. (ii) A letter outlining the re-payment terms or the restructure terms (if any) of the loan is provided to the borrower. This letter will be signed by the Senior Pastor and all board members of the borrower. This letter resumes the obligation to make payments on non-accrual loans. (iii) The borrower must meet all its payment obligations for the next 120 days without interruption in order to be removed from non-accrual status.
When a loan is declared in default according to our policy or deemed to be doubtful of collection, the loan committee of our Advisor will direct the staff to charge-off the uncollectable receivables.
Allowance for losses on mortgage loans receivable increased to
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
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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 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
2021 Second Quarter Compared to 2020 Second Quarter
The Company had a net loss of approximately
Operating expenses for the three months ended
Mortgage Loans and Bond Portfolio
No new loans were funded and no bonds were purchased during the six months ended
We currently own
We currently own
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The trustee again initiated foreclosure action against the Church and prevailed
in its pursuit to foreclose on the Church's property on
We currently own
We currently own
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 recorded an
additional
Dividends
We have elected to operate as a real estate investment trust (REIT), therefore
we are required, among other things, to distribute to shareholders at least 90%
of "Taxable Income" in order to maintain our REIT status. The dividends declared
and paid to shareholders may include cash from origination fees even though they
are not recognized as income in their entirety for the period under accounting
principles generally accepted in
We did not pay any dividends to shareholders for the quarter ended
We paid a dividend of
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
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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
The Outbreak of the Novel Coronavirus (COVID-19) has Adversely Affected the Operations of Churches and Other Non-Profit Religious Organizations Operations in general. The outbreak of COVID-19 has reduced the ability of people to congregate and has adversely affected the operations of churches and other non-profit religious organizations in general. The actual and threatened spread of coronavirus globally or in the regions in which we operate, or future widespread outbreak of infectious or contagious disease, such as influenza, coronavirus, measles, mumps, zika virus, or similar viruses, can continue to adversely affect the operations of our borrowers in general.
The extent to which our business may be affected by the coronavirus will largely
depend on future developments which we cannot accurately predict, and its impact
on our borrowers, including the duration of the outbreak, the continued spread
and treatment of the coronavirus, and new information and developments that may
emerge concerning the severity of the coronavirus and the actions to contain the
coronavirus or treat its impact, among others. To the extent that churches and
other non-profit religious organizations operations in the
Our borrowers may 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. We have provided some temporary relief by allowing 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 our revenue and we will experience declines in payments due from borrowers and missed bond payments on the bonds we own which will impact operating income and may potentially impact future distributions and the ability to make payments due on our certificates and dividends to our shareholders.
Our current funding sources are expected to provide adequate cash for our operations for the next twelve months. Future capital needs are expected to be met by: (i) the additional sale of securities; (ii) prepayment and repayment at maturity of mortgage loans we make; and (iii) bonds that mature or we sell from our bond portfolio. We believe that the "rolling" effect of mortgage loans maturing and bond repayments will provide a supplemental source of capital to fund our business operations in future years. We continually review the market for other sources of capital. There can be no assurance we will be able to raise additional capital on terms acceptable for such purposes.
During the six months ended
For the six months ended
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For the six months ended
For the six months ended
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. 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.
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