EDGAR 10-K Filing

Company CIK: 934543
Filing Year: 2022
Filename: 934543_10-K_2022_0000934543-22-000022.json

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ITEM 1. BUSINESS
Item 1. Business.
The outbreak of the novel coronavirus (COVID-19) has adversely affected many industries in general and resulted in preventing the gathering of church congregations which impacts the ability of churches and other non-profit religious organizations normal methods of worship causing a decline in membership and tithings and offerings. The actual and threatened spread of COVID-19 globally or in the regions in which we operate or future widespread outbreak of infectious or contagious disease, can continue to reduce the ability of persons to worship in groups in general. The extent to which our business may be affected by the COVID-19 will largely depend on future developments which we cannot accurately predict, and its impact on churches and other non-profit religious organizations, 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 organizations operations in the U.S. are materially and adversely affected by the COVID-19, business and financial results of this industry, and thus our business and financial results, could be materially and adversely impacted.
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We have experienced declines in payments due from our borrowers and missed bond payments on the bonds owned by us. We have provided temporary deferrals of monthly payments which may impact our future operating income and may potentially impact future distributions of dividends to our shareholders and our ability to make payments due on our secured investor certificates.
General
We are a Minnesota corporation incorporated on May 27, 1994. We operate as a Real Estate Investment Trust (“REIT”) and are engaged in the business of making mortgage loans to churches and other non-profit religious organizations throughout the United States. The principal amount of loans we offer ranges from $100,000 to $2,000,000. We may also invest up to 40% of our Average Invested Assets in mortgage secured debt securities (bonds) issued by churches and other non-profit religious organizations. Between the date upon which we began active business operations (April 15, 1996) and December 31, 2021, we have made 201 loans to 171 churches totaling $109,203,100, with the average principal amount of such loans being approximately $543,000. Of the 201 loans we have made, 137 loans totaling $93,819,424 have been repaid early by the borrowing churches. We also own, as of December 31, 2021, approximately $18,093,000 principal amount of Church Bonds (hereinafter defined). At no time have we paid a premium for any of the bonds in our portfolio. Subject to the supervision of our Board of Directors, our day to day business operations are managed by Church Loan Advisors, Inc. (the “Advisor”), which provides investment advisory
and administrative services to us. The principals of the Advisor include principals of American Investors Group, Inc., (“American”) a FINRA member broker-dealer, which has served as underwriter of the public offerings of our common stock, as well as our public offerings of secured investor certificates. American withdrew its membership with FINRA effective July 31, 2020, citing COVID-19 as one of the primary reasons affecting its future business to provide church loan financings.
The Company’s Business Activities
Our business is managed by the Advisor. We have no employees, but we do have two executive officers. The Advisor's affiliate, American was engaged since 1987 in the business of underwriting first mortgage bonds for churches throughout the United States. In underwriting church bonds, American reviewed financing proposals, analyzed prospective borrowers’ financial capability, and structured, marketed and sold, mortgage-backed securities which are debt obligations (bonds) of such borrowers to the investing general public. Since its inception, American had underwritten approximately 323 church bond financings, in which approximately $584,867,000 in first mortgage bonds and sold to public investors. The average size of single church bond financings underwritten by American since its inception is approximately $1,811,000.
In the course of its business, American identified a demand from potential borrowers for smaller loans of $100,000 to $2,000,000. Because of the regulatory, administrative expenses and complexity normally associated with the bond financing business, American determined that the economic feasibility of bond financing diminished for financings under $1,000,000. As a result, we believe that many churches are forced to either forego the project for which their financing request was made, fund their project from cash flow over a period of time and at greater expense, or seek bank financing at terms that are not always favorable or available to them, due to the historic reluctance of banks to lend to churches for other than economic reasons. Our objective is to provide a lending source to this segment of the industry by capitalizing on the human resources and experience available at American and the Advisor, and taking advantage of the marketing, advertising and general goodwill of American.
Financing Business
Our primary business is to make first mortgage loans in amounts ranging from $100,000 to $2,000,000, to churches and other non-profit religious organizations, and selecting and investing in mortgage-secured debt instruments ("Church Bonds") issued by churches and other non-profit religious organizations throughout the United States. All of our loans belong to one portfolio segment. We attempt to apply our working capital (after adequate reserves determined by the Advisor) toward making mortgage loans and investing in Church Bonds. We seek to enhance returns on investments on such loans by:
· offering terms of up to 30 years, generating the highest yields possible under current market conditions;
· seeking origination fees (i.e. "points") from the borrower at the outset of a loan and upon any renewal of a loan;
· making a limited amount of higher-interest rate second mortgage loans to qualified borrowers; and
· purchasing mortgage-secured debt securities having various maturities issued by churches and other non-profit religious organizations.
Our policies limit the amount of second mortgage loans to 20% of the Company's Average Invested Assets (hereinafter defined) on the date any second mortgage loan is closed and limit the amount of mortgage-secured debt securities to 40% of Average Invested Assets on the date of their purchase.
“Average Invested Assets” for any period is defined as the average of the aggregated book value of the assets of the corporation invested, directly or indirectly, in loans (or interests in loans) secured by real estate, and first mortgage bonds, before reserves for depreciation or bad debts or other similar non-cash reserves computed by taking the average of such values at the end of each calendar month during such period.
All other mortgage loans made by us (or Church Bonds purchased for investment) will be secured by a first mortgage (or deed of trust) lien in favor of us. Although we attempt to make mortgage loans for various terms typically ranging from one to thirty years, we may determine to emphasize longer-term fixed-rate loans in our discretion, in order to reduce the risk to us of downward interest rate fluctuations.
Our lending and investing operations, including determination of a prospective borrower's or church bond issuer's financial credit worthiness, are made on our behalf by the Advisor. Employees and agents of the Advisor conduct all aspects of our business, including (i) marketing and advertising; (ii) communication with prospective borrowers; (iii) processing loan applications; (iv) closing the loans; (v) servicing the loans; (vi) enforcing the terms of our loans; (vii) shareholder relations and (viii) administering our day-to-day business. 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 we make. The management fee is reduced to 1% on assets from $35 million to $50 million and to .75% on assets over $50 million. The Advisor’s management fees are computed and payable monthly.
Current First Mortgage Loan Terms
We offer prospective borrowers a selection of loan types, which include a choice of fixed or variable rates of interest indexed to the prime rate, the U.S. Treasury 10-Year Notes, or another generally recognized reference index, and having various terms to maturity, origination fees and other terms and conditions. The terms of loans we offer may be changed by our Advisor as a result of such factors as (i) the credit quality and experience of the borrowers; (ii) the terms of loans in our portfolio; (iii) competition from other lenders; (iv) anticipated need to increase the overall yield on our mortgage loan portfolio; (v) local and national economic factors; and (vi) actual experience in borrowers’ demand for the loans. We currently offer the loan types described in the table below. This table describes certain material terms of loans available from us. The table does not purport to identify all possible terms, rates, and fees we may offer. We may modify the terms identified below or offer loan terms different than those identified below at any time. Many loans are individually negotiated and differ from the terms described below.
Loan Type Interest Rate (1) Origination Fee (2)
25/30 Year Term (3) Fixed @ 8.75%/8.95% respectively 3.5%
Year Term (3) Variable Annually @ Prime + 2.50% 3.5%
Year Renewable Term (4) Fixed @ 8.25% 3.0%
Construction 1 Year Term Fixed @ 9.00% 2.0%
(1) “Prime” means the prime rate of interest charged to preferred customers, as published by a federally chartered bank chosen by us. We may also tie our offered interest rates to other indices.
(2) These are “target” fees and negotiation of these fees with borrowers can occur. Origination fees are generally based on the original principal amount of the loan and are collected from the borrower at the origination and renewal of loans, one-half of which is payable directly to our Advisor.
(3) Fully amortized repayment term. Amortization terms may vary, as may other loan terms, depending on individual loan negotiations and competitive forces.
(4) Renewable term loans are repaid based on a 25-year amortization schedule and are renewable at the conclusion of their initial term for additional like terms up to an aggregated maximum of 25 years. We charge a fee of 1% upon the date of each renewal. If renewed by the borrower, the interest rate is adjusted upon renewal to Prime plus a specified percentage “spread.”
Mortgage Loan Processing and Underwriting
Mortgage loan applications are prepared and verified by our Advisor's personnel in our Loan Origination and Underwriting Department. Verification procedures are designed to assure a borrower's qualification under our Financing Policies which are specifically identified herein and include, among other things, obtaining:
· applications containing key information concerning the prospective borrowers;
· project description;
· financial statements in accordance with our Financing Policies;
· corporate records and other organizational documents of the borrower;
· preliminary title report or commitment for mortgagee title insurance; and
· a real estate appraisal in accordance with the Financing Policies.
All appraisals are prepared by independent third-party professionals who we approve based on their experience, reputation and education. All financial statements are prepared by independent third-party professionals or a qualified accountant that we hire that is independent of the borrower. Completed loan applications, together with a written summary are then presented to
our Underwriting Committee. Our loan Underwriting Committee is comprised of the Advisor's President and Chief Financial Officer and Treasurer and certain members of its staff. Our Advisor may arrange for the provision of mortgage title insurance and for the services of professional independent third-party accountants and appraisers on behalf of borrowers in order to achieve pricing efficiencies on their behalf and to assure the efficient delivery of title commitments, preliminary title reports and title policies, and financial statements and appraisals that meet our underwriting criteria. Our Advisor may arrange for the direct payment for such professional services and for the direct reimbursement to it of such expenditures by borrowers and prospective borrowers. Upon closing and funding of mortgage loans, an origination fee based on the original principal amount of each loan may be charged, of which one-half is payable by the borrower to our Advisor, and the other one-half to us.
Loan Commitments
Subsequent to approval by our Underwriting Committee, and prior to funding a loan, we may issue a loan commitment to qualified applicants. A loan commitment deposit may be required from the borrowing church to commence the loan preparation procedure. These deposits are directly applied by the Advisor to engage accountants and appraisers to prepare their respective reports on the church. Commitments may indicate, among other things, the loan amount, origination fees, closing costs, underwriting expenses (if any), funding conditions, approval expiration dates and interest rate and other terms. Commitments generally set forth a "prevailing" interest rate that is subject to change in accordance with market interest rate fluctuations until the final loan closing documents are prepared, at which time we commit to a stated interest rate. In certain cases we may establish ("lock in") interest rate commitments up to sixty (60) days from the commitment to closing; however, interest rate commitments beyond sixty days will not normally be issued unless we receive an appropriate fee premium based upon our assessment of the risk associated with a longer period.
Loan Portfolio Management
Our portfolio of mortgage loans and Church Bonds is managed and serviced by our Advisor in accordance with the Advisory Agreement. The Advisor is responsible for all aspects of our mortgage loan business, including closing and recording of mortgage loans; collecting payments of principal and interest regularly and upon the maturity of a loan; enforcing loan payments and other lender's requirements; periodic review of each mortgage loan file and determination of its reserve classification; and exercising our remedies in connection with any defaulted or non-performing loans. Fees and costs of attorneys, insurance, bonds and other direct expenses incurred in connection with the exercise of such remedies are our responsibility. We may, however, recoup these expenses from the borrower in the process of pursuing our remedies. The Advisor will not receive any additional compensation for services rendered in connection with loan portfolio management or exercising remedies on our behalf in the event of a loan default.
Loan Funding and Bank Borrowing
Our mortgage loans (and our purchases of Church Bonds) are funded with available cash.
We have established a $4 million-dollar line of credit with a local bank, amended to $3,000,000, with a current outstanding balance of $300,000 at December 31, 2021. In addition, we may borrow up to 300% of our shareholders’ 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) to make loans regardless of our capacity to (i) sell our securities on a continuing basis, or to (ii) reposition assets from the maturity or early repayment of mortgage loans in our secured investor certificates, minus reserves for operating expenses, and bad-debt reserves, as determined by the Advisor. Cash resources available to us for lending purposes include, in addition to the net proceeds from any future sales of our common stock, secured investor certificates (if any) or other debt securities, (i) principal repayments from borrowers on loans made by us and (ii) funds borrowed under any line of credit arrangement.
Public Offerings - Secured Investor Certificates
In September 2017, we filed a registration statement with the Securities and Exchange Commission to offer $10,000,000 worth of Series E secured investor certificates. The offering was declared effective by the SEC on November 6, 2017. The certificates were offered in multiples of $1,000 with interest rates ranging from 4.00% to 6.50%, subject to changing market rates, and maturities from 5 to 15 years. The certificates are collateralized by certain mortgage loans receivable and church bonds of approximately the same value. As of December 31, 2021, we sold 3,738 Series E Secured Investor Certificates totaling $3,738,000. The offering expired on November 6, 2020.
In July 2014, we filed a registration statement with the Securities and Exchange Commission to offer $10,000,000 worth of Series D secured investor certificates. The offering was declared effective by the SEC on August 12, 2014. The offering was renewed with an effective date of September 23, 2016. The certificates were offered in multiples of $1,000 with interest rates ranging from 4.00% to 6.50%, subject to changing market rates, and maturities from 5 and 7 to 15 years. The certificates are collateralized by certain mortgage loans receivable and church bonds of approximately the same value. As of December 31, 2021, approximately 7,797 Series D certificates had been issued and were outstanding for $7,797,000. The offering terminated in August 2017.
Previously, we offered Series A, Series B and Series C secured investor certificates, at various maturities and interest rates. The weighted average interest rate on all outstanding certificates was 6.12% and 6.19% for the years ended December 31, 2021 and 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 of secured investor certificates totaled approximately $530,000 and $1,007,000 for the years ended December 31, 2021 and 2020, respectively. There were no Series A secured investor certificates outstanding as of December 31, 2021 and 2020. There were $4,766,500 and $6,022,500 representing 4,767 and 6,023 in outstanding Series B secured investor certificates as of December 31, 2021 and 2020, respectively and there were $5,977,000 and $6,127,000 representing 6,127 and 6,127 in outstanding Series C secured investor certificates at December 31, 2021 and 2020, respectively. All secured investor certificates are collateralized by certain mortgage loans receivable or secured church bonds of approximately the same stated value as the certificates. In addition, the secured investor certificates have certain financial and non-financial covenants, as set forth in each Series’ respective trust indenture.
The Advisory Agreement
We have entered into a contract with the Advisor (the “Advisory Agreement”) under which the Advisor furnishes advice and recommendations concerning our business affairs, provides administrative services to us and manages our day-to-day operations. We have no employees, but we do have two executive officers. All our personnel needs are met through the personnel and expertise of the Advisor and its affiliates. Among other things, the Advisor:
serves as our mortgage loan underwriter and advisor in connection with our primary business of making loans to churches;
· advises and selects Church Bonds to be purchased and held for investment by us;
· services all mortgage loans we make;
· provides marketing and advertising and generates loan leads directly and through its affiliates;
· deals with regulatory agencies, borrowers, lenders, banks, consultants, accountants, brokers, attorneys, appraisers, insurers and others;
· supervises the preparation, filing and distribution of tax returns and reports to governmental agencies and to shareholders and acts on our behalf in connection with shareholder relations;
· provides office space and personnel as required for the performance of the foregoing services; and
· as requested by us, makes reports to us of its performance of the foregoing services and furnishes advice and recommendations with respect to other aspects of our business.
In performing its services under the Advisory Agreement, the Advisor may use facilities, personnel and support services of its affiliates. Expenses such as legal and accounting fees, stock transfer agent, registrar and paying agent fees and proxy solicitation expenses are direct expenses of ours and are not provided for by the Advisor as part of its services.
The Advisory Agreement is renewable annually by us for one-year periods, subject to our determination, including a majority of the Independent Directors, that the Advisor's performance has been satisfactory and that the compensation paid the Advisor has been reasonable. The Advisory Agreement was last approved by the Board of Directors (including a majority of the Independent Directors) as of January 25, 2022. We may terminate the Advisory Agreement with or without cause upon 60 days written notice to the Advisor. Upon termination of the Advisory Agreement by either party, the Advisor may require us to change our name to a name that does not contain the word "American," "America" or the name of the Advisor or any approximation or
abbreviation thereof, and that is sufficiently dissimilar to the word "America" or "American" or the name of the Advisor as to be unlikely to cause confusion or identification with either the Advisor or any person or entity using the word "American" or "America" in its name. Our Board of Directors shall determine that any successor Advisor possesses sufficient qualifications to perform the advisory function for us and justify the compensation provided for in its contract with us.
Pursuant to the Advisory Agreement, the Advisor is required to pay all of the expenses it incurs in providing services to us, including, but not limited to, personnel expenses, rental and other office expenses, expenses of officers and employees of the Advisor, including travel and all of its overhead and miscellaneous administrative expenses relating to performance of its functions under the Advisory Agreement. We are required to pay all other expenses we incur in the daily operations of our business-such as the costs and expenses of reporting to various governmental agencies and shareholders; the general conduct of our operations as a mortgage lender; fees and expenses of appraisers, directors, auditors, outside legal counsel and transfer agents; directors and officers liability insurance premiums; unreimbursed costs directly relating to closing of loan transactions; and costs relating to the enforcement of loan agreements and/or foreclosure proceedings.
In the event that our Total Operating Expenses exceed in any calendar year the greater of (a) 2% of our Average Invested Assets or (b) 25% of our net income, the Advisor is obligated to reimburse us, to the extent of its fees for such calendar year, for the amount by which the aggregate annual operating expenses paid or incurred by us exceed the limitation. Total operating expenses as defined in the Advisory Agreement exclude expenses of raising capital, interest payments, taxes, non-cash expenditures (including, but not limited to, depreciation, amortization and bad debt reserves), incentive fees and property operation and disposition costs. The Independent Directors may, upon a finding of unusual and non-recurring factors which they deem sufficient, determine that a higher level of expenses is justified in any given year.
Our bylaws provide that the Independent Directors are to determine at least annually the reasonableness of the compensation we pay to our Advisor. The Advisory Agreement was renewed for a one-year period as of January 25, 2022 and the reasonableness of our Advisor’s compensation was reviewed as of this date as well. Factors considered in reviewing the Advisory Fee include the size of the fees of the Advisor in relation to the size, composition and profitability of our loan portfolio, the rates charged by other advisors performing comparable services, the success of the Advisor in generating opportunities that meet our investment objectives, the amount of additional revenues realized by the Advisor for other services performed for us, the quality and extent of service and advice furnished by the Advisor, the quality of our investments in relation to investments generated by the Advisor for its own account, if any, and the performance of our investments.
The Advisory Agreement provides for indemnification by us of the Advisor and each of its directors, officers and employees against expense or liability arising out of such person's activities in rendering services to us, provided that the conduct against which the claim is made was determined by such person, in good faith, to be in our best interests and was not the result of negligence or misconduct.
Financing Policies
Our business of mortgage lending to churches and other non-profit religious organizations is managed in accordance with and subject to the policies, guidelines, restrictions and limitations identified herein (collectively, the "Financing Policy"). The intent of the Financing Policy is to identify for our shareholders not only the general business in which we are involved, but the parameters of our lending business. These policies may not be changed (except in certain immaterial respects by majority approval of the Board of Directors) without the approval of a majority of the Independent Directors, and the holders of a majority of our outstanding shares at a duly held meeting for that purpose:
(i) Loans made by us will be limited to churches and other non-profit religious organizations and will be secured by mortgages. The total principal amount of all second mortgage loans that we fund is limited to 20% of Average Invested Assets. All other loans will be first mortgage loans.
(ii) 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.
(iii) The loan amount cannot exceed 75% of the value of the real estate and improvements securing each loan, such value being determined based on a written appraisal prepared by an appraiser acceptable to the Advisor. On all loans, we will require a written appraisal certified by a member of the Appraisal Institute ("MAI"), or a state-certified appraiser.
(iv) An ALTA (American Land Title Association) or equivalent Mortgage Title Policy must be furnished to us by the borrower insuring our mortgage interest.
(v) The borrower's long-term debt (including the proposed loan) cannot exceed four times their gross income for the previous twelve (12) months.
(vi) The borrower must furnish us with financial statements (balance sheet and income and expense statement) for its last three (3) complete fiscal years and current financial statements for the period within ninety (90) days of the loan closing date. A borrower must have the last complete fiscal year financial statements reviewed by a certified public accountant (CPA) engaged by the borrower and who is independent of the borrower. On loans in excess of $500,000 our Advisor may require the last complete fiscal year be audited by a CPA engaged by the borrower and who is independent of the borrower. In lieu of the above requirement, we or our Advisor may employ a qualified accountant. The qualified accountant we employ would be required to be independent of the borrower. Our employed qualified accountant would not be independent of us. Compiled financial statements of the borrower are acceptable from our employed qualified accountant. Along with the compiled financial statements of the borrower, our employed qualified accountant would perform partial and targeted review examination procedures for borrowers. On loans in excess of $500,000, the Advisor may require partial and targeted audit examination procedures for borrowers.
(vii) Borrowers in existence for less than three (3) fiscal years must provide financial statements since their inception. No loan will be extended to a borrower in operation less than two (2) calendar years absent express approval by our Board of Directors.
(viii) The Advisor typically requires the borrower to arrange for automatic electronic payment or drafting of monthly payments.
(ix) The Advisor may require (i) key-man life insurance on the life of the senior pastor of a church; (ii) personal guarantees of church members and/or affiliates; and (iii) other security enhancements for our benefit.
(x) The borrower must agree to provide to us annual reports (including financial statements) within 120 days of each fiscal year end beginning with the fiscal year end next following the funding of the loan.
(xi) The Advisor may require the borrower to grant to us a security interest in all personal property located and to be located upon the mortgaged premises (excluding property leased by the borrower).
(xii) We require borrowers to maintain a general perils and liability coverage insurance policy naming us as the loss-payee in connection with damage or destruction to the property of the borrower which typically includes weather-related damage, fire, vandalism and theft. Our Advisor may require the borrower to provide flood, earthquake and/or other special coverage.
These Financing Policies are in addition to the prohibited investments and activities identified below and which are set forth in our Bylaws.
Prohibited Investments and Activities
Our Bylaws impose certain prohibitions and restrictions on our investment practices and lending activities, including prohibitions against:
(i) Investing more than 10% of our total assets in unimproved real property or mortgage loans on unimproved real property;
(ii) Investing in commodities or commodity futures contracts other than "interest rate futures" contracts intended only for hedging purposes;
(iii) Investing in mortgage loans (including construction loans) on any one property which in the aggregate with all other mortgage loans on the property would exceed 75% of the appraised value of the property unless substantial justification exists because of the presence of other underwriting criteria;
(iv) Investing in mortgage loans that are subordinate to any mortgage or equity interest of the Advisor or the Directors or any of their affiliates;
(v) Investing in equity securities;
(vi) Engaging in any short sales of securities or in trading, as distinguished from investment activities;
(vii) Issuing redeemable equity securities;
(viii) Engaging in underwriting or the agency distribution of securities issued by others;
(ix) Issuing options or warrants to purchase our shares at an exercise price less than the fair market value of the shares on the date of the issuance or if the issuance thereof would exceed 10% in the aggregate of our outstanding shares;
(x) The aggregate borrowings of the corporation, secured and unsecured, must be reasonable in relation to the Shareholders’ Equity of the corporation and must be reviewed by the Independent Directors at least quarterly. The maximum amount of such borrowings cannot exceed 300% of shareholders’ equity. Any excess in borrowing over such 300% level must be approved by a majority of Independent Directors and disclosed to shareholders in the next quarterly report along with justification for such excess;
(xi) Investing in real estate contracts of sale unless such contracts are in recordable form and are appropriately recorded in the chain of title;
(xii) Selling or leasing to the Advisor, a Director or any affiliate thereof unless approved by a majority of our Directors (including a majority of our Independent Directors), who are not otherwise interested in such transaction, as being fair and reasonable to us;
(xiii) Acquiring property from any Advisor or Director, or any affiliate thereof, unless a majority of our Directors (including a majority of our Independent Directors) who are not otherwise interested in such transaction approve the transaction as being fair and reasonable and at a price to us which is no greater than the cost of the asset to such Advisor, Director or any affiliate thereof, or if the price to us is in excess of such cost, that substantial justification for such excess exists and such excess is reasonable. In no event shall the cost of such asset exceed its current appraised value;
(xiv) Investing or making mortgage loans unless a mortgagee's or owner's title insurance policy or commitment as to the priority of the mortgage or condition of title is obtained; or
(xv) Issuing shares on a deferred payment basis or other similar arrangement.
We do not invest in the securities of other issuers for the purpose of exercising control, engage in the purchase and sale of investments other than as described in this Report, offer securities in exchange for property unless deemed prudent by a majority of the Directors, or make loans to other persons except in the ordinary course of our business as described herein.
We will not make loans to or borrow from, or enter into any contract, joint venture or transaction with, any of our Directors or officers, the Advisor or any affiliate of any of the foregoing unless a majority of our Directors, including a majority of our Independent Directors, approves the transaction as fair and reasonable to us and the transaction is on terms and conditions no less favorable to us than those available from unaffiliated third parties. Any investment by us in any property, mortgage or other real estate interest pursuant to a transaction with the Advisor or any Directors or officers thereof will be based upon an appraisal of the underlying property from an independent qualified appraiser selected by the Independent Directors and will not be made at a price greater than fair market value as determined by such appraisal.
Under Performing and Non-Performing Loans
As of December 31, 2021, we had eight first mortgage loans totaling approximately $3,289,000 that are three or more monthly payments in arrears. We may incur a loss if these borrowers are unable to bring their payments current and we are compelled to foreclose on their properties. We may be unable to dispose of the foreclosed properties on terms that enable us to recoup our expenses and outstanding balances.
As of December 31, 2021, we held title to one property located in Pine Bluff, Arkansas via deed in lieu of foreclosure, with an outstanding balance totaling $237,760. The Church is still occupying this property and paying rent while trying to either sell the building or obtain refinancing. We foreclosed on another property located in Atlanta, Georgia which we are currently owed $577,663 which amount includes legal fees and out of pocket costs. We have obtained title to the property but have not taken possession due to court proceedings in which the previous owner has filed numerous appeals regarding our foreclosure.
As of December 31, 2020, we had nine first mortgage loans totaling approximately $3,384,000 that are three or more monthly payments in arrears. We may incur a loss if these borrowers are unable to bring their payments current and we are compelled to foreclose on their properties. We received full payment on one of these loans totaling approximately $45,000 in 2021. We also sold one of the properties which is expected to close in the first quarter of 2022 for less than what we are owed. We may be unable to dispose of the foreclosed properties on terms that enable us to recoup our expenses and outstanding balances.
Competition
The business of making loans to churches and other non-profit religious organizations is highly competitive. We compete with a wide variety of investors and other lenders, including banks, insurance companies, pension funds and fraternal organizations which may have investment objectives similar to our own. A number of these competitors have greater financial resources, larger staffs and longer operating histories than we do. We compete principally by limiting our business "niche" to lending to churches and other non-profit religious organizations, offering loans with competitive and flexible terms, and emphasizing our expertise in the specialized industry segment of lending to churches and other religious organizations. Our competitive “specialty” is in offering fixed-rate, long-term loans, which few of our competitors make available to churches.
Employees
We have no employees, but we have two executive officers: Philip J. Myers, our Chief Executive Officer and President, and Scott J. Marquis, our Chief Financial Officer and Treasurer. Our daily operations and other material aspects of our business are managed by Church Loan Advisors, Inc. (the “Advisor”) on a “turn-key” basis using employees of the Advisor and/or its Affiliates. At present, certain officers and directors of the Advisor are providing services to us at no charge and which will not be reimbursed to them. These services include, among others, legal and analytic services relating to the execution of our business plan, development and preparation of reports to be filed under the Securities Exchange Act, and utilization of proprietary forms and documents utilized by the Advisor in connection with our business operations.
Subject to the supervision of the Board of Directors, our business is managed by the Advisor, which provides us investment advisory and administrative services. Philip J. Myers, our Chief Executive Officer, President and a Director, is President of the Advisor and President of American Investors Group, Inc., the underwriter of our past public offerings and the bond offerings in which we have purchased Church Bonds. The Company utilizes two employees of the Advisor on a full-time basis and one member of its staff on a part-time or other basis. The Company does not presently expect to directly employ anyone in the foreseeable future, since all of our administrative functions and operations are contracted through the Advisor. However, legal, accounting and certain other services are provided to us by outside professionals and paid by us directly.
Operations
Our operations are currently located in the 3,000 square foot offices of the Advisor’s affiliate, Church Loan Advisors, Inc., 10400 Yellow Circle Drive, Ste. 102, Minnetonka, Minnesota 55343. These facilities are being leased by Church Loan Advisors, Inc. on our behalf. The lease expires November 30, 2022. We are charged $2,500 monthly for our use of these facilities, but are not charged for our use of computers, copying services, telephones, facsimile machines, postage service, office supplies or employee services, since these costs are covered by the advisory fee paid to the Advisor. However, we do pay postage service for costs associated with the distribution of dividends and proxy materials to our shareholders.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.
Risks Related to Mortgage Lending
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 the novel coronavirus (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.
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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 U.S. are materially and adversely affected by the coronavirus, our business and financial results could be materially and adversely impacted.
In 2020, we provided some temporary relief by allowing borrowers to either make interest only payments for a period of 90 days or forgo one monthly mortgage payment (forbearance). We provided nine churches, totaling approximately $3,209,000 in principal outstanding, ninety days interest only payments. We also provided five churches with a total of approximately $2,618,000 in principal outstanding, one-month forbearance of its mortgage payments. As of December 31, 2021, all churches have returned to their regular or restructured monthly mortgage payments.
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A Recession Could have a Material Adverse Effect on the Mortgage Lending Industry and Our Results of Operations. The performance of the mortgage lending industry usually follows the general economy. During the recession of 2008 and 2009, mortgage lending was reduced and borrowers’ ability to remain current on loans was severely strained, which had a significant effect on our results of operations. A stall in the economic recovery or a resurgent recession could have a material adverse effect on the mortgage lending and church bond industry and, thus, on our results of operations.
We Are Subject to the Risks Generally Associated with Mortgage Lending. Mortgage lending involves various risks, many of which are unpredictable and beyond our control and foresight. It is not possible to identify all potential risks associated with mortgage lending. Some of the more common risks encountered may be summarized as follows:
· low demand for mortgage loans
· interest rate and real estate valuation fluctuations
· changes in the level of consumer confidence
· availability of credit-worthy borrowers
· national and local economic conditions
· demographic and population patterns
· zoning regulations
· taxes and tax law changes
· availability of alternative financing and competitive conditions
· factors affecting specific borrowers
· losses associated with default, foreclosure of a mortgage, and sale of the mortgaged property
· state and federal laws and regulations
· bankruptcy or insolvency of a borrower
· borrower’s misrepresentation(s) and/or fraud
Losses Associated with Default, Foreclosure of a Mortgage and Sale of Mortgaged Property Pose Additional Risks. We have experienced losses associated with default, foreclosure of mortgages, and sales of mortgaged properties. The time frame to foreclose on a property varies from state to state, and delays can occur due to backlog in court dockets; we have experienced delays from 12 to 48 months. Such delays have and can cause the value of the mortgaged property to further deteriorate due to lack of maintenance. Theft and vandalism have also occurred on certain of our foreclosed properties. Some borrowers have removed fixtures and furnishings including sound systems, chairs, pulpits, appliances, mechanical and electrical systems prior to vacating the facility which further reduces the value of our collateral. The properties also incur operating expenses pending their sale (resale marketing, property insurance, security, repairs and maintenance) and these expenses could be substantial if we cannot readily dispose of the property. Expenses related to the foregoing and diminution in value could prevent us from recovering the full value of a loan in the event of foreclosure, which shortfall would decrease the value of assets held by the Company and could negatively impact the Company’s ability to pay interest on its outstanding secured investor certificates or dividends to shareholders.
Real Estate Taxes Resulting from a Foreclosure May Prevent Us from Recovering the Full Value of a Loan. If we foreclose on a mortgage and take legal title to a church’s real estate, real estate taxes could be levied and assessed against the property since the property would no longer be owned by a non-profit entity. These expenses would be our financial responsibility and could be substantial in relation to our prior loan if we cannot readily dispose of the property. Such expenses could prevent us from recovering the full value of a loan in the event of foreclosure, which shortfall would decrease the value of assets held by the Company.
Second Mortgage Loans Pose Additional Risks. Our financing policies allow us to make second mortgage loans. The principal amount of such loans may not exceed 20% of our Average Invested Assets. Second mortgage loans entail more risk than first mortgage loans, as foreclosure of senior indebtedness or liens could require us to pay the senior debt or risk losing our mortgage or reduced collateral value may reduce or eliminate our security.
Fixed and Variable-Rate Debt Can Result in Yield Fluctuations. Fixed and variable-rate debt obligations carry certain risks. A general rise in interest rates could make the yield on a particular mortgage loan lower than prevailing rates. This could negatively affect our value and consequently the value of our shares and certificates. Neither we nor our Advisor can predict changes in interest rates. We will attempt to reduce this risk by maintaining medium and longer-term mortgage loans and through offering adjustable rate loans to borrowers. We do not intend to borrow funds or sell certificates if the cost of such borrowing exceeds the income we believe we can earn from lending the funds. The current average holding period of our debt is approximately seven and a half years, which has mitigated this risk in yield fluctuations.
The Mortgage Banking Industry Is Highly Competitive. We compete with a wide variety of lenders, including banks, credit unions, insurance companies, pension funds and fraternal organizations for mortgage loans. Many competitors have greater financial resources, larger staffs and longer operating histories than we have, and thus may be a more attractive lender to potential borrowers. We intend to compete by limiting our business “niche” to lending to churches and other non-profit religious organizations, offering loans with competitive and flexible terms, and emphasizing our expertise in the specialized industry segment of lending to churches and other non-profit religious organizations.
Fluctuations in Interest Rates May Affect Our Ability to Generate New Loans. Prevailing market interest rates impact borrower decisions to obtain new loans or to refinance existing loans, possibly having a negative effect upon our ability to originate mortgage loans. If interest rates decrease and the economic advantages of refinancing mortgage loans increase, then prepayments of higher interest mortgage loans in our portfolio would likely reduce our portfolio’s overall rate of return (yield).
We Are Subject to the Risks Associated with Fluctuations in National and Local Economic Conditions. The mortgage lending industry is subject to increased credit risks and foreclosure rates during economic downturns. In addition, because we provide mortgages to churches and other religious organizations who generally receive financing through charitable contributions, our financial results are subject to fluctuations based on a lack of consumer confidence or a severe or prolonged national or regional recession. As a result of these and other circumstances, our potential borrowers may decide to defer or terminate plans for financing their properties. In addition, during such economic times we may be unable to locate as many credit-worthy borrowers. In addition, we believe the risks associated with our business are more severe during periods of economic slowdown or recession if these periods are accompanied by declining values in real estate. For example, declining real estate values would likely reduce the level of new loan originations, since borrowers often use increases in the value of their existing properties to support the purchase of or investment in additional properties. Borrowers may also be less able to pay principal and interest on our loans if the real estate economy is weak, which could result in higher default rates. Higher default rates could adversely affect the Company’s results of operations, which could negatively impact the Company’s ability to pay interest on the certificates and dividends to shareholders. Further, declining real estate values significantly increase the likelihood that we will incur losses in the event of default because the value of our collateral may be insufficient to cover our basis in the investment.
The Company Faces Certain Risks and Uncertainties Related to Financing and Liquidity, and These Volatilities Could Have an Impact on Its Operations and Its Ability to Maintain its Long-term Capital Needs and/or Secure Additional Financing. The Company faces certain risks and uncertainties, particularly during volatile market conditions. In addition, liquidity, during such time periods, can be tight in all financial markets, including the debt and equity markets. These volatilities could have an impact on operations to the extent that the Company experiences slower maturities or repayment of mortgage loans, illiquid markets for our bond portfolio, or a higher redemption rate on our secured investor certificates than has been the case historically.
Our Business May Be Adversely Affected if Our Borrowers Become Insolvent or Bankrupt. If any of our borrowers become insolvent or bankrupt, the borrower’s mortgage payments will be delayed and may cease entirely. Because our borrowers are churches and other religious organizations who generally receive financing through charitable contributions, if their members experience a decrease in pay or lose their jobs and are unable to secure new ones, they may make fewer or no contributions to our borrowers, which could result in the borrower’s inability to make mortgage payments or make them on time. In those situations, we may be forced to foreclose on the mortgage and take legal title to the real estate and incur expenses related to the foreclosure and disposition of the property. Such increased expenses paired with possible lower real estate values (having been reduced by the foregoing expenses) could adversely affect the Company’s results of operations.
We Have Fluctuating Earnings. As a mortgage lender, we make provision for losses relating to our loan portfolio and sometimes take impairment charges due to our borrowers defaulting or declaring bankruptcy. Increases in the occurrence of such events results in greater fluctuation of our earnings, which reduces our net income. Our earnings are also impacted by non-performing assets and the carrying cost of maintaining such assets (taxes, insurance and maintenance). Inconsistent earnings could adversely affect the Company’s financial condition and results of operations.
Risks Related to Mortgage Lending to Churches
Churches Rely on Member Contributions to Repay Our Loans. Churches typically rely on member contributions for their primary source of income. As such, member contributions are the primary source used to repay our loans. The membership of a church or the per capita contributions of its members may not increase or remain constant after a loan is funded. A decrease in a church’s income could result in its temporary or continued inability to pay its obligation to us, which may affect our ability to pay dividends on our common stock or pay interest or principal due on certificates. We have no control over the financial performance of a borrowing church after a loan is funded.
Churches Depend Upon Their Senior Pastors. A church’s senior pastor usually plays an important role in the management, leadership and continued viability of that church. A senior pastor’s absence, resignation or death could have a negative impact on a church’s operations, and thus its continued ability to generate revenues sufficient to service its obligations to us.
The Limited Use Nature of Church Facilities Can Limit the Resale Value of Our Mortgage Collateral. Our loans are secured principally by first mortgages upon the real estate and improvements owned or to be owned by borrowing churches. Although we will require an appraisal of the premises as a pre-condition to making a loan, the appraised value of the premises cannot be relied upon as being the actual amount which might be obtained in the event we need to foreclose after a default by the borrower. The actual liquidation value of a church, school or other institutional premises could be adversely affected by, among other factors: (i) its limited use nature; (ii) the availability on the market of similar properties; (iii) the availability and cost of financing, rehabilitation or renovation to prospective buyers; (iv) the length of time the seller is willing to hold the property on the market; or (v) the availability in the area of the mortgaged property of congregations or other buyers willing to pay the fair value for a church facility. These factors may influence our decision to restructure the terms of a non-performing loan rather than foreclose on a church property which may decrease the amount of the loan we recover.
Expenses of Foreclosure May Prevent Us from Recovering the Full Value of a Loan. If we foreclose on a mortgage and take legal title to a church’s real estate, real estate taxes could be levied and assessed against the property until sold since the property would no longer be owned by a non-profit entity. The property may also incur operating expenses pending its sale, such as resale marketing, property insurance, utilities, security, repairs and maintenance. These expenses would be our financial responsibility and could be substantial in relation to our prior loan if we cannot readily dispose of the property. Such expenses could prevent us from recovering the full value of a loan in the event of foreclosure.
Risks Related to Us
Our Failure to Qualify as a Real Estate Investment Trust Could Reduce the Funds We Have Available For Investment. We operate as a real estate investment trust (“REIT”). As a REIT, we are allowed a deduction for dividends paid to our shareholders in computing our taxable income. Thus, only our shareholders are taxed on our taxable income that we distribute. This treatment substantially eliminates the “double taxation” of earnings to which most corporations and their shareholders are subject. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions.
To qualify and maintain our status as a REIT, we must meet certain share ownership, income, asset and distribution tests on a continuing basis. No assurance can be given that we will satisfy these tests at all times. Further, the requirements for a REIT may substantially affect day-to-day decision-making by our Advisor. Our Advisor may be forced to take action it would not otherwise take or refrain from action which might otherwise be desirable in order to maintain our REIT status.
If we fail to qualify as a REIT in any taxable year, then we would be subject to federal income tax on our taxable income at regular corporate rates and not be allowed a deduction for distributions to shareholders. We would be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. We intend to continue to operate as a REIT. However, future economic, market, legal, tax or other consequences may cause our Board of Directors to revoke the REIT election. The payment of taxes resulting from our disqualification as a REIT or revocation of REIT status would reduce the funds available for distribution to shareholders or for investment.
Consistent with our qualification as a REIT for federal income tax purposes, we do not file state income tax returns in all states in which the collateral securing our loans is located. Since our inception, no state has ever asserted a claim for income taxes on any amount of our earnings or any aspect of our operations. Although we believe our position as it relates to state income taxes is appropriate, there can be no assurance that in the future any state tax jurisdiction will not pursue payment of some amount of state income taxes.
Conflicts of Interest Arise from Our Relationship with Our Advisor. The terms of transactions involving our formation and the formation of our Advisor, and our contractual relationship with our Advisor, were not negotiated at arm’s-length. Our non-independent directors and officers may have conflicts of interest in enforcing agreements between us and our Advisor. Future business arrangements and agreements between us and our Advisor and their affiliates must be approved by our Board of Directors, including a majority of our Independent Directors.
Risks Related to the Shares
Lack of Liquidity and Inconsistent Public Market Price. Our common stock is not currently listed or traded on any exchange. “Pink Sheet” price quotations for our stock under the symbol “ACMC” were made at certain isolated times during 2021 by other broker-dealers at prices as low as $0.94 per share and as high as $1.68 per share. In addition, the market for REIT securities historically has been less liquid than non-real estate types of publicly-traded equity securities. Because of such illiquidity and the fact that the shares would be valued by market-makers (if a material market develops) based on market forces which consider various factors beyond our control, there can be no assurance that the market value of the shares at any given time would be the same or higher than the public purchase price of our shares. In addition, the market price, if a material market develops, could decline if the yields from other competitive investments exceed the actual dividends paid by us on our shares.
There Are Restrictions on Certain Transfers of Our Shares. Our Articles of Incorporation and Bylaws prohibit a transfer of shares to any person who, as a result, would beneficially own shares in excess of 9.8% of the outstanding capital stock and allow us to redeem shares held by any person in excess of 9.8% of the outstanding capital stock. These provisions may reduce market activity for the shares and the opportunity for shareholders to receive a premium for their shares.
Fluctuations in Interest Rates May Cause the Value of Our Shares to Fluctuate. Prevailing market interest rates impact borrower decisions to obtain new loans or to refinance existing loans, possibly having a negative effect upon our ability to originate mortgage loans. Fluctuations in interest rates may cause the value of the shares to fluctuate unpredictably. If interest rates increase and we are unable to deploy funds into higher yielding mortgage loans, the dividends we pay may be less than other organizations which may have investment objectives similar to our own.
Interest Payments to Certificate Holders May Reduce Dividend Payments on Our Shares. We attempt to deploy our capital into new loans at rates that provide a positive interest rate spread. This spread, however, may be materially and adversely affected by changes in prevailing interest rates which would reduce our net income. If this occurs, we may not have sufficient net income after paying interest on the certificates to maintain dividends to shareholders at the levels paid in the past or even to pay dividends at all. In addition, because dividends are directly affected by the yields generated on the Company’s portfolio of loans and bonds, shareholders’ dividends can be expected to fluctuate significantly with interest rates generally.
Risks Related to the Indebtedness/Certificates
We May Be Unable to Generate Sufficient Cash Flow to Service Our Debt Obligations. Our ability to make payments on our indebtedness and to fund our operations depends on our ability to generate cash in the future. Our ability to generate future cash is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors that are beyond our control. As such, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under a credit arrangement in an amount sufficient to enable us to pay amounts due on our indebtedness or to fund our other liquidity needs.
Our ability to obtain additional financing, if needed, will depend on, among other things: (i) our financial condition at the time; (ii) restrictions on outstanding indebtedness; and (iii) other factors, including the condition of the financial markets or the real estate and real estate lending markets. If we do not generate sufficient cash flow from operations, and additional borrowings or proceeds of asset sales are not available to us, we may not have sufficient cash to enable us to meet all of our obligations, which could affect our tax status as a REIT.
We May Incur More Indebtedness. We may incur additional indebtedness in the future. We may assign or pledge some of our mortgage-secured promissory notes or other collateral in connection with incurring any additional indebtedness. Under our Bylaws, as amended, we may incur indebtedness up to 300% of our shareholder’s equity, the level permitted under North American Securities Administrators Association (“NASAA”) guidelines, 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.
There Are Potential Adverse Effects Associated with Lending Borrowed Funds. In the past, we have deployed the proceeds from the sale of secured investor certificates into loans to, and bonds issued by, churches and other non-profit religious organizations. We have also used a credit facility from time to time to fund loans and purchase bonds. Lending borrowed funds is subject to greater risks than in unleveraged lending. The profit we realize from lending borrowed funds is largely determined by the difference, or “spread,” between the interest rates we pay on the borrowed funds and the interest rates that our borrowers pay us. Our spread may be materially and adversely affected by changes in prevailing interest rates. Furthermore, the financing costs associated with lending borrowed funds could decrease the effective spread in lending borrowed funds, which could adversely affect our ability to pay interest on and repay the certificates as they mature.
There Is No Public Market for the Secured Investor Certificates. There is no market for the secured investor certificates. It is unlikely that a market will develop. There are no current plans to list the secured investor certificates on any exchange or for a broker-dealer to make a market in the secured investor certificates. In addition, the market for REIT securities historically has been less liquid than the markets for other types of publicly-traded securities.
There Is No Sinking Fund, Insurance or Guarantee Associated with the Secured Investor Certificates. We do not contribute funds to a separate account, commonly known as a sinking fund, to repay principal or interest on the secured investor certificates upon maturity or default. Our secured investor certificates are not certificates of deposit or similar obligations of, or guaranteed by, any depository institution. Further, no governmental or other entity insures or guarantees payment on the secured investor certificates if we do not have enough funds to make principal or interest payments. Therefore, holders of our secured investor certificates have to rely on our revenue from operations, along with the security provided by the collateral for the secured investor certificates, for repayment of principal and interest on them.
The Collateral for the Secured Investor Certificates May Not Be Adequate If We Default. The secured investor certificates must at all times be secured by mortgage-secured promissory notes and church bonds having an outstanding principal balance equal to at least 100% of the outstanding principal balance of the secured investor certificates. If we default in the repayment of the secured investor certificates, or another event of default occurs, the trustee will not be able to foreclose on the mortgages securing the promissory notes and bonds in order to obtain funds to repay certificate holders. Rather, the trustee will need to look to the revenue stream associated with our borrowers’ payments on or repayment of the promissory notes and bonds or revenue derived from sale of the promissory notes or bonds to repay certificate holders. If the trustee chooses to rely on revenues received from our borrowers, certificate holders may face a delay in payment on certificates in the event of default, as borrowers will repay their obligations to us in accordance with amortization schedules associated with their promissory notes or bonds. If the trustee chooses to sell promissory notes or bonds in the event of our default, the proceeds from the sales may not be sufficient to repay our obligations on all outstanding or defaulted secured investor certificates.
The Secured Investor Certificates Are Not Negotiable Instruments and Are Subject to Restrictions on Transfer. The secured investor certificates are not negotiable debt instruments. Rights of record ownership of the secured investor certificates may be transferred only with our Advisor’s prior written consent. Certificate holders are not able to freely transfer the secured investor certificates.
We Are Obligated to Redeem Secured Investor Certificates Only In Limited Circumstances. Certificate holders have no right to require us to prepay or redeem any certificate prior to its maturity date, except in the case of death or if we replace our current Advisor. Further, even in the event of death, we will not be required to redeem secured investor certificates if we have redeemed at least $25,000 of principal amount of certificates for the benefit of estates during the calendar quarter. There is no present intention to redeem secured investor certificates prior to maturity except in the case of death of a certificate holder.
We May Not Have Sufficient Available Cash to Redeem Secured Investor Certificates If We Terminate Our Advisory Agreement with Our Current Advisor. We will be required to offer to redeem all outstanding secured investor certificates if we terminate our advisory agreement with Church Loan Advisors, Inc., our Advisor, for any reason. If the holders of a significant principal amount of secured investor certificates request that we redeem their certificates, we may be required to sell a portion of our mortgage loan and church bond portfolio to satisfy the redemption requests. Any such sale could be at a discount to the recorded value of the mortgage loans and bonds being sold. Further, if we are unable to sell loans or church bonds in our portfolio, we may be unable to satisfy the redemption obligations.
The Indenture Contains Limited Protection for Holders of Secured Investor Certificates. The indenture governing the secured investor certificates contains only limited events of default other than our failure to pay principal and interest on the certificates on time. Further, the indenture provides for only limited protection for holders of certificates upon a consolidation or merger between us and another entity or the sale or transfer of all or substantially all of our assets. If we default in the repayment of the secured investor certificates under the indenture, certificate holders will have to rely on the trustee to exercise any remedies on their behalf. Certificate holders will not be able to seek remedies against us directly.
Risks Related to Management
We Are Dependent Upon Our Advisor. Our Advisor, Church Loan Advisors, Inc., has managed us since commencement of active business operations in 1996 and selects our investments subject to general supervision by our Board of Directors and compliance with our lending policies. We depend upon our Advisor and its personnel for most aspects of our business operations. Our success depends on the success of our Advisor in locating borrowers and negotiating loans upon terms favorable to us. Among others, our Advisor performs the following services for us:
· mortgage loan marketing and procurement
· bond portfolio selection and investment
· mortgage loan underwriting
· mortgage loan servicing
· money management
· developing and maintaining business relationships
· maintaining “goodwill”
· managing relationships with our accountants and attorneys
· corporate management
· bookkeeping
· reporting to state, federal, tax and other regulatory authorities
· reports to shareholders and shareholder relations
· loan enforcement and collections
Our shareholders’ right to participate in management is generally limited to the election of directors. Certificate holders have no right to participate in our management or the election of directors. Certificate holders must be willing to entrust our management to our Advisor and our Board of Directors.
We Have Conflicts of Interest with Our Advisor and Affiliates. Affiliations and conflicts of interests exist among our officers and directors and the owner and officers and directors of our Advisor and affiliates. Our Advisor and affiliates are controlled by our Chief Executive Officer and President, Philip J. Myers.
Our Bylaws limit the amount of all commissions, mark-downs or mark-ups paid to American. Our business dealings with our Advisor and its affiliates outside of the ordinary course of our activities are subject to approval by a majority of our Board of Directors, including a majority of our Independent Directors.
Generally, mortgage loans we originate are smaller than the bond financings originated by American. However, there may be circumstances where our Advisor and American could recommend either type of financing to a prospective borrower. The decisions of our Advisor and American could affect the credit quality of our portfolio.
Redemption Obligations Relating to the Secured Investor Certificates May Affect Our Ability to Replace Our Advisor. We will be required to offer to redeem all outstanding secured investor certificates if we terminate our Advisory Agreement with Church Loan Advisors, Inc. Our Independent Directors are required to review and approve the advisory agreement with our Advisor on an annual basis. The redemption provision relating to the secured investor certificates may have the effect of reducing our ability to replace our current Advisor.
Risks Related to Environmental Laws
We May Face Liability Under Environmental Laws. Under federal, state and local laws and regulations, a secured lender (like us) may be liable, under certain limited circumstances, for the costs of removal or remediation of certain hazardous or toxic substances and other costs (including government fines and injuries to persons and adjacent property). Liability may be imposed
whether or not the owner or lender knew of, or was responsible for, the presence of hazardous or toxic substances. The costs of remediation or removal of hazardous or toxic substances, or of fines for personal or property damages, may be substantial and material to our business operations. The presence of hazardous or toxic substances, or the failure to promptly remediate such substances, may adversely affect our ability to resell real estate collateral after foreclosure or could cause us to forego foreclosure. This is a changing area of the law. The courts have found both in favor and against lender liability in this area under various factual scenarios.
The Collateral For Our Loans and Our Lenders May Be Subject to Environmental Claims. If there are environmental problems associated with the real estate securing any of our loans, the associated remediation or removal requirements imposed by federal, state and local laws could affect our ability to realize value on our collateral or our borrowers’ ability to repay their loans.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties.
Our operations are located in the leased offices of Church Loan Advisors, Inc. It is expected that for the foreseeable future our operations will continue to be housed in these or similar leased premises along with the Advisor. We are directly charged for rent, but we do not incur other costs relating to such leased space, because our Advisor includes these expenses in the Advisory Fee.
Real Estate Held for Sale/Description of Properties Acquired through Foreclosure
As of December 31, 2021, we owned two properties which we acquired through the foreclosure process. The first property, located in Atlanta, Georgia had a carrying value of approximately $203,000. We have obtained title to the property but have not taken possession due to court proceedings in which the previous owner has filed numerous appeals regarding our foreclosure. The second property we own is located in Pine Bluff, Arkansas and was acquired via deed in lieu of foreclosure and is available for sale. However, it is currently not listed as we have allowed the church to either obtain financing from another source or list the property for sale. The Church is paying rent while trying to either sell the building or obtain refinancing. We received $10,500 in rental payments from the Church for the year ended December 31, 2021. This property is being carried at the fair value which is approximately $126,000 as of December 31, 2021. The situation with respect to each property is reviewed periodically. The general competitive conditions surrounding the potential sale of our properties are tied, in large part, to the fact that they are special-use properties with variable zoning restrictions. We principally lend to churches, which are commonly exempt from zoning restrictions. However, while a church property may be exempt from zoning restrictions, if it is located in a residential area, it still may only be used as a church, thereby limiting the pool of potential buyers. On the other hand, a church or other property that is zoned for commercial use generally experiences higher demand, as potential buyers can convert the property to their own business use. As such, our properties located in residential areas typically experience less demand than those zoned for commercial use. Both the Pine Bluff, Arkansas and Atlanta, Georgia properties are in a residential area.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
There are presently no legal actions against us, pending or threatened.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Outstanding Securities
As of December 31, 2021, 1,676,598 shares of our common stock and $22,278,500 in aggregate principal amount of secured investor certificates were issued and outstanding.
Lack of Liquidity and Absence of Public Market Price.
There is virtually no market for our common shares. It is not expected that a material market for the shares will develop any time soon. In addition, the market for REIT securities historically has been less liquid than non-real estate types of publicly-traded equity securities. Because of such illiquidity and the fact that the shares would be valued by market-makers (if a market develops) based on market forces which consider various factors beyond our control, there can be no assurance that the market value of the shares would reflect the value of our assets or business and no assurance that at any given time would be the same or higher than the public purchase price of our shares. In addition, the market price, if a market develops, could decline if the yields from other competitive investments exceed the actual dividends paid by us on our shares. Our common stock is not currently listed or traded on any exchange or market.
Our Common Stock, $.01 par value per share, occasionally trades on the over-the-counter market Pink Sheets under the symbol “ACMC.PK”. The following table sets forth the high bid quotation and the low bid quotation as quoted by the Pink Sheets in 2021 and 2020. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. We did not purchase or sell any common stock shares in 2021.
High Low
Calendar Year 2021
First Quarter $1.68 $0.94
Second Quarter $1.64 $1.24
Third Quarter $1.50 $1.20
Fourth Quarter $1.30 $1.01
Calendar Year 2020
First Quarter $2.40 $1.40
Second Quarter $1.95 $1.51
Third Quarter $1.70 $0.93
Fourth Quarter $1.12 $0.53
Holders of Our Common Shares
As of December 31, 2021, we had 423 record holders of our common stock, $.01 par value per share (excluding shareholders for whom shares are held in a “nominee” or “street” name).
We paid dividends on our common stock for the fiscal years ended December 31, 2021 and 2020 as follows:
For Quarter Ended: Dollar Amount Distributed
Per Share:
Annualized Yield Per $10
Share Represented:
2020
March $.010 $.040 0.40% 1.60%
June $0.00 $.010 0.00% 0.40%
September $0.00 $.020 0.00% 0.80%
December $0.00 $.010 0.00% 0.40%
Totals: $.010 $.080 0.40% 0.80%
As a Real Estate Investment Trust, we make regular quarterly distributions to shareholders. The amount of distributions to our shareholders must equal at least 90% of our “real estate investment trust taxable income” in order for us to retain REIT status. Shareholder distributions are estimated for our first three quarters of each fiscal year and adjusted annually based upon our final year-end financial report. Cash available for distribution to our shareholders is derived primarily from the interest portion of monthly mortgage payments we receive from churches borrowing money from us, from origination and other fees paid to us by borrowers in connection with loans we make, interest income from mortgage-backed securities issued by churches and other non-profit religious organizations purchased and held by us for investment purposes, and earnings on any permitted temporary investments made by us. All dividends are paid by us at the discretion of the Board of Directors and will depend upon our earnings and financial condition, maintenance of REIT status, funds available for distribution, results of operations, economic conditions, and such other factors as our Board of Directors deems relevant.
From time to time we offer the sale of shares of our common stock or secured investor certificates, the proceeds of which are typically used to fund loans to be made by us. Until we have fully invested such funds into loans, the relative yield generated by sales of our shares, and thus, dividends (if any) to shareholders, could be less than expected. We seek to address this issue by (i) collecting from borrowers an origination fee at the time a loan is made, (ii) timing our lending activities to coincide as much as possible with sales of our securities, and (iii) investing our un-deployed capital in permitted temporary investments that offer the highest yields together with safety and liquidity. However, there can be no assurance that these strategies will improve current yields to our shareholders. In order to qualify for the beneficial tax treatment afforded real estate investment trusts by the Internal Revenue Code, we are required to pay dividends to holders of our shares in annual amounts which are equal to at least 90% of our “real estate investment trust taxable income.” For the fiscal year ended December 31, 2021, we distributed 100% of our taxable income to our shareholders in the form of quarterly dividends. We intend to continue distributing virtually all of such income to our shareholders on a quarterly basis, subject to (i) limitations imposed by applicable state law, and (ii) the factors identified above. The portion of any dividend that exceeds our earnings and profits will be considered a return of capital and will not currently be subject to federal income tax to the extent that such dividends do not exceed a shareholder's basis in their shares. 100% of the dividends paid to shareholders for the tax year 2021 were non-dividend distributions due to the realized (carry-forward) loss totaling approximately $2,574,000 in 2021. We expect dividends paid in 2022 to be 100% non-dividend distributions due to the realized (carry-forward) loss totaling approximately $3,272,000.
Funds available to us from the repayment of principal (whether at maturity or otherwise) of loans made by us, or from sale or other disposition of any properties or any of our other investments, may be reinvested in additional loans to churches, invested in mortgage-backed securities issued by churches or other non-profit organizations, or in permitted temporary investments, rather than distributed to the shareholders. We can pass through the capital gain character of any income generated by computing its net capital gains and designating a like amount of our distribution to our shareholders as “capital gain dividends.” The distribution requirement to maintain qualification as a real estate investment trust does not require distribution of net capital gains, if generated. However, if we decide to distribute any such gains, undistributed net capital gains (if any) will be taxable to us. The Board of Directors, including a majority of our Independent Directors, will determine whether and to what extent the proceeds of any disposition of property will be distributed to our shareholders.
Equity Compensation Plans
We do not have any equity compensation plans under which equity securities of the Company are authorized for issuance.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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 and our forward-looking statement disclosure at the beginning of Part I to this Annual Report.
Financial Condition
Our total assets decreased from $35,574,723 at December 31, 2020 to $30,697,781 at December 31, 2021. The primary reason for the decrease in total assets from December 31, 2020 through December 31, 2021 was a decrease in our mortgage loans and bond portfolio receivables. Shareholders’ equity decreased from $10,085,327 at December 31, 2020 to $8,773,360 at December 31, 2021. This was primarily due to a net loss of ($1,295,201) and dividends declared and paid totaling $16,766. Our primary liabilities at December 31, 2021 and 2020 were our secured investor certificates, which were $22,278,500 and $23,916,500, respectively. We anticipate that funds from maturing loans and bonds will equal or exceed obligations due on our certificates after 2021. To the extent necessary, we will seek short-term financing or a new working capital facility, including our line of credit with a local bank, to meet any short-term cash requirements.
Comparison of the Fiscal Years ended December 31, 2021 and 2020
The following table shows the results of our operations for fiscal 2021 and 2020:
For the Year Ended December 31,
Statement of Operations Data
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 April 15, 1996, we have paid 100 consecutive quarterly dividend payments to shareholders through March 31, 2021. These dividend payments have resulted in an average annual return of 4.991% to shareholders who purchased shares at $10 per share in our public offerings of stock. Each loan funded during the quarter generates origination income of which one-half is due and payable to shareholders as taxable income even though origination income is not recognized in its entirety for the period under accounting principles generally accepted in the United States of America (“GAAP”). The other one-half of any origination income generated is due to our Advisor. We anticipate distributing all of our taxable income in the form of dividends to our shareholders in the foreseeable future to maintain our REIT status and to provide income to our shareholders.
Net (loss) for our year ended December 31, 2021 was $(1,295,201) on total interest and other income of $1,917,145 compared to net (loss) of $(125,859) on total interest and other income of $2,543,507 for the year ended December 31, 2020. The decrease in net income was primarily due to the decrease in size of loans outstanding and interest income received from our loan portfolio and non-accrual bonds, an increase in other operating expenses and other than temporary impairment on our bond portfolio.
Net interest income earned on our portfolio of loans was $325,773 for the year ended December 31, 2021, compared to $777,080 for December 31, 2020. The decrease in net interest income was due to the decrease in loans outstanding in our loan portfolio and non-accrual bonds.
Our operating expenses for our fiscal year ended December 31, 2021 were $1,624,216 compared to $838,430 for our year ended December 31, 2020. The increase in operating expenses was primarily a result of an increase in other than temporary impairment on our bond portfolio.
Our Board of Directors declared dividends of $.010 for each share of record on April 28, 2021. Based on the quarter ended March 31, 2021 and assuming a share purchase price of $10.00, the dividends paid represented a 0.40% annual yield in 2021. 100% of the dividends paid to shareholders for the tax year 2021 were non-dividend distributions due to the realized (carry-
forward) loss of approximately $2,574,000. We expect dividends paid in 2022 to be 100% non-dividend distributions due to the realized (carry-forward) losses totaling $3,272,000 for the period ended December 31, 2022.
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 and 2020. Any amount distributed to shareholders in excess of income from ongoing operations is deemed to be return of principal which results in a reduction of our shareholder equity.
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 December 31, 2021 are bonds issued of which we hold 100% of the total bonds outstanding. The total principal amount outstanding is approximately $18,093,000 as of December 31, 2021 and was approximately $18,299,000 as of December 31, 2020. We earned approximately $651,000 on our bond portfolio in 2021 and approximately $1,011,000 in 2020.
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 September 2017, we filed a registration statement with the Securities and Exchange Commission to offer $10,000,000 worth of Series E secured investor certificates. The offering was declared effective by the SEC on November 6, 2017. We sold 3,738 Series E secured investor certificates for a total of $3,738,000 for as of December 31, 2021. The offering terminated November 6, 2020.
In July 2014, we filed a registration statement with the Securities and Exchange Commission to offer $10,000,000 worth of Series D secured investor certificates. The offering was declared effective by the SEC on August 12, 2014. The offering was renewed with an effective date of September 23, 2016. The certificates were offered in multiples of $1,000 with interest rates ranging from 4.00% to 6.50%, subject to changing market rates, and maturities from 5 and 7 to 15 years. The certificates are collateralized by certain mortgage loans receivable and church bonds of approximately the same value. As of December 31, 2021, approximately 7,797 Series D certificates had been issued and were outstanding for $7,797,000. The offering terminated in August 2017.
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 December 31, 2021 we held $114,798 in cash and cash equivalents and currently have a $4,000,000, modified to $3,000,000, working line of credit with a local bank of which $2,700,000 was available to us for the year ended December 31, 2021. This facility was extended and expires April 19, 2022.
Fiscal Year
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 $530,000 and $1,007,250 during 2021 and 2020, respectively. These renewals represent 45% and 28% of the maturing certificates for the period ended December 31, 2021 and 2020, respectively. We believe that renewals we offer to maturing certificate holders will reduce the amount of cash needed to pay maturing certificates in fiscal year 2022.
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 December 31, 2021, we reserved $1,486,434 against twelve mortgage loans, of which eight churches were three or more mortgage payments in arrears and two of the Churches are declared to be in default. At December 31, 2020, we reserved $1,493,996 against fourteen mortgage loans, of which nine churches were three or more mortgage payments in arrears, two were declared to be in default.
The total value of impaired loans, which are loans that are in the foreclosure process or are declared to be in default, was approximately $174,000 and $38,000 at December 31, 2021 and 2020, respectively. We believe that the total amount of non-performing loans is adequately secured by the underlying collateral and the allowance for mortgage loans.
Of the eight loans which were three or more payments in arrears, the first impaired loan has an outstanding balance of $543,822. This loan has been declared in default. The church is located in Detroit, Michigan and is located in an area suffering from urban blight and high crime. This church is located in a commercial area. Therefore, the facility can be converted and used other than as a church. We have reserved against the total outstanding amount of this loan since we have determined that there is little to no value left to recover with regards to the collateral of the property.
The second impaired loan has an outstanding balance of $256,623. The church is located in Raleigh, North Carolina. The church has missed eight mortgage payments since the loan was re-structured in June 2008, the church has missed two payments in 2021. We are working with the church to bring its payments current.
The third impaired loan has an outstanding balance of $294,275. The church is located in Seagoville, Texas. The church has missed seven payments since the loan was funded in August 2006. However, the church did not miss any payments in 2021. We are working with the church to bring its payments current.
The fourth impaired loan has an outstanding balance of $681,749. The church is located in Dallas, Texas. The church has missed six payments since the loan was funded in September 2008. The church missed one payment in 2021. We are working with the church to bring its payments current. This is a commercial property.
The fifth impaired loan has an outstanding balance of $700,191. The church is located in Richmond Hills, Texas. The church has missed numerous payments since the loan was funded in November 2004. However, the church has been making regular payments which are being applied to the arrearage. We are continually working with the church to bring its payments current.
	The sixth impaired loan has an outstanding balance of $213,218. The church is located in Kirbyville, Texas. The church has missed three payments since the loan was funded in June 2003. However, the church did not miss any payments in 2021. We are working with the church to bring its payments current.	
The seventh impaired loan has an outstanding balance of $221,683. The church is located in Leslie, Georgia. The Church’s loan was restructured in 2018 and the Church has not missed any mortgage payments since the restructure.
	The eighth impaired loan has an outstanding balance of $377,761. The church is located in Waterbury, Connecticut. The church is no longer meeting in its current location and the building has fallen into disrepair. The Church has a purchase agreement signed to sell the building for $185,000. We expect the sale to close in the first quarter of 2022. This is a commercial property.	
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 Reserved Status of Loan
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) accumulated reserve during default period equal to principal loan balance in excess of 65% of original collateral value; or (ii) 1% of the remaining principal balance each quarter during which the default remains in effect. Foreclosure proceeding underway. Accrual of all overdue interest and principal payments including penalties to be expensed. Reserve amount dependent on value of collateral. All expenses related to enforcing loan agreements are expensed.
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 $4,321,000 First Mortgage Bonds issued by Greater Travelers Rest (“GTR”) located in Decatur, Georgia. The total principal amount of First Mortgage Bonds issued by GTR is $17,390,000. We, along with all other bondholders, have a superior lien over all other creditors. The last correspondence to bondholders was January 22, 2021 in which the trustee agreed to deferment of sinking fund payments since the COVID-19 pandemic caused a significant decrease in giving from the Church membership. The agreement meant that the trustee would not declare an event of default under the terms of the trust indenture as a result of missed sinking fund payments. The trustee and the church entered into a payment plan to get the church current on their sinking fund payments in the first quarter of 2021. If the church keeps with the plan, starting in 2022, the pay-dates should be made on time to the bondholders. We have not been updated as to the status of the payment plan and no interest or principal due to us has been made in 2022.
We currently own $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. 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 December 31, 2020. 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 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. In October 2020, bondholders were asked by the trustee to accept or reject a plan of reorganization. The trustee is recommending bondholders accept the reorganization plan. We accepted the reorganization plan. Acceptance of the plan by bondholders could result in a return of approximately 67% of the original principal investment outstanding. As of December 31, 2021, we have not been updated as to the status of the reorganization plan.
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, we expected to receive interest and principal payment(s) on time and according to the terms of the Bonds. We did not receive any quarterly interest payments from the issuer for the year ended December 31, 2021.
We have an aggregate other than temporary impairment of $1,755,504 and $834,226 for our bond portfolio at December 31, 2021 and 2020, respectively, which effectively reduces the bonds to the fair value amount we believe will be recovered.
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 the United States. 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 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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”), we are not required to provide the information required by this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Financial Statements required by this item can be found at pages through of this Form 10-K and are deemed incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures, as defined in Section 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company did not maintain effective internal control over financial reporting due to a material weakness in the internal controls over financial reporting for impaired loans and debt securities valuations. In addition our disclosure controls and procedures are not effective as a result of limited resources such that financial information required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.
With respect to impaired loan and debt securities valuations, the documentation and process supporting the valuations, including the stale nature of appraisals, with respect to our current church properties, was determined to be a material weakness. In addition, the Company has 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 judgment in evaluating the cost benefit relationship of possible controls and procedures. Management recognizes this is a material weakness.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 based on criteria for effective control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework.” Based on this assessment, our management concluded that, as of the Evaluation Date, we did not maintain effective internal control over financial reporting as a result of the material weakness described above. We continue to evaluate internal control improvements, particularly related to financial reporting for ongoing changes to our operations and segregation of duties, to provide greater segregation and improve overall internal control.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and is subject to lapses in judgment or breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, that occurred during the last fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 10 will be included in the Company’s definitive proxy statement for the annual meeting of shareholders to be held on or about June 28, 2022, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information required by Item 11 will be included in the Company’s definitive proxy statement for the annual meeting of shareholders to be held on or about June 28, 2022, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 12 will be included in the Company’s definitive proxy statement for the annual meeting of shareholders to be held on or about June 28, 2022, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report and is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 13 will be included in the Company’s definitive proxy statement for the annual meeting of shareholders to be held on or about June 28, 2022, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
The information required by Item 14 will be included in the Company’s definitive proxy statement for the annual meeting of shareholders to be held on or about June 28, 2022, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
Exhibit
No.
Title
3.1 Amended and Restated Articles of Incorporation
3.2 Third Amended and Restated Bylaws
3.3 Bylaw Interpretation dated July 2, 2019
4.1 Description of Common Stock
4.3 Supplemental Trust Indenture between the Company and The Herring National Bank dated September 28, 2004
4.5 First Supplemental Indenture to 2004 Indenture dated July 2, 2007
4.6 Trust Indenture between the Company and Herring Bank dated April 1, 2009
4.7 Trust Indenture between the Company and Herring Bank dated August 12, 2014
4.8 Trust Indenture between the Company and Herring Bank dated November 6, 2017
10.1 Amended and Restated REIT Advisory Agreement with Church Loan Advisors, Inc. dated January 22, 2004
10.3 Supplemental Security Agreement between the Company and The Herring National Bank, as Trustee dated September 28, 2004
10.4 Security Agreement between the Company and the Herring National Bank, as Trustee dated April 1, 2009
10.5 Security Agreement between the Company and Herring Bank, as Trustee dated August 12, 2014
10.5 Security Agreement between the Company and Herring Bank, as Trustee dated November 6, 2017
10.6 Second Amendment to Loan by and between American Church Mortgage Company and Alerus Financial, N.A., dated January 20, 2021
10.7 Promissory Note between American Church Mortgage Company and Alerus Financial N.A., dated January 20, 2021
23.1 Consent of Independent Registered Public Accounting Firm
31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of Sarbanes Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1 Certification of the Chief Executive Officer Pursuant to 19 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002*
32.2 Certification of the Chief Financial Officer Pursuant to 19 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002*
The following financial information from our Annual Report on Form 10-K for the fiscal year ended on 2021 filed with the Securities and Exchange Commission on March 31, 20221, is formatted in eXtensible Business Reporting Language (XBRL): (i) the Balance Sheets at December 31, 2021 and 2020; (ii) Statements of Operations for the year ended December 31, 2021 and 2020; (iii) the Statements of Cash Flows for the year ended December 31, 2021 and 2020; and (iv) the Notes to Financial Statements.
*Furnished, not filed
(1) Incorporated herein by reference to the Company’s Registration Statement on Form 8-A (File No. 000-25919), filed April 30, 1999.
(2) Incorporated herein by reference to the Company’s Current Report on Form 8-K, filed July 3, 2007.
(3) Incorporated herein by reference to the Company’s Registration Statement on Form S-11/A (File No. 333-116919), filed September 29, 2004.
(4) Incorporated herein by reference to Exhibit 4.1 of the Company’s Prospectus Supplement (filed April 1, 2009) to Registration Statement on Form S-11 (File No. 333-154831), filed October 30, 2008.
(5) Incorporated herein by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-11 (File No. 333-197326), filed August 12, 2014.
(6) Incorporated herein by reference to Exhibit 10.5 of the Company’s Registration Statement on Form S-11 (File No. 333-197326), filed August 12, 2014.
(7) Incorporated herein by reference to the Company’s Current Report on Form 8-K/A, filed August 1, 2007.
(8) Incorporated herein by reference to Exhibit 10.5 of the Company’s Prospectus Supplement (filed April 1, 2009) to Registration Statement on Form S-11 (File No. 333-154831), filed October 30, 2008.
(9) Incorporated herein
(10) Incorporated herein by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-11 (File No. 333-220531).
(11) Incorporated herein by reference to Exhibit 10.5 of the Company’s Registration Statement on Form S-11 (File No. 333-220531).
(12) Incorporated herein by reference to the Company’s Current Report on Form 8-K, filed July 2, 2019.
(13) Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 27, 2021.
(14) Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed January 27, 2021.