Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Certain statements contained in this section and elsewhere in this Form 10-Q constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, (i) trends affecting our financial condition or results of operations; (ii) our business and growth strategies; (iii) the mortgage loan industry and the financial status of religious organizations; (iv) The uncertainty and economic slowdown caused by the Covid-19 pandemic; (v) our financing plans; and other risks detailed in the Company's other periodic reports filed with the Securities and Exchange Commission. The words "believe", "expect", "anticipate", "may", "plan", "should", and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made and are not guarantees of future performance.

A detailed statement of risks and uncertainties is contained in our reports to the SEC, including, in particular, our Annual Report on Form 10-K for the year ended December 31, 2019 and other public filings and disclosures. Investors and shareholders are urged to read these documents carefully.





Plan of Operation

We were founded in May 1994 and commenced active business operations on April 15, 1996 after the completion of our initial public offering.

We currently have forty-nine mortgage loans aggregating $18,462,121 in principal amount and a first and second mortgage bond portfolio with par values aggregating $19,054,937. Funding of additional first mortgage loans and purchase of first mortgage bonds issued by churches is expected to continue on an on-going basis as more investable assets become available through: (i) future sales of securities; (ii) prepayment and repayment at maturity of existing loans and bonds; and (iii) borrowed funds. These capital sources and interest received on loans and bonds provide general working capital to the Company.





Impact of Covid-19

The outbreak of the coronavirus (Covid-19) pandemic has affected churches due to shelter-in-place directives which has ceased or curtailed social gatherings such as church worship services. The Company's borrowers have and may continue to experience severe financial duress during the Covid-19 shelter in place restrictions, amplified by the financial setbacks for many of the church members who have lost their jobs, been furloughed, or had their incomes diminished. The Company has provided some temporary relief by allowing its borrower's to either make interest only payments for a period of ninety days or forgo one monthly mortgage payment (forbearance). This relief has impacted the Company's revenue and will continue impact the Company's operations. The Company may continue to experience declines in payments due from borrowers and missed bond payments on the bonds owned by the Company which will impact operating income and may potentially impact future distributions and the ability to make payments due on the Company's certificates and dividends to its shareholders.







Results of Operations

Fiscal 2020 Nine Months Ended September 30, 2020 Compared to Fiscal 2019 Nine Months Ended September 30, 2019

Our net income (loss) for the nine months ended September 30, 2020 and 2019 was $28,154 and $(5,393), respectively, on total interest and other income of $1,943,845 and $2,058,680, respectively. Interest and other income is comprised of interest from loans, interest from bonds, amortization of bond discounts and amortization of loan origination fees. As of September 30, 2020, our loans receivable have interest rates ranging from 0% to 10.25%, with an average, principal-adjusted interest rate of 7.69%. Our bond portfolio has an average current yield of 6.69% as of September 30, 2020. As of September 30, 2019, the average, principal-adjusted interest rate on our portfolio of loans was 7.98% and our portfolio of bonds had an average current yield of 6.87%. The decrease in interest income was due to a decrease in assets under management.

Interest expense was approximately $1,342,000 and $1,398,000 for the nine months ended September 30, 2020 and 2019, respectively. The decrease in interest expense was due to the decrease in interest paid on our secured investor certificates outstanding resulting from a decrease in the amount of secured investor certificates outstanding. Net interest margin decreased from 32.11% to 30.94% resulting primarily from a decrease in interest income of approximately 5.58% along with a decrease in interest expense of approximately 3.95%.

We follow a loan loss allowance policy on our portfolio of loans outstanding. This critical policy requires complex judgments and estimates. We record mortgage loans receivable at their estimated net realizable value, which is the unpaid principal balance less the allowance for mortgage loans. Our loan policy provides an allowance for estimated uncollectible loans based on an evaluation of the current status of the loan portfolio. This policy provides for principal amounts outstanding on a particular loan if cumulative interruptions occur in the normal payment schedule of a loan. Our policy will provide 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 or loans that are in the foreclosure process.

Typically, the accrual of interest on a loan is discontinued when the loan becomes 90 consecutive days delinquent and management believes the borrower will be unable to make payments as they become due. When loans are placed on nonaccrual status or charged off, all unpaid accrued interest is reversed against interest income. The interest on these loans is subsequently accounted for on the cash basis or using the cost-recovery method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for losses on mortgage loans receivable increased during the nine months ended September 30, 2020 as we recorded additional provisions against the mortgage loans. We recorded an additional provision for losses on loans during the nine months ended September 30, 2020 of approximately $48,000 compared to approximately $73,000 for the nine months ended September 30, 2019. At September 30, 2020, we provided approximately $1,478,000 in loan loss reserves for fourteen mortgage loans, of which nine are three or more mortgage payments in arrears and two loans are declared to be in default. At December 31, 2019, we provided approximately $1,429,000 in loan loss reserves for fourteen mortgage loans, of which ten were three or more mortgage payments in arrears of which three were declared to be in default.

Our lending practices limit deployment of our capital to churches and other non-profit religious organizations. The total principal amount of our second mortgage loans is limited to 20% of our average invested assets. We currently have three second mortgage loans totaling approximately $218,000 in

principal amount outstanding. We do not loan to any borrower who has been in operation for less than two years and the borrower must demonstrate they can service the debt outstanding for the prior three years based on historical financial statements. We do not loan money based on projections or pledge programs. The loan amount to any borrower cannot exceed 75% loan to appraised value. Typically, we do not loan over 70% loan to value except in extenuating circumstances. In addition, the borrower's long-term debt (including the proposed loan) cannot exceed four times the borrower's gross income for the previous twelve month period.

Historically, loans in our portfolio are outstanding for an average of seven years. Our borrowers are typically small independent churches with little or no borrowing history. Once a church establishes a payment history with us, they look to refinance their loan with a local bank, credit union or other financial institution which is willing to provide financing since the borrower has established a payment history and have demonstrated they can meet their mortgage debt obligations.

Operating expenses for the nine months ended September 30, 2020 decreased to approximately $525,000 compared to $593,000 for the nine months ended September 30, 2019. The decrease was the result of a decrease in other than temporary impairment on our bond portfolio.

Fiscal 2020 Third Quarter Compared to Fiscal 2019 Third Quarter

The Company had a net income of approximately $90,000 for the three months ended September 30, 2020 compared to a net income of approximately $29,000 for the three months ended September 30, 2019, on total interest and other income of approximately $712,000 and $713,000, respectively. Interest expense was approximately $440,000 and $477,000 for the three months ended September 30, 2020 and 2019, respectively. The increase in net interest income was approximately $36,000 due to a decrease in our interest expense paid on our secured investor certificates.

Operating expenses for the three months ended September 30, 2020 decreased to approximately $181,000 compared to $183,000 for the three months ended September 30, 2019. The decrease in operating expenses was due to a decrease in legal fees and advisory fees.

Mortgage Loans and Bond Portfolio

Two new bridge loans were funded during the nine months ended September 30, 2020 for approximately $737,000. A bridge loan typically has a maturity of one year or less. Both bridge loans have been repaid for the period ended September 30, 2020.

We currently own $529,000 First Mortgage Bonds and $497,000 Second Mortgage Bonds issued by Agape Assembly Baptist Church located in Orlando, Florida. Agape defaulted on its payment obligations to bondholders in September 2010. The aggregate amount of the defaulted bonds equals $7,915,000; 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. The church 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 nine-month period ended September 30, 2020. 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. Ballots must be received no later than November 6, 2020. We have accepted the reorganization plan and have returned our ballot indicating our acceptance of the plan. If the majority of bondholders accept the reorganization plan, bondholders could receive approximately 67% of their original principal investment in Agape Assembly Baptist Church.

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, the Company expected to receive interest and principal payment(s) on time and according to the terms of the bonds. The Company did not receive any interest payments from the issuer during the nine-month period ended of September 30, 2020.

We have an aggregate other than temporary impairment of $771,000 and $658,000 for our bond portfolio at September 30, 2020 and December 31, 2019, respectively, which effectively reduces the bonds to the fair value amount management believes will be recovered.





Real Estate Held for Sale

We record real estate held for sale at the estimated fair value, which is net of the expected expenses related to the sale of the real estate. We realized an additional loss of $0 and $12,734 on our real estate held for sale for the nine-month periods ended September 30, 2020 and 2019, respectively.

Dividends

We have elected to operate as a real estate investment trust (REIT), therefore we are required, among other things, to distribute to shareholders at least 90% of "Taxable Income" in order to maintain our REIT status.

We paid a dividend of $.04 for each share held of record on April 28, 2020. The dividend, which was paid April 30, 2020.

We paid a dividend of $.01 for each share held of record on July 29, 2020. The dividend, which was paid July 31, 2020.

We paid a dividend of $.02 for each share held of record on October 30, 2020. The dividend, which was paid November 2, 2020.

Liquidity and Capital Resources

We generate revenue through implementation of our business plan of making mortgage loans to, and acquiring first mortgage bonds issued by, churches and other non-profit religious organizations. Our revenue is derived principally from interest income, and secondarily through the origination fees and renewal fees generated by the mortgage loans we make. We also earn income through interest on funds that are invested pending their use in funding mortgage loans and on income generated on church bonds. Our principal recurring expenses are advisory fees, legal and accounting fees and interest payments on secured investor certificates. Our liabilities as of September 30, 2020 are primarily comprised of dividends declared as of September 30, 2020 but not yet paid, our line of credit and our secured investor certificates.

Our current funding sources are expected to provide adequate cash for our operations for the next twelve months. Future capital needs are expected to be met by: (i) prepayment and repayment at maturity of mortgage loans we make; (ii) bonds that mature; and (iii) funds available from our line of credit. We believe that the "rolling" effect of mortgage loans maturing and bond repayments will provide a supplemental

source of capital to fund our business operations in future years. Our current certificate offering terminated November 6, 2020 and are evaluating our options with respect to this capital raising option. We continue to review the market for other sources of capital. There can be no assurance we will be able to raise additional capital on terms acceptable for such purposes.

During the nine months ended September 30, 2020, total assets decreased by approximately $1,774,000 due to a decrease in our loan portfolio outstanding. Liabilities decreased by approximately $1,682,000 for the nine months ended September 30, 2020 due to a decrease in our secured investor certificates.

For the nine months ended September 30, 2020, net cash provided by (used for) operating activities increased to $323,722 from $(214,037) from the comparative period ended September 30, 2019, primarily due to an decrease in our accounts payable and an increase in our sale of real estate held for sale.

For the nine months ended September 30, 2020, net cash provided by (used for) investing activities was $1,622,057 compared to $(1,549,664) from the comparative nine months ended September 30, 2019, due to a decrease in investments in our mortgage loans.

For the nine months ended September 30, 2020, net cash (used for) financing activities increased to $(1,868,365) from $(299,147) for the comparative nine months ended September 30, 2019, primarily due to an increase in our line of credit.





Critical Accounting Estimates

Preparation of our financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. We evaluate these estimates based on assumptions we believe to be reasonable under the circumstances.

The difficulty in applying these policies arises from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions. As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. The most sensitive estimates relate to the realizability of the mortgage loans receivable and the valuation of the bond portfolio and real estate held for sale. It is at least reasonably possible that these estimates could change in the near term and that the effect of the change, if any, may be material to the financial statements.

We estimate the value of real estate we hold pending re-sale based on a number of factors. We look at the current condition of the property as well as current market conditions in determining a fair value, which will determine the listing price of each property. Each property is valued based on its current listing price less any anticipated selling costs, including for example, realtor commissions. Since churches are single use facilities the listing price of the property may be lower than the total amount owed to us. 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 do not have any off-balance sheet arrangements.

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