UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 2)
[X] Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2008
or
[ ] Transition Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition Period from ------------to------------
Commission File Number 000-25919
American Church Mortgage Company
(Exact name of registrant as specified in its charter)
Minnesota 41-1793975
(State or other jurisdiction of
incorporation or organization) (I.R.S. EmployerIdentification No.)
10237 Yellow Circle Drive Minnetonka, MN 55343
(Address of principal executive offices) (Zip Code)
(952) 945-9455
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer __ Accelerated filer __
Non-accelerated filer __ Smaller reporting company X
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 27, 2009
- --------------------------------------- -----------------------------------
Common Stock, $0.01 par value per share 2,472,081 shares
Explanatory Note
This Amendment No. 2 on Form 10-Q/A (the "Amendment") to the Quarterly Report on
Form 10-Q of American Church Mortgage Company (the "Company") for the period
ended September 30, 2008, which was originally filed with the Securities and
Exchange Commission on November 14, 2008 (the "Original Filing"), and which was
amended on December 5, 2008 (the "First Amendment"), is being filed to amend the
Original Filing as follows:
As a result of a comment letter from the Securities Exchange Commission dated
February 13, 2009, in part concerning the Company's Form 10-Q for the fiscal
quarter ended September 30, 2008, the authorized officers of the Company are
filing this Amendment to amend Item 1. "Financial Statements", in order change
the presentation of interest expense to be included as a component of net
interest income instead of within other expense. The Company is in agreement
with the Staff comments and is taking action necessary to amend the above
quarterly filing accordingly. This Amendment does not change the Company's
reported assets, liabilities, stockholders' equity or the Company's net income
for the period ended September 30, 2008. In addition, the Company changed the
presentation of the provision for losses on mortgage loans receivable and bonds
to show these accounts as components of net interest income.
In addition, pursuant to the rules of the SEC, this Amendment also includes
certifications executed as of the date of this Form 10-Q/A as required by
Section 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications are
attached to this Amendment as Exhibits 31.1 and 32.1.
Except as stated herein, this Amendment does not reflect events occurring after
the date of the Original Filing and no attempt has been made in this Quarterly
Report on Form 10-Q/A to modify or update other disclosures as presented in the
Original Filing. The remainder of the Form 10-Q is unchanged and is not
reproduced in this filing.
AMERICAN CHURCH MORTGAGE COMPANY
INDEX Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets.................................................................. 2
Condensed Statements of Operations ....................................................... 4
Condensed Statements of Cash Flows.........................................................6
Notes to Condensed Financial Statements ...................................................8
PART II. OTHER INFORMATION
Item 6. Exhibits..................................................................................16
Signatures.........................................................................................17
AMERICAN CHURCH MORTGAGE COMPANY
Minnetonka, Minnesota
Financial Statements
September 30, 2008
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Balance Sheets
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS September 30, 2008 December 31, 2007
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Current Assets
Cash and equivalents $ 516,190 $ 285,118
Accounts receivable 119,189 112,546
Interest receivable 153,595 151,105
Current maturities of mortgage loans receivable, net of
allowance of $71,035 at September 30, 2008 and
$72,056 at December 31, 2007 646,016 907,812
Current maturities of bond portfolio 53,000 41,000
Prepaid expenses 15,358 7,072
-------------- --------------
Total current assets 1,514,348 1,504,653
Mortgage Loans Receivable, net of current maturities 33,124,302 33,061,115
Real Estate Held for Sale 1,165,125 1,566,561
Deferred Secured Investor Certificates Offering Costs,
net of accumulated amortization of $951,159 at
September 30, 2008 and $871,437 at December 31, 2007 637,042 700,479
Deferred Line of Credit Costs, net of accumulated
amortization of $656 at September 30, 2008 and
$36,652 at December 31, 2007 15,094 227,278
Bond Portfolio, net of current maturities and allowance of
$300,000 at September 30, 2008 and $100,000 at
-------------- --------------
December 31, 2007 11,629,585 11,222,713
Total Assets $ 48,074,496 $ 48,282,799
============== ==============
Notes to Unaudited Condensed Financial Statements are an integral part of this
Statement.
2
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Balance Sheets
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, 2008 December 31, 2007
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Current Liabilities
Current maturities of secured investor certificates $ 2,502,000 $ 2,197,000
Line of credit 4,200,000 3,350,000
Accounts payable 21,995 28,941
Accrued expenses 9,333 18,022
Building funds payable 577,595 50,000
Current maturities of deferred income 30,165 30,412
Dividends payable 247,208 124,680
------------- -------------
Total current liabilities 7,588,296 5,799,055
Deferred Income, net of current maturities 577,614 596,164
Secured Investor Certificates, Series A 4,843,000 6,008,000
Secured Investor Certificates, Series B 14,608,000 14,626,000
Stockholders' Equity
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 2,472,081 at September 30,
2008 and 2,493,595 at December 31, 2007 24,721 24,936
Additional paid-in capital 22,814,911 22,927,644
Accumulated deficit (2,382,046) (1,699,000)
------------- --------------
Total stockholders' equity 20,457,586 21,253,580
------------- --------------
Total liabilities and equity $ 48,074,496 $ 48,282,799
============= ==============
Notes to Unaudited Condensed Financial Statements are an integral part of this
Statement.
3
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Statements of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, 2008 September 30, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Revenues
Interest income loans $ 2,156,934 $ 2,306,493
Interest income bonds 553,776 578,891
Capital gains realized 20,890 13,287
Origination income 69,958 135,542
--------- ---------
Total revenues 2,801,558 3,034,213
Interest expense 1,286,118 1,334,115
--------- ---------
Net interest income 1,515,440 1,700,098
Provision for losses on mortgage loans receivable 31,730 33,101
Provision for losses on bonds 200,000 -
--------- ---------
Total provision for losses on mortgage loans and bonds 231,730 33,101
--------- ---------
Net interest income after provision for mortgage and bond losses 1,283,710 1,666,997
Operating expenses
Professional fees 120,899 52,304
Real estate held for sale impairment 305,779 161,805
Costs associated with real estate held for sale 129,918 107,643
Director fees 3,200 3,600
Advisory fees 299,772 312,905
Amortization expense 307,656 150,914
Other 55,757 60,710
--------- ---------
Total operating expenses 1,222,981 849,881
--------- ---------
Net Income $ 60,729 $ 817,116
========= =========
Basic and Diluted Income Per Share $ 0.02 $ 0.33
========= =========
Dividends Declared Per Share $ 0.30 $ 0.21
========= =========
Weighted Average Shares Outstanding - Basic and Diluted 2,483,231 2,493,595
========= =========
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
4
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Statements of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30, 2008 September 30, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Revenues
Interest income loans $ 717,174 $ 717,101
Interest income bonds 171,598 175,241
Capital gains realized 18,841 8,272
Origination income 48,930 67,222
-------- --------
Total revenues 956,543 967,836
Interest expense 437,592 430,345
-------- --------
Net interest income 518,951 537,491
Provision for losses on mortgage loans receivable 18,785 1,236
Provision for losses on bonds 200,000 -
-------- --------
Total provision for losses on mortgage loans and bonds 218,785 1,236
-------- --------
Net interest income after provision for mortgage and bond losses 300,166 536,255
Operating expenses
Professional fees 36,460 11,250
Real estate held for sale impairment 212,779 -
Costs associated with real estate held for sale 25,676 29,949
Director fees 1,000 1,200
Advisory fees 101,813 100,231
Amortization expense 205,164 65,293
Other 18,109 11,717
-------- --------
Total operating expenses 601,001 219,640
-------- --------
Net Income $ (300,835) $ 316,615
======== ========
Basic and Diluted Income Per Share $ (0.12) $ 0.13
======== ========
Dividends Declared Per Share $ 0.10 $ 0.03
======== ========
Weighted Average Shares Outstanding - Basic and Diluted 2,472,081 2,493,595
========= =========
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
5
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Statements of Cash Flows
- ----------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended
September 30, 2008 September 30, 2007
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities
Net income $ 60,729 $ 817,116
Adjustments to reconcile net income to net cash
from operating activities:
Impairment loss on real estate held for sale 305,779 161,805
Provision for losses on mortgage loans receivable 31,730 33,101
Provision for losses on bond portfolio 200,000 -
Amortization expense 307,656 150,180
Change in assets and liabilities
Accounts receivable (32,435) (41,147)
Interest receivable (2,490) 24,366
Prepaid expenses (8,286) (3,261)
Accounts payable (6,946) 25,185
Accrued expenses (8,689) -
Deferred income (18,797) (81,783)
----------- -------
Net cash from operating activities 828,251 1,085,562
Cash Flows from Investing Activities
Investment in mortgage loans (1,309,214) (4,284,088)
Collections of mortgage loans 1,944,605 9,204,813
Investments in bonds portfolio (1,069,655) (2,203,460)
Proceeds from bond portfolio 450,783 149,192
----------- ---------
Net cash provided by investing activities 16,519 2,866,457
Cash Flows from Financing Activities
Proceeds from sale of property 180,532 130,343
Proceeds from (payments on) line of credit, net 850,000 (1,488,815)
Payments on secured investor certificate maturities (878,000) (1,595,000)
Payments for deferred costs (32,035) (103,668)
Stock redemptions (112,948) -
Dividends paid (621,247) (864,969)
----------- ----------
Net cash used for financing activities (613,698) (3,922,109)
----------- ---------
Net Increase in Cash and Equivalents 231,072 29,910
Cash and Equivalents - Beginning of Year 285,118 232,258
----------- ----------
Cash and Equivalents - End of Year $ 516,190 $ 262,168
=========== =========
Notes to Unaudited Condensed Financial Statements are an integral part of this
Statement.
6
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Statements of Cash Flows - Continued
- ----------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended
September 30, 2008 September 30, 2007
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Supplemental Schedule of Noncash Financing and
Investing Activities
Dividends payable $ 247,208 $ 62,341
=========== ============
Mortgages and accounts receivable
transferred to real estate held for sale $ 735,990 $ 1,189,676
=========== ============
Real estate held for sale transferred to mortgage
receivable $ 645,000 $ -
=========== ============
Line of credit refinanced $ 4,200,000 $ -
=========== ============
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 1,294,807 $ 1,334,115
=========== ===========
7
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Condensed Financial Statements - Unaudited
September 30, 2008
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions for interim statements and, therefore, do not
include all information and disclosures necessary for fair presentation of
results of operations, financial position, and changes in cash flow in
conformity with generally accepted accounting principles. However, in the
opinion of management, such statements reflect all adjustments (which include
only normal recurring adjustments) necessary for fair presentation of financial
position, results of operations, and cash flows for the period presented.
The unaudited condensed financial statements of the Company should be read in
conjunction with its December 31, 2007 audited financial statements included in
the Company's Annual Report on Form 10-KSB, as filed with the Securities and
Exchange Commission for the year ended December 31, 2007. Operating results for
the periods presented are not necessarily indicative of the results that may be
expected for the year ended December 31, 2008.
Nature of Business
American Church Mortgage Company, a Minnesota corporation, was incorporated on
May 27, 1994. The Company engages primarily in the business of making mortgage
loans to churches and other nonprofit religious organizations throughout the
United States, on terms established for individual organizations.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial
statements in accordance with 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, the
valuation of real estate held for sale, and valuation of the bond portfolio. 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.
Cash and Equivalents
The Company considers all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents.
The Company maintains accounts primarily at two financial institutions. At times
throughout the year, the Company's cash and equivalents balances may exceed
amounts insured by the Federal Deposit Insurance Corporation. Cash in money
market funds is not Federally insured. At September 30, 2008 and December 31,
2007, such investments were $5,000. The Company has not experienced any losses
in such accounts.
8
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Condensed Financial Statements - Unaudited
September 30, 2008
Bond Portfolio
The Company accounts for the bond portfolio under Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The
Company classifies its bond portfolio as "available-for sale."
Available-for-sale bonds are carried at fair value. Although no ready public
market for these bonds exists, management believes the cost approximates fair
value, since the bonds are callable at any time by the issuer at par.
Allowance for Mortgage Loans Receivable
The Company records mortgage loans receivable at their estimated net realizable
value, which is the unpaid principal balance less the allowance for mortgage
loans. The Company's 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. The Company reserves for the outstanding principal amount of a loan
in the Company's portfolio if the amount is in doubt of collection.
Additionally, no interest income is recognized on non-performing loans that are
in the foreclosure process. At December 31, 2007, the Company reserved
approximately $72,000 for fourteen mortgage loans, of which four churchs were
three or more mortgage payments in arrears. Three of the loans were in the
foreclosure process, of which one church had declared bankruptcy. At September
30, 2008, the Company reserved approximately $71,000 for eleven mortgage loans,
of which five churches are three or more mortgage payments in arrears and one
church is in the foreclosure process.
The total value of non-performing loans, which are loans that are in the
foreclosure process or are no longer performing, was approximately $238,000 and
$1,156,000 at September 30, 2008 and December 31, 2007, respectively, which the
Company believes is adequately secured by the underlying collateral.
Real Estate Held for Sale
Foreclosure was completed on a church located in Battle Creek, Michigan. The
church congregation disbanded and the church property is currently unoccupied.
The Company owns and has taken possession of the church and has listed the
property for sale through a local realtor.
Foreclosure was completed on a church located in Tyler, Texas. The church
congregation is now meeting in a different location and the church property is
currently unoccupied. The Company owns and has taken possession of the church
and has listed the property for sale through a local realtor.
A deed in lieu of foreclosure was received from a church located in Cleveland,
Ohio. The Company took possession of the church and listed the property for sale
through a local realtor. The sale of the property was completed on January 18,
2008. The property sold for approximately $215,000 and the Company received
proceeds of approximately $181,000 from the sale of the property after closing
costs and realtor fees. The Company realized a tax deductible loss on the
property totaling approximately $221,000.
9
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Condensed Financial Statements - Unaudited
September 30, 2008
Foreclosure was completed on a church located in Dayton, Ohio. The church
congregation is now meeting in a different location and the church property is
currently unoccupied. The Company took possession of the church and listed the
property for sale through a local realtor.
Foreclosure was completed on a church located in Dallas, Texas. The Company took
possession of the property and received an earnest money deposit from a buyer
who needed to obtain a certificate of occupancy. The certificate of occupancy
was obtained, and the sale of the property was completed on September 30, 2008.
The property sold for approximately $645,000. The Company recognized a
tax-deductible loss on the property totaling approximately $180,000.
Foreclosure was completed on a church located in Anderson, Indiana. The Company
took possession of the property in May 2008, and is currently preparing the
property to be listed for sale.
Foreclosure was completed on a church located in Lancaster, Texas. The Company
took possession of the property in July 2008 and has listed the property for
sale. In order to obtain a certificate of occupancy, a new parking lot must be
completed, as the previous owner began to replace the parking lot without city
approval. The Company will most likely need to reduce the price of the property
by the cost of the new parking lot.
The Company recorded the real estate held for sale at fair value, which is net
of the expected expenses related to the sale of the real estate.
Carrying Value of Long-lived Assets
The Company tests long-lived assets or asset groups for recoverability when
events or changes in circumstances indicate that the carrying amount may not be
recoverable. Circumstances which could trigger a review include, but are not
limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs
significantly in excess of the amount originally expected for the acquisition or
construction of the asset; current period cash flow or operating losses combined
with a history of losses or a forecast of continuing losses associated with the
use of the asset; and current expectation that the asset will more likely than
not be sold or disposed of significantly before the end of the estimated useful
life.
Recoverability is assessed based on the carrying amount of the asset and fair
value, which is generally determined based on the sum of the undiscounted cash
flows expected to result from the use and the eventual disposal of the asset, as
well as specific appraisal in certain instances. An impairment loss is
recognized when the carrying amount is not recoverable and exceeds fair value.
Revenue Recognition
Interest income on mortgage loans and the bond portfolio is recognized as
earned. Deferred income represents cash received for loan origination fees,
which are recognized as revenue over the life of the loan as an adjustment to
the yield on the loan.
10
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Condensed Financial Statements - Unaudited
September 30, 2008
2. FAIR VALUE MEASUREMENT
Effective January 1, 2008, the Company adopted Statement of Financial Accounting
Standard No. 157, "Fair Value Measurements" (SFAS 157), as it applies to our
financial instruments, and Statement of Financial Accounting Standard No. 159,
"The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No. 115" (SFAS 159). SFAS 157 defines
fair value, outlines a framework for measuring fair value, and details the
required disclosures about fair value measurements. SFAS 159 permits companies
to irrevocably choose to measure certain financial instruments and other items
at fair value. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparison between entities that choose
different measurement attributes for similar types of assets and liabilities.
Under SFAS 157, fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal or most
advantageous market. SFAS 157 establishes a hierarchy in determining the fair
value of an asset or liability. The fair value hierarchy has three levels of
inputs, both observable and unobservable. SFAS 157 requires the utilization of
the lowest possible level of input to determine fair value. Level 1 inputs
include quoted market prices in an active market for identical assets or
liabilities. Level 2 inputs are market data, other than Level 1, that are
observable either directly or indirectly. Level 2 inputs include quoted market
prices for similar assets or liabilities, quoted market prices in an inactive
market, and other observable information that can be corroborated by market
data. Level 3 inputs are unobservable and corroborated by little or no market
data.
Except for the bond portfolio, which is required by authoritative accounting
guidance to be recorded at fair value in our Balance Sheets, the Company elected
not to record any other financial assets or liabilities at fair value, as
permitted by SFAS 159. No events occurred during the nine months ended September
30, 2008 which would require adjustment to the recognized balances of assets or
liabilities which are recorded at fair value on a nonrecurring basis.
The following table summarizes the Company's financial instruments that were
measured at fair value on a recurring basis at September 30, 2008.
Fair Value
Measurement
Fair Value Level 3
Bond portfolio $11,682,585 $11,682,585
=========== ==========
We determine the fair value of the bond portfolio shown in the table above by
using widely accepted valuation techniques including discounted cash flow
analysis on the expected cash flows of the bonds. The analysis reflects the
contractual terms of the bonds, which are callable by the issuer at any time,
including the period to maturity and the anticipated cash flows of the bonds and
uses observable market-based inputs.
11
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Condensed Financial Statements - Unaudited
September 30, 2008
The change in level 3 assets measured at fair value on a recurring basis is
summarized as follows at September 30, 2008:
Bond Portfolio
--------------------
Beginning balance January 1, 2008 $11,263,713
Purchases 1,069,655
Proceeds (450,783)
Reserves (200,000)
Unrealized gains 245,000
Callability provision (245,000)
-----------
Ending balance September 30, 2008 $11,682,585
===========
3. MORTGAGE LOANS AND BOND PORTFOLIO
At September 30, 2008, the Company had first mortgage loans receivable totaling
$33,841,353. The loans bear interest ranging from 5.00% to 12.00% at September
30, 2008.
The Company also had a portfolio of secured church bonds at September 30, 2008.
The bonds pay either semi-annual or quarterly interest ranging from 4.50% to
12.00%. The aggregate principal amount of secured church bonds equaled
$12,018,000 at September 30, 2008. This amount is due at various maturity dates
between December 15, 2008 and February 15, 2039.
The contractual maturity schedule for mortgage loans and the bond portfolio as
of September 30, 2008, is as follows:
Mortgage Loans Bond Portfolio
October 1, 2008 through September 30, 2009 $ 717,051 $ 53,000
October 1, 2009 through December 31, 2009 188,297 27,000
2010 1,216,512 175,000
2011 851,394 525,000
2012 938,452 351,000
Thereafter 29,929,647 10,887,000
---------- ----------
33,841,353 12,018,000
Less loan loss and bond reserves (71,035) (300,000)
Less discount from par - (35,415)
------------ -----------
Totals $33,770,318 $11,682,585
========== ==========
12
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Condensed Financial Statements - Unaudited
September 30, 2008
The Company currently owns $2,035,000 First Mortgage Bonds issued by St. Agnes
Missionary Baptist Church located in Houston, Texas. St. Agnes defaulted on its
payment obligations to bondholders. The church subsequently commenced a Chapter
11 bankruptcy reorganization proceeding regarding the three properties that
secure the church bonds in November 2007, which was dismissed in September 2008,
and the church was subsequently foreclosed upon. The Company, along with all
other bondholders, has a superior lien over all other creditors. No accrual for
interest receivable from the bonds is recorded by the Company. The Company
reserved $300,000 for the bonds at September 30, 2008 and $100,000 at December
31, 2007.
4. SECURED INVESTOR CERTIFICATES
Secured investor certificates are collateralized by certain mortgage loans
receivable or secured church bonds of approximately the same value as the
certificates. The weighted average interest rate on the certificates was 6.79%
at September 30, 2008. The maturity schedule for the secured investor
certificates at September 30, 2008 is as follows:
Secured
Investor
Certificates
-----------------
October 1, 2008 through September 30, 2009 $ 2,502,000
October 1, 2009 through December 31, 2009 2,058,000
2010 1,151,000
2011 850,000
2012 1,167,000
Thereafter 14,225,000
----------
Totals $21,953,000
==========
Interest expense related to these certificates was approximately $1,142,000 and
$1,266,000 for the nine months ended September 30, 2008 and 2007, respectively.
In October 2008, the Company filed a registration statement with the Securities
and Exchange Commission to offer Series "C" secured investors certificates of
$20,000,000. Upon being declared effective by the SEC, the certificates will be
offered in multiples of $1,000 with interest rates ranging from 6.25% to 7.25%,
subject to changing market rates, and maturities from 13 to 20 years. The
certificates will be collateralized by certain mortgage loans receivable and
church bonds of approximately the same value.
13
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Condensed Financial Statements - Unaudited
September 30, 2008
5. TRANSACTIONS WITH AFFILIATES
The Company has an Advisory Agreement with Church Loan Advisors, Inc.,
Minnetonka, Minnesota ("Advisor"). The Advisor is responsible for the day-to-day
operations of the Company and provides office space, administrative services and
personnel. The Advisor and the Company are related through common ownership and
common management. The Company paid the Advisor management and origination fees
of approximately $342,000 and $331,000 for the nine months ended September 30,
2008 and 2007, respectively. The Company repurchased approximately 22,000 common
stock shares from American Investors Group, Inc. for approximately $5.25 per
share in the nine months ended September 30, 2008. American Investors Group,
Inc. is related to the Company through common management.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments, none of which
are held for trading purposes, are as follows at September 30, 2008 and December
31, 2007:
September 30, 2008 December 31, 2007
--------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ----------- ---------- ------------
Cash and equivalents $ 516,190 $ 516,190 $ 285,118 $ 285,118
Accounts receivable 119,189 119,189 112,546 112,546
Interest receivable 153,595 153,595 151,105 151,105
Mortgage loans receivable 33,770,318 32,819,125 33,968,927 33,968,927
Bond portfolio 11,682,585 11,682,585 11,263,713 11,263,713
Secured investor certificates 21,953,000 21,953,000 22,831,000 22,831,000
At September 30, 2008, the fair value of the mortgage loan portfolio is less
than the carrying value as the portfolio is currently yielding a lower rate than
similar mortgages with similar terms for borrowers with similar credit quality.
The changes in the credit markets in which we transact has experienced an
increase in interest rates resulting in the fair value of the mortgage loans
falling during the nine months ended September 30, 2008. The carrying value of
the bond portfolio approximates amortized cost since our bonds are callable at
any time by the issuer at par and the bond portfolio yield is currently lower
than the interest rates on similar instruments. The carrying value of the
secured investor certificates approximates fair value because the interest rates
at which the certificates have been sold have not changed significantly.
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AMERICAN CHURCH MORTGAGE COMPANY
Notes to Condensed Financial Statements - Unaudited
September 30, 2008
7. LINE OF CREDIT
The Company obtained an $8,000,000 line of credit with Beacon Bank replacing the
$15 million revolving credit facility with KeyBank National Association.
Advances on the new line of credit are available up to $4,500,000, subject to
borrowing base limitations, until Beacon Bank participates out the remaining
portion of the line of credit up to $8,000,000. Interest on the new line of
credit is charged monthly at the prime rate with minimum interest of 5.00%. When
the prime rate is greater than 6.00%, the interest rate will be the prime rate
less .50%, subject to a minimum interest rate of 6.00%. The line of credit is
secured by a first priority security interest in substantially all of the
Company's assets other than collateral pledged to secure the Company's Series
"A" and Series "B" secured investor certificates. At September 30, 2008, the
interest rate on the facility is 5.00% and we had an outstanding balance of
$4,200,000.
8. AMENDMENT TO FINANCIAL STATEMENT
The Company has changed the presentation of interest expense and the provision
for losses on mortgage loans receivable and bonds on the Statement of Operations
to include these accounts as component of net interest income.
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PART II. OTHER INFORMATION
Item 6. Exhibits
Exhibit
Number Title of Document
31.1 Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes Oxley Act of 2002
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 5, 2009
AMERICAN CHURCH MORTGAGE COMPANY
By: /s/ Philip J. Myers
----------------------------------------
Philip J. Myers
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial
and Accounting Officer)
17