Filed Pursuant to
Rule 424(b)(3)
Registration No. 333-154831
AMERICAN CHURCH MORTGAGE COMPANY
SUPPLEMENT NO. 4 DATED NOVEMBER 14, 2011
TO THE PROSPECTUS DATED
JUNE
28, 2011
This
document supplements, and should be read in conjunction with, our prospectus dated June 28, 2011, as supplemented by
Supplement
No. 1 dated July 20, 2011, Supplement No. 2 dated August 12, 2011 and Supplement No. 3 dated October 20, 2011,
relating to our offering of $20,000,000 worth of Series C Secured Investor Certificates. Unless otherwise defined in this Supplement
No. 4, capitalized terms used have the same meanings as set forth in the prospectus. The purpose of this Supplement No. 4
is to disclose
our Quarterly Report on Form 10-Q for the quarter ended September
30, 2011, as filed with the Securities and Exchange Commission on November 14, 2011, which is attached to this supplement as
Annex
A
.
Annex A
Quarterly Report
on Form 10-Q
for the Quarterly Period Ended September
30, 2011
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30,
2011
or
o
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. Employer Identification No.)
|
|
|
1
0237 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
o
Indicate by
check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such
shorter period that the registrant was required to submit and post such files). Yes
x
No
o
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
o
|
Accelerated filer
o
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
x
|
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
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 November 14, 2011
|
Common Stock, $0.01 par value per share
|
|
1,802,252 shares
|
AMERICAN CHURCH MORTGAGE COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INDEX
|
|
|
|
Page
No
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART I. FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
Item 1. Financial Statements:
|
|
|
|
|
|
|
|
|
|
Balance Sheets
|
|
|
2 - 3
|
|
|
|
|
|
|
Statements of Operations
|
|
|
4 - 5
|
|
|
|
|
|
|
Statements of Cash Flows
|
|
|
6 - 7
|
|
|
|
|
|
|
Notes to Financial Statements
|
|
|
8 - 18
|
|
|
|
|
|
|
Item 2. Management’s Discussion and Analysis of Financial
|
|
|
|
|
Condition and Results of Operations
|
|
|
19 – 25
|
|
|
|
|
|
|
Items 4. Controls and Procedures
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
PART II. OTHER INFORMATION
|
|
|
|
|
|
Item 1. Legal Proceedings
|
|
|
26
|
|
|
|
|
|
|
Item 1A. Risk Factors
|
|
|
26
|
|
|
|
|
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
|
26
|
|
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
|
|
|
27
|
|
|
|
|
|
|
Item 4. (Removed and Reserved)
|
|
|
27
|
|
|
|
|
|
|
Item 5. Other Information
|
|
|
27
|
|
|
|
|
|
|
Item 6. Exhibits
|
|
|
27
|
|
|
|
|
|
|
Signatures
|
|
|
29
|
|
|
|
|
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Minnetonka, Minnesota
Financial Statements
September 30, 2011
AMERICAN CHURCH MORTGAGE COMPANY
|
|
|
|
|
|
Balance Sheets
|
|
|
|
ASSETS
|
|
|
September 30, 2011
|
|
|
|
December 31, 2010
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
974,799
|
|
|
$
|
350,339
|
|
Accounts receivable
|
|
|
138,639
|
|
|
|
112,209
|
|
Interest receivable
|
|
|
135,163
|
|
|
|
139,441
|
|
Current maturities of mortgage loans receivable, net of
|
|
|
|
|
|
|
|
|
allowance of $16,711 and $28,574 and deferred
|
|
|
|
|
|
|
|
|
origination fees of $30,010 and $39,965 at September 30,
|
|
|
|
|
|
|
|
|
2011 and December 31, 2010, respectively
|
|
|
564,825
|
|
|
|
1,193,149
|
|
Current maturities of bond portfolio, at fair value
|
|
|
872,000
|
|
|
|
627,000
|
|
Prepaid expenses
|
|
|
11,727
|
|
|
|
7,407
|
|
Total current assets
|
|
|
2,697,153
|
|
|
|
2,429,545
|
|
|
|
|
|
|
|
|
|
|
Mortgage Loans Receivable, net of current maturities,
|
|
|
|
|
|
|
|
|
allowance of $814,621 and $683,255 and deferred
|
|
|
|
|
|
|
|
|
origination fees of $527,403 and $532,873 at September
|
|
|
|
|
|
|
|
|
30, 2011 and December 31, 2010, respectively
|
|
|
28,470,124
|
|
|
|
28,952,689
|
|
|
|
|
|
|
|
|
|
|
Bond Portfolio, at fair value, net of current maturities
|
|
|
9,282,352
|
|
|
|
9,650,849
|
|
|
|
|
|
|
|
|
|
|
Real Estate Held for Sale
|
|
|
790,082
|
|
|
|
727,532
|
|
|
|
|
|
|
|
|
|
|
Deferred Offering Costs,
|
|
|
|
|
|
|
|
|
net of accumulated amortization of $793,714 and $705,923
|
|
|
|
|
|
|
|
|
at September 30, 2011 and December 31, 2010, respectively
|
|
|
845,444
|
|
|
|
845,694
|
|
Total Assets
|
|
$
|
42,085,155
|
|
|
$
|
42,606,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Financial Statements are an integral part of this Statement
|
AMERICAN CHURCH MORTGAGE COMPANY
|
|
|
|
|
|
Balance Sheets
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
September 30, 2011
|
|
|
|
December 31, 2010
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Current maturities of secured investor certificates
|
|
$
|
573,000
|
|
|
$
|
902,000
|
|
Line of credit
|
|
|
800,000
|
|
|
|
1,416,000
|
|
Accounts payable
|
|
|
260,039
|
|
|
|
37,364
|
|
Management fee payable
|
|
|
—
|
|
|
|
22,357
|
|
Dividends payable
|
|
|
163,823
|
|
|
|
194,311
|
|
Total current liabilities
|
|
|
1,796,862
|
|
|
|
2,572,032
|
|
|
|
|
|
|
|
|
|
|
Deposit on real estate held for sale
|
|
|
52,300
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
Secured Investor Certificates, Series B, net of current maturities
|
|
|
18,434,000
|
|
|
|
18,307,000
|
|
Secured Investor Certificates, Series C
|
|
|
6,072,000
|
|
|
|
5,134,000
|
|
Total liabilities
|
|
|
26,355,162
|
|
|
|
26,058,032
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share
|
|
|
|
|
|
|
|
|
Authorized, 30,000,000 shares
|
|
|
|
|
|
|
|
|
Issued and outstanding, 1,833,309 shares at
|
|
|
|
|
|
|
|
|
September 30, 2011 and 1,943,107 at December 31, 2010
|
|
|
18,333
|
|
|
|
19,431
|
|
Additional paid-in capital
|
|
|
19,733,947
|
|
|
|
20,175,331
|
|
Accumulated deficit
|
|
|
(4,022,287
|
)
|
|
|
(3,646,485
|
)
|
Total stockholders’ equity
|
|
|
15,729,993
|
|
|
|
16,548,277
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
42,085,155
|
|
|
$
|
42,606,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Financial Statements are an integral part of this Statement
|
|
|
|
|
|
|
|
|
|
AMERICAN CHURCH MORTGAGE COMPANY
|
|
|
|
|
|
Statements of Operations
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
September 30, 2011
|
|
September 30, 2010
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Interest and Other Income
|
|
$
|
2,423,237
|
|
|
$
|
2,588,494
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
1,289,490
|
|
|
|
1,301,036
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
1,133,747
|
|
|
|
1,287,458
|
|
|
|
|
|
|
|
|
|
|
Provision for losses on mortgage loans receivable
|
|
|
142,899
|
|
|
|
187,118
|
|
Provision for losses on bonds
|
|
|
100,000
|
|
|
|
—
|
|
Provision for Losses on Mortgage Loans Receivable and Bonds
|
|
|
242,899
|
|
|
|
187,118
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income after Provision for Mortgage and Bond Losses
|
|
|
890,848
|
|
|
|
1,100,340
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Other operating expenses
|
|
|
630,029
|
|
|
|
585,936
|
|
Real estate impairment
|
|
|
57,820
|
|
|
|
139,000
|
|
Total Operating Expenses
|
|
|
687,849
|
|
|
|
724,936
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
202,999
|
|
|
|
375,404
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
11,896
|
|
|
|
8,205
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
214,895
|
|
|
$
|
383,609
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Income Per Share
|
|
$
|
0.11
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared Per Share
|
|
$
|
0.29
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding -
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
1,930,523
|
|
|
|
2,276,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Financial Statements are an integral part of this Statement
|
AMERICAN CHURCH MORTGAGE COMPANY
|
|
|
|
|
|
Statements of Operations
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
September 30, 2011
|
|
September 30, 2010
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Interest and Other Income
|
|
$
|
803,856
|
|
|
$
|
897,691
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
434,131
|
|
|
|
443,690
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
369,725
|
|
|
|
454,001
|
|
|
|
|
|
|
|
|
|
|
Provision for losses on mortgage loans receivable
|
|
|
55,955
|
|
|
|
44,947
|
|
Provision for losses on bonds
|
|
|
—
|
|
|
|
—
|
|
Provision for Losses on Mortgage Loans Receivable and Bonds
|
|
|
55,955
|
|
|
|
44,947
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income after Allowance for Mortgage and Bond Losses
|
|
|
313,770
|
|
|
|
409,054
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Other operating expenses
|
|
|
193,036
|
|
|
|
176,120
|
|
Real estate impairment
|
|
|
57,820
|
|
|
|
47,000
|
|
Total Operating Expenses
|
|
|
250,856
|
|
|
|
223,120
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
62,914
|
|
|
|
185,934
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
10,855
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
73,769
|
|
|
$
|
186,276
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Income Per Share
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared Per Share
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding -
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
1,908,999
|
|
|
|
2,061,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Financial Statements are an integral part of this Statement
|
|
|
|
|
|
|
|
|
|
AMERICAN CHURCH MORTGAGE COMPANY
|
|
|
|
|
|
Statements of Cash Flows
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
September 30, 2011
|
|
September 30, 2010
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
214,895
|
|
|
$
|
383,609
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
from operating activities:
|
|
|
|
|
|
|
|
|
Impairment on real estate held for sale
|
|
|
57,820
|
|
|
|
139,000
|
|
Provision for losses on mortgage loans receivable
|
|
|
142,899
|
|
|
|
187,118
|
|
Provision for losses on bonds
|
|
|
100,000
|
|
|
|
—
|
|
Amortization of loan origination discounts
|
|
|
(15,425
|
)
|
|
|
(24,141
|
)
|
Amortization of deferred costs
|
|
|
87,791
|
|
|
|
91,239
|
|
Change in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(26,430
|
)
|
|
|
30,159
|
|
Interest receivable
|
|
|
4,278
|
|
|
|
(3,852
|
)
|
Prepaid expenses
|
|
|
(4,320
|
)
|
|
|
(5,562
|
)
|
Accounts payable
|
|
|
222,675
|
|
|
|
(30,037
|
)
|
Management fee payable
|
|
|
(22,357
|
)
|
|
|
—
|
|
Net cash provided by operating activities
|
|
|
761,826
|
|
|
|
767,533
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Investment in mortgage loans
|
|
|
(40,922
|
)
|
|
|
—
|
|
Proceeds from origination fees
|
|
|
14,700
|
|
|
|
28,789
|
|
Collections of mortgage loans
|
|
|
896,567
|
|
|
|
275,215
|
|
Investment in bonds
|
|
|
(31,046
|
)
|
|
|
—
|
|
Proceeds from bonds
|
|
|
54,543
|
|
|
|
1,428,795
|
|
Net cash provided by investing activities
|
|
|
893,842
|
|
|
|
1,732,799
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Payments on line of credit, net
|
|
|
(616,000
|
)
|
|
|
(2,250,000
|
)
|
Proceeds from secured investor certificates
|
|
|
925,000
|
|
|
|
1,299,000
|
|
Payments on secured investor certificate maturities
|
|
|
(189,000
|
)
|
|
|
(440,000
|
)
|
Payments for deferred costs
|
|
|
(87,541
|
)
|
|
|
(127,979
|
)
|
Stock exchanges and redemptions
|
|
|
(442,482
|
)
|
|
|
(71,175
|
)
|
Dividends paid
|
|
|
(621,185
|
)
|
|
|
(705,727
|
)
|
Net cash used for financing activities
|
|
|
(1,031,208
|
)
|
|
|
(2,295,881
|
)
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Equivalents
|
|
|
624,460
|
|
|
|
204,451
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents - Beginning
|
|
|
350,339
|
|
|
|
67,137
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents - Ending
|
|
$
|
974,799
|
|
|
$
|
271,588
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Financial Statements are an integral part of this Statement
|
|
|
|
|
|
|
|
|
|
AMERICAN CHURCH MORTGAGE COMPANY
|
|
|
|
|
|
Statements of Cash Flows - Continued
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
September 30, 2011
|
|
September 30, 2010
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends payable
|
|
$
|
163,823
|
|
|
$
|
200,025
|
|
|
|
|
|
|
|
|
|
|
Mortgages receivable reclassified to
|
|
|
|
|
|
|
|
|
real estate held for sale
|
|
$
|
144,666
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,289,490
|
|
|
$
|
1,209,797
|
|
|
|
|
|
|
|
|
|
|
Secured investor certificates issued
|
|
|
|
|
|
|
|
|
through the stock exchange program
|
|
$
|
18,000
|
|
|
$
|
2,288,000
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Financial Statements are an integral part of this Statement
|
|
|
|
|
|
|
|
|
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited 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 financial statements of the Company
should be read in conjunction with the December 31, 2010 audited financial statements included in the Company’s Annual Report
on Form 10-K, as filed with the Securities and Exchange Commission for the year ended December 31, 2010. Operating results for
the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
Nature of Business
American Church Mortgage Company, a Minnesota
corporation, was incorporated on May 27, 1994. The Company was organized to engage 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 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.
Concentration of Credit Risk
The Company's loans have been granted to churches
and other non-profit religious organizations. The ability of the Company’s debtors to honor their contracts is dependent
upon a number of factors, including member contributions and the involvement in the church or organization of its senior pastor.
Cash and Equivalents
The Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be cash equivalents.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
The Company maintains accounts primarily
at two financial institutions. At times throughout the year, the Company’s cash and equivalents balances may exceed amounts
insured by the Federal Deposit Insurance Corporation. Cash in money market funds is not federally insured. The Company had approximately
$5,000 in money market fund accounts at both September 30, 2011 and December 31, 2010. The Company has not experienced any losses
in such accounts.
Bond Portfolio
The Company classifies the bond portfolio as
“available-for-sale” and measures the portfolio at fair value. While the bonds are generally held until contractual
maturity, the Company classifies them as available-for-sale as the proceeds from the sale of bonds may be used to repay secured
investor certificates or provide additional liquidity or working capital in the short term. The Company has classified $872,000
and $627,000 in bonds as current assets as of September 30, 2011 and December 31, 2010, respectively, based on management’s
estimates for liquidity requirements and contractual maturities of certain bonds maturing in 2012 and 2011, respectively.
Allowance for Mortgage Loan Losses
The Company records mortgage loans receivable
at estimated net realizable value, which is the unpaid principal balances of the mortgage loans receivable and accounts receivable,
less the allowance for mortgage loan losses. 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; therefore, the Company recognizes
a provision for losses and an allowance for the outstanding principal amount of a loan in the Company’s portfolio if the
amount is in doubt of collection. Additionally, no additional interest income is recognized on impaired loans, which are loans
that are declared to be in default or are in the foreclosure process. At September 30, 2011, the Company reserved $831,332 for
sixteen mortgage loans, of which eight are three or more mortgage payments in arrears. One of the loans is in the foreclosure process.
At December 31, 2010, the Company reserved $711,829 for sixteen mortgage loans, of which ten were three or more mortgage payments
in arrears. Three of the loans were in the foreclosure process.
A summary of transactions in the allowance
for mortgage loan losses for the nine months ended September 30, 2011 is as follows:
Balance at December 31, 2010
|
|
$
|
711,829
|
|
Provision for additional losses
|
|
|
142,899
|
|
Reclassification to real estate held for sale
|
|
|
(23,396
|
)
|
Charge-offs
|
|
|
—
|
|
Balance at September 30, 2011
|
|
$
|
831,332
|
|
The total impaired loans were approximately
$1,574,675 and $2,248,000 at September 30, 2011 and December 31, 2010, respectively, which the Company believes are adequately
secured by the underlying collateral and the allowance for mortgage losses.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
Loans totaling approximately $3,619,000 and
$2,989,000 exceeded 90 days past due but continued to accrue interest as of September 30, 2011 and December 31, 2010, respectively.
The Company believes that continued interest accruals are appropriate because the loans are well secured, not deemed to be in default
and the Company is actively pursuing collection of past due payments.
Real Estate Held for Sale
The Company records real estate held for sale
at the estimated fair value, which is net of the expected expenses related to the sale of the real estate.
Carrying Value of Long-Lived Assets
The Company tests long-lived assets or asset
groups for recoverability when events or changes in circumstances indicate that the carrying amount may not be recoverable. Circumstances
which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history
of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed of significantly before the end of the estimated useful life.
Recoverability is assessed based on the carrying
amount of the asset compared to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal
of the asset, as well as specific appraisal in certain instances. A provision for losses is recognized when the carrying amount
is deemed not recoverable and exceeds fair value as determined through various valuation techniques including, but not limited
to, discounted cash flow models, quoted market values, and third party independent appraisals.
Revenue Recognition
Interest income on mortgage loans receivable
and the bond portfolio is recognized as earned. Other income included with interest represents cash received for loan origination
fees, which are recognized over the life of the loan as an adjustment to the yield on the loan.
Deferred Financing Costs
The Company defers the costs related to obtaining
financing. These costs are amortized over the life of the financing using the straight line method, which approximates the effective
interest method.
Income Per Common Share
No adjustments were made to income for the
purpose of calculating earnings per share, as there were no potentially dilutive shares outstanding.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
2. FAIR VALUE MEASUREMENTS
The Company measures certain financial instruments
at fair value in our balance sheets. The fair value of these instruments is based on valuations that include inputs that can be
classified within one of the three levels of a hierarchy. Level 1 inputs include quoted market prices in an active market for identical
assets or liabilities. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level
2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other
observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no
market data.
Except for the bond portfolio, which is required
by authoritative accounting guidance to be recorded at fair value in our Financial Statements, the Company elected not to record
any other financial assets or liabilities at fair value on a recurring basis. We recorded additional provisions for losses on our
St. Agnes and Agape bonds (Note 3), which totaled $100,000 and $200,000 for the periods ended September 30, 2011 and December 31,
2010, respectively. Total allowance for losses on our bond portfolio equaled $800,000 and $700,000 at September 30, 2011 and December
31, 2010, respectively.
The following table summarizes the Company’s financial
instruments that were measured at fair value on a recurring basis:
|
|
|
|
|
|
|
Fair Value Measurement
|
|
September 30, 2011
|
|
|
Fair Value
|
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
Bond portfolio
|
|
$
|
10,154,352
|
|
|
$
|
10,154,352
|
|
|
|
|
|
|
|
|
Fair Value Measurement
|
|
December 31, 2010
|
|
|
Fair Value
|
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
Bond portfolio
|
|
$
|
10,277,849
|
|
|
$
|
10,277,849
|
|
We determine the fair value of the bond portfolio
shown in the table above by comparing it with similar instruments in inactive markets. The analysis reflects the contractual terms
of the bonds, which are callable at par by the issuer at any time, and the anticipated cash flows of the bonds, and uses observable
and unobservable market-based inputs. Unobservable inputs include our internal credit rating and selection of similar bonds for
valuation.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
The change in Level 3 assets measured at fair value on a
recurring basis is summarized as follows:
|
|
Bond Portfolio
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
10,277,849
|
|
Purchases
|
|
|
31,046
|
|
Proceeds
|
|
|
(54,543
|
)
|
Provision for losses
|
|
|
(100,000
|
)
|
Balance at September 30, 2011
|
|
$
|
10,154,352
|
|
Real estate held for sale and impaired loans
are recorded at fair value on a nonrecurring basis. The fair value of real estate held for sale was based upon the listed sales
price less expected selling costs, which is a Level 2 input.
The following table summarizes the Company’s financial
instruments that were measured at fair value on a nonrecurring basis:
|
|
September 30, 2011
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value at September 30, 2011
|
Impaired Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,211,478
|
|
|
$
|
1,211,478
|
|
Real estate held for resale
|
|
|
—
|
|
|
|
790,082
|
|
|
|
—
|
|
|
|
790,082
|
|
|
|
$
|
—
|
|
|
$
|
790,082
|
|
|
$
|
1,241,478
|
|
|
$
|
2,001,560
|
|
|
|
December 31, 2010
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value at December 31,
2010
|
Impaired Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,840,000
|
|
|
$
|
1,840,000
|
|
Real estate held for resale
|
|
|
—
|
|
|
|
727,532
|
|
|
|
—
|
|
|
|
727,532
|
|
|
|
$
|
—
|
|
|
$
|
727,532
|
|
|
$
|
1,840,000
|
|
|
$
|
2,567,532
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
The change in Level 2 and Level 3 assets measured at fair
value on a nonrecurring basis is summarized as follows:
|
|
Fair Value
Measurement
Level 3
|
|
Fair Value
Measurement
Level 2
|
|
|
|
|
|
|
|
Impaired Loans
|
|
Real Estate Held for Sale
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
1,840,000
|
|
|
$
|
727,532
|
|
Additions/Acquisitions
|
|
|
21,488
|
|
|
|
121,270
|
|
Dispositions/Proceeds
|
|
|
(600,478
|
)
|
|
|
(900
|
)
|
Provision for losses
|
|
|
(49,532
|
)
|
|
|
(57,820
|
)
|
Balance at September 30, 2011
|
|
$
|
1,211,478
|
|
|
$
|
790,082
|
|
3. MORTGAGE LOANS RECEIVABLE AND BOND PORTFOLIO
At September 30, 2011, the Company had first
mortgage loans receivable totaling $30,423,695. The loans bear interest ranging from 1.00% to 10.25% with a weighted average of
approximately 8.25% at September 30, 2011. The Company had first mortgage loans receivable totaling $31,430,505 that bore interest
ranging from 5.00% to 10.25% with a weighted average of approximately 8.30% at December 31, 2010.
The Company has a portfolio of secured church
bonds at September 30, 2011 and December 31, 2010, which are carried at fair value. The bonds pay either semi-annual or quarterly
interest ranging from 5.25% to 10.40%. The aggregate value of secured church bonds equaled approximately $10,954,352 at September
30, 2011 with a weighted average interest rate of 7.90% and approximately $10,991,000 at December 31, 2010 with a weighted average
interest rate of 7.92%. These bonds are due at various maturity dates through July 2039.
The contractual
maturity schedule for mortgage loans receivable and the bond portfolio as of September 30, 2011, is as follows:
|
|
Mortgage Loans
|
|
Bond Portfolio
|
|
|
|
|
|
|
|
|
|
October 1, 2011 through September 30, 2012
|
|
$
|
611,545
|
|
|
$
|
872,000
|
|
October 1, 2012 through December 31, 2012
|
|
|
120,231
|
|
|
|
66,000
|
|
2013
|
|
|
1,683,885
|
|
|
|
605,000
|
|
2014
|
|
|
823,513
|
|
|
|
681,000
|
|
2015
|
|
|
963,768
|
|
|
|
146,000
|
|
Thereafter
|
|
|
26,220,752
|
|
|
|
8,584,352
|
|
|
|
|
30,423,694
|
|
|
|
10,954,352
|
|
Less loan loss and bond loss allowances
|
|
|
(831,332
|
)
|
|
|
(800,000
|
)
|
Less deferred origination income
|
|
|
(557,413
|
)
|
|
|
______-__
|
|
Totals
|
|
$
|
29,034,949
|
|
|
$
|
10,154,352
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
The Company currently owns $2,035,000 First
Mortgage Bonds issued by St. Agnes Missionary Baptist Church (“St. Agnes”) located in Houston, Texas. The total principal
amount of First Mortgage Bonds issued by St. Agnes is $13,375,000. St. Agnes defaulted on its payment obligations to bondholders
in September 2007. St. Agnes subsequently commenced a Chapter 11 bankruptcy reorganization proceeding regarding the three properties
that secure the First Mortgage 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 First Mortgage Bonds is recorded by the Company. The Company has an aggregate allowance for losses of $700,000 and $600,000
for the First Mortgage Bonds at September 30, 2011 and December 31, 2010, respectively, which effectively reduces the bonds to
the fair value amount management believes will be recovered. In March 2009, a lease was signed with St. Agnes to permit it to remain
in the property while submitting lease payments to bondholders as partial interest payments. Lease payments began in the second
quarter of 2009, however St. Agnes failed to make all required lease payments and was evicted from the property during the first
quarter of 2010. The trustee is currently attempting to sell the three properties. One property has tentatively been sold. The
trustee has not provided details of the sale to bondholders as of September 30, 2011.
The Company currently owns $637,000 First Mortgage
Bonds and $497,000 Second Mortgage Bonds issued by Agape Assembly Baptist Church (“Agape”) 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. Agape subsequently commenced
a Chapter 11 bankruptcy reorganization proceeding regarding the property that secures the First Mortgage Bonds in December 2010.
Agape is currently performing under a loan modification agreement. The trustee is collecting weekly sinking fund payments from
the Church, however this has not yet resulted in any disbursements to bondholders as of September 30, 2011. The Company, along
with all other bondholders, has a superior lien over all other creditors. The Company has an allowance for losses of $100,000 for
the First and Second Mortgage Bonds at both September 30, 2011 and December 31, 2010, which effectively reduces the bonds to the
fair value amount management believes will be recovered.
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 6.68% and 6.73% at September 30, 2011 and December 31, 2010, respectively. Holders
of the secured investor certificates may renew certificates at the current rates and terms upon maturity at the Company’s
discretion. Renewals upon maturity are considered neither proceeds from nor issuance of secured investor certificates. Renewals
totaled approximately $676,000 and $519,000 for the nine months ended September 30, 2011 and 2010, respectively. The secured investor
certificates have certain financial and non-financial covenants indentified in the respective series’ trust indentures. The
Company is in compliance with all covenants for the nine months ended September
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
30, 2011 and 2010 respectively. All of the Series
A certificates have matured as of September 30, 2010.
The estimated maturity schedule for the Series
B and C Secured Investor Certificates at September 30, 2011 is as follows:
|
|
|
|
|
October 1, 2011 through September 30, 2012
|
|
$
|
573,000
|
|
October 1, 2012 through December 31, 2012
|
|
|
775,000
|
|
2013
|
|
|
1,157,000
|
|
2014
|
|
|
1,865,000
|
|
2015
|
|
|
2,273,000
|
|
Thereafter
|
|
|
18,436,000
|
|
|
|
|
|
|
Totals
|
|
$
|
25,079,000
|
|
In October 2008, the Company filed a registration
statement with the Securities and Exchange Commission to offer $20,000,000 worth of Series C secured investor certificates. The
offering was declared effective by the SEC on March 30, 2009 and was amended in January 2010. The certificates are being offered
in multiples of $1,000 with interest rates ranging from 4.50% to 7.25%, subject to changing market rates, and maturities from 4
to 7 and 13 to 20 years. The certificates are collateralized by certain mortgage loans receivable and church bonds of approximately
the same value. At September 30, 2011, approximately 3,486 Series C certificates had been issued for $3,486,000. The Company also
issued 2,586 Series C certificates through its stock exchange program (see Note 5).
5. STOCK EXCHANGE AND REPURCHASE PROGRAMS
The Company commenced a stock exchange program
effective February 2, 2010 whereby it offers to shareholders on an ongoing basis (until terminated or modified by the Board of
Directors) an exchange of one $1,000 principal amount Series C secured investor certificate for 200 shares of common stock of the
Company, and, with respect to odd-lot holders above 200 shares converted into certificates, the sum of $5.00 cash for each remaining
share. This exchange ratio was determined by management and approved by the Board of Directors, and was established as a basis
for the completion of the exchange offer. This ratio was not intended to represent the amount at which the Company or any other
party would be expected to purchase common stock in an arm’s-length transaction. The Company’s Board of Directors has
approved up to 1,000,000 shares to be repurchased. As of September 30, 2011, requests representing approximately 532,743 shares
have been submitted for share exchanges. The Company exchanged 3,769 shares during the nine months ended September, 2011 for 18
Series C certificates ($18,000 in principal amount) and paid $845 in cash for remainder shares. The Company exchanged 528,974 shares
during the year ended December 31, 2010 for 2,568 Series C certificates ($2,568,000 in principal amount) and paid $76,870 in cash
for remainder shares.
The Company commenced a share repurchase plan
on July 19, 2011 whereby it offers to shareholders on an ongoing, first-come, first-served basis (until terminated or modified
by the Board of Directors) the repurchase of an aggregate of up to 250,000 shares of common stock at $4.00 per share. Shares may
be purchased at the sole discretion of the Company, subject to the funds available after meeting
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
Company obligations. Shareholders
must present for repurchase either: (i) a minimum of 500 Shares, or (ii) the total number of Shares registered in such Shareholder’s
name. As of September 30, 2011, the Company has repurchased 106,029 shares for $423,637 in cash. The Program may be modified or
rescinded at the Board’s discretion upon 10 days’ notice to shareholders.
6. LINE OF CREDIT
The Company has a $1.42 million line of credit
with Beacon Bank. Interest is charged monthly at the rate of 6.00%. We had outstanding balances of $800,000 and $1,416,000 at September
30, 2011 and December 31, 2010, respectively (See Note 9). 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 B and Series
C secured investor certificates. The maturity date for the line is December 31, 2011, but, at the Company’s election, may
be extended to December 31, 2012 if one half of the outstanding balance at December 31, 2010 is paid by December 31, 2011. The
line of credit has various financial and non-financial covenants. At September 30, 2011, the Company was in compliance with financial
and non-financial covenants. On October 12, 2011, the Company paid off the remaining balance. See Note 9, Subsequent Events, for
more information.
7. TRANSACTIONS WITH AFFILIATES
The Company has an Advisory Agreement with
Church Loan Advisors, Inc. (the “Advisor”). The Advisor is responsible for the day-to-day operations of the Company
and provides office space and administrative services. The Advisor and the Company are related through common ownership and common
management. The Company paid the Advisor management and origination fees of approximately $101,000 and $96,000 during the three
months ended September 30, 2011 and 2010, respectively, and $320,000
and $288,000 during
the nine months ended September 30, 2011 and 2010, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose the fair
value information about financial instruments, where it is practicable to estimate that value. Because assumptions used in these
valuation techniques are inherently subjective in nature, the estimated fair values cannot always be substantiated by comparison
to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an immediate sale
or settlement of the instrument.
The fair value estimates presented herein are
based on relevant information available to management as of September 30, 2011 and December 31, 2010, respectively. Management
is not aware of any factors that would significantly affect these estimated fair value amounts. As these reporting requirements
exclude certain financial instruments and all non-financial instruments, the aggregate fair value amounts presented herein do not
represent management’s estimate of the underlying value of the Company.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
The estimated fair values of the Company’s
financial instruments, none of which are held for trading purposes, are as follows:
|
|
September 30, 2011
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
|
Fair
|
|
|
|
Carrying
|
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
|
Value
|
|
|
|
Amount
|
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
974,799
|
|
|
$
|
974,799
|
|
|
$
|
350,339
|
|
|
$
|
350,339
|
|
Accounts receivable
|
|
|
138,639
|
|
|
|
138,639
|
|
|
|
112,209
|
|
|
|
112,209
|
|
Interest receivable
|
|
|
135,163
|
|
|
|
135,163
|
|
|
|
139,441
|
|
|
|
139,441
|
|
Mortgage loans receivable
|
|
|
29,034,949
|
|
|
|
38,264,567
|
|
|
|
30,145,838
|
|
|
|
29,650,126
|
|
Bond portfolio
|
|
|
10,154,352
|
|
|
|
10,154,352
|
|
|
|
10,277,849
|
|
|
|
10,277,849
|
|
Secured investor certificates
|
|
|
25,079,000
|
|
|
|
31,279,476
|
|
|
|
24,343,000
|
|
|
|
27,952,977
|
|
Line of credit
|
|
|
800,000
|
|
|
|
800,000
|
|
|
|
1,416,000
|
|
|
|
1,416,000
|
|
The following methods and assumptions were
used by the Company to estimate the fair value of each class of financial instrument for which it is practicable to estimate that
value:
Cash and equivalents
Due to their short-term nature, the carrying
amount of cash and cash equivalents approximates fair value.
Accounts receivable
The carrying amount of accounts receivable
approximates fair value.
Interest receivable
The carrying amount of interest receivable
approximates fair value.
Mortgage loans receivable
The fair value of the mortgage loans receivable
is currently greater than the carrying value as the portfolio is currently yielding a higher rate than similar mortgages with similar
terms for borrowers with similar credit quality. The credit markets in which we conduct business have experienced a decrease in
interest rates resulting in the fair value of the mortgage loans rising during the nine months ended September 30, 2011.
Bond portfolio
We determine the fair value of the bond portfolio
shown in the table above by comparing the bonds we hold with similar instruments in inactive markets. The analysis reflects the
contractual terms of the
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
September 30, 2011
bonds, which are callable at par by the issuer at any time, and the anticipated cash flows of the bonds
and uses observable and unobservable market-based inputs. Unobservable inputs include our internal credit rating and selection
of similar bonds for valuation.
Secured investor certificates
The fair value of the secured investor certificates
is currently greater than the carrying value due to higher interest rates than current market rates.
Line of credit
The carrying amount of the line of credit approximates
fair value.
9. SUBSEQUENT EVENTS
On October 12, 2011, the Company paid off the
$800,000 balance remaining on its line of credit with Beacon Bank without penalty and the line of credit was subsequently terminated.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
.
Safe Harbor Statement Under the Private
Securities Litigation Reform Act of 1995
Certain statements contained in this section
and elsewhere in this Form 10-Q constitute
“forward-looking statements”
within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, (i) trends
affecting our financial condition or results of operations; (ii) our business and growth strategies; (iii) the mortgage loan industry
and the financial status of religious organizations; (iv) our financing plans; and other risks detailed in the Company’s
other periodic reports filed with the 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,
2010 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 have completed public offerings of common
stock and debt securities. In October 2008, we filed a registration statement with the Securities and Exchange Commission for a
public offering of $20,000,000 worth of Series C Secured Investor Certificates, which may be purchased in multiples of $1,000 at
interest rates ranging from 4.50% to 7.25%, subject to changing market rates, and maturities from 4 to 7 and 13 to 20 years. The
offering was originally declared effective by the SEC on March 30, 2009, was subsequently amended in December 2009 and declared
effective in January 2010, and was amended again in May and June 2011 and was declared effective on June 27, 2011. At September
30, 2011, approximately 3,486 Series C certificates had been issued for $3,486,000. The Company has also issued 2,586 Series C
certificates in connection with its 2010 stock exchange program. On July 19, 2011, the Company commenced a separate share repurchase
program, which will allow shareholders to present their shares to the Company for repurchase at $4.00 per share.
We currently have sixty-eight first mortgage
loans aggregating $30,408,750 in principal amount, one second mortgage loan of $14,945 in principal amount and a first mortgage
bond portfolio with par values aggregating $10,967,500. 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. The Company
has made only one such investment since the fourth quarter of 2010 due principally to conditions that management considers less
than favorable in the markets in which our business is generally conducted. The above capital sources and interest received on
loans and bonds provide general working capital to the Company.
Results of Operations
Fiscal 2011 Nine Months Compared to Fiscal
2010 Nine Months
Net income for the Company’s nine months
ended September 30, 2011 and 2010 was approximately $215,000 and $384,000, respectively, on total interest and other income of
approximately $2,423,000 and $2,588,000, 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, 2011, the Company’s
loans receivable have interest rates ranging from 1.00% to 10.25%, with an average, principal-adjusted interest rate of 8.25%.
The Company’s bond portfolio has an average current yield of 7.90% as of September 30, 2011. As of September 30, 2010, the
average, principal-adjusted interest rate on the Company’s portfolio of loans was 8.38% and the Company’s portfolio
of bonds had an average current yield of 7.92%. The decrease in interest income was due to the scheduled repayment of mortgage
loans and the maturation and sale of some of the bonds in our portfolio during 2010.
Interest expense
was approximately $1,289,000 and $1,301,000 for the nine months ended September 30, 2011 and 2010, respectively. The decrease in
interest expense was due to the pay-down on our line of credit. Net interest margin decreased from 49.74% to 44.79
%
resulting primarily from a decline in interest and other income of approximately 6.00%.
We continually assess our
loan portfolio and reserve for potential losses based on the payment history, status of loans and market conditions. Due to changing
economic conditions and the current status of, and trends in, our loan portfolio, which has seen a significant rise in both past
due loans and loans in the foreclosure process during the past several years, we made changes to our loan policy in fiscal 2009
to permit us to accelerate the recording of provisions when amounts become past due. We continue to monitor the policy in light
of changing economic conditions. In addition, we have written off accrued interest on certain loans as a result of these changes.
These changes to our loan loss policy have increased the amount of reserves against potential loan losses and our expense of past
due amounts that are deemed doubtful of collection.
Allowances for
losses on mortgage loans receivable increased during the nine months ended September 30, 2011 as we recorded additional provision
against the mortgage loans. We recorded an additional provision for losses on loans during the nine months ended September 30,
2011 of approximately $143,000 compared to approximately $187,000 for the nine months ended September 30, 2010. At September 30,
2011, we reserved approximately $831,000 for sixteen mortgage loans, of which eight are three or more mortgage payments in arrears.
One of these loans is in the foreclosure process. At December 31, 2010, we reserved approximately $712,000 for sixteen mortgage
loans, of which ten were three or more mortgage payments in arrears. Three of these loans were in the foreclosure process.
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 one second mortgage loan of approximately $15,000 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.
Typically, we do not loan over three times the borrower’s gross income.
Historically, loans in our
portfolio are outstanding for an average of five 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, 2011 decreased to approximately $688,000 compared to $725,000 at September 30, 2010. The decrease is the result of
lower costs associated with real estate held for sale, a decrease in real estate impairment, and the fact that we did not sustain
a capital loss on the sale of bonds from our portfolio as we did during the nine months ended September 30, 2010. This is due to
the fact that no bonds were sold during the nine months ended September 30, 2011.
Fiscal 2011 Third Quarter Compared to Fiscal
2010 Third Quarter
The Company had net income of approximately
$74,000 and $186,000 for the three months ended September 30, 2011 and 2010 respectively, on total interest and other income of
approximately $804,000 and $898,000, respectively. Interest expense was approximately $434,000 and $444,000 for the three months
ended September 30, 2011 and 2010, respectively. The decrease in net interest income was approximately $84,000. This decrease was
primarily due to a reduction in interest income from our bond portfolio.
Operating expenses for the three months ended
September 30, 2011 increased to approximately $251,000 compared to $223,000 at September 30, 2010. The increase in operating expenses
is due to increases in real estate impairment, legal fees and costs associated with real estate held for sale.
Mortgage Loans and Bond Portfolio
One mortgage loan was refinanced into a new
loan during the nine months ended September 30, 2011. One mortgage loans was paid in full during the nine months ended September
30, 2011.
The Company currently
owns $2,035,000 First Mortgage Bonds issued by St. Agnes Missionary Baptist Church (“St. Agnes”) located in Houston,
Texas. The total principal amount of First Mortgage Bonds issued by St. Agnes is $13,375,000. St. Agnes defaulted on its payment
obligations to bondholders in June 2007. St. Agnes subsequently commenced a Chapter 11 bankruptcy reorganization proceeding regarding
the three properties that secure the First Mortgage Bonds in November 2007, which was dismissed in June 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 First Mortgage Bonds is recorded by the Company. The Company has an aggregate allowance
for losses of $700,000 and $600,000 for the First Mortgage Bonds at September 30, 2011 and December 31, 2010, respectively, which
effectively reduces the bonds to the fair value amount management believes will be recovered. In March 2009, a lease was signed
with St. Agnes to permit it to remain in the property while submitting lease payments to bondholders as partial interest payments.
Lease payments began in the second quarter of 2009, however St. Agnes failed to make all required lease payments and was evicted
from the property in the first quarter of 2010. The trustee is currently attempting to sell the three properties. One property
has tentatively been sold. The trustee has not provided details of the sale to bondholders as of September 30, 2011.
The Company currently owns $637,000 First Mortgage
Bonds and $497,000 Second Mortgage Bonds issued by Agape Assembly Baptist Church (“Agape”) 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 June
2010. The church subsequently commenced
a Chapter 11 bankruptcy reorganization proceeding regarding the property that secures the First Mortgage Bonds in December 2010.
Agape is currently performing under a loan modification agreement. The trustee is collecting weekly sinking fund payments from
the Church, however this has not yet resulted in any disbursements to bondholders as of September 30, 2011. The Company, along
with all other bondholders, has a superior lien over all other creditors. The Company has an allowance for losses of $100,000 for
the First and Second Mortgage Bonds at both September 30, 2011 and December 31, 2010, which effectively reduces the bonds to the
fair value amount management believes will be recovered.
Dividends
We have elected to operate as a real estate
investment trust (REIT), therefore we are required, among other things, to distribute to shareholders at least 90% of “Taxable
Income” in order to maintain our REIT status. The dividends declared and paid to shareholders may include cash from origination
fees even though they are not recognized as income in their entirety for the period under generally accepted accounting principles
in the United States. We earned origination fees of approximately $14,700 for the three and nine months ended September 30, 2011.
We earned origination fees of approximately $10,000 and $28,800 for the three and nine months ended September 30, 2010, respectively,
due to restructured loans.
We paid a dividend of $.10 for each share held
of record on January 25, 2011. The dividend, which was paid January 28, 2011, represents a 4.00% annual rate of return on each
share of common stock owned, assuming a purchase price of $10 per share.
We paid a dividend of $.11 for each share held
of record on April 26, 2011. The dividend, which was paid April 29, 2011, represents a 4.40% annual rate of return on each share
of common stock owned, assuming a purchase price of $10 per share.
We paid a dividend of $.11 for each share held
of record on July 26, 2011. The dividend, which was paid July 29, 2011, represents a 4.40% annual rate of return on each share
of common stock owned, assuming a purchase price of $10 per share.
Our Board of Directors declared a dividend
of $.09 for each share held of record on October 26, 2011. The dividend, which was paid October 31, 2011, represents a 3.60% annual
rate of return on each share of common stock owned, assuming a purchase price of $10 per share.
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, interest payments on secured investor certificates and our line of credit. Our liabilities at September 30, 2011
are primarily comprised of: dividends declared as of September 30, 2011 but not yet paid; our line of credit balance; and our secured
investor certificates.
Our future capital needs are expected to be
met by: (i) the additional sale of securities; (ii) prepayment and repayment at maturity of mortgage loans we make; (iii) borrowed
funds; and (iv) bonds that mature or we sell from our bond portfolio. We believe that the “rolling” effect of mortgage
loans maturing and
bond repayments will provide a supplemental source of capital to fund our business operations in future years.
Nevertheless, we believe that it may be desirable, if not necessary, to sell additional securities in order to enhance our capacity
to make mortgage loans on a continuous basis. There can be no assurance we will be able to raise additional capital on terms acceptable
for such purposes.
At September 30, 2011 the Company has a $1.42
million line of credit with Beacon Bank. Interest is charged monthly at the rate of 6.00%. We had outstanding balances of $800,000
and $1,416,000 at September 30, 2011 and December 31, 2010, respectively. 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
B and Series C secured investor certificates. The maturity date for the line is December 31, 2011, but, at the Company’s
election, may be extended to December 31, 2012 if one half of the outstanding balance at December 31, 2010 is paid by December
31, 2011. The line of credit has various financial and non-financial covenants. At September 30, 2011, the Company was in compliance
with financial and non-financial covenants. On October 12, 2011, the Company paid off the $800,00 balance remaining on its line
of credit, without penalty, and the line of credit was subsequently terminated.
In October 2008, we filed with the Securities
and Exchange Commission a registration statement to offer $20,000,000 worth of Series C Secured Investor Certificates to qualified
investors. The offering was originally declared effective by the SEC on March 30, 2009, was subsequently amended in December 2009
and declared effective in January 2010, and was amended again in May and June 2011 and was declared effective on June 27, 2011.
These certificates are expected to provide a source of capital to fund additional loans to qualified borrowers, pay down existing
maturing certificates and to pay down our line of credit which, at times, may provide funds at less favorable terms than funds
obtained through our certificate offering. At September 30, 2011, approximately $3,486,000 had been collected from the issuance
of 3,486 Series C certificates. The proceeds were used to pay down our line of credit and maturing certificates. We may also use
proceeds from the sale of secured investor certificates to pay dividends, if needed.
The Company commenced a stock exchange program
effective February 2, 2010 whereby it offers to shareholders on an ongoing basis (until terminated or modified by the Board of
Directors) an exchange of one $1,000 principal amount Series C secured investor certificate for 200 shares of common stock of the
Company, and, with respect to odd-lot holders above 200 shares converted into certificates, the sum of $5.00 cash for each remaining
share. This exchange ratio was determined by management and approved by the Board of Directors, and was established as a basis
for the completion of the exchange offer. This ratio was not intended to represent the amount at which the Company or any other
party would be expected to purchase common stock in an arm’s-length transaction. The Company’s Board of Directors has
approved up to 1,000,000 shares to be repurchased. As of September 30, 2011, requests representing approximately 532,743 shares
have been submitted for share exchanges. The Company exchanged 3,769 shares during the nine months ended September 30, 2011 for
18 Series C certificates ($13,000 in principal amount) and paid $845 in cash for remainder shares. The Company exchanged 528,974
shares during the year ended December 31, 2010 for 2,568 Series C certificates ($2,568,000 in principal amount) and paid $76,870
in cash for remainder shares.
The Company commenced a share repurchase plan
on July 19, 2011 whereby it offers to shareholders on an ongoing, first-come, first-served basis (until terminated or modified
by the Board of Directors) the repurchase of an aggregate of up to 250,000 shares of common stock at $4.00 per share. Shares may
be purchased at the sole discretion of the Company, subject to the funds available after meeting Company obligations. Shareholders
must present for repurchase either: (i) a minimum of 500 Shares, or (ii) the total number of Shares registered in such Shareholder’s
name. As of September 30, 2011 the Company has repurchased 106,029 shares for $423,637 in cash. The Program may be modified or
rescinded at the Board’s discretion upon 10 days’ notice to shareholders.
During the nine months ended September 30,
2011, our total assets decreased by approximately $521,000 due to a decrease in mortgage loans receivable resulting from payments
on mortgage loans and one loan which was paid-off. Current liabilities decreased by approximately $775,000 for the nine months
ended September 30, 2011 due to decreases in current maturities of our secured investor certificates and payments made on our line
of credit balance. Non-current liabilities increased by approximately $1,072,000 for the nine months ended September 30, 2011 due
to the sale, renewal and issuance through the exchange program of secured investor certificates.
For the nine months ended September 30, 2011,
net cash provided by operating activities decreased to approximately $762,000 from $768,000 for the comparative period ended September
30, 2010, primarily related to an increase in allowances for losses on mortgage loans and our bond portfolio.
For the nine months ended September 30, 2011,
net cash provided by investing activities was approximately $894,000 compared to cash provided by investing activities of approximately
$1,733,000 for the comparative nine months ended September 30, 2010, due to an increase in collections of mortgage loans, which
was offset by a decrease in proceeds from bonds.
For the nine months ended September 30, 2011,
net cash used for financing activities decreased to approximately $1,031,000 from $2,296,000 for the comparative nine months ended
September 30, 2010, primarily due to a decrease in payments on our line of credit and secured investor certificate maturities.
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 valuations 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 and 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.
Items 4. Controls and Procedures
Disclosure Controls and Procedures
An evaluation was carried out under the supervision
and with the participation of the Company’s management, including the principal executive officer and the principal accounting
officer, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the quarter ended September
30, 2011. Based on that evaluation, the principal executive officer and the principal accounting officer concluded that the Company’s
disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by
the Company in reports that it files or submits under the Securities and Exchange Commission is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange Commission rules and forms and that information required
to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including
our principal accounting officer, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial
Reporting
During the three months ended September 30,
2011, there were no changes in the Company’s internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect, its internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
.
None.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
.
(a)
Not Applicable
(b)
Not Applicable
(c)
Issuer Purchases of Equity Securities
The Company commenced a stock exchange program
effective February 2, 2010 whereby it offers to shareholders on an ongoing basis (until terminated or modified by the Board of
Directors) an exchange of one $1,000 principal amount Series C secured investor certificate for 200 shares of common stock of the
Company, and, with respect to odd-lot holders after conversion, we paid the sum of $5.00 cash for each remaining share. The Company’s
Board of Directors has approved up to 1,000,000 shares to be repurchased under the 2010 Program. The Company exchanged 3,769 shares
during the nine months ended September 30, 2011 for 18 Series C certificates ($18,000 in principal amount) and paid $845 in cash
for remainder shares.
Period
|
|
Total Number of Shares Exchanged
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Exchanged as Part of Publicly Announced Plan
|
|
Maximum Number of Shares that May Yet Be Exchanged Under the Plan
|
January 1, 2011 to
January 31, 2011
|
|
|
0
|
|
|
$
|
5.00
|
|
|
|
0
|
|
|
|
471,026
|
|
February 1, 2011 to
February 28, 2011
|
|
|
0
|
|
|
$
|
5.00
|
|
|
|
0
|
|
|
|
471,026
|
|
March 1, 2011 to
March 31, 2011
|
|
|
2,769
|
|
|
$
|
5.00
|
|
|
|
2,769
|
|
|
|
468,257
|
|
April 1, 2011 to
April 30, 2011
|
|
|
0
|
|
|
$
|
5.00
|
|
|
|
0
|
|
|
|
468,257
|
|
May 1, 2011 to
May 31, 2011
|
|
|
0
|
|
|
$
|
5.00
|
|
|
|
0
|
|
|
|
468,257
|
|
June 1, 2011 to
June 30, 2011
|
|
|
0
|
|
|
$
|
5.00
|
|
|
|
0
|
|
|
|
468,257
|
|
July 1, 2011 to
July 31, 2011
|
|
|
0
|
|
|
$
|
5.00
|
|
|
|
0
|
|
|
|
468,257
|
|
August 1, 2011 to
August 31, 2011
|
|
|
1,000
|
|
|
$
|
5.00
|
|
|
|
1,000
|
|
|
|
467,297
|
|
September 1, 2011 to
September 30, 2011
|
|
|
0
|
|
|
$
|
5.00
|
|
|
|
0
|
|
|
|
467,297
|
|
Totals:
|
|
|
3,769
|
|
|
|
|
|
|
|
3,769
|
|
|
|
|
|
In addition, the Company commenced a share
repurchase plan on July 19, 2011 whereby it offers to shareholders on an ongoing, first-come, first-served basis (until terminated
or modified by the Board of Directors) the repurchase of up to 250,000 shares of common stock at $4.00 per share. Shares may be
purchased at the sole discretion of the Company, subject to the funds available after meeting Company obligations. Shareholders
must present for repurchase either: (i) a minimum of 500 Shares, or (ii) the total number of Shares registered in such Shareholder’s
name. The Program may be modified or rescinded at the Board’s discretion upon 10 days’ notice to shareholders. At September
30, 2011, 106,029 shares were repurchased for $423,637 in cash.
Period
|
|
Total Number of Shares Purchased
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plan
|
|
Maximum Number of Shares that May Yet Be Purchased Under the Plan
|
July 1, 2011 to
July 31, 2011
|
|
|
0
|
|
|
$
|
4.00
|
|
|
|
0
|
|
|
|
250,000
|
|
August 1, 2011 to
August 31, 2011
|
|
|
60,960
|
|
|
$
|
4.00
|
|
|
|
60,960
|
|
|
|
189,040
|
|
September 1, 2011 to
September 30, 2011
|
|
|
45,069
|
|
|
$
|
4.00
|
|
|
|
45,069
|
|
|
|
143,971
|
|
Totals:
|
|
|
106,029
|
|
|
|
|
|
|
|
106,029
|
|
|
|
|
|
Item 3. Defaults Upon
Senior Securities
.
None.
Item 4. (Removed and Reserved)
.
Item 5. Other Information
.
None.
Item 6. Exhibits
Exhibit
Number
Title of Document
31.1 Certification of the Chief
Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the
Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the of the Sarbanes-Oxley Act
of 2002.
32.2 Certification of the Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the of the Sarbanes-Oxley Act of 2002.
101*
|
The following financial information from our Quarterly Report on Form 10-Q for the quarter of ended September 30, 2011, filed with the SEC on September 11, 2011, is formatted in eXtensible Business Reporting Language (XBRL): (i) the Balance Sheets at September 30, 2011 and December 31, 2010; (ii) the Statements of Operations for the nine months ended September 30, 2011 and 2010 and for the three months ended September 30, 2011 and 2010; (iii) the Statements of Cash Flows for the nine months ended September 30, 2011 and 2010; and (iv) the Notes to Financial Statements (Unaudited).
|
_________________________
*The XBRL related information in Exhibit 101
to this Quarterly Report on Form 10-Q shall not be deemed “filed" or part of a registration statement or prospectus
for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, additionally the data shall not be deemed “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under these sections.
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: November 14, 2011
AMERICAN CHURCH MORTGAGE COMPANY
By:
/s/ Philip J. Myers
Philip J. Myers
Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Scott J. Marquis
Scott J. Marquis
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
American Church Mortgage (CE) (USOTC:ACMC)
Gráfico Histórico do Ativo
De Abr 2024 até Mai 2024
American Church Mortgage (CE) (USOTC:ACMC)
Gráfico Histórico do Ativo
De Mai 2023 até Mai 2024