UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 3)
[X] Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended June 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. Employer Identification No.)
10237 Yellow Circle Drive Minnetonka, MN 55343
(Address of principal executive offices) (Zip Code)
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(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)
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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
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Explanatory Note
This Amendment No. 3 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 June 30, 2008, which was originally filed with the Securities and Exchange
Commission on August 14, 2008 (the "Original Filing"), and which was amended on
August 20, 2008 (the "First Amendment"), and again on December 5, 2008 (the
"Second 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 June 30, 2008, the authorized officers of the Company are filing
this Amendment to amend Item 1. "Financial Statements", in order to 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 June 30, 2008. In addition, the Company changed the presentation of
the provision for losses on mortgage loans receivable to show it as a component
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
Statements of Stockholder's Equity.........................................................8
Notes to Condensed Financial Statements ...................................................9
PART II. OTHER INFORMATION
Item 6. Exhibits..................................................................................17
Signatures.........................................................................................18
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AMERICAN CHURCH MORTGAGE COMPANY
Minnetonka, Minnesota
Finanical Statements
June 30, 2008
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Balance Sheets
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS June 30, 2008 December 31, 2007
-----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Current Assets
Cash and equivalents $ 442,195 $ 285,118
Accounts receivable 76,617 112,546
Interest receivable 151,700 151,105
Current maturities of mortgage loans receivable, net of
allowance of $67,583 at June 30, 2008 and
$72,056 at December 31, 2007 892,963 907,812
Current maturities of bond portfolio 49,000 41,000
Prepaid expenses 15,224 7,072
----------- -------
Total current assets 1,627,699 1,504,653
Mortgage Loans Receivable, net of current maturities 32,104,149 33,061,115
Real Estate Held for Sale, net of impairment reserve 1,656,215 1,566,561
Deferred Secured Investor Certificates Offering Costs,
net of accumulated amortization of $925,592 at
June 30, 2008 and $871,437 at December 31, 2007 651,971 700,479
Deferred Line of Credit Costs, net of accumulated
amortization of $84,989 at June 30, 2008 and
$36,652 at December 31, 2007 178,941 227,278
Bond Portfolio, net of current maturities and allowance
of $100,000 at June 30, 2008 and December 31, 2007 11,817,224 11,222,713
----------- ----------
Total assets $ 48,036,199 $ 48,282,799
=========== ==========
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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 June 30, 2008 December 31, 2007
-----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Current Liabilities
Current maturities of secured investor certificates $ 2,278,000 $ 2,197,000
Line of credit 3,950,000 3,350,000
Accounts payable 16,243 28,941
Accrued expenses - 18,022
Building funds payable - 50,000
Current maturities of deferred income 30,296 30,412
Dividends payable 247,208 124,680
---------- ---------
Total current liabilities 6,521,747 5,799,055
Deferred Income, net of current maturities 586,823 596,164
Secured Investor Certificates, Series A 5,323,000 6,008,000
Secured Investor Certificates, Series B 14,599,000 14,626,000
Stockholders' Equity
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 2,472,081 at June 30, 2008
and 2,493,565 at December 31, 2007 24,721 24,936
Additional paid-in capital 22,814,911 22,927,644
Accumulated deficit (1,834,003) (1,699,000)
---------- ----------
Total stockholders equity 21,005,629 21,253,580
---------- ----------
Total liabilities and equity $48,036,199 $ 48,282,799
========== ==========
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Notes to Unaudited Condensed Financial Statements are an integral part of this
Statement.
3
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Statements of Operations
-----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30, 2008 June 30, 2007
-----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Revenues
Interest income loans $ 1,443,340 $ 1,589,391
Interest income other 378,597 403,651
Capital gains realized 2,049 5,015
Origination income 21,028 68,320
----------- ----------
Total revenues 1,845,014 2,066,377
Interest expense 854,916 903,769
----------- ---------
Net interest income 990,098 1,162,608
Provision for losses on mortgage loans receivable 12,945 31,865
----------- ----------
Net interest income after provision for mortgage losses 977,153 1,130,743
Operating expenses
Professional fees 86,415 41,054
Real estate held for sale impairment 93,000 161,805
Costs associated with real estate held for sale 104,242 77,694
Director fees 2,200 2,400
Advisory fees 197,959 212,675
Amortization expense 102,492 85,621
Other 29,281 48,994
----------- ----------
Total operating expenses 615,589 630,243
----------- ----------
Net Income $ 361,564 $ 500,500
=========== ==========
Basic and Diluted Income Per Share $ 0.15 $ 0.20
=========== ==========
Dividends Declared Per Share $ 0.20 $ 0.19
=========== ==========
Weighted Average Shares Outstanding - Basic and Diluted 2,488,867 2,493,595
=========== ==========
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
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4
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Statements of Operations
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
June 30, 2008 June 30, 2007
------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Revenues
Interest income loans $ 719,468 $ 754,765
Interest income other 193,144 210,649
Capital gains realized 469 3,159
Origination income 7,862 29,215
-------- --------
Total revenues 920,943 997,788
Interest expense 418,012 451,279
-------- --------
Net interest income 502,931 546,509
Provision for losses on mortgage loans receivable - 31,865
-------- --------
Net interest income after provision for mortgage losses 502,931 514,644
Operating expenses
Professional fees 57,539 33,432
Real estate held for sale impairment - 121,805
Costs associated with real estate held for sale 42,538 59,195
Director fees 1,200 1,000
Advisory fees 101,229 106,271
Amortization expense 52,750 34,782
Other 4,996 22,956
-------- --------
Total operating expenses 260,252 379,441
-------- --------
Net Income $ 242,679 $ 135,203
======== ========
Basic and Diluted Income Per Share $ 0.10 $ 0.05
======== ========
Dividends Declared Per Share $ 0.10 $ 0.03
======== ========
Weighted Average Shares Outstanding - Basic and Diluted 2,484,138 2,493,595
========= =========
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
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5
AMERICAN CHURCH MORTGAGE COMPANY
Condensed Statements of Cash Flows
-----------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended
June 30, 2008 June 30, 2007
-----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities
Net income $ 361,564 $ 500,500
Adjustments to reconcile net income to net cash
from operating activities:
Impairment loss on real estate held for sale 93,000 161,805
Provision for losses on mortgage loans receivable 12,945 31,865
Amortization expense 102,492 85,621
Change in assets and liabilities
Accounts receivable 20,723 (3,528)
Interest receivable (595) 3,232
Prepaid expenses (8,152) 28,916
Accounts payable (30,720) (39,126)
Deferred income (9,457) (1,342)
------- -------
Net cash from operating activities 541,800 767,943
Cash Flows from Investing Activities
Investment in mortgage loans (111,219) (3,558,223)
Collections of mortgage loans 672,109 6,091,988
Investments in bonds portfolio (626,825) (1,909,840)
Proceeds from bond portfolio 24,314 125,650
------ ---------
Net cash provided by (used for) investing activities (41,621) 749,575
Cash Flows from Financing Activities
Proceeds from sale of property 180,532 130,343
Proceeds from line of credit, net 600,000 234,000
Payments on secured investor certificate maturities (631,000) (1,262,000)
Payments for deferred costs (5,647) (14,632)
Stock redemptions (112,948) -
Dividends paid (374,039) (802,628)
-------- ---------
Net cash used for financing activities (343,103) (1,714,917)
-------- ---------
Net Increase (Decrease) in Cash and Equivalents 157,077 (197,399)
Cash and Equivalents - Beginning of Year 285,118 232,258
-------- -------
Cash and Equivalents - End of Year $ 442,195 $ 34,859
======== =======
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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 Six Months Ended
June 30, 2008 June 30, 2007
-----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Supplemental Schedule of Noncash Financing and
Investing Activities
Dividends payable $ 247,208 $ 62,341
======== =======
Reclassification of mortgage and accounts receivable to
real estate held for sale $ 368,000 $ 772,148
======== =======
Supplemental Cash Flow Information
Cash paid during the period for
Interest $ 854,916 $ 903,769
======== =======
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Notes to Unaudited Condensed Financial Statements are an integral part of this
Statement.
7
AMERICAN CHURCH MORTGAGE COMPANY
Statements of Stockholders' Equity
------------------------------------------------------------------------------------------------------------------------------------
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2007 2,493,595 $ 24,936 $ 22,927,644 $ (1,699,000)
Redemption of 21,514 shares of
common stock (21,514) (215) (112,733)
Net income 361,564
Dividends declared (496,567)
----------------------------------------------------------------------
Balance, June 30, 2008 (unaudited) 2,472,081 $ 24,721 $ 22,814,911 $ (1,834,003)
======================================================================
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Notes to Financial Statements are an integral part of this Statement.
8
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 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 allowance for mortgage loans and the valuation
of real estate held for sale and 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 June 30, 2008 and December 31, 2007,
such investments were $5,000. The Company has not experienced any losses in such
accounts.
9
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 and the
bond portfolio yield is currently higher than interest rates on similar
instruments.
Allowance for Mortgage Loans Receivable
The Company records 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 were three or more mortgage payments in
arrears. Three of the loans are in the foreclosure process, of which one has
declared bankruptcy. At June 30, 2008, the Company reserved approximately
$68,000 for nine mortgage loans, of which three churches are three or more
mortgage payments in arrears and two churches are in the foreclosure process.
The total non-performing loans, which are loans that are in the foreclosure
process or are no longer performing, were approximately $621,000 and $1,156,000
at June 30, 2008 and December 31, 2007, respectively.
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 also 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 $182,000 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.
10
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 also completed on a church located in Dallas, Texas. The Company
took possession of the property. The Company received an earnest money deposit
from a buyer who is currently in the process of obtaining a certificate of
occupancy. When the certificate of occupancy is obtained, the sale of the
property will be completed.
Foreclosure was also 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.
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 significantly before the end of 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 loan origination fees, which are recognized
over the life of the loan as an adjustment to the yield on the loan.
11
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 assets or liabilities at fair value, as permitted by
SFAS 159. No events occurred during the six months ended June 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 June 30, 2008.
Fair Value
Measurement
Fair Value Level 3
Bond portfolio $11,866,224 $11,866,224
=========== ==========
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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.
12
The change in level 3 assets measured at fair value on a recurring basis is
summarized as follows at June 30, 2008:
Bond Portfolio
--------------------
Beginning balance January 1, 2008 $11,263,713
Purchases 626,825
Proceeds (24,314)
Unrealized gains 1,162,000
Callability provision (1,162,000)
-----------
Ending balance June 30, 2008 $11,866,224
===========
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3. MORTGAGE LOANS AND BOND PORTFOLIO
At June 30, 2008, the Company had first mortgage loans receivable totaling
$33,064,695. The loans bear interest ranging from 7.50% to 12.00% at June 30,
2008 and December 31, 2007.
The Company also had a portfolio of secured church bonds at June 30, 2008. The
bonds pay either semi-annual or quarterly interest ranging from 4.50% to 12.00%.
The combined principal of $11,996,000 at June 30, 2008 is due at various
maturity dates between August 15, 2008 and February 15, 2039.
The contractual maturity schedule for mortgage loans and the bond portfolio as
of June 30, 2008, is as follows:
Mortgage Loans Bond Portfolio
July 1, 2008 through June 30, 2009 $ 960,546 $ 49,000
July 1, 2009 through December 31, 2009 374,727 36,000
2010 1,221,650 175,000
2011 857,467 525,000
2012 945,567 351,000
Thereafter 28,704,738 10,860,000
---------- ----------
33,064,695 11,996,000
Less loan loss and bond reserves (67,583) (100,000)
Less discount from par (29,776)
---------- ----------
Totals $32,997,112 $11,866,224
========== ==========
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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 three properties in November
2007. The Company, along with all other
13
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 $100,000 for the bonds at June 30, 2008 and 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 6.34%
at June 30, 2008. The maturity schedule for the secured investor certificates at
June 30, 2008 is as follows:
Secured
Investor
Certificates
-----------------
July 1, 2008 through June 30, 2009 $ 2,278,000
July 1,2009 through December 31, 2009 2,927,000
2010 1,145,000
2011 705,000
2012 1,167,000
Thereafter 13,978,000
-----------
Totals $22,200,000
==========
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Interest expense related to these certificates was approximately $764,000 and
$863,000 for the six months ended June 30, 2008 and 2007, respectively.
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 Advisor management and origination fees of
approximately $198,000 and $213,000 for the six months ended June 30, 2008 and
2007, respectively.
14
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 June 30, 2008 and December 31,
2007:
June 30, 2008 December 31, 2007
------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------------------------------------------
Cash and equivalents $ 442,195 $ 442,195 $ 285,118 $ 285,118
Accounts receivable 76,617 76,617 112,546 112,546
Interest receivable 151,700 151,700 151,105 151,105
Mortgage loans receivable 32,997,112 39,065,522 33,968,927 33,968,927
Bond portfolio 11,866,224 11,866,224 11,263,713 11,263,713
Secured investor certificates 22,200,000 22,200,000 22,831,000 22,831,000
|
At June 30, 2008, the fair value of the mortgage loan portfolio is 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 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 higher than 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.
7. LINE OF CREDIT
The Company has a $15 million revolving credit facility with KeyBank National
Association. There were balances of $3,950,000 and $3,350,000 outstanding at
June 30, 2008 and December 31, 2007 respectively. Interest is charged at the
LIBOR rate plus an applicable margin, which was 1.50% at June 30, 2008 which
totaled 4.44%. The applicable margin is indexed based upon the Company's
financial performance. The revolving credit facility 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. The Company obtained amendments to its
non-performing assets ratio covenant allowing an increase to this ratio,
ultimately amending it through December 30, 2008. In addition, the Company was
out of compliance with the cash flow coverage ratio covenant at June 30, 2008.
The Company is in the process of obtaining a new line of credit from another
borrower. If the Company does not obtain a new line of credit, the interest rate
on the line may increase an additional 2.00% over the current rate of LIBOR plus
1.50%.
15
8. AMENDMENT TO FINANCIAL STATEMENT
The Company has changed the presentation of interest expense and the provision
for losses on mortgage loans receivable on the Statement of Operations to
include these accounts as components of net interest income.
16
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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17
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)
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