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, 2012
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
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41-1793975
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(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
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|
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1
0237 Yellow Circle Drive Minnetonka, MN
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55343
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(Address of principal executive offices)
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(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
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 September 11, 2012
|
Common Stock, $0.01 par value per share
|
|
1,725,498 shares
|
Explanatory Note
This Amendment No. 3 on Form 10-Q/A (the “Amendment”)
to the Quarterly Report on Form 10-Q for the period ended June 30, 2012, which was originally filed with the Securities and Exchange
Commission on July 14, 2012, (the “Original Filing”), is being filed solely to re-file the Company’s interactive
data file or eXtensible Business Reporting Language (XBRL), as provided by the Securities and Exchange Commission’s 30-day
grace period to complete this new task.
AMERICAN CHURCH MORTGAGE COMPANY
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INDEX
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Page
No.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements:
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Balance Sheets
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2 - 3
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Statements of Operations
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4
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Statements of Cash Flows
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5 - 6
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Notes to Financial Statements
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7 - 18
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Item 2. Management’s Discussion and Analysis of Financial
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Condition and Results of Operations
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19 – 24
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Items 4. Controls and Procedures
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25
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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26
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Item 1A. Risk Factors
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26
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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26
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Item 3. Defaults Upon Senior Securities
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27
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Item 4. Mine Safety Disclosures
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27
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Item 5. Other Information...............................................................................
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27
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Item 6. Exhibits
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27
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Signatures
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28
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AMERICAN CHURCH MORTGAGE COMPANY
Minnetonka, Minnesota
Financial Statements
June 30, 2012
AMERICAN CHURCH MORTGAGE COMPANY
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Balance Sheets
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ASSETS
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June 30, 2012
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December 31, 2011
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(Unaudited)
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Current Assets
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Cash and equivalents
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$
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1,840,147
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$
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611,991
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Accounts receivable
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151,193
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133,683
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Interest receivable
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134,506
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135,990
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Current maturities of mortgage loans receivable, net of
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allowance of $18,172 and $22,381 and deferred
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origination fees of $25,431 and $26,687 at June
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30, 2012 and December 31, 2011, respectively
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624,562
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773,416
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Current maturities of bond portfolio
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1,028,000
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873,000
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Prepaid expenses
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11,095
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26,432
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Total current assets
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3,789,503
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2,554,512
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Mortgage Loans Receivable
, net of current maturities,
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allowance of $770,307 and $790,428 and deferred
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origination fees of $497,379 and $508,693 at June 30,
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2012 and December 31, 2011, respectively
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27,055,383
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27,748,418
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Bond Portfolio,
net of current maturities
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8,420,102
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9,123,923
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Real Estate Held for Sale
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1,093,052
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714,322
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Deferred Offering Costs
,
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net of accumulated amortization of $882,891 and $822,664
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at June 30, 2012 and December 31, 2011, respectively
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863,524
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854,814
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Total Assets
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$
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41,221,564
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$
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40,995,989
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Notes to Unaudited Financial Statements are an integral part of this Statement.
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AMERICAN CHURCH MORTGAGE COMPANY
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Balance Sheets
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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June 30, 2012
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December 31, 2011
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(Unaudited)
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Current Liabilities
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Current maturities of secured investor certificates
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$
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1,214,000
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$
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1,257,000
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Accounts payable
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27,560
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21,200
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Dividends payable
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105,813
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160,057
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Total current liabilities
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1,347,373
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1,438,257
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Deposit on real estate held for sale
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57,600
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57,600
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Secured Investor Certificates, Series B,
net of current maturities
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17,490,000
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17,594,000
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Secured Investor Certificates, Series C
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7,932,000
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6,691,000
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Total liabilities
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26,826,973
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25,780,857
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Stockholders’ Equity
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Common stock, par value $.01 per share
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Authorized, 30,000,000 shares
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Issued and outstanding, 1,763,548 shares at
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June 30, 2012 and 1,778,411 at December 31, 2011
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17,635
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17,784
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Additional paid-in capital
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19,455,600
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19,514,904
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Accumulated deficit
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(5,078,644
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)
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(4,317,556
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)
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Total stockholders’ equity
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14,394,591
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15,215,132
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Total liabilities and stockholders' equity
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$
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41,221,564
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$
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40,995,989
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Notes to Unaudited Financial Statements are an integral part of this Statement.
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AMERICAN CHURCH MORTGAGE COMPANY
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Statements of Operations
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For the Six Months Ended
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June 30, 2012
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June 30, 2011
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(Unaudited)
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(Unaudited)
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Interest and Other Income
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$
|
1,551,686
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$
|
1,620,101
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Interest Expense
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935,335
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913,961
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Net Interest Income
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616,351
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706,140
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Provision for losses on mortgage loans receivable
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210,226
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86,944
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Provision for losses on bonds
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500,000
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100,000
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Provision for Losses on Mortgage Loans Receivable and Bonds
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710,226
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186,944
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Net Interest (Loss) Income after Provision for Mortgage and Bond Losses
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(93,875
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)
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519,196
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Operating Expenses
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403,366
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378,391
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Operating (Loss) Income
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|
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(497,241
|
)
|
|
|
140,805
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Other Income
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|
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1,099
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|
321
|
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Net (Loss) Income
|
|
$
|
(496,142
|
)
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|
$
|
141,126
|
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Basic and Diluted (Loss) Income Per Share
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|
$
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(0.28
|
)
|
|
$
|
0.07
|
|
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Dividends Declared Per Share
|
|
$
|
0.15
|
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$
|
0.22
|
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Weighted Average Common Shares Outstanding -
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Basic and Diluted
|
|
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1,770,094
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|
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1,941,291
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|
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|
|
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|
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|
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|
|
|
|
|
|
|
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|
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Notes to Unaudited Financial Statements are an integral part of these Statements.
|
|
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AMERICAN CHURCH MORTGAGE COMPANY
|
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Statements of Operations
|
|
|
|
|
|
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For the Three Months Ended
|
|
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June 30, 2012
|
|
June 30, 2011
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Interest and Other Income
|
|
$
|
775,599
|
|
|
$
|
831,735
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
474,507
|
|
|
|
458,498
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
301,092
|
|
|
|
373,237
|
|
|
|
|
|
|
|
|
|
|
Provision for losses on mortgage loans receivable
|
|
|
204,767
|
|
|
|
41,381
|
|
Provision for losses on bonds
|
|
|
500,000
|
|
|
|
100,000
|
|
Provision for Losses on Mortgage Loans Receivable and Bonds
|
|
|
704,767
|
|
|
|
141,381
|
|
|
|
|
|
|
|
|
|
|
Net Interest (Loss) Income after Provision for Mortgage and Bond Losses
|
|
|
(403,675
|
)
|
|
|
231,856
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
218,042
|
|
|
|
198,867
|
|
|
|
|
|
|
|
|
|
|
Operating (Loss) Income
|
|
|
(621,717
|
)
|
|
|
32,989
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
90
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
$
|
(621,627
|
)
|
|
$
|
33,153
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted (Loss) Income Per Share
|
|
$
|
(0.35
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared Per Share
|
|
$
|
0.06
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding -
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
1,766,355
|
|
|
|
1,919,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Financial Statements are an integral part of these Statements.
|
|
|
|
|
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|
AMERICAN CHURCH MORTGAGE COMPANY
|
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Statements of Cash Flows
|
|
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|
|
|
|
|
For the Six Months Ended
|
|
|
June 30, 2012
|
|
June 30, 2011
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(496,142
|
)
|
|
$
|
141,126
|
|
Adjustments to reconcile net (loss) income to net cash
|
|
|
|
|
|
|
|
|
from operating activities:
|
|
|
|
|
|
|
|
|
Provision for losses on mortgage loans receivable
|
|
|
210,226
|
|
|
|
86,944
|
|
Provision for losses on bonds
|
|
|
500,000
|
|
|
|
100,000
|
|
Amortization of loan origination discounts
|
|
|
(12,569
|
)
|
|
|
(20,786
|
)
|
Amortization of deferred costs
|
|
|
60,227
|
|
|
|
58,602
|
|
Change in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(17,510
|
)
|
|
|
44,069
|
|
Interest receivable
|
|
|
1,484
|
|
|
|
7,361
|
|
Prepaid expenses
|
|
|
15,337
|
|
|
|
(15,316
|
)
|
Accounts payable
|
|
|
6,360
|
|
|
|
407,878
|
|
Management fee payable
|
|
|
—
|
|
|
|
(22,357
|
)
|
Net cash provided by operating activities
|
|
|
267,413
|
|
|
|
787,521
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Origination of mortgage loans
|
|
|
(47,380
|
)
|
|
|
(30,449
|
)
|
Proceeds from origination fees
|
|
|
—
|
|
|
|
14,700
|
|
Collections of mortgage loans
|
|
|
312,883
|
|
|
|
475,354
|
|
Investment in bonds
|
|
|
(40,000
|
)
|
|
|
(31,046
|
)
|
Proceeds from bonds
|
|
|
88,821
|
|
|
|
50,684
|
|
Net cash provided by investing activities
|
|
|
314,324
|
|
|
|
479,243
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Payments on line of credit, net
|
|
|
—
|
|
|
|
(516,000
|
)
|
Proceeds from secured investor certificates
|
|
|
1,250,000
|
|
|
|
484,000
|
|
Payments on secured investor certificate maturities
|
|
|
(156,000
|
)
|
|
|
(119,000
|
)
|
Payments for deferred costs
|
|
|
(68,937
|
)
|
|
|
(60,323
|
)
|
Stock redemptions
|
|
|
(59,453
|
)
|
|
|
(845
|
)
|
Dividends paid
|
|
|
(319,190
|
)
|
|
|
(407,748
|
)
|
Net cash provided by (used for) financing activities
|
|
|
646,420
|
|
|
|
(619,916
|
)
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Equivalents
|
|
|
1,228,157
|
|
|
|
646,848
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents
- Beginning
|
|
|
611,991
|
|
|
|
350,339
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents
- Ending
|
|
$
|
1,840,147
|
|
|
$
|
997,187
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Financial Statements are an integral part of these Statements.
|
|
|
|
|
|
|
|
|
|
AMERICAN CHURCH MORTGAGE COMPANY
|
|
|
|
|
|
Statements of Cash Flows - Continued
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
June 30, 2012
|
|
June 30, 2011
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends payable
|
|
$
|
105,813
|
|
|
$
|
213,437
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans receivable reclassified to
|
|
|
|
|
|
|
|
|
real estate held for resale
|
|
$
|
—
|
|
|
$
|
144,666
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
935,335
|
|
|
$
|
855,359
|
|
|
|
|
|
|
|
|
|
|
Secured investor certificates issued
|
|
|
|
|
|
|
|
|
through the stock exchange program
|
|
$
|
—
|
|
|
$
|
13,000
|
|
|
|
|
|
|
|
|
|
|
Stock purchased through stock repurchase program
|
|
|
14,863 shares
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Financial Statements are an integral part of this Statement.
|
|
|
|
|
|
|
|
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
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, 2011 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, 2011. Operating results for
the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
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 accounting principles generally accepted in the United States of America.
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, 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 on member contributions
and the involvement in the church or organization of its senior pastor.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
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. The Company had approximately
$387,000 and $0 in money market fund accounts at June 30, 2012 and December 31, 2011, respectively. The Company has not experienced
any losses in such accounts.
Bond Portfolio
The Company accounts for the bond portfolio
under the Accounting Standards Codification (ASC) 320
Investments-Debt and Equity Securities
. 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 bonds may be used to repay secured investor
certificates or provide additional liquidity or working capital in the short term. The Company has classified $1,028,000 and $873,000
in bonds as current assets as of June 30, 2012 and December 31, 2011, respectively, based on management’s estimates for liquidity
requirements and contractual maturities of certain bonds maturing in 2012 and 2011, respectively.
Allowance for Mortgage Loans Receivable
The Company records mortgage loans receivable
at estimated net realizable value, which is the unpaid principal balances of the mortgage loans receivable, less the allowance
for mortgage loans. The Company’s loan loss 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 that are declared to be in default and are in the foreclosure process.
At June 30, 2012, the Company reserved $788,479 for thirteen mortgage loans, of which six are three or more mortgage payments in
arrears. At December 31, 2011, the Company reserved $812,809 for fifteen mortgage loans, of which eight were three or more mortgage
payments in arrears. One of the loans was in the foreclosure process.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
A summary of transactions in the allowance
for credit losses for the three months ended June30, 2012 is as follows:
Balance at December 31, 2011
|
|
$
|
812,809
|
|
Provision for additional losses
|
|
|
210,226
|
|
Charge-offs
|
|
|
(234,556
|
)
|
Balance at June 30, 2012
|
|
$
|
788,479
|
|
The total impaired loans, which are loans that
are in the foreclosure process or are declared to be in default, were approximately $944,000 and $1,563,000 at June 30, 2012 and
December 31, 2011, respectively, which the Company believes are adequately secured by the underlying collateral and the allowance
for mortgage loans. These loans are currently recorded on a non-accrual basis.
The Company recently established a formal policy
in which it will declare a loan to be in default whereupon the loan will be placed on non-accrual status when the following thresholds
have been met: (i) The borrower has missed three consecutive mortgage payments; (ii) The borrower has not communicated to the Company
any legitimate reason for delinquency in its payments to the Company and has not arranged for the re-continuance of payments; (iii)
Lines of communication to the borrower have broken down such that any reasonable prospect of rehabilitating the loan and return
of regular payments is gone.
The Company recently established a policy in
which it will accept payments received on non-accrual loans as well as a policy for resuming accrual of interest on loans that
have been placed on non-accrual status. These policies are as follows: (i) The Company will accept payments on loans that are currently
on non-accrual status when a borrower has communicated to us that they intend to meet their mortgage obligations. A payment made
on a non-accrual loan is considered a good faith deposit as to the intent to resume their mortgage payment obligation. This good
faith deposit is credited back to interest first then principal as stated in the mortgage loan documentation. (ii) A letter outlining
the re-payment terms or the restructure terms (if any) of the loan is provided to the borrower. This letter will be signed by the
Senior Pastor and all board members of the borrower. This letter resumes the obligation to make payments on non-accrual loans.
(iii) The borrower must meet all its payment obligations for the next 120 days without interruption in order to be removed from
non-accrual status.
The Company recently established the following
policy for determining when an uncollectable loan or trade receivable is charged off. When a loan is declared in default by its
policy or deemed to be doubtful of collection, the loan committee of the Advisor to the Company will direct the staff to charge-off
the uncollectable receivables.
Loans totaling approximately $2,016,000 and
$3,137,000 exceeded 90 days past due but continued to accrue interest as of June 30, 2012 and December 31, 2011, 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.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
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. The Company maintains
continuous efforts to dispose of real estate held for sale at market terms, including purchase price and financing terms. The Company
may allow for temporary occupancy of real estate held for sale. Revenues, including temporary rental payments, and expenses, such
as taxes and insurance, arising from real estate held for sale are recorded on the Statement of Operations in the current period.
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. An allowance 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, principally through the issuance of Secured Investor Certificates. 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 potential dilutive shares outstanding.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
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 on our Balance Sheets, 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 $500,000 and $100,000 for the three and six months ended June 30, 2012 and June 30,
2011, respectively. Total allowance for losses on our bond portfolio equaled $1,500,000 and $1,000,000 at June 30, 2012 and December
31, 2011, respectively
The following table summarizes the Company’s financial
instruments that were measured at fair value on a recurring basis:
|
|
|
|
|
|
|
Fair Value
Measurement
|
|
June 30, 2012
|
|
|
Fair Value
|
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
Bond portfolio
|
|
$
|
9,448,102
|
|
|
$
|
9,448,102
|
|
|
|
|
|
|
|
|
Fair Value
Measurement
|
|
December 31, 2011
|
|
|
Fair Value
|
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
Bond portfolio
|
|
$
|
9,996,923
|
|
|
$
|
9,996,923
|
|
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.
The change in Level 3 assets measured at fair value
on a recurring basis is summarized as follows:
|
Bond Portfolio
|
|
|
Balance at December 31, 2011
|
$9,996,923
|
Purchases
|
40,000
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
Allowances for losses
|
(500,000)
|
Proceeds
|
(88,821
)
|
Balance at June 30, 2012
|
$
9,448,102
|
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. There were no provisions for losses on real estate held for sale for
the three and six months ended June 30, 2012 and 2011. The fair value of impaired loans was based upon the Company’s loan
loss policy, which is Level 3 input. The Company reserved an additional provision of $210,226 and $86,944 for loan losses at June
30, 2012 and 2011, respectively.
The following table summarizes the Company’s financial
instruments that were measured at fair value on a nonrecurring basis:
|
|
June 30, 2012
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value at
June 30,
2012
|
Impaired Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
600,106
|
|
|
$
|
600,106
|
|
Real estate held for resale
|
|
|
—
|
|
|
|
1,093,052
|
|
|
|
—
|
|
|
|
1,093,052
|
|
|
|
$
|
—
|
|
|
$
|
1,093,052
|
|
|
$
|
600,106
|
|
|
$
|
1,693,158
|
|
|
|
December 31, 2011
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value at December 31,
2011
|
Impaired Loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,188,050
|
|
|
$
|
1,188,050
|
|
Real estate held for resale
|
|
|
—
|
|
|
|
714,322
|
|
|
|
—
|
|
|
|
714,322
|
|
|
|
$
|
—
|
|
|
$
|
714,322
|
|
|
$
|
1,188,050
|
|
|
$
|
1,902,372
|
|
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, 2011
|
|
$
|
1,188,050
|
|
|
$
|
714,322
|
|
|
|
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
Additions/Acquisitions
|
|
|
—
|
|
|
|
379,355
|
|
Dispositions/Proceeds
|
|
|
(382,485
|
)
|
|
|
(625
|
)
|
Provision for other than temporary losses
|
|
|
(205,459
|
)
|
|
|
—
|
|
Balance at June 30, 2012
|
|
$
|
600,106
|
|
|
$
|
1,093,052
|
|
3. MORTGAGE LOANS RECEIVABLE AND BOND PORTFOLIO
At June 30, 2012, the Company had mortgage
loans receivable totaling $28,991,234. The loans bear interest ranging from 1.00% to 10.25% with a weighted average of approximately
8.55% at June 30, 2012. The Company had mortgage loans receivable totaling $29,870,023 that bore interest ranging from 1.00% to
10.25% with a weighted average of approximately 8.40% at December 31, 2011.
The Company has a portfolio of secured church
bonds at June 30, 2012 and December 31, 2011, 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 $10,948,000 at June 30, 2012 with
a weighted average interest rate of 7.92% and approximately $10,997,000 at December 31, 2011 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 June 30, 2012, is as follows:
|
Mortgage Loans
|
Bond Portfolio
|
|
|
|
July 1, 2012 through June 30, 2013
|
$ 668,165
|
$ 1,028,000
|
July 1, 2013 through December 31, 2013
|
562,175
|
371,000
|
2014
|
1,745,345
|
676,000
|
2015
|
923,131
|
146,000
|
2016
|
1,030,583
|
122,500
|
Thereafter
|
24,061,835
|
8,604,602
|
|
28,991,234
|
10,948,102
|
Less loan loss and bond loss allowances
|
(788,479)
|
(1,500,000)
|
Less deferred origination income
|
(517,739
)
|
______-__
|
Totals
|
$
27,685,016
|
$
9,448,102
|
The Company currently owns $2,035,000 First
Mortgage Bonds issued by St. Agnes Missionary Baptist Church 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. The church
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 $1,300,000 for the First Mortgage Bonds
at June 30, 2012 and December 31, 2011, respectively, which effectively reduces the bonds to the fair value amount
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
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 has sold one of
the properties. The trustee has not provided details of the sale to bondholders as of June 30, 2012.
The Company currently owns $637,000 First Mortgage
Bonds and $497,000 Second Mortgage Bonds issued by Agape Assembly Baptist Church located in Orlando, Florida. The total principal
amount of First Mortgage Bonds issued by Agape is $7,200,000, and the total principal amount of Second Mortgage Bonds issued is
$715,000. Agape defaulted on its payment obligations to bondholders in September 2010. The church subsequently commenced a Chapter
11 bankruptcy reorganization proceeding regarding the property that secures the First Mortgage Bonds in December 2010. 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 June 30, 2012. If the Church continues to make its
re-scheduled weekly payments, the trustee believes it will be able to resume the quarterly distribution of interest to bondholders
in the third quarter of 2012. The Company, along with all other bondholders, has a superior lien over all other creditors. The
Company has an aggregate allowance for losses of $200,000 for the First and Second Mortgage Bonds at June 30, 2012 and December
31, 2011, respectively, 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 6.65% at June 30, 2012 and December 31, 2011, 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
$105,000 and $366,000 for the six months ended June 30, 2012 and 2011, respectively. The secured investor certificates have certain
financial and non-financial covenants indentified in the respective series’ trust indentures.
The estimated maturity schedule for the secured
investor certificates at June 30, 2012 is as follows:
|
|
|
July 1, 2012 through June 30, 2013
|
$ 1,214,000
|
|
July 1, 2013 through December 31, 2013
|
899,000
|
|
2014
|
1,865,000
|
|
2015
|
2,549,000
|
|
2016
|
3,172,000
|
|
Thereafter
|
16,937,000
|
|
|
|
|
Totals
|
$
26,636,000
|
|
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
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 offering concluded March 31,
2012. The certificates were 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 June 30, 2012, approximately 7,932 Series C certificates had been issued and
were outstanding for $7,932,000, of which 2,586 Series C certificates were issued through its stock repurchase program (see Note
5).
5. STOCK EXCHANGE AND REPURCHASE PROGRAMS
The Company commenced a stock exchange program
effective February 2, 2010 whereby it offered 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 approved
up to 1,000,000 shares to be repurchased. As of June 30, 2012, requests representing approximately 532,743 shares have been submitted
for share exchanges. The Company did not exchange any shares during the six months ended June 30, 2012. The Company exchanged 528,974
shares during the year ended December 31, 2011 for 2,586 Series C certificates ($2,586,000 in principal amount) and paid $76,870
in cash for remainder shares. The program was terminated by the Board of Directors on April 12, 2012 since the Company terminated
the Series C secured investor certificate offering. (See Note 4).
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. The Company repurchased 14,863 shares for $59,453 during the six months ended June 30, 2012. As of December 31, 2011, the
Company had repurchased an aggregate of 160,927 shares for $643,229 in cash under the program. The Program may be modified or rescinded
at the Board’s discretion upon 10 days’ notice to shareholders.
6. 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
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
common
management. A majority of the independent board members approve the advisory agreement on an annual basis. The Company paid the
Advisor management fees of approximately $100,000 and $109,000 during the three months ended June 30, 2012 and 2011, respectively,
and $197,000 and $211,000 during the six months ended June 30, 2012 and 2011, respectively.
7. 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 June 30, 2012 and December 31, 2011, 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.
The estimated fair values of the Company’s
financial instruments, none of which are held for trading purposes, are as follows:
|
June 30, 2012
|
December 31, 2011
|
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|
Amount
|
Value
|
Amount
|
Value
|
|
|
|
|
|
Cash and equivalents
|
$ 1,840,147
|
$ 1,840,147
|
$ 611,911
|
$ 611,911
|
Accounts receivable
|
151,193
|
151,193
|
133,683
|
133,683
|
Interest receivable
|
134,506
|
134,506
|
135,990
|
135,990
|
Mortgage loans receivable
|
28,991,234
|
36,993,225
|
29,870,023
|
36,100,291
|
Bond portfolio
|
9,448,102
|
9,448,102
|
10,996,923
|
10,996,923
|
Secured investor certificates
|
26,636,000
|
30,137,819
|
25,542,000
|
30,374,749
|
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.
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements - Unaudited
June 30, 2012
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 more 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 increasing during the six months ended June 30, 2012 and 2011,
respectively.
Bond portfolio
We determine the fair value of the bond portfolio
shown in the table above by comparing 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.
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.
8. SUBSEQUENT EVENTS
On July 12, 2012, the Company completed the
sale of a property held for sale. The purchase price of the property was $475,000. The purchaser provided a $20,000 cash down payment.
The Company provided a $500,000 loan to the qualified church to purchase the property which is located in Baton Rouge, Louisiana.
The terms of the loan were consistent with market terms for such financing. This property was acquired by the Company through foreclosure.
The Company took possession of the property in March 2012.
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,
2011 and other public filings and disclosures. Investors and shareholders are urged to read these documents carefully.
Plan of Operation
We were founded in May 1994 and commenced active
business operations on April 15, 1996 after the completion of our initial public offering.
We currently have sixty-eight first mortgage
loans aggregating $28,976,475 in principal amount and one second mortgage loan totaling $14,759 in principal amount and a first
mortgage bond portfolio with par values aggregating $10,948,102. Although due to recent economic factors the Company has not made
significant new investments in its principal form of assets funding of additional first mortgage loans and purchase of first mortgage
bonds issued by churches is expected to resume as more investable assets become available through: (i) future sales of securities;
(ii) prepayment and repayment at maturity of existing loans and bonds; and (iii) borrowed funds. These capital sources and interest
received on loans and bonds provide general working capital to the Company.
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. The Series C Secured Investor Certificates were
offered 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 declared effective by the Securities and Exchange Commission on March 30, 2010
and amended in January 2010. The offering concluded March 31, 2012. At June 30, 2012, approximately 7,932 Series C certificates
had been issued and were outstanding with a balance of $7,932,000 of which 2,586 Series C certificates were issued in connection
with its stock repurchase program.
Results of Operations
Fiscal 2012 Six Months Compared to Fiscal
2011 Six Months
The Company’s had a net loss for the
six months ended June 30, 2012 of approximately ($496,000) and net income for the six months ended June 30, 2011 of approximately
$141,000. The Company had total
interest and other income of approximately $1,552,000 and $1,620,000, for the six months ended
June 30, 2012 and 2011, 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 June 30, 2012, the Company’s loans receivable have interest
rates ranging from 1.00% to 10.25%, with an average, principal-adjusted interest rate of 8.55%. The Company’s bond portfolio
has an average current yield of 7.92% as of June 30, 2012. As of June 30, 2011, the average, principal-adjusted interest rate on
the Company’s portfolio of loans was 8.40% 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.
Interest expense was approximately $935,000
and $914,000 for the six months ended June 30, 2012 and 2011, respectively. The increase in interest expense was due to the sale
of additional Secured Investor Certificates which occurred prior to the termination of the Series C Secured Investor Certificate
offering as of March 31, 2012. Net interest margin decreased from 43.59% to 39.72%
resulting primarily from a decline in
interest and other income of approximately 4.00% compared to an increase in interest expense of 2.37%.
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 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 2010 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.
Provision for
losses on mortgage loans receivable increased for the six months ended June 30, 2012 as we recorded additional provision against
the mortgage loans. We recorded an additional provision for losses on loans during the six months ended June 30, 2012 of approximately
$210,000 compared to approximately $87,000 for the six months ended June 30, 2011. At June 30, 2012, we reserved approximately
$788,000 for thirteen mortgage loans, of which six are three or more mortgage payments in arrears. At December 31, 2011, we reserved
approximately $813,000 for fifteen mortgage loans, of which eight were three or more mortgage payments in arrears. One loan was
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 lend money based on projections or pledge programs. The loan amount to any borrower cannot exceed 75% loan to appraised value.
Typically, we do not lend over 70% loan to value except in extenuating circumstances. In addition, the borrower’s long-term
debt (including the proposed loan) cannot exceed four times the borrower’s gross income for the previous twelve month period.
Historically, loans in our
portfolio are outstanding for an average of five and a half years. Our borrowers are typically small independent churches with
little or no borrowing history. Once a church establishes a payment history with us, they 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 six months ended
June 30, 2011 increased to approximately $403,000 compared to $378,000 at June 30, 2011. The increase is the result of higher legal
fees incurred with recent foreclosure proceedings, an increase in real estate impairment and bond reserves.
Fiscal 2012 Second Quarter Compared to Fiscal
2011 Second Quarter
The Company had a net loss of approximately
($622,000) for the three months ended June 30, 2012 and had net income of approximately $33,000 for the three months ended June
30, 2011, on total interest and other income of approximately $776,000 and $832,000, respectively. Interest expense was approximately
$475,000 and $458,000 for the three months ended June 30, 2012 and 2011, respectively. The decrease in net interest income was
approximately $72,000. In addition, the Company experienced an increase in provisions for losses on its bond portfolio of approximately
$500,000 for the sixth month period ended June 30, 2012.
Operating expenses for the three months ended
June 30, 2012 increased to approximately $218,000 compared to $199,000 at June 30, 2011. The increase in operating expenses is
due to increases in real estate impairment, legal fees and costs associated with real estate held for sale, as well as additional
provisions for losses on our bond portfolio in the approximate amount of $500,000 for the three month period ended June 30, 2012.
Mortgage Loans and Bond Portfolio
No mortgage loans were paid in full during
the six months ended June 30, 2012. No new loans were funded during the six months ended June 30, 2012.
The Company currently owns $2,035,000 First
Mortgage Bonds issued by St. Agnes Missionary Baptist Church 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. The church
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 $1,300,000 and $800,000 for the First Mortgage
Bonds at June 30, 2012 and December 31, 2011, 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 has sold
one of the properties. The trustee has not provided details of the sale to bondholders as of June 30, 2012.
The Company currently owns $637,000 First Mortgage
Bonds and $497,000 Second Mortgage Bonds issued by Agape Assembly Baptist Church located in Orlando, Florida. The total principal
amount of First Mortgage Bonds issued by Agape is $7,200,000, and the total principal amount of Second Mortgage Bonds issued is
$715,000. Agape defaulted on its payment obligations to bondholders in September 2010. The church subsequently commenced a Chapter
11 bankruptcy reorganization proceeding regarding the property that secures the First Mortgage Bonds in December 2010. 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 March 31, 2012. If the Church continues to make its
re-scheduled weekly payments, the trustee believes it will be
able to resume the quarterly distribution of interest to bondholders
in the near future. The Company, along with all other bondholders, has a superior lien over all other creditors. The Company has
an aggregate allowance for losses of $200,000 for the First and Second Mortgage Bonds during the periods ended June 30, 2012 and
December 31, 2011, respectively, which effectively reduces the bonds to the fair value amount management believes will be recovered.
New Policies
We recently established
a formal policy in which we will declare a loan to be in default whereupon the loan will be placed on non-accrual status when the
following thresholds have been met:
|
i)
|
The borrower has missed three consecutive mortgage payments;
|
|
ii)
|
The borrower has not communicated to the Company any legitimate reason
for delinquency in its payments to the Company and has not arranged for the re-continuance of payments;
|
|
iii)
|
Lines of communication to the borrower have broken down (i.e. phone
calls not returned, returned certified mail) such that any reasonable prospect of rehabilitating the loan and return of regular
payments is gone.
|
We recently established
a policy in which we will accept payments received on nonaccrual loans as well as a policy for resuming accrual of interest on
loans that have been placed on non-accrual status. These policies are as follows:
|
i)
|
We will accept payments on loans that are currently on nonaccrual
status when a borrower has communicated to us that they intend to meet their mortgage obligations. A payment made on a non-accrual
loan is considered a good faith deposit as to the intent to resume their mortgage payment obligation. This good faith deposit is
credited back to interest first then principal as stated in the mortgage loan documentation.
|
|
ii)
|
A letter outlining the re-payment terms or the restructure terms
(if any) of the loan is provided to the borrower. This letter will be signed by the Senior Pastor and all board members of the
church (borrower). This letter resumes the obligation to make payments on non-accrual loans.
|
|
iii)
|
The borrower must meet all its payment obligations for the next 120
days without interruption in order to be removed from non-accrual status.
|
We recently established
the following policy for determining when an uncollectable loan or trade receivable is charged off:
When a loan is declared in default
by our policy or deemed to be doubtful of collection, the loan committee of the Advisor to the Company will direct the staff to
write-off the uncollectable receivables. Details of the Advisory agreement can be found on page 8 in the Form 10-K for the year
ended December 31, 2011.
Real Estate Held for Sale
All assets held by us
are secured, directly or indirectly, by either a first or second mortgage on the underlying property to serve as collateral. Acquisition
of a property through foreclosure or other means will always be a remedial step in protecting the Company’s assets. We will
always market foreclosed property that we acquire as available for sale and will carry such properties on our balance sheet as
real estate available for sale until the property is sold. Our acquisition and ownership of real estate is not a line of business
or business objective and is only the result of foreclosure of underlying mortgages. The
fair
value of real estate held for sale is based upon the listed sales price less excepted selling costs. The fair value of real estate
held for sale was approximately $1,093,000 and $714,000 as of June 30, 2012 and December 31, 2011, respectively.
Dividends
We have elected to operate as a real estate
investment trust (REIT), therefore we are required, among other things, to distribute to shareholders at least 90% of “Taxable
Income” in order to maintain our REIT status. 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 did not earn any origination fees for the six months ended June 30, 2012 and 2011, respectively.
We paid a dividend of $.09 for each share held
of record on January 25, 2012. The dividend, which was paid January 30, 2012, represents a 3.60% 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 April 25, 2012. The dividend, which was paid April 30, 2012, represents a 3.60% 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 $.06 for each share held of record on July 26, 2012. The dividend, which was paid July 31, 2012, represents a 2.40% 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 fees,
accounting fees and interest payments on secured investor certificates. Our liabilities at June 30, 2012 are primarily comprised
of dividends declared as of June 30, 2012 but not yet paid and our Secured Investor Certificates.
Our current capital is fully deployed into
loans and first mortgage church bonds. Our current funding sources are expected to provide adequate cash for our operations for
the next twelve months. Future capital needs are expected to be met by: (i) 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.
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 declared effective by the Securities and Exchange Commission on March 30, 2009 and amended in January
2010. The offering was concluded March 31, 2012. These certificates provided a source of capital to fund additional loans to qualified
borrowers, pay down existing maturing certificates and to pay
off our line of credit. At June 30, 2012, approximately $7,932,000
had been collected from the issuance of 7,932 Series C certificates.
The Company commenced a stock repurchase program
effective February 2, 2010 whereby it offered 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 approved
up to 1,000,000 shares to be repurchased. As of March 31, 2012, requests representing an aggregate of approximately 532,743 shares
were submitted for share exchanges. The Company did not exchange any shares during the three months ended March 31, 2012. The Company
exchanged 528,974 shares during the year ended December 31, 2011 for 2,586 Series C certificates ($2,586,000 in principal amount)
and paid $76,810 in cash for remainder shares. The program was terminated by the Board of Directors on April 12, 2012 because the
Company did not renew the Series C Secured Investor Certificate offering.
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. The Company repurchased 14,863 shares for $59,452 during the six months ended June 30, 2012. As of December 31, 2011, the
Company had repurchased 160,927 shares for $643,229 in cash. The Program may be modified or rescinded at the Board’s discretion
upon 10 days’ notice to shareholders.
During the six months ended June 30, 2012,
total assets increased by approximately $226,000 due to an increase in proceeds from our Series C certificate offering. Current
liabilities increased by approximately $91,000 for the six months ended June 30, 2012 due to an increase in our current maturities
of secured investor certificates outstanding. Non-current liabilities increased by approximately $1,137,000 for the six months
ended June 30, 2012 due to the sale of secured investor certificates from our series C certificate offering prior to termination
of the offering.
For the six months ended June 30, 2012, net
cash provided by operating activities decreased to approximately $267,000 from $787,000 from the comparative period ended June
30, 2011, primarily due to a decrease in accounts payable as well as a decrease in the net income (loss) adjusted for non-cash
items.
For the six months ended June 30, 2012, net
cash provided by investing activities was approximately $314,000 compared to cash provided by investing activities of approximately
$480,000 from the comparative six months ended June 30, 2012, due to a decrease in collections of mortgage loans.
For the six months ended June 30, 2012, net
cash provided by (used for) financing activities increased to approximately $646,000 from ($620,000) for the comparative six months
ended June 30, 2011, primarily due to an increase in proceeds from Secured Investor Certificate sales.
Critical Accounting Estimates
Preparation of our financial statements requires
estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions
include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates.
We evaluate these estimates based on assumptions we believe to be reasonable under the circumstances.
The difficulty in applying these policies arises
from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such
as future economic conditions, operating results and valuations as well as management intentions. As the difficulty increases,
the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.
Management uses estimates and assumptions in
preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could differ from those estimates. The most sensitive estimates relate to the realizability of the
mortgage loans receivable and the valuation of the bond portfolio and real estate held for sale. It is at least reasonably possible
that these estimates could change in the near term and that the effect of the change, if any, may be material to the financial
statements.
We estimate the value of real estate we hold
pending re-sale based on a number of factors. We look at the current condition of the property as well as current market conditions
in determining a fair value, which will determine the listing price of each property. Each property is valued based on its current
listing price less any anticipated selling costs, including for example, realtor commissions. Since churches are single use facilities
the listing price of the property may be lower than the total amount owed to us. Attorney fees, taxes, utilities along with real
estate commission fees will also reduce the amount we collect from the sale of a property we have acquired through foreclosure.
The fair value of the real estate held for sale includes estimates of expenses related to the sale of the real estate.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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 June
30, 2012. 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
As of the end of the quarter ended June 30,
2012, 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
.
|
(c)
|
Issuer Exchange and Purchases of Equity Securities
|
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. The Company repurchased 10,162 shares for $40,648 during the three months ended March 31, 2012. The repurchase plan may be
modified or rescinded at the Board’s discretion upon 10 days’ notice to shareholders. The chart below provides further
information with respect to shares repurchased under this plan during the three months ended June 30, 2012.
Period
|
Total Number of Shares Repurchased
|
Average Price Paid Per Share
|
Total Number of Shares repurchased as Part
of Publicly Announced Plan
|
Maximum Number of Shares that May Yet Be repurchased Under the Plan
|
April 1, 2012 to April 30, 2012
|
101
|
$4.00
|
101
|
78,810
|
May 1, 2012 to
May 31, 2012
|
4,100
|
$4.00
|
4,100
|
74,710
|
June 1, 2012 to
June 30, 2012
|
500
|
$4.00
|
500
|
74,210
|
Totals:
|
4,701
|
|
4,701
|
|
Item 3. Defaults Upon Senior Securities
.
None.
Item 4. Mine Safety Disclosures
.
Not Applicable.
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 10Q for the second quarter
of fiscal year 2012 filed with the Securities and Exchange Commission on August 15, 2012, is formatted in eXtensible Business Reporting
Language (XBRL): (i) the Consolidated Balance Sheets at June 30, 2012 and December 31, 2012; (ii) Consolidated Statements of Operations
for the sixth months and three months ended June 30, 2012 and 2011; (iii) the Consolidated Statements of Cash Flows for the sixth
months ended June 30, 2012 and 2011; and (iv) the Notes to Financial Statements (Unaudited).
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* The
XBRL related information in Exhibit 101 to this Quarterly Report on Form 10Q 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 theses 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: September 11, 2012
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AMERICAN CHURCH MORTGAGE COMPANY
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By:
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/s/ Philip J. Myers
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Philip J. Myers
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Chief Executive Officer
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(Principal Executive Officer)
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By:
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/s/ Scott J. Marquis
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Scott J. Marquis
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Chief Financial Officer and Treasurer
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(Principal Financial and Accounting Officer)
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American Church Mortgage (CE) (USOTC:ACMC)
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