We are a Minnesota corporation incorporated on May 27, 1994. We operate as
a Real Estate Investment Trust (“REIT”) and are engaged in the business
of making mortgage loans to churches and other non-profit religious organizations
throughout the United States. The principal amount of loans we offer ranges
from $100,000 to $2,000,000. We may also invest up to 30% of our Average Invested
Assets in mortgage secured debt securities (bonds) issued by churches and other
non-profit religious organizations. Between the date upon which we began active
business operations (April 15, 1996) and March 31, 2015, we have made 186 loans
to 158 churches approximating $96,842,253, with the average principal amount
of such loans being $521,000. Of the 186 loans we have made, 101 loans totaling
$55,655,862 have been repaid early by the borrowing churches. At no time have
we paid a premium for any of the bonds in our portfolio. Subject to the supervision
of our Board of Directors, our day to day business operations are managed by
Church Loan Advisors, Inc. (the “Advisor”), which provides investment
advisory and administrative services to us. The principals of the Advisor include
principals of American Investors Group, Inc., (“American”) a FINRA
member broker-dealer, which has served as underwriter of the public offerings
of our common stock, as well as our public offerings of secured investor certificates.
Our business is managed by the Advisor. We have no employees but we do have
two executive officers. The Advisors affiliate, American has been engaged since
1987 in the business of underwriting first mortgage bonds for churches throughout
the United States. In underwriting church bonds, American reviews financing
proposals, analyzes prospective borrowers’ financial capability, and structures,
markets and sells, mortgage-backed securities which are debt obligations (bonds)
of such borrowers to the investing general public. Since its inception, American
has underwritten approximately 283 church bond financings, in which approximately
$534,239,000 in first mortgage bonds have been sold to public investors. The
average size of single church bond financings underwritten by American since
its inception is approximately $1,887,000.
In the course of its business, American identified a demand from potential borrowers
for smaller loans of $100,000 to $2,000,000. Because of the regulatory, administrative
expenses and complexity normally associated with the bond financing business,
American determined that the economic feasibility of bond financing diminished
for financings under $1,000,000. As a result, we believe that many churches
are forced to either forego the project for which their financing request was
made, fund their project from cash flow over a period of time and at greater
expense, or seek bank financing at terms that are not always favorable or available
to them, due to the historic reluctance of banks to lend to churches for other
than economic reasons. Our objective is to provide a lending source to this
segment of the industry by capitalizing on the human resources
Our primary business is to make first mortgage loans in amounts ranging from
$100,000 to $2,000,000, to churches and other non-profit religious organizations,
and selecting and investing in mortgage-secured debt instruments ("Church
Bonds") issued by churches and other non-profit religious organizations
throughout the United States. All of our loans belong to one portfolio segment.
We attempt to apply our working capital (after adequate reserves determined
by the Advisor) toward making mortgage loans and investing in Church Bonds.
We seek to enhance returns on investments on such loans by:
· offering terms of up to 30 years, generating the highest yields possible
under current market conditions;
· seeking origination fees (i.e. "points") from the borrower
at the outset of a loan and upon any renewal of a loan;
· making a limited amount of higher-interest rate second mortgage loans
to qualified borrowers; and
· purchasing mortgage-secured debt securities having various maturities
issued by churches and other non-profit religious organizations.
Our policies limit the amount of second mortgage loans to 20% of the Companys
Average Invested Assets (hereinafter defined) on the date any second mortgage
loan is closed and limit the amount of mortgage-secured debt securities to 30%
of Average Invested Assets on the date of their purchase.
“Average Invested Assets” for any period is defined as the average
of the aggregated book value of the assets of the corporation invested, directly
or indirectly, in loans (or interests in loans) secured by real estate, and
first mortgage bonds, before reserves for depreciation or bad debts or other
similar non-cash reserves computed by taking the average of such values at the
end of each calendar month during such period.
All other mortgage loans made by us (or Church Bonds purchased for investment)
will be secured by a first mortgage (or deed of trust) lien in favor of us.
Although we attempt to make mortgage loans for various terms typically ranging
from one to thirty years, we may determine to emphasize longer-term fixed-rate
loans in our discretion, in order to reduce the risk to us of downward interest
rate fluctuations.
Mortgage loan applications are prepared and verified by our Advisors personnel
in our Loan Origination and Underwriting Department. Verification procedures
are designed to assure a borrowers qualification under our Financing Policies
which are specifically identified herein and include, among other things, obtaining:
· applications containing key information concerning the prospective
borrowers;
· project description;
· financial statements in accordance with our Financing Policies;
· corporate records and other organizational documents of the borrower;
· preliminary title report or commitment for mortgagee title insurance;
and
· a real estate appraisal in accordance with the Financing Policies.
All appraisals are prepared by independent third-party professionals who we
approve based on their experience, reputation and education. All financial statements
are prepared by independent third-party professionals or a qualified accountant
that we hire that is independent of the borrower. Completed loan applications,
together with a written summary are then presented to our Underwriting Committee.
Our loan Underwriting Committee is comprised of the Advisors President and
Chief Financial Officer and Treasurer and certain members of its staff. Our
Advisor may arrange for the provision of mortgage title insurance and for the
services of professional independent third-party accountants and appraisers
on behalf of borrowers in order to achieve pricing efficiencies on their behalf
and to assure the efficient delivery of title commitments, preliminary title
reports and title policies, and financial statements and appraisals that meet
our underwriting criteria. Our Advisor may arrange for the direct payment for
such professional services and for the direct reimbursement to it of such expenditures
by borrowers and prospective borrowers. Upon closing and funding of mortgage
loans, an origination fee based on the original principal amount of each loan
may be charged, of which one-half is payable by the borrower to our Advisor,
and the other one-half to us.
Subsequent to approval by our Underwriting Committee, and prior to funding
a loan, we may issue a loan commitment to qualified applicants. A loan commitment
deposit may be required from the borrowing church to commence the loan preparation
procedure. These deposits are directly applied by the Advisor to engage accountants
and appraisers to prepare their respective reports on the church. Commitments
may indicate, among other things, the loan amount, origination fees, closing
costs, underwriting expenses (if any), funding conditions, approval expiration
dates and interest rate and other terms. Commitments generally set forth a "prevailing"
interest rate that is subject to change in accordance with market interest rate
fluctuations until the final loan closing documents are prepared, at which time
we commit to a stated interest rate. In certain cases we may establish ("lock
in") interest rate commitments up to sixty (60) days from the commitment
to closing; however, interest rate commitments beyond sixty days will not normally
be issued unless we receive an appropriate fee premium based upon our assessment
of the risk associated with a longer period.
We have entered into a contract with the Advisor (the “Advisory Agreement”)
under which the Advisor furnishes advice and recommendations concerning our
business affairs, provides administrative services to us and manages our day-to-day
operations. We have no employees but we do have two executive officers. All
of our personnel needs are met through the personnel and expertise of the Advisor
and its affiliates. Among other things, the Advisor:
serves as our mortgage loan underwriter and advisor in connection with our primary
business of making loans to churches;
· advises and selects Church Bonds to be purchased and held for investment
by us;
· services all mortgage loans we make;
· provides marketing and advertising and generates loan leads directly
and through its affiliates;
· deals with regulatory agencies, borrowers, lenders, banks, consultants,
accountants, brokers, attorneys, appraisers, insurers and others;
· supervises the preparation, filing and distribution of tax returns
and reports to governmental agencies and to shareholders and acts on our behalf
in connection with shareholder relations;
· provides office space and personnel as required for the performance
of the foregoing services; and
· as requested by us, makes reports to us of its performance of the foregoing
services and furnishes advice and recommendations with respect to other aspects
of our business.
In performing its services under the Advisory Agreement, the Advisor may use
facilities, personnel and support services of its affiliates. Expenses such
as legal and accounting fees, stock transfer agent, registrar and paying agent
fees and proxy solicitation expenses are direct expenses of ours and are not
provided for by the Advisor as part of its services.
The Advisory Agreement is renewable annually by us for one-year periods, subject
to our determination, including a majority of the Independent Directors, that
the Advisors performance has been satisfactory and that the compensation paid
the Advisor has been reasonable. The Advisory Agreement was last approved by
the Board of Directors (including a majority of the Independent Directors).
We may terminate the Advisory Agreement with or without cause upon 60 days written
notice to the Advisor. Upon termination of the Advisory Agreement by either
party, the Advisor may require us to change our name to a name that does not
contain the word "American," "America" or the name of the
Advisor or any approximation or abbreviation thereof, and that is sufficiently
dissimilar to the word "America" or "American" or the name
of the Advisor as to be unlikely to cause confusion or identification with either
the Advisor or any person or entity using the word "American" or "America"
in its name. Our Board of Directors shall determine that any successor Advisor
possesses sufficient qualifications to perform the advisory function for us
and justify the compensation provided for in its contract with us.