================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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Commission File No. 0-8117
CHURCH LOANS & INVESTMENTS TRUST
State of Organization IRS Employer Identification
- --------------------- ---------------------------
Texas No. 75-6030254
5305 I-40 West
Amarillo, Texas 79106
Registrant's telephone number: 806-358-3666
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ _ ]
As of September 30, 1995, 7,007,402 shares of the Registrant's shares of
beneficial interest were outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ _ ] No [ X ]
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
INDEX
Page
----
Part I.
Item 1: Financial Information:
Condensed Balance Sheets at September 30, 1995
and March 31, 1995 ....................... 1
Condensed Statements of Income for the
three-month periods ended September 30, 1995
and 1994 ................................. 2
Condensed Statements of Cash Flows
for the six-month periods ended
September 30, 1995 and 1994 .............. 3
Notes to Condensed Financial Statements ..... 4
Item 2: Management's Discussion and Analysis or
Plan of Operation .......................... 6
Part II. Other Information ............................... 7
Signatures ................................... 8
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
September 30, 1995 and March 31, 1995
Assets September 30, 1995 March 31, 1995
------ ------------------ --------------
Cash and cash equivalents ...................... $ 811,758 $ 366,977
Receivables:
Mortgage loans and church bonds:
Earning .................................. 21,564,273 25,676,746
Nonearning ............................... 3,197,942 3,405,793
Interim construction loans ................. 8,676,411 10,148,958
Less: Allowance for possible credit losses . (683,665) (645,049)
------------ ------------
32,754,961 38,586,448
------------ ------------
Accrued interest receivable ................ 272,801 339,633
Notes receivable ........................... 548,886 481,878
Other receivables .......................... 4,439 2,576
------------ ------------
Total receivables ............ 33,581,087 39,410,535
Property and equipment, net of accumulated
depreciation of $421,543 and $413,707
at September 30, 1995 and March 31, 1995,
respectively ............................... 236,799 244,635
Property held for investment ................... 83,714 83,714
Unamortized debt expense, net and other assets . 88,794 65,400
------------ ------------
$ 34,802,152 $ 40,171,261
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Notes payable and line of credit:
Related party ............................ $ 842,257 $ 706,577
Other .................................... 5,568,866 11,032,781
------------ ------------
6,411,123 11,739,358
------------ ------------
Secured savings certificates:
Related party ............................ 565,375 665,375
Other .................................... 5,616,856 6,118,356
------------ ------------
6,182,231 6,783,731
Accrued interest payable ................... 50,761 94,423
Federal income taxes payable ............... -- 5,010
Other ...................................... 243,995 314,771
------------ ------------
12,888,110 18,937,293
Shareholders' equity:
Shares of beneficial interest, no par value;
authorized shares unlimited, 7,007,402
shares issued and outstanding ............. 20,623,866 20,623,866
Undistributed net income ................... 1,290,176 610,102
------------ ------------
Total shareholders' equity ... 21,914,042 21,233,968
------------ ------------
$ 34,802,152 $ 40,171,261
============ ============
See accompanying notes to the condensed financial statements.
- 1 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month and six-month periods ended
September 30, 1995 and 1994
<TABLE>
<CAPTION>
Three-month periods ended Six-month periods ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income and fees:
Interest and fees on mortgage
loans, church bonds, and
interim construction loans ....... $1,025,611 1,125,182 2,199,364 2,214,294
Interest on temporary
investments ..................... 9,136 7,449 18,868 10,577
---------- ---------- ---------- ----------
Total interest income
and fees ................. 1,034,747 1,132,631 2,218,232 2,224,871
---------- ---------- ---------- ----------
Debt expense:
Interest ........................... 292,209 343,705 622,858 638,526
Amortization of:
Registration cost ............... -- 3,800 -- 9,250
Commissions paid to brokers ..... 11,846 19,745 23,841 34,497
---------- ---------- ---------- ----------
Total debt expense ........... 304,055 367,250 646,699 682,273
---------- ---------- ---------- ----------
Net interest income .......... 730,692 765,381 1,571,533 1,542,598
Provision for possible
credit losses ................... 22,500 7,500 40,000 15,000
---------- ---------- ---------- ----------
Net interest income
less provision for
possible credit losses ..... 708,192 757,881 1,531,533 1,527,598
Other income ........................... 3,092 3,119 5,900 5,988
Other operating expenses:
General and administrative ......... 104,855 112,608 276,708 252,157
Board of Trust Managers' fees ...... 9,794 10,736 20,058 19,870
---------- ---------- ---------- ----------
Total other operating expenses 114,649 123,344 296,766 272,027
---------- ---------- ---------- ----------
Net income ................... $ 596,635 637,656 1,240,667 1,261,559
========== ========== ========== ==========
Weighted average number of
shares outstanding ................. 7,007,402 7,007,402 7,007,402 7,007,402
========== ========== ========== ==========
Net income per share ................... $ .09 .09 .18 .18
========== ========== ========== ==========
Dividends declared per share ........... $ -- -- .08 .09
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
- 2 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Six-month periods ended September 30, 1995 and 1994
Six-month periods
ended September 30,
1995 1994
---- ----
Cash Flows from Operating Activities:
Net income .................................. $ 1,240,667 1,261,559
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation .......................... 7,836 7,836
Amortization of debt expense .......... 23,841 43,747
Amortization of loan discounts ........ (184,049) (156,275)
Provision for possible credit losses .. 40,000 15,000
Changes in:
Accrued interest receivable ....... 66,832 (40,612)
Accrued interest payable .......... (43,662) 20,015
Federal income taxes payable ...... (5,010) (5,799)
Other liabilities ................. (70,776) 188,164
Other, net ............................ (6,356) (48,700)
------------ ------------
Net cash provided by
operating activities ......... 1,069,323 1,284,935
------------ ------------
Cash Flows from Investing Activities:
Investment in mortgage and interim
construction loans and church bonds ...... (5,624,870) (9,925,934)
Payments received on mortgage and
interim construction loans and
church bonds .............................. 11,601,790 7,088,747
Advances of notes receivable ................ (218,736) (57,646)
Payments received on notes receivable ....... 151,728 139,981
------------ ------------
Net cash provided (used)
by investing activities ..... 5,909,912 (2,754,852)
------------ ------------
Cash Flows from Financing Activities:
Net proceeds from bank overdraft ............ -- 296,450
Sale of secured savings certificates ........ -- 5,239,232
Borrowings on notes payable ................. 5,838,898 6,370,021
Principal payments on:
Secured savings certificates ............. (601,500) (3,104,120)
Notes payable ............................ (11,167,133) (7,043,110)
Registration costs of secured savings
certificates ............................. (44,126) (8,290)
Commissions paid to broker on issuance
of secured savings certificates .......... -- (79,030)
Cash dividends paid ......................... (560,593) (630,667)
Net cash provided (used)
by financing activities ..... (6,534,454) 1,040,486
------------ ------------
Increase (decrease) in
cash and cash equivalents ... 444,781 (429,431)
Cash and cash equivalents at beginning of period 366,977 429,431
------------ ------------
Cash and cash equivalents at end of period ...... $ 811,758 --
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .... $ 666,520 618,511
============ ============
See accompanying notes to condensed financial statements.
- 3 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
(1) GENERAL
See Note 1 of Notes to Financial Statements in the Trust's Annual Report
on Form 10-KSB405 for a summary of the Trust's significant accounting
policies.
The unaudited condensed financial statements included herein were
prepared from the books of the Trust in accordance with generally
accepted accounting principles and reflect all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management,
necessary to a fair statement of the results of operations and financial
position for the interim periods. Such financial statements generally
conform to the presentation reflected in the Trust's Annual Report to
Shareholders. The current interim period reported herein is included in
the fiscal year subject to independent audit at the end of that year and
is not necessarily an indication of the expected results for the fiscal
year.
(2) WEIGHTED AVERAGE INTEREST RATES
Weighted average interest rates and net interest rate margins at
September 30, 1995, and March 31, 1995, were as follows:
Mortgage loan and Total Net interest
church bond portfolio indebtedness rate margin
--------------------- ------------ ------------
September 30, 1995 ........ 11.20 7.53 3.67
March 31, 1995 ............ 10.94 8.02 2.92
(3) CONTRACTUAL MATURITIES
Scheduled principal payments on mortgage loans, church bonds and interim
loans and indebtedness (including secured savings certificates and notes
payable) outstanding at September 30, 1995, for the five twelve-month
periods subsequent to September 30, 1995, follow:
Twelve-month period Mortgage loans, church bonds
ending September 30, and interim loans Indebtedness
-------------------- ------------------ ------------
1996 ............. $13,518,469 9,217,477
1997 ............. 2,249,289 3,375,876
1998 ............. 2,064,762 --
1999 ............. 1,700,295 --
2000 ............. 1,357,550 --
=========== ===========
(4) MORTGAGE LOANS, CHURCH BONDS AND INTERIM CONSTRUCTION LOANS
Mortgage loans, church bonds and interim construction loans on which the
accrual of interest had been discontinued amounted to $3,197,942 and
$3,405,793 at September 30, 1995 and March 31, 1995, respectively. If
interest on these mortgage loans, church bonds and interim construction
loans had been accrued as earned, interest and fees on loans in the
accompanying condensed statements of income would have been increased by
approximately $175,000 and $85,000 for the six-month periods ended
September 30, 1995 and 1994, respectively.
- 4 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
Nonearning assets include one interim construction loan which had a
principal balance of $1,465,977 at September 30, 1995. The loan became
delinquent during the latter part of 1994 and was placed on nonaccrual
status and all accrued interest was written-off. The loan is
collateralized by a church building and management believes that the
potential loss, if any, is adequately provided in the allowance for
possible credit losses at September 30, 1995. Management initiated
proceedings to foreclose the collateral securing such loan and during
July 1995, a temporary forbearance agreement and financial control
agreement was reached in which, among other things, the borrower has
agreed to pay the Trust $5,000 per week. The borrower had generally
complied with the terms of the agreement through September 30, 1995. If
the terms are not substantially complied with, the Trust will continue
with foreclosure proceedings.
(5) SECURED SAVINGS CERTIFICATES
Secured Savings Certificates (Certificates) are issued in amounts of
$1,000 or more and have single maturity dates from 30 days to 10 years
from date of issue. With respect to an individual certificate, interest
rate and frequency of payment of interest (either monthly, quarterly,
semiannually, annually or at maturity) are fixed at the time of issuance
of the Certificate. Effective July 18, 1994, the Trust decided not to
register and was not able to sell additional Certificates after that
date. However, during April 1995, the Board of Trust Managers decided to
register $20,000,000 of Certificates on Form SB-2. As of September 30,
1995, such registration was effective, but no certificates had been
issued.
Certificates are secured under the terms of an indenture that requires,
among other things, the pledge of mortgage notes receivable with total
unpaid principal amounts not less than 125% (100% for Certificates sold
in 1995) of the aggregate principal amount of Certificates outstanding.
Due to the fluctuations in the amount of sales of Certificates as well as
in the repayment of notes pledged to secure the Certificates, the Trust
has on occasion failed to maintain the required ratio of pledged notes to
outstanding Certificates for a short period of time until the deficiency
could be corrected. The indenture trustee has been aware of these
temporary technical defaults and has not declared a default under the
Indenture. At September 30, 1995, the Trust was in compliance with the
requirement.
(6) LINE OF CREDIT PAYABLE TO THE BANK
The Trust's $10,000,000 line of credit that expired on September 1, 1995,
has been renewed for a period of one year.
- 5 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - Three-Month and Six-Month Periods Ended September 30,
1995 as Compared to the Three-Month and Six-Month Periods Ended September 30,
1994:
REVENUES
The Trust's revenues are derived from interest income earned on mortgage loans
as well as, to a lesser degree, interest earned on church bonds and short-term
investments. The decrease in the Trust's revenues of $99,572 for the three-month
period ended September 30, 1995, as compared to the corresponding period in 1994
is primarily due to an increase of $6,189,294 in the total amount of mortgage
loans, church bonds and interim construction loans outstanding from $39,627,920
at September 30, 1994 to $33,438,626 at September 30, 1995. The decrease in the
Trust's revenues of $14,930 for the six month period ended September 30, 1995,
as compared to the corresponding period in 1994 is primarily due to a decrease
in the average total amount of mortgage loans and church bonds outstanding
during the six-month period ended September 30, 1995, and which more than offset
an increase in the weighted averaged rates on loans. The weighted average rate
on mortgage loans, church bonds and interim loans at September 30, 1995 and 1994
was 11.2% and 9.85%, respectively.
INTEREST EXPENSE
The most significant expense item is interest expense which comprised the
majority of total operating expense for each of the three-month and six-month
periods ended September 30, 1995 and 1994. Interest expense decreased by $51,496
for the three-month ended September 30, 1995, as compared to the corresponding
period in 1994, primarily due to decreases in average debt balances. The
decrease in interest expense of $15,668 for the six-month period ended September
30, 1995 as compared to the corresponding period in 1994 is due to a decrease in
the average total amount of indebtedness outstanding during the six-month period
ended September 30, 1995, which was offset to some extent by an increase in the
weighted average interest rate. The weighted average interest rate on all
indebtedness was 7.06% at September 30, 1994 as compared to 7.53% at September
30, 1995.
NONEARNING ASSETS
Nonearning assets include one interim construction loan which had a principal
balance of $1,465,977 at September 30, 1995. The loan became delinquent during
the latter part of 1994 and was placed on nonaccrual status and all accrued
interest was written-off. The loan is collateralized by a church building and
management believes that the potential loss, if any, is adequately provided in
the allowance for possible credit losses at September 30, 1995. Management
initiated proceedings to foreclose the collateral security such loan and during
July 1995, a temporary forbearance agreement and financial control agreement was
reached in which, among other things, the borrower has agreed to pay the Trust
$5,000 per week. The borrower had generally complied with the terms of the
agreement through September 30, 1995. If the terms are not substantially
complied with, the Trust will continue with foreclosure proceedings.
- 6 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
LIQUIDITY
Due to the cost of registration and of sales of Secured Savings Certificates
(Certificates), the cost of these funds are normally higher than the cost of
borrowing from bank sources or master notes. Therefore, the Trust decided not to
register additional Certificates and the Trust was not able to sell these
Certificates after July 18, 1994, and, therefore, did not have available this
source of funds to meet its liquidity needs. However, during April 1995, the
Board of Trust Managers decided to register on Form SB-2 $20,000,000 of
Certificates. As of September 30, 1995, such registration was effective, but no
Certificates had been issued.
- 7 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
The annual meeting of shareholders of the Trust was held on July 21, 1995. At
such meeting, each of the individuals named below was elected to the Board of
Trust Managers of the Trust to serve until the next annual meeting of the
shareholders of the Trust:
Number of shares
For Against
--------- ------
Dr. Everett Blanton ........................ 3,811,598 33,453
Larry Brown ................................ 3,811,342 33,709
Robert E. Martin ........................... 3,811,900 33,151
Bill R. McMorries .......................... 3,811,900 33,151
Steve Rogers ............................... 3,811,598 33,453
Dr. Foy W. Shackleford ..................... 3,811,900 33,151
Jack R. Vincent ............................ 3,811,900 33,151
Additionally, shareholders voted to ratify Clifton, Gunderson & Co. as auditors
for the year ending March 31, 1996 as follows:
For ................................................. 3,761,410
Against ............................................. 9,914
Abstain ............................................. 73,727
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: None.
(b) Reports on Form 8-K: None
- 8 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHURCH LOANS & INVESTMENTS TRUST
DATE: November 2, 1995 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: November 2, 1995 BY:/s/ Kelly Archer
-----------------------------
Kelly Archer
Chief Financial Officer
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
======================================================================
This schedule contains summary financial information extracted from the
company's financial statements as of and for the six months ended
September 30, 1995 and is qualified in its entirety by reference to
such financial statements.
======================================================================
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 811,758
<SECURITIES> 0
<RECEIVABLES> 34,264,752
<ALLOWANCES> 683,665
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 421,543
<TOTAL-ASSETS> 34,802,152
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 20,623,866
0
0
<OTHER-SE> 1,290,176
<TOTAL-LIABILITY-AND-EQUITY> 34,802,152
<SALES> 1,037,839
<TOTAL-REVENUES> 1,037,839
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 126,495
<LOSS-PROVISION> 22,500
<INTEREST-EXPENSE> 292,209
<INCOME-PRETAX> 596,635
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 596,635
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
