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FORM 10-KSB405
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1995
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to ________.
Commission File No. 08117
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CHURCH LOANS & INVESTMENTS TRUST
(Name of small business issuer in its charter)
Texas 75-6030254
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5305 I-40 West, Amarillo, Texas 79106
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(Address of principal executive offices) (Zip Code)
(806) 358-3666
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(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act: Shares of Beneficial Interest
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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 [__]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's
<PAGE>
knowledge, in definitive proxy or information statements incorporated
by reference of part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $4,406,930.
The aggregate market value of the voting stock held by
non-affiliates of the registrant is $15,021,564.50 as of June 15, 1995.
The number of shares outstanding of each of the issuer's classes
of common stock, as of March 31, 1995 is 7,007,402 shares of beneficial
interest.
Documents Incorporated by Reference:
Portions of the Annual Report to Shareholders for the year ended
March 31, 1995, are incorporated by reference into Parts II and III.
Exhibits 3(a) and 3(b) included in Form S-11 under File No.
2-51235 are incorporated by reference into Part III.
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TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT - 1995
CHURCH LOANS & INVESTMENTS TRUST
Page
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PART I
Item 1: Description of Business ................ 4
Item 2: Description of Properties .............. 6
Item 3: Legal Proceedings ...................... 6
Item 4: Submission of Matters to a Vote of
Security Holders ...................... 6
PART II
Item 5: Market for Common Stock
and Related Stockholder Matters ....... 6
Item 6: Management's Discussion and Analysis or
Plan of operation ..................... 7
Item 7: Financial Statements ................... 13
Item 8: Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure .................. 14
PART III
Item 9: Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act ..... 15
Item 10: Executive Compensation ................. 15
Item 11: Security Ownership of Certain Beneficial
Owners and Management ................. 16
Item 12: Certain Relationships and Related
Transactions .......................... 17
Item 13: Exhibits and Reports on Form 8-K ....... 18
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PART I
Item 1: DESCRIPTION OF BUSINESS
Church Loans & Investments Trust ("the Trust") is a real estate
investment trust organized under the laws of the State of Texas in
March 1963. Although the Trust has the authority to engage in the
business of buying, selling and leasing of real estate, the Trust has
heretofore restricted its business activities primarily to making loans
to churches and other nonprofit organizations which are secured by a
first mortgage on real estate owned by such borrowers.
The period of duration of the Trust, unless dissolved in accordance
with law, or by the consent of the owners of shares of beneficial
interest in the Trust, is perpetual. The Trust may be dissolved by the
affirmative vote of not less than two-thirds of the owners of
outstanding shares of the Trust. Owners of Secured Savings
Certificates, a debt instrument issued by the Trust, have no vote in
regard to any activities of the Trust, including dissolution.
The control and management of the Trust properties, and all powers
necessary or appropriate to effect any and all of the purposes for
which the Trust is organized, is vested in the Board of Trust Managers.
All managers are members of a congregation of the Church of Christ.
The number of shares of beneficial interest in the Trust which the
Trust is authorized to issue is unlimited.
The Trust is qualified as a "real estate investment trust" under
Sections 856-858 of the Internal Revenue Code of 1986 as amended (the
"Internal Revenue Code" or "Code"). It is the intention of the Trust to
continue to qualify as a real estate investment trust under the Code.
The Trust maintains an office located at 5305 I-40 West, Amarillo, TX
79106 (telephone 806/358-3666).
As mentioned above, the Trust is primarily engaged in the business of
making mortgage loans to churches and other nonprofit organizations.
The Declaration of Trust restricts the investments of the Trust to
loans secured by a first mortgage, deed of trust or other lien covering
real property with the amount of such loans not to exceed 66 2/3% of
the value of the real property securing such loan as determined by a
competent independent appraiser. Although the Trust has been primarily
in the business of making long-term mortgage loans, during the past
several years it has been more involved in making short-term interim or
construction loans to finance the construction of church buildings, the
purchase of real
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estate, or the refinancing of existing indebtedness. Most, if not all,
of the interim loans presently being made by the Trust are associated
with bond offerings of churches and other nonprofit organizations.
These interim loans are scheduled to be repaid from the proceeds of the
bond offerings.
The Trust is not limited to the location of the property securing any
loans in which it may invest and seeks to spread its investments in
areas of the United States where favorable yields prevail.
As of March 31, 1995, the Trust has 194 permanent and interim mortgage
loans and investments in church bonds having a principal balance of
$40,541,324, with the average principal amount thereof being $208,976.
The interest rates on these loans vary from 7.0% to 15.75% per annum
with the weighted average interest rate of mortgage loans and church
bonds being 10.94% per annum at March 31, 1995. The original terms of
these loans vary form one year to thirty years, with the majority being
for a term of twenty years.
During the fiscal year of the Trust ending March 31, 1995, the net
income of the Trust was $2,344,026, as compared to $2,288,342 in fiscal
1994, an increase of 2.43%. The increase in net income of the Trust was
due primarily to an increase in interest income and fees in fiscal 1995
as compared to fiscal 1994 and in a decrease in operating expenses in
fiscal 1995 compared to fiscal 1994.
The net income of the Trust for each of the quarters during fiscal 1995
was as follows: first quarter-$623,903; second quarter- $637,656; third
quarter-$590,371; and fourth quarter-$492,096.
The operational expense of the Trust decreased from $579,850 during
fiscal 1994 to $553,444 in fiscal 1995. The operational expenses of the
Trust were approximately 12.56% of its gross income for the year ended
March 31, 1995 as compared to 13.41% for the year ended March 31, 1994.
The operational expense of the Trust included general and
administrative expenses and compensation to members of the Board of
Trust Managers.
During fiscal 1995, the Trust made 36 loans for approximately
$18,000,000. Most, if not all, of such loans bear interest at a
variable rate equal to 2% per annum in excess of the prime rate of
interest published by the Wall Street Journal and known as the "Wall
Street Journal Prime."
During fiscal 1995, the Trust employed a total of 4 full time employees
and employed, as needed, one additional part-time employee.
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Item 2: DESCRIPTION OF PROPERTIES
The Trust maintains as its only place of business its offices located
at 5305 I-40 West, in Amarillo, Texas. Such building is owned by the
Trust and is occupied solely by the Trust. There is no debt owed by
Trust in regard to its real property. The Trust also owns certain
vacant land adjacent to the trust property that is held for investment.
The real properties of the Trust are not a significant portion of the
Trust's assets, representing less than 1% of the Trust's total assets.
As previously mentioned, the Trust's primary business is the making of
mortgage loans to churches and other nonprofit organizations. The
Declaration of Trust restricts the investments of the Trust to loans
secured by a first mortgage, deed of trust, or other lien covering real
property with the amount of such loans not to exceed 66 2/3% of the
value of the real property securing such loan. The Declaration of Trust
may not be amended without the vote of two-thirds (2/3 rds) of the
Certificates of Beneficial Interest entitled to vote. The Board of
Trust Managers' general policy is to limit investment of Trust assets
in any one mortgage loan to not more than $2,000,000. All such
investment in mortgage loans is for the purpose of earning income for
the Trust.
Item 3: LEGAL PROCEEDINGS
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5: MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Market Information
There is no established public trading market for the shares of
beneficial interest of the Trust. During fiscal 1995 a total of 171,610
shares were sold in the secondary market at prices ranging from $2.00
to $2.50 per share. The last sale during the fiscal year was at $2.25
per share. During fiscal year 1994 a total of 222,319 shares were sold
in the secondary market at prices ranging
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from $1.80 to $2.40 per share.
The range of high and low bid information for shares of beneficial
interest of the Trust for each quarter within the last two fiscal years
is as follows:
Quarter Fiscal 1995 Fiscal 1994
High Low High Low
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April-June ..... 2.20 2.00 2.00 1.80
July-September . 2.30 2.10 2.10 1.85
October-December 2.30 2.20 2.10 2.00
January-March .. 2.50 2.25 2.40 2.00
(b) Holders
At March 31, 1995 there were 2,880 shareholders of the Trust.
(c) Dividends
Cash dividends on all outstanding shares of beneficial interest in the
Trust are declared twice annually, for the 3 month period ending March
31, and the 9 month period ending December 31. In fiscal 1994 the Trust
paid a cash dividend of $.31 per share. In fiscal 1995 the Trust paid a
total cash dividend of $.34 per share.
Item 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations--1995 compared to 1994
During the fiscal year ended March 31, 1995, interest income and fees
of the Trust increased by $83,825 (1.94%) over the previous fiscal
yeSuch increase was primarily attributable to an increase in the amount
of interim construction loans held by the Trust. Earning interim
construction loans increased from $7,035,506 as of March 31, 1994 to
$10,148,958 as of March 31, 1995. However, earning mortgage loans and
church bonds decreased from $28,079,612 as of March 31, 1994 to
$25,676,746 as of March 31, 1995. Such decrease is primarily a result
of the normal payoff upon maturity of loans held by the Trust as well
as the payoff prior to maturity of loans held by the Trust. Such
increase in interest income and fees was also attributable to an
increase in the average annual interest rate on loans and church bonds
from 10.46% at March 31, 1994 to 10.94% at March 31, 1995.
In fiscal 1995, the average aggregate amount of total debt
outstanding was $91,365 more than in fiscal 1994. Furthermore,
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interest expense increased by $112,870. Such increase was primarily due
to an increase in the Trust's cost of funds. The increase in the debt
of the Trust was primarily due to an increase in interim loans made by
the Trust. The approximate weighted average annual interest rate upon
the aggregate outstanding debt increased from 6.61% during fiscal 1994
to 7.29% during fiscal 1995.
The net income of the Trust increased $55,684 (2.43%) from the previous
fiscal year. Such increase was primarily attributable to an increase in
interest income and fees in fiscal 1995 as compared to fiscal 1994 and
in a decrease in operating expenses in fiscal 1995 compared to fiscal
1994.
During fiscal 1995, the prime interest rate increased from 6.25% at
March 31, 1994 to 9.0% per annum at March 31, 1995. Should the prime
interest rate decrease during fiscal 1996, the interest expense of the
Trust will generally decrease and the net income of the Trust will in
turn generally increase. Should the prime interest rate increase during
fiscal 1996, the interest expense of the Trust will generally increase
and the net income of the Trust will in turn generally decrease.
Principal payments received on the interim and permanent loan portfolio
and the church bonds held by the Trust decreased from $16,055,666
during fiscal 1994, to $15,623,167 during fiscal 1995, a decrease of
2.69%. This decrease was primarily attributable to the decrease in
mortgage loans held by the Trust during these respective periods and to
an increase in the amount of non-performing loans as compared to the
entire loan portfolio of the Trust during fiscal 1995 as compared to
the previous fiscal year. The non-performing loans of the Trust as
compared to the entire loan portfolio of the Trust increased from 4.15%
as of March 31, 1994 to 8.68% as of March 31, 1995. This increase is
primarily attributable to one interim construction loan which had a
principal balance of $1,520,977 at March 31, 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 March 31, 1995. Management has initiated
proceedings to foreclose the collateral securing such loan.
Results of Operations--1994 compared to 1993
During the fiscal year ended March 31, 1994, interest income and fees
of the Trust decreased by $218,592 (4.81%) over the previous fiscal
yeSuch decrease was primarily attributable to a decrease in the amount
of mortgage loans held by the Trust. Earning mortgage loans and church
bonds decreased from $35,375,304
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as of March 31, 1993 to $28,079,612 as of March 31, 1994. Such decrease
is primarily a result of the normal payoff upon maturity of loans held
by the Trust as well as the payoff prior to maturity of loans held by
the Trust. Such decrease in interest income and fees was also
attributable to a decrease in the average annual interest rate on
mortgage loans and church bonds from 11.05% at March 31, 1993 to 10.46%
at March 31, 1994.
In fiscal 1994, the average aggregate amount of total debt outstanding
was $2,155,952 more than in fiscal 1993. However, interest expense
actually decreased by $225,551. Such decrease was primarily due to a
decrease in the Trust's cost of funds. The increase in the debt of the
Trust was primarily due to an increase in interim loans made by the
Trust. The approximate weighted average annual interest rate upon the
aggregate outstanding debt decreased from 7.64% during fiscal 1993 to
6.61% during fiscal 1994.
The net income of the Trust increased $87,918 (4.00%) from the previous
fiscal year. Such increase was primarily attributable to the decrease
in interest expense in fiscal 1994 as compared to 1993, the decrease in
the provision for possible credit losses in fiscal 1994 compared to
fiscal 1993 and from the payoff prior to maturity of several loans
purchased by the Trust from the Resolution Trust Corporation ("RTC")
and the Federal Deposit Insurance Corporation ("FDIC") in previous
years resulting in a realization into income of the discount between
the payoff of a particular loan and the purchase price of a particular
loan.
During fiscal 1994, the prime interest rate increased from 6.00% at
March 31, 1993 to 6.25% per annum at March 31, 1994.
Principal payments received on the interim and permanent loan portfolio
and the church bonds held by the Trust decreased from $16,711,276
during fiscal 1993, to $16,055,666 during fiscal 1994, a decrease of
3.92%. This decrease was primarily attributable to the decrease in
mortgage loans held by the Trust during these respective periods. There
was no material change in the amount of non-performing loans as
compared to the entire loan portfolio of the Trust during fiscal 1994
as compared to the previous fiscal year.
Liquidity and Capital Resources
The Trust is engaged in the business of making permanent and interim
loans to churches and other non-profit organizations. The assets of the
Trust primarily consist of its loan portfolio with the Trust owning no
real property other than its office building and facilities. The
operational expense of the Trust is comprised of the maintenance of its
office building, the payment of the salaries of its management and
clerical staff and the payment for
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legal and accounting services. Substantially all of the Trust assets
are invested in the permanent and interim loans made by the Trust. The
only potential liquidity problems of the Trust are related to the
timely and proper repayment by the Trust of the leveraged funds it has
borrowed to make loans in excess of its capital. All of the
indebtedness of the Trust is generally classified as short term having
maturities ranging from "on demand" to maturities repayable over
various periods extending through 1998.
The annual maturities upon all debt obligations of the Trust
outstanding as of March 31, 1995 for the next three fiscal years are:
1996--$14,322,712; 1997--$2,915,377; and 1998-$1,285,000. These debt
obligations primarily consist of the Trust's bank line of credit, bank
term loans and Secured Savings Certificates ("Certificates") which have
been previously issued by the Trust. Certificates outstanding as of
March 31, 1995 that will mature during the next three years are:
1996--$3,833,354; 1997--$1,915,377; and 1998-$1,035,000. The principal
amount of the Trust's bank term notes which will mature in each of the
next three years are 1996--$1,416,667; 1997--$1,000,000; and
1998-$250,000.
At March 31, 1995 loans to the Trust under Master Note Agreements which
are in effect demand notes total $3,472,690. In the past, the Trust has
utilized its bank line of credit, principal paid to the Trust upon its
outstanding loan portfolio, and the proceeds received from the sale of
Certificates in order to meet its maturing obligations. Effective July
18, 1994, the Trust decided not to register Certificates and therefore
the Trust is presently unable to sell and has been unable to sell
Certificates since July 18, 1994. However, the Trust has decided to
register additional Certificates in the summer of 1995.
At March 31, 1995, the balance which could be borrowed by the Trust
upon its bank line of credit was $4,399,999. The principal payments
scheduled to be received by the Trust upon its loan portfolio for the
years ending March 31, 1996, 1997 and 1998 are $16,618,243, $2,546,974,
and $2,376,248, respectively. Assuming all of these scheduled principal
payments are received, these payments, together with the balance
available to Church Loans on its bank line of credit, would allow
Church Loans to have sufficient funds to meet its maturing obligation
without the necessity for Church Loans having to sell any additional
Certificates or borrow funds from other sources.
During fiscal 1995, 1994 and 1993 the Trust sold Certificates in the
principal amounts of $5,239,231, $5,185,803, and $9,619,445,
respectively. Due to the cost of registration and of sales of such
Certificates, the cost of these funds are normally higher than the cost
of borrowing from bank sources or master notes. As mentioned above,
effective July 18, 1994, the Trust decided not to register
Certificates. Therefore, the Trust was unable to sell Certificates
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since such date and is presently unable to sell Certificates. However,
the Trust has decided to register additional Certificates during the
summer of 1995. Based upon the success of the Trust to sell
Certificates in the past, the Trust is confident that, should it be
necessary, it will be able to sell Certificates in the future in
sufficient amounts for the Trust to timely meet all of its obligations.
To the extent that Certificates sold by the Trust have maturity dates
of one year, or less, the financial condition of the Trust would not be
substantially improved since the proceeds received by the Trust from
the sale of Certificates will, of necessity, be used to pay the
principal and interest upon Certificates maturing in this period.
Should all the scheduled principal payments upon loans made by the
Trust not be received, and should the Trust be unable to sell
Certificates with maturity dates and in amounts described above or
should the Trust be unable to borrow against its line of credit, and
should loans from other sources not be available it would be necessary
for the Trust to sell a portion of its mortgage loan portfolio in order
for it to meet all of its financial obligations. At March 31, 1995, the
principal balance of the loan and church bond portfolio of the Trust
was $39,231,497. The weighted average interest rate on loans and church
bonds was 10.94% per annum. In view of the normal marketability of
conventional loans, the Trust would probably be required to discount
the great majority of these loans in order for them to be attractive
for purchase. The principal amount of these loans if discounted to
yield a weighted average interest rate of 12%, 14% and 16% would be
$35,766,050, $30,656,614, and $26,824,538, respectively. There is no
assurance that the Trust would be able to sell all, or a portion of,
its portfolio of loans, in which event, it would be necessary for the
Trust to secure a loan, or loans, from a lender in order for the Trust
to meet its financial obligations. There is no assurance that the Trust
would be able to secure a loan in such instance. The Trust has sold
only one of the loans in its mortgage loan portfolio and therefore has
limited experience in this area.
Principal payments scheduled to be received by the Trust upon its
permanent loan portfolio during the years ending March 31, 1996, 1997
and 1998, if not used to fund new loan commitments, would be used to
reduce the outstanding indebtedness of the Trust. Should the Trust use
the payments of principal which shall be received upon its loan
portfolio to reduce its outstanding indebtedness, the interest expense
of the Trust will decrease. In such instance, whether the decrease in
the interest income will exceed, or be less than, the decrease in the
interest expense will largely be dependent upon the prime rate of
interest prevailing at such time due to the fact that the interest to
be earned by the Trust upon its mortgage loan portfolio is generally
based upon a fixed rate of interest or a variable rate of interest that
periodically reprices, while the interest to be paid by the Trust upon
its outstanding debts is directly, or indirectly, tied to the prime
rate of
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interest charged by major domestic banks.
As of March 31, 1995, a substantial portion of the promissory notes
evidencing the loans made by the Trust have been pledged to secure its
outstanding indebtedness. At March 31, 1995 promissory notes in the
principal amount of $9,676,303 had been pledged to secure Certificates
which had been previously sold by the Trust. The required collateral
for these Certificates (based on the ratio of 1.25 to 1 of notes
pledged to the principal balance of the Certificates) was $8,479,664,
leaving an excess of promissory notes which have been pledged by the
Trust to secure said Certificates of $1,196,639. Additionally,
promissory notes totalling $14,452,698 were pledged against a line of
credit and notes payable to banks which had a total outstanding balance
of $8,266,668. The required collateral for these bank loans was
$9,360,001, leaving an excess of promissory notes which have been
pledged to secure said bank notes of $5,092,697. These excess
promissory notes may be reassigned by the Indenture Trustee or bank to
the Trust to be sold in order for the Trust to meet its financial
obligations. Should it be necessary in order for the Trust to meet its
financial obligations, these excess notes amounting to $6,289,336 and
other additional promissory notes in the approximate amount of
$15,102,496 (for a total amount of $21,391,832) would be available to
be sold by the Trust to meet its financial obligations. Should the
excess promissory notes be assigned by the Indenture Trustee or bank to
the Trust as heretofore described, all outstanding Certificates sold by
the Trust, bank line of credit, and bank term loans, would continue to
be secured by the required ratio of notes pledged to the principal
balance of these Certificates, bank line of credit, and bank term
loans. There is no assurance that the Trust would be able to sell all,
or any portion of these notes.
Cash flows from operating activities consists primarily of net income.
The primary components of net income are interest income and expense.
Interest income should continue to be the main source of cash provided
by operating activities; however, the availability of this cash flow is
dependent upon the ability of the borrowers to repay loans. Although
there was an increase in the amount of non-performing loans of the
Trust as of March 31, 1995 compared to March 31, 1994, this increase is
primarily attributable to one interim construction loan and management
does not expect material increases in such loans in the future.
Accordingly, cash provided by operating activities has been and is
expected to be a relatively stable source of cash flow.
Cash flows from investing activities results primarily from investment
in and payments received on mortgage and interim construction loans and
church bonds.
Cash flows from financing activities relate primarily to the sale of
and payments on Certificates and borrowings and payments on notes
payable and the line of credit. Certificates are sold and
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borrowings are made as funds are needed to make loans or as current
obligations become due. Although the Trust has not sold Certificates
since July 18, 1994, based upon the Trust's decision to register
Certificates during the summer of 1995 and the success of the Trust to
sell Certificates and obtain borrowings in the past, the Trust is
confident that it will be able to sell Certificates and obtain
borrowings in the future in sufficient amounts, along with payments to
be received on loans, to timely meet its obligations.
Disclosure of Impact of Recently Issued Account Standards
See Note (3) to the Financial Statements on pages 20 through 23 of the
1995 Annual Report to Shareholders for information regarding the
expected impact of recently issued accounting standards.
Inflation
At March 31, 1995, the weighted average interest rate on the mortgage
loan and church bond portfolio of the Trust was 10.94% per annum while
the weighted average interest rate upon all borrowings of the Trust was
8.02% per annum. Although a majority of the loans constituting the loan
portfolio of the Trust have been made at variable rates of interest
that generally reprice annually, approximately 23.3% of the loans
constituting the Trust's loan portfolio have been made at fixed rates
of interest and therefore are not subject to being increased or
decreased during the term of the loan. All of the indebtedness of the
Trust is either directly or indirectly tied to the prime rate of
interest charged by major banking institutions and therefore is subject
to fluctuation. During periods of inflation, the prime rate of interest
charged by major banking institutions, as well as the interest rate or
cost of borrowing money from any lender, generally increases.
Consequently, during an inflationary period the interest expense of the
Trust would increase. Since the interest income of the Trust would not
increase as rapidly, an increase in the interest expense of the Trust
would decrease the net income of the Trust. However, interest income
should subsequently increase as variable rate loans reprice. Should the
amount of the loans and the amount of the indebtedness of the Trust
remain constant, and should the weighted average interest rate upon the
indebtedness increase to approximately 23.79% per annum, the interest
income and the interest expense of the Trust would be substantially
equal.
Item 7: FINANCIAL STATEMENTS
Financial Statements at March 31, 1995, and 1994 and for each of the
years in the three-year period ended March 31, 1995, are incorporated
by reference from Pages 14 through 27 of the 1995
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Annual Report to Shareholders.
The report of independent auditors with respect to the financial
statements at March 31, 1995, and 1994 and for each of the years in the
three-year period ended March 31, 1995 is incorporated by reference
from Page 13 of the 1995 Annual Report to Shareholders.
Item 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
KPMG Peat Marwick LLP was previously the principal accountants for the
Trust. As of June 1, 1995, KPMG Peat Marwick LLP sold its Amarillo,
Texas office to Clifton, Gunderson & Co. Therefore, on June 14, 1995
the Trust dismissed KPMG Peat Marwick LLP as the Trust's independent
auditors. The decision to change accountants was approved by the Board
of Trust Managers.
The KPMG Peat Marwick LLP report on the financial statements for the
past two fiscal years did not contain any adverse opinion, disclaimer
of opinion, nor any qualification or modification as to uncertainty,
audit scope, or accounting principles.
Furthermore, there were no disagreements with KPMG Peat Marwick LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not
resolved to their satisfaction would have caused them to make reference
in connection with their opinion to the subject matter of the
disagreement in regard to the audits of the fiscal years ended March
31, 1994 and March 31, 1995 and the subsequent interim period through
June 14, 1995. A letter from KPMG Peat Marwick LLP is attached as
Exhibit "16".
The Board of Trust Managers engaged Clifton, Gunderson & Co.,
independent certified public accountants, on June 14, 1995, as the
auditors of the financial statements of the Trust for the fiscal year
ending March 31, 1996.
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PART III
Item 9: DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
(a) Board of Trust Managers. The following information is
furnished as to each individual who now serves as a member of the
Board of Trust Managers of the Trust:
B. R. McMorries, age 68, is a consulting engineer. He has served
as a Trust Manager since 1963. He serves as Chairman of the Board
of Trust Managers.
Foy W. Shackelford, age 80, is a retired dentist. He has served as a
Trust Manager since 1963. He serves as Vice-Chairman of the Board of
Trust Managers.
Everett B. Blanton, Jr., age 73, is a retired dentist. He has served as
a Trust Manager since 1963.
Larry Brown, age 52, is the President of Larry Brown Realtors, Inc.
and is a licensed realtor. He has served as a Trust Manager since
1981. He serves as Secretary of the Board of Trust Managers.
Jack R. Vincent, age 65, is engaged in farming and ranching operations.
He has served as a Trust Manager since 1989.
Robert E. Martin, age 45, is the President/CEO of Santa Fe Federal
Credit Union. He has served as a Trust Manager since 1990.
Steve Rogers, age 47, is the President of Steve Rogers Co., a real
estate appraisal firm. He has served as a Trust Manager since 1990.
(b) Executive Officers. The following information is furnished as
to each individual who now serves as an executive officer of the
Trust who is not mentioned under "Board of Trust Managers" above:
M. Kelly Archer, age 43, serves as Manager of Operations and Chief
Financial Officer of the Trust. As such Mr. Archer functions as
the Executive Officer of the Trust. Mr. Archer has held this
position for 13 years.
Item 10: EXECUTIVE COMPENSATION
(a) Executive Officers:
The following table sets forth certain information regarding
compensation paid during each of the Trust's last three fiscal years to
the Trust's Manager of Operations (CEO). The Trust has no
-15-
<PAGE>
other executive officers whose salary, bonuses and other compensation
earned during fiscal 1995 exceeded $100,000 for services rendered in
all capacities.
Annual Compensation
----------------------------------------------------------------------
Name and Principal Fiscal Other Annual
Position Year Salary Bonus Compensation
--------------------- ----- ------- ----- ------------
CEO-M. Kelly Archer 1995 $112,200 0 $6,050
Manager of 1994 105,800 0 5,516
Operations 1993 96,733 0 4,893
(b) Trust Managers' Compensation:
The Board of Trust Managers of the Trust were paid $37,700 in cash as a
group during the last fiscal year for services as Trust Managers. The
Chairman of the Board of Trust Managers, B. R. McMorries, is paid $400
per month for serving in such capacity. The remaining members of the
Board of Trust Managers are paid $200 per month for serving as a member
of the board. All Trust Mangers are paid an additional $100 per board
or committee meeting attended.
The members of the Board of Trust Managers of the Trust are not
otherwise employed or compensated by the Trust.
Item 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) The following table indicates the persons known by the Trust to own
beneficially more than 5 percent of the shares of beneficial interest
in the Trust:
Name and Address of Amount of and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
-----------------------------------------------------------------------
B. R. McMorries 354,057 5.053%
-16-
<PAGE>
(b) The following table indicates the number of shares of beneficial
ownership interest in the Trust owned by the Board of Trust Managers
and Executive Officers, individually and as a group:
Name and Address of Amount of and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
-----------------------------------------------------------------------
B. R. McMorries 354,057 5.053%
Foy W. Shackelford 22,909 0.327%
Everett B. Blanton, Jr. 2,602 0.037%
Larry Brown 27,254 0.389%
Jack R. Vincent 5,564 0.079%
Robert E. Martin 3,012 0.043%
Steve Rogers 1,300 0.019%
M. Kelly Archer 59,589 0.850%
------- ------
All Trust Managers and
Executive Officers 476,287 6.797%
as a Group
Item 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Trust issues a limited number of "Master Notes" which are unsecured
debt instruments of the Trust. The Trust pays the obligee of such notes
interest at the rate of one percent per annum (1%) less than the prime
lending rate of Boatmen's First National Bank of Amarillo, the Trust's
primary lender. As of March 31, 1995, the Trust had entered into Master
Note Agreements with McMorries Trust, a trust established by and for
the benefit of B. R. McMorries, Chairman of the Board of Trust
Managers, in the amount of $260,728 and with Foy W. Shackelford,
Vice-Chairman of the Board of Trust Managers, in the amount of
$188,912. Furthermore, as of March 31, 1995, the Trust had issued and
outstanding Certificates issued to the following related parties and in
the following amounts: B. R. McMorries, Chairman of the Board of Trust
Managers, and related persons, in the amount of $500,000; and Larry
Brown, Secretary of the Board of Trust Managers, and related persons in
the amount of $140,000. The terms of such Master Notes and Certificates
are the same as Master Notes and Certificates entered into with other
unrelated persons, except as to the amounts thereof.
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<PAGE>
Item 13: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed on the accompanying Index to Exhibits are filed as
a part of this Annual Report.
(b) Reports on Form 8-K
None
-18-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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: June 26, 1995 By: /S/ B.R. McMorries
------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Capacity Date
/s/ B.R. McMorries Chairman of the Board 6-26-95
------------------ of Trust Managers
B.R. McMorries (Principal executive
officer)
------------------ Vice-Chairman of the
Foy W. Shackelford Board of Trust Managers
/s/ Larry Brown Secretary of the Board 6-26-95
------------------ of Trust Managers
Larry Brown
/s/ M. Kelly Archer Principal financial and 6-26-95
------------------ accounting officer
M. Kelly Archer
------------------ Trust Manager
Everett B. Blanton, Jr.
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<PAGE>
/s/ Jack R. Vincent Trust Manager 6-26-95
------------------
Jack R. Vincent
/s/ Robert E. Martin Trust Manager 6-26-95
------------------
Robert E. Martin
/s/ Steve Rogers Trust Manager 6-26-95
------------------
Steve Rogers
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
INDEX TO EXHIBITS
Item 13(a)
(3) - Declaration of Trust of Church Loans & Investments Trust,
as amended, has been previously filed under File No. 2-
51235 and is incorporated herein by reference.
Bylaws of Church Loans & Investments Trust, as
amended, has been previously filed under File No.
2-51235 and is incorporated herein by reference.
(4) - None other than those listed in (3) above.
(9) - None
(10) - None
(11) - Statement regarding computation of per share earnings -
omitted since information necessary to make the
computation is included in the Financial Statements and
Note 6 thereto.
(13) - Pages 13 through 27 of the 1995 Annual Report to
Shareholders
(16) - Letter dated June 28, 1995 from KPMG Peat Marwick LLP
(18) - None
(21) - None
(22) - None
(23) - None
(24) - None
(27) - Financial Data Schedule
(28) - None
-21-
Independent Auditors' Report
----------------------------
The Board of Trust Managers and Shareholders
Church Loans & Investments Trust:
We have audited the accompanying balance sheets of Church Loans & Investments
Trust (a real estate investment trust) as of March 31, 1995 and 1994, and the
related statements of income, shareholders' equity, and cash flows for each of
the years in the three-year period ended March 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Church Loans & Investments
Trust as of March 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the three-year period ended March 31, 1995,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
---------------------
Amarillo, Texas
May 5, 1995
-13-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Balance Sheets
March 31, 1995 and 1994
Assets 1995 1994
------ ---- ----
Cash and cash equivalents ...................... $ 366,977 429,431
Receivables (notes 3 and 4):
Mortgage loans and church bonds - earning .. 25,676,746 28,079,612
Interim construction loans - earning ....... 10,148,958 7,035,506
Nonearning mortgage loans, church bonds
and interim construction loans ........... 3,405,793 1,519,340
Less: Allowance for possible credit losses . (645,049) (563,824)
------------ ------------
38,586,448 36,070,634
------------ ------------
Accrued interest receivable ................ 339,633 329,834
Notes receivable ........................... 481,878 550,778
Other receivables .......................... 2,576 17,942
------------ ------------
Total receivables ............ 39,410,535 36,969,188
Property and equipment, net of accumulated
depreciation of $413,707 and $398,035 in
1995 and 1994, respectively ................ 244,635 260,307
Property held for investment ................... 83,714 83,714
Unamortized debt expense, net and other assets . 65,400 56,042
------------ ------------
$ 40,171,261 37,798,682
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Notes payable and line of credit (note 4):
Related party (note 8) ..................... $ 706,577 364,155
Other ...................................... 11,032,781 7,961,495
----------- -----------
11,739,358 8,325,650
Secured savings certificates (note 4):
Related party (note 8) ..................... 665,375 834,000
Other ...................................... 6,118,356 7,115,559
----------- -----------
6,783,731 7,949,559
Accrued interest payable ..................... 94,423 66,156
Federal income taxes payable ................. 5,010 5,799
Other ........................................ 314,771 179,059
----------- -----------
18,937,293 16,526,223
----------- -----------
Shareholders' equity (note 7):
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 ....................... 610,102 648,593
----------- -----------
Total shareholders' equity ....... 21,233,968 21,272,459
Commitments (note 3)
$40,171,261 37,798,682
=========== ===========
See accompanying notes to financial statements.
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Income
Years ended March 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Interest income and fees:
Interest and fees on mortgage loans, church
bonds and interim construction loans $4,387,244 4,291,973 4,526,243
Interest on temporary investments .... 19,686 31,132 15,454
---------- ---------- ----------
Total interest income and fees 4,406,930 4,323,105 4,541,697
Debt expense:
Interest ................................ 1,345,054 1,232,184 1,457,735
Amortization of:
Registration costs .................... 9,250 62,332 83,229
Commissions paid to brokers (note 2) .. 64,783 64,004 69,823
--------- --------- ---------
Total debt expense .............. 1,419,087 1,358,520 1,610,787
--------- --------- ---------
Other operating expenses:
General and administrative .............. 514,793 540,862 537,492
Board of Trust Managers' fees ........... 38,651 38,988 36,698
--------- --------- ---------
Total other operating expenses .. 553,444 579,850 574,190
--------- --------- ---------
Income before provision for
income taxes ................... 2,366,563 2,307,847 2,219,999
Provision for income taxes (note 5) ..... 22,537 19,505 19,575
---------- ---------- ----------
Net income ................... $2,344,026 2,288,342 2,200,424
========== ========== ==========
Net income per share (note 6) ........... $ .33 .33 .31
========== ========== ==========
See accompanying notes to financial statements.
-15-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Shareholders' Equity
Years ended March 31, 1995, 1994 and 1993
Shares of beneficial interest
---------------------------- Undistributed
Shares Amount net income
----------- ----------- -----------
Balance, March 31, 1992 ............. 7,007,402 $20,623,866 434,342
Cash dividends ($.30 per share) ..... -- -- (2,102,221)
Net income .......................... -- -- 2,200,424
----------- ----------- -----------
Balance, March 31, 1993 ............. 7,007,402 20,623,866 532,545
Cash dividends ($.31 per share) ..... -- -- (2,172,294)
Net income .......................... -- -- 2,288,342
----------- ----------- -----------
Balance, March 31, 1994 ............. 7,007,402 20,623,866 648,593
Cash dividends ($.34 per share) ..... -- -- (2,382,517)
Net income .......................... -- -- 2,344,026
----------- ----------- -----------
Balance, March 31, 1995 ............. 7,007,402 $20,623,866 610,102
=========== =========== ===========
See accompanying notes to financial statements.
-16-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Cash Flows
Years ended March 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 2,344,026 2,288,342 2,200,424
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ....................... 15,672 15,672 19,717
Amortization of debt expense ....... 74,033 126,336 153,052
Amortization of loan discounts ..... (248,914) (387,971) (472,857)
Provision for possible loan losses . 80,000 90,000 157,500
Changes in:
Accrued interest receivable ...... (9,799) 50,043 (118,486)
Accrued interest payable ......... 28,267 (21,936) 34,166
Federal income taxes payable ..... (789) 42 (1,343)
Other liabilities ................ 135,712 63,165 (69,761)
Other, net ......................... 20,520 12,649 74,948
---------- ---------- ----------
Net cash provided by
operating activities ........ 2,438,728 2,236,342 1,977,360
---------- ---------- ----------
Cash flows from investing activities:
Investment in mortgage and interim
constructionloans and church
bonds ........................... (17,971,292) (12,673,517) (26,480,724)
Payments received on mortgage and
interim construction loans and
church bonds .................... 15,623,167 16,055,666 16,711,276
Advances on notes receivable ...... (211,108) (406,800) (112,500)
Payments received on notes receivable 280,008 179,389 56,625
------- ------- ------
Net cash provided (used) by
investing activities ... (2,279,225) 3,154,738 (9,825,323)
---------- --------- -----------
Cash flows from financing activities:
Sale of secured savings certificates .$ 5,239,231 5,185,803 9,619,445
Borrowings on notes payable and line
of credit .......................... 15,086,352 7,458,524 26,601,001
Principal payments on:
Secured savings certificates ....... (6,405,059) (8,055,474) (6,025,511)
Notes payable and line of credit ...(11,672,644) (7,687,316) (19,911,263)
Registration costs of secured savings
certificates ....................... (8,290) (19,714) (102,105)
Commissions paid to brokers on issuance
of secured savings certificates .... (79,030) (46,346) (100,435)
Cash dividends paid .................. (2,382,517) (2,172,294) (2,102,221)
--------- --------- ---------
Net cash provided (used) by
financing activities ..... (221,957) (5,336,817) 7,978,911
--------- --------- ---------
Increase (decrease) in cash and
cash equivalents ......... (62,454) 54,263 130,948
Cash and cash equivalents at beginning
of year ................................ 429,431 375,168 244,220
------- ------- -------
Cash and cash equivalents at end of year. $ 366,977 429,431 375,168
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $1,316,787 1,254,120 1,423,569
========= ========= =========
Income taxes paid were not material in 1995, 1994 and 1993.
See accompanying notes to financial statements.
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Financial Statements
Years ended March 31, 1995, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Church Loans & Investments Trust (Church Loans) is a real estate
investment trust that invests primarily in mortgage loans to churches
across the United States, particularly in the southern portion of the
U.S. During 1995, Church Loans also began making certain interim real
estate construction loans to entities other than churches. Church Loans
requires that real estate properties be pledged against mortgage loans
as security which could be foreclosed by Church Loans should the
borrower default. Repayment of each borrower's obligations is generally
expected to be repaid from contributions from church members, or in the
case of interim construction loans, by permanent financing provided by
others.
CURRENT OPERATING ENVIRONMENT
Church Loans has historically invested in long-term, fixed-rate
mortgage loans, generally funded by relatively short-term secured
savings certificates (SSCs) and debt obligations. The volatility of
interest rates and increased competition to attract customers' funds
have caused Church Loans' liability structure to become short-term and
rate sensitive. Church Loans reflected an average interest yield on its
loan and church bond portfolio, an average interest rate on its total
indebtedness and a net interest rate margin at March 31, 1995, 1994 and
1993 as follows:
Loan and church Total Net interest
bond portfolio indebtedness rate margin
--------------- ------------ ------------
March 31, 1995 ................... 10.94 8.02 2.92
March 31, 1994 ................... 10.46 6.25 4.21
March 31, 1993 ................... 11.05 7.14 3.91
Church Loans finances maturities of SSCs and debt obligations through
its available lines of credit, the issuance of SSCs and principal
payments received on its mortgage loans.
CHURCH BONDS
Church bonds, secured by first mortgage liens on church facilities, are
stated at cost, as there is no traded market for the bonds and
management intends to hold such securities until maturity.
ALLOWANCE FOR POSSIBLE CREDIT LOSSES
The allowance for possible credit losses is established through a
provision for possible credit losses charged to expense. Loans and
church bonds are charged against the allowance when management believes
that the collectibility of the principal is unlikely.
Recoveries of amounts previously charged off are credited to the
allowance. The charge to operations is based on management's evaluation
of the loan and church bond portfolio, including such factors as the
security collateralizing the loans or church bonds, past credit loss
experience and general economic conditions.
-18-
<PAGE>
RECOGNITION OF INTEREST INCOME, ORIGINATION AND COMMITMENT FEES AND
LOAN DISCOUNTS
Interest income on mortgage loans and church bonds is recognized when
earned. The accrual of interest income is generally discontinued on
mortgage loans and church bonds more than 90 days past due or when
there is sufficient doubt as to the collection of interest.
Loan origination fees are collected only on a few permanent loans and
generally recognized as income when received and the associated loan
origination costs are expensed when incurred. The effect on the
accompanying financial statements is not materially different from
generally accepted accounting principles which require that loan fees,
net of origination costs, be deferred and amortized into interest
income over the life of the related loan.
Commitment fees received on interim construction loans are recognized
over the interim commitment period for loans that are not permanently
financed by Church Loans and over the life of the mortgage loan for
loans that are permanently financed by Church Loans. Amounts are being
amortized using the straight-line method. This method was not
materially different from the method of deferring commitment fees until
the commitment is exercised and recognizing such fees as an adjustment
to yield by the interest method over the related loans' lives as
prescribed by generally accepted accounting principles for each of the
years in the three-year period ended March 31, 1995.
Purchase discounts on loans are amortized based on the interest method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided on the straight-line method over
the estimated useful lives of the assets, which range from 3 to 18
years.
UNAMORTIZED DEBT EXPENSE
Commissions paid to brokers (see note 2) in connection with the sale of
SSCs are deferred and amortized over the terms of the related
certificates on the interest method. Costs incurred in connection with
the registration of SSCs are deferred and amortized on the
straight-line method over the period the related certificates are sold,
but no longer than two years from the date the registration becomes
effective.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Statement 109 requires a change from the deferred
method of accounting for income taxes of APB Opinion 11 to the asset
and liability method of accounting for income taxes. Under the asset
and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
Pursuant to the deferred method under APB Opinion 11, which was applied
in 1993 and prior years, deferred income taxes were recognized for
income and expense items that were reported in different years for
financial reporting purposes and income tax purposes using the tax rate
applicable for the year of the calculation. Under the deferred method,
deferred taxes were not adjusted for subsequent changes in tax rates.
Statement 109 was adopted effective April 1, 1993 on a prospective
basis and the effect of adoption was not significant to Church Loans'
financial statements.
-19-
<PAGE>
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash-on-hand, investment in a money market mutual fund and certificates
of deposit with maturities of less than 90 days at the time of
acquisition.
(2) BROKER FEES
Church Loans had an agreement with Great Nation Investment Corporation
(Great Nation) whereby Great Nation used its best efforts to sell SSCs
registered by Church Loans. The agreement provided that Church Loans
would pay Great Nation a commission on the basis of an annualized rate
equal to three-fourths of one percent per annum of the face amount of
each certificate sold by Great Nation. Effective July 18, 1994, Church
Loans decided not to register and is presently unable to sell
additional SSCs (see note 4).
(3) MORTGAGE AND INTERIM CONSTRUCTION LOANS
Mortgage loans receivable consist of conventional loans of $26,604,107
and $28,564,372 and interest-bearing church bonds due principally from
congregations of Churches of Christ of $957,455 and $1,034,580 at March
31, 1995 and 1994, respectively. Interim construction loans of
$11,669,935 and $7,035,506 at March 31, 1995 and 1994, respectively,
consist primarily of loans to churches for the construction of church
facilities. Mortgage loans, church bonds and interim construction loans
are generally secured by first liens on real estate comprised primarily
of church buildings, ministers' residences and other real estate. The
amount of a loan is generally limited to 66-2/3% of the appraised value
of the related property. Certain loans are guaranteed by individual
members of the congregations or other individuals or congregations,
depending on the circumstances. The individual endorsements are usually
for a specific amount with the sum of all such guarantees being an
amount at least equal to the loan amount.
Church Loans' portfolio included mortgage loans, church bonds and
interim construction loans with interest rates ranging from 7.00% to
15.75% at March 31, 1995. The weighted average annual interest rates of
Church Loans' loan and church bond portfolio were 10.94% and 10.46% at
March 31, 1995 and 1994, respectively. The weighted average annual
interest rates for the loan and church bond portfolios were 11.0% for
the year ended March 31, 1995 and 11.2% for each of the years ended
March 31, 1994 and 1993.
-20-
<PAGE>
The following schedule is a summary of the combined mortgage, church
bonds and interim construction loan portfolios by size of loan at March
31, 1995 and 1994:
1995 1994
----------------- -------------------
No. of Carrying No. of Carrying
Description loans amount loans amount
----------- ----- ------ ----- ------
Over $1,500,000 ........ 6 $10,663,047 4 $ 8,716,029
$1,300,000-1,499,999 ... 2 2,748,334 -- --
$1,000,000-1,299,999 ... 1 1,251,964 1 1,283,454
$900,000-999,999 ....... 1 942,152 3 2,806,059
$800,000-899,999 ....... 2 1,665,971 2 1,655,977
$700,000-799,999 ....... 2 1,561,730 2 1,478,995
$600,000-699,999 ....... 2 1,258,067 1 692,478
$500,000-599,999 ....... 5 2,691,005 4 2,162,176
$400,000-499,999 ....... 3 1,335,956 5 2,262,770
$300,000-399,999 ....... 8 2,851,470 7 2,515,406
$200,000-299,999 ....... 19 4,593,451 21 4,626,660
$100,000-199,999 ....... 34 4,887,705 27 3,863,283
Under $100,000 ......... 109 4,090,472 167 5,945,646
----------- ----------- ----------- -----------
194 40,541,324 244 38,008,933
=== ===
Less: unamortized purchase discounts
on mortgage loans 1,309,827 1,374,475
Less: allowance for possible
credit losses 645,049 563,824
------- -------
$ 38,586,448 $ 36,070,634
========== ==========
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<PAGE>
The mortgage and interim construction loan portfolios included the
following loans at March 31, 1995, with individual balances in excess
of 3% of the total carrying amount of the combined portfolios:
Arlington Baptist Church, Baltimore, Maryland; interest at
11.25%; monthly payments of $24,265 to maturity on
September 1, 2017 ............................................ $2,379,883
The Living Word Church, Middletown, Ohio; interest at 9.75%;
monthly payments of $40,256 to maturity on May 1, 2009 ....... 1,803,168
Great Plains Assisted Living, LLC, Olathe, Kansas; interest at
prime + 2% (11.00% at March 31, 1995); principal and
interest due at maturity on May 2, 1995 ....................... 1,736,815
First United Pentecostal Church of Arnold, Arnold, Maryland;
interest at 11.00%; monthly payments of $16,225 to
maturity on September 1, 2020 ................................. 1,657,707
New Jerusalem Church, Lansing, Michigan; interest at prime + 2%
(11.00% at March 31, 1995); monthly payments of $17,686 to
maturity on December 1, 1995 .................................. 1,564,496
St. Stevens Church of God in Christ, San Diego, California; interest
at prime + 2% (11.0% at March 31, 1995); principal and
interest due at maturity on October 25, 1994 (included in
nonearning assets
at March 31, 1995) ............................................. 1,520,977
Sedona Assisted Living, LLC, San Antonio, Texas; interest at
prime + 2% (11.00% at March 31, 1995); principal and interest
due at maturity on June 1, 1995 ................................ 1,382,710
Duncanville Church of Christ, Duncanville, Texas; interest at 8.25%;
monthly payments of $27,000 to maturity on February 1, 1998 .... 1,365,624
Sterling Partners, LLC, Ponca City, Oklahoma; interest at prime +
2% (11.00% at March 31, 1995); principal and interest due at
maturity on August 1, 1995 ..................................... 1,251,964
---------
$ 14,663,344
==========
-22-
<PAGE>
In the normal course of business, Church Loans makes commitments to
extend credit which are not reflected in the financial statements.
These commitments involve elements of credit risk, interest rate risk,
liquidity risk and market risk. At March 31, 1995, Church Loans had
outstanding loan commitments (by contract amounts) of approximately
$1,824,000. Church Loans has no other financial instruments with
off-balance sheet risk.
Nonaccrual mortgage loans, church bonds and interim construction loans
at March 31, 1995, 1994 and 1993 were $3,405,793, $1,519,340 and
$1,641,561, respectively. Interest income which would have been
recorded under the original terms of nonaccrual loans and church bonds
amounted to $282,551, $171,367 and $186,266 for the years ended March
31, 1995, 1994 and 1993, respectively. No interest income was actually
recognized.
The original terms of the individual loans included in the loan
portfolio generally vary from 1 to 30 years. Scheduled maturities
during the five years subsequent to March 31, 1995, are:
1996 $ 16,618,243
1997 2,546,974
1998 2,376,248
1999 2,160,259
2000 1,516,973
=========
At March 31, 1995, mortgage loans were pledged to support indebtedness
of Church Loans as follows:
Term notes payable to banks and
line of credit payable to bank $ 14,452,698
Secured savings certificates 9,676,303
---------
Total mortgage loans pledged $ 24,129,001
==========
A summary of transactions in the allowance for possible credit losses
for the years ended March 31, 1995, 1994 and 1993 follows:
1995 1994 1993
---- ---- ----
Balance at beginning of year .......... $563,824 478,345 338,373
Provisions charged to operating
expenses ............................ 80,000 90,000 157,500
Amounts recovered (charged off) ....... 1,225 (4,521) (17,528)
-------- -------- --------
Balance at end of year ................ $645,049 563,824 478,345
======== ======== ========
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan.
This Statement amends FASB Nos. 5, Accounting for Contingencies, and
15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings, and prescribes the recognition criterion for loan
impairment and the measurement methods for certain impaired loans and
loans whose terms are modified in troubled-debt restructurings. The
objective of Statement 114 is to provide consistent guidance to all
creditors with loans included in the scope of the Statement. Statement
114 is effective for financial statements for fiscal years beginning
after December 15, 1994 and is required to be adopted prospectively. In
October 1994, the FASB issued Statement No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures. Statement No. 118 amends Statement No. 114 to allow a
creditor to use existing methods for recognizing interest income on an
impaired loan and amends certain disclosure requirements. The adoption
of Statements No. 114 and No. 118 on April 1, 1995 did not have a
material effect on Church Loans financial statements.
-23-
<PAGE>
(4) DEBT OBLIGATIONS
Information relating to debt obligations follows:
<TABLE>
<CAPTION>
Weighted average Maximum amount Average Weighted average
Balance at interest rate outstanding at month-end interest rate
end of period at end of period any month-end balance for the period
------------- ---------------- -------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
March 31, 1995
- --------------
Term notes payable
to banks ...................................... $ 2,666,667 10.00% $ 5,333,333 4,000,000 8.81%
Line of credit payable
to bank ....................................... 5,600,001 9.00%* 5,600,001 3,383,463 8.03%
Other demand notes
payable ....................................... 3,472,690 8.00% 3,472,690 2,060,075 7.50%
----------- ===== =========== =========== ====
11,739,358
Secured savings
certificates .................................. 6,783,731 6.45% $10,629,662 8,592,445 6.24%
----------- ===== =========== =========== ====
Total .................................... $18,523,089 8.02% $20,368,990 18,035,982 7.29%
=========== ===== =========== =========== ====
March 31, 1994
- --------------
Term notes payable
to banks ...................................... $ 5,333,333 7.25% $ 7,777,778 6,666,666 7.12%
Line of credit payable
to bank ....................................... 1,000,001 6.25%* 2,000,001 580,770 6.01%
Other demand notes
payable ....................................... 1,992,316 6.65% 2,134,147 1,715,084 5.10%
----------- ===== =========== =========== ====
8,325,650
Secured savings
certificates .................................. 7,949,559 5.82% $10,697,992 8,982,097 6.58%
----------- ===== =========== =========== ====
Total .................................... $16,275,209 6.25% $22,609,918 17,944,617 6.61%
=========== ===== =========== =========== ====
March 31, 1993
- --------------
Term notes payable
to banks ...................................... $ 8,000,000 7.00% $10,000,000 4,500,000 7.20%
Line of credit payable
to bank ....................................... 1 6.00%* 7,000,000 1,348,846 6.26%
Other demand notes
payable ....................................... 554,441 6.87% 1,864,703 754,004 5.40%
----------- ===== =========== =========== ====
8,554,442
Secured savings
certificates .................................. 10,819,230 7.35% $11,146,361 9,185,816 8.15%
----------- ===== =========== =========== ====
Total .................................... $19,373,672 7.14% $30,011,064 15,788,666 7.64%
=========== ===== =========== =========== ====
<FN>
* Does not consider commitment fees.
</FN>
</TABLE>
Maturities of debt for each of the three years subsequent to March 31,
1995, are:
1996 $14,322,712
1997 2,915,377
1998 1,285,000
-----------
$18,523,089
===========
Included in maturities for the year ended March 31, 1996 are other
demand notes payable of $3,472,690.
All debt obligations, except for other demand notes payable, are
secured by the pledge of specific mortgage notes receivable
(see note 3).
-24-
<PAGE>
Maturities of SSCs and debt obligations are financed through principal
payments received on mortgage loans, advances on other demand notes
payable and advances on the $10,000,000 line of credit which is
expected to be renewed on an annual basis.
Descriptions of the various categories of debt obligations follow:
SECURED SAVINGS CERTIFICATES
SSCs 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. As
discussed in note 2, effective July 18, 1994, Church Loans decided not
to register and is presently unable to sell additional SSCs. However,
during April 1995, the Board of Trust Managers decided to register
additional SSCs in the summer of 1995.
The 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% of the aggregate
principal amount of SSCs 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, Church Loans 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 of Church Loans and has waived declaration of a
default under the Indenture. As of March 31, 1995 and 1994, Church
Loans was in compliance with the requirement.
TERM NOTES PAYABLE TO BANKS
Church Loans has two term notes payable to banks that each had an
original principal sum of $5,000,000. One note has a term of three
years and is payable in monthly installments of $138,889. The other
note has a term of five years and is payable in monthly installments of
$83,333.
Both term notes payable to banks bear interest at prime plus 1% (10% at
March 31, 1995) and are collateralized by mortgage loans receivable
with carrying values equal to at least 120% of the aggregate principal
amount of the outstanding notes, subject to certain limitations. All
collateral is cross-pledged against the Line of Credit Payable to Bank.
The term notes are subject to loan agreements that require, among other
things, that Church Loans' net worth not be less than $18,000,000 and
its total indebtedness shall not exceed 150% of its net worth. At March
31, 1995, Church Loans' total indebtedness was approximately
$13,400,000 less than the maximum amount permitted under the agreement.
LINE OF CREDIT PAYABLE TO BANK
Line of credit payable to bank consists of borrowings under a loan
agreement effective through September 1, 1995, that provides for a
$10,000,000 line of credit with a commitment fee of 1/4% to 3/8% per
annum on the unadvanced portion. The loan agreement requires Church
Loans to pledge mortgage loans receivable having unpaid principal
balances with an aggregate present value, discounted at 1% over the
prime rate (10% at March 31, 1995), of not less than 110% of all
indebtedness owed to the bank. Such pledged loans are also
cross-pledged against the Term Notes Payable to Banks. Interest accrues
at the prime rate and is payable semiannually.
The loan agreement contains restrictions similar to those limits
contained in the loan agreements relating to the Term Notes Payable to
Banks and also limits demand notes payable to $4,000,000 ($2,000,000 in
1994).
DEMAND NOTES PAYABLE
The demand notes payable bear interest at 1% less than the prime rate
(payable monthly) and are unsecured (see note 8).
-25-
<PAGE>
(5) INCOME TAX PROVISION
Church Loans has elected to be taxed as a real estate investment trust
under the provisions of the Internal Revenue Code. To qualify as a real
estate investment trust under the Code, Church Loans must, among other
things, distribute at least 95% of its taxable income to its
shareholders through dividends. Church Loans is required to pay
dividends of at least 85% of its calendar year undistributed income by
February 1 or be subject to a special federal excise tax of 4% on the
undistributed amount.
As discussed in note 1, Church Loans adopted Statement 109 as of April
1, 1993. The cumulative effect of this change in accounting for income
taxes and the related deferred taxes were not significant to Church
Loans' financial statements.
Total income tax expense for the years ended March 31, 1995, 1994 and
1993 is less than the amount computed by applying the applicable
statutory federal income tax rate (35% for 1995 and 1994, respectively,
and 34% for 1993) to income before provision for income taxes as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" federal income tax expense $ 828,297 807,746 754,800
Increases (decreases) in taxes resulting from:
Dividends ................................. (809,355) (784,829) (738,570)
Graduated rate differential ............... (12,478) (12,750) (11,750)
Difference in provision for loan losses for
financial and tax purposes .............. (70,690) (22,582) (20,410)
Difference in accounting for interest
recognized for financial and tax purposes 86,763 31,920 35,505
--------- --------- ---------
Actual tax expense ........................... $ 22,537 19,505 19,575
========= ========= =========
</TABLE>
(6) NET INCOME PER SHARE
Net income per share of beneficial interest is based on the weighted
average number of shares outstanding, which was 7,007,402 for each of
the years ended March 31, 1995, 1994 and 1993. There were no share
equivalents or other potentially dilutive securities outstanding during
any of the periods presented.
(7) DIVIDENDS
All dividends paid by Church Loans are taxable as ordinary income to
the recipient. A schedule of dividends paid during the years ended
March 31, 1995, 1994 and 1993 follows:
Divdend amount
-------------------------
Date of record Date paid Per share Total
-------------- --------- --------- ----------
March 31, 1992 May 1992 $ .07 490,518
December 31, 1992 January 1993 .23 1,611,703
March 31, 1993 May 1993 .08 560,592
December 31, 1993 January 1994 .23 1,611,702
March 31, 1994 May 1994 .09 630,667
December 31, 1994 January 1995 .25 1,751,850
In April 1995, a dividend of $560,592 ($.08 per share) was declared for
stockholders of record on March 31, 1995.
-26-
<PAGE>
(8) RELATED PARTY TRANSACTIONS
Other demand notes payable at March 31, 1995 and 1994 included notes
totaling $706,577 and $364,155, respectively, which represent
borrowings from related parties. The notes bear interest at 1% less
than the prime rate and are unsecured. Interest expense incurred on
related party other demand notes payable was not significant for 1995,
1994 or 1993 (see note 4).
Secured savings certificates at March 31, 1995 and 1994 include
certificates totaling $665,375 and $834,000, respectively, which
represent liabilities to related parties. Interest expense incurred on
savings certificates of related parties was not significant for 1995,
1994 or 1993 (see note 4).
(9) QUARTERLY OPERATING RESULTS (UNAUDITED)
The following quarterly operating results are unaudited, but, in the
opinion of management, include all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of Church Loans'
operating results for the periods indicated:
Quarter Ended
June 30 September 30 December 31 March 31
------- ------------ ----------- --------
Year ended March 31, 1995
Interest income and fees .. $1,092,240 1,132,631 1,089,328 1,092,731
Debt expense .............. 315,023 367,250 357,845 378,969
Net interest income ....... 777,217 765,381 731,483 713,762
Net income ................ 623,903 637,656 590,371 492,096
Net income per share ...... .09 .09 .08 .07
Quarter Ended
June 30 September 30 December 31 March 31
------- ------------ ----------- --------
Year ended March 31, 1994
Interest income and fees .. $1,228,979 1,024,269 1,021,687 1,048,170
Debt expense .............. 390,425 350,936 308,740 308,419
Net interest income ....... 838,554 673,333 712,947 739,751
Net income ................ 652,662 527,230 572,809 535,641
Net income per share ...... .09 .08 .08 .08
-27-
June 28, 1995
Office of the Chief Accountant
SECPS Letter Files
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Ladies and Gentlemen:
We were previously principal accountants for Church Loans & Investments Trust
and, under the date of May 5, 1995, we reported on the financial statements of
Church Loans & Investments Trust as of March 31, 1995 and 1994 and for the three
year period ended March 31, 1995. On June 14, 1995 our appointment as principal
accountants was terminated. We have read Church Loans & Investments Trust
statements included under Item 4 of its Form 8-K dated June 14, 1995 and
included under Item 4 of its Form 8-K/A dated June 28, 1995, and we agree with
such statements, except that we are not in a position to agree or disagree with
Church Loans & Investments Trust's statement that the change was approved by the
Board of Trust Managers.
Very truly yours,
/s/ KPMG Peat Marwick LLP
Fort Worth, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's financial statements as of and for the year ended March 31,
1995 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 366,977
<SECURITIES> 0
<RECEIVABLES> 40,055,584
<ALLOWANCES> 595,049
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 413,707
<TOTAL-ASSETS> 40,221,261
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 20,623,866
0
0
<OTHER-SE> 610,102
<TOTAL-LIABILITY-AND-EQUITY> 40,221,261
<SALES> 4,419,094
<TOTAL-REVENUES> 4,419,094
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 627,477
<LOSS-PROVISION> 80,000
<INTEREST-EXPENSE> 1,345,054
<INCOME-PRETAX> 2,366,563
<INCOME-TAX> 22,537
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,344,026
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
