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FORM 10-KSB405
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996
[_] 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
------------------------
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: $4,207,176.
The aggregate market value of the voting stock held by
non-affiliates of the registrant is $14,685,039.00 as of June 15, 1996.
The number of shares outstanding of each of the issuer's classes
of common stock, as of March 31, 1996 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 - 1996
CHURCH LOANS & INVESTMENTS TRUST
Page
----
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 ................... 12
Item 8: Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure .................. 12
PART III
Item 9: Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act ..... 12
Item 10: Executive Compensation ................. 13
Item 11: Security Ownership of Certain Beneficial
Owners and Management ................. 14
Item 12: Certain Relationships and Related
Transactions .......................... 15
Item 13: Exhibits and Reports on Form 8-K ....... 16
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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, 1996, the Trust has 173 permanent and interim
mortgage loans and investments in church bonds having a principal
balance of $33,680,044, with the average principal amount thereof
being $194,682.34. The interest rates on these loans vary from
7.0% to 17% per annum with the weighted average interest rate of
mortgage loans and church bonds being 11.21% per annum at March
31, 1996. The original terms of these loans vary from 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, 1996, the
net income of the Trust was $2,359,130, as compared to $2,344,026
in fiscal 1995, an increase of .006%. The increase in net income
of the Trust was due primarily to an increase in net interest
income in fiscal 1996 as compared to fiscal 1995.
The net income of the Trust for each of the quarters during
fiscal 1996 was as follows: first quarter $644,032; second
quarter $596,635; third quarter $587,838; and fourth quarter
$530,625.
The operational expense of the Trust increased from $553,444
during fiscal 1995 to $554,397 in fiscal 1996. The operational
expenses of the Trust were approximately 13.18% of its gross
income for the year ended March 31, 1996 as compared to 12.56%
for the year ended March 31, 1995. The operational expense of the
Trust included general and administrative expenses and
compensation to members of the Board of Trust Managers.
During fiscal 1996, the Trust advanced loan proceeds of
$11,424,033 on 34 different loans. 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 1996, 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 PROPERTY
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 1996 a total of
81,805 shares were sold in the secondary market at prices ranging
from $2.25 to $2.31 per share. The last sale during the fiscal
year was at $2.25 per share. During fiscal year 1995 a total of
171,610 shares were sold in the secondary market at prices
ranging from $2.00 to $2.50 per share.
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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 1996 Fiscal 1995
------- High Low High Low
----- ---- ------ -----
April-June ..... 2.30 2.25 2.20 2.00
July-September . 2.30 2.25 2.30 2.10
October-December 2.31 2.25 2.30 2.20
January-March .. 2.30 2.25 2.50 2.25
(b) Holders
At March 31, 1996 there were 2,838 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 1995 the Trust paid a cash dividend of $.34 per share. In
fiscal 1996 the Trust paid a total cash dividend of $.32 per
share.
Item 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations--1996 compared to 1995
During the fiscal year ended March 31, 1996, interest income and
fees of the Trust decreased by $199,754 (4.53%) over the previous
fiscal year. Such decrease was primarily attributable to a
decrease in the amount of both mortgage loans and interim
construction loans held by the Trust. Earning interim
construction loans decreased from $10,148,958 as of March 31,
1995 to $7,877,489 as of March 31, 1996. Furthermore, earning
mortgage loans and church bonds decreased from $25,676,746 as of
March 31, 1995 to $21,886,390 as of March 31, 1996. Such decrease
in mortgage loans and church bonds 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 somewhat offset by an
increase in the average annual interest rate on loans and church
bonds from 10.94% at March 31, 1995 to 11.21% at March 31, 1996.
In fiscal 1996, the average aggregate amount of total debt
outstanding was $3,946,475 less than in fiscal 1995. Furthermore,
interest expense decreased by $223,743. Such decrease was
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primarily due to a decrease in the debt of the Trust and
secondarily to a decrease in the Trust's cost of funds. The
decrease in the debt of the Trust was primarily due to a decrease
in interim loans made by the Trust. The approximate weighted
average annual interest rate upon the aggregate outstanding debt
increased from 7.29% during fiscal 1995 to 7.72% during fiscal
1996.
The net income of the Trust increased $15,104 (0.006%) from the
previous fiscal year. Such increase was primarily attributable to
an increase in net interest income in fiscal 1996 as compared to
fiscal 1995.
During fiscal 1996, the prime interest rate decreased from 9.00%
at March 31, 1995 to 8.25% per annum at March 31, 1996. Should
the prime interest rate decrease during fiscal 1997, 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 1997, 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 increased from
$15,623,167 during fiscal 1995 to $18,434,281 during fiscal 1996,
an increase of 17.99%. This increase was primarily attributable
to the increase in interim loans held by the Trust as of March
31, 1995 which were paid off during the fiscal year and to a
decrease in the amount of non-performing loans of the Trust from
$3,405,793 as of March 31, 1995 to $2,769,345 as of March 31,
1996. The non-performing loans of the Trust as compared to the
entire loan portfolio of the Trust decreased slightly from 8.68%
as of March 31, 1995 to 8.51% as of March 31, 1996.
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
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 1999.
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<PAGE>
The annual maturities upon all debt obligations of the Trust
outstanding as of March 31, 1996 for the next three fiscal years
are: 1997--$7,176,063; 1998-$2,865,068; and 1999-$2,060,324.
These debt obligations primarily consist of the Trust's bank line
of credit and Secured Savings Certificates ("Certificates") which
have been previously issued by the Trust. Certificates
outstanding as of March 31, 1996 that will mature during the next
three years are: 1997--$2,619,983; 1998--$2,865,068; and
1999-$2,060,324.
At March 31, 1996 loans to the Trust under Master Note Agreements
which are in effect demand notes total $4,006,079. 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.
At March 31, 1996, the balance which could be borrowed by the
Trust upon its bank line of credit was $9,449,999. The principal
payments scheduled to be received by the Trust upon its loan
portfolio for the years ending March 31, 1997, 1998 and 1999 are
$11,557,673, $2,105,685, and $1,890,629, 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 1996 and 1995 the Trust sold Certificates in the
principal amounts of $4,595,999 and $5,239,231, 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. Therefore, effective
July 18, 1994, the Trust decided not to register Certificates. As
a result of such action, the Trust was unable to sell
Certificates from such date until September 7, 1995, when the
registration of additional Certificates became effective. 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
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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, 1996, the principal balance of the loan
and church bond portfolio of the Trust was $32,533,224. The
weighted average interest rate on loans and church bonds was
11.21% 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 $30,391,450, $26,049,814, and $22,793,588,
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, 1997,
1998 and 1999, 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 interest charged by major
domestic banks.
As of March 31, 1996, 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, 1996 promissory
notes in the principal amount of $9,424,292 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 in Series A-N and a ratio of 1.0 to 1 for
Certificates in Series O) was $8,282,719, leaving an excess of
promissory notes which have been pledged by the Trust to secure
said Certificates of $1,141,573. Additionally, promissory notes
totalling $9,691,421 were pledged against the bank line of credit
which had a total outstanding balance of $550,001. The required
collateral for this bank loan was $605,001, leaving an excess of
promissory notes which have been pledged to secure said bank
notes of $9,086,420. These excess promissory notes may be
reassigned by the Indenture Trustee
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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 $10,227,993 and other additional promissory notes in
the approximate amount of $13,417,511 (for a total amount of
$23,645,504) 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 and the bank line of credit would continue to be secured by
the required ratio of notes pledged to the principal balance of
these Certificates and the bank line of credit. 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. The amount of non-performing loans
as of March 31, 1996 compared to March 31, 1995 decreased.
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
borrowings are made as funds are needed to make loans or as
current obligations become due. Based upon 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.
Inflation
At March 31, 1996, the weighted average interest rate on the
mortgage loan and church bond portfolio of the Trust was 11.21%
per annum while the weighted average interest rate upon all
borrowings of the Trust was 7.10% 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, a portion 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
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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 34.77% 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, 1996, and 1995 and for each of
the years in the two-year period ended March 31, 1996, are
incorporated by reference from Pages 13 through 26 of the 1996
Annual Report to Shareholders.
The report of independent auditors with respect to the financial
statements at March 31, 1996, and 1995 and for each of the years
in the two-year period ended March 31, 1996 is incorporated by
reference from Page 12 of the 1996 Annual Report to Shareholders.
Item 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
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 69, 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 81, is a retired dentist. He has served
as a Trust Manager since 1963.
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Everett B. Blanton, Jr., age 74, is a retired dentist. He has
served as a Trust Manager since 1963.
Larry Brown, age 53, 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 66, is engaged in farming and ranching
operations. He has served as a Trust Manager since 1989.
Robert E. Martin, age 46, is the President/CEO of Santa Fe
Federal Credit Union. He has served as a Trust Manager since
1990. He serves as Vice-Chairman of the Board of Trust Managers.
Steve Rogers, age 48, 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 44, 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 14 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 other executive officers whose salary, bonuses and other
compensation earned during fiscal 1996 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 1996 $110,333 0 $6,665
Manager of 1995 112,200 0 6,050
Operations 1994 105,800 0 5,516
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(b) Trust Managers' Compensation:
The Board of Trust Managers of the Trust were paid $39,700 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 351,913 5.022%
(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:
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Name and Address of Amount of and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
-----------------------------------------------------------------------
B. R. McMorries 351,913 5.022%
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 66,164 0.940%
------- ------
All Trust Managers and
Executive Officers 480,718 6.860%
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, 1996, the Trust had entered into Master Note Agreements
with B. R. McMorries, Chairman of the Board of Trust Managers,
and related persons, in the amount of $569,167; and with Foy W.
Shackelford, Member of the Board of Trust Managers, in the amount
of $241,961. Furthermore, as of March 31, 1996, 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 $290,000; Larry Brown, Secretary of the Board of
Trust Managers, and related persons, in the amount of $70,000;
and Jack Vincent, Member of the Board of Trust Managers, and
related persons, in the amount of $125,692.19. 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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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
-16-
<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, 1996 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 6-26-96
------------------ 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 6-26-96
------------------ of Trust Managers
Larry Brown
/s/ M. Kelly Archer Principal financial and 6-26-96
------------------ accounting officer
M. Kelly Archer
------------------ Trust Manager ___/___/___
Everett B. Blanton, Jr.
-17-
<PAGE>
/s/ Jack R. Vincent Trust Manager 6-26-96
------------------
Jack R. Vincent
/s/ Robert E. Martin Trust Manager 6-26-96
------------------
Robert E. Martin
/s/ Steve Rogers Trust Manager 6-26-96
------------------
Steve Rogers
-18-
<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 4 thereto.
(13) - Pages 12 through 26 of the 1996 Annual Report to
Shareholders
(16) - None
(18) - None
(21) - None
(22) - None
(23) - None
(24) - None
(27) - Financial Data Schedule
(28) - None
-19-
The Board of Trust Managers and Shareholders
Church Loans & Investments Trust
Amarillo, Texas
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Church Loans & Investments
Trust (a real estate investment trust) as of March 31, 1996, and the related
statements of income, shareholders' equity, and cash flows for the year then
ended. 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 audit. The accompanying 1995 financial statements of
Church Loans & Investments Trust were audited by other auditors whose report
dated May 5, 1995, expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of Church Loans & Investments
Trust as of March 31, 1996, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
/s/ Clifton Gunderson P.L.L.C.
--------------------------
Amarillo, Texas
May 1, 1996
-12-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
BALANCE SHEETS
MARCH 31, 1996 AND 1995
ASSETS 1995 1994
------ ---- ----
CASH AND CASH EQUIVALENTS ...................... $ 722,430 $ 366,977
RECEIVABLES
Mortgage loans and church bonds - earning .. 21,886,390 25,676,746
Interim construction loans - earning ....... 7,877,489 10,148,958
Nonearning mortgage loans, church bonds
and interim construction loans ........... 2,769,345 3,405,793
Less: Allowance for possible credit losses . (728,665) (645,049)
------------ ------------
31,804,559 38,586,448
------------ ------------
Accrued interest receivable ................ 307,291 339,633
Notes receivable ........................... 483,631 481,878
Other receivables .......................... -- 2,576
------------ ------------
Total receivables ............ 32,595,481 39,410,535
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $429,377 and $413,707 in
1996 and 1995, respectively ................ 228,965 244,635
PROPERTY HELD FOR INVESTMENT ................... 83,714 83,714
UNAMORTIZED DEBT EXPENSE, net and other assets . 86,730 65,400
------------ ------------
TOTAL ASSETS .................. $ 33,717,320 $ 40,171,261
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ......................... $ 1,482,250 $ 706,577
Other ................................. 3,073,830 11,032,781
------------ ------------
4,556,080 11,739,358
Secured savings certificates:
Related party ......................... 485,692 665,375
Other ................................. 7,059,683 6,118,356
------------ ------------
7,545,375 6,783,731
Accrued interest payable .................. 37,817 94,423
Federal income taxes payable .............. 7,060 5,010
Other ..................................... 220,259 314,771
------------ ------------
Total current liabilities .... 12,366,591 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 ...................... 726,863 610,102
------------ ------------
Total shareholders' equity ... 21,350,729 21,233,968
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ...................... $ 33,717,320 $ 40,171,261
============ ============
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-13-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995
---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage loans, church
bonds and interim construction loans ...... $4,174,217 $4,387,244
Interest on temporary investments .......... 32,959 19,686
---------- ----------
Total interest income and fees 4,207,176 4,406,930
DEBT EXPENSE
Interest ................................... 1,121,311 1,345,054
Amortization of:
Registration costs ....................... 21,321 9,250
Commissions paid to brokers .............. 50,212 64,783
---------- ----------
Total debt expense ............ 1,192,844 1,419,087
---------- ----------
Net interest income ........... 3,014,332 2,987,843
PROVISION FOR POSSIBLE
CREDIT LOSSES .............................. 85,000 80,000
---------- ----------
Net interest income less provision
for possible credit losses ..... 2,929,332 2,907,843
---------- ----------
OTHER INCOME .................................... 11,683 12,164
OTHER OPERATING EXPENSES
General and administrative ................. 513,689 514,793
Board of Trust Managers' fees .............. 40,708 38,651
---------- ----------
Total other operating expenses 554,397 553,444
---------- ----------
Income before provision for
income taxes ................. 2,386,618 2,366,563
PROVISION FOR INCOME TAXES ...................... 27,488 22,537
---------- ----------
NET INCOME ...................................... $2,359,130 $2,344,026
========== ==========
NET INCOME PER SHARE ................................. $ .34 $ .33
========== ==========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-14-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996 AND 1995
SHARES OF BENEFICIAL INTEREST
---------------------------- UNDISTRIBUTED
SHARES AMOUNT NET INCOME
----------- ----------- -----------
BALANCE, MARCH 31, 1994 ............ 7,007,402 $20,623,866 $ 648,593
Cash dividends ($.34 per share) -- -- (2,382,517)
Net income .................... -- -- 2,344,026
----------- ----------- -----------
BALANCE, MARCH 31, 1995 ............ 7,007,402 20,623,866 610,102
Cash dividends ($.32 per share) -- -- (2,242,369)
Net income .................... -- -- 2,359,130
----------- ----------- -----------
BALANCE, MARCH 31, 1996 ............ 7,007,402 $20,623,866 $ 726,863
=========== =========== ===========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-15-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................. $ 2,359,130 $ 2,344,026
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ......................... 15,670 15,672
Amortization of debt expense ......... 71,533 74,033
Amortization of loan discounts ....... (311,975) (248,914)
Provision for possible loan losses ... 85,000 80,000
Changes in:
Accrued interest receivable ........ 32,342 (9,799)
Accrued interest payable ........... (56,606) 28,267
Federal income taxes payable ....... 2,050 (789)
Other liabilities .................. (94,512) 135,712
Other, net ........................... (2,590) 20,520
------------ ------------
Net cash provided by
operating activities ........... 2,100,042 2,438,728
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ...... (11,424,033) (17,971,292)
Payments received on mortgage and
interim construction loans and
church bonds .............................. 18,434,281 15,623,167
Advances on notes receivable ............... (321,598) (211,108)
Payments received on notes receivable ...... 319,845 280,008
------------ ------------
Net cash provided (used) by
investing activities ........... 7,008,495 (2,279,225)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates ....... 4,595,999 5,239,231
Borrowings on notes payable and line
of credit ................................. 9,059,755 15,086,352
Principal payments on:
Secured savings certificates ............ (3,834,355) (6,405,059)
Notes payable and line of credit ........ (16,243,033) (11,672,644)
Registration costs of secured savings
certificates ............................. (22,321) (8,290)
Commissions paid to brokers on issuance
of secured savings certificates ......... (66,760) (79,030)
Cash dividends paid ........................ (2,242,369) (2,382,517)
------------ ------------
Net cash used by
financing activities ........... (8,753,084) (221,957)
------------ ------------
Increase (decrease) in cash and
cash equivalents ............... 355,453 (62,454)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .......................... 366,977 429,431
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR ................................ $ 722,430 $ 366,977
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ......... $ 1,177,917 $ 1,316,787
============ ============
Income taxes paid were not material in 1996 and 1995
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-16-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED MARCH 31, 1996 AND 1995
NATURE OF OPERATIONS
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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, 1996 and 1995 as
follows:
LOAN AND CHURCH TOTAL NET INTEREST
BOND PORTFOLIO INDEBTEDNESS RATE MARGIN
-------------- ------------ -----------
March 31, 1996 .................... 11.21 7.10 4.11
March 31, 1995 .................... 10.94 8.02 2.92
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.
-17-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED MARCH 31, 1996 AND 1995
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. The allowance is subjective in nature and may be
adjusted in the near term because of changes in economic conditions.
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, 1996.
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 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
Income taxes are accounted for under Statement of Financial Accounting Standards
No. 109, ACCOUNTING FOR INCOME TAXES. Statement 109 requires a change from the
deferred method of accounting for income
-18-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED MARCH 31, 1996 AND 1995
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.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash-on-hand and investment in a money market mutual fund and certificates of
deposit with maturities of less than 90 days at the time of acquisition.
This information is an integral part of the accompanying financial statements.
-19-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 1 - MORTGAGE AND INTERIM CONSTRUCTION LOANS
Mortgage loans receivable consist of conventional loans of $23,637,917 and
$26,604,107 and church bonds due principally from congregations of Churches of
Christ of $828,661 and $957,455 at March 31, 1996 and 1995, respectively.
Interim construction loans of $9,213,466 and $11,669,935 at March 31, 1996 and
1995, 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% to 17% at March 31, 1996.
The weighted average annual interest rates of Church Loans' loan and church bond
portfolio were 11.21% and 10.94% at March 31, 1996 and 1995, respectively. The
weighted average annual interest rates for the loan and church bond portfolios
were 11.0% for both years ended March 31, 1996 and 1995.
The following schedule is a summary of the combined mortgage, church bonds and
interim construction loan portfolios by size of loan at March 31, 1996 and 1995:
1995 1994
----------------- -------------------
No. of Carrying No. of Carrying
Description loans amount loans amount
----------- ----- ------ ----- ------
Over $1,500,000 .... 3 $ 5,567,500 6 $10,663,047
$1,300,000-1,499,999 1 1,335,977 2 2,748,334
$1,000,000-1,299,999 2 2,586,120 1 1,251,964
$900,000-999,999 ... 3 2,840,559 1 942,152
$800,000-899,999 ... 2 1,718,141 2 1,665,971
$700,000-799,999 ... 3 2,355,791 2 1,561,730
$600,000-699,999 ... 1 614,969 2 1,258,067
$500,000-599,999 ... 1 542,000 5 2,691,005
$400,000-499,999 ... 6 2,643,844 3 1,335,956
$300,000-399,999 ... 8 2,738,050 8 2,851,470
$200,000-299,999 ... 10 2,365,192 19 4,593,451
$100,000-199,999 ... 31 4,593,366 34 4,887,705
Under $100,000 ..... 102 3,778,535 109 4,090,472
----------- ----------- ----------- -----------
173 $33,680,044 194 40,541,324
=== ===
Less: unamortized purchase discounts
on mortgage loans 1,146,820 1,309,827
Less: allowance for possible credit
losses 728,665 645,049
--------------- ----------------
TOTAL $ 31,804,559 $ 38,586,448
=============== ================
-20-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 1 - MORTGAGE AND INTERIM CONSTRUCTION LOANS (CONTINUED)
The mortgage and interim construction loan portfolios included the following
loans at March 31, 1996, 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 ................................... $ 2,365,818
First United Pentecostal Church of Arnold, Arnold, Maryland;
interest at 11.00%; monthly payments of $16,225 to
maturity on September 1, 2020 .......................... 1,645,643
New Jerusalem Church, Lansing, Michigan; interest at prime
+ 2%(10.25% at March 31, 1996); monthly payments of
$17,686 to maturity on December 1, 1995 ................ 1,556,039
St. Stevens Church of God in Christ, San Diego, California;
interest at prime + 2% (10.25% at March 31, 1996);
principal and interest due at maturity on October 25,
1994 (included in nonearning assets at March 31, 1996) . 1,335,977
Bethany Baptist Church, Melbourne, Florida; interest at
10.50%; monthly payments of $14,371 to maturity on
January 1, 2010 ........................................ 1,293,982
Duncanville Church of Christ, Duncanville, Texas; interest
at 8.25%; monthly payments of $27,000 to maturity on
February 1, 1998 ....................................... 1,292,139
Sedona Assisted Living, LLC, San Antonio, Texas; interest
at prime + 2%(10.25% at March 31, 1996); principal and
interest due at maturity on June 1, 1996 ............... 979,320
-----------
$10,468,918
===========
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, 1996, Church Loans had outstanding loan commitments (by
contract amounts) of approximately $9,841,000. Church Loans has no other
financial instruments with off-balance sheet risk.
Nonaccrual mortgage loans, church bonds and interim construction loans at March
31, 1996 and 1995 were $2,769,345 and $3,405,793, respectively. Interest income
which would have been recorded under the original terms of nonaccrual loans and
church bonds amounted to approximately $310,000 and $283,000 for the years ended
March 31, 1996 and 1995, respectively. No interest income was actually
recognized.
In addition to the nonaccrual loans previously mentioned, management has doubts
as to a certain interim loan's ability to comply with present repayment terms.
Such loan had a balance of approximately $1,556,000 at March 31, 1996 and was
not classified as nonearning at that date.
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, 1996, are:
1997 ............. $11,557,673
1998 ............. 2,105,685
1999 ............. 1,890,629
2000 ............. 1,464,009
2001 ............. 1,318,325
-21-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 1 - MORTGAGE AND INTERIM CONSTRUCTION LOANS (CONTINUED)
At March 31, 1996, mortgage loans were pledged to support indebtedness of Church
Loans as follows:
Line of credit payable to bank ......... $ 9,691,421
Secured savings certificates ........... 9,424,292
-----------
TOTAL MORTGAGE LOANS PLEDGED ........... $19,115,713
A summary of transactions in the allowance for possible credit losses for the
years ended March 31, 1996 and 1995 follows:
1996 1995
---- ----
BALANCE AT BEGINNING OF YEAR ................ $ 645,049 $ 563,824
Provisions charged to operating expenses .... 85,000 80,000
Charge offs, net ............................ (1,384) 1,225
---------- --------
BALANCE AT END OF YEAR ...................... $ 728,665 $645,049
========= ========
In May 1993, the Financial Accounting Standards Board (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.
At March 31, 1996, the recorded investment and the related allowance for credit
losses for loans for which impairment was recognized in accordance with
Statement No. 114 were approximately $2,300,000 and $270,000, respectively.
NOTE 2 - DEBT OBLIGATIONS
Information relating to debt obligations follows:
<TABLE>
<CAPTION>
WEIGHTED MAXIMUM WEIGHTED
AVERAGE AMOUNT AVERAGE 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, 1996
Term notes payable to banks ....... $ -- -- $ 2,666,667 $ 1,861,111 9.45%
Line of credit payable to bank .... 550,001 8.25%* 5,606,001 2,194,522 8.98%
Other demand notes payable ........ 4,006,079 7.25% $ 4,006,079 $ 3,453,192 7.69%
----------- ====== =========== =========== ======
4,556,080
Secured savings certificates ...... 7,545,375 6.93% $ 7,545,375 $ 6,723,844 6.67%
----------- ====== =========== =========== ======
TOTAL .................... $12,101,455 7.10% $18,523,089 $14,089,507 7.72%
=========== ====== =========== =========== ======
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%
=========== ====== =========== =========== ======
<FN>
* Does not consider commitment fees.
</FN>
</TABLE>
-22-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
Maturities of debt for each of the three years subsequent to March 31, 1996,
are:
1997 ............ $ 7,176,063
1998 ............ 2,865,068
1999 ............ 2,060,324
-----------
$12,101,455
===========
Included in maturities for the year ended March 31, 1996 are other demand notes
payable of $4,006,079.
All debt obligations, except for other demand notes payable, are secured by the
pledge of specific mortgage notes receivable.
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. Effective July 18, 1994, Church Loans decided not
to register and was not able to sell additional SSCs after that date. However,
during April 1995, the Board of Trust Managers decided to register $20,000,000
of SSCs on Form SB-2 and during the quarter ended December 31, 1995, such
registration was effective and SSCs were being issued.
The certificates are secured under the terms of certain indentures that require,
among other things, the pledge of mortgage notes receivable with total unpaid
principal amounts not less than 100% or 125% of the aggregate principal amount
of certain respective SSC registrations 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 ratios 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 respective Indenture. As of March 31, 1996
and 1995, Church Loans was in compliance with the requirement.
Church Loans has an agreement with Great Nation Investment Corporation (Great
Nation) whereby Great Nation will use its best efforts to sell SSCs registered
by Church Loans. The agreement provides that Church Loans will 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.
LINE OF CREDIT PAYABLE TO BANK
The line of credit payable to bank consists of borrowings under a loan agreement
effective through September 1, 1996, 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 (9.25% at March 31, 1996), of not less than
110% of all indebtedness owed to the bank. Interest accrues at the prime rate
and is payable semiannually.
-23-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
Additionally, the line of credit requires 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, 1996, Church Loans' total indebtedness was approximately
$19,900,000 less than the maximum amount permitted under the agreement. The line
of credit agreement also limits demand notes payable to $4,000,000 ($2,000,000
in 1995).
DEMAND NOTES PAYABLE
The demand notes payable bear interest at 1% less than the prime rate (payable
monthly) and are unsecured (see note 6).
NOTE 3 - 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.
Deferred taxes were not significant to Church Loans' 1996 and 1995 financial
statements.
Total income tax expense for the years ended March 31, 1996 and 1995 is less
than the amount computed by applying the applicable statutory federal income tax
rate (35%) to income before provision for income taxes as follows:
1996 1995
---- ----
Computed "expected" federal income tax expense . $ 835,316 $ 828,297
Increases (decreases) in taxes resulting from:
Dividends .................................. (809,355) (809,355)
Graduated rate differential ................ (11,983) (12,478)
Difference in provision for loan losses for
financial and tax purposes .............. (69,784) (70,690)
Difference in accounting for interest
recognized for financial and tax purposes 83,294 86,763
-------- -------
ACTUAL TAX EXPENSE ............................. $ 27,488 $ 22,537
========= =========
NOTE 4 - 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, 1996 and 1995. There were no share equivalents or other potentially
dilutive securities outstanding during any of the periods presented.
-24-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
NOTE 5 - 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, 1996
and 1995:
Divdend amount
-------------------------
Date of record Date paid Per share Total
-------------- --------- --------- ----------
March 31, 1994 ............... May 1994 $.09 $ 630,666
December 31, 1994 ............... January 1995 .25 1,751,850
March 31, 1995 ............... May 1995 .08 560,592
December 31, 1995 ............... January 1996 .24 1,681,777
In April 1996, a dividend of $630,666 ($.09 per share) was declared for
stockholders of record on March 31, 1996.
NOTE 6 - RELATED PARTY TRANSACTIONS
Other demand notes payable at March 31, 1996 and 1995 included notes totaling
$1,482,250 and $706,577, 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 1996 or 1995.
Secured savings certificates at March 31, 1996 and 1995 include certificates
totaling $485,692 and $665,375, respectively, which represent liabilities to
related parties. Interest expense incurred on savings certificates of related
parties was not significant for 1996 or 1995.
NOTE 7 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL
INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments, the results of applying such methods and
assumptions to the financial instruments and limitations inherent in fair value
estimates:
CASH AND CASH EQUIVALENTS
The assets are considered short-term instruments for which the carrying amount
is a reasonable estimate of fair value.
MORTGAGE LOANS, INTERIM CONSTRUCTION LOANS AND CHURCH BONDS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as mortgage and interim
construction loans and church bonds. Each loan category is further segmented
into fixed and adjustable rate interest terms. For variable-rate loans,
primarily interim construction loans, that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair value of fixed-rate mortgage loans and bonds is estimated by
discounting the future cash flows through the estimated maturity using the
current rates at which similar loans would be made to borrowers with similar
credit ratings. The estimate of maturity is based on Church Loans' historical
experience with repayments for each loan classification, modified, as required,
by an estimate of the effect of current economic and lending conditions. The
carrying value of loans, net of the allowance for loan losses was $31,804,559
and the fair value of loans was approximately $33,164,000 at March 31, 1996.
NOTES PAYABLE AND LINE OF CREDIT
The fair value of notes payable and the line of credit are equal to the carrying
value as such liabilities are deemed to be short-term borrowings.
-25-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1995
SECURED SAVINGS CERTIFICATES
The fair value of secured savings certificates is estimated using the rates
currently offered for financial instruments of similar characteristics. At March
31, 1996, the carrying value of secured savings certificates was $7,545,375 and
the fair value of secured savings certificates was approximately $7,549,000.
COMMITMENTS TO EXTEND CREDIT
Generally, Church Loans enters into commitments to extend credit at adjustable
interest terms. Accordingly, the commitment amount is a reasonable estimate of
fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time Church Loans' entire holdings of a particular financial
instrument. Because no market exists for a significant portion of Church Loans'
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
NOTE 8 - 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, 1996
Interest income and fees ..... $1,183,485 $1,034,747 $ 983,793 $1,005,151
Debt expense ................. 342,644 304,055 261,022 285,123
Net interest income .......... 840,841 730,692 722,771 720,028
Net income ................... 644,032 596,635 587,838 530,625
Net income per share ......... .09 .09 .08 .08
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
This information is an integral part of the accompanying financial statements.
-26-
<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,
1996 and is qualified in its entirety by reference to such financial
statements.
===========================================================================
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-START> Apr-01-1995
<PERIOD-END> Mar-31-1996
<CASH> 722,430
<SECURITIES> 0
<RECEIVABLES> 33,324,146
<ALLOWANCES> 728,665
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 429,377
<TOTAL-ASSETS> 33,717,320
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,623,866
<OTHER-SE> 726,863
<TOTAL-LIABILITY-AND-EQUITY> 33,717,320
<SALES> 4,218,859
<TOTAL-REVENUES> 4,218,859
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 112,241
<LOSS-PROVISION> 85,000
<INTEREST-EXPENSE> 1,121,311
<INCOME-PRETAX> 2,386,618
<INCOME-TAX> 27,488
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,359,130
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
