================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
----------
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
----------
Commission File No. 0-8117
CHURCH LOANS & INVESTMENTS TRUST
State of Organization IRS Employer Identification
--------------------- ---------------------------
Texas No. 75-6030254
5305 I-40 West
Amarillo, Texas 79106
Registrant's telephone number: 806-358-3666
----------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ _ ]
As of June 30, 1996, 7,007,402 shares of the Registrant's shares of
beneficial interest were outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ _ ] No [ X ]
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
INDEX
Page
----
Part I.
Item 1: Financial Information:
Condensed Balance Sheets at September 30, 1996
and March 31, 1996 ....................... 1
Condensed Statements of Income for the
three-month and six-month periods ended
September 30, 1996 and 1995 .............. 2
Condensed Statements of Cash Flows
for the six-month periods ended
September 30, 1996 and 1995 .............. 3
Notes to Condensed Financial Statements ..... 4
Item 2: Management's Discussion and Analysis or
Plan of Operation .......................... 6
Part II. Other Information ............................... 8
Signatures ................................................ 9
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
September 30, 1996 and March 31, 1996
ASSETS
SEPTEMBER 30, 1996 MARCH 31, 1996
------------------ --------------
CASH AND CASH EQUIVALENTS ...................... $ 1,408,456 $ 722,430
RECEIVABLES
Mortgage loans and church bonds -
earning .................................... 20,768,576 21,886,390
Interim construction loans -
earning .................................... 8,067,687 7,877,489
Nonearning mortgage loans, church
bonds and interim construction
loans ..................................... 3,778,739 2,769,345
Less: Allowance for possible
credit losses ............................. (765,213) (728,665)
------------ ------------
31,849,789 31,804,559
------------ ------------
Accrued interest receivable ................ 281,425 307,291
Notes receivable ........................... 583,220 483,631
------------ ------------
Total receivables ............ 32,714,434 32,595,481
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $437,215 and $429,377 at
September 30, 1996 and March 31,1996,
respectively ............................... 221,127 228,965
PROPERTY HELD FOR INVESTMENT ................... 83,714 83,714
UNAMORTIZED DEBT EXPENSE, net and
other assets ............................... 105,260 86,730
------------ ------------
TOTAL ASSETS ................................... $ 34,532,991 $ 33,717,320
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ............................ $ 1,243,431 $ 1,482,250
Other .................................... 3,271,019 3,073,830
------------ ------------
4,514,450 4,556,080
------------ ------------
Secured savings certificates:
Related party ............................ 485,692 485,692
Other .................................... 7,365,792 7,059,683
------------ ------------
7,851,484 7,545,375
Accrued interest payable ................... 35,294 37,817
Federal income taxes payable ............... -- 7,060
Other ...................................... 344,906 220,259
------------ ------------
Total liabilities ............ 12,746,134 12,366,591
------------ ------------
SHAREHOLDERS' EQUITY
Shares of beneficial interest, no par value;
authorized shares unlimited, 7,007,402
shares issued and outstanding ............. 20,623,866 20,623,866
Undistributed net income ................... 1,162,991 726,863
------------ ------------
Total shareholders' equity ........... 21,786,857 21,350,729
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY .......................... $ 34,532,991 $ 33,717,320
============ ============
These condensed financial statements should be read in
connection with the accompanying notes to condensed
financial statements.
-1-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month and six-month periods ended
September 30, 1996 and 1995
THREE-MONTH PERIODS ENDED SIX-MONTH PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
INTEREST INCOME AND FEES
Interest and fees on
mortgage loans, church
bonds, and interim
construction loans ... $1,005,626 $1,025,611 $1,894,215 $2,199,364
Interest on temporary
investments ......... 10,006 9,136 17,733 18,868
---------- ---------- ---------- ----------
Total interest
income and fees . 1,015,632 1,034,747 1,911,948 2,218,232
---------- ---------- ---------- ----------
DEBT EXPENSE
Interest ............... 248,897 292,209 478,077 622,858
Amortization of:
Registration cost ... 6,553 -- 17,163 --
Commissions paid to
brokers ............ 15,006 11,846 29,725 23,841
---------- ---------- ---------- ----------
Total debt expense 270,456 304,055 524,965 646,699
---------- ---------- ---------- ----------
Net interest income 745,176 730,692 1,386,983 1,571,533
PROVISION FOR POSSIBLE
CREDIT LOSSES ......... 22,500 22,500 45,000 40,000
---------- ---------- ---------- ----------
Net interest income
less provision
for possible
credit losses .. 722,676 708,192 1,341,983 1,531,533
OTHER INCOME ............... 2,427 3,092 5,125 5,900
OTHER OPERATING EXPENSES
General and administrative 119,919 104,855 259,532 276,708
Board of Trust Managers'
fees .................. 10,014 9,794 20,782 20,058
---------- ---------- ---------- ----------
Total other
operating expenses 129,933 114,649 280,314 296,766
---------- ---------- ---------- ----------
NET INCOME ....... $ 595,170 $ 596,635 $1,066,794 $1,240,667
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .. 7,007,402 7,007,402 7,007,402 7,007,402
========== ========== ========== ==========
NET INCOME PER SHARE ....... $ .08 $ .09 $ .15 $ .18
========== ========== ========== ==========
DIVIDENDS PER SHARE ........ -- -- .09 .08
========== ========== ========== ==========
These condensed financial statements should be read in
connection with the accompanying notes to condensed
financial statements.
-2-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Six-month periods ended September 30, 1996 and 1995
SIX-MONTH PERIODS
ENDED SEPTEMBER 30,
-------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................ $ 1,066,794 $ 1,240,667
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation ........................ 7,838 7,836
Amortization of debt expense ........ 46,888 23,841
Amortization of loan discounts ...... (50,433) (184,049)
Provision for possible credit
losses ............................. 45,000 40,000
Changes in:
Accrued interest receivable ..... 25,866 66,832
Accrued interest payable ........ (2,523) (43,662)
Federal income taxes
payable ........................ (7,060) (5,010)
Other liabilities ............... 124,647 (70,776)
Other, net .......................... (61,463) (6,356)
----------- ------------
Net cash provided by
operating activities ....... 1,195,554 1,069,323
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church
bonds .................................. (8,017,210) (5,624,870)
Payments received on mortgage and
interim construction loans and
church bonds ........................... 7,985,864 11,601,790
Advances of notes receivable .............. (319,737) (218,736)
Payments received on notes receivable ..... 220,148 151,728
----------- ------------
Net cash provided (used)
by investing activities ..... (130,935) 5,909,912
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates ...... 659,440 --
Borrowings on notes payable ............... 5,357,265 5,838,898
Principal payments on:
Secured savings certificates ........... (353,331) (601,500)
Notes payable .......................... (5,398,895) (11,167,133)
Registration costs of secured savings
certificates ............................. (7,732) (44,126)
Commissions paid to broker on
issuance of secured savings
certificates ............................. (4,674) --
Cash dividends paid ....................... (630,666) (560,593)
Net cash used by
financing activities ........ (378,593) (6,534,454)
----------- ------------
Increase in cash and
cash equivalents ........... 686,026 444,781
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD ................................... 722,430 366,977
----------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ................................ $ 1,408,456 $ 811,758
=========== ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period
for interest ............................. $ 480,600 $ 666,520
=========== ============
These condensed financial statements should be read in
connection with the accompanying notes to condensed
financial statements.
-3-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
(1) GENERAL
See Note 1 of Notes to Financial Statements in the Trust's Annual Report
on Form 10-KSB405 for a summary of the Trust's significant accounting
policies.
The unaudited condensed financial statements included herein were
prepared from the books of the Trust in accordance with generally
accepted accounting principles and reflect all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management,
necessary to a fair statement of the results of operations and financial
position for the interim periods. Such financial statements generally
conform to the presentation reflected in the Trust's Annual Report to
Shareholders. The current interim period reported herein is included in
the fiscal year subject to independent audit at the end of that year and
is not necessarily an indication of the expected results for the fiscal
year.
(2) WEIGHTED AVERAGE INTEREST RATES
Weighted average interest rates and net interest rate margins at
September 30, 1996 and 1995 were as follows:
Mortgage Loan and Total Net Interest
Church Bond Portfolio Indebtedness Rate Margin
--------------------- ------------ -----------
September 30, 1996 .... 10.50 7.09 3.41
September 30, 1995 .... 11.20 7.53 3.67
(3) CONTRACTUAL MATURITIES
Scheduled principal payments on mortgage loans, church bonds and interim
loans and indebtedness (including secured savings certificates and notes
payable) outstanding at September 30, 1996, for the five twelve-month
periods subsequent to September 30, 1996, follow:
Mortgage loans,
Twelve-month period church bonds
ending September 30, and interim loans Indebtedness
-------------------- ------------------ ------------
1997 $12,876,231 9,690,169
1998 1,876,446 1,965,265
1999 1,544,087 710,500
2000 1,256,569 --
2001 1,116,704 --
=========== =========
(4) MORTGAGE LOANS, CHURCH BONDS AND INTERIM CONSTRUCTION LOANS
Mortgage loans, church bonds and interim construction loans on which the
accrual of interest had been discontinued amounted to $3,778,739 and
$2,769,345 at September 30, 1996 and March 31, 1996, respectively. If
interest on these mortgage loans, church bonds and interim construction
loans had been accrued as earned, interest and fees on loans in the
accompanying condensed statements of income would have been increased by
approximately $205,000 and $175,000 for the six-month periods ended
September 30, 1996 and 1995, respectively.
-4-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
On June 27, 1996, because of recent deterioration or past due status, the
Trust added additional loans in the total principal balance of $1,625,514
to nonearning assets. Two interim loans represented $1,297,662 of such
amount. Such interim loans were moved to non-accrual status after the
makers of loans filed for protection under Chapter 11 of the U.S.
Bankruptcy Code during June 1996. In connection with placing the loans on
nonaccrual, the Trust wrote off approximately $45,000 in accrued interest
receivable related to the loans. 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 September 30, 1996 and was not
classified as nonearning at that date. Management believes that potential
losses related to the aforementioned loans have been provided for in the
Trust's allowance for possible credit losses.
(5) SECURED SAVINGS CERTIFICATES
Secured Savings Certificates (Certificates) are issued in amounts of
$1,000 or more and have single maturity dates from 30 days to 10 years
from date of issue. With respect to an individual certificate, interest
rate and frequency of payment of interest (either monthly, quarterly,
semiannually, annually or at maturity) are fixed at the time of issuance
of the Certificate. Effective July 18, 1994, the Trust decided not to
register and was not able to sell additional Certificates after that
date. However, during April 1995, the Board of Trust Managers decided to
register $20,000,000 of SSCs on Form SB-2 and during the quarter ended
December 31 1995, such registration was effective and SSCs were being
issued.
Certificates are secured under the terms of an indenture that requires,
among other things, the pledge of mortgage notes receivable with total
unpaid principal amounts not less than 100% or 125% of the aggregate
principal amount of Certificates outstanding. Due to the fluctuations in
the amount of sales of Certificates as well as in the repayment of notes
pledged to secure the Certificates, the Trust has on occasion failed to
maintain the required ratio of pledged notes to outstanding Certificates
for a short period of time until the deficiency could be corrected. The
indenture trustee has been aware of these temporary technical defaults
and has not declared a default under the Indenture. At September 30,
1996, the Trust was in compliance with the requirement.
(6) LINE OF CREDIT PAYABLE TO THE BANK
The Trust's $10,000,000 line of credit, of which $85,001 was owed at
September 30, 1996, expired on September 1, 1996. The Trust continued to
borrow under the line of credit under an oral agreement until November
1996, when the line of credit was renewed.
This information is an integral part of the
accompanying condensed financial statements.
-5-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - Three-Month and Six-Month Periods Ended September 30,
1996 as Compared to the Three-Month and Six-Month Periods Ended September 30,
1995:
REVENUES
The Trust's revenues are derived from interest income earned on mortgage loans
as well as, to a lesser degree, interest earned on church bonds and short-term
investments. The decrease in the Trust's revenues of $19,115 for the three-month
period ended September 30, 1996, as compared to the corresponding period in
1995, is primarily due to a decrease of $823,624 in the total amount of
mortgage loans, church bonds and interim construction loans outstanding from
$33,438,626 at September 30, 1995 to $32,615,002 at September 30, 1996. The
decrease in the Trust's revenues of $306,284 for the six-month period ended
September 30, 1996, as compared to the corresponding period in 1995, is
primarily due to a decrease in the average total amount of mortgage loans and
church bonds outstanding during the six-month period ended September 30, 1996 as
well as a decrease in the weighted averaged rates on loans. The weighted average
rate on mortgage loans, church bonds and interim loans at September 30, 1996 and
1995 was 10.5% and 11.2%, respectively.
INTEREST EXPENSE
The most significant expense item is interest expense which comprised the
majority of total operating expense for each of the three-month and six-month
periods ended September 30, 1996 and 1995. Interest expense decreased by $43,312
for the three-month period ended September 30, 1996, as compared to the
corresponding period in 1995, primarily due to decreases in average debt
balances. The decrease in interest expense of $144,781 for the six-month period
ended September 30, 1996, as compared to the corresponding period in 1995, is
due to a decrease in the average total amount of indebtedness outstanding during
the six-month period ended September 30, 1996 as well as a decrease in the
weighted average interest rate. The weighted average interest rate on all
indebtedness was 7.53% at September 30, 1995 as compared to 7.09% at September
30, 1996.
NONEARNING ASSETS
On June 27, 1996, because of recent deterioration or past due status, the Trust
added additional loans in the total principal balance of $1,625,514 to
nonearning assets. Two interim loans represented $1,297,662 of such amount. Such
interim loans were moved to non-accrual status after the makers of loans filed
for protection under Chapter 11 of the U.S. Bankruptcy Code during June 1996. In
connection with placing the loans on nonaccrual, the Trust wrote off
approximately $45,000 in accrued interest receivable related to the loans. 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 September 30, 1996 and was not
classified as nonearning at that date. Management believes that potential losses
related to such loans have been provided for in the Trust's allowance for
possible credit losses.
-6-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
LIQUIDITY
Due to the cost of registration and of sales of Secured Savings Certificates
(Certificates), the cost of these funds are normally higher than the cost of
borrowing from bank sources or master notes. Therefore, the Trust decided not to
register additional Certificates and the Trust was not able to sell these
Certificates after July 18, 1994, and, therefore, did not have available this
source of funds to meet its liquidity needs. However, during April 1995, the
Board of Trust Managers decided to register $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 Trust's $10,000,000 line of credit, of which $85,001 was owed at September
30, 1996, expired on September 1, 1996. The Trust continued to borrow under the
line of credit under an oral agreement until November 1996, when the line of
credit was renewed.
-7-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
The annual meeting of shareholders of the Trust was held on July 19, 1996. At
such meeting, each of the individuals named below was elected to the Board of
Trust Managers of the Trust to serve until the next annual meeting of the
shareholders of the Trust:
Number of shares
FOR AGAINST
--- -------
Dr. Everett Blanton .. 3,956,375 21,203
Larry Brown .......... 3,956,375 21,203
Robert E. Martin ..... 3,953,405 24,173
Bill R. McMorries .... 3,956,405 21,173
Steve Rogers ......... 3,952,917 24,661
Dr. Foy W. Shackleford 3,956,375 21,203
Jack R. Vincent ...... 3,956,405 21,173
Additionally, shareholders voted to ratify Clifton Gunderson P.L.L.C. as
auditors for the year ending March 31, 1997 as follows:
For .............. 3,827,324
Against .......... 4,066
Abstain .......... 146,188
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: None.
(b) Reports on Form 8-K: None
-8-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHURCH LOANS & INVESTMENTS TRUST
DATE: November 14, 1996 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: November 14, 1996 BY:/s/ Kelly Archer
-----------------------------
Kelly Archer
Chief Financial Officer
- 9 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
=======================================================================
This schedule contains summary financial information extracted from the
company's financial statements as of and for the nine months ended
September 30, 1996 and is qualified in its entirety by reference to
such financial statements.
=======================================================================
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 1,408,456
<SECURITIES> 0
<RECEIVABLES> 33,479,647
<ALLOWANCES> 765,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 437,215
<TOTAL-ASSETS> 34,532,991
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,623,866
<OTHER-SE> 1,162,991
<TOTAL-LIABILITY-AND-EQUITY> 34,532,991
<SALES> 1,018,059
<TOTAL-REVENUES> 1,018,059
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 31,573
<LOSS-PROVISION> 22,500
<INTEREST-EXPENSE> 248,897
<INCOME-PRETAX> 595,170
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 595,170
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
