================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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Commission File No. 0-8117
CHURCH LOANS & INVESTMENTS TRUST
State of Organization IRS Employer Identification
--------------------- ---------------------------
Texas No. 75-6030254
5305 I-40 West
Amarillo, Texas 79106
Registrant's telephone number: 806-358-3666
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ _ ]
As of 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 June 30, 1996
and March 31, 1996 ....................... 1
Condensed Statements of Income for the
three-month periods ended June 30, 1996
and 1995 ................................. 2
Condensed Statements of Cash Flows
for the three-month periods ended
June 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 ............................... 7
Signatures ................................................ 8
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
June 30, 1996 and March 31, 1996
ASSETS JUNE 30, 1996 MARCH 31, 1996
------ ------------- --------------
CASH AND CASH EQUIVALENTS ...................... $ 235,824 $ 722,430
RECEIVABLES
Mortgage loans and church bonds -
earning ................................... 20,354,791 21,886,390
Interim construction loans - earning ....... 10,650,391 7,877,489
Nonearning mortgage loans, church bonds
and interim construction loans ............ 3,962,215 2,769,345
Less: Allowance for possible credit losses . (742,714) (728,665)
------------ ------------
34,224,683 31,804,559
------------ ------------
Accrued interest receivable ................ 321,382 307,291
Notes receivable ........................... 656,072 483,631
------------ ------------
Total receivables ............ 35,202,137 32,595,481
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $433,297 and $429,377
at June 30, 1996 and March 31, 1996,
respectively ............................... 225,045 228,965
PROPERTY HELD FOR INVESTMENT ................... 83,714 83,714
UNAMORTIZED DEBT EXPENSE, net and other assets . 85,648 86,730
------------ -------------
TOTAL ASSETS ................................... $ 35,832,368 $ 33,717,320
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES
Notes payable and line of credit:
Related party ............................ $ 1,252,226 $ 1,482,250
Other .................................... 5,129,172 3,073,830
------------ ------------
6,381,398 4,556,080
------------ ------------
Secured savings certificates:
Related party ............................ 485,692 485,692
Other .................................... 7,399,623 7,059,683
------------ ------------
7,885,315 7,545,375
Accrued interest payable ................... 53,458 37,817
Federal income taxes payable ............... -- 7,060
Other ...................................... 320,510 220,259
------------ ------------
Total liabilities ............ 14,640,681 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 ................... 567,821 726,863
------------ ------------
Total shareholders' equity ... 21,191,687 21,350,729
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 35,832,368 $ 33,717,320
============ ============
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-1-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month periods ended June 30, 1996 and 1995
THREE-MONTH PERIODS ENDED JUNE 30,
1996 1995
---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage loans, church
bonds and interim construction loans ........ $ 888,589 $1,173,753
Interest on temporary investments ............. 7,727 9,732
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Total interest income and fees ... 896,316 1,183,485
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DEBT EXPENSE
Interest ...................................... 229,180 330,648
Amortization of:
Registration costs .......................... 10,610 --
Commissions paid to brokers ................. 14,719 11,996
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Total debt expense ............... 254,509 342,644
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Net interest income .............. 641,807 840,841
PROVISION FOR POSSIBLE CREDIT LOSSES ............... 22,500 17,500
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Net interest income less provision
for possible credit losses ..... 619,307 823,341
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OTHER INCOME ....................................... 2,698 2,808
OTHER OPERATING EXPENSES
General and administrative .................... 139,613 171,854
Board of Trust Managers' fees ................. 10,768 10,263
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Total other operating expenses ... 150,381 182,117
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NET INCOME ......................................... $ 471,624 $ 644,032
========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING ......................... 7,007,402 7,007,402
========== ==========
NET INCOME PER SHARE ............................... $.07 $.09
==== ====
DIVIDENDS PER SHARE ................................ $.09 $.08
==== ====
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-2-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Three-month periods ended June 30, 1996 and 1995
THREE-MONTH PERIODS ENDED JUNE 30,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................ $ 471,624 $ 644,032
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .......................... 3,920 3,918
Amortization of debt expense .......... 25,329 11,996
Amortization of loan discounts ........ (25,971) (77,811)
Provision for possible credit losses .. 22,500 17,500
Changes in:
Accrued interest receivable ......... (14,091) (57,323)
Accrued interest payable ............ 15,641 71,847
Federal income taxes payable ........ (7,060) (2,773)
Other liabilities ................... 100,251 (54,879)
Other, net .......................... (27,270) 3,208
----------- -----------
Net cash provided by operating
activities .................. 564,711 559,715
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ...... (5,718,352) (2,192,137)
Payments received on mortgage and interim
construction loans and church bonds ...... 3,310,150 4,877,520
Investments in notes receivable ........... (261,768) (163,611)
Payments received on notes receivable ..... 89,327 80,633
----------- -----------
Net cash provided (used) by
investing activities ........ (2,580,643) 2,602,405
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates ...... 357,940 --
Borrowings on notes payable ............... 4,057,213 2,663,939
Principal payments on:
Secured savings certificates ............ (18,000) (538,500)
Notes payable ........................... (2,231,895) (4,838,257)
Registration costs of secured savings
certificates ............................. -- (7,575)
Commissions paid to broker on issuance
of secured savings certificates .......... (5,428) --
Cash dividends ............................ (630,666) (560,593)
----------- -----------
Net cash provided (used) by
financing activities ........ 1,529,164 (3,280,986)
----------- -----------
Decrease in cash and cash
equivalents ................. (486,606) (118,866)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD ..................................... 722,430 366,977
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..... $ 235,824 $ 248,111
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest .. $ 213,539 $ 258,801
=========== ===========
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-3-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
(1) GENERAL
See Summary of Significant Accounting Policies 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 June 30,
1996 and 1995, were as follows:
Mortgage loan and Total Net interest
church bond portfolio Indebtedness rate margin
--------------------- ------------ -----------
June 30, 1996 ........... 10.39 7.21 3.18
June 30, 1995 ........... 10.94 8.02 2.92
(3) CONTRACTUAL MATURITIES
Scheduled principal payments on mortgage loans, church bonds and interim
loans and indebtedness (including secured savings certificates and notes
payable) outstanding at June 30, 1996, for the five twelve-month periods
subsequent to June 30, 1996, follow:
Twelve-month period Mortgage loans, church bonds
ending June 30, and interim loans Indebtedness
--------------- ----------------- ------------
1997 .... $15,614,645 $11,199,193
1998 .... 1,877,606 1,821,520
1999 .... 1,637,225 1,246,000
2000 .... 1,245,393 --
2001 .... 1,141,396 --
=========== ==========
(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 $3,962,215 and
$2,769,345 at June 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
$98,000 and $92,000 for the three-month periods ended June 30, 1996 and
1995, respectively.
Continued
-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 June 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, 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.
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 June 30, 1996, the
Trust was in compliance with the requirement.
This information is an integral part of the
accompanying 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 Period Ended June 30, 1996 as Compared to
the Three-Month Period Ended June 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 $287,169 for the
three-month period ended June 30, 1996, as compared to the corresponding period
in 1995 is primarily due to a decrease in the amount of income recognized from
the early pay-off of certain loans, the effect of writing off $45,000 of accrued
interest related to certain loans that were placed on nonaccrual, a decrease in
the average rate of return of the mortgage loan and church bond portfolio from
10.94% at June 30, 1995 to 10.39% at June 30, 1996 and a decrease in the average
total amount of mortgage loans, church bonds, and interim construction loans
outstanding during the period ended June 30, 1996 as compared to the same period
ended June 30, 1995.
INTEREST EXPENSE
The most significant expense item is interest expense which comprised the
majority of total operating expense for each of the three-month periods ended
June 30, 1996 and 1995. The decrease of $101,468 in interest expense resulted
from a decrease in the weighted average interest rate on all indebtedness from
8.02% at June 30, 1995, to 7.21% at June 30, 1996, as well as a decrease in the
average total amount of indebtedness outstanding during the three-month period
ended June 30, 1996 as compared to the same period ended June 30, 1995.
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.
Management believes that potential losses related to such loans have been
provided for in the Trust's allowance for possible credit losses.
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 is 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.
-6-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
-7-
<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: August 13, 1996 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: August 13, 1996 BY:/s/ Kelly Archer
-----------------------------
Kelly Archer
Chief Financial Officer
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
=======================================================================
This schedule contains summary financial information extracted from the
company's financial statements as of and for the three months ended
June 30, 1996 and is qualified in its entirety by reference to
such financial statements.
=======================================================================
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-START> Apr-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 235,824
<SECURITIES> 0
<RECEIVABLES> 35,944,851
<ALLOWANCES> 742,714
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 433,297
<TOTAL-ASSETS> 35,832,368
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,623,866
<OTHER-SE> 567,821
<TOTAL-LIABILITY-AND-EQUITY> 35,832,368
<SALES> 899,014
<TOTAL-REVENUES> 899,014
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 36,097
<LOSS-PROVISION> 22,500
<INTEREST-EXPENSE> 229,180
<INCOME-PRETAX> 471,624
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471,624
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
