================================================
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 December 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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Commission File No. 0-8117
CHURCH LOANS & INVESTMENTS TRUST
State of Organization IRS Employer Identification
- --------------------- ---------------------------
Texas No. 75-6030254
5305 I-40 West
Amarillo, Texas 79106
Registrant's telephone number: 806-358-3666
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ _ ]
As of December 31, 1995, 7,007,402 shares of the Registrant's shares of
beneficial interest were outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ _ ] No [ X ]
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
INDEX
Page
----
Part I.
Item 1: Financial Information:
Condensed Balance Sheets at December 31, 1995
and March 31, 1995 ....................... 1
Condensed Statements of Income for the
three-month periods ended December 31, 1995
and 1994 ................................. 2
Condensed Statements of Cash Flows
for the nine-month periods ended
December 31, 1995 and 1994 ............... 3
Notes to Condensed Financial Statements ..... 4
Item 2: Management's Discussion and Analysis or
Plan of Operation .......................... 6
Part II. Other Information ............................... 7
Signatures ................................................ 8
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
December 31, 1995 and March 31, 1995
ASSETS DECEMBER 31, 1995 MARCH 31, 1995
------ ----------------- --------------
Cash and cash equivalents ...................... $ 796,570 $ 366,977
Receivables:
Mortgage loans and church bonds -
earning ................................... 21,714,720 25,676,746
Interim construction loans - earning ....... 10,225,599 10,148,958
Nonearning mortgage loans, church bonds
and interim construction loans ............ 2,885,189 3,405,793
Less: Allowance for possible credit losses . (706,165) (645,049)
------------ ------------
34,119,343 38,586,448
------------ ------------
Accrued interest receivable ................ 319,959 339,633
Notes receivable ........................... 559,722 481,878
Other receivables .......................... 482 2,576
------------ ------------
Total receivables ............ 34,999,506 39,410,535
Property and equipment, net of accumulated
depreciation of $425,461 and $413,707
at December 31, 1995 and March 31, 1995,
respectively ............................... 232,881 244,635
Property held for investment ................... 83,714 83,714
Unamortized debt expense, net and other assets . 104,448 65,400
------------ ------------
$ 36,217,119 $ 40,171,261
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Notes payable and line of credit:
Related party ............................ $ 1,044,997 $ 706,577
Other .................................... 5,174,955 11,032,781
------------ ------------
6,219,952 11,739,358
------------ ------------
Secured savings certificates:
Related party ............................ 485,692 665,375
Other .................................... 6,501,709 6,118,356
------------ ------------
6,987,401 6,783,731
Dividends payable .......................... 1,681,776 --
Accrued interest payable ................... 64,583 94,423
Federal income taxes payable ............... -- 5,010
Other ...................................... 443,303 314,771
------------ ------------
15,397,015 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 ................... 196,238 610,102
------------ ------------
Total shareholders' equity ... 20,820,104 21,233,968
------------ ------------
$ 36,217,119 $ 40,171,261
============ ============
See accompanying notes to the condensed financial statements.
- 1 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month and nine-month periods ended
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Three-month periods ended Nine-month periods ended
December 31, December 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income and fees:
Interest and fees on mortgage
loans, church bonds, and
interim construction loans ....... $ 974,030 1,086,364 3,173,394 3,300,658
Interest on temporary
investments ..................... 9,763 2,964 28,631 13,541
---------- ---------- ---------- ----------
Total interest income
and fees ................. 983,793 1,089,328 3,202,025 3,314,199
---------- ---------- ---------- ----------
Debt expense:
Interest ........................... 237,881 340,676 860,739 979,202
Amortization of:
Registration cost ............... 10,541 -- 10,541 9,250
Commissions paid to brokers ..... 12,600 17,169 36,441 51,666
---------- ---------- ---------- ----------
Total debt expense ........... 261,022 357,845 907,721 1,040,118
---------- ---------- ---------- ----------
Net interest income .......... 722,771 731,483 2,294,304 2,274,081
Provision for possible
credit losses .................... 22,500 7,500 62,500 22,500
---------- ---------- ---------- ----------
Net interest income
less provision for
possible credit losses ..... 700,271 723,983 2,231,804 2,251,581
Other income ........................... 2,950 3,265 8,850 9,253
Other operating expenses:
General and administrative ......... 105,259 127,579 381,967 379,736
Board of Trust Managers' fees ...... 10,124 9,298 30,182 29,168
---------- ---------- ---------- ----------
Total other operating expenses 115,383 136,877 412,149 408,904
---------- ---------- ---------- ----------
Net income ................... $ 587,838 590,371 1,828,505 1,851,930
========== ========== ========== ==========
Weighted average number of
shares outstanding ................. 7,007,402 7,007,402 7,007,402 7,007,402
========== ========== ========== ==========
Net income per share ................... $ .08 .08 .26 .26
========== ========== ========== ==========
Dividends declared per share ........... $ .24 .25 .32 .34
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
- 2 -
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Nine-month periods ended December 31, 1995 and 1994
Nine-month periods
ended December 31,
1995 1994
---- ----
Cash Flows from Operating Activities:
Net income .................................. $ 1,828,505 1,851,930
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation .......................... 11,754 11,754
Amortization of debt expense .......... 46,982 60,916
Provision for possible credit losses .. 62,500 22,500
Amortization of loan discounts ........ (249,171) (193,518)
Changes in:
Accrued interest receivable ....... 19,674 (22,321)
Accrued interest payable .......... (29,840) 81,377
Federal income taxes payable ...... (5,010) (5,799)
Other liabilities ................. 128,532 205,667
Other, net ............................ 372 17,415
------------ -----------
Net cash provided by
operating activities ......... 1,814,298 2,029,921
------------ -----------
Cash Flows from Investing Activities:
Investment in mortgage and interim
construction loans and church bonds ...... (9,274,875) (15,560,353)
Payments received on mortgage and
interim construction loans and
church bonds ............................. 13,930,036 11,197,780
Advances of notes receivable ................ (307,611) (109,621)
Payments received on notes receivable ....... 229,767 206,384
------------ -----------
Net cash provided (used)
by investing activities ..... 4,577,317 (4,265,810)
------------ -----------
Cash Flows from Financing Activities:
Net proceeds from bank overdraft ............ -- 83,226
Sale of secured savings certificates ........ 3,100,744 5,239,232
Borrowings on notes payable ................. 8,038,227 10,269,447
Principal payments on:
Secured savings certificates ............. (2,897,074) (5,353,882)
Notes payable ............................ (13,557,633) (7,713,578)
Registration costs of secured savings
certificates ............................. (44,126) (8,290)
Commissions paid to broker on issuance
of secured savings certificates .......... (41,567) (79,030)
Cash dividends paid ......................... (560,593) (630,667)
------------ -----------
Net cash provided (used)
by financing activities ..... (5,962,022) 1,806,458
------------ -----------
Increase (decrease) in
cash and cash equivalents .. 429,593 (429,431)
Cash and cash equivalents at beginning of period 366,977 429,431
------------ -----------
Cash and cash equivalents at end of period ...... $ 796,570 --
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .... $ 890,579 897,825
============ ===========
See accompanying notes to condensed financial statements.
During December 1995, the Board of Trust Managers declared cash dividends of
$1,681,776 ($.24 per share) payable in January 1996. During December 1994, the
Board of Trust Managers declared cash dividends of $1,751,850 ($.25 per share)
payable in January 1995.
- 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 December
31, 1995, and March 31, 1995, were as follows:
Mortgage loan and Total Net interest
church bond portfolio indebtedness rate margin
--------------------- ------------ ------------
December 31, 1995 ........ 11.22 7.42 3.80
March 31, 1995 ............ 10.94 8.02 2.92
(3) CONTRACTUAL MATURITIES
Scheduled principal payments on mortgage loans, church bonds and interim
loans and indebtedness (including secured savings certificates and notes
payable) outstanding at December 31, 1995, for the five twelve-month
periods subsequent to December 31, 1995, follow:
Twelve-month period Mortgage loans, church bonds
ending December 31, and interim loans Indebtedness
------------------- ------------------ ------------
1996 $13,785,531 8,574,080
1997 1,955,679 3,512,948
1998 1,817,368 1,120,325
1999 1,427,419 -
2000 1,199,567 -
=========== ==========
(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 $2,885,189 and
$3,136,330 at December 31, 1995 and 1994, 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
$235,000 and $134,000 for the nine-month periods ended December 31, 1995
and 1994, respectively.
- 4
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
Nonearning assets include one interim construction loan which had a
principal balance of $1,400,977 at December 31, 1995. The loan became
delinquent during the latter part of 1994 and was placed on nonaccrual
status and all accrued interest was written-off. The loan is
collateralized by a church building and management believes that the
potential loss, if any, is adequately provided in the allowance for
possible credit losses at December 31, 1995. Management initiated
proceedings to foreclose the collateral securing such loan and during
July 1995, a temporary forbearance agreement and financial control
agreement was reached in which, among other things, the borrower has
agreed to pay the Trust $5,000 per week. The borrower had generally
complied with the terms of the agreement through December 31, 1995. If
the terms are not substantially complied with, the Trust will continue
with foreclosure proceedings.
(5) SECURED SAVINGS CERTIFICATES
Secured Savings Certificates (Certificates) are issued in amounts of
$1,000 or more and have single maturity dates from 30 days to 10 years
from date of issue. With respect to an individual certificate, interest
rate and frequency of payment of interest (either monthly, quarterly,
semiannually, annually or at maturity) are fixed at the time of issuance
of the Certificate. Effective July 18, 1994, the Trust decided not to
register and was not able to sell additional Certificates after that
date. However, during April 1995, the Board of Trust Managers decided to
register $20,000,000 of Certificates on Form SB-2 and as of December 31,
1995, such registration was effective and Certificates 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 125% (100% for Certificates sold
in 1995) of the aggregate principal amount of Certificates outstanding.
Due to the fluctuations in the amount of sales of Certificates as well as
in the repayment of notes pledged to secure the Certificates, the Trust
has on occasion failed to maintain the required ratio of pledged notes to
outstanding Certificates for a short period of time until the deficiency
could be corrected. The indenture trustee has been aware of these
temporary technical defaults and has not declared a default under the
Indenture. At December 31, 1995, the Trust was in compliance with the
requirement.
- 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 Nine-Month Periods Ended December 31,
1995 as Compared to the Three-Month and Nine-Month Periods Ended December 31,
1994:
REVENUES
The Trust's revenues are derived from interest income earned on mortgage loans
as well as, to a lesser degree, interest earned on church bonds and short-term
investments. The decrease in the Trust's revenues of $105,535 and $112,174 for
the three-month and nine-month periods ended December 31, 1995, as compared to
the corresponding periods in 1994 is primarily due to a decrease in average
mortgage loans, church bonds and interim construction loans. Loan balances
decreased from $41,190,548 at December 31, 1994 to $34,825,508 at December 31,
1995. This more than offset an increase in the weighted averaged rates on loans.
The weighted average rate on mortgage loans, church bonds and interim loans at
December 31, 1995 and 1994 was 11.22% and 10.67%, 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 nine-month
periods ended December 31, 1995 and 1994. Interest expense decreased by $102,795
and $118,463 for the three-month and nine-month periods ended December 31, 1995,
respectively, as compared to the corresponding period in 1994, primarily due to
decreases in average debt balances. The weighted average interest rate on all
indebtedness was 7.57% at December 31, 1994 as compared to 7.42% at December 31,
1995.
NONEARNING ASSETS
Nonearning assets include one interim construction loan which had a principal
balance of $1,400,977 at December 31, 1995. The loan became delinquent during
the latter part of 1994 and was placed on nonaccrual status and all accrued
interest was written-off. The loan is collateralized by a church building and
management believes that the potential loss, if any, is adequately provided in
the allowance for possible credit losses at December 31, 1995. Management
initiated proceedings to foreclose the collateral securing such loan and during
July 1995, a temporary forbearance agreement and financial control agreement was
reached in which, among other things, the borrower has agreed to pay the Trust
$5,000 per week. The borrower had generally complied with the terms of the
agreement through December 31, 1995. If the terms are not substantially complied
with, the Trust will continue with foreclosure proceedings.
LIQUIDITY
Due to the cost of registration and of sales of Secured Savings Certificates
(Certificates), the cost of these funds are normally higher than the cost of
borrowing from bank sources or master notes. Therefore, the Trust decided not to
register additional Certificates and the Trust was not able to sell these
Certificates after July 18, 1994, and, therefore, did not have available this
source of funds to meet its liquidity needs. However, during April 1995, the
Board of Trust Managers decided to register on Form SB-2 $20,000,000 of
Certificates. As of December 31, 1995, such registration was effective and
Certificates 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 filed during the current quarter
- 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: February 5, 1996 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: February 5, 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 nine months ended
December 31, 1995 and is qualified in its entirety by reference to
such financial statements.
=======================================================================
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> $ 796,570
<SECURITIES> $ 0
<RECEIVABLES> $35,705,671
<ALLOWANCES> $ 706,165
<INVENTORY> $ 0
<CURRENT-ASSETS> $ 0
<PP&E> $ 658,342
<DEPRECIATION> $ 425,461
<TOTAL-ASSETS> $36,217,119
<CURRENT-LIABILITIES> $ 0
<BONDS> $ 0
$ 0
$ 0
<COMMON> $20,623,866
<OTHER-SE> $ 196,238
<TOTAL-LIABILITY-AND-EQUITY> $36,217,119
<SALES> $ 986,743
<TOTAL-REVENUES> $ 986,743
<CGS> $ 0
<TOTAL-COSTS> $ 0
<OTHER-EXPENSES> $ 138,524
<LOSS-PROVISION> $ 22,500
<INTEREST-EXPENSE> $ 237,881
<INCOME-PRETAX> $ 587,838
<INCOME-TAX> $ 0
<INCOME-CONTINUING> $ 0
<DISCONTINUED> $ 0
<EXTRAORDINARY> $ 0
<CHANGES> $ 0
<NET-INCOME> $ 587,838
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
