================================================
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 September 30, 1997
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 September 30, 1997, 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, 1997
and March 31, 1997 ....................... 1
Condensed Statements of Income for the
three-month and six-month periods ended
September 30, 1997 and 1996 .............. 2
Condensed Statements of Cash Flows
for the six-month periods ended
September 30, 1997 and 1996 .............. 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, 1997 and March 31, 1997
ASSETS SEPTEMBER 30, 1997 MARCH 31, 1997
------ ------------------ --------------
CASH AND CASH EQUIVALENTS ..................... $ 470,357 $ 586,629
RECEIVABLES
Mortgage loans and church bonds -
earning ................................... 17,469,062 19,177,849
Interim construction loans - earning ....... 12,982,132 12,133,111
Nonearning mortgage loans, church bonds
and interim construction loans ............ 1,885,670 3,158,484
Less: Allowance for possible credit losses . (945,213) (855,213)
------------- -------------
31,391,651 33,614,231
------------- -------------
Accrued interest receivable ................ 445,134 303,756
Notes receivable ........................... 506,812 536,453
------------- -------------
Total receivables ............ 32,343,597 34,454,440
------------- -------------
PROPERTY AND EQUIPMENT, net .................... 205,455 213,291
REAL ESTATE ACQUIRED THROUGH FORECLOSURE ....... 1,169,448 119,950
UNAMORTIZED DEBT EXPENSE, net and other assets . 91,474 81,442
------------- -------------
TOTAL ASSETS ................................... $34,280,331 $35,455,752
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ............................ $1,637,304 $1,648,660
Other .................................... 2,782,002 4,397,216
------------- --------------
4,419,306 6,045,876
------------- --------------
Secured savings certificates:
Related party ............................ 240,000 315,692
Other .................................... 7,398,262 7,258,280
------------- --------------
7,638,262 7,573,972
Accrued interest payable ................... 33,045 45,211
Other ...................................... 614,515 555,574
------------- --------------
Total liabilities ............ 12,705,128 14,220,633
------------- --------------
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 ................... 951,337 611,253
------------- --------------
Total shareholders' equity ... 21,575,203 21,235,119
------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $34,280,331 $35,455,752
============= ==============
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 and six-month periods ended
September 30, 1997 and 1996
THREE-MONTH PERIODS ENDED SIX-MONTH PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage
loans, church bonds, and
interim construction loans $952,766 $1,005,626 $1,885,973 $1,894,215
Interest on temporary
investments .......... 31,940 10,006 61,589 17,733
-------- -------- -------- --------
Total interest
income and fees ... 984,706 1,015,632 1,947,562 1,911,948
-------- -------- -------- --------
DEBT EXPENSE
Interest ................ 228,860 248,897 462,536 478,077
Amortization of:
Registration cost .... - 6,553 4,374 17,163
Commissions paid to
brokers ............ - 15,006 29,595 29,725
-------- -------- -------- --------
Total debt expense ... 228,860 270,456 496,505 524,965
-------- -------- -------- --------
Net interest income .. 755,846 745,176 1,451,057 1,386,983
PROVISION FOR POSSIBLE
CREDIT LOSSES ............. 45,000 22,500 90,000 45,000
-------- -------- -------- --------
Net interest income
less provision for
possible credit
losses ............. 710,846 722,676 1,361,057 1,341,983
OTHER INCOME ................... 36,898 2,427 38,911 5,125
OTHER OPERATING EXPENSES
General and administrative . 165,579 119,919 331,045 259,532
Board of Trust Managers'
fees ...................... 12,533 10,014 24,472 20,782
-------- -------- -------- --------
Total other
operating expenses .. 178,112 129,933 355,517 280,314
-------- -------- -------- --------
Income before provision
for taxes ........ 569,632 595,170 1,044,451 1,066,794
PROVISION FOR INCOME TAXES ..... - - 3,627 -
-------- -------- --------- ---------
NET INCOME .....................$569,632 $595,170 $1,040,824 $1,066,794
======== ======== ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .....7,007,402 7,007,402 7,007,402 7,007,402
========= ========= ========= =========
NET INCOME PER SHARE .......... $.08 $.08 $.15 $.15
========= ========= ========= ========
DIVIDENDS PER SHARE ........... - - .10 .09
========= ========= ========= ========
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)
Six-month periods ended September 30, 1997 and 1996
SIX-MONTH PERIODS
ENDED SEPTEMBER 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................. $1,040,824 $1,066,794
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ..................... 7,836 7,838
Amortization of debt expense ..... 25,329 46,888
Amortization of loan discounts ... (42,311) (50,433)
Provision for possible credit losses 90,000 45,000
Changes in:
Accrued interest receivable .. (141,378) 25,866
Accrued interest payable ..... (12,166) (2,523)
Federal income taxes payable . - (7,060)
Other liabilities ............ 58,941 124,647
Other, net ....................... (1,388) (61,463)
------------ ------------
Net cash provided by operating
activities .............. 1,025,687 1,195,554
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds . (11,527,897) (8,017,210)
Payments received on mortgage and interim
construction loans and church bonds . 12,653,290 7,985,864
Advances of notes receivable ........... (155,095) (319,737)
Payments received on notes receivable .. 184,736 220,148
------------ ------------
Net cash provided (used) by
investing activities .... 1,155,034 (130,935)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates (SSC) 3,314,121 659,440
Borrowings on notes payable ............ 1,208,803 5,357,265
Principal payments on:
SSCs ................................ (3,249,831) (353,331)
Notes payable ....................... (2,835,373) (5,398,895)
Registration costs of SSCs ............. - (7,732)
Commissions paid to broker on issuance
of SSCs ............................... (33,973) (4,674)
Cash dividends paid .................... (700,740) (630,666)
------------ ------------
Net cash used by
financing activities .... (2,296,993) (378,593)
------------ ------------
Increase (decrease) in cash
and cash equivalents .... (116,272) 686,026
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ....................... 586,629 722,430
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . $470,357 $1,408,456
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $474,702 $480,600
============ ============
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 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.
Certain amounts in the March 31, 1997 balance sheet have been
reclassified to conform with the September 30, 1997 presentation.
(2) WEIGHTED AVERAGE INTEREST RATES
Weighted average interest rates and net interest rate margins at
September 30, 1997 and 1996 were as follows:
Mortgage loan and Total Net interest
CHURCH BOND PORTFOLIO INDEBTEDNESS RATE MARGIN
--------------------- ------------ -----------
September 30, 1997 10.55% 7.39 3.16
September 30, 1996 10.50 7.09 3.41
(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, 1997, for the five twelve-month
periods subsequent to September 30, 1997, follow:
Twelve-month period Mortgage loans, church bonds
ending September 30, and interim loans Indebtedness
------------------- ----------------- ------------
1998 $15,663,818 7,079,374
1999 1,249,801 3,551,497
2000 1,147,127 1,419,000
2001 1,034,463 -
2002 950,500 -
=========== =========
-4-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
(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 $1,885,670 and
$3,778,739 at September 30, 1997 and September 30, 1996, respectively. If
interest on these mortgage loans, church bonds and 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
$133,000 and $205,000 for the six-month periods ended September 30, 1997
and 1996, respectively. Interest income actually recognized in 1997 was
approximately $40,000.
In addition to the nonaccrual loans previously mentioned, management has
doubts as to a certain loan's ability to comply with present repayment
terms. Such loan had a balance of approximately $751,000 at September 30,
1997 and was not classified as nonearning at that date.
(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.
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.
(6) LINE OF CREDIT PAYABLE TO THE BANK
Effective September 1, 1997, the Trust established a new $15,000,000 line
of credit, of which $1 was owed at September 30, 1997. The line of credit
expires September 30, 1998 and bears interest at 1% below prime. The line
of credit provides for certain commitment fees and for Church Loans to
pledge mortgage loans receivable having unpaid principal balances with an
aggregate present value not less than 110% of all indebtedness owed to
the bank. Interest is payable semiannually. Additionally, the line of
credit requires than Church Loans' net worth not be less than $18,000,000
and its total indebtedness shall not exceed 150% of its net worth.
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 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 primarily from interest income earned on
mortgage loans, church bonds and interim construction loans. The Trust's
revenues of $984,706 for the three-month period ended September 30, 1997, were
comparable to $1,015,632 for the corresponding period in 1996. The Trust's
revenues of $1,947,562 for the six-month period ended September 30, 1997
increased slightly from $1,911,948 for the corresponding period. The weighted
average rate on mortgage loans, church bonds and interim loans at September 30,
1997 and 1996 was 10.55% and 10.50%, 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, 1997 and 1996. Interest expense for the three-month
period ended September 30, 1997 of $228,860 was comparable to the corresponding
amount in 1996 of $248,897. Interest expense of $462,536 for the six-month
period ended September 30, 1997, was also comparable to the corresponding amount
in 1996 of $478,077. The weighted average interest rate on all indebtedness was
7.39% at September 30, 1997 as compared to 7.09% at September 30, 1996.
OTHER OPERATING EXPENSES
Other operating expenses were $178,112 for the three months ended September 30,
1997, or $48,179 more than the comparable period in 1996. Other operating
expenses were $355,517 for the six months ended September 30, 1997, or $75,203
more than the comparable period in 1996. These increases were primarily caused
by increased legal and other fees incurred in the collection and foreclosure of
several nonearning loans.
NONEARNING ASSETS
During the period ended September 30, 1997, the Trust foreclosed on two
nonearning loans with total principal balances of $1,049,498. The recorded loan
balances approximated fair value of the securing properties. One loan
constituted approximately $976,000 of the total and was secured by an
assisted-living center located in Sedona, Arizona. The Trust has leased the
property to a third party and has recognized approximately $35,000 in other
income in the three months ended September 30, 1997 from the rental of such
property. Presently, the Trust is actively seeking disposition of the
properties.
In addition to nonearning loans of $1,885,670 at September 30, 1997, management
has doubts as to a certain loan's ability to comply with present repayment
terms. Such loan had a balance of approximately $751,000 at September 30, 1997
and was not classified as nonearning at that date.
-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 Board of Trust
Managers have decided not to register additional Certificates. Accordingly, the
Trust is not able to sell these certificates after July 1997 and does not have
this source of funds available to meet its liquidity needs. During September
1997, the Trust increased its revolving line of credit from $10,000,000 to
$15,000,000 to compensate for the loss of Certificates as a funding source.
-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 18, 1997. 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
--- -------
Mike Bahn ................. 3,574,007 15,985
Dr. Everett Blanton ....... 3,572,007 17,985
Larry Brown ............... 3,577,007 12,985
Robert E. Martin .......... 3,577,007 12,985
Bill R. McMorries ......... 3,577,007 12,985
Steve Rogers .............. 3,574,007 15,985
Dr. Foy W. Shackleford .... 3,577,007 12,985
Jack R. Vincent ........... 3,577,007 12,985
Additionally, shareholders voted to ratify Clifton Gunderson P.L.L.C. as
auditors for the year ending March 31, 1998 as follows:
For ......... 3,441,156
Against ..... 3,450
Abstain ..... 145,386
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
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 13, 1997 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: November 13, 1997 BY:/s/ Kelly Archer
-----------------------------
Kelly Archer
Chief Financial Officer
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
=======================================================================
This schedule contains summary financial information extracted from the
company's financial statements as of and for the 6 months ended
September 30, 1997 and is qualified in its entirety by reference to
such financial statements.
=======================================================================
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-START> Apr-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 470,357
<SECURITIES> 0
<RECEIVABLES> 33,288,810
<ALLOWANCES> 945,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 452,887
<TOTAL-ASSETS> 34,280,331
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,623,866
<OTHER-SE> 951,337
<TOTAL-LIABILITY-AND-EQUITY> 34,280,331
<SALES> 1,986,473
<TOTAL-REVENUES> 1,986,473
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 58,441
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 462,536
<INCOME-PRETAX> 1,044,451
<INCOME-TAX> 3,627
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,040,824
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
