================================================
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, 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 June 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 June 30, 1997
and March 31, 1997 ....................... 1
Condensed Statements of Income for the
three-month periods ended June 30, 1997
and 1996 ................................. 2
Condensed Statements of Cash Flows
for the three-month periods ended
June 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 ............................... 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, 1997 and March 31, 1997
ASSETS JUNE 30, 1997 MARCH 31, 1997
------ ------------- --------------
CASH AND CASH EQUIVALENTS ...................... $ 2,733,540 $ 586,629
RECEIVABLES
Mortgage loans and church bonds -
performing ................................ 17,750,895 19,177,849
Interim construction loans - performing .... 9,757,962 12,133,111
Nonearning mortgage loans, church bonds
and interim construction loans ............ 2,998,476 3,158,484
Less: Allowance for possible credit losses . (900,213) (855,213)
------------ ------------
29,607,120 33,614,231
------------ ------------
Accrued interest receivable ................ 374,962 303,756
Notes receivable ........................... 544,393 536,453
------------ ------------
Total receivables ............ 30,526,475 34,454,440
PROPERTY AND EQUIPMENT, net .................... 209,373 213,291
UNAMORTIZED DEBT EXPENSE, net and other assets . 206,026 201,392
------------ ------------
TOTAL ASSETS ................................... $ 33,675,414 $ 35,455,752
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES
Notes payable and line of credit:
Related party ............................ $ 1,658,638 $ 1,648,660
Other .................................... 2,751,762 4,397,216
------------ ------------
4,410,400 6,045,876
------------ ------------
Secured savings certificates:
Related party ............................ 290,000 315,692
Other .................................... 7,246,230 7,258,280
------------ ------------
7,536,230 7,573,972
Accrued interest payable ................... 57,555 45,211
Other ...................................... 665,658 555,574
------------ ------------
Total liabilities ............ 12,669,843 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 ................... 381,705 611,253
------------ ------------
Total shareholders' equity ... 21,005,571 21,235,119
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 33,675,414 $ 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 periods ended June 30, 1997 and 1996
THREE-MONTH PERIODS ENDED JUNE 30,
1997 1996
---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage loans, church
bonds and interim construction loans .......... $ 933,207 $ 888,589
Interest on temporary investments ............... 29,649 7,727
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Total interest income and fees ..... 962,856 896,316
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DEBT EXPENSE
Interest ........................................ 233,676 229,180
Amortization of:
Registration costs ............................ 4,374 10,610
Commissions paid to brokers ................... 29,595 14,719
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Total debt expense ................. 267,645 254,509
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Net interest income ................ 695,211 641,807
PROVISION FOR POSSIBLE CREDIT LOSSES ................. 45,000 22,500
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Net interest income less provision for
possible credit losses ........... 650,211 619,307
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OTHER INCOME ......................................... 2,013 2,698
OTHER OPERATING EXPENSES
General and administrative ...................... 165,466 139,613
Board of Trust Managers' fees ................... 11,939 10,768
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Total other operating expenses ..... 177,405 150,381
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Income before provision for
income taxes ...................... 474,819 471,624
PROVISION FOR INCOME TAXES ........................... 3,627 --
---------- ----------
NET INCOME ........................................... $ 471,192 $ 471,624
========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING ........................... 7,007,402 7,007,402
========== ==========
NET INCOME PER SHARE ................................. $ .07 $ .07
========== ==========
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)
Three-month periods ended June 30, 1997 and 1996
THREE-MONTH PERIODS ENDED JUNE 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................. $ 471,192 $ 471,624
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ............................ 3,918 3,920
Amortization of debt expense ............ 25,329 25,329
Amortization of loan discounts .......... (19,434) (25,971)
Provision for possible credit losses .... 45,000 22,500
Changes in:
Accrued interest receivable ........... (71,206) (14,091)
Accrued interest payable .............. 12,344 15,641
Federal income taxes payable .......... -- (7,060)
Other liabilities ..................... 110,084 100,251
Other, net ............................ 3,400 (27,270)
----------- -----------
Net cash provided by operating
activities .................... 580,627 564,873
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ........ (4,685,728) (5,718,352)
Payments received on mortgage and interim
construction loans and church bonds ....... 8,667,273 3,310,150
Investments in notes receivable ............. (90,452) (261,768)
Payments received on notes receivable ....... 82,512 89,327
----------- -----------
Net cash provided (used) by
investing activities .......... 3,973,605 (2,580,643)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates ........ 2,435,121 357,940
Borrowings on notes payable ................. 788,454 4,057,213
Principal payments on:
Secured savings certificates .............. (2,472,863) (18,000)
Notes payable ............................. (2,423,930) (2,231,895)
Commissions paid to broker on issuance of secured
savings certificates ...................... (33,363) (5,428)
Cash dividends .............................. (700,740) (630,666)
----------- -----------
Net cash provided (used) by
financing activities .......... (2,407,321) 1,529,164
----------- -----------
Increase (decrease) in cash
and cash equivalents .......... 2,146,911 (486,606)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ............................. 586,629 722,430
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....... $ 2,733,540 $ 235,824
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest .... $ 221,332 $ 213,539
=========== ===========
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)
NOTE 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.
NOTE 2 - WEIGHTED AVERAGE INTEREST RATES
Weighted average interest rates and net interest rate margins at June 30, 1997
and 1996, were as follows:
Mortgage loan and Total Net interest
church bond portfolio indebtedness rate margin
--------------------- ------------ ------------
June 30, 1997 10.54% 7.29 3.25
June 30, 1996 10.39 7.21 3.18
NOTE 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, 1997, for the five twelve-month periods subsequent to
June 30, 1997, follow:
Twelve-month period Mortgage loans, church bonds
ending June 30, and interim loans Indebtedness
--------------- ----------------- ------------
1998 .... $13,610,855 6,965,732
1999 .... 1,289,801 3,655,898
2000 .... 1,147,127 1,325,000
2001 .... 1,034,463 -
2002 .... 950,500 -
-------------- ------------
-4-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
NOTE 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 $2,998,476 and $3,962,215 at June
30, 1997 and 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 $60,000 and $98,000 for the three-month periods ended
June 30, 1997 and 1996, respectively.
NOTE 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. 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.
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.
NOTE 6 - SUBSEQUENT EVENT
During July 1997, the Trust foreclosed on a nonearning loan that had a recorded
principal balance of approximately $979,000. Management believes that the loss,
if any, from the ultimate disposition of the property will not be significant.
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, 1997 as Compared to
the Three-Month Period Ended June 30, 1996:
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 increase in the Trust's revenues of $66,540 for the three-month
period ended June 30, 1997, as compared to the corresponding period in 1996 is
primarily due to a decrease in the amount of nonearning loans and an increase in
the average rate of return of the mortgage loan and church bond portfolio from
10.39% at June 30, 1996 to 10.54% at June 30, 1997.
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, 1997 and 1996. The increase of $4,496 in interest expense resulted from
an increase in the weighted average interest rate on all indebtedness from 7.21%
at June 30, 1996, to 7.29% at June 30, 1997 which was partially offset by a
decrease in the average total amount of indebtedness outstanding during the
three-month period ended June 30, 1997 as compared to the same period ended June
30, 1996.
OTHER OPERATING EXPENSES
Other operating expenses were $177,405 for the three months ended June 30, 1997,
or $27,024 more than the comparable period in 1996. The increase was primarily
caused by increased legal and other fees and other costs incurred in the
collection of several nonearning loans.
LIQUIDITY
The Trust's cash and cash equivalents increased from $586,629 at March 31, 1997
to $2,733,540 at June 30, 1997. The increase is largely attributable to
payments, including the payoff of several large loans, of approximately
$8,667,000 being received on mortgage and interim construction loans during the
three-month period ended June 30, 1997. Although these payments improved the
liquidity of the Trust, future earnings are likely to be adversely affected
until additional loans are funded.
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. The Trust is in the
process of negotiating an increase in its bank line of credit. Management
believes that the increased line of credit will be secured and the Trusts
liquidity will not be adversely affected, particularly in light of the loan
payments mentioned above.
-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 14, 1997 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: August 14, 1997 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, 1997 and is qualified in its entirety by reference to
such financial statements.
=======================================================================
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-START> Apr-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 2,733,540
<SECURITIES> 0
<RECEIVABLES> 31,426,688
<ALLOWANCES> 900,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 448,969
<TOTAL-ASSETS> 33,675,414
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,623,866
<OTHER-SE> 381,705
<TOTAL-LIABILITY-AND-EQUITY> 33,675,414
<SALES> 964,869
<TOTAL-REVENUES> 964,869
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 45,908
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> 233,676
<INCOME-PRETAX> 474,819
<INCOME-TAX> 3,627
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471,192
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
