________________________________________________
FORM 10-KSB405
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________________________________________
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1997
[___] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to ________.
Commission File No. 08117
________________________________________________
CHURCH LOANS & INVESTMENTS TRUST
(Name of small business issuer in its charter)
Texas 75-6030254
_______________________________ ___________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5305 I-40 West, Amarillo, Texas 79106
________________________________________ __________
(Address of principal executive offices) (Zip Code)
(806) 358-3666
___________________________
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act: Shares of Beneficial Interest
________________________________________________
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 [___]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's
<PAGE>
knowledge, in definitive proxy or information statements incorporated
by reference of part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $3,841,206.
The aggregate market value of the voting stock held by
non-affiliates of the registrant is $14,642,356.50 as of June 10, 1997.
The number of shares outstanding of each of the issuer's classes
of common stock, as of March 31, 1997 is 7,007,402 shares of beneficial
interest.
Documents Incorporated by Reference:
Portions of the Annual Report to Shareholders for the year ended
March 31, 1997, are incorporated by reference into Parts II and III.
Exhibits 3(a) and 3(b) included in Form S-11 under File No.
2-51235 are incorporated by reference into Part III.
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TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT - 1997
CHURCH LOANS & INVESTMENTS TRUST
Page
____
PART I
Item 1: Description of Business ................ 4
Item 2: Description of Properties .............. 6
Item 3: Legal Proceedings ...................... 6
Item 4: Submission of Matters to a Vote of
Security Holders ...................... 6
PART II
Item 5: Market for Registrant's Common Equity
and Related Stockholder Matters ....... 6
Item 6: Management's Discussion and Analysis or
Plan of operation ..................... 7
Item 7: Financial Statements ................... 13
Item 8: Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure .................. 13
PART III
Item 9: Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act ..... 13
Item 10: Executive Compensation ................. 14
Item 11: Security Ownership of Certain Beneficial
Owners and Management ................. 15
Item 12: Certain Relationships and Related
Transactions .......................... 16
Item 13: Exhibits and Reports on Form 8-K ....... 17
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PART I
Item 1: DESCRIPTION OF BUSINESS
Church Loans & Investments Trust ("the Trust") is a real estate
investment trust organized under the laws of the State of Texas
in March 1963. Although the Trust has the authority to engage in
the business of buying, selling and leasing of real estate, the
Trust has heretofore restricted its business activities primarily
to making loans to churches and other nonprofit organizations and
assisted living centers which are secured by a first mortgage on
real estate owned by such borrowers.
The period of duration of the Trust, unless dissolved in
accordance with law, or by the consent of the owners of shares of
beneficial interest in the Trust, is perpetual. The Trust may be
dissolved by the affirmative vote of not less than two-thirds of
the owners of outstanding shares of the Trust. Owners of Secured
Savings Certificates, a debt instrument issued by the Trust, have
no vote in regard to any activities of the Trust, including
dissolution.
The control and management of the Trust properties, and all
powers necessary or appropriate to effect any and all of the
purposes for which the Trust is organized, is vested in the Board
of Trust Managers. All managers are members of a congregation of
the Church of Christ.
The number of shares of beneficial interest in the Trust which
the Trust is authorized to issue is unlimited.
The Trust is qualified as a "real estate investment trust" under
Sections 856-858 of the Internal Revenue Code of 1986 as amended
(the "Internal Revenue Code" or "Code"). It is the intention of
the Trust to continue to qualify as a real estate investment
trust under the Code.
The Trust maintains an office located at 5305 I-40 West,
Amarillo, TX 79106 (telephone 806/358-3666).
As mentioned above, the Trust is primarily engaged in the
business of making mortgage loans to churches and other nonprofit
organizations and assisted living centers. The Declaration of
Trust restricts the investments of the Trust to loans secured by
a first mortgage, deed of trust or other lien covering real
property with the amount of such loans not to exceed 66 2/3% of
the value of the real property securing such loan as determined
by a competent independent appraiser. Although the Trust has been
primarily in the business of making long-term mortgage loans,
during the past several years it has been more involved in making
short-term interim or construction loans to finance the
construction of church
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buildings, the purchase of real estate, or the refinancing of
existing indebtedness. Most, if not all, of the interim loans
presently being made by the Trust are associated with bond
offerings of churches and other nonprofit organizations. These
interim loans are scheduled to be repaid from the proceeds of the
bond offerings.
The Trust is not limited to the location of the property securing
any loans in which it may invest and seeks to spread its
investments in areas of the United States where favorable yields
prevail.
As of March 31, 1997, the Trust has 169 permanent and interim
mortgage loans and investments in church bonds having a principal
balance of $35,448,707, with the average principal amount thereof
being $209,755.66. The interest rates on these loans vary from
7.0% to 17% per annum with the weighted average interest rate of
mortgage loans and church bonds being 10.82% per annum at March
31, 1997. The original terms of these loans vary from one year to
thirty years, with the majority being for a term of twenty years.
During the fiscal year of the Trust ending March 31, 1997, the
net income of the Trust was $2,126,758, as compared to $2,359,130
in fiscal 1996, a decrease of 9.85%. The decrease in net income
of the Trust was due to several factors, including (a) an
increase in non-performing loans; (b) a decrease in income
realized from loan purchase discounts; and (c) a decrease in the
average annual interest rate on loans and church bonds held by
the Trust.
The net income of the Trust for each of the quarters during
fiscal 1997 was as follows: first quarter-$471,624; second
quarter-$595,170; third quarter-$580,120; and fourth
quarter-$479,844.
The operational expense of the Trust increased from $554,397
during fiscal 1996 to $561,527 in fiscal 1997. The operational
expenses of the Trust were approximately 14.62% of its gross
income for the year ended March 31, 1997 as compared to 13.18%
for the year ended March 31, 1996. The operational expense of the
Trust included general and administrative expenses and
compensation to members of the Board of Trust Managers.
During fiscal 1997, the Trust advanced loan proceeds of
$16,691,347 on 46 different loans. Most, if not all, of such
loans bear interest at a variable rate equal to 2% per annum in
excess of the prime rate of interest published by the Wall Street
Journal and known as the "Wall Street Journal Prime."
During fiscal 1997, the Trust employed a total of 4 full time
employees and employed, as needed, one additional part-time
employee.
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Item 2: DESCRIPTION OF PROPERTY
The Trust maintains as its only place of business its offices
located at 5305 I-40 West, in Amarillo, Texas. Such building is
owned by the Trust and is occupied solely by the Trust. There is
no debt owed by Trust in regard to its real property.
The real properties of the Trust are not a significant portion of
the Trust's assets, representing less than 1% of the Trust's
total assets.
As previously mentioned, the Trust's primary business is the
making of mortgage loans to churches and other nonprofit
organizations and assisted living centers. The Declaration of
Trust restricts the investments of the Trust to loans secured by
a first mortgage, deed of trust, or other lien covering real
property with the amount of such loans not to exceed 66 2/3% of
the value of the real property securing such loan. The
Declaration of Trust may not be amended without the affirmative
vote of two-thirds (2/3 rds) of the Certificates of Beneficial
Interest entitled to vote. The Board of Trust Managers' general
policy is to limit investment of Trust assets in any one mortgage
loan to not more than $2,000,000. All such investment in mortgage
loans is for the purpose of earning income for the Trust.
Item 3: LEGAL PROCEEDINGS
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
There is no established public trading market for the shares of
beneficial interest of the Trust. During fiscal 1997 a total of
126,880 shares were sold in the secondary market at prices
ranging from $2.20 to $3.00 per share. The last sale during the
fiscal year was at $2.25 per share. During fiscal year 1996 a
total of 81,805 shares were sold in the secondary market at
prices ranging from $2.25 to $2.31 per share.
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The range of high and low bid information for shares of
beneficial interest of the Trust for each quarter within the last
two fiscal years is as follows:
Quarter Fiscal 1997 Fiscal 1996
------- High Low High Low
_____ ____ ______ _____
April-June ..... $3.00 $2.25 $2.30 $2.25
July-September . 2.30 2.25 2.30 2.25
October-December 2.50 2.25 2.31 2.25
January-March .. 2.40 2.20 2.30 2.25
The source of the above information is the Trust's own records.
The Trust serves as the Transfer Agent for its own shares.
(b) Holders
At March 31, 1997 there were 2,774 shareholders of the Trust.
(c) Dividends
Cash dividends on all outstanding shares of beneficial interest
in the Trust are declared twice annually, for the 3 month period
ending March 31, and the 9 month period ending December 31. In
fiscal 1996 the Trust paid a cash dividend of $.32 per share. In
fiscal 1997 the Trust paid a total cash dividend of $.32 per
share.
Item 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS--1997 COMPARED TO 1996
During the fiscal year ended March 31, 1997, interest income and
fees of the Trust decreased by $365,970 (8.70%) over the previous
fiscal year. Such decrease was attributable to several factors,
including (a) an increase in non-performing loans; (b) a decrease
in income realized from loan purchase discounts; and (c) a
decrease in the average annual interest rate on loans and church
bonds held by the Trust. The increase in non-performing loans
resulted in an increase in the interest income that would have
been recorded under the original terms of non-performing loans
and church bonds from $310,000 for the year ended March 31, 1996
to $389,000 for the year ended March 31, 1997, an increase of
$79,000. Income from the realization of loan discounts from loan
purchases also decreased from $311,975 for the year ended March
31, 1996 to $166,457 for the year ended March 31, 1997, a
decrease of $145,518. The average annual interest rate on loans
and church bonds held by the Trust decreased from 11.21% as of
March 31, 1996 to 10.82% as of March 31, 1997. The decrease in
interest income caused by the decrease
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in the average annual interest rate on loans and church bonds
held by the Trust was somewhat offset by the net increase in the
amount of total performing mortgage loans and interim
construction loans held by the Trust. Although, there was a
decrease in the amount of performing mortgage loans held by the
Trust from $21,886,390 as of March 31, 1996 to $19,177,849 as of
March 31, 1997, there was an increase in performing interim
construction loans during the recent fiscal year from $7,877,489
as of March 31, 1996 to $12,133,111 as of March 31, 1997.
Therefore, the total performing mortgage loans, church bonds and
performing interim construction loans held by the Trust increased
from $29,763,879 as of March 31, 1996 to $31,310,960 as of March
31, 1997.
In fiscal 1997, the average aggregate amount of total debt
outstanding was $1,353,139 less than in fiscal 1996. Furthermore,
interest expense decreased by $183,901. Such decrease was
primarily due to a decrease in the debt of the Trust and
secondarily to a decrease in the Trust's cost of funds. The
approximate weighted average annual interest rate upon the
aggregate outstanding debt decreased from 7.72% during fiscal
1996 to 7.12% during fiscal 1997.
The net income of the Trust for 1997 was $2,126,758 ($.30 per
share), a decrease of $232,372 (9.85%) from the previous fiscal
year. Such decrease was primarily attributable to a decrease in
net interest income in fiscal 1997 as compared to fiscal 1996 as
discussed above and to an increase in the provision for possible
credit losses. The increase provision was due to an increase in
non-performing assets and the general risk in the portfolio.
Dividends related to 1997 were $2,312,442 or $.33 per share.
Dividends are based on taxable income which varies from net
income reported in the financial statements because of temporary
differences (differences between the tax basis of an asset or
liability and its reported amount in the financial statements
that will result in taxable or deductible amounts in future
years). Future dividends may be less than net income reported in
the financial statements because of variances in these temporary
differences.
During fiscal 1997, the prime interest rate increased from 8.25%
at March 31, 1996 to 8.50% per annum at March 31, 1997. Should
the prime interest rate decrease during fiscal 1998, the interest
expense of the Trust will generally decrease and the net income
of the Trust will in turn generally increase. Should the prime
interest rate increase during fiscal 1998, the interest expense
of the Trust will generally increase and the net income of the
Trust will in turn generally decrease.
Principal payments received on the interim and permanent loan
portfolio and the church bonds held by the Trust decreased from
$18,434,281 during fiscal 1996 to $14,921,586 during fiscal 1997,
a decrease of 19.06%. This decrease was primarily attributable to
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the increase in interim loans held by the Trust as of March 31,
1997 which were not paid off during the fiscal year and to an
increase in the amount of non-performing loans of the Trust from
$2,769,345 as of March 31, 1996 to $3,158,484 as of March 31,
1997. The non-performing loans of the Trust as compared to the
entire loan portfolio of the Trust increased from 8.51% as of
March 31, 1996 to 9.16% as of March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Trust is engaged primarily in the business of making
permanent and interim loans to churches and other non-profit
organizations. To fully utilize the Trusts resources, in 1995,
the Trust began making certain interim real estate construction
loans to entities other than churches. At March 31, 1997, the
Trust had $6,584,000 in commitments to one borrower to finance
the construction of three assisted-living centers. The assets of
the Trust primarily consist of its loan portfolio and its office
building and facilities. The operational expense of the Trust is
comprised of the maintenance of its office building, the payment
of the salaries of its management and clerical staff and the
payment for legal and accounting services. Substantially all of
the Trust assets are invested in the permanent and interim loans
made by the Trust. The only potential liquidity problems of the
Trust are related to the timely and proper repayment by the Trust
of the leveraged funds it has borrowed to make loans in excess of
its capital and the ability to fund loan commitments which
totalled $13,580,000 at March 31, 1997. All of the indebtedness
of the Trust is generally classified as short term having
maturities ranging from "on demand" to maturities repayable over
various periods extending through 2000.
The annual maturities upon all debt obligations of the Trust
outstanding as of March 31, 1997 for the next three fiscal years
are: 1998-$9,558,747; 1999--$2,716,725; and 2000-$1,344,376.
These debt obligations primarily consist of the Trust's bank line
of credit, Master Note Agreements and Secured Savings
Certificates ("Certificates") which have been previously issued
by the Trust. Certificates outstanding as of March 31, 1997 that
will mature during the next three years are: 1998--$3,512,871;
1999-$2,716,725; and 2000-$1,344,376.
At March 31, 1997 loans to the Trust under Master Note Agreements
which are in effect demand notes total $4,312,875. In the past,
the Trust has utilized its bank line of credit, principal paid to
the Trust upon its outstanding loan portfolio, and the proceeds
received from the sale of Certificates in order to meet its
maturing obligations.
At March 31, 1997, the balance which could be borrowed by the
Trust upon its bank line of credit was $8,266,999. The principal
payments scheduled to be received by the Trust upon its loan
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portfolio for the years ending March 31, 1998, 1999 and 2000 are
$16,449,579, $1,613,230, and $1,445,402, respectively. Assuming
all of these scheduled principal payments are received, these
payments, together with the balance available to Church Loans on
its bank line of credit, would allow Church Loans to have
sufficient funds to meet its maturing obligation and fund loan
commitments without the necessity for Church Loans having to sell
any additional Certificates or borrow funds from other sources.
During fiscal 1997 and 1996 the Trust sold Certificates in the
principal amounts of $2,648,579 and $4,595,999, respectively. Due
to the cost of registration and of sales of such Certificates,
the cost of these funds are normally higher than the cost of
borrowing from bank sources or master notes. Therefore, the Trust
is presently considering discontinuing the registration of
Certificates and seeking additional bank financing. If so, the
Trust will have to cease the sales of Certificates as of July 16,
1997. Based upon the success of the Trust to obtain borrowings in
the past, the Trust is confident that, should it be necessary, it
will be able to sell Certificates or obtain additional bank
financing in the future in sufficient amounts for the Trust to
timely meet all of its obligations. To the extent that
Certificates sold by the Trust have maturity dates of one year,
or less, the financial condition of the Trust would not be
substantially improved since the proceeds received by the Trust
from the sale of Certificates will, of necessity, be used to pay
the principal and interest upon Certificates maturing in this
period.
Should all the scheduled principal payments upon loans made by
the Trust not be received, and should the Trust elect not to sell
Certificates or be unable to sell Certificates with maturity
dates and in amounts described above or should the Trust be
unable to borrow against its line of credit, and should
borrowings from other sources not be available it would be
necessary for the Trust to sell a portion of its mortgage loan
portfolio in order for it to meet all of its financial
obligations. At March 31, 1997, the principal balance of the loan
and church bond portfolio of the Trust was $34,469,444. The
weighted average interest rate on loans and church bonds was
10.82% per annum. In view of the normal marketability of
conventional loans, the Trust would probably be required to
discount the great majority of these loans in order for them to
be attractive for purchase. The principal amount of these loans
if discounted to yield a weighted average interest rate of 12%,
14% and 16% would be $31,079,950, $26,639,957, and $23,309,963,
respectively. There is no assurance that the Trust would be able
to sell all, or a portion of, its portfolio of loans, in which
event, it would be necessary for the Trust to secure a loan, or
loans, from a lender in order for the Trust to meet its financial
obligations. There is no assurance that the Trust would be able
to secure a loan in such instance. The Trust has sold only
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one of the loans in its mortgage loan portfolio and therefore has
limited experience in this area.
Principal payments scheduled to be received by the Trust upon its
permanent loan portfolio during the years ending March 31, 1998,
1999 and 2000, if not used to fund new loan commitments, would be
used to reduce the outstanding indebtedness of the Trust. Should
the Trust use the payments of principal which shall be received
upon its loan portfolio to reduce its outstanding indebtedness,
the interest expense of the Trust will decrease. In such
instance, whether the decrease in the interest income will
exceed, or be less than, the decrease in the interest expense
will largely be dependent upon the prime rate of interest
prevailing at such time due to the fact that the interest to be
earned by the Trust upon its mortgage loan portfolio is generally
based upon a fixed rate of interest or a variable rate of
interest that periodically reprices, while the interest to be
paid by the Trust upon its outstanding debts is directly, or
indirectly, tied to the prime rate of interest charged by major
domestic banks.
As of March 31, 1997, a substantial portion of the promissory
notes evidencing the loans made by the Trust have been pledged to
secure its outstanding indebtedness. At March 31, 1997 promissory
notes in the principal amount of $9,087,494 had been pledged to
secure Certificates which had been previously sold by the Trust.
The required collateral for these Certificates (based on the
ratio of 1.25 to 1 of notes pledged to the principal balance of
the Certificates in Series A-N and a ratio of 1.0 to 1 for
Certificates in Series O) was $7,832,722, leaving an excess of
promissory notes which have been pledged by the Trust to secure
said Certificates of $1,254,772. Additionally, promissory notes
totalling $8,013,983 were pledged against the bank line of credit
which had a total outstanding balance of $1,733,001. The required
collateral for this bank loan was $1,906,301, leaving an excess
of promissory notes which have been pledged to secure said bank
notes of $6,107,682. These excess promissory notes may be
reassigned by the Indenture Trustee or bank to the Trust to be
sold in order for the Trust to meet its financial obligations.
Should it be necessary in order for the Trust to meet its
financial obligations, these excess notes amounting to $7,362,454
and other additional promissory notes in the approximate amount
of $17,367,967 (for a total amount of $24,730,421) would be
available to be sold by the Trust to meet its financial
obligations. Should the excess promissory notes be assigned by
the Indenture Trustee or bank to the Trust as heretofore
described, all outstanding Certificates sold by the Trust and the
bank line of credit would continue to be secured by the required
ratio of notes pledged to the principal balance of these
Certificates and the bank line of credit. There is no assurance
that the Trust would be able to sell all, or any portion of these
notes.
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Cash flows from operating activities consists primarily of net
income. The primary components of net income are interest income
and expense. Interest income should continue to be the main
source of cash provided by operating activities; however, the
availability of this cash flow is dependent upon the ability of
the borrowers to repay loans. Although there was an increase in
the amount of non-performing loans as of March 31, 1997 compared
to March 31, 1996, management does not expect material increases
in such loans in the future. Accordingly, cash provided by
operating activities has been and is expected to be a relatively
stable source of cash flow.
Cash flows from investing activities results primarily from
investment in and payments received on mortgage and interim
construction loans and church bonds.
Cash flows from financing activities relate primarily to the sale
of and payments on Certificates and borrowings and payments on
notes payable and the line of credit. Certificates are sold and
borrowings are made as funds are needed to make loans or as
current obligations become due. Based upon the success of the
Trust to sell Certificates and obtain borrowings in the past, the
Trust is confident that it will be able to sell Certificates and
obtain borrowings in the future in sufficient amounts, along with
payments to be received on loans, to timely meet its obligations.
INFLATION
At March 31, 1997, the weighted average interest rate on the
mortgage loan and church bond portfolio of the Trust was 10.82%
per annum while the weighted average interest rate upon all
borrowings of the Trust was 7.36% per annum. Although a majority
of the loans constituting the loan portfolio of the Trust have
been made at variable rates of interest that generally reprice
either daily or annually, a portion of the loans constituting the
Trust's loan portfolio have been made at fixed rates of interest
and therefore are not subject to being increased or decreased
during the term of the loan. All of the indebtedness of the Trust
is either directly or indirectly tied to the prime rate of
interest charged by major banking institutions and therefore is
subject to fluctuation. During periods of inflation, the prime
rate of interest charged by major banking institutions, as well
as the interest rate or cost of borrowing money from any lender,
generally increases. Consequently, during an inflationary period
the interest expense of the Trust would increase. Since the
interest income of the Trust would not increase as rapidly, an
increase in the interest expense of the Trust would decrease the
net income of the Trust. However, interest income should
subsequently increase as variable rate loans reprice. Should the
amount of the loans and the amount of the indebtedness of the
Trust remain constant, and should the weighted average interest
rate upon the indebtedness increase to approximately 28.20% per
annum, the interest income and the interest expense of the Trust
would be substantially equal.
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Item 7: FINANCIAL STATEMENTS
Financial Statements at March 31, 1997, and 1996 and for each of
the years in the two-year period ended March 31, 1997, are
incorporated by reference from Pages 13 through 27 of the 1997
Annual Report to Shareholders.
The report of independent auditors with respect to the financial
statements at March 31, 1997, and 1996 and for each of the years
in the two-year period ended March 31, 1997 is incorporated by
reference from Page 12 of the 1997 Annual Report to Shareholders.
Item 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
KPMG Peat Marwick LLP was previously the principal accountants
for the Trust. As of June 1, 1995, KPMG Peat Marwick LLP sold its
Amarillo, Texas office to Clifton Gunderson P.L.L.C. Therefore,
on June 14, 1995 the Trust dismissed KPMG Peat Marwick LLP as the
Trust's independent auditors. The decision to change accountants
was approved by the Board of Trust Managers.
The KPMG Peat Marwick LLP report on the financial statements for
the 1995 and 1994 fiscal years did not contain any adverse
opinion, disclaimer of opinion, nor any qualification or
modification as to uncertainty, audit scope, or accounting
principles.
Furthermore, there were no disagreements with KPMG Peat Marwick
LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would
have caused them to make reference in connection with their
opinion to the subject matter of the disagreement in regard to
the audits of the fiscal years ended March 31, 1994 and March 31,
1995.
The Board of Trust Managers engaged Clifton Gunderson P.L.L.C.,
independent certified public accountants, on June 14, 1995, as
the auditors of the financial statements of the Trust for the
fiscal year ending March 31, 1996.
PART III
Item 9: DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
(a) Board of Trust Managers. The following information is
furnished as to each individual who now serves as a member of the
Board of Trust Managers of the Trust:
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B. R. McMorries, age 70, is a consulting engineer. He has served
as a Trust Manager since 1963. He serves as Chairman of the Board
of Trust Managers.
Foy W. Shackelford, age 82, is a retired dentist. He has served
as a Trust Manager since 1963.
Everett B. Blanton, age 75, is a retired dentist. He has served
as a Trust Manager since 1963.
Larry Brown, age 54, is the President of Larry Brown Realtors,
Inc. and is a licensed realtor. He has served as a Trust Manager
since 1981. He serves as Secretary of the Board of Trust
Managers.
Jack R. Vincent, age 67, is engaged in farming and ranching
operations. He has served as a Trust Manager since 1989.
Robert E. Martin, age 47, is the President/CEO of Santa Fe
Federal Credit Union. He has served as a Trust Manager since
1990. He serves as Vice-Chairman of the Board of Trust Managers.
Steve Rogers, age 49, is the President of Steve Rogers Co., a
real estate appraisal firm. He has served as a Trust Manager
since 1990.
Mike Bahn, age 53, is the President of Amarillo Blueprint Co., an
office equipment and supply and reproduction services business.
He has served as a Trust Manager since May, 1997. Pursuant to the
ByLaws of the Trust, the Board of Trust Managers appointed Mr.
Bahn to the Board of Trust managers at its May, 1997 meeting.
(b) Executive Officers. The following information is furnished as
to each individual who now serves as an executive officer of the
Trust who is not mentioned under "Board of Trust Managers" above:
M. Kelly Archer, age 45, serves as Manager of Operations and
Chief Financial Officer of the Trust. As such Mr. Archer
functions as the Executive Officer of the Trust. Mr. Archer has
held this position for 15 years.
Item 10: EXECUTIVE COMPENSATION
(a) Executive Officers:
The following table sets forth certain information regarding
compensation paid during each of the Trust's last three fiscal
years to the Trust's Manager of Operations (CEO). The Trust has
no other executive officers whose salary, bonuses and other
compensation earned during fiscal 1997 exceeded $100,000 for
services rendered in all capacities.
-14-
<PAGE>
Annual Compensation
_____________________________________
Name and Principal Fiscal Other Annual
Position Year Salary Bonus Compensation
_____________________ _____ _______ _____ ____________
CEO-M. Kelly Archer 1997 $101,267 0 $6,520
Manager of 1996 110,333 0 6,665
Operations 1995 112,200 0 6,050
(b) Trust Managers' Compensation:
The Board of Trust Managers of the Trust were paid $39,700 in
cash as a group during the last fiscal year for services as Trust
Managers. The Chairman of the Board of Trust Managers, B. R.
McMorries, is paid $400 per month for serving in such capacity.
The remaining members of the Board of Trust Managers are paid
$200 per month for serving as a member of the board. All Trust
Managers are paid an additional $100 per board or committee
meeting attended. In addition, a Trust Manager receives $200.00
per day for their services when out of town on trust business.
This is done on a very limited basis to inspect the collateral to
secure a prospective loan.
The members of the Board of Trust Managers of the Trust are not
otherwise employed or compensated by the Trust.
Item 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) The following table indicates the persons known by the Trust
to own beneficially more than 5 percent of the shares of
beneficial interest in the Trust:
Name and Address of Amount of and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
___________________ _______________________ ________
B. R. McMorries 359,610 5.13%
(b) The following table indicates the number of shares of
beneficial ownership interest in the Trust owned by the Board of
Trust Managers and Executive Officers, individually and as a
group:
-15-
<PAGE>
Name and Address of Amount of and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
_______________________________________________________________________
B. R. McMorries 359,610 5.13%
Foy W. Shackelford 22,909 0.327%
Everett B. Blanton 2,602 0.037%
Larry Brown 27,254 0.389%
Jack R. Vincent 5,564 0.079%
Robert E. Martin 3,012 0.043%
Steve Rogers 1,300 0.019%
Mike Bahn 110 0.002%
M. Kelly Archer 77,327 1.10%
_______ ______
All Trust Managers and
Executive Officers 499,688 7.13%
as a Group
Item 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Trust issues a limited number of "Master Notes" which are
unsecured debt instruments of the Trust. The Trust pays the
obligee of such notes interest at the rate of one percent per
annum (1%) less than the prime lending rate of Boatmen's First
National Bank of Amarillo, the Trust's primary lender. As of
March 31, 1997, the Trust had entered into Master Note Agreements
with B. R. McMorries, Chairman of the Board of Trust Managers,
and related persons, in the amount of $638,900; with Foy W.
Shackelford, Member of the Board of Trust Managers, in the amount
of $298,472; and with Larry Brown, Secretary of the Board of
Trust Managers, and related persons, in the amount of $178,026.
Furthermore, as of March 31, 1997, the Trust had issued and
outstanding Certificates issued to B. R. McMorries, Chairman of
the Board of Trust Managers, and related persons, in the amount
of $290,000. The terms of such Master Notes and Certificates are
the same as Master Notes and Certificates entered into with other
unrelated persons, except as to the amounts thereof.
-16-
<PAGE>
Item 13: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed on the accompanying Index to Exhibits are
filed as a part of this Annual Report.
(b) Reports on Form 8-K
None
-17-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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: June 25, 1997 By: /S/ B.R. McMorries
__________________
B.R. McMorries,
Chairman of the Board of
Trust Managers
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Capacity Date
_____________________ _______________________ _______
/s/ B.R. McMorries Chairman of the Board 6-25-97
__________________ of Trust Managers
B.R. McMorries (Principal executive
officer)
__________________ Vice-Chairman of the ___/___/___
Foy W. Shackelford Board of Trust Managers
/s/ Larry Brown Secretary of the Board 6-25-97
__________________ of Trust Managers
Larry Brown
/s/ M. Kelly Archer Principal financial and 6-25-97
__________________ accounting officer
M. Kelly Archer
__________________ Trust Manager ___/___/___
Everett B. Blanton
-18-
<PAGE>
/s/ Jack R. Vincent Trust Manager 6-25-97
__________________
Jack R. Vincent
Trust Manager ___/___/___
__________________
Robert E. Martin
/s/ Steve Rogers Trust Manager 6-25-97
__________________
Steve Rogers
/s/ Mike Bahn Trust Manager 6-25-97
__________________
Mike Bahn
-19-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
INDEX TO EXHIBITS
Item 13(a)
(2) None
(3) - Declaration of Trust of Church Loans & Investments Trust,
as amended, has been previously filed under File No. 2-
51235 and is incorporated herein by reference.
Bylaws of Church Loans & Investments Trust, as
amended, has been previously filed under File No.
2-51235 and is incorporated herein by reference.
(4) - None other than those listed in (3) above.
(9) - None
(10) - None
(11) - Statement regarding computation of per share earnings -
omitted since information necessary to make the
computation is included in the Financial Statements and
Note 4 thereto.
(13) - Pages 12 through 27 of the 1997 Annual Report to
Shareholders
(16) - None
(18) - None
(21) - None
(22) - None
(23) - None
(24) - None
(27) - Financial Data Schedule
(28) - None
-20-
INDEPENDENT AUDITORS' REPORT
The Board of Trust Managers and Shareholders
Church Loans & Investments Trust
Amarillo, Texas
We have audited the accompanying balance sheets of Church Loans & Investments
Trust (a real estate investment trust) as of March 31, 1997 and 1996, and the
related statements of income, shareholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Church Loans & Investments
Trust as of March 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Clifton Gunderson P.L.L.C.
Amarillo, Texas
May 9, 1997
-12-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
BALANCE SHEETS
MARCH 31, 1997 AND 1996
ASSETS 1997 1996
------------ -------------
CASH AND CASH EQUIVALENTS ...................... $ 586,629 $ 722,430
RECEIVABLES
Mortgage loans and church bonds - performing 19,177,849 21,886,390
Interim construction loans - performing .... 12,133,111 7,877,489
Nonperforming mortgage loans, church bonds
and interim construction loans ........... 3,158,484 2,769,345
Less: Allowance for possible credit losses . (855,213) (728,665)
------------ ------------
33,614,231 31,804,559
------------ ------------
Accrued interest receivable ................ 303,756 307,291
Notes receivable ........................... 536,453 483,631
------------ ------------
Total receivables ............ 34,454,440 32,595,481
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $445,049 and $429,375 in
1997 and 1996, respectively ................ 213,291 228,965
PROPERTY HELD FOR INVESTMENT ................... -- 83,714
UNAMORTIZED DEBT EXPENSE AND OTHER ASSETS ...... 201,392 86,730
------------ ------------
TOTAL ASSETS ................................... $ 35,455,752 $ 33,717,320
============ ============
LIABILITIES AND SHAREHOLDER' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ......................... $ 1,648,660 $ 1,482,250
Other ................................. 4,397,216 3,073,830
------------ ------------
6,045,876 4,556,080
Secured savings certificates:
Related party ......................... 315,692 485,692
Other ................................. 7,258,280 7,059,683
------------ ------------
7,573,972 7,545,375
Accrued interest payable .................. 45,211 37,817
Federal income taxes payable .............. -- 7,060
Other ..................................... 555,574 220,259
------------ ------------
Total liabilities ............ 14,220,633 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 .................... 611,253 726,863
------------ ------------
Total shareholders' equity ... 21,235,119 21,350,729
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ...................... $ 35,455,752 $ 33,717,320
============ ============
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-13-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage loans, church
bonds and interim construction loans ........... $3,788,611 $4,174,217
Interest on temporary investments ............... 52,595 32,959
---------- ----------
Total interest income and fees ..... 3,841,206 4,207,176
DEBT EXPENSE
Interest ........................................ 937,410 1,121,311
Amortization of:
Registration costs ............................ 30,285 21,321
Commissions paid to brokers ................... 58,144 50,212
---------- ----------
Total debt expense ................. 1,025,839 1,192,844
---------- ----------
Net interest income ................ 2,815,367 3,014,332
PROVISION FOR POSSIBLE
CREDIT LOSSES ................................... 135,000 85,000
---------- ----------
Net interest income less provision
for possible credit losses .......... 2,680,367 2,929,332
---------- ----------
OTHER INCOME ......................................... 24,898 11,683
OTHER OPERATING EXPENSES
General and administrative ...................... 520,575 513,689
Board of Trust Managers' fees ................... 40,952 40,708
---------- ----------
Total other operating expenses ........ 561,527 554,397
---------- ----------
Income before provision for
income taxes ......................... 2,143,738 2,386,618
PROVISION FOR INCOME TAXES ........................... 16,980 27,488
---------- ----------
NET INCOME ........................................... $2,126,758 $2,359,130
========== ==========
NET INCOME PER SHARE ................................. $ .30 $ .34
========== ==========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-14-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997 AND 1996
SHARES OF BENEFICIAL INTEREST
---------------------------- UNDISTRIBUTED
SHARES AMOUNT NET INCOME
----------- ----------- -----------
BALANCE, MARCH 31, 1995 ............ 7,007,402 $20,623,866 $ 610,102
Cash dividends ($.32 per share) -- -- (2,242,369)
Net income .................... -- -- 2,359,130
----------- ----------- -----------
BALANCE, MARCH 31, 1996 ............ 7,007,402 20,623,866 726,863
Cash dividends ($.32 per share) -- -- (2,242,368)
Net income .................... -- -- 2,126,758
----------- ----------- -----------
BALANCE, MARCH 31, 1997 ............ 7,007,402 $20,623,866 $ 611,253
=========== =========== ===========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-15-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................. $ 2,126,758 $ 2,359,130
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ........................... 15,674 15,670
Amortization of debt expense ........... 88,429 71,533
Amortization of loan discounts ......... (166,457) (311,975)
Provision for possible loan losses ..... 135,000 85,000
Changes in:
Accrued interest receivable .......... 3,535 32,342
Accrued interest payable ............. 7,394 (56,606)
Federal income taxes payable ......... (7,060) 2,050
Other liabilities .................... 335,315 (94,512)
Other, net ............................. (159,130) (2,590)
------------ ------------
Net cash provided by
operating activities ............. 2,379,458 2,100,042
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ....... (16,691,347) (11,424,033)
Payments received on mortgage and
interim construction loans and
church bonds .............................. 14,921,586 18,434,281
Advances on notes receivable ............... (530,708) (321,598)
Payments received on notes receivable ...... 477,886 319,845
Proceeds from sale of property held
for investment ............................ 71,810 --
------------ ------------
Net cash provided (used) by
investing activities ............. (1,750,773) 7,008,495
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates ....... 2,648,579 4,595,999
Borrowings on notes payable and line
of credit ................................. 9,563,442 9,059,755
Principal payments on:
Secured savings certificates ............ (2,619,982) (3,834,355)
Notes payable and line of credit ........ (8,073,646) (16,243,033)
Registration costs of secured savings
certificates .............................. -- (22,321)
Commissions paid to brokers on issuance
of secured savings certificates ........... (40,511) (66,760)
Cash dividends paid ........................ (2,242,368) (2,242,369)
------------ ------------
Net cash used by
financing activities ........... (764,486) (8,753,084)
------------ ------------
Increase (decrease) in cash and
cash equivalents ................ (135,801) 355,453
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .......................... 722,430 366,977
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR ................................ $ 586,629 $ 722,430
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest ......... $ 930,016 $ 1,177,917
============ ============
Income taxes paid were not material in 1997 and 1996.
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
-16-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1997 AND 1996
NATURE OF OPERATIONS
Church Loans & Investments Trust (Church Loans) is a real estate investment
trust that invests primarily in mortgage and interim construction loans to
churches across the United States, particularly in the southern portion of the
U.S. During 1995, Church Loans also began making certain interim real estate
construction loans to entities other than churches. Church Loans requires that
real estate properties be pledged against loans as security which could be
foreclosed by Church Loans should the borrower default. Repayment of each
borrower's obligations is generally expected to be repaid from contributions
from church members, or in the case of interim construction loans, by permanent
financing provided by others.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CURRENT OPERATING ENVIRONMENT
Church Loans has historically invested in long-term, fixed-rate mortgage loans,
generally funded by relatively short-term secured savings certificates (SSCs)
and debt obligations. The volatility of interest rates and increased competition
to attract customers' funds have caused Church Loans' liability structure to
become short-term and rate sensitive. Church Loans reflected an average interest
yield on its loan and church bond portfolio, an average interest rate on its
total indebtedness and a net interest rate margin at March 31, 1997 and 1996 as
follows:
LOAN AND CHURCH TOTAL NET INTEREST
BOND PORTFOLIO INDEBTEDNESS RATE MARGIN
-------------- ------------ -----------
March 31, 1997 .................... 10.82 7.36 3.46
March 31, 1996 .................... 11.21 7.10 4.11
Church Loans finances maturities of SSCs and debt obligations through its
available lines of credit, the issuance of SSCs and principal payments received
on its mortgage and interim construction loans.
CHURCH BONDS
Church bonds, secured by first mortgage liens on church facilities, are stated
at cost, as there is no traded market for the bonds and management intends to
hold such securities until maturity.
-17-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1997 AND 1996
LOANS AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES
Loans are stated at the amount of unpaid principal, reduced by unamortized
purchase discounts and the allowance for possible credit losses. Interest income
on loans and church bonds is recognized when earned.
Impaired loans are measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or the market price or
the fair value of the collateral if the loan is collateral dependent. The
accrual of interest is discontinued on loans and church bonds more than 90 days
past due or when there is sufficient doubt as to the collection of interest.
When interest accrual is discontinued, all unpaid accrued interest is reversed.
Cash interest payments received are applied to principal when collection of
principal is in doubt or are recognized as interest income when recovery of
principal is reasonably assured.
The allowance for possible credit losses is established through a provision for
possible credit losses charged to expense. Loans and church bonds are charged
against the allowance when management believes that the collectibility of the
principal is unlikely. Recoveries of amounts previously charged off are credited
to the allowance. The charge to operations is based on management's evaluation
of the loan and church bond portfolio, including such factors as the security
collateralizing the loans or church bonds, past credit loss experience and
general economic conditions. The allowance is subjective in nature and may be
adjusted in the near term because of changes in economic conditions.
Loan origination fees are collected only on a few permanent loans and generally
recognized as income when received and the associated loan origination costs are
expensed when incurred. The effect on the accompanying financial statements is
not materially different from generally accepted accounting principles which
require that loan fees, net of origination costs, be deferred and amortized into
interest income over the life of the related loan.
Commitment fees received on interim construction loans are recognized over the
interim commitment period for loans that are not permanently financed by Church
Loans and over the life of the mortgage loan for loans that are permanently
financed by Church Loans. Amounts are being amortized using the straight-line
method. This method was not materially different from the method of deferring
commitment fees until the commitment is exercised and recognizing such fees as
an adjustment to yield by the interest method over the related loans' lives as
prescribed by generally accepted accounting principles for the years ended March
31, 1997 and 1996.
Purchase discounts on loans are amortized based on the interest method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets, which range from 3 to 18 years.
UNAMORTIZED DEBT EXPENSE
Commissions paid to brokers in connection with the sale of SSCs are deferred and
amortized over the terms of the related certificates on the interest method.
Costs incurred in connection with the registration of SSCs are deferred and
amortized on the straight-line method over the period the related certificates
are sold, but no longer than two years from the date the registration becomes
effective.
-18-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1997 AND 1996
INCOME TAXES
Income taxes are accounted for under Statement No. 109, ACCOUNTING FOR INCOME
TAXES. Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash-on-hand and investment in a money market mutual fund and certificates of
deposit with maturities of less than 90 days at the time of acquisition.
This information is an integral part of the accompanying financial statements.
-19-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 1 - LOANS AND CHURCH BONDS
Mortgage loans receivable consist of conventional loans of $20,600,313 and
$23,637,917 and church bonds due principally from congregations of Churches of
Christ of $520,894 and $828,661 at March 31, 1997 and 1996, respectively.
Interim construction loans of $14,327,500 and $9,213,466 at March 31, 1997 and
1996, respectively, consist primarily of loans to churches for the construction
of church facilities. Mortgage loans, church bonds and interim construction
loans are generally secured by first liens on real estate comprised primarily of
church buildings, ministers' residences and other real estate. The amount of a
loan is generally limited to 66-2/3% of the appraised value of the related
property. Certain loans are guaranteed by individual members of the
congregations or other individuals or congregations, depending on the
circumstances. The individual endorsements are usually for a specific amount
with the sum of all such guarantees being an amount at least equal to the loan
amount.
Church Loans' portfolio included mortgage loans, church bonds and interim
construction loans with interest rates ranging from 7% to 17% at March 31, 1997.
The weighted average annual interest rates of Church Loans' loan and church bond
portfolio were 10.82% and 11.21% at March 31, 1997 and 1996, respectively.
The following schedule is a summary of the combined mortgage, church bonds and
interim construction loan portfolios by size of loan at March 31, 1997 and 1996:
1997 1996
----------------- -------------------
No. of Carrying No. of Carrying
Description loans amount loans amount
- ------------------------ ----- ------ ----- ------
Over $1,500,000 ........ 4 $ 7,071,684 3 $ 5,567,500
$1,300,000-1,499,999 ... 1 1,300,000 1 1,335,977
$1,000,000-1,299,999 ... 3 3,539,095 2 2,586,120
$900,000-999,999 ....... 2 1,901,062 3 2,840,559
$800,000-899,999 ....... 1 826,009 2 1,718,141
$700,000-799,999 ....... 2 1,493,020 3 2,355,791
$600,000-699,999 ....... 4 2,583,025 1 614,969
$500,000-599,999 ....... 1 525,000 1 542,000
$400,000-499,999 ....... 6 2,698,452 6 2,643,844
$300,000-399,999 ....... 8 2,591,687 8 2,738,050
$200,000-299,999 ....... 9 2,193,612 10 2,365,192
$100,000-199,999 ....... 37 5,464,095 31 4,593,366
Under $100,000 ......... 91 3,261,966 102 3,778,535
--- ----------- --- -----------
169 35,448,707 173 33,680,044
=== ----------- === -----------
Less: unamortized purchase discounts
on mortgage loans ........ 979,263 1,146,820
Less: allowance for possible credit
losses ................... 855,213 728,665
----------- -----------
TOTAL ............................ $33,614,231 $31,804,559
=========== ===========
-20-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 1 - LOANS AND CHURCH BONDS (CONTINUED)
The mortgage and interim construction loan portfolios included the following
loans at March 31, 1997, with individual balances in excess of 3% of the total
carrying amount of the combined portfolios:
Arlington Baptist Church, Baltimore, Maryland; interest
at 11.25%; monthly payments of $24,265 to maturity
on September 1, 2017 ..................................... $2,339,187
First United Pentecostal Church of Arnold, Arnold, Maryland;
interest at 11.00%; monthly payments of $16,225 to
maturity on September 1, 2020 ........................... 1,631,025
New Jerusalem Church, Lansing, Michigan; interest at prime
+ 2% (10.50% at March 31, 1997); monthly payments of
$17,686 to maturity on December 1, 1995 ................. 1,554,757 *
Meade Ministry, Lake City, Florida; interest at prime + 2%
(10.50% at March 31, 1997); principal and interest due
at maturity on November 1, 1997 ......................... 1,546,715
Pennsylvania Baptist State Convention, Philadelphia,
Pennsylvania; interest at prime plus 2% (10.50% at
March 31, 1997); principal and interest due at
maturity on June 28, 1997 ............................... 1,300,000
Bethany Baptist Church, Melbourne, Florida; interest at
10.50%; monthly payments of $14,371 to maturity on
January 1, 2011 ......................................... 1,255,585
Duncanville Church of Christ, Duncanville, Texas; interest
at 10.25%; monthly payments of $22,000 to maturity on
February 1, 1998 ........................................ 1,207,533 *
St. Stevens Church of God in Christ, San Diego, California;
interest at prime + 2% (10.50% at March 31, 1997);
principal and interest due at maturity on October 25,
1994 (included in nonperforming assets at March 31, 1997) 1,075,977
----------
$11,910,779
===========
* Subsequent to March 31, 1997, these loans were paid in full.
In the normal course of business, Church Loans makes commitments to extend
credit which are not reflected in the financial statements. These commitments
involve elements of credit risk, interest rate risk, liquidity risk and market
risk. At March 31, 1997, Church Loans had outstanding loan commitments (by
contract amounts) of approximately $13,580,000, including $6,584,000 for three
loans to one borrower to finance the construction of three assisted-living
centers. Church Loans has no other financial instruments with off-balance sheet
risk.
Nonperforming mortgage loans, church bonds and interim construction loans at
March 31, 1997 and 1996 were $3,158,484 and $2,769,345, respectively. Interest
income which would have been recorded under the original terms of nonperforming
loans and church bonds amounted to approximately $389,000 and $310,000 for the
years ended March 31, 1997 and 1996, respectively. Interest income actually
recognized was not significant.
-21-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 1 - MORTGAGE AND INTERIM CONSTRUCTION LOANS (CONTINUED)
The original terms of the individual loans included in the loan portfolio
generally vary from 1 to 30 years. Scheduled maturities during the five years
subsequent to March 31, 1997, are:
1998 ............. $16,449,579
1999 ............. 1,613,230
2000 ............. 1,445,402
2001 ............. 1,348,896
2002 ............. 1,215,377
At March 31, 1997, mortgage loans were pledged to support indebtedness of Church
Loans as follows:
Line of credit payable to bank ... $ 8,013,983
Secured savings certificates ..... 9,087,494
-----------
TOTAL MORTGAGE LOANS PLEDGED ..... $17,101,477
===========
A summary of transactions in the allowance for possible credit losses for the
years ended March 31, 1997 and 1996 follows:
1997 1996
---- ----
BALANCE AT BEGINNING OF YEAR ............... $ 728,665 $ 645,049
Provisions charged to operating expenses ... 135,000 85,000
Charge offs, net ........................... (8,452) (1,384)
------------ -------------
BALANCE AT END OF YEAR ..................... $ 855,213 $ 728,665
============ =============
At March 31, 1997, the recorded investment and the related allowance for credit
losses for loans for which impairment was recognized in accordance with
Statement No. 114 were approximately $300,000 and $50,000, respectively.
NOTE 2 - DEBT OBLIGATIONS
Information relating to debt obligations follows:
<TABLE>
<CAPTION>
WEIGHTED MAXIMUM WEIGHTED
AVERAGE AMOUNT AVERAGE AVERAGE
BALANCE AT INTEREST RATE OUTSTANDING AT MONTH-END INTEREST RATE
END OF PERIOD AT END OF PERIOD ANY MONTH-END BALANCE FOR THE PERIOD
------------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Line of credit payable to bank $ 1,733,001 8.25%* $ 1,975,001 $ 665,381 8.20%
Other demand notes payable ... 4,312,875 7.50% $ 4,628,528 $ 4,355,477 7.25%
----------- ===== =========== =========== =====
6,045,876
Secured savings certificates . 7,573,972 7.07% $ 7,889,315 $ 7,715,510 6.95%
----------- ===== =========== =========== =====
TOTAL ............... $13,619,848 7.36% $14,360,054 $12,736,368 7.12%
=========== ===== =========== =========== =====
</TABLE>
-22-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 2 - DEBT OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED MAXIMUM WEIGHTED
AVERAGE AMOUNT AVERAGE AVERAGE
BALANCE AT INTEREST RATE OUTSTANDING AT MONTH-END INTEREST RATE
END OF PERIOD AT END OF PERIOD ANY MONTH-END BALANCE FOR THE PERIOD
------------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1996
Term notes payable to banks $ - - $ 2,666,667 $ 1,861,111 9.45%
Line of credit payable to bank 550,001 8.25%* 5,606,001 2,194,522 8.98%
Other demand notes payable 4,006,079 7.25% $ 4,006,079 $ 3,453,192 7.69%
------------ ===== ============ ============ =====
4,556,080
Secured savings certificates 7,545,375 6.93% $ 7,545,375 $ 6,723,844 6.67%
------------ ===== ============ ============ =====
TOTAL $ 12,101,455 7.10% $ 18,523,089 $ 14,089,507 7.72%
============ ===== ============ ============ =====
<FN>
* Does not consider commitment fees.
</FN>
</TABLE>
* Does not consider commitment fees.
Maturities of debt for each of the three years subsequent to March 31, 1997,
are:
1998 .......... $ 9,558,747
1999 .......... 2,716,725
2000 .......... 1,344,376
-------------
$ 13,619,848
=============
Included in maturities for the year ended March 31, 1997 are other demand notes
payable of $4,312,875.
All debt obligations, except for other demand notes payable, are secured by the
pledge of specific mortgage notes receivable.
Maturities of SSCs and debt obligations are financed through principal payments
received on mortgage loans, advances on other demand notes payable and advances
on the $10,000,000 line of credit which is expected to be renewed on an annual
basis.
Descriptions of the various categories of debt obligations follow:
SECURED SAVINGS CERTIFICATES
SSCs 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.
The certificates are secured under the terms of certain indentures that require,
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 certain respective SSC registrations 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, Church Loans has on occasion failed to maintain the
required ratios 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 of Church Loans and has waived
declaration of a default under the respective Indenture. As of March 31, 1997
and 1996, Church Loans was in compliance with the requirement.
-23-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 2 - DEBT OBLIGATIONS (CONTINUED)
SECURED SAVINGS CERTIFICATES (Continued)
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.
LINE OF CREDIT PAYABLE TO BANK
The line of credit payable to bank consists of borrowings under a loan agreement
effective through September 1, 1997, that provides for a $10,000,000 line of
credit with certain commitment fees. The loan agreement requires Church Loans to
pledge mortgage loans receivable having unpaid principal balances with an
aggregate present value, discounted at 1% over the prime rate (8.50% at March
31, 1997), of not less than 110% of all indebtedness owed to the bank. Interest
accrued at the prime rate less one quarter of one percent from September 1, 1996
to March 31, 1997 and at the prime rate from April 1, 1995 to August 31, 1996.
Interest is payable semiannually.
Additionally, the line of credit requires that Church Loans' net worth not be
less than $18,000,000 and its total indebtedness shall not exceed 150% of its
net worth. At March 31, 1997, Church Loans' total indebtedness was approximately
$18,200,000 less than the maximum amount permitted under the agreement.
DEMAND NOTES PAYABLE
The demand notes payable bear interest at 1% less than the prime rate (payable
monthly) and are unsecured (see note 6).
NOTE 3 - INCOME TAX PROVISION
Church Loans has elected to be taxed as a real estate investment trust under the
provisions of the Internal Revenue Code. To qualify as a real estate investment
trust under the Code, Church Loans must, among other things, distribute at least
95% of its taxable income to its shareholders through dividends. Church Loans is
required to pay dividends of at least 85% of its calendar year undistributed
income by February 1 or be subject to a special federal excise tax of 4% on the
undistributed amount.
Deferred taxes were not significant to Church Loans' 1997 and 1996 financial
statements.
Total income tax expense for the years ended March 31, 1997 and 1996 is less
than the amount computed by applying the applicable statutory federal income tax
rate (35%) to income before provision for income taxes as follows:
1997 1996
---- ----
Computed "expected" federal income tax expense . $ 750,308 $ 835,316
Increases (decreases) in taxes resulting from:
Dividends .................................. (809,355) (809,355)
Graduated rate differential ................ (12,570) (11,983)
Difference in provision for loan losses for
financial and tax purposes .............. 27,842 (69,784)
Difference in accounting for interest
recognized for financial and tax purposes 60,755 83,294
--------- ---------
ACTUAL TAX EXPENSE ............................. $ 16,980 $ 27,488
========= =========
-24-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 4 - NET INCOME PER SHARE
Net income per share of beneficial interest is based on the weighted average
number of shares outstanding, which was 7,007,402 for each of the years ended
March 31, 1997 and 1996. There were no share equivalents or other potentially
dilutive securities outstanding during any of the periods presented.
NOTE 5 - DIVIDENDS
All dividends paid by Church Loans are taxable as ordinary income to the
recipient. A schedule of dividends paid during the years ended March 31, 1997
and 1996 follows:
Divdend amount
---------------------
Date of record Date paid Per share Total
------------------------ ------------ --------- ----------
March 31, 1995 ......... May 1995 $ .08 $ 560,592
December 31, 1995 ...... January 1996 .24 1,681,777
March 31,1996 .......... May 1996 .09 630,666
December 31, 1996 ...... January 1997 .23 1,611,702
In April 1997, a dividend of $700,740 ($.10 per share) was declared for
stockholders of record on March 31, 1997.
NOTE 6 - RELATED PARTY TRANSACTIONS
Other demand notes payable at March 31, 1997 and 1996 included notes totaling
$1,648,660 and $1,482,250, respectively, which represent borrowings from related
parties. The notes bear interest at 1% less than the prime rate and are
unsecured. Interest expense incurred on related party other demand notes payable
was not significant for 1997 or 1996.
Secured savings certificates at March 31, 1997 and 1996 include certificates
totaling $315,692 and $485,692, respectively, which represent liabilities to
related parties. Interest expense incurred on savings certificates of related
parties was not significant for 1997 or 1996.
NOTE 7 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL
INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments, the results of applying such methods and
assumptions to the financial instruments and limitations inherent in fair value
estimates:
CASH AND CASH EQUIVALENTS
The assets are considered short-term instruments for which the carrying amount
is a reasonable estimate of fair value.
-25-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
LOANS AND CHURCH BONDS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as mortgage and interim
construction loans and church bonds. Each loan category is further segmented
into fixed and adjustable rate interest terms. For variable-rate loans,
primarily interim construction loans, that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair value of fixed-rate mortgage loans and bonds is generally estimated by
discounting the future cash flows through the estimated maturity using the
current rates at which similar loans would be made to borrowers with similar
credit ratings. The estimate of maturity is based on Church Loans' historical
experience with repayments for each loan classification, modified, as required,
by an estimate of the effect of current economic and lending conditions. The
carrying value of loans, net of the allowance for loan losses was $33,614,231
and $31,804,559 and the fair value of loans was approximately $34,759,000 and
$33,164,000 at March 31, 1997 and 1996, respectively.
NOTES PAYABLE AND LINE OF CREDIT
The fair value of notes payable and the line of credit are equal to the carrying
value as such liabilities are deemed to be short-term borrowings.
SECURED SAVINGS CERTIFICATES
The fair value of secured savings certificates is estimated using the rates
currently offered for financial instruments of similar characteristics. The
carrying value of secured savings certificates was $7,573,972 and $7,545,375 and
the fair value of secured savings certificates was approximately $7,585,000 and
$7,549,000 at March 31, 1997 and 1996, respectively.
COMMITMENTS TO EXTEND CREDIT
Generally, Church Loans enters into commitments to extend credit at adjustable
interest terms. Accordingly, the commitment amount is a reasonable estimate of
fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time Church Loans' entire holdings of a particular financial
instrument. Because no market exists for a significant portion of Church Loans'
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
-26-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A REAL ESTATE INVESTMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE 8 - QUARTERLY OPERATING RESULTS (UNAUDITED)
The following quarterly operating results are unaudited, but, in the opinion of
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of Church Loans' operating results for the
periods indicated:
QUARTER ENDED
---------------------------------------------
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
------- ------------ ----------- --------
Year ended March 31, 1997
Interest income and fees $896,316 $1,015,632 $987,924 $941,334
Debt expense ........... 254,509 270,456 247,462 253,412
Net interest income .... 641,807 745,176 740,462 687,922
Net income ............. 471,624 595,170 580,120 479,844
Net income per share ... .07 .08 .08 .07
QUARTER ENDED
---------------------------------------------
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
------- ------------ ----------- --------
Year ended March 31, 1996
Interest income and fees $1,183,485 $1,034,747 $983,793 $1,005,151
Debt expense ........... 342,644 304,055 261,022 285,123
Net interest income .... 840,841 730,692 722,771 720,028
Net income ............. 644,032 596,635 587,838 530,625
Net income per share ... .09 .09 .08 .08
This information is an integral part of the accompanying financial statements.
-27-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
=======================================================================
This schedule contains summary financial information extracted from the
company's financial statements as of and for the year ended March 31,
1997 and is qualified in its entirety by reference to such financial
statements.
=======================================================================
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-START> Apr-01-1996
<PERIOD-END> Mar-31-1997
<CASH> 586,629
<SECURITIES> 0
<RECEIVABLES> 35,309,653
<ALLOWANCES> 855,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,340
<DEPRECIATION> 445,049
<TOTAL-ASSETS> 35,455,752
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,623,866
<OTHER-SE> 611,253
<TOTAL-LIABILITY-AND-EQUITY> 35,455,752
<SALES> 3,866,104
<TOTAL-REVENUES> 3,866,104
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 129,381
<LOSS-PROVISION> 135,000
<INTEREST-EXPENSE> 937,410
<INCOME-PRETAX> 2,126,758
<INCOME-TAX> 16,980
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,126,758
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
