================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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Commission File No. 0-8117
CHURCH LOANS & INVESTMENTS TRUST
State of Organization IRS Employer Identification
--------------------- ---------------------------
Texas No. 75-6030254
5305 I-40 West
Amarillo, Texas 79106
Registrant's telephone number: 806-358-3666
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ _ ]
As of December 31, 1996, 7,007,402 shares of the Registrant's shares of
beneficial interest were outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ _ ] No [ X ]
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
INDEX
Page
----
Part I.
Item 1: Financial Information:
Condensed Balance Sheets at December 31, 1996
and March 31, 1996 ....................... 1
Condensed Statements of Income for the
three-month and nine-month periods ended
December 31, 1996 and 1995 ............... 2
Condensed Statements of Cash Flows
for the nine-month periods ended
December 31, 1996 and 1995 ............... 3
Notes to Condensed Financial Statements ..... 4
Item 2: Management's Discussion and Analysis or
Plan of Operation .......................... 6
Part II. Other Information ............................... 7
Signatures ................................................ 8
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
December 31, 1996 and March 31, 1996
ASSETS
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
CASH AND CASH EQUIVALENTS ...................... $ 1,315,944 $ 722,430
RECEIVABLES
Mortgage loans and church bonds -
earning .................................... 19,928,716 21,886,390
Interim construction loans -
earning .................................... 9,532,753 7,877,489
Nonearning mortgage loans, church
bonds and interim construction
loans ...................................... 3,650,338 2,769,345
Less: Allowance for possible
credit losses ............................. (810,213) (728,665)
------------ ------------
32,301,594 31,804,559
------------ ------------
Accrued interest receivable ................ 276,855 307,291
Notes receivable ........................... 491,737 483,631
------------ ------------
Total receivables ............ 33,070,186 32,595,481
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $357,419 and $429,377 at
December 31, 1996 and March 31, 1996,
respectively .................................. 217,209 228,965
PROPERTY HELD FOR INVESTMENT ................... 83,714 83,714
UNAMORTIZED DEBT EXPENSE, net and
other assets ............................... 77,312 86,730
------------ ------------
TOTAL ASSETS ................................... $ 34,764,365 $ 33,717,320
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ............................ $ 1,333,492 $ 1,482,250
Other .................................... 3,040,969 3,073,830
------------ ------------
4,374,461 4,556,080
------------ ------------
Secured savings certificates:
Related party ............................ 415,692 485,692
Other .................................... 7,151,165 7,059,683
------------ ------------
7,566,857 7,545,375
Dividends payable .......................... 1,611,702 --
Accrued interest payable ................... 34,754 37,817
Federal income taxes payable ............... -- 7,060
Other ...................................... 421,316 220,259
------------ ------------
Total liabilities ............ 14,009,090 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 ................... 131,409 726,863
------------ ------------
Total shareholders' equity ............ 20,755,275 21,350,729
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY .......................... $ 34,764,365 $ 33,717,320
============ ============
These condensed financial statements should be read in
connection with the accompanying notes to condensed
financial statements.
-1-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month and nine-month periods ended
December 31, 1996 and 1995
THREE-MONTH PERIODS ENDED NINE-MONTH PERIODS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
---- ---- ---- ----
INTEREST INCOME AND FEES
Interest and fees on
mortgage loans, church
bonds, and interim
construction loans ... $ 970,234 $ 974,030 $2,864,449 $3,173,394
Interest on temporary
investments ......... 17,690 9,763 35,423 28,631
---------- ---------- ---------- ----------
Total interest
income and fees 987,924 983,793 2,899,872 3,202,025
---------- ---------- ---------- ----------
DEBT EXPENSE
Interest ............... 226,567 237,881 704,644 860,739
Amortization of:
Registration cost ... 6,561 10,541 23,724 10,541
Commissions paid to
brokers ............ 14,334 12,600 44,059 36,441
---------- ---------- ---------- ----------
Total debt expense 247,462 261,022 772,427 907,721
---------- ---------- ---------- ----------
Net interest income 740,462 722,771 2,127,445 2,294,304
PROVISION FOR POSSIBLE
CREDIT LOSSES ......... 45,000 22,500 90,000 62,500
---------- ---------- ---------- ----------
Net interest income
less provision
for possible
credit losses .. 695,462 700,271 2,037,445 2,231,804
OTHER INCOME ............... 17,603 2,950 22,728 8,850
OTHER OPERATING EXPENSES
General and administrative 122,825 105,259 382,357 381,967
Board of Trust Managers'
fees ................ 10,120 10,124 30,902 30,182
---------- ---------- ---------- ----------
Total other
operating expenses 132,945 115,383 413,259 412,149
---------- ---------- ---------- ----------
NET INCOME ....... $ 580,120 $ 587,838 $1,646,914 $1,828,505
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .. 7,007,402 7,007,402 7,007,402 7,007,402
========== ========== ========== ==========
NET INCOME PER SHARE ....... $ .08 $ .08 $ .24 $ .26
========== ========== ========== ==========
DIVIDENDS PER SHARE ........ $ .23 $ .24 $ .32 $ .32
========== ========== ========== ==========
These condensed financial statements should be read in
connection with the accompanying notes to condensed
financial statements.
-2-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Nine-month periods ended December 31, 1996 and 1995
NINE-MONTH PERIODS
ENDED DECEMBER 31,
------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................... $ 1,646,914 $ 1,828,505
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation ................... 11,756 11,754
Amortization of debt expense ... 67,783 46,982
Provision for possible credit
losses ......................... 90,000 62,500
Amortization of loan discounts . (148,223) (249,171)
Changes in:
Accrued interest receivable 30,436 19,674
Accrued interest payable ... (3,063) (29,840)
Federal income taxes
payable ................... (7,060) (5,010)
Other liabilities .......... 201,057 128,532
Other, net ..................... (29,355) 372
------------ ------------
Net cash provided by
operating activities .. 1,860,245 1,814,298
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church
bonds ............................. (12,533,765) (9,274,875)
Payments received on mortgage and
interim construction loans and
church bonds ...................... 12,103,405 13,930,036
Advances of notes receivable ......... (385,983) (307,611)
Payments received on notes receivable 377,877 229,767
------------ ------------
Net cash provided (used)
by investing activities (438,466) 4,577,317
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates . 1,938,329 3,100,744
Borrowings on notes payable .......... 6,354,676 8,038,227
Principal payments on:
Secured savings certificates ...... (1,916,847) (2,897,074)
Notes payable ..................... (6,536,295) (13,557,633)
Registration costs of secured savings
certificates ........................ (7,732) (44,126)
Commissions paid to broker on
issuance of secured savings
certificates ........................ (29,730) (41,567)
Cash dividends paid .................. (630,666) (560,593)
------------ ------------
Net cash used by
financing activities .. (828,265) (5,962,022)
------------ ------------
Increase in cash and
cash equivalents ...... 593,514 429,593
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .............................. 722,430 366,977
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD .......................... $ 1,315,944 $ 796,570
============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period
for interest ........................ $ 707,707 $ 890,579
============ ============
During December 1996, the Board of Trust managers declared cash dividends of
$1,611,702 ($.23 per share) payable in January 1997. During December 1995, the
Board of Trust managers declared cash dividends of $1,681,776 ($.24 per share)
payable in January 1996.
These condensed financial statements should be read in
connection with the accompanying notes to condensed
financial statements.
-3-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
(1) GENERAL
See the Summary of Significant Accounting Policies included in the
Financial Statements in the Trust's Annual Report on Form 10-KSB405.
The unaudited condensed financial statements included herein were
prepared from the books of the Trust in accordance with generally
accepted accounting principles and reflect all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management,
necessary to a fair statement of the results of operations and financial
position for the interim periods. Such financial statements generally
conform to the presentation reflected in the Trust's Annual Report to
Shareholders. The current interim period reported herein is included in
the fiscal year subject to independent audit at the end of that year and
is not necessarily an indication of the expected results for the fiscal
year.
(2) WEIGHTED AVERAGE INTEREST RATES
Weighted average interest rates and net interest rate margins at December
31, 1996 and 1995 were as follows:
Mortgage Loan and Total Net Interest
Church Bond Portfolio Indebtedness Rate Margin
--------------------- ------------ -----------
December 31, 1996 .... 10.81 7.13 3.68
December 31, 1995 .... 11.22 7.42 3.80
(3) CONTRACTUAL MATURITIES
Scheduled principal payments on mortgage loans, church bonds and interim
loans and indebtedness (including secured savings certificates and notes
payable) outstanding at December 31, 1996, for the five twelve-month
periods subsequent to December 31, 1996, follow:
Mortgage loans,
Twelve-month period church bonds
ending December 31, and interim loans Indebtedness
------------------- ------------------ ------------
1997 $14,076,021 8,365,217
1998 1,638,537 2,262,225
1999 1,340,711 1,313,876
2000 1,224,933 --
2001 1,100,469 --
=========== ===========
(4) MORTGAGE LOANS, CHURCH BONDS AND INTERIM CONSTRUCTION LOANS
Mortgage loans, church bonds and interim construction loans on which the
accrual of interest had been discontinued amounted to $3,650,338 and
$2,885,189 at December 31, 1996 and 1995, 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
$302,000 and $235,000 for the nine-month periods ended December 31, 1996
and 1995, respectively.
-4-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
(4) MORTGAGE LOANS, CHURCH BONDS AND INTERIM CONSTRUCTION LOANS (Continued)
On June 27, 1996, because of recent deterioration or past due status, the
Trust added additional loans in the total principal balance of $1,625,514
to nonearning assets. Two interim loans represented $1,297,662 of such
amount. Such interim loans were moved to non-accrual status after the
makers of loans filed for protection under Chapter 11 of the U.S.
Bankruptcy Code during June 1996. In addition to the nonaccrual loans
previously mentioned, management has doubts as to a certain interim
loan's ability to comply with present repayment terms. Such loan had a
balance of approximately $1,556,000 at December 31, 1996 and was not
classified as nonearning at that date. Management believes that potential
losses related to the aforementioned loans have been provided for in the
Trust's allowance for possible credit losses.
(5) SECURED SAVINGS CERTIFICATES
Secured Savings Certificates (Certificates) are issued in amounts of
$1,000 or more and have single maturity dates from 30 days to 10 years
from date of issue. With respect to an individual certificate, interest
rate and frequency of payment of interest (either monthly, quarterly,
semiannually, annually or at maturity) are fixed at the time of issuance
of the Certificate.
Certificates are secured under the terms of an indenture that requires,
among other things, the pledge of mortgage notes receivable with total
unpaid principal amounts not less than 100% or 125% of the aggregate
principal amount of Certificates outstanding. Due to the fluctuations in
the amount of sales of Certificates as well as in the repayment of notes
pledged to secure the Certificates, the Trust has on occasion failed to
maintain the required ratio of pledged notes to outstanding Certificates
for a short period of time until the deficiency could be corrected. The
indenture trustee has been aware of these temporary technical defaults
and has not declared a default under the Indenture. At December 31, 1996,
the Trust was in compliance with the requirement.
(6) LINE OF CREDIT PAYABLE TO THE BANK
The Trust's $10,000,000 line of credit was renewed in November 1996.
This information is an integral part of the
accompanying condensed financial statements.
-5-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - Three-Month and Nine-Month Periods Ended December 31,
1996 as Compared to the Three-Month and Nine-Month Periods Ended December 31,
1995:
REVENUES
The Trust's revenues are derived from interest income earned on mortgage loans
as well as, to a lesser degree, interest earned on church bonds and short-term
investments. The decrease in the Trust's revenues of $302,153 for the nine-month
period ended December 31, 1996, as compared to the corresponding period in 1995,
is primarily due to (1) a decrease in the total amount of mortgage loans, church
bonds and interim construction loans outstanding from $34,825,508 at December
31, 1995 to $33,111,807 at December 31, 1996, (2) an increase in nonearning
loans of $765,149 from December 31, 1995 to December 31, 1996, and (3) a
decrease in the weighted average rate on mortgage loans, church bonds and
interim loans from 11.22% at December 31, 1995 to 10.81% at December 31, 1996.
Revenues for the three-month periods ended September 30, 1996 and 1995 were
comparable.
INTEREST EXPENSE
The most significant expense item is interest expense which comprised the
majority of total operating expense for each of the three-month and nine-month
periods ended December 31, 1996 and 1995. Interest expense decreased by $156,095
for the nine-month period ended December 31, 1996, as compared to the
corresponding period in 1995, primarily due to (1) decreases in average debt
balances and (2) a decrease in the weighted average interest rate from 7.42% at
December 31, 1995 to 7.13% at December 31, 1996. Interest expense for the
three-month periods ended September 30, 1996 and 1995 were comparable.
NONEARNING ASSETS
On June 27, 1996, because of recent deterioration or past due status, the Trust
added additional loans in the total principal balance of $1,625,514 to
nonearning assets. Two interim loans represented $1,297,662 of such amount. Such
interim loans were moved to non-accrual status after the makers of loans filed
for protection under Chapter 11 of the U.S. Bankruptcy Code during June 1996. In
addition to the nonaccrual loans previously mentioned, management has doubts as
to a certain interim loan's ability to comply with present repayment terms. Such
loan had a balance of approximately $1,556,000 at December 31, 1996 and was not
classified as nonearning at that date. Management believes that potential losses
related to such loans have been provided for in the Trust's allowance for
possible credit losses.
LIQUIDITY
The Trust's $10,000,000 line of credit was renewed in November 1996.
-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: February 7, 1997 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: February 7, 1997 BY:/s/ Kelly Archer
-----------------------------
Kelly Archer
Chief Financial Officer
- 8 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
================================================================================
This schedule contains summary financial information extracted from the
company's financial statements as of and for the nine months ended December 31,
1996 and is qualified in its entirety by reference to such financial statements.
================================================================================
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-START> Apr-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,315,944
<SECURITIES> 0
<RECEIVABLES> 33,880,399
<ALLOWANCES> 810,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 574,628
<DEPRECIATION> 357,419
<TOTAL-ASSETS> 34,764,365
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,623,866
<OTHER-SE> 131,409
<TOTAL-LIABILITY-AND-EQUITY> 34,764,365
<SALES> 2,922,600
<TOTAL-REVENUES> 2,922,600
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 98,685
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 704,644
<INCOME-PRETAX> 1,646,914
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,646,914
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
