================================================
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, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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Commission File No. 0-8117
CHURCH LOANS & INVESTMENTS TRUST
State of Organization IRS Employer Identification
--------------------- ---------------------------
Texas No. 75-6030254
5305 I-40 West
Amarillo, Texas 79106
Registrant's telephone number: 806-358-3666
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ _ ]
As of December 31, 1997, 7,007,402 shares of the Registrant's shares of
beneficial interest were outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ _ ] No [ X ]
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
INDEX
Page
----
Part I.
Item 1: Financial Information:
Condensed Balance Sheets at December 31, 1997
and March 31, 1997 ....................... 1
Condensed Statements of Income for the
three-month and nine-month periods ended
December 31, 1997 and 1996 ............... 2
Condensed Statements of Cash Flows
for the nine-month periods ended
December 31, 1997 and 1996 .............. 3
Notes to Condensed Financial Statements ..... 4
Item 2: Management's Discussion and Analysis or
Plan of Operation .......................... 6
Part II. Other Information ............................... 7
Signatures ................................................ 8
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
December 31, 1997 and March 31, 1997
ASSETS DECEMBER 31, 1997 MARCH 31, 1997
------ ----------------- --------------
CASH AND CASH EQUIVALENTS ...................... $ 556,183 $ 586,629
RECEIVABLES
Mortgage loans and church bonds -
performing ................................ 18,960,914 19,177,849
Interim construction loans - performing .... 10,993,182 12,133,111
Nonearning mortgage loans, church bonds
and interim construction loans ............ 2,724,030 3,158,484
Less: Allowance for possible credit losses . (990,213) (855,213)
------------ ------------
31,687,913 33,614,231
------------ ------------
Accrued interest receivable ................ 392,446 303,756
Notes receivable ........................... 443,310 536,453
------------ ------------
Total receivables ............ 32,523,669 34,454,440
PROPERTY AND EQUIPMENT, net .................... 201,537 213,291
OTHER REAL ESTATE OWNED ........................ 1,515,951 119,500
UNAMORTIZED DEBT EXPENSE, net and other assets . 84,398 81,892
------------ ------------
TOTAL ASSETS ................................... $ 34,881,738 $ 35,455,752
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ............................ $ 1,646,982 $ 1,648,660
Other .................................... 3,058,685 4,397,216
------------ ------------
4,705,667 6,045,876
------------ ------------
Secured savings certificates:
Related party ............................ 240,000 315,692
Other .................................... 7,028,823 7,258,280
------------ ------------
7,268,823 7,573,972
Dividends payable .......................... 1,471,554 --
Accrued interest payable ................... 31,805 45,211
Other ...................................... 711,364 555,574
------------ ------------
Total liabilities ............ 14,189,213 14,220,633
------------ ------------
SHAREHOLDERS' EQUITY
Shares of beneficial interest, no par value;
authorized shares unlimited, 7,007,402
shares issued and outstanding ............. 20,623,866 20,623,866
Undistributed net income ................... 68,659 611,253
------------ ------------
Total shareholders' equity ... 20,692,525 21,235,119
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 34,881,738 $ 35,455,752
============ ============
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-1-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month and nine-month periods ended
December 31, 1997 and 1996
THREE-MONTH NINE-MONTH
PERIODS ENDED PERIODS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage
loans, church bonds, and
interim construction loans . $ 970,903 $ 970,234 $2,856,876 $2,864,449
Interest on temporary
investments ............... 14,469 17,690 76,058 35,423
---------- ---------- ---------- ----------
Total interest
income and fees ....... 985,372 987,924 2,932,934 2,899,872
---------- ---------- ---------- ----------
DEBT EXPENSE
Interest ..................... 227,823 226,567 690,359 704,644
Amortization of:
Registration cost ......... -- 6,561 4,374 23,724
Commissions paid to
brokers .................. 14,171 14,334 43,766 44,059
---------- ---------- ---------- ----------
Total debt expense ..... 241,994 247,462 738,499 772,427
---------- ---------- ---------- ----------
Net interest income .... 743,378 740,462 2,194,435 2,127,445
PROVISION FOR POSSIBLE
CREDIT LOSSES ............... 45,000 45,000 135,000 90,000
---------- ---------- ---------- ----------
Net interest income
less provision for
possible credit
losses ............... 698,378 695,462 2,059,435 2,037,445
OTHER INCOME ..................... 42,747 17,603 81,658 22,728
OTHER OPERATING EXPENSES
General and administrative ... 141,545 122,825 472,590 382,357
Board of Trust Managers'
fees ........................ 10,704 10,120 35,176 30,902
---------- ---------- ---------- ----------
Total other
operating expenses .... 152,249 132,945 507,766 413,259
---------- ---------- ---------- ----------
Income before provisions
for taxes .......... 588,876 580,120 1,633,327 1,646,914
PROVISION FOR TAXES .............. -- -- 3,627 --
---------- ---------- ---------- ----------
NET INCOME ............. $ 588,876 $ 580,120 $1,629,700 $1,646,914
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING ........ 7,007,402 7,007,402 7,007,402 7,007,402
========== ========== ========== ==========
NET INCOME PER SHARE ............. $ .08 $ .08 $ .23 $ .24
========== ========== ========== ==========
DIVIDENDS PER SHARE $ .21 $.23 $ .31 $ .32
========== ========== ========== ==========
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-2-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Nine-month periods ended December 31, 1997 and 1996
NINE-MONTH PERIODS
ENDED DECEMBER 31,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................. $ 1,629,700 $ 1,646,914
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ......................... 11,754 11,756
Amortization of debt expense ......... 48,140 67,783
Provision for possible credit losses . 135,000 90,000
Amortization of loan discounts ....... (63,090) (148,223)
Changes in:
Accrued interest receivable ...... (88,690) 30,436
Accrued interest payable ......... (13,406) (3,063)
Federal income taxes payable ..... -- (7,060)
Other liabilities ................ 155,790 201,057
Other, net ........................... (17,123) (29,355)
------------ ------------
Net cash provided by operating
activities .................. 1,798,075 1,860,245
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ..... (20,542,903) (12,533,765)
Payments received on mortgage and interim
construction loans and church bonds ..... 21,001,310 12,103,405
Advances of notes receivable ............... (212,471) (385,983)
Payments received on notes receivable ...... 305,614 377,877
------------ ------------
Net cash provided (used) by
investing activities ........ 551,550 (438,466)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates (SSC) . 3,314,121 1,938,329
Borrowings on notes payable ................ 1,611,412 6,354,676
Principal payments on:
SSCs .................................... (3,619,270) (1,916,847)
Notes payable ........................... (2,951,621) (6,536,295)
Registration costs of SSCs ................. -- (7,732)
Commissions paid to broker on issuance
of SSCs ................................. (33,973) (29,730)
Cash dividends paid ........................ (700,740) (630,666)
------------ ------------
Net cash used by
financing activities ........ (2,380,071) (828,265)
------------ ------------
Increase (decrease) in cash
and cash equivalents ........ (30,446) 593,514
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ........................... 586,629 722,430
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..... $ 556,183 $ 1,315,944
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest ... $ 703,765 $ 707,707
============ ============
During December 1997, the Board of Trust managers declared cash dividends of
$1,471,554 ($.21 per share) payable in January 1998. During December 1996, the
Board of Trust managers declared cash dividends of $1,611,702 ($.23 per share)
payable in January 1997.
During the nine months ended December 31, 1997, the Trust foreclosed on
$1,396,451 in loans that were delinquent.
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-3-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
(1) GENERAL
See the Summary of Significant Accounting Policies included in the
Financial Statements in the Trust's Annual Report on Form 10-KSB405.
Real estate acquired through, or in lieu of, loan foreclosure is to be
sold and is initially recorded at estimated fair value at date of
foreclosure establishing a new cost basis. Other real estate owned, after
foreclosure, is carried at the lower of carrying amount or the property's
estimated fair value minus estimated costs to sell (fair value). Declines
in the estimated fair value below cost are recognized as a valuation
allowance. If the estimated fair value subsequently increases above its
carrying value, the valuation allowance is reduced, but not below zero.
Increases or decreases in the valuation allowance are charged or credited
to operations.
The unaudited condensed financial statements included herein were
prepared from the books of the Trust in accordance with generally
accepted accounting principles and reflect all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management,
necessary to a fair statement of the results of operations and financial
position for the interim periods. Such financial statements generally
conform to the presentation reflected in the Trust's Annual Report to
Shareholders. The current interim period reported herein is included in
the fiscal year subject to independent audit at the end of that year and
is not necessarily an indication of the expected results for the fiscal
year.
Certain amounts in the March 31, 1997 balance sheet have been
reclassified to conform with the September 30, 1997 presentation.
(2) WEIGHTED AVERAGE INTEREST RATES
Weighted average interest rates and net interest rate margins at December
31, 1997 and 1996 were as follows:
Mortgage loan and Total Net interest
church bond portfolio indebtedness rate margin
--------------------- ------------ -----------
December 31, 1997 10.60% 7.42 3.18
December 31, 1996 10.81 7.13 3.68
(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, 1997, for the five twelve-month
periods subsequent to December 31, 1997, follow:
Twelve-month period Mortgage loans, church bonds
ending December 31, and interim loans indebtedness
------------------- ----------------- ------------
1998 $13,749,245 8,560,114
1999 1,393,340 2,085,376
2000 1,294,383 1,329,000
2001 1,208,028 -
2002 1,055,990 -
=========== =========
-4-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
(4) MORTGAGE LOANS, CHURCH BONDS AND INTERIM CONSTRUCTION LOANS
Mortgage loans, church bonds and interim construction loans on which the
accrual of interest had been discontinued amounted to $2,724,030 and
$3,650,338 at December 31, 1997 and 1996, respectively. If interest on
these mortgage loans, church bonds and interim construction loans had
been accrued as earned, interest and fees on loans in the accompanying
condensed statements of income would have been increased by approximately
$115,000 and $302,000 for the nine-month periods ended December 31, 1997
and 1996, respectively. Interest actually recognized in 1997 was
approximately $72,000.
This information is an integral part of the
accompanying financial statements.
-5-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - Three-Month and Nine-Month Periods Ended December 31,
1997 as Compared to the Three-Month and Nine-Month Periods Ended December 31,
1996:
REVENUES
The Trust's revenues are derived primarily from interest income earned on
mortgage loans, church bonds and interim construction loans. The Trust's
revenues of $985,372 for the three-month period ended December 31, 1997, were
comparable to $987,924 for the corresponding period in 1996. The Trust's
revenues of $2,932,934 for the nine-month period ended December 31, 1997
increased slightly from $2,899,872 for the corresponding period. The weighted
average rate on mortgage loans, church bonds and interim loans at December 31,
1997 and 1996 was 10.60% and 10.81%, respectively.
DEBT EXPENSE
The most significant expense item is debt expense which comprised the majority
of total operating expense for each of the three-month and nine-month periods
ended December 31, 1997 and 1996. Debt expense for the three-month period ended
December 31, 1997 of $241,994 was comparable to the corresponding amount in 1996
of $247,462. Debt expense of $738,499 for the nine-month period ended December
31, 1997, was slightly less than the corresponding amount in 1996 of $772,427.
The weighted average interest rate on all indebtedness was 7.42% at December 31,
1997 as compared to 7.13% at December 31, 1996.
OTHER OPERATING EXPENSES
Other operating expenses were $152,249 for the three months ended December 31,
1997, or $19,304 more than the comparable period in 1996. Other operating
expenses were $507,766 for the nine-months ended December 31, 1997, or $94,507
more than the comparable period in 1996. These increases were primarily caused
by increased legal and other fees incurred in the collection and foreclosure of
several nonearning loans.
NONEARNING ASSETS
During the three months ended September 30, 1997, the Trust foreclosed on two
nonearning loans with total principal balances of $1,049,498. One loan
constituted approximately $976,000 of the total and was secured by an
assisted-living center located in Sedona, Arizona. The Trust has leased the
property to a third party and has recognized approximately $77,000 in other
income in the nine months ended December 31, 1997 from the rental of such
property. During the three months ended December 31, 1997, the Trust foreclosed
on an interim loan with a carrying value of $346,503. The recorded loan balances
of all of these loans approximated fair value of the securing properties.
Presently, the Trust is actively seeking disposition of the properties.
Nonearning loans of $2,724,030 at December 31, 1997 included a loan for
approximately $751,000 that was delinquent and placed on nonearning status
during the three months ended December 31, 1997.
-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 11, 1998 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: February 11, 1998 BY:/s/ Kelly Archer
-----------------------------
Kelly Archer
Chief Financial Officer
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
=======================================================================
This schedule contains summary financial information extracted from the
company's financial statements as of and for the 9 months ended
December 31, 1997 and is qualified in its entirety by reference to
such financial statements.
=======================================================================
</LEGEND>
<S> <C>
<PERIOD-START> Apr-01-1997
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-END> Dec-31-1997
<CASH> 556,183
<SECURITIES> 0
<RECEIVABLES> 33,513,882
<ALLOWANCES> 990,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 456,805
<TOTAL-ASSETS> 34,881,738
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,623,866
<OTHER-SE> 68,659
<TOTAL-LIABILITY-AND-EQUITY> 34,881,738
<SALES> 3,014,592
<TOTAL-REVENUES> 3,014,592
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 83,316
<LOSS-PROVISION> 135,000
<INTEREST-EXPENSE> 690,359
<INCOME-PRETAX> 1,633,327
<INCOME-TAX> 3,627
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,629,700
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
