================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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Commission File No. 0-8117
CHURCH LOANS & INVESTMENTS TRUST
State of Organization IRS Employer Identification
--------------------- ---------------------------
Texas No. 75-6030254
5305 I-40 West
Amarillo, Texas 79106
Registrant's telephone number: 806-358-3666
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ _ ]
As of June 30, 1998, 7,007,402 shares of the Registrant's shares of beneficial
interest were outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ _ ] No [ X ]
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
INDEX
Page
----
Part I.
Item 1: Financial Information:
Condensed Balance Sheets at June 30, 1998
and March 31, 1998 ....................... 1
Condensed Statements of Income for the
three-month periods ended
June 30, 1998 and 1997 ................... 2
Condensed Statements of Cash Flows
for the three-month periods ended
June 30, 1998 and 1997 .................. 3
Notes to Condensed Financial Statements ..... 4
Item 2: Management's Discussion and Analysis or
Plan of Operation .......................... 6
Part II. Other Information ............................... 7
Signatures ................................................ 8
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
June 30, 1998 and March 31, 1998
ASSETS June 30, 1998 March 31, 1998
------ ------------- --------------
CASH AND CASH EQUIVALENTS ...................... $ -- $ 32,403
RECEIVABLES
Mortgage loans and church bonds -
performing ................................ 23,398,963 22,165,629
Interim construction loans - performing .... 12,256,905 10,732,915
Nonperforming mortgage loans, church
bonds and interim construction loans ...... 2,420,094 2,492,095
Less: Allowance for possible credit losses . (1,080,213) (1,035,213)
------------ ------------
36,995,749 34,355,426
Accrued interest receivable ................ 422,387 341,360
Notes receivable ........................... 445,437 405,860
------------ ------------
Total receivables ............ 37,863,573 35,102,646
PROPERTY AND EQUIPMENT, net .................... 193,700 197,619
REAL ESTATE ACQUIRED THROUGH FORECLOSURE ....... 1,479,486 1,479,486
UNAMORTIZED DEBT EXPENSE, net and other assets . 57,509 62,960
------------ ------------
TOTAL ASSETS ................................... $ 39,594,268 $ 36,875,114
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Bank overdraft ............................ $ 178,475 $ --
Notes payable and line of credit:
Related party ............................ 1,911,514 1,969,938
Other .................................... 9,598,318 5,740,773
------------ ------------
11,509,832 7,710,711
------------ ------------
Secured savings certificates:
Related party ............................ -- 240,000
Other .................................... 5,848,498 6,823,823
------------ ------------
5,848,498 7,063,823
Accrued interest payable ................... 107,200 29,768
Other ...................................... 823,191 781,455
------------ ------------
Total liabilities ............ 18,288,721 15,585,757
------------ ------------
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 ................... 503,206 665,491
------------ ------------
Total shareholders' equity ... 21,127,072 21,289,357
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 39,594,268 $ 36,875,114
============ ============
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-1-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month periods ended June 30, 1998 and 1997
Three-month periods
ended June 30,
1998 1997
---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage
loans, church bonds and
interim construction loans ................... $1,134,694 $ 933,207
Interest on temporary
investments .................................. 12,744 29,649
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Total interest
income and fees .......................... 1,147,438 962,856
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DEBT EXPENSE
Interest ....................................... 302,931 233,676
Amortization of:
Registration costs ........................... -- 4,374
Commissions paid to
brokers ..................................... 12,239 29,595
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Total debt expense ........................ 315,170 267,645
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Net interest income ....................... 832,268 695,211
PROVISION FOR POSSIBLE
CREDIT LOSSES ................................... 45,000 45,000
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Net interest income
less provision for
possible credit
losses .................................. 787,268 650,211
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OTHER INCOME ........................................ 1,429 2,013
OTHER OPERATING EXPENSES
General and administrative ..................... 165,306 165,466
Board of Trust Managers'
fees .......................................... 14,413 11,939
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Total other
operating expenses ...................... 179,719 177,405
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Income before provision
for income taxes ........................ 608,978 474,819
PROVISION FOR INCOME TAXES .......................... 449 3,627
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NET INCOME ................................ $ 608,529 $ 471,192
========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .......................... 7,007,402 7,007,402
========== ==========
NET INCOME PER SHARE ................................ $ .09 $ .07
==== ====
DIVIDENDS PER SHARE ................................ $ .11 $ .10
==== ====
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-2-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Three-month periods ended June 30, 1998 and 1997
Three-month periods
ended June 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................ $ 608,529 $ 471,192
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .......................... 3,919 3,918
Amortization of debt expense .......... 12,239 33,969
Amortization of loan discounts ........ (38,092) (19,434)
Provision for possible credit losses .. 45,000 45,000
Changes in:
Accrued interest receivable ......... (81,027) (71,206)
Accrued interest payable ............ 77,432 12,344
Other liabilities ................... 41,736 110,084
Other, net .......................... (6,788) (5,240)
----------- -------------
Net cash provided by operating
activities .................. 662,948 580,627
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction
loans and church bonds .................. (6,523,515) (3,801,344)
Payments received on mortgage and interim
construction loans and church bonds ..... 3,876,284 7,782,889
Investments in notes receivable ........... (124,651) (90,452)
Payments received on notes receivable ..... 85,074 82,512
----------- -------------
Net cash provided (used) by
investing activities ........ (2,686,808) 3,973,605
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft ............................ 178,475 --
Sale of secured savings certificates (SSC) -- 2,435,121
Borrowings on notes payable ............... 7,119,702 788,454
Principal payments on:
SSCs .................................... (1,215,325) (2,472,863)
Notes payable ........................... (3,320,581) (2,423,930)
Commissions paid to broker on issuance
of SSCs ................................ -- (33,363)
Cash dividends ............................ (770,814) (700,740)
----------- -------------
Net cash provided (used) by
financing activities ....... 1,991,457 (2,407,321)
----------- -------------
Increase (decrease) in cash
and cash equivalents ........ (32,403) 2,146,911
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ....................... 32,403 586,629
----------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..... $ -- $ 2,733,540
=========== =============
Supplemental disclosure of cash flow information
Cash paid during the period for interest .. $ 225,499 $ 221,332
=========== =============
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-3-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
NOTE 1 - GENERAL
See Summary of Significant Accounting Policies in the Trust's Annual Report on
Form 10- KSB405 for a summary of the Trust's significant accounting policies.
The unaudited condensed financial statements included herein were prepared from
the books of the Trust in accordance with generally accepted accounting
principles and reflect all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary to a fair statement of the
results of operations and financial position for the interim periods. Such
financial statements generally conform to the presentation reflected in the
Trust's Annual Report to Shareholders. The current interim period reported
herein is included in the fiscal year subject to independent audit at the end of
that year and is not necessarily an indication of the expected results for the
fiscal year.
NOTE 2 - WEIGHTED AVERAGE INTEREST RATES
Weighted average interest rates and net interest rate margins at June 30, 1998
and 1997, were as follows:
Mortgage loan and Total Net interest
church bond portfolio indebtedness rate margin
--------------------- ------------ -----------
June 30, 1998 10.57% 7.48% 3.09%
June 30, 1997 10.54% 7.29% 3.25%
NOTE 3 - CONTRACTUAL MATURITIES
Scheduled principal payments on mortgage loans, church bonds and interim loans
and indebtedness (including secured savings certificates and notes payable)
outstanding at June 30, 1998, for the five twelve-month periods subsequent to
June 30, 1998, follow:
Twelve-month period Mortgage loans, church bonds
ending June 30 and interim loans Indebtedness
------------------- ----------------- ------------
1999 $14,944,418 15,404,330
2000 1,573,321 1,928,000
2001 1,516,834 26,000
2002 1,476,201 -
2003 1,366,120 -
----------- ----------
-4-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
NOTE 4 - MORTGAGE LOANS, CHURCH BONDS AND INTERIM CONSTRUCTION
LOANS
Mortgage loans, church bonds and interim construction loans on which the accrual
of interest had been discontinued amounted to $2,420,094 and $2,998,476 at June
30, 1998 and 1997, 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 $66,000 and $60,000 for the three-month periods ended
June 30, 1998 and 1997, respectively. Interest income actually recognized during
1998 was approximately $24,000. Interest income actually recognized in 1997 was
not significant.
NOTE 5 - SECURED SAVINGS CERTIFICATES
Secured Savings Certificates (Certificates) are issued in amounts of $1,000 or
more and have single maturity dates from 30 days to 10 years from date of issue.
With respect to an individual Certificate, interest rate and frequency of
payment of interest (either monthly, quarterly, semiannually, annually or at
maturity) are fixed at the time of issuance of the Certificate. Effective July
1997, Church Loans discontinued the sale of Certificates.
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% of the aggregate principal amount of
Certificates outstanding.
This information is an integral part of the
accompanying financial statements.
-5-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - Three-Month Period Ended June 30, 1998 as Compared to
the Three-Month Period Ended June 30, 1997:
Revenues
The Trust's revenues are derived from interest income earned on loans as well
as, to a lesser degree, interest earned on church bonds and short-term
investments. The increase in the Trust's revenues of $184,582 for the
three-month period ended June 30, 1998, as compared to the corresponding period
in 1997 is primarily due to an increase in the amount of performing loans and
church bonds from $27,508,857 at June 30, 1997 to $35,655,868 at June 30, 1998
and a slight increase in the average rate of return of the mortgage loan and
church bond portfolio from 10.54% at June 30, 1997 to 10.57% at June 30, 1998.
Interest Expense
The most significant expense item is interest expense which comprised the
majority of total operating expense for each of the three-month periods ended
June 30, 1998 and 1997. The increase of $69,255 in interest expense resulted
from an increase in the average total amount of indebtedness outstanding during
the three-month period ended June 30, 1998 as compared to the same period ended
June 30, 1997 and a slight increase in the weighted average interest rate on all
indebtedness from 7.29% at June 30, 1997 to 7.48% at June 30, 1998.
Other Operating Expenses
Other operating expenses were $179,719 for the three months ended June 30, 1998
and were comparable to $177,405 for the same period in 1997.
Liquidity
At June 30, 1998, the Trust had book cash overdrafts of $178,475; however, the
Trust also had $8,900,000 available on its line of credit with a bank.
Management believes that this and repayments from loans will be adequate to meet
the Trust's obligations.
-6-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
-7-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHURCH LOANS & INVESTMENTS TRUST
DATE: August 6, 1998 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: August 6, 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 3 months ended June 30, 1998
and is qualified in its entirety by reference to such financial statements.
================================================================================
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-START> Apr-01-1998
<PERIOD-END> Mar-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 38,943,786
<ALLOWANCES> 1,080,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,341
<DEPRECIATION> 464,641
<TOTAL-ASSETS> 39,594,268
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,623,866
<OTHER-SE> 503,206
<TOTAL-LIABILITY-AND-EQUITY> 39,594,268
<SALES> 1,148,867
<TOTAL-REVENUES> 1,148,867
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,652
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> 302,931
<INCOME-PRETAX> 608,978
<INCOME-TAX> 449
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608,529
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
