================================================
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, 1999
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, 1999, 7,000,806 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, 1999
and March 31, 1999 ....................... 1
Condensed Statements of Income for the
three-month periods ended
June 30, 1999 and 1998 ................... 2
Condensed Statements of Cash Flows
for the three-month periods ended
June 30, 1999 and 1998 .................. 3
Notes to Condensed Financial Statements ..... 4
Item 2: Management's Discussion and Analysis or
Plan of Operation .......................... 6
Part II. Other Information ............................... 9
Signatures ................................................ 10
<PAGE>
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
June 30, 1999 and March 31, 1999
ASSETS June 30, 1999 March 31, 1999
------ ------------- --------------
CASH AND CASH EQUIVALENTS ...................... $ 49,965 $ 181,068
RECEIVABLES
Mortgage loans and church bonds -
performing ................................ 23,934,339 23,109,175
Interim construction loans - performing .... 10,112,086 10,406,937
Nonperforming mortgage loans, church
bonds and
interim construction loans ............... 2,754,509 3,555,029
Less: Allowance for possible credit losses . (1,260,213) (1,215,213)
------------ ------------
35,540,721 35,855,928
Accrued interest receivable ................ 425,838 323,396
Notes receivable ........................... 408,424 407,111
------------ ------------
Total receivables ............ 36,374,983 36,586,435
PROPERTY AND EQUIPMENT, net .................... 178,029 181,947
REAL ESTATE ACQUIRED THROUGH FORECLOSURE ....... 314,196 314,196
UNAMORTIZED DEBT EXPENSE AND OTHER ASSETS ...... 26,597 28,891
------------ ------------
TOTAL ASSETS ................................... $ 36,943,770 $ 37,292,537
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ............................ $ 1,958,978 $ 1,921,680
Other .................................... 10,202,695 10,185,984
------------ ------------
12,161,673 12,107,664
------------ ------------
Secured savings certificates ............... 1,954,000 2,763,376
Accrued interest payable ................... 53,897 104,785
Other ...................................... 1,063,799 1,059,035
------------ ------------
Total liabilities ............ 15,233,369 16,034,860
------------ ------------
SHAREHOLDERS' EQUITY
Shares of beneficial interest, no par value;
authorized shares unlimited, 7,007,402
shares issued ............................. 20,623,866 20,623,866
Undistributed net income ................... 1,103,025 650,301
Treasury shares, at cost (6,596 shares) .... (16,490) (16,490)
------------ ------------
Total shareholders' equity ... 21,710,401 21,257,677
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 36,943,770 $ 37,292,537
============ ============
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, 1999 and 1998
Three-month periods
ended June 30,
1999 1998
---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage
loans, church bonds and
interim construction loans ................... $1,613,225 $1,134,694
Interest on temporary
investments .................................. 5,348 12,744
---------- ----------
Total interest
income and fees .......................... 1,618,573 1,147,438
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DEBT EXPENSE
Interest ....................................... 245,529 302,931
Amortization of commissions
paid to brokers ............................... 5,059 12,239
---------- ----------
Total debt expense ........................ 250,588 315,170
---------- ----------
Net interest income ....................... 1,367,985 832,268
PROVISION FOR POSSIBLE
CREDIT LOSSES ................................... 45,000 45,000
---------- ----------
Net interest income
less provision for
possible credit
losses .................................. 1,322,985 787,268
---------- ----------
OTHER INCOME ........................................ 2,656 1,429
OTHER OPERATING EXPENSES
General and administrative ..................... 158,533 165,306
Board of Trust Managers'
fees .......................................... 14,303 14,413
---------- ----------
Total other
operating expenses ...................... 172,836 179,719
---------- ----------
Income before provision
for income taxes ........................ 1,152,805 608,978
PROVISION FOR INCOME TAXES .......................... -- 449
---------- ----------
NET INCOME ................................ $1,152,805 $ 608,529
========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .......................... 7,000,806 7,007,402
========== ==========
NET INCOME PER SHARE $ .16 $ .09
==== ====
DIVIDENDS PER SHARE $ .10 $ .11
==== ====
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, 1999 and 1998
Three-month periods
ended June 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................. $ 1,152,805 $ 608,529
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ............................ 3,918 3,919
Amortization of debt expense ............ 5,059 12,239
Amortization of loan discounts .......... (28,344) (38,092)
Provision for possible credit losses .... 45,000 45,000
Changes in:
Accrued interest receivable ........... (102,442) (81,027)
Accrued interest payable .............. (50,888) 77,432
Other liabilities ..................... 4,764 41,736
Other, net ............................ (2,765) (6,788)
----------- -----------
Net cash provided by operating
activities .................... 1,027,107 662,948
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ...... (5,391,356) (6,523,515)
Payments received on mortgage and interim
construction loans and church bonds ....... 5,689,907 3,876,284
Investments in notes receivable ............. (81,023) (124,651)
Payments received on notes receivable ....... 79,710 85,074
----------- -----------
Net cash provided (used) by
investing activities .......... 297,238 (2,686,808)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft .............................. -- 178,475
Borrowings on notes payable ................. 6,326,938 7,119,702
Principal payments on:
Secured savings certificates .............. (809,376) (1,215,325)
Notes payable ............................. (6,272,929) (3,320,581)
Cash dividends .............................. (700,081) (770,814)
----------- -----------
Net cash provided (used) by
financing activities .......... (1,455,448) 1,991,457
----------- -----------
Decrease in cash and
cash equivalents .............. (131,103) (32,403)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ......................... 181,068 32,403
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....... $ 49,965 $ --
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest .... $ 296,417 $ 225,499
=========== ===========
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, 1999
and 1998, were as follows:
Mortgage loan and Total Net interest
church bond portfolio indebtedness rate margin
--------------------- ------------ -----------
June 30, 1999 9.82% 6.87% 2.95%
June 30, 1998 10.57% 7.48% 3.09%
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, 1999, for the five twelve-month periods subsequent to
June 30, 1999, follow:
Twelve-month period Mortgage loans, church bonds
ending June 30 and interim loans Indebtedness
------------------- ----------------- ------------
2000 $12,838,270 $14,089,673
2001 1,543,730 26,000
2002 1,551,506 -
2003 1,583,067 -
2004 1,673,923 -
---------- ----------
-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 $2,754,509 and $2,420,094 at June
30, 1999 and 1998, 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 $76,000 and $66,000 for the three-month periods ended
June 30, 1999 and 1998, respectively. Interest income actually recognized during
1999 and 1998 was approximately $19,000 and $24,000, respectively.
NOTE 5 - Secured Savings Certificates
Secured Savings Certificates (Certificates) are issued in amounts of $1,000 or
more and have single maturity dates from 30 days to 10 years from date of issue.
With respect to an individual Certificate, interest rate and frequency of
payment of interest (either monthly, quarterly, semiannually, annually or at
maturity) are fixed at the time of issuance of the Certificate. 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, 1999 as Compared to
the Three-Month Period Ended June 30, 1998:
Revenues
On June 17, 1999, the Trust received $1,380,493 in full and final payment of a
loan owing to the Trust from St. Stephens Church of God in Christ, Inc. of San
Diego, California. Such amount paid in full the principal, interest and
attorney's fees owing to the Trust by such Borrower. The loan had been accounted
for as a nonperforming loan by the Trust and certain interest payments had been
credited to principal. Therefore, the pay-off resulted in an additional
recognition of interest income of approximately $611,000 during June 1999.
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 $471,135 for the
three-month period ended June 30, 1999, as compared to the corresponding period
in 1998 is primarily due to the pay-off of the aforementioned loan, the effect
of which was offset by a decrease in the amount of performing loans and church
bonds from approximately $35,656,000 at June 30, 1998 to approximately
$34,046,000 at June 30, 1999 and also a decline in the average rate of return of
the mortgage loan and church bond portfolio from 10.57% at June 30, 1998 to
9.82% at June 30, 1999.
At June 30, 1999, the Trust has four loans totaling approximately $4,187,000
(accrued interest totaling approximately $139,000) to a certain borrower that
began experiencing cash flow difficulty and has been unable to make certain
required monthly interest payments. The Trust believes that the borrower will be
able to improve its cash flow and, therefore, has not yet accounted for these
loans as nonperforming; however, the Trust will continue to closely monitor
these loans, and it is possible that the loans could be classified as
nonperforming in the future.
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, 1999 and 1998. The decrease of $57,402 in interest expense resulted
from a decrease in the average total amount of indebtedness outstanding during
the three-month period ended June 30, 1999 as compared to the same period ended
June 30, 1998 and a decrease in the weighted average interest rate on all
indebtedness from 7.48% at June 30, 1998 to 6.87% at June 30, 1999.
Other Operating Expenses
Other operating expenses were $172,836 for the three months ended June 30, 1999
and were less than the $179,719 for the same period in 1997, primarily due to
lower legal costs.
-6-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Year 2000
The following information which appears in this section constitutes Year 2000
Readiness Disclosure, pursuant to the Year 2000 ("Y2K") Information and
Readiness Disclosure Act. The Year 2000 issue is the result of computer systems
using a two-digit format, as opposed to four digits, to indicate the year. Any
of the Trust's computer programs or hardware that have date-sensitive software
or embedded chips may not appropriately interpret dates beyond the year 1999.
This could result in a system failure, miscalculation or other computer errors
causing disruptions of operations. The Trust's plan to address the issue
involves the follow five phases: awareness, assessment, remediation, testing and
implementation. The plan also involves communicating with external service
providers to ensure that they are taking appropriate action to remedy any Year
2000 issues. To date, the Trust has completed its assessment of systems that
could be affected by the Year 2000. As part of the assessment phase, systems,
which have the greatest impact, were designated as mission critical systems.
Internal mission critical systems include the Trust's internal accounting and
information system. This system includes a small server-based local area network
and a small peer-to-peer network that uses commercially available operating and
networking software. The vendors (primarily Microsoft, Compaq and Gateway) have
certified this hardware and software as Year 2000 compliant. The Trust's primary
application programs (including general ledger, mortgage loan, shareholder, bond
financing and Secured Savings Certificate accounting modules) are customized.
During November 1998, an independent consultant performed an analysis to
determined if programs were Year 2000 compliant. The cost of the testing was
less than $1,000.
The Trust has engaged the consultant to modify and test the noncompliant
programs. Remediation began about December 1998 and through June 30, 1999 was
65% complete. The consultant has committed to the completion of remediation and
testing no later than December 15, 1999, however, it is believed that remaining
modifications and testing will be virtually complete by the end of the third
calendar quarter. It is estimated that the cost to modify the files will range
from $6,000 to $7,500 (excluding the cost to upgrade and replace systems used in
the ordinary course of business). Such costs will be charged to expense as
incurred.
The Trust's operations are relatively simple. As far as essential vendors are
concerned, the primary ones are considered to be the Trust's primary bank (the
same bank serves as depositor and lender), and the electric and telephone
utility. The Trust has received reports from these providers regarding their
efforts to attain Y2K readiness. The negative impact of large loan customers who
have not dealt with the implications of the Y2K problem on their operations
could be serious to the Trust. However, the Trust does not believe that the risk
to its typical loan customer is as great as it is to a normal commercial
operation. This is due to the fact that the source of loan payments generally
made by all churches is from individuals making contributions via cash or check
to the church. Accordingly, it is believed that most churches should not suffer
adversely from the Y2K issue. Nevertheless, the Trust surveyed its loan
customers with balances over $100,000 in the first quarter of calendar 1999 to
determine their Y2K compliance. Most churches have responded that they will be
in compliance. The Trust intends to follow up soon on those churches who have
not responded.
-7-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
The Trust believes that it has an effective program in place to resolve the Year
2000 issue in a timely manner and that it is unlikely that Year 2000 issues will
cause any significant problems with customer service or otherwise have a
material adverse impact on the Trust's operations or financial performance.
However, if appropriate modifications are not completed in a timely manner for
some unexpected reason, the Year 2000 issue could impact the Trust's operations.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also materially impact the Trust. There can be no guarantee that
the systems of other companies on which the Trust is effected will be remediated
in a timely manner and not have any adverse impact on the Trust's operations. At
this time, the Trust has not developed year 2000 contingency plans, other than
the review and remedial actions described above, and does not intend to do so
unless the Trust believes such plans are merited by the results of its
continuing Year 2000 review.
The Trust has not developed a "worst case" scenario with respect to Year 2000
issues, but instead has focused its resources on identifying material,
remediable problems and reducing uncertainties generally, through the Year 2000
review described above.
-8-
<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.
-9-
<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 10, 1999 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: August 10, 1999 BY:/s/ Kelly Archer
-----------------------------
Kelly Archer
Chief Financial Officer
-10-
<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, 1999
and is qualified in its entirety by reference to such financial statements.
=======================================================================
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-START> Apr-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 49,965
<SECURITIES> 0
<RECEIVABLES> 37,635,196
<ALLOWANCES> 1,260,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 480,313
<TOTAL-ASSETS> 36,943,770
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,607,376
<OTHER-SE> 1,103,025
<TOTAL-LIABILITY-AND-EQUITY> 36,943,770
<SALES> 1,621,229
<TOTAL-REVENUES> 1,621,229
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,362
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> 245,529
<INCOME-PRETAX> 1,152,805
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,152,805
<EPS-BASIC> .16
<EPS-DILUTED> .16
</TABLE>
