________________________________________________
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, 1999
[___] 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: $4,561,217.
The aggregate market value of the voting stock held by non-affiliates of
the registrant is $16,256,393 as of June 2, 1999.
The number of shares outstanding of each of the issuer's classes of common
stock, as of March 31, 1999 is 7,000,806 shares of beneficial interest.
Documents Incorporated by Reference:
Portions of the Annual Report to Shareholders for the year ended March 31,
1999, 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 - 1999
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 Common Equity
and Related Stockholder Matters ....... 7
Item 6: Management's Discussion and Analysis or
Plan of operation ..................... 8
Item 7: Financial Statements ................... 14
Item 8: Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure .................. 14
PART III
Item 9: Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act ..... 15
Item 10: Executive Compensation ................. 16
Item 11: Security Ownership of Certain Beneficial
Owners and Management ................. 17
Item 12: Certain Relationships and Related
Transactions .......................... 18
Item 13: Exhibits and Reports on Form 8-K ....... 18
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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.
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 also been
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actively involved in making short-term interim or construction loans to finance
the construction of church buildings, the construction of assisted living
centers, the purchase of real estate, or the refinancing of existing
indebtedness. Most of the interim loans presently being made by the Trust are
associated with bond offerings of churches and other nonprofit organizations and
assisted living centers. 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, 1999, the Trust has 121 permanent and interim mortgage loans and
investments in church bonds having a principal balance of $37,657,511, with the
average principal amount thereof being $311,219.10. The interest rates on these
loans vary from 7.5% to 17% per annum with the weighted average interest rate of
mortgage loans and church bonds being 10.06% per annum at March 31, 1999. 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, 1999, the net income of the
Trust was $2,505,826, as compared to $2,226,533 in fiscal 1998, an increase of
12.54%. The increase in net income of the Trust was due to several factors,
including (a)an increase in the investment in mortgage and interim loans made by
the Trust thereby increasing the net interest income of the trust and the
commitment fees earned by the Trust; and (b) an increase in income realized from
loan purchase discounts.
The net income of the Trust for each of the quarters during fiscal 1999 was as
follows: first quarter-$608,529; second quarter-$672,504; third
quarter-$597,839; and fourth quarter-$626,954.
The operational expense of the Trust decreased from $698,138 during fiscal 1998
to $684,706 in fiscal 1999. The operational expenses of the Trust were
approximately 15.01% of its gross income for the year ended March 31, 1999 as
compared to 17.50% for the year ended March 31, 1998. The operational expense of
the Trust included general and administrative expenses and compensation to
members of the Board of Trust Managers.
During fiscal 1999, the Trust advanced loan proceeds of $35,518,740 on 32
different loans. Most, if not all, of such loans bear interest at a variable
rate varying from 1.5% 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 the first 10 months of fiscal 1999, the Trust employed a total of 4 full
time employees and employed, as needed, one additional part-time employee. On
February 1, 1999, the Trust added one full-time employee.
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The business conditions in which the Trust operates has become more competitive
in the past fiscal year as more and more banks are re-entering the business of
making loans to churches, especially the more desirable, less risky, church
loans. If this trend continues, the rates and fees which the trust can charge
may decrease. However, loan demand remains good as evidenced by the number of
loan requests received by the Trust and the number of loan commitments
outstanding as of March 31, 1999.
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, net of depreciation and excluding real estate
acquired through foreclosure, 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.
Due to several foreclosures of nonperforming loans, the Trust holds title or an
interest in the title to two properties which are presently for sale by the
Trust. These properties are located in San Antonio, Texas and Decatur, Georgia.
Item 3: LEGAL PROCEEDINGS
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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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 1999 a total of 97,440 shares were sold in
the secondary market at prices ranging from $2.265 to $2.75 per share. The last
sale during the fiscal year was at $2.50 per share. During fiscal year 1998 a
total of 147,328 shares were sold in the secondary market at prices ranging from
$2.20 to $2.75 per share.
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 1999 Fiscal 1998
------- High Low High Low
______ _____ ______ _____
April-June ..... $2.35 $2.30 $2.30 $2.25
July-September . 2.35 2.30 2.75 2.25
October-December 2.44 2.265 2.40 2.25
January-March .. 2.75 2.35 2.65 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, 1999 there were 2,462 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 1998 the Trust paid a cash dividend of $.31
per share. In fiscal 1999 the Trust paid a total cash dividend of $.36 per
share.
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(d) Sales of Unregistered Securities.
None.
Item 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations--1999 compared to 1998
During the fiscal year ended March 31, 1999, interest income and fees of the
Trust increased by $572,504 (14.35%) over the previous fiscal year. Such
increase was primarily attributable to several factors, including (a) an
increase in the amount of performing loans made by the Trust during the year;
and (b) the realization of income from the early payoff of loans purchased by
the Trust at a discount. Although, there was a decrease in the amount of
performing interim loans held by the Trust from $10,732,915 as of March 31, 1998
to $10,406,937 as of March 31, 1999, there was an increase in performing
mortgage loans during the recent fiscal year from $22,165,629 as of March 31,
1998 to $23,109,175 as of March 31, 1999. Therefore, the total performing
mortgage loans, church bonds and performing interim construction loans held by
the Trust increased from $32,898,544 as of March 31, 1998 to $33,516,112 as of
March 31, 1999. More significantly, there was an increase in the investment in
mortgage and interim loans made by the Trust during fiscal 1998 of $33,238,225
as compared to $35,518,740 during fiscal 1999. This represents an increase of
$2,280,515 or 6.86%. The increase in the investment by the Trust in mortgage
loans also contributed to an increase of $58,860 in commitment fees earned by
the Trust in fiscal 1999 as compared to fiscal 1998. Income from the realization
of loan discounts from loan purchases also increased from $236,512 for the year
ended March 31, 1998 to $330,074 for the year ended March 31, 1999, an increase
of $93,562.
These increases more that offset a decrease in the average interest rate on
loans and church bonds held by the Trust from 10.95% as of March 31, 1998 to
10.06% as of March 31, 1999 and a decrease in interest on temporary investments
held by the Trust from $62,705 as of March 31, 1998 to $34,996 as of March 31,
1999.
In fiscal 1999, the average aggregate amount of total debt outstanding was
$3,030,868 more than in fiscal 1998. Accordingly, the interest expense of the
Trust increased by $218,088 as compared to fiscal 1998. Such increase was
primarily due to an increase in the debt of the Trust. Such increase was
somewhat offset by a decrease in the Trust's cost of funds. The approximate
weighted average annual interest rate upon the aggregate outstanding debt
decreased from 7.44% during fiscal 1998 to 6.90% during fiscal 1999.
The net income of the Trust for fiscal 1999 was $2,505,826 ($.36 per share), an
increase of $279,293 (12.54%) from the previous fiscal year. Such increase was
primarily attributable to an increase in net interest income in fiscal 1999 as
compared to fiscal 1998 as discussed above. Dividends related to fiscal 1999
were $2,450,283 or $.35 per share. Dividends are based on taxable income which
varies from net income reported in the financial statements because of
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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 more
or less than net income reported in the financial statements because of
variances in these temporary differences.
During fiscal 1999, the prime interest rate decreased from 8.50% to 7.75%.
Should the prime interest rate decrease during fiscal 2000, 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
2000, the interest expense of the Trust will generally increase and the net
income of the Trust will in turn generally decrease.
Payments received on the interim and permanent loan portfolio and the church
bonds held by the Trust increased from $31,194,006 during fiscal 1998 to
$35,610,274 during fiscal 1999, an increase of 14.16%. This increase was
attributable to: (a) an increase in interim loans made by the Trust during the
year ended March 31, 1999 and (b) the pay-off prior to maturity of several
mortgage loans.
During fiscal 1998, the Trust foreclosed on three nonperforming loans with total
principal balances of approximately $1,360,000. One loan constituted
approximately $976,000 of the total and was secured by an assisted living center
located in Sedona, Arizona. The Trust sold its interest in this property during
fiscal 1999. However, the Trust financed such purchase by the acceptance of the
purchaser's interim promissory note payable to the Trust. Therefore, the gain
from this sale will be recognized by the Trust as such interim note is paid. The
Trust sold another property located in Colorado Springs, Colorado in exchange
for part cash and the remainder of the purchase price is paid pursuant to a note
executed by the purchaser of such property. Once again, the Trust will recognize
the balance of the gain from the sale of this property as the note is paid.
Finally, the Trust has also sold a portion of a piece of property located in San
Antonio, Texas which it had received in a foreclosure conducted in fiscal 1998.
Presently, the Trust is actively seeking disposition of the balance of this land
located in San Antonio, Texas which is unimproved raw land.
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, and to other borrowers,
including businesses engaged in the building and operation of assisted living
centers. At March 31, 1999, the Trust had eight loans to two different borrowers
which are secured by assisted living centers which totaled approximately
$12,233,000. Four of these loans were to affiliated borrowers totaling
approximately $9,001,000 and with the remaining four loans to another borrower
totaling $3,232,000. In addition, the Trust had four loan commitments
outstanding as of March 31, 1999 for the construction and financing of assisted
living centers in the total approximate amount of $3,825,000.
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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 totaled $11,452,000 at March 31, 1999. 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 2001.
The annual maturities upon all debt obligations of the Trust outstanding as of
March 31, 1999 for the next two fiscal years are: 2000--$14,145,040; and
2001-$726,000. 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, 1999 that will mature during the next two fiscal
years are: 2000-$2,037,376; and 2001-$726,000.
At March 31, 1999 loans to the Trust under Master Note Agreements which are in
effect demand notes total $8,257,664. 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, 1999, the balance which could be borrowed by the Trust upon its
bank line of credit was $11,150,000. The principal payments scheduled to be
received by the Trust upon its loan portfolio for the years ending March 31,
2000 and 2001 are $13,376,084, and $1,616,852, 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 obligations and fund
loan commitments without the necessity for Church Loans having to sell any
additional Certificates or borrow funds from other sources.
During fiscal 1998 and 1997 the Trust sold Certificates in the principal amounts
of $3,314,121 and $2,648,579, respectively. Due to the cost of registration and
the other costs 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 discontinued the registration of Certificates and ceased
the sales of Certificates as of July 16, 1997. The Trust also obtained an
increase in its bank line of credit from $10,000,000 to $15,000,000 effective
September 1, 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 register and sell Certificates or obtain additional bank financing in the
future in sufficient amounts for the Trust to timely meet all of its
obligations.
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Should all the scheduled principal payments upon loans made by the Trust not be
received, and 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, 1999, the principal
balance of the loan and church bond portfolio of the Trust was $37,071,141. The
weighted average interest rate on loans and church bonds was 10.06% 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 $31,077,973, $26,638,263, and $23,308,480, 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 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, 2000 and 2001, 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, 1999, 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, 1999 promissory notes in the principal amount of
$5,406,722 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 to 1 for Certificates in Series O) was $2,763,376, leaving an excess
of promissory notes which have been pledged by the Trust to secure said
Certificates of $2,643,346. Additionally, promissory notes totaling $9,304,931
were pledged against the bank line of credit which had a total outstanding
balance of $3,850,000. The required collateral for this bank loan was
$4,235,000, leaving an excess of promissory notes which have been pledged to
secure said bank notes of $5,069,931. 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
$7,713,277 and other additional promissory notes in the approximate amount of
$22,359,488 (for a total amount of $30,072,765) 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
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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.
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, 1999 compared to March 31, 1998,
management does not expect material changes in such loans in the near term.
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 payments on
Certificates and borrowings and payments on notes payable and the line of
credit. Borrowings are made as funds are needed to make loans or as current
obligations become due. Based upon the success of the Trust to obtain borrowings
in the past, the Trust is confident that it will be able to obtain borrowings in
the future in sufficient amounts, along with payments to be received on loans,
to timely meet its obligations. Furthermore, the Trust is confident that if it
decides to register additional Certificates in the future it would have similar
success in selling the Certificates as it has had in the past.
Inflation
At March 31, 1999, the weighted average interest rate on the mortgage loan and
church bond portfolio of the Trust was 10.06% per annum while the weighted
average interest rate upon all borrowings of the Trust was 6.90% 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, annually, or otherwise periodically, 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, other than the existing
Certificates, 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
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approximately 25.08% per annum, the interest income and the interest expense of
the Trust would be substantially equal.
Odd-Lot Tender Offer
During fiscal 1999, the Trust completed an odd-lot tender offer. Effective
September 1, 1998, the Trust extended a tender offer to all shareholders owning
less than 100 shares of beneficial interest to purchase such shares for $2.50
per share. The offer expired November 30, 1998. A total of 6,596 shares were
purchased as a result of such odd-lot tender offer, thereby reducing the number
of outstanding shares of beneficial interest in the Trust to 7,000,806.
Year 2000 Issues
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 following 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
financing 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 determine 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 May 31, 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.
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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.
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.
SIGNIFICANT SUBSEQUENT EVENT
On June 17, 1999, the Trust received $1,380,493.29 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. Such loan was accounted for
as a non-performing loan by the Trust and certain interest payments had been
credited to principal. Therefore, such payoff resulted in an additional
recognition of interest income of approximately $611,088.60 during June 1999.
The interest income recognized as a result of this loan payoff is $0.0873 per
share.
Item 7: FINANCIAL STATEMENTS
Financial Statements at March 31, 1999, and 1998 and for each of the years in
the two-year period ended March 31, 1999, are incorporated by reference from
Pages 17 through 33 of the 1999 Annual Report to Shareholders.
The report of independent auditors with respect to the financial statements at
March 31, 1999, and 1998 and for each of the years in the two-year period ended
March 31, 1999 is incorporated by reference from Page 16 of the 1999 Annual
Report to Shareholders.
Item 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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<PAGE>
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:
B. R. McMorries, age 72, is a consulting engineer. He has served as a Trust
Manager since 1963. He serves as Chairman of the Board of Trust Managers.
Larry Brown, age 56, 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
Vice-Chairman and Secretary of the Board of Trust Managers.
Jack R. Vincent, age 69, is engaged in farming and ranching operations. He has
served as a Trust Manager since 1989.
Steve Rogers, age 51, is the President of Steve Rogers Co., a real estate
appraisal firm. He has served as a Trust Manager since 1990.
Mike Bahn, age 55, is the President of Amarillo Blueprint Co., an office
equipment and supply and reproduction services business. He has served as a
Trust Manager since 1997.
Terry Hays, age 48, is the Information Systems Manager for the law firm of
Perdue, Brandon, Fielder, Collins and Mott. Mr. Hays has served as a Trust
Manager since 1998.
Alfred J. Smith, age 64, is in the independent oil and gas production business.
Pursuant to the By-Laws of the Trust, the Board of Trust Managers appointed Mr.
Smith to the board of Trust Managers at its January 1999 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 47, serves as President, 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 served in this capacity for 17 years.
Robert E. Martin, age 49, serves as the Senior Vice-President-Lending for the
Trust. Mr. Martin has served in such capacity since February 1, 1999. Prior to
serving in such capacity, Mr. Martin served as the President/CEO of Santa Fe
Federal Credit Union. Mr. Martin also
-15-
<PAGE>
served as a member of the Board of Trust Managers of the Trust prior to becoming
an employee of the Trust.
Robert E. Fowler, age 46, serves as the Senior Vice-President-Accounting and
Information Systems for the Trust. Mr. Fowler has served in such capacity for 17
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 1999 exceeded $100,000 for
services rendered in all capacities.
Annual Compensation
_____________________________________
Name and Principal Fiscal Other Annual
Position Year Salary Bonus Compensation
_____________________ _____ _______ _____ ____________
CEO-M. Kelly Archer 1999 $102,997 0 $6,613
Manager of 1998 107,133 0 6,036
Operations 1997 101,267 0 6,520
(b) Trust Managers' Compensation:
The Board of Trust Managers of the Trust were paid $51,800 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 $500 per month for serving in
such capacity. The remaining members of the Board of Trust Managers are paid
$300 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.
The members of the Board of Trust Managers of the Trust are not otherwise
employed or compensated by the Trust.
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<PAGE>
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
___________________ _______________________ ________
None None None
(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:
Name and Address of Amount of and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
_______________________________________________________________________
B. R. McMorries 277,310 3.961%
Larry Brown 35,327 0.505%
Jack R. Vincent 9,576 0.137%
Steve Rogers 1,300 0.019%
Mike Bahn 1,650 0.024%
Terry Hays 2,246 0.032%
Alfred J. Smith 716 0.010%
M. Kelly Archer 101,430 1.449%
Robert E. Fowler 65,482 0.935%
Robert E. Martin 3,212 0.046%
_______ ______
All Trust Managers and
Executive Officers 498,249 7.117%
as a Group
* The nature of beneficial ownership of such shares is either directly by
such named person, indirectly through such person's spouse or through
Individual Retirement Accounts directed by such person or their spouse.
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<PAGE>
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
Amarillo National Bank, the Trust's primary lender. As of March 31, 1999, 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 $1,207,565;
with Larry Brown, Secretary of the Board of Trust Managers, and related persons,
in the amount of $282,194; and First State Bank, Happy, Texas, of which Jack R.
Vincent, member of the Board of Trust Managers, owns, either directly or
indirectly, 10% or more of the outstanding stock, in the amount of $706,202. The
terms of such Master Notes are the same as Master Notes entered into with other
unrelated persons, except as to the amounts thereof.
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
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<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, 1999 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 6-25-99
__________________ of Trust Managers
B.R. McMorries
/s/ Larry Brown Vice-Chairman and 6-25-99
__________________ Secretary of the Board
Larry Brown of Trust Managers
/s/ M. Kelly Archer President, Principal 6-25-99
__________________ Financial and Accounting officer
M. Kelly Archer
/s/ Jack R. Vincent Trust Manager 6-25-99
__________________
Jack R. Vincent
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<PAGE>
/s/ Steve Rogers Trust Manager 6-25-99
__________________
Steve Rogers
/s/ Mike Bahn Trust Manager 6-25-99
__________________
Mike Bahn
/s/ Terry Hays Trust Manager 6-25-99
__________________
Terry Hays
/s/ Alfred J. Smith Trust Manager 6-25-99
__________________
Alfred J. Smith
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<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 17 through 33 of the 1999 Annual Report to
Shareholders
(16) - None
(18) - None
(21) - None
(22) - None
(23) - None
(24) - None
(27) - Financial Data Schedule
-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, 1999 and 1998, 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, 1999 and 1998, 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 7, 1999
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Balance Sheets
March 31, 1999 and 1998
ASSETS 1999 1998
------------ -------------
CASH AND CASH EQUIVALENTS ...................... $ 181,068 $ 32,403
RECEIVABLES
Mortgage loans and church bonds - performing 23,109,175 22,165,629
Interim construction loans - performing ... 10,406,937 10,732,915
Nonperforming mortgage loans, church bonds
and interim construction loans ........ 3,555,029 2,492,095
Less: Allowance for possible credit losses (1,215,213) (1,035,213)
------------ ------------
35,855,928 34,355,426
Accrued interest receivable ............... 323,396 341,360
Notes receivable .......................... 407,111 405,860
------------ ------------
Total receivables ............ 36,586,435 35,102,646
------------ ------------
Property and equipment, net of accumulated
depreciation of $476,395 and $460,721 in
1999 and 1998, respectively ............... 181,947 197,619
REAL ESTATE ACQUIRED THROUGH FORECLOSURE ....... 314,196 1,479,486
Unamortized debt expense AND OTHER ASSETS ...... 28,891 62,960
------------ ------------
TOTAL ASSETS ................................... $ 37,292,537 $ 36,875,114
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ......................... $ 1,921,680 $ 1,969,938
Other ................................. 10,185,984 5,740,773
------------ ------------
12,107,664 7,710,711
Secured savings certificates:
Related party ......................... -- 240,000
Other ................................. 2,763,376 6,823,823
------------ ------------
2,763,376 7,063,823
Accrued interest payable .................. 104,785 29,768
Other ..................................... 1,059,035 781,455
------------ ------------
Total liabilities ............ 16,034,860 15,585,757
------------ ------------
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 .................. 650,301 665,491
Treasury shares, at cost (6,596 shares) ... (16,490) --
------------ ------------
Total shareholders' equity ... 21,257,677 21,289,357
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 37,292,537 $ 36,875,114
============ ============
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Income
Years ended March 31, 1999 and 1998
1999 1998
---- ----
INTEREST INCOME AND FEES
Interest and fees on loans and notes receivable $4,526,221 $3,926,008
Interest on temporary investments .............. 34,996 62,705
---------- ----------
Total interest income and fees .... 4,561,217 3,988,713
DEBT EXPENSE
Interest ....................................... 1,139,875 921,787
Amortization of:
Registration costs ......................... -- 4,984
Commissions paid to brokers ................ 35,929 56,314
---------- ----------
Total debt expense ................ 1,175,804 983,085
---------- ----------
Net interest income ............... 3,385,413 3,005,628
PROVISION FOR POSSIBLE CREDIT LOSSES ................ 180,000 180,000
---------- ----------
Net interest income less provision
for possible credit losses .... 3,205,413 2,825,628
---------- ----------
OTHER INCOME ........................................ 17,580 122,183
OTHER OPERATING EXPENSES
General and administrative ..................... 631,265 650,446
Board of Trust Managers' fees .................. 53,441 47,692
---------- ----------
Total other operating expenses .... 684,706 698,138
---------- ----------
Income before provision for
income taxes .................. 2,538,287 2,249,673
PROVISION FOR INCOME TAXES .......................... 32,461 23,140
---------- ----------
NET INCOME .......................................... $2,505,826 $2,226,533
========== ==========
NET INCOME PER SHARE $ .36 $ .32
===== =====
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Shareholders' Equity
Years ended March 31, 1999 and 1998
SHARES OF BENEFICIAL INTEREST
--------------------------- UNDISTRIBUTED TREASURY
SHARES AMOUNT NET INCOME SHARES TOTAL
----------- ----------- ---------- --------- -----------
Balance,
March 31, 1997 7,007,402 $20,623,866 $ 611,253 $ - $21,235,119
Cash dividends
($.31 per share) - - (2,172,295) - (2,172,295)
Net income - - 2,226,533 - 2,226,533
--------- ----------- ----------- ---------- -----------
Balance,
March 31, 1998 7,007,402 20,623,866 665,491 - 21,289,357
Cash dividends
($.36 per share) - - (2,521,016) - (2,521,016)
Net income - - 2,505,826 - 2,505,826
Treasury shares
purchased - - - (16,490) (16,490)
--------- ----------- ----------- ---------- -----------
Balance,
March 31, 1999 7,007,402 $20,623,866 $ 650,301 $(16,490) $21,257,677
========= =========== =========== ========= ===========
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Cash Flows
Years ended March 31, 1999 and 1998
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................. $ 2,505,826 $ 2,226,533
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ........................... 15,672 15,672
Amortization of debt expense ........... 35,929 61,298
Amortization of loan discounts ......... (330,074) (236,512)
Provision for possible credit losses ... 180,000 180,000
Changes in:
Accrued interest receivable ........ 17,964 (37,604)
Accrued interest payable ........... 75,017 (15,443)
Other liabilities .................. (114,884) 225,881
Other, net ............................. (1,860) (42,816)
------------ ------------
Net cash provided by
operating activities .......... 2,383,590 2,377,009
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ....... (35,518,740) (33,238,225)
Payments received on mortgage and
interim construction loans and
church bonds .............................. 35,610,274 31,194,006
Advances on notes receivable ............... (374,954) (270,836)
Payments received on notes receivable ...... 373,703 401,429
Proceeds from sale of other
real estate owned ......................... 115,792 --
------------ ------------
Net cash provided (used)
by investing activities ..... 206,075 (1,913,626)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates ....... -- 3,314,121
Borrowings on notes payable and line
of credit ................................. 33,684,821 6,358,320
Principal payments on:
Secured savings certificates ............ (4,300,447) (3,824,270)
Notes payable and line of credit ........ (29,287,868) (4,693,485)
Cash dividends paid ........................ (2,521,016) (2,172,295)
Treasury shares purchased .................. (16,490) --
------------ ------------
Net cash used by
financing activities ........ (2,441,000) (1,017,609)
------------ ------------
Increase (decrease) in
cash and cash equivalents ... 148,665 (554,226)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ... 32,403 586,629
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR ......... $ 181,068 $ 32,403
============ ============
These financial statements should be read only in connection with
the accompanying summary of significant accounting policies and
notes to financial statements.
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 1999 and 1998
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 and other borrowers (see note 1) across the United States, particularly
in the southern portion of the U.S. 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 from operations of the borrower, 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, 1999 and 1998 as
follows:
LOAN AND CHURCH TOTAL NET INTEREST
BOND PORTFOLIO INDEBTEDNESS RATE MARGIN
-------------- ------------ -----------
March 31, 1999 .................... 10.06% 6.90% 3.16%
March 31, 1998 .................... 10.95% 7.44% 3.51%
Church Loans finances maturities of SSCs and debt obligations through its
available lines of credit 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.
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 1999 and 1998
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
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 generally 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 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 and the board of directors'
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 the borrower's financial
status or economic conditions.
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, 1999 and 1998.
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.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE
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 valuation of other real estate owned is subjective in nature and may be
adjusted in the near term because of changes in economic conditions or other
factors.
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<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 1999 and 1998
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.
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.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, Church loans has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit. Such financial instruments are recorded in the financial statements when
they become payable.
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.
-23-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
NOTE 1 - LOANS AND CHURCH BONDS
Mortgage loans receivable consist of conventional loans of $25,129,877 and
$23,974,905 and church bonds of $401,172 and $488,839 at March 31, 1999 and
1998, respectively. Interim construction loans of $12,126,462 and $11,695,994 at
March 31, 1999 and 1998, respectively, consist primarily of loans to churches
for the construction of church facilities and assisted living centers. Mortgage
loans, church bonds and interim construction loans are generally secured by
first liens on real estate comprised primarily of church buildings 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.
Church Loans' portfolio included mortgage loans, church bonds and interim
construction loans with interest rates ranging from 7.50% to 17% at March 31,
1999. The weighted average annual interest rates of Church Loans' loan and
church bond portfolio were 10.06% and 10.95% at March 31, 1999 and 1998,
respectively.
Generally accepted accounting principles require disclosure of information about
certain current vulnerabilities due to certain concentrations. In addition to a
concentration of loans to churches, Church Loans makes certain interim real
estate construction loans and permanent loans to entities other than churches.
At March 31, 1999, Church Loans had eight loans to two borrowers which were
secured by assisted living centers and totaled approximately $12,233,000. Four
of these loans were to the same borrower and totaled approximately $9,001,000 at
March 31, 1999. In addition, Church Loans had four loan commitments to these
same two borrowers at March 31, 1999 for interim construction and permanent
financing of assisted living centers which totaled approximately $3,825,000.
-24-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
The following schedule is a summary of the combined mortgage, church bonds and
interim construction loan portfolios by size of loan at March 31, 1999 and 1998:
1999 1998
----------------- -------------------
No. of Carrying No. of Carrying
Description loans amount loans amount
- ------------------------ ----- ------ ----- ------
Over $1,500,000 ........ 7 $15,656,676 6 $13,940,641
$1,300,000-1,499,999 ... 1 1,490,000 2 2,655,842
$1,000,000-1,299,999 ... 1 1,249,254 1 1,296,980
$900,000-999,999 ....... 1 900,000 2 1,840,381
$800,000-899,999 ....... 1 819,668 1 847,948
$700,000-799,999 ....... 2 1,502,314 3 2,203,579
$600,000-699,999 ....... 3 1,917,206 3 1,905,673
$500,000-599,999 ....... - - - -
$400,000-499,999 ....... 7 2,963,901 3 1,339,271
$300,000-399,999 ....... 7 2,544,781 5 1,819,868
$200,000-299,999 ....... 17 4,138,814 12 3,083,597
$100,000-199,999 ....... 17 2,313,281 20 2,824,929
Under $100,000 ......... 57 2,161,616 71 2,401,029
--- ----------- --- ----------
121 37,657,511 129 6,159,738
=== ===
Less: unamortized purchase discounts
on mortgage loans ........ (586,370) (769,099)
Less: allowance for possible credit
losses ................... 1,215,213 (1,035,213)
----------- -----------
TOTAL ............................ $35,855,928 $34,355,426
=========== ===========
-25-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
The mortgage and interim construction loan portfolios included the following
loans at March 31, 1999, with individual balances in excess of 3% of the total
carrying amount of the combined portfolios:
MeadeMinistries, Lake City, Florida; interest at prime
plus 2%, with a floor of 9.75% (9.75% at March 31,
1999); monthly payments of $27,014 to maturity on
April 1, 2014 ................................................ $2,550,000
Great Plains Assisted Living L.L.C., Lincoln, Nebraska;
interest at prime plus 2%, with a floor of 10.50%
(10.50% at March 31, 1999); monthly payments of
$28,741 to maturity on January 1, 2013 ....................... 2,506,557*
Great Plains Assisted Living L.L.C., Omaha, Nebraska;
interest at prime plus 2%, with a floor of 10.50%
(10.50% at March 31, 1999); monthly payments of
$26,480 to maturity on May 1, 2013 ........................... 2,338,031*
Great Plains Assisted Living L.L.C., Sioux City, Iowa;
interest at prime plus 2%, with a floor of 10.50%
(10.50% at March 31, 1999); monthly payments of
$25,149 to maturity on December 10, 2012 ..................... 2,182,645*
Biltmore Group, Sedona, Arizona; interest at prime
plus .5%, with a floor of 8.75% (8.75% at March 31,
1999); principal and interest due at maturity on May
1, 1999 ....................................................... 2,174,025
Great Plains Assisted Living L.L.C., Urbandale, Iowa;
interest at prime plus 2%, with a floor of 10.50%
(10.50% at March 31, 1999); principal and interest
due at maturity on December 1, 1998 ........................... 1,973,603*
Triumph Baptist Church, Philadelphia, Pennsylvania;
interest at 10.50%; monthly payments of $26,988 to
maturity on August 1, 2008 .................................... 1,931,815
Living Word Family Church, Raleigh, North Carolina;
interest at prime plus 1.50%, with a floor of 9.25%
(9.25% at March 31, 1999); principal and interest due
at maturity on September 8, 1999 .............................. 1,490,000
Bethany Baptist Church, Melbourne, Florida; interest at
10.50%; monthly payments of $15,138 to maturity on
June 30, 2011 ................................................. 1,249,254
----------------
$ 18,395,930
================
* Same borrower
-26-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
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, 1999, Church Loans had outstanding loan commitments (by
contract amounts) of approximately $11,452,000 including $3,825,000 for four
loans to two borrowers to finance the construction of four 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, 1999 and 1998 were $3,555,029 and $2,492,095, respectively. Interest
income which would have been recorded under the original terms of nonperforming
loans and church bonds amounted to approximately $288,000 and $339,000 for the
years ended March 31, 1999 and 1998, respectively. Interest income actually
recognized for the years ended March 31, 1999 and 1998 was approximately
$145,000 and $111,000, respectively.
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, 1999, are:
2000 ............... $13,376,084
2001 ............... 1,616,852
2002 ............... 1,580,016
2003 ............... 1,604,578
2004 ............... 1,690,149
At March 31, 1999, mortgage loans were pledged to support indebtedness of Church
Loans as follows:
Line of credit payable to bank ...................... $ 9,304,931
Secured savings certificates ...................... 5,406,722
----------------
TOTAL MORTGAGE LOANS PLEDGED ...................... $ 14,711,653
================
A summary of transactions in the allowance for possible credit losses for the
years ended March 31, 1999 and 1998 follows:
1999 1998
---- ----
BALANCE AT BEGINNING OF YEAR ................ $ 1,035,213 $ 855,213
Provisions charged to operating expenses .... 180,000 180,000
-------------- ---------------
BALANCE AT END OF YEAR $ 1,215,213 $ 1,035,213
============== ==============
At March 31, 1999 and 1998, the recorded investment for loans for which
impairment was recognized in accordance with Statement No. 114 was approximately
$2,477,000 and $1,038,000, respectively. The related allowance for credit losses
was $590,000 and $270,000, respectively, at March 31, 1999 and 1998.
-27-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
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 $ 3,850,000 6.75%* $ 7,700,000 $ 4,586,538 7.50%
Other demand notes payable 8,257,664 6.75% 8,257,664 6,053,159 6.93%
Secured savings certificates 2,763,376 7.58% 7,063,823 4,852,980 7.47%
------------ ----- ------------ ------------ -----
TOTAL $ 14,871,040 6.90% $ 18,457,062 $ 15,492,677 7.27%
============ ===== ============ ============ =====
March 31, 1998
Line of credit payable to bank $ 2,800,000 7.50%* $ 2,800,000 $ 505,078 7.81%
Other demand notes payable 4,910,711 7.50% 4,910,711 4,503,880 7.56%
Secured savings certificates 7,063,823 7.38% 7,863,480 7,452,851 7.29%
------------ ------ ------------ ------------ ------
TOTAL $ 14,774,534 7.44% $ 14,774,534 $ 12,461,809 7.26%
============ ====== ============ ============ ======
</TABLE>
* Does not consider commitment fees.
Maturities of debt for years subsequent to March 31, 1999, are:
2000 ....................... $ 14,145,040
2001 ....................... 726,000
----------------
$ 14,871,040
================
Included in maturities for the year ended March 31, 2000 are other demand notes
payable of $8,257,664.
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 loans, advances on other demand notes payable and advances on the
$15,000,000 line of credit which is expected to be renewed on an annual basis.
-28-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
NOTE 2 - DEBT OBLIGATIONS (CONTINUED)
Descriptions of the various categories of debt obligations follow:
SECURED SAVINGS CERTIFICATES
SSCs were 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 SSCs.
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% of the aggregate principal amount of
certain respective SSC registrations outstanding. As of March 31, 1999 and 1998,
Church Loans was in compliance with the requirement.
LINE OF CREDIT PAYABLE TO BANK
The line of credit payable to bank consists of borrowings under a loan agreement
effective through September 1, 1999, that provides for a $15,000,000 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 2% over the prime rate (9.75% at March
31, 1999), of not less than 110% of all indebtedness owed to the bank. Interest
accrued at the prime rate less one percent from September 1, 1997 to March 31,
1999, and at the prime rate less one quarter of one percent from April 1, 1997
to August 31, 1997. Interest is payable semiannually.
Additionally, the line of credit requires that Church Loans' net worth be no
less than $18,000,000 and its total indebtedness shall not exceed 150% of its
net worth. At March 31, 1999, Church Loans' total indebtedness was approximately
$17,000,000 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' 1999 and 1998 financial
statements.
-29-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
Total income tax expense for the years ended March 31, 1999 and 1998 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:
1999 1998
---- ----
Computed "expected" federal income tax expense $ 888,400 $ 787,386
Increases (decreases) in taxes resulting from:
Dividends (857,599) (784,829)
Graduated rate differential (11,702) (12,669)
Difference in provision for loan losses for
financial and tax purposes (33,123) (28,127)
Difference in accounting for interest
recognized for financial and tax purposes 46,485 58,102
Other - 3,277
------------ -------------
ACTUAL TAX EXPENSE $ 32,461 $ 23,140
============ =============
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 7,004,337 and 7,007,402 for the years
ended March 31, 1999 and 1998, respectively. 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, 1999
and 1998 follows:
Divdend amount
---------------------
Date of record Date paid Per share Total
------------------------ ------------ --------- ----------
March 31, 1997 ......... May 1997 $ .10 $ 700,740
December 31, 1997 ...... January 1998 .21 1,471,555
March 31,1998 .......... May 1998 .11 770,814
December 31, 1998 ...... January 1999 .25 1,750,202
In April 1999, a dividend of $700,081 ($.10 per share) was declared for
stockholders of record on March 31, 1999.
NOTE 6 - RELATED PARTY TRANSACTIONS
Other demand notes payable at March 31, 1999 and 1998 included notes totaling
$1,921,680 and $1,969,938, 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 1999 or 1998.
-30-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
Secured savings certificates at March 31, 1998 included certificates totaling
$240,000, which represented liabilities to related parties. Interest expense
incurred on savings certificates of related parties was not significant for 1999
or 1998.
NOTE 7 - CASH FLOW INFORMATION
Supplemental information on cash flows and noncash transactions is as follows:
1999 1998
---- ----
Supplemental cash flow information:
Interest paid ............................. $ 1,064,858 $ 937,230
=========== ============
Income taxes paid was not material in 1999 or 1998.
1999 1998
---- ----
Schedule of noncash investing and financing activity:
Real estate acquired through foreclosure ..... $ - $ 1,359,536
============== ===========
Portion of sale of real estate acquired through
foreclosure financed by Church Loans ..... $ 1,441,963 $ -
============== ===========
Deferred gain on sale of real estate acquired through
foreclosure (included in other liabilities).. $ 392,465 $ -
============== ===========
NOTE 8 - COMMITMENTS
Church Loans is a party to financial instruments with off-balance-sheet risk in
the normal course of business. Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have variable interest rates, fixed
expiration dates or other termination clauses and require payment of a fee.
Since some of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. Church
Loans evaluates each customer's credit worthiness on a case-by-case basis.
Collateral generally includes real estate properties. The exposure to credit
loss in the event of nonperformance by the other party to the commitments to
extend credit is represented by the contractual amount. At March 31, 1999,
Church Loans had outstanding loan commitments (by contract amounts) of
approximately $11,452,000, including $3,825,000 to finance the construction of
or provide permanent financing for assisted living centers. Management does not
anticipate any losses as a result of these transactions.
NOTE 9 - 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.
-31-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
NOTE 9 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 $35,855,928
and $34,355,426 and the fair value of loans was approximately $36,800,000 and
$34,800,000 at March 31, 1999 and 1998, 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 $2,763,376 and $7,063,823 and
the fair value of secured savings certificates was approximately $2,811,000 and
$7,200,000 at March 31, 1999 and 1998, 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.
-32-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
NOTE 10 - YEAR 2000
Like most businesses, Church Loans may be exposed to risks associated with Year
2000 dating problems. This problem affects computer software and hardware;
transactions with customers, vendors, and other entities; and equipment
dependent on microchips. Church Loans has begun, but not yet completed, the
process of identifying and remediating potential Year 2000 problems. It is not
possible for any business to guarantee the results of its own remediation
efforts or to accurately predict the impact of Year 2000 dating problems on
third parties with which Church Loans conducts business. If remediation efforts
of Church Loans or third parties with which it does business are not successful,
it is possible the Year 2000 dating problem could negatively impact Church
Loans' financial position and results of operations.
This information is an integral part
of the accompanying financial statements.
-33-
<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 year ended March 31,
1999 and is qualified in its entirety by reference to such financial
statements.
=======================================================================
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-START> Apr-04-1998
<PERIOD-END> Mar-31-1999
<CASH> 181,068
<SECURITIES> 0
<RECEIVABLES> 37,801,648
<ALLOWANCES> 1,215,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 476,395
<TOTAL-ASSETS> 37,292,537
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,607,376
<OTHER-SE> 650,301
<TOTAL-LIABILITY-AND-EQUITY> 37,292,537
<SALES> 4,578,797
<TOTAL-REVENUES> 4,578,797
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 89,370
<LOSS-PROVISION> 180,000
<INTEREST-EXPENSE> 1,139,875
<INCOME-PRETAX> 2,538,287
<INCOME-TAX> 32,461
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,505,826
<EPS-BASIC> .36
<EPS-DILUTED> .36
</TABLE>
