================================================
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 September 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
----------
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
----------
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 September 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 September 30, 1999
and March 31, 1999 ....................... 1
Condensed Statements of Income for the
six-month periods ended
September 30, 1999 and 1998 .............. 2
Condensed Statements of Cash Flows
for the six-month periods ended
September 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>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (Unaudited)
September 30, 1999 and March 31, 1999
ASSETS September 30, 1999 March 31, 1999
------ ------------------ --------------
CASH AND CASH EQUIVALENTS ...................... $ 164,911 $ 181,068
Mortgage loans and church bonds -
performing ................................ 23,081,649 23,109,175
Interim construction loans - performing .... 10,165,372 10,406,937
Nonperforming mortgage loans, church
bonds and interim construction loans ...... 2,522,099 3,555,029
Less: Allowance for possible credit losses . (1,298,172) (1,215,213)
------------ ------------
34,470,948 35,855,928
Accrued interest receivable ................ 476,223 323,396
Notes receivable ........................... 509,216 407,111
------------ ------------
Total receivables ............ 35,456,387 36,586,435
PROPERTY AND EQUIPMENT, net .................... 174,111 181,947
REAL ESTATE ACQUIRED THROUGH FORECLOSURE ....... 925,488 314,196
OTHER ASSETS ................................... 32,530 28,891
------------ ------------
TOTAL ASSETS ................................... $ 36,753,427 $ 37,292,537
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ............................ $ 1,935,239 $ 1,921,680
Other .................................... 10,152,035 10,185,984
------------ ------------
12,087,274 12,107,664
------------ ------------
Secured savings certificates ............... 1,419,000 2,763,376
Accrued interest payable ................... 3,175 104,785
Other ...................................... 1,016,888 1,059,035
------------ ------------
Total liabilities ............ 14,526,337 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 ................... 1,619,714 650,301
Treasury shares, at cost (6,596 shares) .... (16,490) (16,490)
------------ ------------
Total shareholders' equity ... 22,227,090 21,257,677
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 36,753,427 $ 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 September 30, 1999 and 1998
Three-month periods Six-month periods ended
ended September 30, ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage
loans, church bonds, and
interim construction loans $963,149 $1,155,129 $2,576,374 $2,289,823
Interest on temporary
investments ........ 25,210 7,507 30,558 20,251
---------- ---------- ---------- ----------
Total interest income
and fees ....... 988,359 1,162,636 2,606,932 2,310,074
---------- ---------- ---------- ----------
DEBT EXPENSE
Interest .............. 250,507 288,854 496,036 591,785
Amortization of commissions
paid to brokers 2,770 9,655 7,829 21,894
---------- ---------- ---------- ----------
Total debt expense 253,277 298,509 503,865 613,679
---------- ---------- ---------- ----------
Net interest income 735,082 864,127 2,103,067 1,696,395
PROVISION FOR POSSIBLE
CREDIT LOSSES ........ 45,000 45,000 90,000 90,000
---------- ---------- ---------- ----------
Net interest income
less provision for
possible credit
loses 690,082 819,127 2,013,067 1,606,395
OTHER INCOME .............. 2,136 666 4,792 2,095
OTHER OPERATING EXPENSES
General and administrative 161,941 133,957 320,474 299,263
Board of Trust
Managers' fees 13,588 13,332 27,891 27,745
---------- ---------- ---------- ----------
Total other
operating expenses 175,529 147,289 348,365 327,008
---------- ---------- ---------- ----------
Income before provision
for taxes ... 516,689 672,504 1,669,494 1,281,482
PROVISION FOR INCOME TAXES -- -- -- 449
---------- ---------- ---------- ----------
NET INCOME ................ $ 516,689 $ 672,504 $1,669,494 $1,281,033
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING . 7,000,806 7,007,040 7,000,806 7,007,222
========== ========== ========== ==========
NET INCOME PER SHARE $ .07 $ .10 $ .24 $ .18
========== ========== ========== ==========
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)
Six-month periods ended September 30, 1999 and 1998
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,669,494 $ 1,281,033
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ......................... 7,836 7,836
Amortization of debt expense ......... 7,829 21,894
Amortization of loan discounts ....... (42,751) (183,079)
Provision for possible credit losses . 90,000 90,000
Changes in:
Accrued interest receivable ...... (152,827) (15,532)
Accrued interest payable ......... (101,610) 72,277
Other liabilities ................ (42,147) 51,173
Other, net ........................... (11,468) (19,536)
------------ ------------
Net cash provided by
operating activities ........ 1,424,356 1,306,066
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ..... (8,502,090) (13,674,803)
Payments received on mortgage and interim
construction loans and church bonds ..... 9,228,529 12,500,856
Advances of notes receivable ............... (266,873) (192,601)
Payments received on notes receivable ...... 164,768 167,312
------------ ------------
Net cash provided (used) by
investing activities ........ 624,334 (1,199,236)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable ................ 11,128,606 11,350,168
Principal payments on:
Secured savings certificates ............ (1,344,376) (2,093,325)
Notes payable ........................... (11,148,996) (8,490,881)
Cash dividends paid ........................ (700,081) (770,814)
Treasury shares acquired ................... -- (10,515)
Net cash used by
financing activities ........ (2,064,847) (15,367)
------------ ------------
Increase (decrease) in cash
and cash equivalents ........ (16,157) 91,463
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ....................... 181,068 32,403
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..... $ 164,911 $ 123,866
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .. $ 597,646 $ 519,508
============ ============
Real estate acquired through foreclosure ....... $ 611,292 $ --
============ ============
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 September 30,
1999 and 1998 were as follows:
Mortgage loan and Total Net interest
church bond portfolio indebtedness rate margin
--------------------- ------------ -----------
September 30, 1999 9.86% 7.31% 2.55%
September 30, 1998 10.34% 7.33% 3.01%
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 September 30, 1999, for the five twelve-month periods subsequent
to September 30, 1999, follow:
Twelve-month period Mortgage loans, church bonds
ending September 30 and interim loans Indebtedness
------------------- ----------------- ------------
2000 $13,091,830 $12,177,274
2001 1,384,617 1,329,000
2002 1,407,670 -
2003 1,069,154 -
2004 1,519,571 -
=========== ===========
-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 $2,522,099 and $2,920,775 at
September 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 $153,000 and $97,000 for the six-month periods
ended September 30, 1999 and 1998, respectively. Interest income actually
recognized during 1999 and 1998 was approximately $32,000 and $46,000,
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.
NOTE 6 - LINE OF CREDIT PAYABLE TO THE BANK
Effective September 30, 1999, the Trust renewed a $15,000,000 line of credit, of
which $3,050,000 was owed at September 30, 1999. The line of credit expires
December 31, 2000 and bears interest at 1% below prime. The line of credit
provides for certain commitment fees and for the Trust to pledge mortgage loans
receivable having unpaid principal balances with an aggregate present value not
less than 110% of all indebtedness owed to the bank. Interest is payable
semiannually. Additionally, the line of credit requires that the Trust's net
worth be more than $18,000,000 and its total indebtedness shall not exceed 150%
of its net worth.
This information is an integral part of the
accompanying financial statements.
-5-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations - Three-Month and Six-Month Periods Ended September 30,
1999 as Compared to the Three-Month and Six-Month Periods Ended September 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. Such revenues increased (decreased) by $296,858 and $(174,277) for
the six-month and three-month periods ended September 30, 1999, respectively, as
compared to the corresponding periods in 1998. Included in the 1999 six-month
period is the revenue recognized from the pay-off discussed above. Included in
the 1998 periods is approximately $127,000 of loan discount amortization
recognized from the early pay-off of a large loan. Additionally, average loan
balances and rate of returns decreased during the 1999 periods. Loans
outstanding were $34,470,948 and $35,696,300 at September 30, 1999 and 1998,
respectively. The average rate of return of the mortgage loan and church bond
portfolio decreased from 10.34% at September 30, 1998 to 9.86% at September 30,
1999.
Nonperforming Assets
During the three-months ended September 30, 1999, the Trust foreclosed on a
nonperforming loan amounting to $611,292. Additionally, the Trust classified as
nonperforming an interim loan amounting to $400,000 and wrote-off approximately
$35,000 of accrued interest receivable related to the loan.
Additionally, at September 30, 1999, the Trust has three loans totaling
approximately $4,418,000 (accrued interest totaling approximately $193,000) to a
certain borrower that began experiencing cash flow difficulty and has been
unable to make certain required interest payments. The Trust believes that the
borrower may 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 the three-month and six-month periods
ended September 30, 1999 and 1998. The decrease of $95,749 and $38,347 in
interest expense during the six-month and three-month periods ended September
30, 1999, respectively, resulted from an decrease in the average total amount of
indebtedness outstanding as compared to the same periods ended September 30,
1998. The weighted average interest rate on all indebtedness decreased slightly
from 7.33% at September 1998 to 7.31% at September 30, 1999.
-6-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Other Operating Expenses
Other operating expenses were $175,529 for the three-month period ended
September 30, 1999 as compared to $147,289 for the same period in 1998. Other
operating expenses were $348,365 for the six-month period ended September 30,
1999 , or $21,357 more than the $327,008 for the same period in 1998. These
increases were primarily due to the hiring of an additional experienced
management person.
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
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 is now complete, and
programs are being tested. 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
-7-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Year 2000 (Continued)
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 has
surveyed its loan customers 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 with 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 4. Submission of Matters to a Vote of Security Holders:
The annual meeting of shareholders of the Trust was held on July 16, 1999. At
such meeting, each of the individuals named below was elected to the Board of
Trust Managers of the Trust to serve until the next annual meeting of the
shareholders of the Trust:
Number of shares
For Against
--------- -------
Mike Bahn 3,928,227 6,765
Larry Brown 3,926,150 8,842
Terry Hays 3,928,227 6,765
Alfred J. Smith 3,928,227 6,765
Bill R. McMorries 3,927,846 7,146
Steve Rogers 3,928,227 6,765
Jack R. Vincent 3,926,150 8,842
Additionally, shareholders voted to ratify Clifton Gunderson P.L.L.C. as
auditors for the year ending March 31, 2000 as follows:
For 3,905,051
Against 3,310
Abstain 26,631
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: October 15, 1999 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: October 15, 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 6 months ended September 30,
1999 and is qualified in its entirety by reference to such financial statements.
================================================================================
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-START> Apr-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 164,911
<SECURITIES> 0
<RECEIVABLES> 36,754,559
<ALLOWANCES> 1,298,172
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 484,231
<TOTAL-ASSETS> 36,753,427
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,607,376
<OTHER-SE> 1,619,714
<TOTAL-LIABILITY-AND-EQUITY> 36,753,427
<SALES> 2,611,724
<TOTAL-REVENUES> 2,611,724
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 35,720
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 496,036
<INCOME-PRETAX> 1,669,494
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,669,494
<EPS-BASIC> .24
<EPS-DILUTED> .24
</TABLE>
