================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
----------
FORM 10-QSB/A AMENDMENT NO.1
[x] AMENDMENT NO.1 QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
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, 1998, 7,003,196 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, 1998
and March 31, 1998 ....................... 1
Condensed Statements of Income for the
six-month periods ended
September 30, 1998 and 1997 .............. 2
Condensed Statements of Cash Flows
for the six-month periods ended
September 30, 1998 and 1997 ............. 3
Notes to Condensed Financial Statements ..... 4
Item 2: Management's Discussion and Analysis or
Plan of Operation .......................... 6
Part II. Other Information ............................... 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, 1998 and March 31, 1998
ASSETS September 30, 1998 March 31, 1998
------ ------------------ --------------
CASH AND CASH EQUIVALENTS ...................... $ 123,866 $ 32,403
RECEIVABLES
Mortgage loans and church bonds -
performing ................................ 24,028,847 22,165,629
Interim construction loans - performing .... 9,871,891 10,732,915
Nonperforming mortgage loans, church
bonds and interim construction loans ...... 2,920,775 2,492,095
Less: Allowance for possible credit losses . (1,125,213) (1,035,213)
------------ ------------
35,696,300 34,355,426
Accrued interest receivable ................ 356,892 341,360
Notes receivable ........................... 431,149 405,860
------------ ------------
Total receivables ............ 36,484,341 35,102,646
PROPERTY AND EQUIPMENT, net .................... 189,783 197,619
REAL ESTATE ACQUIRED THROUGH FORECLOSURE ....... 1,405,638 1,479,486
UNAMORTIZED DEBT EXPENSE, net and other assets . 60,602 62,960
------------ ------------
TOTAL ASSETS ................................... $ 38,264,230 $ 36,875,114
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable and line of credit:
Related party ............................ $ 1,861,596 $ 1,969,938
Other .................................... 8,708,402 5,740,773
------------ ------------
10,569,998 7,710,711
------------ ------------
Secured savings certificates:
Related party ............................ -- 240,000
Other .................................... 4,970,498 6,823,823
------------ ------------
4,970,498 7,063,823
Accrued interest payable ................... 102,045 29,768
Other ...................................... 832,628 781,455
------------ ------------
Total liabilities ............ 16,475,169 15,585,757
------------ ------------
SHAREHOLDERS' EQUITY
Shares of beneficial interest, no par value;
authorized shares unlimited, 7,007,402
shares issued and outstanding ............. 20,623,866 20,623,866
Undistributed net income ................... 1,175,710 665,491
Treasury shares (4,206 shares) ............. (10,515) --
------------ ------------
Total shareholders' equity ... 21,789,061 21,289,357
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $ 38,264,230 $ 36,875,114
============ ============
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-1-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month and six-month periods ended
September 30, 1998 and 1997
Three-month periods Six-month periods ended
ended September 30, ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
INTEREST INCOME AND FEES
Interest and fees on mortgage
loans, church bonds, and
interim construction loans $1,155,129 $ 952,766 $2,289,823 $1,885,973
Interest on temporary
investments ............. 7,507 31,940 20,251 61,589
---------- ---------- ---------- ----------
Total interest income
and fees ............ 1,162,636 984,706 2,310,074 1,947,562
---------- ---------- ---------- ----------
DEBT EXPENSE
Interest ................... 288,854 228,860 591,785 462,536
Amortization of:
Registration cost ....... -- -- -- 4,374
Commissions paid
to brokers ............. 9,655 -- 21,894 29,595
---------- ---------- ---------- ----------
Total debt expense ... 298,509 228,860 613,679 496,505
---------- ---------- ---------- ----------
Net interest income .. 864,127 755,846 1,696,395 1,451,057
PROVISION FOR POSSIBLE
CREDIT LOSSES ............. 45,000 45,000 90,000 90,000
---------- ---------- ---------- ----------
Net interest income
less provision for
possible credit losses 819,127 710,846 1,606,395 1,361,057
OTHER INCOME ................... 666 36,898 2,095 38,911
OTHER OPERATING EXPENSES
General and administrative . 133,957 165,579 299,263 331,045
Board of Trust Managers' fees 13,332 12,533 27,745 24,472
---------- ---------- ---------- ----------
Total other
operating expenses .. 147,289 178,112 327,008 355,517
---------- ---------- ---------- ----------
Income before provision
for taxes ........ 672,504 569,632 1,281,482 1,044,451
PROVISION FOR INCOME TAXES ..... -- -- 449 3,627
---------- ---------- ---------- ----------
NET INCOME ..................... $ 672,504 $ 569,632 $1,281,033 $1,040,824
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING ...... 7,007,040 7,007,402 7,007,222 7,007,402
========== ========== ========== ==========
NET INCOME PER SHARE ........... $ .10 $ .08 $ .18 $ .15
========== ========== ========== ==========
DIVIDENDS PER SHARE ............ -- -- .11 .10
========== ========== ========== ==========
These financial statements should be read only in connection with the
accompanying notes to financial statements.
-2-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Six-month periods ended September 30, 1998 and 1997
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................. $ 1,281,033 $ 1,040,824
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ......................... 7,836 7,836
Amortization of debt expense ......... 21,894 25,329
Amortization of loan discounts ....... (183,079) (42,311)
Provision for possible credit losses . 90,000 90,000
Changes in:
Accrued interest receivable ...... (15,532) (141,378)
Accrued interest payable ......... 72,277 (12,166)
Other liabilities ................ 51,173 58,941
Other, net ........................... (19,536) (1,388)
------------ ------------
Net cash provided by operating
activities .................. 1,306,066 1,025,687
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim
construction loans and church bonds ..... (13,674,803) (10,643,513)
Payments received on mortgage and interim
construction loans and church bonds ..... 12,500,856 11,768,906
Advances of notes receivable ............... (192,601) (155,095)
Payments received on notes receivable ...... 167,312 184,736
------------ ------------
Net cash provided (used) by
investing activities ........ (1,199,236) 1,155,034
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of secured savings certificates ....... -- 3,314,121
Borrowings on notes payable ................ 11,350,168 1,208,803
Principal payments on:
Secured savings certificates ............ (2,093,325) (3,249,831)
Notes payable ........................... (8,490,881) (2,835,373)
Commissions paid to broker on issuance
of secured savings certificates ......... -- (33,973)
Cash dividends paid ........................ (770,814) (700,740)
Treasury shares acquired ................... (10,515) --
------------ ------------
Net cash used by
financing activities ........ (15,367) (2,296,993)
------------ ------------
Increase (decrease) in cash
and cash equivalents ........ 91,463 (116,272)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .................................. 32,403 586,629
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..... $ 123,866 $ 470,357
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest ....... $ 519,508 $ 474,702
============ ============
During 1998, the Trust financed the sale of certain real estate acquired through
foreclosure which had a carrying value of $73,848.
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,
1998 and 1997 were as follows:
Mortgage loan and Total Net interest
church bond portfolio indebtedness rate margin
--------------------- ------------ -----------
June 30, 1998 10.34% 7.33% 3.01%
June 30, 1997 10.55% 7.39% 3.16%
NOTE 3 - Contractual Maturities
Scheduled principal payments on mortgage loans, church bonds and interim loans
and indebted-ness (including secured savings certificates and notes payable)
outstanding at September 30, 1998, for the five twelve-month periods subsequent
to September 30, 1998, follow:
Twelve-month period Mortgage loans, church bonds
ending September 30, and interim loans Indebtedness
1999 $12,614,715 14,121,496
2000 1,664,629 1,419,000
2001 1,586,928 -
2002 1,602,835 -
2003 1,662,452 -
=========== ==========
-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 $2,920,775 and $1,885,670 at
September 30, 1998 and 1997, respectively. If interest on these mortgage loans,
church bonds and interim construction loans had been accrued as earned, interest
and fees on loans in the accompanying condensed statements of income would have
been increased by approximately $97,000 and $93,000 for the six-month periods
ended September 30, 1998 and 1997, respectively. Interest income actually
recognized during 1998 and 1997 was approximately $46,000 and $40,000,
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, 1998, the Trust renewed a $15,000,000 line of credit, of
which $5,000,000 was owed at September 30, 1998. The line of credit expires
September 30, 1999 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.
NOTE 7 - ODD-LOT TENDER OFFERING
Effective September 1, 1998, the Trust began a tender offer at $2.50 per share
to all shareholders owning less than 100 shares of beneficial interest. The
offer will expire November 30, 1998. As of September 30, 1998, a total of
$10,515 (4,206 shares) had been purchased.
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,
1998 as Compared to the Three-Month and Six-Month Periods Ended September 30,
1997:
Revenues
The Trust's revenues are derived from interest income earned on loans as well
as, to a lesser degree, interest earned on church bonds and short-term
investments. Such revenues increased by $362,512 and $177,930 for the six-month
and three-month periods ended September 30, 1998, respectively, as compared to
the corresponding periods in 1997. 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 were increased during the 1998
periods. Loans outstanding were $35,696,300 and $31,391,651 at September 30,
1998 and 1997, respectively. The average rate of return of the mortgage loan and
church bond portfolio decreased slightly from 10.55% at September 30, 1997 to
10.34% at September 30, 1998.
Interest Expense
The most significant expense item is interest expense, which comprised the
majority of total operating expense for each of the three-month and six-month
periods ended September 30, 1998 and 1997. The increase of $129,249 and $59,994
in interest expense during the six-month and three-month periods ended September
30, 1998, respectively, resulted from an increase in the average total amount of
indebtedness outstanding as compared to the same period ended September 30,
1997. Average indebtedness increased to fund the aforementioned increase in
average loans. The weighted average interest rate on all indebtedness decreased
slightly from 7.39% at September 30, 1997 to 7.33% at September 30, 1998.
Other Operating Income and Expenses
Other operating income decreased by $36,816 and $36,232 for the six-month and
three-month periods in 1998 as compared to 1997 because certain real estate
acquired through foreclosure was leased in 1997 but not in 1998.
Other operating expenses were $147,289 for the three-month period ended
September 30, 1998 as compared to $178,112 for the same period in 1997. Other
operating expenses were $327,008 for the six-month period ended September 30,
1998, or $28,509 less than the comparable period in 1997. These decreases were
primarily due to lower legal and other fees incurred in 1998 on the collection
and foreclosure of nonearning loans as compared to 1997.
Nonearning Assets
During the three-month period ended September 30, 1998, the Trust classified as
nonearning a loan with a principal balance of $621,655. Accrued interest
receivable of approximately $15,000 was written-off. As with other nonearning
assets, this loan is expected to have a negative impact on future earnings.
This information is an integral part of the
accompanying financial statements.
-6-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Year 2000
The following information which appears in the 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 through
February 7, 1999 was 58% complete. The remaining programs will be modified and
tested in the remaining portion of the first quarter or in the second calendar
quarter of 1999. It is estimated that the cost to modify the files will range
from $6,000-$7,500 (excludes the cost to upgrade and replace systems used in the
ordinary course of business). Such costs will be charged to expense as incurred.
Item 2. Management's Discussion and Analysis or Plan of Operation (Continued)
This information is an integral part of the
accompanying financial statements.
-7-
<PAGE>
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Year 2000 (Continued)
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 plans to survey its loan
customers with balances over $100,000 in the first quarter of calendar 1999 to
determine their Y2K compliance. 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. Therefore, the Trust will develop
contingency plans in 1999 to minimize the impact on the Trust's operations if
these organizations fail to remediate their systems properly.
-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 17, 1998. 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 ............... 4,210,265 13,810
Larry Brown ............. 4,210,265 13,810
Terry Hays .............. 4,205,265 18,810
Robert E. Martin ........ 4,210,265 13,810
Bill R. McMorries ....... 4,210,265 13,810
Steve Rogers ............ 4,210,265 13,810
Jack R. Vincent ......... 4,210,265 13,810
Additionally, shareholders voted to ratify Clifton Gunderson P.L.L.C. as
auditors for the year ending March 31, 1999 as follows:
For ..................... 4,143,485
Against ................. 606
Abstain ................. 79,984
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: February 12, 1999 BY:/s/ B.R. McMorries
-----------------------------
B.R. McMorries,
Chairman of the Board of
Trust Managers
DATE: February 12, 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,
1998 and is qualified in its entirety by reference to such financial statements.
================================================================================
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-START> Apr-01-1998
<PERIOD-END> Mar-31-1999
<CASH> 123,866
<SECURITIES> 0
<RECEIVABLES> 37,609,554
<ALLOWANCES> 1,125,213
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 658,342
<DEPRECIATION> 468,559
<TOTAL-ASSETS> 38,264,230
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 20,613,351
<OTHER-SE> 1,175,710
<TOTAL-LIABILITY-AND-EQUITY> 38,264,230
<SALES> 2,312,169
<TOTAL-REVENUES> 2,312,169
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 49,639
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 591,785
<INCOME-PRETAX> 1,281,482
<INCOME-TAX> 449
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,281,033
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
