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Previous: CHURCH LOANS & INVESTMENTS TRUST, 10KSB40, 2000-06-29 |
Next: CHURCH LOANS & INVESTMENTS TRUST, 10KSB40, EX-27, 2000-06-29 |
We have audited the accompanying balance sheets of Church Loans & Investments Trust (a real estate investment trust) as of March 31, 2000 and 1999, 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, 2000 and 1999, 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 1, 2000
Assets
2000 1999
------------ ------------
CASH AND CASH EQUIVALENTS ..................................................... $ 387,087 $ 181,068
Receivables
Mortgage loans and church bonds - performing ............................. 22,141,873 23,109,175
Interim construction loans - performing .................................. 8,827,383 10,406,937
Nonperforming mortgage loans, church bonds
and interim construction loans ....................................... 5,967,657 3,555,029
Less: Allowance for possible credit losses ............................... (1,388,172) (1,215,213)
------------ ------------
35,548,741 35,855,928
Accrued interest receivable .............................................. 258,593 323,396
Notes receivable ......................................................... 599,969 407,111
------------ ------------
Total receivables ........................................... 36,407,303 36,586,435
------------ ------------
Property and equipment, net of accumulated
depreciation of $492,067 and $476,395 in 2000
and 1999, respectively ................................................... 166,275 181,947
REAL ESTATE ACQUIRED THROUGH FORECLOSURE ...................................... 968,349 314,196
OTHER ASSETS .................................................................. 15,926 28,891
------------ ------------
TOTAL ASSETS .................................................................. $ 37,944,940 $ 37,292,537
============ ============
Liabilities and Shareholders' Equity
Liabilities
Notes payable and line of credit:
Related party ........................................................ $ 2,820,128 $ 1,921,680
Other ................................................................ 12,043,064 10,185,984
------------ ------------
14,863,192 12,107,664
Secured savings certificates ............................................. 726,000 2,763,376
Accrued interest payable ................................................. 108,320 104,785
Other .................................................................... 660,250 1,059,035
------------ ------------
Total liabilities ........................................... 16,357,762 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 ................................................. 979,802 650,301
Treasury shares, at cost (6,596 shares) .................................. (16,490) (16,490)
------------ ------------
Total shareholders' equity .................................. 21,587,178 21,257,677
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................... $ 37,944,940 $ 37,292,537
============ ============
These financial statements should be read only in connection with the accompanying
summary of significant accounting policies
and notes to financial statements.
2000 1999
---------- ----------
Interest income and fees
Interest and fees on loans and notes receivable ..... $4,633,199 $4,526,221
Interest on temporary investments ................... 83,601 34,996
---------- ----------
Total interest income and fees ......... 4,716,800 4,561,217
Debt expense
Interest ............................................ 1,110,202 1,139,875
Amortization of commissions paid to brokers ......... 11,862 35,929
---------- ----------
Total debt expense ..................... 1,122,064 1,175,804
---------- ----------
Net interest income .................... 3,594,736 3,385,413
Provision for possible credit losses ..................... 180,000 180,000
---------- ----------
Net interest income less provision
for possible credit losses ......... 3,414,736 3,205,413
---------- ----------
Other income, including gains on sale of other
real estate of $421,367 in 2000 ..................... 429,136 17,580
Other operating expenses
General and administrative .......................... 695,719 631,265
Board of Trust Managers' fees ....................... 55,398 53,441
---------- ----------
Total other operating expenses ......... 751,117 684,706
---------- ----------
Income before provision for income taxes 3,092,755 2,538,287
Provision for income taxes ............................... 32,940 32,461
---------- ----------
NET INCOME ............................................... $3,059,815 $2,505,826
========== ==========
Net income per share $ .44 $ .36
===== =====
These financial statements should be read only in connection with the accompanying
summary of significant accounting policies
and notes to financial statements.
Shares of beneficial interest
-----------------------------Undistributed Treasury
Shares Amount net income shares Total
--------- ------------- ------------ -------------- ------------
Balance, March 31, 1998 ........... 7,007,402 $ 20,623,866 $ 665,491 $ - $ 21,289,357
Cash dividends ($.36 per share) - - (2,521,016) - (2,521,016)
Net income .................... - - 2,505,826 - 2,505,826
Treasury shares purchased ..... - - - (16,490) (16,490)
--------- ------------- ------------ -------------- ------------
Balance, March 31, 1999 ........... 7,007,402 20,623,866 650,301 (16,490) 21,257,677
Cash dividends ($.39 per share) - - (2,730,314) - (2,730,314)
Net income .................... - - 3,059,815 - 3,059,815
--------- ------------- ------------ -------------- ------------
Balance, March 31, 2000 ........... 7,007,402 $ 20,623,866 $ 979,802 $ (16,490) $ 21,587,178
========= ============= ============ ============== ============
These financial statements should be read only in connection with the accompanying
summary of significant accounting policies
and notes to financial statements.
2000 1999
---- ----
Cash flows from operating activities
Net income .................................................... $ 3,059,815 $ 2,505,826
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................................ 15,672 15,672
Amortization of debt expense ............................ 11,862 35,929
Amortization of loan discounts .......................... (125,022) (330,074)
Provision for possible credit losses .................... 180,000 180,000
Gain on sale of other real estate ....................... (28,902) -
Recognition of deferred gain on sale of other real estate (392,465) -
Changes in:
Accrued interest receivable ......................... 64,803 17,964
Accrued interest payable ............................ 3,535 75,017
Other liabilities ................................... (58,646) (114,884)
Other, net .............................................. 5,646 (1,860)
--------- ---------
Net cash provided by operating activities ....... 2,736,298 2,383,590
--------- ---------
Cash flows from investing activities
Investment in mortgage and interim construction
loans and church bonds ..................................... (26,748,968) (35,518,740)
Payments received on mortgage and interim construction
loans and church bonds ..................................... 26,342,866 35,610,274
Advances on notes receivable .................................. (541,641) (374,954)
Payments received on notes receivable ......................... 348,783 373,703
Proceeds from sale of other real estate owned ................. 80,843 115,792
--------- ---------
Net cash provided (used) by investing activities (518,117) 206,075
--------- ---------
Cash flows from financing activities
Borrowings on notes payable and line of credit ................ 31,979,801 33,684,821
Principal payments on:
Secured savings certificates ............................... (2,037,376) (4,300,447)
Notes payable and line of credit ........................... (29,224,273) (29,287,868)
Cash dividends paid ........................................... (2,730,314) (2,521,016)
Treasury shares purchased ..................................... - (16,490)
--------- ---------
Net cash used by financing activities ........... (2,012,162) (2,441,000)
Increase in cash and cash equivalents ........... 206,019 148,665
Cash and cash equivalents, beginning of year ...................... 181,068 32,403
--------- ---------
Cash and cash equivalents, end of year ............................ $ 387,087 $ 181,068
========= =========
These financial statements should be read only in connection with the accompanying
summary of significant accounting policies
and notes to financial statements.
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.
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.
Church Loans has historically invested in long-term, fixed-rate mortgage loans, generally funded by relatively short-term debt obligations and secured savings certificates (SSCs). 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, 2000 and 1999 as follows:
Loan and church Total Net interest
bond portfolio indebtedness rate margin
-------------- ------------ -----------
March 31, 2000 10.14% 8.00% 2.14%
March 31, 1999 10.06% 6.90% 3.16%
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, 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.
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 mortgage loans and church bonds more than 90 days past due (180 days for interim construction loans) 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 trust managers’ 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, 2000 and 1999.
Purchase discounts on loans are amortized based on the interest method.
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.
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.
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.
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.
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.
Mortgage loans receivable consist of conventional loans of $23,504,519 and $25,129,877 and church bonds of $389,511 and $401,172 at March 31, 2000 and 1999, respectively. Interim construction loans of $13,504,230 and $12,126,462 at March 31, 2000 and 1999, 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 8% to 17% at March 31, 2000. The weighted average annual interest rates of Church Loans’ loan and church bond portfolio were 10.14% and 10.06% at March 31, 2000 and 1999, respectively.
Generally accepted accounting principles require disclosure of information about certain concen-trations. 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, 2000, Church Loans had seven loans to two borrowers which were secured by assisted living centers and totaled approximately $12,483,000. At March 31, 1999, Church Loans had eight such loans to two borrowers totaling approximately $12,233,000.
The following schedule is a summary of the combined mortgage, church bonds and interim construction loan portfolios by
size of loan at March 31, 2000 and 1999:
2000 1999
------------------------ ----------------------
No. of Carrying No. of Carrying
Description loans amount loans amount
Over $1,500,000 ............................ 9 $ 18,738,951 7 $ 15,656,676
$1,300,000-1,499,999 ....................... - - 1 1,490,000
$1,000,000-1,299,999 ....................... 1 1,014,389 1 1,249,254
$900,000-999,999 ........................... 1 900,000 1 900,000
$800,000-899,999 ........................... - - 1 819,668
$700,000-799,999 ........................... 2 1,473,742 2 1,502,314
$600,000-699,999 ........................... 3 1,981,972 3 1,917,206
$500,000-599,999 ........................... 3 1,667,646 - -
$400,000-499,999 ........................... 6 2,603,661 7 2,963,901
$300,000-399,999 ........................... 4 1,437,014 7 2,544,781
$200,000-299,999 ........................... 13 3,059,172 17 4,138,814
$100,000-199,999 ........................... 21 2,918,668 17 2,313,281
Under $100,000 ............................. 42 1,603,045 57 2,161,616
------------ ------------ ------------ ------------
105 37,398,260 121 37,657,511
Less: unamortized purchase discounts on
mortgage loans ..................... (461,347) (586,370)
Less: allowance for possible credit losses (1,388,172) (1,215,213)
------------ ------------
Total ...................................... $ 35,548,741 $ 35,855,928
============ ============
The mortgage and interim construction loan portfolios included the following loans at March 31, 2000, with individual balances in excess of 3% of the total carrying amount of the combined portfolios:
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, 2000);
monthly payments of $28,199 to maturity on May 1, 2014 ................ $ 2,482,709 (a)
Meade Ministries, Lake City, Florida; interest at prime plus 2%,
with a floor of 9.75% (9.75% at March 31, 2000); monthly
payments of $27,014 to maturity on April 1, 2014 ...................... 2,477,869
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, 2000);
monthly payments of $28,741 to maturity on January 1, 2013 ........... 2,420,804 (a)
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, 2000);
monthly payments of $26,480 to maturity on May 1, 2013 ................ 2,262,183 (a)
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, 2000);
monthly payments of $25,149 to maturity on December 10, 2012 .......... 2,106,437 (a)
Houston International Church of Christ, Houston, Texas; interest at
prime plus 1.5% with a floor of 10.25% (10.50% at March 31, 2000);
principal and interest due at maturity on September 1, 2000 ........... 2,000,000
Triumph Baptist Church, Philadelphia, Pennsylvania; interest
at 10.50%; monthly payments of $26,988 to maturity on
August 1, 2008 ........................................................ 1,803,949
Biltmore Group, Farmerville, Louisiana; interest at prime plus 1.5%
with a floor of 10.0% (10.5% at March 31, 2000); principal and interest
due at maturity on July 20, 2000 ...................................... 1,600,000 (b)
Biltmore Group, Natchitoches, Louisiana; interest at prime plus 1.5%,
with a floor of 10.0% (10.50% at March 31, 2000); principal and
interest due at maturity on July 20, 2000 ............................. 1,585,000 (b)
------------
$ 18,738,951
============
(a) Same borrower - Great Plains Assisted Living L.L.C.
(b) Same borrower - Biltmore Group
Nonperforming mortgage loans, church bonds and interim construction loans at March 31, 2000 and 1999 were $5,967,657 and $3,555,029, respectively. Interest income which would have been recorded under the original terms of nonperforming loans and church bonds amounted to approximately $460,000 and $288,000 for the years ended March 31, 2000 and 1999, respectively. Interest income actually recognized for the years ended March 31, 2000 and 1999 was approximately $69,000 and $145,000, 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, 2000, are:
2001 ............. $14,463,653
2002 ............. 1,548,764
2003 ............. 1,635,166
2004 ............. 1,513,953
2005 ............. 1,516,775
At March 31, 2000, mortgage loans were pledged to support indebtedness of Church Loans as follows:
Line of credit payable to bank....... $ 10,416,156
Secured savings certificates ....... 701,346
------------
Total mortgage loans pledged ....... $ 11,117,502
============
A summary of transactions in the allowance for possible credit losses for the years ended March 31, 2000 and 1999
follows:
2000 1999
----------- -----------
Balance at beginning of year ........... $ 1,215,213 $ 1,035,213
Provisions charged to operating expenses 180,000 180,000
Loans charged off ...................... (7,041) -
----------- -----------
Balance at end of year ................. $ 1,388,172 $ 1,215,213
=========== ===========
At March 31, 2000 and 1999, the recorded investment for loans for which impairment was recognized in accordance with Statement No. 114 was approximately $1,814,000 and $2,477,000, respectively. The related allowance for credit losses was $540,000 and $590,000, respectively, at March 31, 2000 and 1999.
Information relating to debt obligations follows:
Weighted Maximum Weighted
average amount Average average
Balance at interest rate at outstanding at month-end interest rate
end of period end of period any month-end balance for the period
------------- ------------- ------------- ------- --------------
March 31, 2000
--------------
Line of credit payable to bank .... $ 3,810,000 8.00%* $ 8,585,000 $ 3,905,769 7.31%
Other demand notes payable .... 11,053,192 8.00% 11,053,192 9,219,179 7.41%
Secured savings certificates .... 726,000 7.96% 2,763,377 1,608,549 7.81%
------------ ---- ------------ ------------ ----
TOTAL .... $ 15,589,192 8.00% $ 22,401,569 $ 14,733,497 7.43%
============ ==== ============ ============ ====
March 31, 1999
--------------
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%
============ ==== ============ ============ ====
* Does not consider commitment fees.
Debt obligations of $15,589,192 mature during the year ending 2001, including other demand notes payable of $11,053,192.
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.
Descriptions of the various categories of debt obligations follow:
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. At March 31, 1999, Church Loans was in compliance with the requirement. As of March 31, 2000, Church Loans was not in compliance with this requirement. Subsequent to year end, Church Loans pledged additional mortgage notes receivables in order to meet the collateral obligation.
The line of credit payable to bank consists of borrowings under a loan agreement effective through December 30, 2000, 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 (11% at March 31, 2000), of not less than 110% of all indebtedness owed to the bank. Interest accrued at the prime rate less one percent during 2000 and 1999. 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, 2000, Church Loans’ total indebtedness was approximately $17,000,000 less than the maximum amount permitted under the agreement.
The demand notes payable bear interest at 1% less than the prime rate (payable monthly) and are unsecured (see note 6).
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’ 2000 and 1999 financial statements.
Total income tax expense for the years ended March 31, 2000 and 1999 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:
2000 1999
---------- --------
Computed "expected" federal income tax expense . $ 1,082,464 $ 888,400
Increases (decreases) in taxes resulting from:
Dividends .................................. (1,053,621) (857,599)
Graduated rate differential ................ (11,949) (11,702)
Difference in provision for loan losses for
financial and tax purposes .............. 213,738 (33,123)
Difference in accounting for interest
recognized for financial and tax purposes (200,575) 46,485
Other ...................................... 2,883 --
---------- --------
Actual tax expense ............................. $ 32,940 $ 32,461
========== ========
Net income per share of beneficial interest is based on the weighted average number of shares outstanding, which was 7,000,806 and 7,004,337 for the years ended March 31, 2000 and 1999, respectively. There were no share equivalents or other potentially dilutive securities outstanding during any of the periods presented.
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, 2000 and 1999 follows:
Dividend amount
----------------------------
Date of record Date paid Per share Total
-------------- --------- --------- -----
March 31, 1998 May 1998 .11 $ 770,814
December 31, 1998 January 1999 .25 1,750,202
March 31, 1999 May 1999 .10 700,081
December 31, 1999 January 2000 .29 2,030,233
In April 2000, a dividend of $980,113 ($.14 per share) was declared for stockholders of record on March 31, 2000. Approximately $.07 per share of this dividend will be classified as capital gain.
Other demand notes payable at March 31, 2000 and 1999 included notes totaling $2,820,128 and $1,921,680, 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 approximately $158,000 in 2000 and was not significant in 1999.
Supplemental information on cash flows and noncash transactions is as follows:
2000 1999
----------- --------------
Supplemental cash flow information:
Interest paid $ 1,106,667 $ 1,064,858
=========== ==============
Income taxes paid was not material in 2000 or 1999.
Schedule of noncash investing and financing activity:
Real estate acquired through foreclosure $ 658,312 $ -
=========== ==============
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
=========== ==============
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, 2000, Church Loans had outstanding loan commitments (by contract amounts) of approximately $2,601,000. Management does not anticipate any losses as a result of these transactions.
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:
The assets are considered short-term instruments for which the carrying amount is a reasonable estimate of fair value.
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 $35,548,741 and $35,855,928 and the fair value of loans was approximately $34,800,000 and $36,800,000 at March 31, 2000 and 1999, respectively.
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.
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 $726,000 and $2,763,376 and the fair value of secured savings certificates was approximately $729,000 and $2,811,000 at March 31, 2000 and 1999, respectively.
Generally, Church Loans enters into commitments to extend credit at adjustable interest terms. Accordingly, the commitment amount is a reasonable estimate of fair value.
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.
This information is an integral part of the accompanying financial statements.
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