| **United StatesSecurities and Exchange Commission**

 

**Washington, D.C. 20549**

____________

 

**FORM 10-Q**

 

**x**

**QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2009**

 

 

**£**

**TRANSITION REPORT UNDER SECTION 13 OR 15[d] OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________.**

 

**Commission File No. 0-8117**

____________

 

**CHURCH LOANS & INVESTMENTS TRUST**

**®**

 

**(Exact name of registrant as specified in its charter)**

 

 

**Texas**

 

**75-6030254**

**(State or other jurisdiction ofincorporation or organization)**

 

**(IRS EmployerIdentification No.)**

 

 

 

**5305 W Interstate 40, Amarillo, Texas**

 

**79106-4759**

**(Address of principal executive office)**

 

**(Zip Code)**

 

**(806) 358-3666**

**(Issuer’s telephone number including area code)**

 

**Not Applicable**

**(Former name, former address and former fiscal year, if changed since last report)**

____________

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  **£**

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes **x**  No  **£**

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Large accelerated filer  **£**

 

Accelerated filer  **£**

 

Non-accelerated filer **£**

 

Smaller reporting company **x**

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes **£**  No **x**

 

**Class**

 

**Outstanding at January 21, 2010**

Shares of beneficial interest,$0.00 par value per share

 

10,217,094

**CHURCH LOANS & INVESTMENTS TRUST**

**FORM 10-Q**

**For the Quarter Ended December 31, 2009**

 

**INDEX**

**Page**

***Part I.***

***Financial Information***

 

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

a)

Condensed Consolidated Balance Sheets (Unaudited) December 31, 2009 andMarch 31, 2009

1 

 

b)

Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine-month periods ended December 31, 2009 and 2008

2 

 

c)

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine-month periods ended December 31, 2009 and 2008

3 

 

d)

Notes to Condensed Consolidated Financial Statements (Unaudited)

4 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

6 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22 

 

 

 

 

 

Item 4T.

Controls and Procedures

22 

 

 

 

 

***Part II.***

***Other Information***

 

 

 

 

 

 

Item 1.

Legal Proceedings

22 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

22 

 

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

22 

 

 

 

 

 

Item 5.

Other Information

22 

 

 

 

 

 

Item 6.

Exhibits

22 

 

 

 

 

Index to Exhibits

23 

 

 

Signatures

24 

**PART I. FINANCIAL INFORMATION**

**Item 1. Financial Statements**

 

**CHURCH LOANS & INVESTMENTS TRUST**

**(A Real Estate Investment Trust)**

**Condensed Consolidated Balance Sheets (Unaudited)**

**December 31, 2009 and March 31, 2009**

 

**ASSETS**

 

 

 

**December 31,2009**

 

 

**March 31,2009**

 

 

 

 

 

 

 

 

 

**CASH AND CASH EQUIVALENTS**

 

$ 

131,050

 

$

115,694 

 

**RECEIVABLES**

 

 

 

 

 

 

 

Mortgage loans and church bonds – performing

 

 

60,886,334

 

 

55,512,158 

 

Interim construction loans – performing

 

 

21,029,027

 

 

16,686,014 

 

Nonperforming mortgage loans, church bonds and interim construction loans

 

 

9,271,975

 

 

6,747,480 

 

Less: Allowance for credit losses

 

 

(1,811,760)

 

 

(1,626,760)

 

 

 

 

89,375,576

 

 

77,318,892 

 

Accrued interest receivable

 

 

665,659

 

 

577,413 

 

Notes receivable

 

 

1,000

 

 

1,000 

 

Net receivables

 

 

90,042,235

 

 

77,897,305 

 

**PROPERTY AND EQUIPMENT,**net

 

 

214,243

 

 

214,932 

 

**OTHER ASSETS**

 

 

164,173

 

 

87,644 

 

**TOTAL ASSETS**

 

$ 

90,551,701

 

$

78,315,575 

 

 

 

 

 

 

 

 

 

**LIABILITIES AND SHAREHOLDERS’ EQUITY**

**LIABILITIES**

 

 

 

 

 

 

 

Notes payable and line of credit:

 

 

 

 

 

 

 

Related parties

 

$ 

13,216,183

 

$

12,601,983 

 

Other

 

 

44,446,709

 

 

34,276,153 

 

 

 

 

57,662,892

 

 

46,878,136 

 

Accrued interest payable

 

 

128,922

 

 

95,349 

 

Dividends payable

 

 

1,837,513

 

 

-

 

Other

 

 

353,964

 

 

241,360 

 

Total liabilities

 

 

59,983,291

 

 

47,214,845 

 

**SHAREHOLDERS’ EQUITY**

 

 

 

 

 

 

 

Shares of beneficial interest, no par value; authorized shares unlimited, 10,223,690 shares issued

 

 

29,762,291

 

 

29,762,291 

 

Undistributed net income

 

 

822,609

 

 

1,354,929 

 

Treasury shares, at cost (6,596 shares)

 

 

(16,490)

 

 

(16,490)

 

Total shareholders’ equity

 

 

30,568,410

 

 

31,100,730 

 

**TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY**

 

$ 

90,551,701

 

$ 

78,315,575 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

These condensed consolidated financial statements should be read only in connectionwith the accompanying notes to condensed consolidated financial statements.

-1-

**CHURCH LOANS & INVESTMENTS TRUST**

**(A Real Estate Investment Trust)**

**Condensed Consolidated Statements of Income (Unaudited)**

**Three-month and Nine-month periods ended December 31, 2009 and 2008**

 

 

 

 

 

**Three-month periodsended December 31,**

 

**Nine-month periodsended December 31,**

 

 

 

**2009**

 

**2008**

 

**2009**

 

 

**2008**

 

**INTEREST AND FEE INCOME:**

 

 

 

 

 

 

 

 

 

 

Interest income

$

1,564,115

$

1,330,014

$

4,470,841

 

$

4,249,353

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

276,693

 

230,142

 

590,652

 

 

464,120

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fee income

 

1,840,808

 

1,560,156

 

5,061,493

 

 

4,713,473

 

 

 

 

 

 

 

 

 

 

 

 

**INTEREST EXPENSE**

 

525,726

 

272,110

 

1,427,123

 

 

988,567

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

1,315,082

 

1,288,046

 

3,634,370

 

 

3,724,906

 

 

 

 

 

 

 

 

 

 

 

 

**PROVISION FOR CREDIT LOSSES**

 

296,000

 

-

 

635,000

 

 

95,000

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income less provision forpossible credit losses

 

1,019,082

 

1,288,046

 

2,999,370

 

 

3,629,906

 

 

 

 

 

 

 

 

 

 

 

 

**OTHER INCOME**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of other real estate owned

 

525

 

76,076

 

1,575

 

 

76,076

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

6,510

 

21,000

 

37,268

 

 

40,126

 

Other income

 

7,035

 

97,076

 

38,843

 

 

116,202

 

 

 

 

 

 

 

 

 

 

 

 

**OTHER OPERATING EXPENSES**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

441,623

 

222,565

 

1,052,730

 

 

746,122

 

 

 

 

 

 

 

 

 

 

 

 

Board of Trust Managers’ fees

 

21,300

 

20,400

 

65,700

 

 

58,200

 

 

 

 

 

 

 

 

 

 

 

 

Total other operating expenses

 

462,923

 

242,965

 

1,118,430

 

 

804,322

 

 

 

 

 

 

 

 

 

 

 

 

**NET INCOME**

$

563,194

$

1,142,157

$

1,919,783

 

$

2,941,786

 

 

 

 

 

 

 

 

 

 

 

 

**NET INCOME PER SHARE**

$

.06

$

.11

$

.19

 

$

.29

 

 

 

 

 

 

 

 

 

 

 

 

**DIVIDENDS PER SHARE**

$

.18

$

.28

$

 .24

 

$

 .35

 

 

 

 

 

 

 

These consolidated financial statements should be read only in connectionwith the accompanying notes to condensed consolidated financial statements.

-2-

**CHURCH LOANS & INVESTMENTS TRUST**

**(A Real Estate Investment Trust)**

**Condensed Consolidated Statements of Cash Flows (Unaudited)**

**Nine-month periods ended December 31, 2009 and 2008**

 

 

**Nine-month periods endedDecember 31,**

 

 

 

**2009**

 

 

**2008**

 

**CASH FLOWS FROM OPERATING ACTIVITIES**

 

 

 

 

 

 

Net income

$ 

1,919,783

 

$ 

2,941,786

 

Adjustments to reconcile net income to net cash provided byoperating activities:

 

 

 

 

 

 

Depreciation

 

689

 

 

1,548

 

Gain on sale of other real estate owned

 

-

 

 

(76,076)

 

Amortization of loan discounts

 

409,299

 

 

(31,291)

 

Amortization of commitment fees

 

(574,111)

 

 

(359,399)

 

Provision for credit losses

 

635,000

 

 

95,000

 

Changes in:

 

 

 

 

 

 

Accrued interest receivable

 

(88,246)

 

 

62,989 

 

Accrued interest payable

 

33,573

 

 

(13,024)

 

Federal income tax payable

 

-

 

 

(22,739)

 

Other liabilities

 

111,040

 

 

(27,174)

 

Other, net

 

(76,529)

 

 

(98,975)

 

Net cash provided by operating activities

 

2,370,498

 

 

2,472,645

 

 

 

 

 

 

 

 

**CASH FLOWS FROM INVESTING ACTIVITIES**

 

 

 

 

 

 

Investment in mortgage and interim construction loans andchurch bonds

 

(32,249,952)

 

 

(15,704,362)

 

Payments received on mortgage and interim construction loans andchurch bonds

 

19,723,080

 

 

13,218,039

 

Proceeds from sale of other real estate owned

 

-

 

 

1,811,726

 

Net cash used in investing activities

 

(12,526,872)

 

 

(674,597)

 

 

 

 

 

 

 

 

**CASH FLOWS FROM FINANCING ACTIVITIES**

 

 

 

 

 

 

Borrowings on notes payable and line of credit

 

35,320,683

 

 

22,996,518

 

Principal payments on notes payable and line of credit

 

(24,535,927)

 

 

(24,105,886)

 

Cash dividends

 

(613,026)

 

 

(715,197)

 

Net cash provided by financing activities

 

10,171,730

 

 

(1,824,565)

 

Increase in cash and cash equivalents

 

15,356

 

 

(26,517)

 

 

 

 

 

 

 

 

**CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD**

 

115,694

 

 

109,987

 

 

 

 

 

 

 

 

**CASH AND CASH EQUIVALENTS AT END OF PERIOD**

$ 

131,050

 

$ 

83,470

 

 

 

 

 

 

 

 

**Supplemental disclosure of cash flow information**

 

 

 

 

 

 

Cash paid during the period for interest

$ 

1,397,306

 

$

1,001,591

 

Dividends declared, not paid

$ 

1,839,077

 

$

2,860,786

 

Federal income tax paid

$ 

38,829

 

$

46,145

 

These condensed consolidated financial statements should be read only in connectionwith the accompanying notes to condensed consolidated financial statements.

-3-

**CHURCH LOANS & INVESTMENTS TRUST**

**(A Real Estate Investment Trust)**

**Notes to Condensed Consolidated Financial Statements (Unaudited)**

**NOTE 1 – GENERAL**

See Summary of Significant Accounting Policies in the Trust’s Annual Report on Form 10-K for a summary of the Trust’s significant accounting policies. 

The unaudited condensed consolidated financial statements included herein were prepared from the books of the Trust in accordance with accounting principles generally accepted in the United States 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. 

The consolidated financial statements include the accounts of Church Loans & Investments Trust and its wholly-owned subsidiary, ChurchLoans.com, LLC. All intercompany balances and transactions have been eliminated.

**NOTE 2 - WEIGHTED AVERAGE INTEREST RATES**

Weighted average interest rates and net interest rate margins at December 31, 2009 and 2008, were as follows:

 

 

Mortgage loan andchurch bond portfolio

 

Totalindebtedness

 

Net interest ratemargin

December 31, 2009

 

6.88%

 

3.74%

 

3.14%

December 31, 2008

 

7.72%

 

2.86%

 

4.86%

**NOTE 3 - CONTRACTUAL MATURITIES**

Scheduled principal payments on mortgage loans, church bonds and interim construction loans and indebtedness (including notes payable) outstanding at December 31, 2009, for the five twelve-month periods subsequent to December 31, 2009, follow:

Twelve-month period endingDecember 31,

 

Mortgage loans, church bondsand interim loans

 

TotalIndebtedness

2010

 

 

$ 27,461,475 

 

 

$ 20,991,192

2011

 

 

3,278,164 

 

 

-

2012

 

 

3,290,287 

 

 

  36,671,700 

2013

 

 

3,097,029 

 

 

-

2014

 

 

3,022,691 

 

 

-

**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 $9,271,975 and $6,769,247 at December 31, 2009 and 2008, 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 consolidated statements of income would have been increased by approximately $812,000 and $468,000 for the nine-month periods ended December 31, 2009 and 2008, respectively. Interest income actually recognized on such loans during 2009 and 2008 was approximately $169,000 and $176,000, respectively. In addition, impaired loans were approximately $12,330,000 and $12,710,000 at December 31, 2009 and March 31, 2009, respectively. 

-4-

**CHURCH LOANS & INVESTMENTS TRUST**

**(A Real Estate Investment Trust)**

**Notes to Condensed Consolidated Financial Statements (Unaudited)**

**NOTE 5 –****NEW ACCOUNTING PRONOUNCEMENTS**

In May 2009, the FASB issued guidance on management’s assessment of subsequent events.  This guidance is directed specifically to management, since management is responsible for preparing an entity’s financial statements. The guidance clarifies that management must evaluate, as of each reporting period, events or transactions that occur after the balance sheet date through the date that the financial statements are issued.  The guidance is effective prospectively for interim and annual financial periods ending after June 15, 2009, and the Company has adopted the provisions for its reporting period ending December 31, 2009.  The adoption of this new guidance did not have a material impact on the Company’s financial condition or results of operations.  Management has evaluated subsequent events up through the date of the filing of this report with the SEC.

In July 2009, the FASB issued guidance providing for the FASB Accounting Standards Codification (the “Codification”) to become the single official source of authoritative GAAP.  The Codification did not change GAAP but reorganizes the literature.  Adoption of the new guidance did not materially impact the Company’s financial statements.  

**NOTE 6 –****LEGAL CONTINGENCIES**

Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Trust's financial statements.

This information is an integral part of the accompanying condensed consolidated financial statements.

-5-

**Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

**FORWARD-LOOKING STATEMENTS DISCLOSURE**

This Annual Report includes forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact made in this discussion are forward-looking, which can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. The forward-looking statements are based upon management’s current plans and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including:

 

 

•

 

Competition in the business of making loans to churches;

 

 

•

 

A decline in general economic conditions;

 

 

•

 

A decline in real estate values affecting the value of the collateral securing our loans;

 

 

•

 

A rise in interest rates resulting in higher cost of funds to us prior to the re-pricing of the loans owing to us;

 

 

•

 

Our inability to borrow funds and at reasonable rates of interest;

 

 

•

 

General risks of lending;

 

 

•

 

Change in federal or state laws affecting our operations;

 

 

•

 

Loss of critical management; and

 

 

•

 

Other risks.

These risks and uncertainties are not intended to be exhaustive and should be read in conjunction with other cautionary statements made in this Annual Report. 

**Critical Accounting Policies**

Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America. Our significant accounting policies are described in the notes to the financial statements in our Annual Report on Form 10-K. Certain accounting policies require management to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies. The estimates and assumptions used are based on historical experience, as well as other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and results of operations for the reporting periods.  

We believe that the following critical accounting policies require the most significant estimates and assumptions that are particularly susceptible to a significant change in the preparation of our financial statements.

**Revenue Recognition**.  We accrue interest income as it is earned. All past due loans are reviewed monthly by management and the Audit Committee. A past due loan is evaluated based upon the payment history, opinion of the ultimate collectability of the principal and interest and other experience factors. The accrual of interest is generally discontinued on loans and church bonds more than 60 days past due unless the credit is well secured and in the process of collection. In all cases, loans and bonds are placed on nonaccrual or charged-off at an earlier date, if collection of principal or interest is considered doubtful.

Once a loan is placed on non-accrual, the loan will be classified as either “cash basis” or “capital recovery.” A loan is typically classified as “cash basis” if the Audit Committee believes, based upon several factors, that there is a strong likelihood that the principal of the loan will be recovered, but is concerned that not all of the interest will be recovered. If a loan is classified as “cash basis,” then interest payments received will be applied to interest income. A loan is typically classified as “capital recovery” if the Audit Committee believes, based upon several factors, that there is a strong likelihood that we may not be able to recover all of the principal balance of the loan. In the event that a loan is classified as “capital recovery,” then payments received are applied to principal first and then to interest.

The actual decision to place a loan on non-accrual and the classification of the loan as either “cash basis” or “capital recovery” is made by the Audit Committee with input from management.

-6-

Non-accrual status loans are returned to an accrual status when in the opinion of the Audit Committee, based upon input from management, such is warranted based upon the passing of a sufficient time period during which the principal and interest have become current and remain current and, therefore, the loan, both principal and interest, is anticipated to be fully collectible. 

**Allowance for Credit Losses**.  The Audit Committee reviews the allowance for credit losses at the end of each quarter. The provision for losses is based on an amount that is adequate, in the opinion of the Audit Committee, based upon input from management, to absorb losses inherent in the existing portfolio.  The evaluation, which includes a review of all loans on which full collection may not be reasonably assumed, considers among other factors, general economic conditions, the fair market value or estimated net realizable value of the underlying collateral securing the loan, past experience, trends in loan delinquency and other factors that warrant recognition in providing for an adequate allowance to absorb inherent losses. The evaluation by the Audit Committee includes a review of a quarterly grading methodology performed by management on all past-due loans. The Audit Committee, based upon its evaluation and review, then makes a recommendation to the full Board of Trust Managers as to the recommended amount of the credit loss reserve. The Board of Trust Managers, based upon the recommendation of the Audit Committee, establishes the amount of the allowance for credit losses and any adjustments to such allowance.

**Other Real Estate Owned**.  Other real estate owned (OREO) represents property acquired as a result of a foreclosure of a mortgage note(s) held by Church Loans. OREO is recorded at estimated fair value less cost to sell at date of foreclosure, establishing a new cost basis. After foreclosure, OREO is carried at the lower of the carrying amount or estimated fair value minus estimated cost to sell. Impairment losses are charged to operations. Costs of the foreclosure, insurance and other costs associated with carrying the property are expensed.

Management has discussed our critical accounting policies and the development, selection and disclosure of the estimates and alternatives with the Audit Committee of the Board of Trust Managers and obtained their approval of the applicable disclosures contained in this report.

**Overview**

Church Loans was founded in May of 1959 and was organized to assist churches with the financing of purchases and construction of church facilities. Church Loans has also made loans for the financing of assisted living centers. Although we were originally organized under the corporate structure, we reorganized in 1963 as a real estate investment trust in order to take advantage of the favorable provisions of the federal tax law applicable to real estate investment trusts.  

Our loan portfolio consists primarily of loans to churches and is comprised of both permanent loans and interim construction loans. Although, we have purchased existing loans from other lenders, our primary operating strategy is to originate, either through mortgage loan brokers, church bond broker-dealers or directly to churches, mortgage loans secured by a first mortgage against a church’s buildings and related facilities. We rarely, if ever, sell a loan and, therefore, we intend to hold our loan portfolio to maturity. Our underwriting standards normally include compiled, reviewed or audited financial statements depending on the size of the loan, a fair market value appraisal prepared by an independent appraiser, a first mortgage on the property of the church insured by a title insurance policy issued by a national title company, applicable fire and extended casualty insurance on the collateral and such other requirements as determined by management on a case by case basis. Also, as part of our due diligence, management normally makes, prior to funding, an onsite inspection of the property that is to secure the loan.

Originally, our Declaration of Trust required a debt-to-value ratio of not greater than 66 2/3%. However, at our annual meeting of shareholders held on July 16, 2004, the shareholders approved an Amended and Restated Declaration of Trust and Bylaws that raised the debt-to-value ratio to 85% unless substantial justification exists because of the presence of other underwriting criteria. Most of our present loans were made based upon the prior 66 2/3% debt-to-value ratio.

As a real estate investment trust, we are required by Section 857 of the Internal Revenue Code, as amended, to distribute not less than 90% of our taxable net income to our shareholders. Dividends are based on taxable income which varies from net income reported in the financial statements because of 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 the net income reported in the financial statements because of variances in these temporary differences. 

Management continues to pursue quality new loans, both interim and permanent. We continue to receive many inquiries for loans. Presently, we are seeing less competition for these loans by banks and other lenders and, in fact, it appears that some lenders are attempting to liquidate their holdings of church loans.

-7-

Our interim loans come primarily from two sources. One source is churches that are issuing church bond offerings on a best efforts basis. Over the years, we have had many referrals from broker dealers who assist churches in bond offerings. These referrals resulted in a good source of interim loans or what is commonly referred to as “bridge loans” pursuant to which we provided the church with the funds to acquire a property, re-finance existing debt or start construction until the funds from the bond offering were available.   

The other source of interim loans are loans for which we have agreed to make the permanent loan but are treating and carrying the loans as interim loans during the construction phase. Once construction is finished, then the loan is converted to a permanent, amortized loan and then carried and treated as a permanent loan. Permanent loans have slightly increased as some interim loans have moved into permanent status by design. Also, more of the loans that we have recently made have been acquisitions rather than construction and, therefore, never were treated as interim loans. We would anticipate that with the current economic realities that the acquisition of existing church properties may be more affordable than construction of new properties and, therefore, this may be a continuing trend.  

For the nine-month period ended December 31, 2009, loan applications and inquiries have been steady. Contributing to our steady flow of loan requests may be the fact that some banks and other lenders have moved away from this type of lending as a result of the present economic conditions. It appears that the present economic environment and the possible restriction on the ability of banks and some other lenders to make real estate loans is providing us an opportunity to acquire additional loans. The increase in our portfolio of loans during the nine-month period ended December 31, 2009 is consistent with these events. In fact, we purchased one loan with an outstanding principal balance of $4,218,017 on September 25, 2009.

We have been able to maintain our necessary funding.  With the increase loan demand, we recently were able to increase our credit facility with Amarillo National Bank and its participants from $49,000,000 to $60,000,000.  Furthermore, Master Note balances have remained a steady source of funds increasing slightly from $20,316,023 as of December 31, 2008 to $20,991,192 as of December 31, 2009 (an increase of 3%).  We believe that the Master Notes will continue to be a dependable source of financing.

We have seen an increase in defaulted loans in our portfolio during the nine-month period ended December 31, 2009 as compared to the nine-month period ended December 31, 2008. We will continue to closely monitor our past due loans and take action as is necessary.

**Results of Operations --- Nine-month period ended December 31, 2009 as compared to the nine-month period ended December 31, 2008**

Our revenues are derived from interest income and fees earned on loans as well as, to a lesser degree, interest earned on church bonds and short-term investments. During the nine-month period ended December 31, 2009, interest income and fees increased by $348,020 (7%) over the nine-month period ended December 31, 2008.   

The increase in interest income and fees for the nine-month period ended December 31, 2009, as compared to the nine-month period ended December 31, 2008 was primarily attributable to an increase in performing mortgage loans and interim loans and an increase in fees.

The components of our interest income and fees during the nine-month period ended December 31, 2009 as compared to the nine-month period ended December 31, 2008 are as follows:

-8-

Table 1 – Interest Income and Fees

 

For the Nine-monthPeriod Ended 12/31/09

 

For the Nine-monthPeriod Ended 12/31/08

 

Increase(Decrease)

 

 

Mortgage loans

$3,485,551

 

$3,423,076

 

$62,475

 

 

 

 

 

 

 

 

Interim loans

910,490

 

715,439

 

195,051

 

 

 

 

 

 

 

 

Commitment fees

590,652

 

464,120

 

 126,532

 

 

 

 

 

 

 

 

Other income and fees

74,800

 

110,838

 

 (36,038)

 

 

 

 

 

 

 

 

Total

$5,061,493

 

$4,713,473

 

$348,020

 

Total interest income on mortgage loans and interim loans increased during the nine-month period ended December 31, 2009 as compared to the nine-month period ended December 31, 2008. The increase in interest income on mortgage loans and interim loans of $257,526 was offset by a decrease of $36,038 in other income and fees. Other income and fees include interest income on church bonds, discount income on mortgage loans, late charges and miscellaneous income. The increase in interest income on mortgage loans and interim loans is due to the increase in the performing mortgage loan and interim loans.  

Offsetting the increase in interest income on mortgage loans and interim loans is a decrease in the weighted average interest rates on our portfolio as of December 31, 2009 as compared to December 31, 2008.  The weighted average rate of interest on our portfolio of loans was 7.72% as of December 31, 2008 as compared to 6.88% as of December 31, 2009, a decrease of 84 basis points.

Our portfolio of performing mortgage loans increased from $54,908,182 as of December 31, 2008 to $60,886,334 as of December 31, 2009, an increase of $5,978,152 or 11%.  

Our total loan portfolio increased during the nine-month period ended December 31, 2009 as compared to the nine-month period ended December 31, 2008. The following table compares our portfolio of loans, net of mortgage discounts and deferred commitment fees, as of December 31, 2009 to December 31, 2008:

Table 2 – Mortgage Loans, Church Bonds and Interim Loans as of December 31, 2009 and 2008

 

 

**Type of Loan**

**12/31/09**

**12/30/08**

**Increase**

**(Decrease)**

 

 

 

 

 

 

 

 

 

 

Total Mortgage Loans and Church Bonds

$67,054,509

$58,077,429

$ 8,977,080

 

 

 

 

 

 

 

 

 

 

Total interim loans

24,132,827

12,402,154

11,730,673

 

 

 

 

 

 

 

 

 

 

Total loan portfolio

$91,187,336

$70,479,583

$20,707,753

 

 

 

**Performing Loans**

**12/31/09**

**12/31/08**

**Increase**

**(Decrease)**

 

 

 

 

 

 

 

 

 

 

Performing Mortgage Loans and Church Bonds

$60,886,334

$54,908,182

$  5,978,152

 

 

 

 

 

 

 

 

 

 

Performing Interim Loans

21,029,027

8,802,154

12,226,873

 

 

 

 

 

 

 

 

 

 

Total Performing Loans

$81,915,361

$63,710,336

$18,205,025

 

-9-

 

 

**Non-Performing Loans**

**12/31/09**

**12/31/08**

**Increase**

**(Decrease)**

 

 

 

 

 

 

 

 

 

 

Non-Performing Mortgage Loans and Church Bonds

$6,168,175

$3,169,247

$ 2,998,928

 

 

 

 

 

 

 

 

 

 

Non-Performing Interim Loans

3,103,800

3,600,000

(496,200)

 

 

 

 

 

 

 

 

 

 

Total Non-Performing Loans

$9,271,975

$6,769,247

$2,502,728

 

“Non-performing” or “non-accrual” loans as defined by Church Loans are loans that have been classified as either “cash basis” or “capital recovery” (see explanation under “Revenue Recognition” under “Critical Accounting Policies” above).

Our loan portfolio increased in each of the nine months during the nine-month period ended December 31, 2009 as compared to each of the nine months during the nine-month period ended December 31, 2008.   Table 3 below sets forth the month ending values of our loan portfolio, net of mortgage discounts and deferred commitment fees, for each of the nine months during the nine-month period ended December 31, 2009 and December 31, 2008, respectively:

Table 3 – Month-End Portfolio Values

 

 

 

 

Month

 

2009

 

 

2008

 

 

Difference

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April

 

$79,971,159

 

 

$67,469,937

 

 

$12,501,222

 

 

 

 

 

 

 

 

May

 

  80,350,919

 

 

  67,605,082

 

 

  12,745,837

 

 

 

 

 

 

 

 

June

 

  80,612,450

 

 

  66,936,845

 

 

  13,675,605

 

 

 

 

 

 

 

 

July

 

83,047,373

 

 

67,442,859

 

 

15,604,514

 

 

 

 

 

 

 

 

August

 

83,132,467

 

 

67,615,745

 

 

15,516,722

 

 

 

 

 

 

 

 

September

 

86,159,438

 

 

67,030,510

 

 

19,128,928

 

 

 

 

 

 

 

 

October

 

88,452,161

 

 

66,201,480

 

 

22,250,681

 

 

 

 

 

 

 

 

November

 

90,364,786

 

 

66,827,582

 

 

23,537,204

 

 

 

 

 

 

 

 

December

 

91,187,336

 

 

70,479,583

 

 

20,707,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Monthly Average:

 

$84,808,677

 

 

$67,512,180

 

 

$17,296,497

 

 

 

 

Non-performing loans, church bonds and interim loans increased from $6,769,247 as of December 31, 2008 to $9,271,975 as of December 31, 2009, an increase of $2,502,728. The accrual of interest on these loans has been discontinued. If interest on these mortgage loans, church bonds and interim loans had been accrued as earned, interest and fees on loans would have been increased by approximately $812,000 and $468,000 for the nine-month periods ended December 31, 2009 and 2008, respectively. Interest income actually recognized on such loans during the nine-month period ended December 31, 2009 and 2008 was approximately $169,000 and $176,000, respectively.

We have seen an increase in loans that are in default in the nine-month period ended December 31, 2009. Specific information on loans that are in default as of December 31, 2009 is included in Table 4 and Table 5 below.

Following is a table that provides the principal balance outstanding, maturity date, interest rate, collateral appraised value and collateral fair value on each of our permanent and interim loans designated as either in default or non-performing. We consider a permanent loan as “in default” if any required payment of principal or interest is more than 60 days past due and an interim loan is considered as “in default” if any required payment of principal or interest is more than 90 days past due. “Non-performing” loans are defined as loans that have been classified as either “cash basis” or “capital recovery” (see explanation under “Revenue Recognition” under “Critical Accounting Policies” under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation). Management’s practice, in reviewing and grading the loan portfolio, is to first compare the present outstanding loan value to the original appraised value. If the loan to value ratio on a particular loan is 50% or less, then management does not normally make a further investigation of fair value on the particular collateral. However, if the loan to value ratio is greater than 50%, then management does determine, to the best of management’s ability, management’s opinion of the fair value of the collateral securing the loan. Therefore, fair value is included for loans for which the loan to value ratio, based on the appraised value, is in excess of 50%.   Management assumes that for loans with a loan to value ratio, based on appraised value, of 50% or less that the fair value exceeds the outstanding loan balance.

-10-

Table 4 – Information on Loans in Default or Non-Performing as of December 31, 2009

Loan

Principal Outstanding

Maturity

Rate

Appraised Value of Collateral(1)

Estimated Fair Value of Collateral

 

 

 

 

 

 

Greater Life,

Baltimore, MD

$          5,926

11/01/2007

10.50%

$          76,000

N/A

 

 

 

 

 

 

Holy Trinity,

Brooklyn, NY

467,086

03/01/2026

9.50% 

1,800,000

N/A

 

 

 

 

 

 

Rhema Word,

Chicago, IL (2)

1,270,615

07/01/2025

9.50%

1,850,000

2,250,000

 

 

 

 

 

 

Spiritual Light,

Detroit, MI

71,054

11/01/2014

9.75%

185,000

N/A

 

 

 

 

 

 

Global Christian,

Richmond, CA (3)

217,281

01/01/2014

9.50%

640,000

N/A

 

 

 

 

 

 

Right Spirit,

Spanish Fort, AL (4)

80,110

05/01/2014

9.25%

274,000

N/A

 

 

 

 

 

 

Cathedral of Faith,

Tampa, FL

741,402

09/01/2024

6.75%

2,018,000

N/A

 

 

 

 

 

 

Biltmore Group,

West Monroe, LA (5)

1,053,800

06/01/2004

7.50%

844,500

844,500

 

 

 

 

 

 

Love Temple,

Memphis, TN (6)

237,576

01/15/2007

5.00%

325,900

325,900

 

 

 

 

 

 

Project Love,

Memphis, TN (6) 

255,840

01/15/2007

5.00%

 43,900

         43,900

 

 

 

 

 

 

Igreja Baptista

Pompano Beach, FL

255,541

05/01/2025

7.75%

388,000

400,000

 

 

 

 

 

 

Canaan COGIC

Memphis, TN (7)

275,433

03/01/2010

8.00%

245,000

 74,900

 

 

 

 

 

 

Ministerio International

Virginia Gardens, FL (8)

2,050,000

10/01/2008

10.25%

3,900,000

1,600,000

 

 

 

 

 

 

Amarillo Investors Mortgage,

Amarillo, TX (9)

294,636

06/10/05

9%

302,433

                  302,433

 

 

 

 

 

 

Mt. Calvary MBC,

Ft. Wayne, IN

504,122

12/01/02

9.75%

1,430,000

N/A

 

 

 

 

 

 

Highland Heights COC,

Memphis, TN (10)

60,558

04/09/92

10.5%

492,000

N/A

 

 

 

 

 

 

Faith Temple

Cincinnati, OH (11)

626,516

01/01/08

8.50%

930,000

790,500

 

 

 

 

 

 

King Solomon MBC,

Jackson, TN (12)

292,210

02/01/07

9%

360,000

674,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-11-

Promise Land Ministries, 

Memphis, TN (13)

263,157

02/01/07

7.5%

355,000

360,000

 

 

 

 

 

 

Centro Christiano

Houston, TX (11)

424,023

08/01/09

5.25%

715,000

607.750

 

 

 

 

 

 

King Jesus Worship Center,

Winnsboro, LA

625,426

02/27/04

6%

1,600,000

 N/A

 

 

 

 

 

 

World Deliverance

Miami, FL

86,486

04/06/05

7.75%

268,600

  N/A

 

 

 

 

 

 

Igreja Assemblia

Fort Myers, FL (11)

1,026,943

01/01/08

8.25%

1,375,000

               1,168,750

 

 

 

 

 

 

Eglise Evangelique

Orlando, FL (11)

913,818

02/01/38

9%

1,620,000

1,377,000

 

 

 

 

 

 

Brazilian Community

Framingham, MA(11)

965,808

05/01/29

7.25%

1,500,000

1,275,000

 

 

 

 

 

 

God’s Tabernacle

DeSoto, TX(14)

629,272

09/01/09

6%

756,000

538,650

 

 

 

 

 

 

Messiah MBC

Indianapolis, IN

1,376,674

05/01/10

7.3%

4,585,000

N/A

(1) Except as noted, appraised value is at or about the date the loan was made.

(2) The collateral consists of two separate properties. The appraised value of one property is based upon an appraisal dated April 12, 2005 of $750,000. The second property was appraised on July 21, 2004 at $1,100,000. The church has entered into a contract for sale of the second property dated January 2009 that provides for a purchase price of $1,500,000. Therefore, the combined appraised value of the properties securing the loan is $1,850,000 and, based upon the contract of sale, the fair value of the properties securing the loan is approximately $2,250,000.  

(3)  Appraised value of the collateral is based on the most recent appraisal dated May 25, 2001.

(4) The raw land securing this loan was appraised at $84,000 and the appraised value of the collateral with improvements is $274,000.

 

(5) Church Loans recently obtained new appraisals of the properties securing this loan. These appraisals contained a range of value from $844,500 to $1,213,000.

(6) These two loans were purchased from Regions Bank in 2007. The loans are made to related entities and the loans are secured by four separate properties. It is our understanding that the loans are cross-collateralized. There were no appraisals of the properties in the loan files obtained from Regions Bank. Appraised value for the collateral listed in the table is the 2009 Tax Appraisal from the tax office of Shelby County, Tennessee. Due to the acquisition of these loans from Regions Bank, Church Loans’ carrying value in these loans is less than the principal balance owing on the loans. Church Loans’ carrying value in these loans is a total of $185,946 which results in a loan to value ratio of 50%.  

(7) Fair value is based upon the Shelby County Tax Assessor’s 2009 appraisal. Carrying value of this loan is $175,471.

(8) The property securing this loan is set for foreclosure in April, 2010. We have recently obtained a new appraisal of this property. According to this new appraisal, the fair value of this property is $1,600,000 which is $900,000 less than the principal amount owing on the loan. Accordingly, we wrote off $450,000 of the principal balance of this loan as of December 31, 2009 and allocated a like amount of our loan loss reserve to this loan. 

-12-

(9) Appraised value is the Potter Randall County Appraisal District’s 2009 valuation of the properties that secure the loan.  This amount does not include a value for one property that the appraisal district does not list. 

(10) Carrying value of this loan is $53,698.

(11) Fair value is estimated at the most recent appraised value less 15%.

(12) Carrying value of this loan is $252,480. Fair value is based on the Madison County Tax Assessor’s appraisal.

(13) Appraised value and fair value is based upon the Shelby County Tax Assessor’s 2009 valuation of the property. Carrying value of this loan is $219,957.

(14) We sold this property to God’s Tabernacle of Deliverance on December 31, 2008 for $1,995,000. At that time, we took in exchange a note from the church in the amount of $1,961,915 which was secured by a Deed of Trust against the property pari passu with a bond offering in the amount of $2,260,000. At the time of the bond offering and sale to the church, an independent appraiser appraised the property securing the note and bonds at a value of $2,800,000. A portion of the proceeds of the bonds were to be used to retire the note owing to us. The church is in default in the payment of the bonds and it is our understanding that the sales of the bonds have stopped. Sufficient bonds were sold to reduce the balance of our note to $613,000. Therefore, we would hold a 27% interest in the deed of trust to secure our loan.  The appraised value of the property shown above is 27% of the appraised value of $2,800,000 and the estimated fair value shown is 27% of the $1,995,000 purchase price.

Table 5 below provides information relative to action being taken on loans in default as of December 31, 2009.

Table 5 - Specific Information Relating to Loans in Default and Non-Performing Loans as of December 31, 2009:

Loan

Principal Outstanding

 

Foreclosure Action Taken

 

 

 

 

Greater Life, Baltimore, MD

$        5,926

 

None.  Balance is small.  Staff is pursuing normal collection efforts.

 

 

 

 

 

 

Holy Trinity, Brooklyn, NY

467,086

 

None.  Church is making payments and staff continues normal collections efforts.  Debt is well secured

 

 

 

 

 

 

Rhema Word, Chicago, IL

1,270,615

 

None.  Church is making payments.  Debt is well secured.  Church is trying to sell one of its properties to reduce debt and debt service.

 

 

 

 

 

 

Spiritual Light, Detroit, MI

71,054

 

None.  Church is making payments.  Balance is relatively small. Staff continues make normal collection efforts.

 

 

 

 

 

 

Global Christian, Richmond, CA

217,281

 

None.  Church is making payments. Staff continues to monitor.

 

 

 

 

 

 

Right Spirit, Spanish Fort, AL

80,110

 

None.  Church is making payments. Staff continues to monitor and make collection efforts as needed.           

 

 

 

 

 

 

Cathedral of Faith, Tampa, FL

741,402

 

Litigation has been instituted to obtain insurance settlement proceeds and foreclose the property. In dispute with public adjustor regarding insurance settlement.

 

 

 

 

 

 

Love Temple, Memphis, TN

237,576

 

Litigation pending involving this loan, arising out of a dispute within the church. We have cross-claimed for foreclosure.

 

 

 

 

 

 

Project Love, Memphis, TN

255,840

 

Litigation pending involving this loan, arising out of a dispute within the church.  We have cross-claimed for foreclosure.

 

 

 

 

 

 

Canaan COGIC, Memphis, TN

275,433

 

Foreclosure has been instituted.  

-13-

 

 

 

 

 

 

Igreja Batista, Pompano Beach, FL

255,541

 

Church is making payments and is only 1 payment behind.  

 

 

 

 

 

 

Biltmore Group, West Monroe, LA

1,053,800

 

Foreclosure has been initiated and is pending.

 

 

 

 

 

 

Ministerio Intl., Virginia Gardens, FL

2,050,000

 

Foreclosure has been initiated and is pending. See note (8) to Table 4.  

 

 

 

 

 

 

Amarillo Investors Mortgage,

Amarillo, TX

294,636

 

None.  Since September 30, 2009, borrower has sold some of the collateral and used the proceeds to reduce the loan balance. 

 

 

 

 

 

 

Mt. Calvary MBC,

Ft. Wayne, IN

504,122

 

None.  Staff is monitoring.

 

 

 

 

 

 

Highland Heights COC,

Memphis, TN

60,558

 

None.  Church is making payments and is 2 payment behind. Staff is monitoring.

 

 

 

 

 

 

King Solomon MBC,

Jackson, TN

292,210

 

None.  Staff is making normal collection efforts.  Church continues to make payments.

 

 

 

 

 

 

Promise Land Ministries, 

Memphis, TN

263,157

 

None.  Staff is monitoring.  Receiving payments.

 

 

 

 

 

 

Faith Temple

Cincinnati, OH

626,516

 

None.  Staff is monitoring and pursuing normal collection efforts.

 

 

 

 

 

 

King Jesus Worship Center,

Winnsboro, LA

625,426

 

None.  Borrower is making regular payments.  Staff continues to monitor. Borrower is 3 payments behind.

 

 

 

 

 

 

Centro Christiano

Houston, TX

424,023

 

None.  Staff is monitoring.  Borrower continues to make payments.

 

 

 

 

 

 

World Deliverance

Miami, FL

86,486

 

None.  Church is making payments.  Staff continues to monitor.

 

 

 

 

 

 

Eglise Evangelique

Orlando, FL

913,818

 

None.  Legal counsel has given formal notice of default.

 

 

 

 

 

 

Brazilian Community

Framingham, MA

965,808

 

Notice of default has been given.

 

 

 

 

 

 

Igreja Assemblia

Ft. Myers, FL

1,026,943

 

Pursuing deed in lieu of foreclosure.

 

 

 

 

 

 

God’s Tabernacle

DeSoto, TX

629,272

 

None.  Trust has given Borrower notice of default.

 

 

 

 

 

 

Messiah MBC

Indianapolis, IN

1,376,674

 

None.  Church is making payments and is trying to refinance.

   

-14-

Our allowance for credit losses increased from $1,551,760 as of December 31, 2008 to $1,811,760 as of December 31, 2009. The allowance for credit losses is based on an amount that is adequate in the opinion of the Audit Committee, based upon input from management, to absorb losses inherent in the existing loan portfolio. This evaluation includes a review of a quarterly grading methodology performed by management on impaired loans. Impaired loans include non-performing loans, which have been placed on non-accrual status. At December 31, 2009 and 2008 impaired loans were approximately $12,330,000 and $12,257,000, respectively. Impaired loans include non-performing loans and other loans deemed by management to be impaired that were not classified as non-performing. Our investment in non-performing loans was $9,271,975 and $6,769,247 for the nine-month periods ending December 31, 2009 and December 31, 2008, respectively. See Table 6 for the activity in the allowance for credit losses since December 31, 2008 to December 31, 2009. This increase reflects changes in the portfolio of existing loans. In other words, based on the quarterly grading methodology performed by management and reviewed by the Audit Committee, it is our opinion that there is an increase in impaired loans and there is a higher risk of loss in the portfolio.

In calculating our reserve for credit losses, we take into account probable credit losses inherent in the remaining portion of our loan portfolio. In calculating the allowance, 1% of the outstanding balance of our loan portfolio of permanent and interim mortgage loans that have not been identified as impaired is reserved for. In addition, 2% of the outstanding balance of half of our church bonds is reserved for and an additional 50% of the remaining half of our church bonds is reserved for.  

The amount of loans in default has increased from December 31, 2008 to December 31, 2009. We believe that this is directly related to the current economic recession. We intend to continue to closely monitor our loans in default and will increase our reserve as necessary. Management and the Board of Trust Managers review the loans in default each month. The Audit Committee reviews and adjusts, as necessary, the allowance for credit losses each quarter.

The following table discloses the activity, on a quarterly basis, relating to the allowance for credit losses since December 31, 2008:

Table 6 – Activities in the Allowance for Credit Losses

 

December 31, 2008 balance

 

  1,551,760

 

 

 

 

 

 

 

Increases during the quarter

 

75,000

 

 

 

 

 

 

 

Charge offs during the quarter

 

             -0-

 

 

 

 

 

 

 

March 31, 2009 balance

 

1,626,760

 

 

 

 

 

 

 

Increases during the quarter

 

50,000

 

 

 

 

 

 

 

Charge offs during the quarter

 

 -0-

 

 

 

 

 

 

 

June 30, 2009 balance

 

  1,676,760

 

 

 

 

 

 

 

Increases during the quarter

 

289,000

 

 

 

 

 

 

 

Charges offs during the quarter

 

      -0-

 

 

 

 

 

 

 

September 30, 2009 balance

 

$1,965,760

 

 

 

 

 

 

 

Increases during the quarter

 

296,000

 

 

 

 

 

 

 

Charges offs during the quarter

 

     (450,000)

 

 

 

 

 

 

 

December 31, 2009 balance

 

$1,811,760

 

As noted above and in Table 6, we increased the allowance for credit losses during the nine-month period ended December 31, 2009 by $635,000. This increase was offset by a charge off of $450,000 as of December 31, 2009 relating to the loan to Ministerio International, Virginia Gardens, FL (see note (8) to Table 4 above).

-15-

As of December 31, 2009, Church Loans also held church bonds with a carrying value of $58,933 which were in default.

The weighted average interest rate on our loans and church bonds decreased from 7.72% as of December 31, 2008 to 6.88% as of December 31, 2009. This decrease in the weighted average interest rate on our loans limited the increase in interest income which resulted from the increase in performing loans during the nine-month period ended December 31, 2009 as compared to the nine-month period ended December 31, 2008.

Commitment fees earned during the nine-month period ended December 31, 2009 were $590,652 as compared to $464,120 for the nine-month period ended December 31, 2008, an increase of $126,532 or 27%.  

Net income for the nine-month period ended December 31, 2009 was $1,919,783 ($.19 per share), a decrease of $1,022,003 (35%) compared to the nine-month period ended December 31, 2008. This decrease was primarily attributable to the decrease in net interest income, the increase in the provision for credit losses and an increase in general and administrative expenses.

 

Net interest income decreased from $3,724,906 for the nine-month period ended December 31, 2008 to $3,634,370 for the nine-month period ended December 31, 2009, a decrease of $90,536 (2%). This decrease in our net interest income for the nine-month period ended December 31, 2009 as compared to the nine-month period ended December 31, 2008 was the result of an increase in our interest expense which exceeded the increase in our interest income.

Our total liabilities increased from $39,361,500 as of December 31, 2008 to $59,983,291 as of December 31, 2009. The weighted average interest rate on our debt increased from 2.86% as of December 31, 2008 to 3.74% as of December 31, 2009. Our interest expense increased from $988,567 for the nine-month period ended December 31, 2008 to $1,427,123 for the nine-month period ended December 31, 2009, an increase of $438,556 or 44%. This increase is attributable to the increase in debt and the increase in the weighted average interest rate on our debt.

The following table illustrates the average month end liabilities during the nine-month period ended December 31, 2009 as compared to the same period ended December 31, 2008:

Table 7 - Month End Total Liabilities for Each Month in the Nine-month Period Ended December 31, 2009 and December 31, 2008

 

 

 

 

Month

2009

 

 

2008

 

 

Difference

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April

$48,385,780

 

 

$37,441,086

 

 

$10,944,694

 

 

 

 

 

 

 

 

May

  48,309,678

 

 

  37,192,614

 

 

  11,117,064

 

 

 

 

 

 

 

 

June

  48,640,299

 

 

  36,511,926

 

 

  12,128,373

 

 

 

 

 

 

 

 

July

50,625,809

 

 

36,630,689

 

 

13,995,120

 

 

 

 

 

 

 

 

August

50,370,806

 

 

36,549,535

 

 

13,821,271

 

 

 

 

 

 

 

 

September

53,364,465

 

 

35,966,008

 

 

17,398,457

 

 

 

 

 

 

 

 

October

  55,232,189

 

 

  32,690,582

 

 

  22,541,607

 

 

 

 

 

 

 

 

November

56,935,533

 

 

33,075,297

 

 

23,860,236

 

 

 

 

 

 

 

 

December

59,983,291

 

 

39,361,500

 

 

20,621,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Monthly Average:

$52,427,539

 

 

$36,157,693

 

 

$16,269,846

 

 

 

 

The following table provides a schedule of maturity dates and the principal amounts maturing for our debt:

Table 8 - Maturity Dates of Month End Liabilities for Each Month in the Nine-month Period Ended December 31, 2009

Month

Total Liabilities

Maturing 1-31-12 

Demand/Current

 

 

 

 

April

$48,385,780

$26,440,000

$21,945,780

May

48,309,678

26,815,000

21,494,678

June

48,640,299

27,315,000

21,325,299

July

50,625,809

28,780,000

21,845,809

August

50,370,806

28,780,000

21,590,806

September

53,364,465

31,780,000

21,584,465

October

55,232,189

34,130,000

21,102,189

November

56,935,533

35,411,700

21,523,833

December

59,983,291

36,671,700

23,311,591

-16-

General and administrative expenses increased from $746,122 for the nine-month period ended December 31, 2008 to $1,052,730 for the nine-month period ended December 31, 2009, an increase of $306,608 or 41%.  

The increase in general and administrative expenses is primarily attributable to the legal, accounting and expert fees related to the contemplated “going private” transaction, payments characterized as contract labor which are payments under the severance agreement entered into with a former employee, higher payroll expenses and legal fees incurred for collection efforts on past due loans.

Other income decreased from $116,202 for the nine-month period ended December 31, 2008 to $38,843 for the nine-month period ended December 31, 2009, a decrease of $77,359.  

As of December 31, 2009, there were 10,217,094 shares of certificates of beneficial interest outstanding. Net income per share decreased from $.29 per share for the nine-month period ended December 31, 2008 as compared to $.19 per share for the nine-month period ended December 31, 2009. This decrease was attributable to the decrease in our net income discussed above.  

**Results of Operations**—**Three-month period ended December 31, 2009 as compared to three-month period ended December 31, 2008**

During the three-month period ended December 31, 2009, interest income and fees increased by $280,652 (18%) over the three-month period ended December 31, 2008.   

The components of our interest income and fees during the three-month period ended December 31, 2009 as compared to the three-month period ended December 31, 2008 are as follows:

Table 9 – Interest Income and Fees

 

For the Three-month

 Period Ended 12/30/09

For the Three-month

 Period Ended 12/30/08

Increase (Decrease)

 

 

 

 

 

     Mortgage loans

$  1,195,803

 

$ 1,096,432

$  99,371

 

 

 

 

 

 

 

 

 

     Interim loans

       324,813

 

      200,201

124,612

 

 

 

 

 

 

 

 

 

     Commitment Fees

       276,693

 

      230,142

46,551

 

 

 

 

 

 

 

 

 

     Other Income and Fees

         43,499

 

        33,381

    10,118

 

 

 

 

 

 

 

 

 

     Total

$  1,840,808

 

$ 1,560,156

$   280,652

 

Interest income on mortgage loans increased from $1,096,432 during the three-month period ended December 31, 2008 to $1,195,803 during the three-month period ended December 31, 2009, an increase of $99,371 (9%). Interest income on interim loans increased from $200,201 during the three-month period ended December 31, 2008 to $324,813 for the three-month period ended December 31, 2009, an increase of $124,612 (62%).   

Commitment fees earned during the three-month period ended December 31, 2008 as compared to December 31, 2009 increased from $230,142 to $276,693 an increase of $46,551 or 20%.  

The increase in interest income and fees for the three-month period ended December 31, 2009 as compared to the three-month period ended December 31, 2008 is attributable to the increase in our portfolio of both mortgage loans and interim loans.

Our net income for the three-month period ended December 31, 2009 was $563,194 ($.06 per share), a decrease of $578,963 (51%) as compared to the three-month period ended December 31, 2008. This decrease was attributable to an increase in our interest expense, an increase in the provisions for credit losses and an increase in general and administrative expenses.  

The increase in interest income and fees for the three-month period ended December 31, 2009 as compared to the three-month period ended December 31, 2008 was significantly offset by an increase in interest expense.  Interest 

-17-

expense for the three-month period ended December 31, 2008 was $272,110 as compared to $525,726 for the three-month period ended December 31, 2009, an increase of $253,616 or 93%.  

The increase in interest expense was attributable to an increase in debt and higher interest rates on such debt. See Table 7 above for the month-end liabilities for each of the three months during the three-month periods ending December 31, 2009 and 2008, respectively.

The weighted average interest rate on all of our debt for each of the three months during the three-month periods ending December 31, 2009 and 2008 is as follows:

Table 10 – Weighted Average Interest Rates on All Debt for Each of the Months During the Three-Month Period Ending December 31, 2009 and December 31, 2008, Respectively

 

 

 

 

Month

2009

 

 

2008

 

 

Difference

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October

3.74

 

 

3.83

 

 

(.09)

 

 

 

 

 

 

 

 

November

3.74

 

 

2.84

 

 

.90

 

 

 

 

 

 

 

 

December

3.74

 

 

2.86

 

 

.88

 

 

 

 

Therefore, even though interest income increased significantly during the three-month period ended December 31, 2009 as compared to the three-month period ended December 31, 2008, as a result of the significant increase in interest expense, net interest income increased only slightly from $1,288,046 for the three-month period ended December 31, 2008 to $1,315,082 for the three-month period ended December 31, 2009, an increase of $27,036 (2%).  

Other income decreased from $97,076 for the three-month period ended December 31, 2008 to $7,035 for the three-month period ended December 31, 2009, a decrease of $90,041.  Other income from the three-month period ended December 31, 2008 included at $76,076 gain on sale of other real estate owned. 

General and administrative expenses increased from $222,565 for the three-month period ended December 31, 2008 to $441,623 for the three-month period ended December 31, 2009, an increase of $219,058 or 98%. This increase is primarily attributable to an increase in payroll, contract labor attributable to severance payments paid to a former employee, legal, accounting and expert fees attributable to the contemplated “going private” transaction and legal fees incurred in collection of defaulted loans.

Net income for the three-month period ended December 31, 2009 was diminished by an addition to the provision for credit losses recognized versus none in the 2008 period.

 

As of December 31, 2009, 10,217,094 shares of certificates of beneficial interest were outstanding. Net income per share decreased from $.11 per share for the three-month period ended December 31, 2008 to $0.06 per share for the three-month ended December 31, 2009. This decrease was attributable to the decrease in net income discussed above.

**Financial Condition—Nine-month period ended December 31, 2009 as compared to year ended March 31, 2009.**

Our portfolio of performing mortgage loans and church bonds increased from $55,512,158 as of March 31, 2009 to $60,886,334 as of December 31, 2009. Our portfolio of performing interim loans increased during the nine-month period ended December 31, 2009 from $16,686,014 to $21,029.027. Mortgage loans, interim loans and church bonds, including non-performing mortgage loans, church bonds and interim loans, held by us increased from $78,945,652 as of March 31, 2009 to $91,187,336 as of December 31, 2009, an increase of $12,241,684 (16%).

Nonperforming mortgage loans, church bonds and interim loans increased from $6,747,480 as of March 31, 2009 to $9,271,975 as of December 31, 2009. Total performing mortgage loans, church bonds and interim loans increased from $72,198,172 as of March 31, 2009 to $81,915,361 as of December 31, 2009, an increase of $9,717,189. Consistent with the increase in loans, total assets increased from $78,315,575 as of March 31, 2009 to $90,551,701 as of December 31, 2009, an increase of $12,236,126 (16%). Impaired loans were approximately $12,330,000 at December 31, 2009 as compared to approximately $12,710,000 at March 31, 2009.

-18-

Our liabilities increased from $47,214,845 as of March 31, 2009 to $59,983,291 as of December 31, 2009. 

Shareholders’ equity decreased by $532,320 from March 31, 2009 to December 31, 2009. This is attributable to the decrease in undistributed net income from $1,354,929 as of March 31, 2009 to $822,609 as of December 31, 2009. Contributing to this decrease in undistributed net income is the declaration of a dividend of $.18 per share ($1,837,513) as of December 31, 2009.

**Liquidity and Capital Resources**

Liquidity is a measurement of our ability to meet potential cash requirements, including the repayment of borrowings by us, fund loan commitments, maintain investments and meet our general business expenses and needs. Additionally, to maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT taxable income.

We are 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. Our assets primarily consist of our loan portfolio, real estate acquired through foreclosure and our office building and facilities.  

Our operating expenses are comprised of the maintenance of our office building, the payment of the salaries of our management and support staff, office expenses, fees paid to the Board of Trust Managers, and the payment for legal and accounting services. Substantially all of our assets are invested in the permanent and interim loans. Our only potential liquidity problems relate to the timely and proper repayment of the leveraged funds we have borrowed to make loans in excess of our capital and the ability to fund outstanding loan commitments which totaled approximately $7,247,455 at December 31, 2009.  

Our primary sources of funds for liquidity consist of cash reserves, net cash provided by operations, payments received from the loans comprising our loan portfolio, and funds available through debt financing, including our line of credit agreement with the Amarillo National Bank.

Our level of liquidity based upon cash and cash equivalents increased by $15,356 during the nine-month period ended December 31, 2009 leaving us with cash and cash equivalents of $131,050 as of December 31, 2009. During this same period, we invested $32,249,952 in mortgage and interim construction loans using net cash provided by operating activities in the amount of $2,370,498, principal payments received on our loan portfolio in the amount of $19,723,080, and $35,320,683 in borrowing on master notes and our line of credit. The total liquidity available to invest in mortgage and interim construction loans was reduced by $613,026 paid in cash dividends during the nine-month period ended December 31, 2009 and the reduction in our borrowings on our bank line of credit and Master Note agreements in the amount of $24,535,927.

Our primary debt obligations consist of our bank line of credit owing to Amarillo National Bank and Master Note Agreements with various persons. Pursuant to our January 31, 2009 loan agreement with the bank, we have a $49,000,000 line of credit for a term of three years, maturing January 31, 2012.  This agreement was increased to $60,000,000 effective January 1, 2010 and the term lengthened to December 31, 2012

As of December 31, 2009, our total liabilities outstanding were $59,983,291.  The amount owing on the line of credit as of December 31, 2009 was $36,671,700. It is anticipated that the line of credit will be renewed at the expiration of its three-year term. In the event that the bank elects not to renew the line of credit, we may, under the terms of the loan agreement, retire the line of credit over a period of time, not to exceed five years, equal to the weighted average remaining term of a pool of our real estate lien notes which would be pledged to secure the remaining balance of the bank line of credit.

As of December 31, 2009, pursuant to the credit agreement with Amarillo National Bank dated January 31, 2009, Church Loans has one note owing to Amarillo National Bank. The interest rate on this credit facility adjusts in accordance with the lesser of the 30-day, 90-day or 180-day London Interbank Offered Rates (“LIBOR”) plus 2.50% or the J.P. Morgan Chase & Co. prime rate as selected on the applicable adjustment dates by Church Loans and with an interest rate floor of 4%. As of December 31, 2009, the balance owing on this note was $36,671,000. The note owing to Amarillo National Bank made pursuant to a Loan Agreement was entered into with the bank effective January 31, 2009 (“the 2009 Loan Agreement”) for a term of three years ending January 31, 2012. The rate of interest owing on the obligation owing to the bank as of December 31, 2009 was 4.0%, not including the non-use fee.

 

The amounts owing to Amarillo National Bank are secured by the portfolio of loans held by Church Loans.  Church Loans may borrow up to $49,000,000 pursuant to the 2009 Loan Agreement subject to a borrowing base calculation 

-19-

limit equal to 85% of the principal balance outstanding of the performing mortgage loans and church bonds held by Church Loans and 50% of the principal balance outstanding of the performing interim loans held by Church Loans. Pursuant to that borrowing base calculation, Church Loans, as of December 31, 2009, could borrow up to the entire $49,000,000 line of credit.  

Pursuant to the loan agreement with Amarillo National Bank, we must also maintain stockholder’s equity of not less than $18,000,000, our total indebtedness shall not exceed 250% of our stockholder’s equity and the ratio of earnings before deduction of interest and taxes as compared to interest expense shall not be less than 1.2. As of December 31, 2009, we were in compliance with these requirements.

At December 31, 2009, loans to us under Master Note Agreements, which are in effect demand notes, totaled $20,991,192.  As of December 31, 2009, Church Loans had 86 Master Note Agreements with 38 different unrelated parties.  The rate of interest on these Master Notes is at the Wall Street Journal prime rate of interest less 1.25% with an interest rate floor of 3% effective as of February 1, 2009. As of December 31, 2009, the rate of interest on these Master Notes was 3.00%. All of these Master Notes are due on demand except that without the consent of Church Loans a noteholder may not demand payment of more than $250,000 during any 30 day period. These Master Notes are unsecured.

 

The loan agreement with Amarillo National Bank does provide that it is an event of default under such agreement if Church Loans defaults in the payment of any other indebtedness. Therefore, a default by Church Loans in the payment or performance of a Master Note would be a technical event of default in Church Loans’ agreement with the bank.

In the past, we have utilized our bank line of credit and the principal paid to us upon our outstanding loan portfolio in order to meet our maturing obligations.

Although our cash and cash equivalents as of December 31, 2009 were only $131,050, the balance which could be borrowed by us upon our bank line of credit as of December 31, 2009 was $12,328,300. The principal payments scheduled to be received on our loan portfolio for the fiscal year ending December 31, 2010 are $27,461,475. Assuming all of these scheduled principal payments are received, these payments, together with the balance available to us on our bank line of credit, would not provide us with sufficient funds to meet our maturing obligations and fund loan commitments without the necessity of borrowing funds from other sources. Based upon our success in obtaining borrowings in the past, we are confident that, should it be necessary, we will be able to obtain additional bank financing in the future in sufficient amounts for us to timely meet all of our obligations.

Should all the scheduled principal payments upon loans not be received, and should we be unable to borrow against our line of credit, and should borrowings from other sources not be available, it would be necessary to sell a portion of our mortgage loan portfolio in order to meet all of our financial obligations.  At December 31, 2009, the principal balance of our loan and church bond portfolio was $91,187,336, net of unamortized purchase discounts and deferred commitment fees. The weighted average interest rate on loans and church bonds was 6.88% per annum. In view of the normal marketability of conventional loans, we might be required to discount a 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 8%, 10% and 12% would be $78,421,113, $62,736,890, and $52,280,742, respectively. There is no assurance that we would be able to sell all, or a portion of, our portfolio of loans, in which event, it would be necessary to secure a loan, or loans, from a lender in order to meet our financial obligations. There is no assurance that we would be able to secure a loan in such instance. We have sold only one of our loans in our mortgage loan portfolio and, therefore, have limited experience in this area. Furthermore, if required to discount our loans in excess of 10.5%, then we would not realize sufficient funds from the sale of the loans to retire all of our debt.

Principal payments scheduled to be received upon our permanent loan portfolio during the twelve-month period ending December 31, 2010, if not used to fund new loan commitments, would be used to reduce our outstanding indebtedness. Should we use the payments of principal which shall be received upon our loan portfolio to reduce our outstanding indebtedness, our interest expense 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 upon our 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 upon our outstanding debts is directly, or indirectly, tied to the prime rate of interest charged by major banks.

Pursuant to the loan agreement with the bank, we have pledged all of our mortgage loans, church bonds and interim construction loans to the bank to secure the line of credit. The amount owing on the line of credit must not exceed an amount equal to 85% of the outstanding principal amount of the performing mortgage loans and church bonds and 50% of the outstanding principal amount of the performing interim construction loans. Applying that borrowing limit to 

-20-

our loan portfolio as of December 31, 2009, we can borrow up to the entire $49,000,000 line of credit limit. However, during the term of the loan agreement, we would not have the right to sell our loans, without the bank’s consent, since all of our loans have been pledged to the bank to secure the line of credit. Therefore, under our loan agreement, it will be very difficult, if not impossible, to sell our loans to meet our financial obligations.

Cash flows from operating activities consist 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. 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 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 our success to obtain borrowings in the past, we are confident that we will be able to obtain borrowings in the future in sufficient amounts, along with payments to be received on loans, to timely meet our obligations. 

**Inflation**

At December 31, 2009, the weighted average interest rate on our mortgage loan and church bond portfolio was 6.88% per annum while the weighted average interest rate upon all our borrowings was 3.74% per annum resulting in a net interest rate margin of 3.14%. By comparison, as of December 31, 2008, the weighted average interest rate on our mortgage loan and church bond portfolio was 7.72% per annum while the weighted average interest rate on our borrowings was 2.86% per annum resulting in a net interest rate margin of 4.86% per annum. Therefore, our net interest rate margin has decreased by 172 basis points as of December 31, 2009 as compared to December 31, 2008. Although a majority of the loans constituting our loan portfolio have been made at rates of interest that generally reprice either daily, annually, or otherwise periodically, a portion of the loans constituting our 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 our indebtedness 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 our interest expense would increase. Since our interest income would not increase as rapidly, an increase in the interest expense would decrease our net income. However, interest income should subsequently increase as variable rate loans reprice.  

Should the amount of our loans and the amount of our indebtedness remain constant, and should the weighted average interest rate upon the indebtedness increase to approximately 10.5% per annum, interest income and interest expense would be substantially equal.  

Under the terms of the loan agreement with Amarillo National Bank, the interest rate on our line of credit adjusts in accordance with the lesser of the 30-day, 90-day or 180-day London Interbank Offered Rates (“LIBOR”) or the J.P. Morgan Chase & Co. prime rate, subject to an interest rate floor of 4%. The interest rate on our Master Note Agreements adjusts as and when the Prime Rate as published by the Wall Street Journal changes subject to a floor of 3%. Most of our loans are made on interest rates that are tied to the Prime Rate as published by the Wall Street Journal or a similar index used by major U.S. banking institutions. Therefore, our cost of funds should be tied to an index that is equal to or less than the index used to price our loan portfolio.

The loan agreement with Amarillo National Bank effective January 31, 2009 changed the index on the rate we pay on the line of credit from, at our option, either LIBOR plus 2.5% or the J. P. Morgan Chase prime rate. These indices are higher than under the previous loan agreement.  Additionally, the new loan agreement provides for an interest rate floor of 4% and a commitment fee equal to .25% of the average quarterly unadvanced portion of the loan commitment.  

Finally, effective February 1, 2009, we agreed to also place an interest rate floor of 3% on our Master Note Agreements. The interest rate floor on the Master Note Agreements was instituted in order to encourage the maintenance of this source of funds. 

**Off-Balance Sheet Arrangements**  

We have no off-balance sheet arrangements or commitments other than our normal loan commitments.

-21-

**New Accounting Standards**

We do not believe the adoption of any recently issued pronouncements by the Financial Accounting Standards Board will have a significant impact on our financial statements.

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk**

Not required.

**Item 4T.  Controls and Procedures.**

We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 or 15d-15 as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures, as defined by Exchange Act Rules 13a-15(e) or 15d-15(e), were effective.  

**Changes in Internal Control over Financial Reporting**

There has not been any change in our internal control over financial reporting during our fiscal quarter ending December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

**Part II. Other Information**

**Item 1.  Legal Proceedings.**

None

**Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.**

None

**Item 3.  Defaults Upon Senior Securities**.

None

**Item 4. Submission of Matters to a Vote of Security Holders.**

None

**Item 5. Other Information.**

None

**Item 6. Exhibits**

The Exhibits listed on the accompanying Index to Exhibits are filed as a part of this Quarterly Report.

-22-

**CHURCH LOANS & INVESTMENTS TRUST**

**(A Real Estate Investment Trust)INDEX TO EXHIBITS**

(2)

None

(3)

(i) Amended and Restated Declaration of Trust dated July 16, 2004, previously filed as an exhibit to the Trust’s Definitive Proxy Statement, Form DEF 14A, dated June 25, 2004 (File No. 000-08117) and is incorporated by reference.

 

(ii) Amended and Restated Bylaws dated July 16, 2004, previously filed as an exhibit to the Trust’s Definitive Proxy Statement, Form DEF 14A, dated June 25, 2004 (File No. 000-08117) and is incorporated by reference.

(4)

None other than those listed in (3) above.

(10)

Loan Agreement dated January 31, 2009 entered into by and between Church Loans and Investments Trust and Amarillo National Bank included as an exhibit to Issuer’s Form 10-Q for the quarterly period ended December 31, 2008 (File No. 000-08117) and is incorporated by reference.

Loan Agreement dated January 1, 2010 entered into by and between Church Loans and Investments Trust and Amarillo National Bank included as an exhibit to Issuer’s 8-K filed January 15, 2010 (File No. 000-08117) and is incorporated by reference.

Form of Master Note Agreements included as an exhibit to Issuer’s Form 10-K for the year ended March 31, 2009 (File No. 000-08117) and is incorporated by reference.

(11)

Statement regarding computation of per share earnings-omitted since information necessary to make the computation is included in the Financial Statements.

(15)

None

(18)

None

(19)

None

(22)

None

(23)

None

(24)

None

(31)

(i)(1) Certification of President (Principal Executive Officer and CEO) Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

 

 (2) Certification of Senior Vice-President and CFO (Principal Financial Officer) Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

 

(ii) None

(32)

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(99)

None

(100)

None

 

-23-

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

CHURCH LOANS & INVESTMENTS TRUST

 

 

 

 

By:

/s/ Jason L. Hall

 

 

 

Jason L. HallPresident and CEO

 

 

Date:

February 12, 2010

 

 

 

 

 

 

By:

/s/ Robert E. Fowler

 

 

 

Robert E. FowlerChief Financial Officer(Principal Financial Officer)

 

 

Date:

February 12, 2010

 

 

 

-24-

*Trade Mark and Copyright Notice*

*Copyright © 2010 by Church Loans & Investments TrustThis report is copyrighted material ofChurch Loans & Investments Trust.Church Loans & Investments Trust is a federally registered service markof the Trustees of Church Loans & Investments Trust.The unauthorized use of the trade mark, service mark and copyrightsof Church Loans & Investments Trust without the express,written permission of Church Loans & Investments Trust,is strictly prohibited. All rights reserved.*

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