UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
(Mark one)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED September 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-27664
CML CHURCH MORTGAGE, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 02-0430692
(State or other jurisdiction (IRS FEIN)
of incorporation or organization)
2727 Allen Parkway, Houston Texas 77019-2115
(Address of principal executive offices) (Zip Code)
(713) 529-0045
(Registrant'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)
had 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 number of shares outstanding of each of
the issuer's classes of common stock as of the latest
practicable date.
At September 30, 1998 there were 52 shares of Common
Stock, $1.00 par value, outstanding.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements.
CML CHURCH MORTGAGE, INC.
Balance Sheets
September 30, 1998 and December 31, 1997
Assets September 30, December 31,
1998 1997
Unaudited
Cash $ 1,409 $ 1,391
Cash and cash equivalents 91,763 123,900
Total cash and cash equivalents 93,172 125,291
Mortgage loans, held by trustee 1,230,788 1,535,004
Prepaid interest 114,085 70,429
Accrued interest receivable 10,577 14,537
Deferred issuance costs 20,848 30,522
Total assets $ 1,469,469 $ 1,775,783
Liabilities and Stockholder's Equity
Mortgage-backed senior bonds $ 1,220,410 $ 1,532,738
Mortgage-backed sub bonds 204,100 204,100
Accrued interest payable 19,416 12,168
Residual interests 24,135 25,386
Total liabilities $ 1,468,060 $ 1,774,392
Stockholder's Equity:
Common stock, par value $1.00 per share;
56,000 shares authorized; 1,000 shares issued;
52 shares outstanding 1,000 1,000
Additional paid-in capital 24,000 24,000
Retained earnings 7,409 7,391
Subtotal 32,409 32,391
Less cost of 948 shares reacquired and
held in treasury (31,000) (31,000)
Total stockholder's equity 1,409 1,391
Ttl liabilities & stockholder's equity $ 1,469,469 $ 1,775,783
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Income
(Unaudited)
For the Three Months Ended
September 30,
1998 1997
Revenues:
Interest on mortgage loans $ 33,705 $ 85,275
Reduction of residual interest 1,036 (24,491)
Reinvestment earnings on cash and cash equivalents
held by trustee 1,496 4,459
Other interest income 6 6
Total revenues $ 36,243 $ 65,249
Expenses:
Interest 23,567 50,183
Loan servicing fees 7,153 6,741
Amortization of deferred issuance costs 3,201 4,685
Other expenses 2,315 3,634
Total expenses 36,237 65,243
Net income (loss) $ 6 $ 6
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Income
(Unaudited)
For the Nine Months Ended
September 30,
1998 1997
Revenues:
Interest on mortgage loans $ 112,697 $ 203,812
Reduction of residual interest 1,252 (23,366)
Reinvestment earnings on cash and cash equivalents
held by trustee 4,575 9,430
Other interest income 18 25
Total revenues $ 118,541 $ 189,901
Expenses:
Interest 82,781 161,384
Loan servicing fees 19,753 13,007
Amortization of deferred issuance costs 9,674 8,784
Other expenses 6,315 7,129
Total expenses 118,523 190,304
Net income (loss) $ 18 $ (403)
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net income (loss) $ 18 $ (403)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred issuance costs 9,674 8,784
Decrease in receivable from sale of ORE --- 376,334
(Increase) decrease in prepaid interest (43,656) 34,618
Reduction of residual interest (1,252) 22,364
Dec (inc) in accrued interest receivable 3,960 (3,707)
Inc (dec) in accrued interest payable (7,248) 27,662
(Dec) inc in other liabilities --- (3,386)
Net cash provided by (used in)
operating activities (38,504) 393,030
Cash flows from investing activities:
Principal payments on mortgage loans 304,217 675,902
Net cash provided by investing activities 304,217 675,902
Cash flows from financing activities:
Principal payments mortgage-backed sr bonds (312,328) (596,573)
Net cash used in financing activities (312,328) (596,573)
Net inc (dec) in cash and cash equivalents 32,137 472,359
Cash & cash equivalents, beginning of period 125,291 149,776
Cash and cash equivalents, end of period $ 93,175 $ 622,135
See accompanying notes to financial statements.
CML CHURCH MORTGAGE, INC.
Notes to Financial Statements (Unaudited)
September 30, 1998
(1) Basis of Presentation
The financial statements included herein have been prepared
without audit by CML Church Mortgage, Inc. ("the Company"). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and
regulations of the Securities and Exchange Commission, although the
Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10K.
On January 1, 1995 the Company adopted Financial Accounting
Standards Board Statement No. 114, Accounting by Creditors for
Impairment of a Loan, which requires that creditors value all loans for
which it is probable that the creditor will be unable to collect certain
amounts due according to the terms of the loan agreement at the present
value of expected future cash flows, discounted at the loan's effective
interest rate, or observable market price of the impaired loan or the fair
value of the collateral if the loan is collateral dependent. Management
believes that loan carrying values and loan loss reserves provided in this
10-Q Filing comply with the requirements of this Statement.
(2) Potential Problem Loan
The Company is closely monitoring one loan with a balance of
$896,889 at September 30, 1998. Payments are current due to draws
from the loan payment account. This account requires six (6) months of
payments at all times. Weekly drafts in the amount of $6,787 to
replenish the loan payment account have not been completed for twelve
(12) of the drafts since September 1997. The borrower will attempt to
make up this short-fall in the loan payment account beginning in April
1998. Weekly drafts of $6,787 were not completed on March 12, March
26, June 4 and June 11, 1998. No drafts have been completed since
June 25, 1998. All other weekly drafts have been completed. None of
the missed drafts have been replaced to date. Payment remains current
due to draws from the loan payment account. A payment shortfall
occurred on October 1, 1998. Remaining funds in the loan payment
account were depleted causing a payment shortfall of $22,000. The
payment made on November 1, 1998 was $11,000 to cover the past due
and current interest due. The Church has submitted paperwork to
refinance the loan and has requested minimal payments of interest only
until the refinance takes place. The estimated time of refinance is sixty
(60) days.
(3) Mortgage Loans, Held by Trustee
The mortgage loans, which serve as collateral for the mortgage-backed
senior and subordinated bonds, consist of fixed interest rate real
estate loans evidenced by promissory notes secured by mortgages or
similar security interests which create a first lien on church buildings and
related properties. All of the mortgage loans contain provisions
prohibiting prepayment during periods ranging from approximately 36
months to 48 months from the date acquired by the Company. The
mortgage loans, when originated, generally had loan-to-value ratios
ranging between 43% and 65%. The ability and willingness of these
borrowers to honor their repayment commitments is generally dependent
upon the financial condition of the church obligated as mortgagor, which,
in turn, depends on the contributions received from members of the
congregation. Approximately 73% of the remaining balance receivable is
due from one congregation.
(4) Other Real Estate Owned
There is no other real estate owned.
(5) Mortgage-backed Senior Bonds
The following is a summary of the Series 1 Senior Bonds. The
interest rate, stated maturity and original principal amounts of these
bonds, all dated August 1, 1989, and the outstanding principal amounts
at September 30, 1998 follows:
Outstanding
Original Principal
Interest Stated Principal Amounts
Rate Maturity Amounts 09/30/98
9.00 2/10/1994 $ 262,000 $ 60,362
9.10 8/10/1994 277,000 63,818
9.10 2/10/1995 329,000 75,798
9.10 8/10/1995 348,000 80,176
9.25 2/10/1996 406,000 93,538
9.25 8/10/1996 430,000 99,068
9.25 2/10/1997 493,000 113,582
9.75 8/10/2001 5,506,000 1,205,170
$ 8,051,000 $ 1,791,513
The above maturity schedule does not reflect the write-downs of
Series 1 Senior Bonds totaling $727,103 which were recorded by the
Company through September 30, 1998 (see note 4). Management of the
Company believes that if these write-downs are realized as a result of
losses on the sale of other real estate owned or foregone interest income
on nonperforming mortgage loans, the bondholders would incur losses on
a pro-rata share of their investment in relation to the total outstanding
senior bonds.
The following is a summary of the Series 2 Senior Bonds. The
interest rate, stated maturity and original principal amounts of these
bonds, all dated April 1, 1990 and the outstanding principal amount at
September 30, 1998 follows:
Outstanding
Original Principal
Interest Stated Principal Amounts
Rate Maturity Amounts 09/30/98
10.50 4/10/2003 5,359,000 156,000
Interest on senior bonds is payable semiannually. The amount to
be paid bondholders on each payment date is limited, however, to the
funds available in the interest payment account.
The stated maturities are the dates on which the senior bonds will
be fully paid, assuming no prepayments are received on the mortgage
loans that serve as collateral. The actual maturities of the senior bonds
will be shortened by prepayments on the mortgage loans and by any
senior bond calls.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Third Quarter 1998 vs. Third Quarter 1997
Revenues for the third quarter of 1998 include interest income of
$23,804 and $9,901 from mortgages backing the unrated Series 1 bonds
and unrated Series 2 bonds, respectively. The corresponding revenues for
the third quarter of 1997 include interest income of $26,327 and $23,857
from mortgages backing the unrated Series 1 bonds and unrated Series 2
bonds, respectively. The lower income for 1998 is attributed to the lower
principal balances of mortgages outstanding due to mortgage amortization
and mortgage loan principal prepayments. These prepayments result in
lower net income because the profit produced by the differences in the
interest rate collected on the church mortgage loans and the rate paid to
bondholders decreases as mortgage loans are prepaid.
Bond redemptions totaled $122,331 and $88,958 during the third
quarter of 1998 and 1997, respectively.
First Nine Months 1998 vs. First Nine Months 1997
Revenues for the first nine months of 1998 include interest
income of $79,774 and $32,923 from mortgages backing the unrated
Series 1 bonds and unrated Series 2 bonds, respectively. The
corresponding revenues for the first nine months of 1997 include interest
income of $88,899 and $72,485 from mortgages backing the unrated
Series 1 bonds and unrated Series 2 bonds, respectively. The lower
income for 1998 is attributed to the lower principal balances of mortgages
outstanding due to mortgage amortization and mortgage loan principal
prepayments. These prepayments result in lower net income because the
profit produced by the differences in the interest rate collected on the
church mortgage loans and the rate paid to bondholders decreases as
mortgage loans are prepaid.
Bond redemptions totaled $312,328 and $596,573 during the first
nine months of 1998 and 1997, respectively.
As of April 1, 1994, the lockout period for mortgage loan
prepayment had expired for all mortgage loans in the Series 2 pool.
Because the interest rate on the mortgage loans in the pool is higher than
the prevailing rates for similar loans, prepayments on principal on the
mortgage loans are likely to occur. Although $5,742,770 of prepayments
had been received through December 31, 1994, no assurance can be
given as to the rate of prepayments of the mortgage loans pledged as
security for the bonds, and therefore no assurance can be given as to the
amount and timing of redemptions of bonds or the time that any particular
bond will remain outstanding prior to its stated maturity.
Other Real Estate Owned
There is no other real estate owned.
Potential Problem Loan
The Company has been closely monitoring one mortgage loan with
a balance of $896,889 at September 30, 1998. Payments are current
due to draws from the loan payment account. This account requires six
(6) months of payments at all times. Weekly drafts in the amount of
$6,787 to replenish the loan payment account have not been completed
for twelve (12) of the drafts since September 1997. The borrower will
attempt to make up this short-fall in the loan payment account beginning
in April 1998. Weekly drafts of $6,787 were not completed on March 12,
March 26, June 4 and June 11, 1998. No drafts have been completed
since June 25, 1998. All other weekly drafts have been completed.
None of the missed drafts have been replaced to date. Payment remains
current due to draws from the loan payment account.
In assessing the recoverability of loans, management evaluates
information concerning the borrowers' financial condition and obtains
updates of appraisals as considered necessary. The one mortgage loan
remaining in the Series 1 pool was assessed for recoverability, and
management determined that no specific loan loss is necessary for that
loan.
Liquidity and Capital Resources
The Company has no fixed assets nor any commitments
outstanding to purchase or lease any fixed assets.
Each series of mortgage-backed bonds was structured in a manner
such that principal and interest payments received from the related
mortgage loans would be sufficient to fund all interest and principal
payments on the bonds in addition to all other expenses of the Company.
As discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations 1998 vs. 1997 interest income from
mortgages backing the Series 1 bonds declined due to foregone interest
income of a nonaccrual mortgage loan transferred to real estate owned
coupled with yield losses due to mortgage loan prepayments. Because of
these matters, the Company did not make $80,424 of principal payments
scheduled for February 10, 1995 to holders of 9.10% unrated Series 1
senior bonds, $85,069 of principal payments scheduled for August 10,
1995 to holders of 9.10% unrated Series 1 senior bonds, $99,247 of
principal payments scheduled for February 10, 1996 and $105,114 of
principal payments scheduled for August 10, 1996 to holders of 9.25%
unrated Series 1 senior bonds. On February 10, 1997, an additional
$120,514 of principal payments was not paid as scheduled to the holders
of 9.25% unrated Series 1 senior bonds. No assurance can be given as
to the rate of prepayment of the mortgage loans or the amount of
foregone interest income from loans in default which may occur in the
future. The bonds are non-recourse bonds, and the holders of the bonds
may not look to the Company or the Servicer, but may only look to the
pool of mortgage loans and other assets securing the bonds for payment
of principal and interest thereon. No mortgage loans securing any other
series or bonds will be available to satisfy claims of holders of the bonds.
On May 7, 1996, the directors of CML Church Mortgage, Inc.
consented to the adoption of the following votes effective as of April 30,
1996, and in accordance with the bylaws of this Corporation,
unanimously consented to the adoption of the following resolutions:
BE IT RESOLVED,
The corporation shall purchase from Christian Mutual Life
Insurance Company ("CML") Nine Hundred Forty-eight (948) shares of the
Corporation's stock presently owned by CML for a consideration of
THIRTY-ONE THOUSAND DOLLARS ($31,000.00) and such repurchased
shares shall become treasury shares of the Corporation.
Year 2000 Compliance
By the end of 1999, the Company expects that its various
administrative systems will have the capability to process transactions
dated beyond 1999. The costs to complete the Company's efforts to
modify or replace such systems are not expected to be material.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
As discussed in the Liquidity and Capital Resources Section of
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations, interest income from mortgages backing the
Series 1 bonds has been reduced since December 31, 1993 due to
foregone interest income of a nonaccrual mortgage loan transferred to real
estate owned coupled with yield losses due to mortgage loan
prepayments. Because of these matters, the Company did not make
$64,046 of principal payments scheduled for February 10, 1994 to
holders of 9% unrated Series 1 senior bonds, $67,713 of principal
payments scheduled for August 10, 1994 to holders of 9.10% unrated
Series 1 senior bonds and $80,424 of principal payments scheduled for
February 10, 1995 to holders of 9.10% unrated Series 1 senior bonds,
$85,069 of principal payments scheduled for August 10, 1995 to holders
of 9.10% unrated Series 1 senior bonds, $99,247 of principal payments
scheduled for February 10, 1996 to holders of 9.25% unrated Series 1
senior bonds, $105,114 of principal payments scheduled for August 10,
1996 to holders of 9.25% unrated Series 1 senior bonds and $120,514
of principal payments scheduled for February 10, 1997 to holders of
9.25% unrated Series 1 senior bonds.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
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.
Date CML Church Mortgage, Inc.
November 19, 1998 By: /s/ Daniel George
Daniel George, President
November 19, 1998 By: /s/ Mary Lou Rainey
Mary Lou Rainey, Secretary
