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 June 30, 1999
( ) 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 Employer Identification No.)
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 June 30, 1999 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
June 30, 1999 and December 31, 1998
Assets June 30,
December 31,
1999 1998
Unaudited
Cash $ 1,335
1,385
Cash and cash equivalents, held by trustee 14,360
87,514
Total cash and cash equivalents 15,695
88,89
9
Mortgage loans, held by trustee 896,143 1,188,
051
Advances on bond redemptions 119,540
96,612
Accrued interest receivable 42 11,584
Deferred issuance costs 13,641
18,396
Total assets $1,045,061 $1,403,542
Liabilities and Stockholder's Equity
Mortgage-backed senior bonds $ 1,043,726 $ 1,166,410
Mortgage-backed subordinated bonds 0
204,100
Accrued interest payable 0
8,290
Residual interests 0
23,357
Total liabilities $ 1,043,726 $ 1,402,157
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
2
4,000
Retained earnings 7,335
7,385
Subtotal 32,335
32,385
Less cost of 948 shares reacquired and
held in treasury (31,000)
(31,000)
Total stockholder's equity 1,335
1,385
Total liabilities and stockholder's equity $1,045,061 $
1,403,542
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Income
(Unaudited)
For the Three Months Ended
June 30,
1999 1998
Revenues:
Interest on mortgage loans $ 15,996 $
38,1
79
Reduction of residual interest 15 342
Reinvestment earnings on cash and cash equivalents
held by trustee 226 1,330
Other interest income 5
6
Total revenues $ 16,242 $
39,857
Expenses:
Interest 8,899
29,
587
Loan servicing fees 4,601 5,961
Amortization of deferred issuance costs 1,712
3,112
Other expenses 1,055
1,191
Total expenses 16,267
39,851
Net income (loss) $ (25) $
6
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Income
(Unaudited)
For the Six Months Ended
June 30,
1999
1998
Revenues:
Interest on mortgage loans $ 29,801 $
78,9
92
Reduction of residual interest 0 216
Reinvestment earnings on cash and cash equivalents
held by trustee 1,174
3,0
78
Other interest income 10
13
Total revenues $ 30,985 $ 82,299
Expenses:
Interest 13,868
59,2
14
Loan servicing fees 10,513 12,600
Amortization of deferred issuance costs 3,622
6,4
73
Other expenses 3,032
4,000
Total expenses 31,035
82,287
Net income (loss) $ (50) $
12
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
1999
1998
Cash flows from operating activities:
Net income (loss) $ (50) $
12
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred issuance costs 4,755
6,473
(Increase) decrease in prepaid interest (22,928)
(
9,112)
Reduction of residual interest (23,357) 216
Decrease (increase) in accrued interest receivable 11,542
2,049
Increase (decrease) in accrued interest payable (8,290)
(3,235)
(Decrease) increase in other liabilities ---
---
Net cash provided by (used in)
operating activities (38,328)
(4,029)
Cash flows from investing activities:
Principal payments on mortgage loans 291,908
225,574
Net cash provided by investing activities 291,908
225,574
Cash flows from financing activities:
Principal payments on mortgage-backed senior bonds (326,784)
(189,998)
Net cash used in financing activities (326,784)
(189,998)
Net increase (decrease) in cash and cash equivalents (73,204)
3
1,547
Cash and cash equivalents, beginning of period 88,899
125,291
Cash and cash equivalents, end of period $ 15,695 $
156,838
See accompanying notes to financial statements.
CML CHURCH MORTGAGE, INC.
Notes to Financial Statements (Unaudited)
June 30, 1999
(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.
Managements 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 $896,143 at
June 30, 1999. 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. Due to the depletion of the loan payment account and the
inability to make the weekly draft, the interest rate was raised to the default
rate of 18% on April 1, 1999. The past due interest is 77,892 as of August 1,
1999. On August 5, 1999, Atlantic Escrow advised that an escrow had been opened
to pay off the loan and a demand statement was requested. No closing date has
been set.
(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. 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 June 30, 1999 follows:
Outstanding
Original Principal
Interest Stated Principal Amounts
Rate Maturity Amounts 06/30/99
9.00 2/10/1994 $ 262,000 $ 59,665
9.10 8/10/1994 277,000 63,081
9.10 2/10/1995 329,000 74,923
9.10 8/10/1995 348,000 79,250
9.25 2/10/1996 406,000 92,458
9.25 8/10/1996 430,000 97,924
9.25 2/10/1997 493,000 112,271
9.75 8/10/2001 5,506,000 1,191,256
$ 8,051,000 $ 1,770,828
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 June
30, 1999 (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 June 30, 1999 follows:
Outstanding
Original Principal
Interest Stated Principal Amounts
Rate Maturity Amounts 06/30/99
10.50 4/10/2003 5,359,000 ---
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.
Second Quarter 1999 vs. Second Quarter 1998
Revenues for the second quarter of 1999 include interest income of $8,852
and $7,144 from mortgages backing the unrated Series 1 bonds and unrated Series
2 bonds, respectively. The corresponding revenues for the second quarter of
1998 include interest income of $27,240 and $12,940 from mortgages backing the
unrated Series 1 bonds and unrated Series 2 bonds, respectively. The lower
income for 1999 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 $306,100 and $189,998 during the second quarter of
1999 and 1998, respectively.
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
$896,143 at June 30, 1999. 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. Due to the depletion of the loan payment
account and the inability to make the weekly draft, the interest rate was raised
to the default rate of 18% on April 1, 1999. The past due interest is 77,892 as
of August 1, 1999. On August 5, 1999, Atlantic Escrow advised that an escrow
had been opened to pay off the loan and a demand statement was requested. No
closing date has been set.
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 1999
vs. 1998 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.
Year 2000 Compliance
The Company utilizes an external trustee to process the majority of its
mission critical transactions and has gathered information about their
year
2000 compliance status. he Company continues to monitor their compliance.
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.
September 1, 1999 By: /s/ Daniel George
Daniel George,President
May 19, 1999 By: /s/ Mary Lou Rainey
Mary Lou Rainey, Secretary
