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 March 31, 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 March 31, 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
March 31, 1999 and December 31, 1998
Assets March 31,
December 31,
1999 1998
Unaudited
Cash $ 1,360
1,385
Cash and cash equivalents, held by trustee 82,531 87,514
Total cash and cash equivalents 83,891
88,89
9
Mortgage loans, held by trustee 1,156,017 1,188,051
Advances on bond redemption 126,513 96,612
Accrued interest receivable 8,231
11,58
4
Deferred issuance costs 16,487
18,396
Total assets $ 1,391,139 $
1,403,542
Liabilities and Stockholder's Equity
Mortgage-backed senior bonds $ 1,145,726 $
1,166,410
Mortgage-backed subordinated bonds 204,100
204,1
00
Accrued interest payable 16,580 8,290
Residual interests 23,373
23,357
Total liabilities $ 1,389,779 $
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
1,00
0
Additional paid-in capital 24,000
24,00
0
Retained earnings 7,360 7,385
Subtotal 32,360
32,385
Less cost of 948 shares reacquired and
held in treasury (31,000)
(31,000)
Total stockholder's equity 1,360
1,385
Total liabilities and stockholder's equity $ 1,391,139 $
1,403,542
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Income
(Unaudited)
For the Three Months Ended
March 31,
1999
1998
Revenues:
Interest on mortgage loans $ 13,805 $
40,81
2
Reduction of residual interest (16)
(125
)
Reinvestment earnings on cash and cash equivalents
held by trustee 948
1,74
9
Other interest income 5
6
Total revenues $ 14,742 $
42,442
Expenses:
Interest 4,969
29,62
7
Loan servicing fees 5,911
6,63
9
Amortization of deferred issuance costs 1,910
3,36
1
Other expenses 1,977
2,809
Total expenses 14,767
42,436
Net income (loss) $ (25) $ 6
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net income (loss) $ (25) $
6
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred issuance costs 1,910
3,361
(Increase) decrease in prepaid interest (29,902) (34,54
3)
Reduction of residual interest 16
126
Decrease (increase) in accrued interest receivable 3,353 1,245
Increase (decrease) in accrued interest payable 8,290
12,168
(Decrease) increase in other liabilities ---
- ---
Net cash provided by (used in)
operating activities (16,358)
(17,637)
Cash flows from investing activities:
Principal payments on mortgage loans 32,034 131,677
Net cash provided by investing activities 32,034
131,677
Cash flows from financing activities:
Principal payments on mortgage-backed senior bonds (20,684) (106,999)
Net cash used in financing activities (20,684) (106,999)
Net increase (decrease) in cash and cash equivalents (5,008) 7,041
Cash and cash equivalents, beginning of period 88,899
125,291
Cash and cash equivalents, end of period $ 83,891 $ 132,332
See accompanying notes to financial statements.
CML CHURCH MORTGAGE, INC.
Notes to Financial Statements (Unaudited)
March 31, 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 dis-
closures 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 pre-
sented 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, dis-
counted 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 $896,143 at March
31, 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 pay-
ment 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 contri-
butions received from members of the congregation. Approximately 78% 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 March 31, 1999 follows:
Outstanding
Original Principal
Interest Stated Principal Amounts
Rate Maturity Amounts 03/31/99
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 March 31,
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 March 31, 1999 follows:
Outstanding
Original Principal
Interest Stated Principal Amounts
Rate Maturity Amounts 03/31/99
10.50 4/10/2003 5,359,000 102,000
Interest on senior bonds is payable semiannually. The amount to be paid bond-
holders 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.
First Quarter 1999 vs. First Quarter 1998
Revenues for the first quarter of 1999 include interest income of $5,810 and
$7,995 from mortgages backing the unrated Series 1 bonds and unrated Series 2
bonds, respectively. The corresponding revenues for the first quarter of 1998
include interest income of $28,730 and $12,082 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 out-
standing 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 $20,684 and $106,998 during the first 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 March 31, 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
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 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 fore-
gone 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
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 under-
signed thereunto duly authorized.
Date CML Church Mortgage, Inc.
May 19, 1999 By: /s/ Daniel George
Daniel George, President
May 19, 1999 By: /s/ Mary Lou Rainey
Mary Lou Rainey, Secretary
