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, 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 September 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
September 30, 1999 and December 31, 1998
Assets September 30, December
31,
1999 1998
Unaudited
Cash $ 1,310 $
1,385
Cash and cash equivalents, held by trustee 985,709 87,514
Total cash and cash equivalents 987,019 88,899
Mortgage loans, held by trustee 0 1,188,
051
Advances on bond redemptions (43,581) 96,612
Accrued interest receivable 89,593 11,584
Deferred issuance costs 12,004
18,396
Total assets $ 1,045,036 $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 24,000
Retained earnings 7,310
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 1,310
1,385
Total liabilities and stockholder's equity $ 1,045,036 $ 1,403,542
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Income
(Unaudited)
For the Three Months Ended
September 30,
1999
1998
Revenues:
Interest on mortgage loans $ 182,076 $
33,
705
Reduction of residual interest
1,036
Reinvestment earnings on cash and cash equivalents
held by trustee 81
1,496
Other interest income 5
6
Total revenues $ 182,162
$
36,243
Expenses:
Interest 179,671
23,56
7
Loan servicing fees 648
7,153
Amortization of deferred issuance costs 1,838
3,2
01
Other expenses 30
2,315
Total expenses 182,187
36,237
Net income (loss) $ (25) $ 6
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Income
(Unaudited)
For the Nine Months Ended
September 30,
1999
1998
Revenues:
Interest on mortgage loans $ 211,877 $
112,6
97
Reduction of residual interest 1,252
Reinvestment earnings on cash and cash equivalents
held by trustee 1,254
4,575
Other interest income 15
18
Total revenues $ 213,146
$
118,541
Expenses:
Interest 193,539
82,781
Loan servicing fees 11,160
19,7
53
Amortization of deferred issuance costs 5,460
9,674
Other expenses 3,062
6,315
Total expenses 213,221
118,523
Net income (loss) $ (75)
$
18
See accompanying notes to the financial statements.
CML CHURCH MORTGAGE, INC.
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
1999
1998
Cash flows from operating activities:
Net income (loss) $ (75)
$
18
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred issuance costs 6,392
9,
674
(Increase) decrease in prepaid interest 140,192
(43,656)
Reduction of residual interest (23,357)
1,252
Decrease (increase) in accrd int rec (78,010)
3,960
Increase (decrease) in accrued interest payable (8,290)
(7,248)
(Decrease) increase in other liabilities ---
---
Net cash provided by (used in)
operating activities 36,852
(38,504)
Cash flows from investing activities:
Principal payments on mortgage loans 1,188,051
304,217
Net cash provided by investing activities 1,188,051
304,217
Cash flows from financing activities:
Principal payments on mortgage-backed senior bonds (326,784)
(312,328)
Net cash used in financing activities (326,784)
(312,328)
Net increase (decrease) in cash and cash equivalents 898,119 32,137
Cash and cash equivalents, beginning of period 88,899
125,291
Cash and cash equivalents, end of period $ 987,018 $
93,175
See accompanying notes to financial statements.
CML CHURCH MORTGAGE, INC.
Notes to Financial Statements (Unaudited)
September 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 suggest 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 $896,143 at
September 30, 1999. Payments are current due to draws from the loan payment
account. This account requires six (6) months of payments at all times. On
August 5, 1999, Atlantic Escrow advised that an escrow had been opened to pay
off the loan and a demand statement was requested. Closing was on September
30, 1999 with funds to be dispursed to bondholders in October.
(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 on
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, 1999
follows:
Outstanding
Original Principal
Interest Stated Principal Amounts
Rate Maturity Amounts 09/30/99
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
September 30, 1999. 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, 1999
follows:
Outstanding
Original Principal
Interest Stated Principal Amounts
Rate Maturity Amounts 09/30/99
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.
Third Quarter 1999 vs. Third Quarter 1998
Revenues for the third quarter of 1999 include interest income of $187,886
and $7,995 from mortgages backing the unrated Series 1 bonds and unrated Series
2 bonds, respectively. The corresponding revenues for the third quarter of 1998
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 1999 is attributed to the lower principal balances of mortgages
outstanding due to mortgage amortization and mortgage amortization and 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 $122,331 during the third 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 September 30, 1999. Payments are current due to draws from the
loan payment account. This account requires six (6) months of payments at all
times. On August 5, 1999, Atlantic escrow advised that an escrow had been
opened to pay off the loan and a demand statement was requested. Closing was
on September 30, 1999 with funds to be dispursed to bondholders in October.
In assessing the recoverability of loans, management evaluates information
concerning the borrowers' financial condition and obtains updates of appraisals
as considered necessary.
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 ith yield losses due to mortgage loan prepayments.
Because of these matters, the Company did not make $74,923 of principal payments
scheduled for February 10, 1995 to holders of 9.10% unrated Series 1 senior
bonds, $79,250 of principal payments scheduled for August 10, 1995 to holders
of 9.10% unrated Series 1 senior bonds, $92,458 of principal payments scheduled
for February 10, 1996 and $97,114 of principal payments scheduled for August 10,
1996 to holders of 9.25% unrated Series 1 senior bonds. On February 10, 1997,
an additional $112,271 of principal payment 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. The 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 $59,065 of principal payments scheduled for February 10, 1994 to holders of
9% unrated Series 1 senior bonds, $63,081 of principal payments scheduled for
August 10, 1994 to holders of 9.10% unrated Series 1 senior bonds and $74,923 of
principal payments scheduled for February 10, 1995 to holders of 9.10% unrated
Series 1 senior bonds, $79,250 of principal payments scheduled for August 10,
1995 to holders of 9.10% unrated Series 1 senior bonds, $92,458 of principal
payments scheduled for February 10, 1996 to holders of 9.25% unrated Series 1
senior bonds, $97,924 of principal payments scheduled for August 10, 1996 to
holders of 9.25% unrated Series 1 senior bonds and $112,270 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 22, 1999 By:/s/ Daniel George
Daniel George, President
November 22, 1999 By:/s/ Mary Lou Rainey
Mary Lou Rainey, Secretary
