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, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-34144
CML CHURCH MORTGAGE TRUST
1990 RATED SERIES A-1
(Exact name of registrant as specified in its charter)
Wisconsin 39-1676037
(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, 1998 there were no shares of Common Stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statement
CML CHURCH MORTGAGE TRUST
1990 RATED SERIES A-1
Statement of Trust Activity (Unaudited)
For the Three Months Ended
June 30,
1998 1997
(i) Distribution allocable to principal on the mtg $1,218,610 $1,348,688
loans (incl $800,496 and $894,912 of prepayments
for the three months ended June 30, 1998 and 1997,
respectively).
(ii) Distribution allocable to int on the mtg loans $ 38,063 $ 144,473
(iii) Deferred interest added to the aggr principal $ 0 $ 0
balance of the mortgage loans
(iv) Shortfalls to date $ 12,286 $ (200,969)
(v) Advances incl in amounts actually distributed $ 0 $ 0
(vi)(a) Aggr amount of the subordinated distribution $ 0 $ 0
which was paid to the senior certificate holders
(vi)(b) Aggr amt of withdrawals from the reserve fund $ 0 $ 0
(vii) Aggr principal balance of mtg loans at end $ 875,645 $4,149,059
of period
(viii) Aggregate amount in the shortfall account $ 0 $ 0
(ix) Administrative fees retained or withdrawn $ 4,354 $ 6,110
from the collection account
(x)(a) Aggregate principal balance of $ 0 $ 236,468
mortgage loans delinquent
(x)(b) Aggregate number of loans delinquent 0 1
(xi) Book value of real estate acquired through $ 0 $ 0
foreclosure or grant of deed in lieu of foreclosure
(xii)(a) Subordinated Amount Class B $ 0 $ 0
(Class B, C, and D mtg pass-through Class C 0 0
certificates net of unamortized Class D 0 0
premium/discount) Total $ 0 $ 0
(xii)(b) Subordinated amount, as a percentage of the 0 0
principal balance reported under (vii) above
(xiii) Amt remaining in the Debt Service Reserve Fund $ 0 $ 0
(xiv) Weighted average mortgage pass-through rate as of 10.28% 10.28%
the first day of the month immediately preceding
the reporting date.
(xv) All voluntary adv recovered during the related $ 0 $ 0
prepayment period.
See accompanying notes to the financial statement.
CML CHURCH MORTGAGE TRUST
1990 RATED SERIES A-1
Statement of Trust Activity (Unaudited)
For the Six Months Ended
June 30,
1998 1997
(i) Distribution allocable to principal on the mtg $2,974,898 $1,706,903
loans (includes $968,563 and $894,912 of prepayments
for the six months ended June 30, 1998 and 1997,
respectively).
(ii) Distribution allocable to int on the mtg loans $ 106,349 $ 346,599
(iii) Deferred interest added to the aggregate $ 0 $ 0
principal balance of the mortgage loans
(iv) Shortfalls to date $ 255,087 $ 997,008
(v) Advances incl in amounts actually distributed $ 0 $ 0
(vi)(a) Aggr amount of the subordinated distribution $ 0 $ 0
which was paid to the senior certificate holders
(vi)(b) Aggr amt of withdrawals from the reserve fund $ 0 $ 0
(vii) Aggregate principal balance of mortgage $ 875,645 $4,149,059
loans at end of period
(viii) Aggregate amount in the shortfall account $ 0 $ 0
(ix) Administrative fees retained or withdrawn $ 9,181 $ 17,592
from the collection account
(x)(a) Aggregate principal balance of $ 0 $ 236,468
mortgage loans delinquent
(x)(b) Aggregate number of loans delinquent 0 1
(xi) Book value of real estate acquired through $ 0 $ 0
foreclosure or grant of deed in lieu of foreclosure
(xii)(a) Subordinated Amount Class B $ 0 $ 0
(Class B, C, and D mortgage pass-through Class C 0 0
certificates net of unamortized premium/ Class D 0 0
discount) Total $ 0 $ 0
(xii)(b) Subordinated amount, as a percentage of 0 0
the principal balance reported under (vii) above
(xiii) Amt remaining in the Debt Service Reserve Fund $ 0 $ 0
(xiv) Weighted average mortgage pass-through rate as of 10.28% 10.28%
the first day of the month immediately preceding
the reporting date.
(xv) All voluntary advances recovered during $ 0 $ 0
the related prepayment period.
See accompanying notes to the financial statement.
CML CHURCH MORTGAGE TRUST
1990 RATED SERIES A-1
Notes to Financial Statement (Unaudited)
(1) Basis of Presentation
The financial statement included herein has been prepared without audit by
Christian Mutual Life Insurance Company ("CML"), the servicer of the mortgage
loans, on behalf of the M&I First National Bank, Trustee of the CML Church
Mortgage Trust 1990 Rated Series A-1 ("Trustee").
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 CML 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 Trust's latest annual report on Form 10K.
On January 1, 1995 the Trust 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 value and loan
loss reserves provided in this 10-Q Filing comply with the requirements of
this Statement.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Second Quarter 1998 vs. Second Quarter 1997
The Trust redeemed $1,031,361 and $1,463,018 of mortgage pass-through
certificates during the second quarter of 1998 and 1997, respectively. The
distributions were made from principal payments received on the mortgage loans.
First Six Months 1998 vs. First Six Months 1997
The Trust redeemed $1,845,894 and $1,818,445 of mortgage pass-through
certificates during the first six months of 1998 and 1997, respectively. The
distributions were made from principal payments received on the mortgage loans.
The Trust received $234,305 and $352,027 of distributions allocable to
interest on the mortgage loans during the second quarter of 1998 and 1997,
respectively. The lower interest 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 mortgage loans and the rate paid to bondholders decreases as
mortgage loans are prepaid. Prepayments also increase the charge in the
period of prepayment for amortization of deferred issuance costs, which
occurs over the life of the outstanding bonds.
As of May 1, 1994 the lockout period for mortgage loan prepayment had
expired for all mortgage loans in the 1990 Rated Series A-1 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. Seventeen mortgage loans with outstanding balances
totaling $17,387,137 had been prepaid as of June 30, 1998. These proceeds
from prepayment were used to make principal payments on Class A mortgage pass-
through certificates. Although $17,387,137 of prepayments have been received
to date, no assururance can be given as to the rate of prepayments on the
mortgage loans pledged as security for the mortgage pass-through certificates,
and therefore no assurance can be given as to the amount and timing of
redemptions of mortgage pass-through certificates or the time that any
particular mortgage pass-through certificate will remain outstanding prior to
its stated maturity.
Management of Christian Mutual Life Insurance Company (CML), as servicer
of the loans, is closely monitoring two loans with recorded balances totaling
$1,083,775 at June 30, 1998. Management is concerned with the ongoing
ability of the borrowers to meet debt service requirements. One of the loans
with a recorded balance of $849,075 has been recorded in accordance with
Financial Accounting Standard Board Statement No. 114 based on the value of
the underlying loan collateral less costs of disposal. For the other loan with
an outstanding principal balance of $234,700, management presently believes
that the principal balance and accrued interest should be fully recoverable
in the event of default.
The church building and property securing the loan with a recorded balance
of $849,075 at June 30, 1998, which is included in the amount of closely
monitored loans as previously discussed, are located near the south central
section of Los Angeles, California, the scene of civil unrest on April 29,
1992 and an earthquake on January 17, 1994. Management established a loan
loss reserve of $652,422 and $258,698 in 1994 for foregone interest at
December 31, 1994.
With respect to this loan, the church's sanctuary had been damaged by
the earthquake. The church reported that it had originally obtained a loan
from the Small Business Administration for $607,700 at 4% interest to assist
in reconstruction of the sanctuary. The church also reports the permitting
process is completed. Four contractors have submitted bids each in excess of
$1,100,000. The church has informed the company that the SBA has approved
its request to borrow additional funds, for a total SBA loan amount of
$1,278,200. The treasurer reports that a possible sale of the property to
Magic Johnson Construction Company is being negotiated. This could lead to
a pay off of the mortgage by year-end if negotiations are successful.
Meanwhile, the church has completed the rehab of the sanctuary. The treasurer
has assured management that weekly drafts will be honored. The church reports
that the summertime is difficult for collections; however, the treasurer has
communicated his and the church's hope that the momentum created by the
construction of the sanctuary will stabilize giving.
Although it was reported that the sanctuary rehab was completed, there
are additional items that must be finished before a certificate of occupancy
is issued. Meetings have been conducted in the sanctuary pending the
issuance of the certificate, however, the church reports that it owes
$100,000 to the sub-contractor and it needs an additional $100,000 to
complete all items on the certificate. The church has applied for an
additional $200,000 from the SBA which has been rejected. They are
appealing that decision. Meanwhile work has been halted on completion of the
remaining items.
On March 7, 1997, the treasurer proposed a new payment schedule for a
twelve month period. The schedule provides for a weekly draft of $4,500 for
a monthly payment of $19,500. Additional drafts of $10,000 on March 11,
$13,800 on April 11, $13,800 on May 11 and $10,000 on June, July, August
and September 11 will enable payments to be current at the $19,500 per month
level. The additional draft for April 11 was successfully completed on
April 24. The additional draft for May 11 in the amount of $13,800 was
returned for insufficient funds. The additional drafts for $10,000 for June,
July and August have not been completed.
Weekly drafts of $4,500 continue to be returned for insufficient funds.
The treasurer reports that although the number of people has increased from
450 to 1,000, the offerings have remained the same. The church is planning
on a major giving campaign as well as two concerts to aggressively address
their giving shortfall. Advising the people of financial needs is a
departure from their usual practice. The treasurer is confident the people
will respond to the plea. The cumulative past due interest as of August 1,
1998 is $247,413.
On February 17, 1998, the treasurer reported that the City Council has
approved the necessary GAP financing required and finalized the contracts
with Magic Johnson/McFarlance Urban Partner, Group. Negotiation for
acquisition began in March 1998. It is estimated that a payoff could occur
by January 1999. Meanwhile, construction activities remain halted pending
FEMA issues. On August 17, 1998, the treasurer reported that negotiations
for acquisition are proceeding as planned.
With respect to the loan with a recorded balance of $234,700, the church
has not been able to make complete monthly payments since April 1, 1996 and
is presently in arrears. The company is presently communicating with the
church in efforts to bring the payments current. Management, although
concerned with the ongoing ability of the church to meet the monthly
payment, continues to believe all principal and interest are recoverable in
the event of default. A site visit in April 1998 by the servicer found the
property in good repair and recently painted.
As a result of an appraisal received by the Trust in November 1993,
management had recorded a specific loan loss reserve of $1,000,000 in
relation to one loan with a book value of $3,084,079 due to management's
concerns about the borrower's ongoing ability to service the debt coupled
with management's concerns about collateral value as a result of the November
1993 appraisal. The Trust received $99,000 of interest payments after the
original mortgage loan became over 90 days past due. These payments were
recorded as further reductions of the carrying value of the mortgage loan due
to uncertainties regarding the collectability of the outstanding principal
balance. The specific loan loss reserve of $1,000,000 and foregone interest
income of $99,000 were recorded as direct reductions of the subordinated
mortgage pass-through certificates ($509,526) and amortization of the
remaining premium on the Class C subordinated mortgage pass-through
certificates ($589,474). The $509,526 of reductions of the subordinated
mortgage pass-through certificates were allocated as follows: $416,349 to
Class D, $2,796 to Class C, and $90,381 to Class B.
In 1994 the Trust received another $20,000 of interest payments which
were recorded as further reductions of the carrying value of the mortgage
loan due to uncertainties regarding the collectability of the outstanding
principal balance. This foregone interest income was recorded as a direct
reduction of the Senior (Class A) mortgage pass-through certificates.
In the fourth quarter of 1994, management recorded an additional $756,500
of specific loan loss reserves as a result of appraisals received during that
quarter. These reserve adjustments were recorded as a direct reduction of
the senior (Class A) mortgage pass-through certificates.
In the fourth quarter 1995 10K report filed in March 1996, management
recorded an additional $244,441 of specific loan loss reserves as a result of
an appraisal received in March 1996. This reserve adjustment was recorded as
a direct reduction of the Senior (Class A) mortgage pass-through certificates.
In the third quarter 1996, management recorded an additional $505,369
of specific loan losses as a result of a cash buyout transaction accepted by
one of the churches described previously according to a letter dated October
29, 1996. This reserve adjustment was recorded as a direct reduction of the
senior (Class A) mortgage pass-through certificates.
In August 1996, the treasurer on behalf of the church submitted a proposal
for a cash buyout of the loan for $1,200,000. After conferring with the
Trustee, a counter proposal of $1,300,000 was made on October 7, 1996. This
counter offer has been accepted by the church according to a letter dated
October 29, 1996. Escrow closed on March 27, 1997 in the amount of
$1,300,000.
Through June 30, 1998 the Trust has experienced total payment shortfalls
of $255,087. This shortfall represents principal and interest payments due
to bondholders, but not yet disbursed because mortgage payments received by
the Trust are not adequate to cover these debt service payments. The total
amount of interest accrued but not recorded at June 30, 1998 is $242,997.
The foregone interest income has eliminated the $25,098 residual interest
reported at December 31, 1992; the remaining foregone interest income was
treated as a write-down of the senior and subordinated mortgage pass-through
certificates.
In assessing the recoverability of loan balances, management evaluates
factors relevant to the borrower's financial condition and obtains updates
of original appraisals when considered necessary. The Trust has recorded a
general loan loss reserve of $200,000 which is specifically related to the
loans which collateralize the mortgage pass-through certificates.
Liquidity and Capital Resources
The Trust has no fixed assets nor any commitments outstanding to purchase
or lease any fixed assets.
Each class of certificates was structured in a manner that such funds
received from the related mortgage loans would be sufficient to fund all
interest and principal payments on the certificates, and all other expenses
of the Trust. Shortfalls discussed in note 2 were not anticipated in cash
flow projections at the time the pool was formed. Because of these matters,
the Trust has not made $242,801 of scheduled principal and interest payments
to date on the senior and subordinated mortgage pass-through certificates.
Additionally, no assurances can be given as to the amount of shortfalls of
principal and interest on loans in default which may occur in the future.
The certificates represent an interest in the Pool created pursuant to the
Pooling Agreement and do not represent an interest in or obligation of, and
are not guaranteed by the Company, CML, the Underwriter or any other
affiliate of the Company, or any other person or entity other than the Pool
created pursuant to the Pooling Agreement. Distributions of interest on the
certificates and amounts in reduction of outstanding amount of the Class A,
Class B, Class C and Class D Certificates will be made from the assets held by
the Trustee under the Pooling Agreement (primarily the mortgage loans and
principal and interest payments thereon) and there will be no other source of
funds for such distributions.
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
Defaults are discussed in detail under Management's Discussion and Analysis
of Financial Condition and Results of Operations. Shortfalls against
scheduled payments and reconciliations of actual indebtedness to scheduled
indebtedness, by class, are shown below:
Quarterly Total
Principal Principal
& Interest & Interest
Bond Indebtedness Shortfalls Arrearage
Class (Par Value) (Recoveries) to Date
A $ 2,228,777 $ 185,464 $ 116,955
B 25,571 51,142
C 27,319 56,171
D 15,410 30,819
Total $ 2,228,777 $ 253,764 $ 255,087
Principal Unrealized Scheduled
Bond Indebtedness Shortfalls Losses Indebtedness
Class (Par Value) to Date to Date (Par Value)
A $ 2,228,777 $ 97,646 $2,168,358 $ 4,299,488
B 938,379 938,379
C 182 1,523 1,341
D 622,615 622,615
Total $ 2,228,777 $ 97,828 $3,730,875 $ 5,861,823
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 Trust
1990 Rated Series A-1
August 12, 1998 By: /s/ Roger T. Stephenson
Roger T. Stephenson
Vice President
August 12, 1998 By: /s/ M. A. Kandel
M. A. Kandel
Vice President
