UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-K
(Mark one)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 1997
( ) 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)
Wortham Tower, 6th Floor, 2727 Allen Parkway, Houston TX 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 December 31, 1997 there were no shares of Common Stock outstanding.
PART I
Item 1 - Business
CML CHURCH MORTGAGE TRUST 1990 RATED SERIES A-1 (the "Trust") was started on
May 29, 1990 (the issue date). The Trust was started to form a segregated pool
(the "Pool") of assets and to sell the interests in the pool.
The Pool consists of mortgage loans, the certificate account (used to deposit
receipts of mortgage loan principal and interest), the reserve fund (used to
deposit reinvestment earnings) and reinvestment earnings on all amounts in
deposit in the certificate account, the reserve fund, and any other account.
The Pool serves as collateral for commercial mortgage pass-through
certificates, 1990 Rated Series A-1. The certificates in the aggregate
represent the entire undivided beneficial ownership interest in the Pool.
Item 2 -Properties
The Trust owns no property and leases no office space.
Item 3 -Legal Proceedings
The Trust is not a party to any material pending legal proceedings.
Item 4 -Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year 1997 to
a vote of security holders.
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
The Trust has no common or preferred stock authorized, issued, or outstanding.
Item 6 -Selected Financial Data
Not Applicable.
Item 7 -Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Trust is not a party to any material pending legal proceedings.
Result of Operations 1997 vs. 1996
The Trust redeemed $2,052,456 and $3,478,320 of mortgage-backed pass-through
certificates during 1997 and 1996, respectively. The distributions were made
from principal payments received on the mortgage loans. The Trust received
$631,260 and $874,512 of distributions allocable to interest on the mortgage
loans during 1997 and 1996, respectively. The lower interest income for 1997
is attributed to 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.
Result of Operations 1996 vs. 1995
The Trust redeemed $3,478,320 and $1,432,793 of mortgage-backed pass-through
certificates during 1996 and 1995, respectively. The distributions were made
from principal payments received on the mortgage loans. The Trust received
$874,512 and $1,429,730 of distributions allocable to interest on the mortgage
loans during 1996 and 1995, respectively. The lower interest income for 1996
is attributed to 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 prevailing rates for
similar loans, prepayments of principal on the mortgage loans are likely to
occur. Fourteen mortgage loans with outstanding balances totaling $17,387,137
had been prepaid as of December 31, 1997. The proceeds from prepayment were
used to make principal payments on Class A mortgage pass-through certificates.
Although $17,387,137 of prepayments had been received to date, no assurance 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 of $1,083,775 at
December 31, 1997. Management is concerned with the ongoing ability of the
borrowers to meet debt service requirements. One of the loans with a recorded
balance totaling $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 buildings and properties securing the loan with a recorded balance
of $849,075 at December 31, 1997, which is included in the amount of closely
monitored loans previously disclosed, 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 within the next nine to twelve months 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 the 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 is 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 24th. 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. There are six drafts of $4,500 each that have not been completed
through July 29, 1997.
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 November 1, 1997 is $109,395.
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 Partners, Group. Negotiation for acquisition should
begin in March 1998. It is estimated that a payoff could occur by January
1999. Meanwhile, construction activities have remained halted pending FEMA
issues. Weekly drafting continues at the $4,500 level, however, most drafts
are not honored.
With respect to the other 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.
As a result of an appraisal received by the Trust in November 1993, management
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 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 to bond classes 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 the
church 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.
With respect to this loan with a recorded balance of $1,170,000, CML had been
drafting $17,800 per month from the church since January 1, 1995, in accordance
with a modification agreement dated December 1994 and effective June 1, 1994.
The monthly drafts were successfully completed until January 1996. The church
notified CML in January 1996 of its inability to meet the February 1 draft of
$17,800. Additionally the church was unable to meet the $10,000 payment toward
the interest arrearage of $56,800 resulting from the modification agreement
dated December 1994. Since February 1, the church has been able to complete
each monthly payment of principal and interest due of $15,550, but only with
the company drawing funds down from the church's Loan Payment Account to
supplement payment shortfalls. The church completed the July 1, 1996 payment
of $15,550 by sending a check for $10,000 on June 27, an additional check for
$2,000 on July 11, and CML drawing the balance of $3,550 from the Loan Payment
Account. On or about July 16, 1996, the remaining balance of the Loan Payment
Account was approximately $650. The church has informed CML that is
understands that it must have a plan going forward to meet its debt service
obligations. In August, 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 was 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 December 31, 1997 the Trust has experienced total payment shortfalls of
$475,568. 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 yet recorded at December 31, 1997 is $154,679. 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 recorded a general loan loss
reserve of $200,000 at December 31, 1996, which is specifically related to the
loans which collateralize the mortgage pass-through certificates. No
additional reserve was recorded in 1997.
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 4 were not anticipated in cash flow projections at
the time the pool was formed. Because of these matters, the Trust has not made
$475,568 of scheduled principal and interest payments to date on the senior and
subordinated mortgage pass-through certificates. Additionally, no assurances
an 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.
Item 8 - Financial Statements and Supplementary Data
The statement of trust activity for the years ending December 31, 1997, 1996,
and 1995 is included herein.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no reports on Form 8-K reporting a change of accountants or a
disagreement with accountants on any matter of accounting principles or
practices on financial statement disclosure filed during the fiscal year 1997.
Part III
Item 10 - Directors and Executive Officers of the Company
The Trust has no directors or executive officers.
Item 11 - Executive Compensation
The Trust has no directors, executive officers, or employees.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The Trust has no common or preferred stock authorized, issued, or outstanding.
Item 13 - Certain Relationships and Related Transactions
The mortgage loans held by the Trustee were originated by CML and acquired by
the Trust from the Company, a Wisconsin corporation, for $31,279,313 (the
outstanding principal balance at date of acquisition). CML will continue to
service the mortgage loans for the trust for a monthly fee equal to .0417% of
the outstanding mortgage loan principal balance. The Trustee earns a monthly
fee equal to .0025% of the outstanding mortgage loan principal balance. CML
purchased from the Trust a subordinated certificate in the amount of $622,615.
CML CHURCH MORTGAGE TRUST
1990 RATED SERIES A-1
Statement of Trust Activity (Unaudited)
For the years ending December 31, 1997, 1996 and 1995
1997 1996
1995
(i) Distribution allocable to principal
on the mortgage loans (includes
$894,912, $2,456,709 and $539,536
of prepayments for 1997, 1996 and
1995 respectively). $ 2,005,419 $ 4,042,371 $
1,352,347
(ii) Distribution allocable to interest on
the mortgage loans 502,106 874,512
1,42
9,730
(iii) Deferred interest added to the
aggregate principal balance of
the mortgage loans 0 0 0
(iv) Shortfalls to date 475,568
1,416,048 903,061
(v) Advances included in amounts
actually distributed 0
0 0
(vi)(a) Aggregate amount of the subordinated
distribution which was paid to the
senior certificate holders 0 0
0
(vi)(b) Aggregate amount of withdrawals from
the reserve fund 0
0 0
(vii) Aggregate principal balance of
mortgage loans at end
of period 3,850,543 5,855,962
9,898,333
(viii) Aggregate amount in the shortfall account 0
0 0
(ix) Administrative fees retained or withdrawn
from the collection account 31,051
12,730 68,381
(x)(a) Aggregate principal balance of
mortgage loans delinquent 234,700
236,692 0
(x)(b) Aggregate number of loans delinquent 1
1 0
(xi) Book value of real estate acquired
through foreclosure or grant of deed
in lieu of foreclosure 0 0
0
(xii)(a) Subordinated Amount Class B 0
0 0
(Class B, C, and D mortgage Class C 0 0
0
pass-through certificates net of Class D 0 0 0
unamortized premium/discount)
Total $ 0 $
0 $ 0
(xii)(b) Subordinated amount, as a
percentage of the principal 0% 0%
0%
balance reported under (vii) above
(xiii) Amount remaining in the Debt Service
Reserve Fund 0
0 0
(xiv) Weighted average mortgage pass-through
rate as of the first day of the month
immediately preceding the reporting date. 10.28% 10.28%
10.28%
(xv) All voluntary advances recovered during
the related prepayment period. 0
0
0
See accompanying notes to the financial statement.
CML CHURCH MORTGAGE TRUST
1990 RATED SERIES A-1
Notes to Financial Statement (Unaudited)
(1) Organization and Summary of Significant Accounting Policies
(A) Organization
CML Church Mortgage Trust 1990 Rated Series A-1 (the "Trust") was started on
May 29, 1990 (the issue date). The Trust was started to form a segregated pool
(the "Pool") of assets and to sell the interests in the Pool.
The Pool consists of mortgage loans, the certificate account (used to deposit
receipts of mortgage loan principal and interest), the reserve fund (used to
deposit reinvestment earnings) and reinvestment earnings on all amounts in
deposit in the certificate account, the reserve fund, and any other account.
The Pool serves as collateral for commercial mortgage pass-through
certificates, 1990 Rated Series A-1. The certificates in the aggregate
represent the entire undivided beneficial ownership interest in the Pool.
(B) Federal Income Taxes
An election has been made to treat the Pool as a real estate mortgage
investment conduit ("REMIC").
A REMIC is not subject to Federal taxation; rather, the income of the REMIC is
taxable to the holders of interest thereon. Qualification as a REMIC requires
on-going compliance with certain conditions.
(C) Mortgage-backed Securities
As of December 31, 1997, the Trust has issued one series including four classes
of mortgage-backed senior and subordinated mortgage pass-through certificates.
On August 29, 1989, the Trust sold the following classes of mortgage pass-
through certificates:
Unamortized
Par (Discount) Statement
Values Premium
Values
Class A $29,715,347 $(118,861) $29,596,486
Class B 938,379 ( 3,978) 934,401
Class C 2,972 927,297 930,269
Class D 622,615 0 622,615
TOTAL $31,279,313 $ 804,458 $32,083,771
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.
(D) Description of Assets Collateralizing Mortgage-backed Bonds
The mortgage pass-through certificates are secured by a pool of assets (the
"Pool") consisting of: mortgage loans, which consists of fixed interest rate
real estate loans evidenced by promissory notes secured by mortgages or deeds
of trust or similar security interest which create a first lien on church
buildings and related properties, or in the case of one mortgage loan, a first
lien on retreat facilities,
(a) All amounts deposited in the Certificate Account,
(b) Any payments actually received by the Trustee with respect to the
Mortgage
Loans,
(c) The reserve fund.
Accrual of interest income on mortgage loans is discontinued when management
has determined that the borrower will be unable to meet contractual obligations
and/or when loans are ninety days or more in arrears, except in certain
instances where management believes that collateral held by the Trust is
clearly sufficient and full satisfaction of both principal and interest is
highly probable. When a loan is placed on non-accrual, all interest previously
accrued but not collected is reversed against current period income. Non-
accrual loans may be returned to an accrual status when principal and interest
payments are not delinquent and the risk characteristics of the loan have
improved to the extent that there no longer exists a material concern as to the
collectability of principal.
(E) Deferred Issuance Costs
Deferred issuance costs consist of underwriting discounts and other expenses
of issuance and distribution of the senior mortgage pass-through certificates.
Such costs are amortized over the life of the outstanding certificates using a
method that approximates the effective interest method, adjusted for
prepayments.
(F) Residual Interest
Upon issuance of the senior mortgage pass-through certificates, the Trust sold
without recourse a residual interest in the respective Pool underlying the 1990
Rated Series A-1 mortgage pass-through certificates. Provided there has been
no default or deficiency in the payment of principal or interest on the
respective senior or subordinated mortgage pass-through certificates, as
defined, the holders of the residual interest are entitled to receive all
amounts on deposit in the interest payment accounts which have been transmitted
by the Trustee to the Company as well as all other remaining assets in the
Pool.
The residual interests are accounted for in a manner similar to a minority
interest in a consolidated subsidiary. That is, income deemed attributable to
the residual interests is reflected as a charge to income through a
corresponding increase in the residual interest liability. Payments to the
holders of the residual interest, when made, serve to reduce the liability
account balance. If there are payment deficiencies on the senior mortgage
pass-through certificates, the amounts accumulated on behalf of the residual
interest must first be used to satisfy any remaining obligations to the senior
certificate holders, thereby reducing the liability account balance.
(G) Allowance for Loan Losses
Beginning in 1995, the Company adopted Financial Accounting Standards Board
Statement No. 114, Accounting by Creditors for Impairment of a Loan. Under the
new standard, the 1995 allowance for credit losses related to loans that are
identified for evaluation in accordance with Statement 114 is based on
discounted cash flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans. Prior to
1995, the allowance for credit losses related to these loans was based on
undiscounted cash flows or the fair value of the collateral for collateral
dependent loans.
A general loan loss reserve has been established for the remaining mortgage
loans in accordance with Financial Accounting Standards Board Statement No. 5:
Accounting for Contingencies.
While management uses the best information available in establishing the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ substantially from the assumptions used in making the
evaluation.
(H) Other Real Estate Owned
Other real estate owned includes real estate acquired by foreclosure and real
estate substantively repossessed. Real estate acquired by foreclosure is
comprised of properties acquired through foreclosure proceedings or acceptance
of a deed in lieu of foreclosure. When there is indication that a borrower no
longer has equity in property collateralizing a loan and it is doubtful that
equity will be rebuilt in the foreseeable future, the property is considered
repossessed in-substance. Both in-substance foreclosure and real estate
formally acquired in settlement of loans are recorded at the lower of the
carrying value of the loan or the fair value of the property constructively or
actually received. Loan losses from the acquisition of such properties are
first charges against the allowance for loan losses, if one exists, then as a
direct charge to operations.
After foreclosure, properties held for sale are carried at the lower of fair
value less estimated costs to sell or cost. If the fair value of the asset
less estimated costs to sell is less than the cost of the asset then this
amount is recognized as a valuation allowance. If the fair value of the
assets less the estimated cost to sell subsequently increases, and this
amount is more than the asset's current carrying value, then the valuation
allowance is reversed. Increases or decreases in the valuation allowance are
charged or credited to operations.
Operating expenses are charged to other real estate owned expenses. Gains upon
disposition are reflected in the statement of operations as realized. Realized
losses are charged to the valuation allowance.
(I) Cash Equivalents
The trust considers all highly liquid investments with original maturities of
less than 90 days to be cash equivalents.
(J) Recent Accounting Development
In May, 1993, the Financial Accounting Standard Board issued 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 all 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. Adoption of
this statement has been made in 1995.
(2) Basis of Presentation
The financial statement included herein has been prepared without audit by CML,
the servicer of the mortgage loans, on behalf of M&I First National Bank,
Trustee of the CML Church Mortgage Trust 1990 Rated Series A-1 ("Trustee").
Because the certificates described earlier are "pass-through" securities, the
Trust has no taxable income. The only items of expense for the Trust are the
amount retained by CML as servicing compensation and the amount withheld by
the Trust for the trustee fee. The financial statement included herein
provides complete information on the amount of such income, expense and assets
of the Pool.
(3) Related Party Transactions
The mortgage loans held by Trustee were originated by CML for $13,279,313 (the
outstanding principal balance at date of acquisition). CML will continue to
service the mortgage loans for the Trust for a monthly fee equal to .0417% of
the outstanding mortgage loan principal balance. The Trustee earns a monthly
fee equal to .0025% of the outstanding mortgage loan principal balance. CML
purchased from the Trust a subordinated certificate in the amount of $622,615.
(4) Potential Problem Loans and Delinquent Loans
As a result of an appraisal received by the Trust in November 1993, management
recorded a specific loan loss reserve of $1,000,000 in relation to one of the
two loans discussed previously with a book value at December 31, 1993 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 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 to bond classes as follows: $416,349 to Class D,
$2,796 to Class C, and $90,381 to Class B. In the first nine months of 1994
the Trust received another $20,000 of interest payments which were recorded as
further reductions of the carrying value of the mortgage loans 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 of 1996, management recorded an additional $505,369 of
specific loan loss reserve as a result of a cash buyout transaction accepted
by the church according to a letter dated October 29, 1996. Escrow closed on
October 7, 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 was 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 December 31, 1997 the Trust has experienced total payment shortfalls
of $475,568. 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 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 recorded a general
loan loss reserve of $200,000 at December 31, 1996, which is specifically
related to the loans which collateralize the mortgage pass-through
certificates. No additional reserves were recorded in 1997.
(5) Other Loan Matters
CML's management is monitoring two loans with recorded balances totaling
$1,083,775 at December 31, 1997, which 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. One of the loans with a recorded
balance totaling $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 buildings and properties securing the loan with recorded balance of
$849,075 at December 31, 1997, is 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 has 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 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 also reported that a possible sale to the Magic Johnson
Construction Company is being negotiated. This could lead to a pay off of the
mortgage within the next nine to twelve months 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 the 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 the 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 24th.
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. There are six drafts of $4,500 each that have
been completed through July 29, 1997.
Weekly drafts of $4,500 continue to be returned for insufficient funds. 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
November 1, 1997 is $109,395.
On February 17, 1998, the treasurer reported that the City Council had approved
the necessary GAP financing required and finalized the contracts with Magic
Johnson/McFarlance Urban Partners Group. Negotiation for acquisition should
begin in March 1998. It is estimated that a payoff could occur by January
1999. Meanwhile, construction activities have remained halted pending FEMA
issues. Weekly drafting continues at the $4,500 level, however, most drafts
are not honored.
With respect to the other 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.
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A)1 and (A)2 - Financial Statements and Schedule
Statement of Trust Activity (unaudited)
Notes to Financial Statements (unaudited)
The following financial statement schedule is included:
Schedule IV - Mortgage Loans on Real Estate
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instruction or are inapplicable, and therefore have been omitted.
(A)3 - Exhibits
Exhibit 4. Instruments defining the rights of security holders, including
indentures
-- CML Church Mortgage Trust 1990 Rated Series A-1 Bond Prospectus dated
May 25, 1990, incorporated herein by reference to Exhibit 4.1 to form
10-K for the year ended December 31, 1990.
-- Underwriting Agreement dated May 1, 1990 among the Company, M&I First
National Bank, as Trustee, and Christian Mutual Life Insurance Company,
incorporated herein by reference to Exhibit 4.1 to form 10-K for the year
ended December 31, 1990.
-- Pooling and Servicing Agreement dated May 1, 1990 among the Company,
Christian Mutual Life Insurance Company, and M&I First National Bank,
Trustee, incorporated herein by reference to Exhibit 4.3 to Form 10-K for
the year ended December 31, 1990.
-- Form of Senior Bond, incorporated herein by reference to Exhibit 4.4
to
Form 10-K for the year ended December 31, 1990.
-- Form of Face of Class B Certificate, incorporated herein by reference
to
Exhibit 4.5 to Form 10-K for the year ended December 31, 1990.
-- Form of Face of Class C Certificate, incorporated herein by reference
to
Exhibit 4.6 to Form 10-K for the year ended December 31, 1990.
-- Form of Class D Certificate, incorporated herein by reference to
Exhibit
4.7 to Form 10-K for the year ended December 31, 1990.
-- Form of Residual Interest Certificate, incorporated herein by
reference
to Exhibit 4.8 to Form 10-K for the year ended December 31, 1990.
Exhibit 10 . Material Contracts
- -- Purchase Agreement dated May 1, 1990 between Christian Mutual Life Insurance
Company and the Company, incorporated herein by reference to Exhibit 10.1 to
Form 10-K for the year ended December 31, 1990.
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
March 31, 1998 By:
Roger T. Stephenson
Executive Vice President and
Trust Officer
March 31, 1998 By:
M. A.
Kandel
Vice
President
