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, 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 March 31, 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
March 31,
1998 1997
(i) Distribution alloc to principal on the mtg $1,756,288 $ 358,215
loans (incl $168,067 and $0 of prepayments
for the three months ended March 31,
1998 and 1997 respectively).
(ii) Distribution alloc to interest on the $ 68,286 $ 202,126
mortgage loans
(iii) Deferred interest added to the aggregate $ 0 $ 0
principal balance of the mortgage loans
(iv) Shortfalls to date $ 242,801 $1,197,977
(v) Advances incl in amounts actually distrib $ 0 $ 0
(vi)(a) Aggregate amount of the subordinated $ 0 $ 0
distrib which was paid to the senior
certificate holders
(vi)(b) Aggr amount of withdrawals from $ 0 $ 0
the reserve fund
(vii) Aggregate principal balance of mortgage $2,094,255 $4,190,660
loans at end of period
(viii)Aggregate amount in the shortfall account $ 0 $ 0
(ix) Administrative fees retained or withdrawn $ 4,827 $ 11,482
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 Class C 0 0
mortgage pass-through
certificates net of
unamortized premium/
discount) Class D 0 0
Total $ 0 $ 0
(xii)(b) Subordinated amount, as a percentage 0 0
of the principal balance reported
under (vii) above
(xiii) Amount remaining in the Debt Service $ 0 $ 0
Reserve Fund
(xiv) Weighted average mortgage pass-through rate 10.28% 10.28%
as of 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
values 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
First Quarter 1998 vs. First Quarter 1997
The Trust redeemed $814,532 and $0 of mortgage pass-through certificates during
the first quarter of 1998 and 1997, respectively. The distributions were
made from principal payments received on the mortgage loans.
The Trust received $133,308 and $202,126 of distributions allocable to interest
on the mortgage loans during the first 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. Sixteen mortgage loans with outstanding
balances totaling $17,387,137 had been prepaid as of March 31, 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 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 March 31, 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 March 31, 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. There are six drafts of
$4,500 each that have not been honored 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
May 1, 1998 is $200,398.
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. Weekly drafting continues at the $4,500 level, however, most
drafts are not honored.
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 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
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 March 31, 1998 the Trust has experienced total payment shortfalls of
$242,801. 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 March 31, 1998 is $194,764.
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 at December 31, 1996, 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.
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 $ 3,260,138 $ (68,510) $ 101,615
B 25,571 51,142
C 28,853 59,225
D 15,410 30,819
Total $ 3,260,138 $ 1,323 $ 242,801
Principal Unrealized Scheduled
Bond Indebtedness Shortfalls Losses Indebtedness
Class (Par Value) to Date to Date (Par Value)
A $ 3,260,138 $ 99,286 $1,443,109 $ 4,603,960
B 938,379 938,379
C 178 1,614 1,436
D 622,615 622,615
Total $ 3,260,138 $ 99,464 $3,005,717 $ 6,166,390
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
March 21, 1998 By:
Roger T. Stephenson
Executive Vice President and
Trust Officer
March 21, 1998 By:
M. A. Kandel
Vice President
