10-Q 1 fcfc2q01.txt FIRST CHURCH FINANCING CORP 6/30/01 FORM 10-Q Form 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________ [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 33-20345 FIRST CHURCH FINANCING CORPORATION (Exact name of registrant as specified in its charter) Wisconsin 39-1670677 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 215 North Main Street, West Bend, Wisconsin 53095 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (262) 334-5521 ______________________ Indicate by check mark whether the registrant (1) has 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 ( ) The number of shares outstanding of the registrant's Common Stock, par value $1.00 per share, at June 30, 2001 was 1,000 shares. REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a) and (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. PART I FIRST CHURCH FINANCING CORPORATION CONDENSED BALANCE SHEETS (Unaudited) June 30, December 31, 2001 2000 ASSETS Cash and cash equivalents $ 140 $ 22,878 Assets held by trustee 181,472 199,548 Accrued interest receivable 23,712 27,881 Mortgage loans held by trustee (net of purchase discount of $66,169 and $83,991, respectively) 3,013,583 3,547,761 Deferred issuance costs 59,913 78,458 Tax refund due from Parent 12,747 2,171 Total assets $3,291,567 $3,878,697 LIABILITIES AND STOCKHOLDER'S EQUITY Accrued interest payable $ 61,783 $ 68,769 Mortgage-Backed bonds payable 2,711,000 3,302,000 Due to affiliate 875 - Total liabilities 2,773,658 3,370,769 Stockholder's equity Common stock, $1 par value; 50,000 shares authorized 1,000 shares issued and outstanding 1,000 1,000 Additional paid-in capital 269,631 269,631 Retained earnings 247,278 237,297 Total stockholder's equity 517,909 507,928 Total liabilities and stockholder's equity $3,291,567 $3,878,697 The accompanying notes to condensed financial statements are an integral part of these balance sheets.

>PAGE> FIRST CHURCH FINANCING CORPORATION CONDENSED STATEMENTS OF INCOME (Unaudited) For the Three Months Ended June 30, June 30, 2001 2000 Revenues: Interest income $73,918 $104,367 Gain on liquidation of mortgage loans 1,533 1,986 Other income 2,023 2,858 Total revenues 77,474 109,211 Expenses: Interest expense 57,428 84,684 Amortization of deferred issuance costs 3,277 4,596 Servicing fees 2,739 3,865 Other 3,511 1,750 Total expenses 66,955 94,895 Income before income taxes 10,519 14,316 Provision for income taxes 4,300 5,700 Net income $ 6,219 $ 8,616 The accompanying notes to condensed financial statements are an integral part of these statements.

FIRST CHURCH FINANCING CORPORATION CONDENSED STATEMENTS OF INCOME (Unaudited) For the Six Months Ended June 30, June 30, 2001 2000 Revenues: Interest income $150,967 $210,700 Gain on liquidation of mortgage loans 13,729 3,979 Other income 4,092 5,770 Total revenues 168,788 220,449 Expenses: Interest expense 117,546 171,295 Amortization of deferred issuance costs 18,545 10,143 Servicing fees 5,660 7,801 Other 10,056 6,129 Total expenses 151,807 195,368 Income before income taxes 16,981 25,081 Provision for income taxes 7,000 10,000 Net income $ 9,981 $ 15,081 The accompanying notes to condensed financial statements are an integral part of these statements.

FIRST CHURCH FINANCING CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, June 30, 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 9,981 $ 15,081 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Gain on liquidation of mortgage loans (13,729) (3,979) Amortization of discount on mortgage loans (4,092) (5,770) Amortization of deferred issuance costs 18,545 10,143 Change in assets and liabilities: Decrease (Increase) in - Assets held by trustee 18,076 (1,948) Accrued interest receivable 4,169 1,263 Tax refund due from Parent (10,576) 8,000 Increase (Decrease) in - Accrued interest payable (6,986) (4,195) Due to affiliate 875 - Net cash provided by operating activities 16,263 18,595 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from - Principal payments received on mortgage loans 551,999 164,141 Net cash provided by investing activities 551,999 164,141 CASH FLOWS FROM FINANCING ACTIVITIES Payments for - Repayment of mortgage-backed bonds (591,000) (188,000) Net cash used in financing activities (591,000) (188,000) NET DECREASE IN CASH AND CASH EQUIVALENTS (22,738) (5,264) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,878 8,944 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 140 $ 3,680 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid during the period $125,000 $176,000 Income taxes paid during the period $ 18,000 $ 2,000 The accompanying notes to condensed financial statements are an integral part of these statements.

NOTES TO CONDENSED FINANCIAL STATEMENTS June 30, 2001 Note A -- Basis of Presentation The condensed financial statements included herein have been prepared by First Church Financing Corporation (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. 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 such rules and regulations. Management believes, however, that these condensed financial statements reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the results for the periods presented. All such adjustments are of a normal recurring nature. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Note B -- Mortgage-Backed Bonds Mortgage-Backed Bonds (the "Bonds") originally issued and outstanding at June 30, 2001, consist of the following: Outstanding Principal Original Amount Date of Stated Principal at Series Rate Bonds Maturity Amounts 6/30/01 1 8.25% 3/1/93 3/10/08 $ 4,586,000 $ 608,000 2 8.75% 8/1/94 8/10/09 4,456,000 1,042,000 3 8.00% 12/1/95 12/10/10 4,223,000 1,061,000 $13,265,000 $2,711,000

The stated maturity is the date by which all Bonds will be fully paid. Mandatory redemptions will be made from principal payments on the Mortgage Loans (the "Loans") which serve as collateral for the Bonds. The Loans generally require regular installments of principal and interest based upon a 15-year amortization schedule. The receipt of principal payments will cause a substantial portion of the Bonds to have shorter maturities. The Bonds will be redeemed, without premium or penalty, to the extent funds are available in the interest and principal payment accounts maintained by the trustee. Redemptions from such available funds (other than funds from prepayments of Loans) commence six months from the date of issue of a Bond series and continue on a semiannual basis thereafter. All interest and principal collected on the Loans, less a servicing fee paid to Ziegler Financing Corporation, a related entity, is to be deposited with the trustee of the Bonds. Any amounts deposited with the trustee in excess of amounts required for payment of interest on and principal of the Bonds and an amount to be maintained in an interest reserve fund will be returned to the Company. The Bonds of any series may be redeemed in whole by the Company at such time as the aggregate principal amount of the outstanding Bonds for the series is 20% or less of the aggregate principal amount of the Bonds originally issued for that series. Redemptions will also be made from unscheduled prepayments on the Loans, if such prepayments should occur. Prepayments over and above the regular principal installments may be made by the mortgagor from borrowed funds on a monthly or quarterly basis commencing one year after the issue of a Bond series and from unborrowed funds on a monthly or quarterly basis after the issue of a Bond series. Redemptions from such prepayments may be made after the same periods of time. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS Results of Operations - Three Months Ended June 30, 2001 and 2000 The Company issued no new Bonds during the second quarter of 2001 or 2000. A total of $57,000 of Bonds were repaid during the second quarter of 2001 compared to $67,000 in the second quarter of 2000. The difference in Bond repayments during each of the second quarter periods is primarily due to different prepayment amounts received on the Loans. Revenues, consisting primarily of interest, were approximately $77,000 in the second quarter of 2001 compared to $109,000 in the second quarter of 2000. Total expenses, consisting primarily of interest, were approximately $67,000 in the second quarter of 2001 compared to $95,000 in the second quarter of 2000. The decreases in revenues and expenses for the second quarter of 2001 compared to the second quarter of 2000 are due to loan repayments and bond redemptions during and between such periods. Net income for the second quarter of 2001 was approximately $6,000 compared to $9,000 in the second quarter of 2000. Results of Operations - Six Months Ended June 30, 2001 and 2000 The Company issued no new series of Bonds in the first six months of 2001 or 2000. A total of $591,000 of Bonds were repaid during the first six months of 2001 compared to $188,000 in the first six months of 2000. The difference in Bond repayments during each period is primarily due to different prepayment amounts received on the Loans. Revenues, consisting primarily of interest income, were approximately $169,000 in 2001 compared to $220,000 in 2000. Total expenses, consisting primarily of interest expense, were approximately $152,000 in 2001 compared to $195,000 in 2000. The decreases in revenues and expenses for the first six months of 2001 compared to the first six months of 2000 are due to loan repayments and bond redemptions during and between such periods. Net income for the first six months of 2001 was approximately $10,000 compared to $15,000 for the first six months of 2000. Each series of Bonds is structured in a manner such that funds to be received from the Loans are sufficient to fund interest and principal payments on the Bonds as well as all other expenses of the Company. All payments of principal and interest on the Loans securing the Bonds have been received by the Company as scheduled. Principal payments received on the Loans were approximately $552,000 in the first six months of 2001 compared to $164,000 in the first six months of 2000. Ziegler Financing Corporation, a related corporation, acts as servicer for the Loans for which it receives a fee. The fee is equal to 0.0292% of the average outstanding principal balance of the Loans during the preceding month. At June 30, 2001, there were $2,711,000 of Bonds outstanding collateralized by approximately $3,080,000 of Loans at maturity value. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk arises from exposure to changes in interest rates, exchange rates, commodity prices and other relevant market rate or price risk which impact an instrument's financial value. The Company would be exposed to market risk from changes in interest rates, except that the structured nature of the Company's activities minimizes this risk. The cash flows from principal payments on the Mortgage Loans are used to retire the principal of the Mortgage-Backed Bonds Payable. The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates, which include mortgage loans and bonds payable. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. The principal payments on the Mortgage Loans are the result of normal amortization. The table assumes that an equal amount of Mortgage-Backed Bonds Payable will be redeemed, as required by the indenture. Quoted market prices were utilized by the Company where readily available. If quoted market prices were not available, fair values were based on estimates using present value or other valuation techniques. Expected Maturity Dates (In US dollars) 2001-2005 Thereafter Total Fair Value ASSETS Mortgage Loans (1) $1,597,941 $1,481,812 $3,079,753 $3,135,000 Weighted average interest rate 9.24% LIABILITIES Mortgage-Backed Bonds Payable 1,561,000 1,150,000 2,711,000 2,636,000 Weighted average interest rate 8.34% (1) Assumes no prepayments.

PART II Items 1 through 5. Not applicable 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. FIRST CHURCH FINANCING CORPORATION Dated: August 9, 2001 By /s/ Scott D. Rolfs Scott D. Rolfs President Dated: August 9, 2001 By /s/ Jeffrey C. Vredenbregt Jeffrey C. Vredenbregt Secretary and Treasurer 6

FIRST CHURCH FINANCING CORP 10-Q