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, 1996
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 33-28290
ZIEGLER MORTGAGE SECURITIES, INC. II
(Exact name of registrant as specified in its charter)
Wisconsin 39-1539696
(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: (414) 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, 1996 was 20,000 shares.
<PAGE>
PART I
ZIEGLER MORTGAGE SECURITIES, INC. II
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Revenues:
Interest income $2,475,314 $2,576,514
Other 210,395 17,159
Total revenues 2,685,709 2,593,673
Expenses:
Interest expense 2,358,400 2,410,602
Amortization of deferred
issuance costs 221,019 47,368
General and administrative 106,290 135,703
Total expenses 2,685,709 2,593,673
Income before income taxes - -
Provision for income taxes - -
Net income $ - $ -
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these statements.
<PAGE>
ZIEGLER MORTGAGE SECURITIES, INC. II
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Revenues:
Interest income $5,001,667 $5,143,108
Other 404,672 144,987
Total revenues 5,406,339 5,288,095
Expenses:
Interest expense 4,764,775 4,830,444
Amortization of deferred
issuance costs 429,965 201,267
General and administrative 211,599 256,384
Total expenses 5,406,339 5,288,095
Income before income taxes - -
Provision for income taxes - -
Net income $ - $ -
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these statements.
<PAGE>
ZIEGLER MORTGAGE SECURITIES, INC. II
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash $ 16,415 $ 83,353
Money market investments, at cost
which approximates market 445,055 341,861
Total cash and cash equivalents 461,470 425,214
Assets held by trustee 9,525,278 4,207,178
Accrued interest receivable 804,153 855,783
Mortgage Certificates held by
trustee (net of purchase discount
of $3,174,290 and $3,425,237,
respectively) 110,113,573 116,345,952
Deferred issuance costs 3,134,870 3,378,116
Total assets $124,039,344 $125,212,243
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest payable $ 3,592,011 $ 3,716,958
Mortgage Certificate-Backed bonds
payable 118,864,000 119,908,000
Payable to B. C. Ziegler and Company 63,333 67,285
Total liabilities 122,519,344 123,692,243
Stockholders' equity
Preferred stock, $.10 par value,
non-voting, $9.00 non-cumulative
dividend, $100 redemption price;
200,000 shares authorized
15,000 shares issued and
outstanding 1,500,000 1,500,000
Common stock, $1 par value;
56,000 shares authorized
20,000 shares issued and
outstanding 20,000 20,000
Retained earnings - -
Total stockholders' equity 1,520,000 1,520,000
Total liabilities and
stockholders' equity $124,039,344 $125,212,243
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these balance sheets.
<PAGE>
ZIEGLER MORTGAGE SECURITIES, INC. II
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ - $ -
Adjustments to reconcile net income
to net cash used in operating
activities:
Gain on liquidation of Mortgage
Certificates (377,784) (144,987)
Discount accretion on Mortgage
Certificates (59,906) (60,822)
Amortization of deferred issuance
cost 429,965 201,267
Change in assets and liabilities:
Decrease (Increase) in -
Assets held by trustee (5,318,100) 66,942
Accrued interest receivable 51,630 (16,467)
Increase (Decrease) in -
Accrued interest payable (124,947) 25,617
Payable to B. C. Ziegler and
Company (3,952) (177,091)
Net cash used in operating activities (5,403,094) (105,541)
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption of Mortgage Certificates 12,708,111 4,737,635
Purchase of Mortgage Certificates (6,038,041) (8,034,274)
Net cash provided by (used in)
investing activities 6,670,070 (3,296,639)
CASH FLOWS FROM FINANCING ACTIVITIES
Book credit balance in bank account - 7,872
Issuance of Mortgage Certificate-
Backed Bonds 6,037,280 8,036,450
Principal payments of Mortgage
Certificate-Backed Bonds (7,268,000) (4,815,000)
Net cash provided by (used in)
financing activities (1,230,720) 3,229,322
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 36,256 (172,858)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 425,214 593,951
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 461,470 $ 421,093
</TABLE>
Interest expense paid during the periods was $4,889,722 and $4,804,827 in
1996 and 1995, respectively. No taxes have been paid by the Company.
The accompanying notes to condensed financial statements
are an integral part of these statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1996 and 1995
Note A -- Basis of Presentation
The condensed financial statements included herein have been prepared by
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 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 Certificate-Backed Bonds
Bonds outstanding at June 30, 1996 consist of the following:
<TABLE>
<CAPTION>
Outstanding
Original Original Principal
Date of Stated Principal Amounts
Series Rate Bonds Maturity Amounts at 6/30/96
<C> <C> <C> <C> <C> <C>
10 8.90% 10/1/86 10/1/21 $ 8,200,000 $2,359,000
16 9.00% 5/1/87 1/1/22 4,500,000 2,273,000
18 9.15% 6/1/87 5/1/22 7,372,000 5,776,000
19 9.15% 6/1/87 5/1/22 5,750,000 3,791,000
20 9.00% 7/1/87 6/1/22 5,418,000 3,490,000
21 9.00% 7/1/87 6/1/22 5,266,000 4,860,000
22 9.10% 8/1/87 12/1/21 5,650,000 2,440,000
24 9.20% 10/1/87 2/1/22 5,237,000 4,962,000
33 9.10% 4/1/88 10/15/21 7,054,000 3,637,000
34 9.35% 6/1/88 5/15/23 4,163,000 3,312,000
39 9.40% 8/1/88 8/15/23 5,780,000 3,792,000
40 9.50% 9/1/88 9/15/23 6,800,000 3,904,000
41 9.30% 10/1/88 10/15/23 4,655,000 4,156,000
42 9.20% 10/1/88 10/15/23 4,000,000 3,571,000
45 9.45% 2/1/89 1/15/24 3,950,000 1,882,000
47 9.75% 5/1/89 2/15/24 3,744,000 1,695,000
49 8.45% 7/1/89 7/15/22 2,740,000 2,598,000
52 9.35% 5/1/90 5/15/20 3,000,000 485,000
55 9.00% 9/1/90 10/1/20 3,244,000 561,000
60 8.30% 6/1/91 6/15/24 3,326,000 3,215,000
61 8.00% 9/1/91 11/15/19 3,390,000 1,354,000
62 7.25% 2/1/92 4/15/22 2,925,000 1,408,000
63 7.60% 5/1/92 5/15/22 3,400,000 1,540,000
64 7.40% 6/1/92 6/15/22 3,300,000 1,433,000
65 7.00% 1/1/93 1/15/28 3,029,000 2,962,000
66 7.00% 1/1/93 1/15/28 3,000,000 2,934,000
68 6.25% 4/1/93 5/1/23 3,000,000 2,501,000
69 6.00% 5/1/93 5/1/23 3,022,000 2,591,000
70 6.00% 3/1/94 11/15/28 3,390,000 3,340,000
71 7.00% 4/1/94 9/20/23 3,015,000 2,621,000
72 7.00% 4/1/94 10/15/23 2,897,000 2,845,000
73 7.00% 4/1/94 4/15/24 3,130,000 3,047,000
74 7.10% 5/1/94 2/15/24 3,145,000 3,085,000
75 7.10% 6/1/94 2/15/24 3,290,000 3,217,000
76 7.35% 9/1/94 9/15/29 2,535,000 2,504,000
77 8.00% 2/1/95 10/15/29 3,066,000 3,036,000
78 7.50% 4/1/95 9/15/29 2,597,000 2,585,000
79 6.75% 6/1/95 6/15/22 2,622,000 2,597,000
80 7.00% 9/1/95 7/15/23 2,640,000 2,640,000
81 7.00 4/1/96 5/15/28 3,237,000 3,237,000
82 7.25% 6/1/96 9/15/30 2,987,000 2,987,000
163,466,000 117,223,000
</TABLE>
<TABLE>
<CAPTION>
American Mortgage Securities, Inc.
Mortgage Certificate-Backed Bonds*
<C> <C> <C> <C> <C> <C>
5 7.35% 3/1/92 3/1/22 3,000,000 1,641,000
$166,466,000$118,864,000
</TABLE>
*Assumed by the company as a result of the merger of American Mortgage
Securities, Inc. into the company as of December 30, 1994.
The stated maturities are the dates on which Bonds will be fully paid
assuming no prepayments are received on the Mortgage Certificates which
serve as collateral for the Bonds. The actual maturities of the Bonds will
be shortened by prepayments on the Mortgage Certificates and by any Bond
calls.
The Bonds can be redeemed each month without premium under the
following circumstances:
The company must call Bonds, to the extent funds are available,
commencing in the twelfth month following the original issuance
of each series or commencing at such time as the aggregate
balance in the Redemption Fund for each series reaches
$100,000; whichever first occurs.
The Bonds of any series may be redeemed in whole by the company
after the third anniversary of the original issuance and,
commencing with Series 16 Bonds, at any time as the outstanding
principal amount of such series is less than 10% of the
aggregate principal amount of such series originally issued.
Bondholders can present their Bonds for redemption each month
commencing with the second calendar month following the month
in which each series is originally issued. The company will
redeem such Bonds to the extent funds are available.
The market values in the secondary bond market of the Bonds
outstanding as of June 30, 1996 and December 31, 1995, approximated
$118,190,000 and $120,264,000, respectively.
Note C -- GNMA Certificates
The market values of the GNMA Certificates as of June 30, 1996 and
December 31, 1995, were approximately $114,846,000 and $124,478,000,
respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Second Quarter 1996 vs. Second Quarter 1995
During the second quarter of 1996, the company issued two additional
series of Mortgage Certificate-Backed Bonds totaling $6,224,000. This
compares to the issuance of two series totaling $5,219,000 during the
second quarter of 1995. Unfavorable spreads between the interest yields on
the Mortgage Certificates and the Certificate-Backed Bonds have kept the
company from issuing additional series. Total revenues for the quarters
totaled approximately $2,686,000 in 1996 and $2,594,000 in 1995. Bond
redemptions were relatively low in this lower interest rate environment,
totaling $4,494,000 during the second quarter of 1996 and $2,300,000 during
the same quarter of 1995.
In accordance with a written agreement with B. C. Ziegler and
Company, which acts as underwriter and manager of the company, management
fees of the company were limited to the amount which prevented the company
from incurring a loss. It is anticipated that on a continuing basis the
company will operate at close to a breakeven level.
First Six Months 1996 vs. First Six Months 1995
During the first six months of 1996, the company issued two additional
series of Mortgage Certificate-Backed Bonds totaling $6,224,000. This
compares to the issuance of three series totaling $8,285,000 during the
first six months of 1995. Total revenues, consisting mostly of interest
income, for the periods totaled $5,406,000 in 1996 and $5,288,000 in 1995.
Bond redemptions totaled $7,268,000 during the first six months of 1996.
They were $4,815,000 during the same period of 1995.
Liquidity and Capital Resources
The company has no fixed assets nor any commitments outstanding to
purchase or lease any fixed assets.
Each series of bonds is structured in a manner such that funds
received from the related Mortgage Certificates are sufficient to fund all
interest and principal payments on the bonds, and all other expenses of the
company. This can be seen in the Condensed Statement of Cash Flows. For
the period ended June 30, 1996, there was a net increase in cash and cash
equivalents totaling approximately $36,000. The primary net cash receipt
totaled $12,708,000 from the redemption of Mortgage Certificates during the
period. The primary cash disbursement totaled $7,268,000 and arose from
cash disbursed to redeem outstanding Bonds from previous series during the
period. The cash generated by the redemption of the Mortgage Certificates
which has not yet been used to redeem Bonds ($5,440,000) is being held by
the trustee and comprises the majority of the $5,318,000 increase in assets
held by trustee on the cashflow statement.
<PAGE>
PART II
Items 1 through 5.
None of the Items are applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
Form 8-K, reporting the issuance of Series 81 Bonds and
execution of the Eighty-first Supplemental Indenture with
the Trustee and the Terms Agreement with B. C. Ziegler
and Company, filed with the Securities and Exchange
Commission on April 26, 1996.
Form 8-K, reporting the issuance of Series 82 Bonds and
execution of the Eighty-second Supplemental Indenture
with the Trustee and the Terms Agreement with B. C.
Ziegler and Company, filed with the Securities and
Exchange Commission on June 26, 1996.
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.
ZIEGLER MORTGAGE SECURITIES, INC. II
Dated: July 30, 1996 By /s/ Eugene H. Rudnicki
Eugene H. Rudnicki
President
Dated: July 30, 1996 By /s/ Lynn R. Van Horn
Lynn R. Van Horn
Treasurer & Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Ziegler
Mortgage Securities, Inc. II financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 461,470
<SECURITIES> 110,113,573<F3>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 124,039,344
<CURRENT-LIABILITIES> 0
<BONDS> 118,864,000
0
1,500,000
<COMMON> 20,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,520,000
<SALES> 0
<TOTAL-REVENUES> 5,406,339<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 641,564
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,406,375
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F3>GNMA mortgage certificates net of purchase discounts and held by a trustee
<F1>Registrant has an unclassified balance sheet
<F2>Revenues consist primarily of interest income
</FN>
</TABLE>
