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 September 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 September 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
September 30, September 30,
1996 1995
<S> <C> <C>
Revenues:
Interest income $2,410,752 $2,633,104
Gain on liquidation of Mortgage
Certificates 102,625 23,579
Other income 5,072 -
Total revenues 2,518,449 2,656,683
Expenses:
Interest expense 2,265,653 2,470,617
Amortization of deferred issuance
costs 128,249 49,727
General and administrative 124,547 136,339
Total expenses 2,518,449 2,656,683
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 Nine Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Revenues:
Interest income $7,412,419 $7,776,212
Gain on liquidation of Mortgage
Certificates 480,410 168,566
Other income 31,959 -
Total revenues 7,924,788 7,944,778
Expenses:
Interest expense 7,030,427 7,301,061
Amortization of deferred issuance
costs 558,216 250,994
General and administrative 336,145 392,723
Total expenses 7,924,788 7,944,778
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>
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash $ 26,333 $ 83,353
Money market investments,
at cost, which approximates
market 450,587 341,861
Total cash and cash
equivalents 476,920 425,214
Assets held by trustee 3,947,842 4,207,178
Accrued interest receivable 775,151 855,783
Mortgage Certificates held by
trustee (net of purchase
discount of $3,044,610
and $3,425,237, respectively) 106,405,491 116,345,952
Deferred issuance costs 3,006,620 3,378,116
Total assets $114,612,024 $125,212,243
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accrued interest payable $ 3,479,035 $ 3,716,958
Mortgage Certificate-Backed
bonds payable 109,546,000 119,908,000
Payable to B. C. Ziegler and
Company 66,989 67,285
Total liabilities 113,092,024 123,692,243
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 $114,612,024 $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 Nine Months Ended
Sept. 30, Sept. 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ - $ -
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Gain on liquidation of
mortgage certificates (480,410) (168,566)
Discount accretion on Mortgage
Certificates (86,961) (92,011)
Amortization of deferred
issuance costs 558,216 250,994
Change in assets and liabilities:
Decrease (Increase) in -
Funds held by trustee 259,336 (319,301)
Accrued interest receivable 80,632 (27,007)
Increase (Decrease) in -
Accrued interest payable (237,923) 215,987
Payable to B. C. Ziegler
and Company (296) (107,333)
Net cash provided by (used in)
operating activities 92,594 (247,237)
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption of Mortgage Certificates 16,545,873 5,530,233
Purchase of Mortgage Certificates (6,038,041) (10,604,175)
Net cash provided by (used in)
investing activities 10,507,832 (5,073,942)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Mortgage Certificate-
Backed Bonds 6,037,280 10,597,250
Principal payments of Mortgage
Certificate-Backed Bonds (16,586,000) (5,435,000)
Net cash provided by (used in)
financing activities (10,548,720) 5,162,250
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 51,706 (158,929)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 425,214 593,951
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 476,920 $ 435,022
</TABLE>
Interest expense paid during the periods was $7,268,350 and $7,085,074 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
September 30, 1996
Note A -- Basis of Presentation
The condensed financial statements included herein have been prepared by
Ziegler Mortgage Securities, Inc. II (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 September 30, 1996 consist of the following:
<TABLE>
<CAPTION>
Original Outstanding Principal
Date of Stated Principal Amount
Series Rate Bonds Maturity Amounts at 9/30/96
<S> <C> <C> <C> <C> <C>
10 8.90% 10/1/86 10/1/21 $ 8,200,000 $ 2,335,000
16 9.00% 5/1/87 1/1/22 4,500,000 2,271,000
18 9.15% 6/1/87 5/1/22 7,372,000 5,764,000
19 9.15% 6/1/87 5/1/22 5,750,000 3,781,000
20 9.00% 7/1/87 6/1/22 5,418,000 3,473,000
21 9.00% 7/1/87 6/1/22 5,266,000 4,845,000
24 9.20% 10/1/87 2/1/22 5,237,000 4,258,000
33 9.10% 4/1/88 10/15/21 7,054,000 3,628,000
34 9.35% 6/1/88 5/15/23 4,163,000 3,306,000
39 9.40% 8/1/88 8/15/23 5,780,000 3,783,000
40 9.50% 9/1/88 9/15/23 6,800,000 1,608,000
41 9.30% 10/1/88 10/15/23 4,655,000 4,132,000
42 9.20% 10/1/88 10/15/23 4,000,000 3,551,000
45 9.45% 2/1/89 1/15/24 3,950,000 1,879,000
47 9.75% 5/1/89 2/15/24 3,744,000 1,694,000
49 8.45% 7/1/89 7/15/22 2,740,000 2,591,000
52 9.35% 5/1/90 5/15/20 3,000,000 483,000
55 9.00% 9/1/90 10/1/20 3,244,000 509,000
61 8.00% 9/1/91 11/15/19 3,390,000 1,345,000
62 7.25% 2/1/92 4/15/22 2,925,000 1,385,000
63 7.60% 5/1/92 5/15/22 3,400,000 1,410,000
64 7.40% 6/1/92 6/15/22 3,300,000 1,399,000
65 7.00% 1/1/93 1/15/28 3,029,000 2,957,000
66 7.00% 1/1/93 1/15/28 3,000,000 2,930,000
68 6.25% 4/1/93 5/1/23 3,000,000 2,480,000
69 6.00% 5/1/93 5/1/23 3,022,000 2,581,000
70 6.00% 3/1/94 11/15/28 3,390,000 3,330,000
71 7.00% 4/1/94 9/20/23 3,015,000 2,537,000
72 7.00% 4/1/94 10/15/23 2,897,000 2,837,000
73 7.00% 4/1/94 4/15/24 3,130,000 3,042,000
74 7.10% 5/1/94 2/15/24 3,145,000 3,078,000
75 7.10% 6/1/94 2/15/24 3,290,000 3,209,000
76 7.35% 9/1/94 9/15/29 2,535,000 2,501,000
77 8.00% 2/1/95 10/15/29 3,066,000 3,032,000
78 7.50% 4/1/95 9/15/29 2,597,000 2,577,000
79 6.75% 6/1/95 6/15/22 2,622,000 2,585,000
80 7.00% 9/1/95 7/15/23 2,640,000 2,624,000
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
154,490,000 107,954,000
</TABLE>
<TABLE>
<CAPTION>
American Mortgage Securities, Inc.
Mortgage Certificate-Backed Bonds*
<S> <C> <C> <C> <C> <C>
5 7.35% 3/1/92 3/1/22 3,000,000 1,592,000
$157,490,000 $109,546,000
</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 September 30, 1996 and December 31, 1995, approximated $109,344,000 and
$120,264,000, respectively.
Note C -- GNMA Certificates
The market values of the GNMA Certificates as of September 30, 1996 and
December 31, 1995, were approximately $111,103,000 and $124,478,000,
respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Third Quarter 1996 vs. Third Quarter 1995
During the third quarter of 1996, the Company did not issue any
additional series of Mortgage Certificate-Backed Bonds. This compares to the
issuance of one series totaling $2,640,000 during the third quarter of 1995.
Total revenues, consisting mostly of interest income, for the quarters totaled
approximately $2,518,000 in 1996 and $2,657,000 in 1995. Bond redemptions
totaled $9,318,000 during the third quarter of 1996. They were $620,000
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.
First Nine Months 1996 vs. First Nine Months 1995
During the first nine months of 1996, the Company issued two additional
series of Mortgage Certificate-Backed Bonds totaling $6,224,000. This
compares to the issuance of four series totaling $10,925,000 during the first
nine months of 1995. Total revenues, consisting mostly of interest income,
for the periods totaled approximately $7,925,000 in 1996 and $7,945,000 in
1995. Bond redemptions totaled $16,586,000 during the first nine months of
1996. They were $5,435,000 during the same period 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.
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
September 30, 1996, the Company operated at breakeven and there was a net
increase in cash and cash equivalents totaling approximately $52,000. The
primary net cash receipt totaled $10,508,000 from the redemption of Mortgage
Certificates during the period. The primary net cash disbursement totaled
$10,549,000 and arose from cash disbursed to redeem outstanding Bonds from
previous series during the period.
PART II
Items 1 through 5.
None of the Items are applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
27 Financial Data Schedule
(b) 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.
ZIEGLER MORTGAGE SECURITIES, INC. II
Dated: November 12, 1996 By /s/Eugene H. Rudnicki
Eugene H. Rudnicki
President
Dated: November 12, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 476,920
<SECURITIES> 106,405,491<F3>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,612,024
<CURRENT-LIABILITIES> 0
<BONDS> 109,546,000
0
1,500,000
<COMMON> 20,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,520,000
<SALES> 0
<TOTAL-REVENUES> 7,924,788<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 894,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,030,427
<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>Revenue consist primarily of interest income
</FN>
</TABLE>
