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 March 31, 1997
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 March 31, 1997 was 20,000 shares.
<PAGE>
PART I
ZIEGLER MORTGAGE SECURITIES, INC. II
CONDENSED STATEMENTS OF INCOME
(Unaudited)
[CAPTION]
For the Three Months Ended
March 31, March 31,
1997 1996
<TABLE>
<S> <C> <C>
Revenues:
Interest income $2,145,190 $2,526,353
Other 19,045 194,277
Total revenues 2,164,235 2,720,630
Expenses:
Interest expense 2,013,322 2,406,375
Amortization of deferred issuance
costs 41,761 208,946
General and administrative 109,152 105,309
Total expenses 2,164,235 2,720,630
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)
[CAPTION]
March 31, December 31,
1997 1996
<TABLE>
<S> <C> <C>
ASSETS
Cash $ 123,269 $ 74,291
Money market investments, at
cost which approximates market 461,802 456,228
Total cash and cash
equivalents 585,071 530,519
Assets held by trustee 3,748,333 3,347,344
Accrued interest receivable 704,545 707,253
Mortgage Certificates held by
trustee (net of purchase
discount of $2,751,299 and
$2,795,809, respectively) 97,546,583 98,182,510
Deferred issuance costs 2,717,102 2,758,864
Total assets $105,301,634 $105,526,490
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accrued interest payable $ 3,225,783 $ 2,948,545
Mortgage Certificate-Backed
bonds payable 100,460,000 101,047,000
Payable to B. C. Ziegler and
Company 95,851 10,945
Total liabilities 103,781,634 104,006,490
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 $105,301,634 $105,526,490
</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)
[CAPTION]
For the Three Months Ended
March 31, March 31,
1997 1996
<TABLE>
<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 (19,045) (194,277)
Discount accretion on Mortgage
Certificates (25,465) (30,063)
Amortization of deferred issuance
cost 41,761 208,948
Change in assets and liabilities:
Decrease (Increase) in -
Assets held by trustee (400,989) (3,530,461)
Accrued interest receivable 2,708 41,908
Increase (Decrease) in -
Accrued interest payable 277,238 49,463
Payable to B. C. Ziegler and
Company 84,906 (3,314)
Net cash used in operating
activities (38,886) (3,457,796)
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption of Mortgage Certificates 680,438 6,248,642
Net cash provided by investing
activities 680,438 6,248,642
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of Mortgage
Certificate-Backed bonds (587,000) (2,774,000)
Net cash used in financing
activities (587,000) (2,774,000)
NET INCREASE IN CASH AND CASH
EQUIVALENTS 54,552 16,846
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 530,519 425,214
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 585,071 $ 442,060
</TABLE>
Interest expense paid during the periods was $1,736,084 and $2,356,912 in 1997
and 1996, 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
March 31, 1997 and 1996
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 March 31, 1997 consist of the following:
[CAPTION]
Outstanding
Original Original Principal
Date of Stated Principal Amounts
Series Rate Bonds Maturity Amounts at 3/31/97
<TABLE>
<C> <C> <C> <C> <C> <C>
10 8.90% 10/1/86 10/1/21 $ 8,200,000 $2,318,000
16 9.00% 5/1/87 1/1/22 4,500,000 2,255,000
19 9.15% 6/1/87 5/1/22 5,750,000 3,766,000
20 9.00% 7/1/87 6/1/22 5,418,000 3,456,000
21 9.00% 7/1/87 6/1/22 5,266,000 4,822,000
24 9.20% 10/1/87 2/1/22 5,237,000 4,233,000
33 9.10% 4/1/88 10/15/21 7,054,000 3,613,000
34 9.35% 6/1/88 5/15/23 4,163,000 3,298,000
39 9.40% 8/1/88 8/15/23 5,780,000 3,765,000
40 9.50% 9/1/88 9/15/23 6,800,000 1,602,000
41 9.30% 10/1/88 10/15/23 4,655,000 4,076,000
42 9.20% 10/1/88 10/15/23 4,000,000 3,502,000
47 9.75% 5/1/89 2/15/24 3,744,000 1,687,000
49 8.45% 7/1/89 7/15/22 2,740,000 2,579,000
52 9.35% 5/1/90 5/15/20 3,000,000 399,000
55 9.00% 9/1/90 10/1/20 3,244,000 505,000
61 8.00% 9/1/91 11/15/19 3,390,000 1,279,000
62 7.25% 2/1/92 4/15/22 2,925,000 1,315,000
63 7.60% 5/1/92 5/15/22 3,400,000 1,244,000
64 7.40% 6/1/92 6/15/22 3,300,000 1,317,000
65 7.00% 1/1/93 1/15/28 3,029,000 2,948,000
66 7.00% 1/1/93 1/15/28 3,000,000 2,918,000
68 6.25% 4/1/93 5/1/23 3,000,000 2,397,000
69 6.00% 5/1/93 5/1/23 3,022,000 2,447,000
70 6.00% 3/1/94 11/15/28 3,390,000 3,314,000
71 7.00% 4/1/94 9/20/23 3,015,000 2,425,000
72 7.00% 4/1/94 10/15/23 2,897,000 2,819,000
73 7.00% 4/1/94 4/15/24 3,130,000 2,950,000
74 7.10% 5/1/94 2/15/24 3,145,000 3,060,000
75 7.10% 6/1/94 2/15/24 3,290,000 3,191,000
76 7.35% 9/1/94 9/15/29 2,535,000 2,495,000
77 8.00% 2/1/95 10/15/29 3,066,000 3,024,000
78 7.50% 4/1/95 9/15/29 2,597,000 2,572,000
79 6.75% 6/1/95 6/15/22 2,622,000 2,567,000
80 7.00% 9/1/95 7/15/23 2,640,000 2,599,000
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 2,984,000
143,168,000 98,978,000
American Mortgage Securities, Inc.
Mortgage Certificate-Backed Bonds*
5 7.35% 3/1/92 3/1/22 3,000,000 1,482,000
$146,168,000 $100,460,000
</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 March 31, 1997 and December 31, 1996, approximated
$100,577,000 and $101,173,000, respectively.
Note C -- GNMA Certificates
The market values of the GNMA Certificates as of March 31, 1997 and
December 31, 1996, were approximately $101,026,000 and $103,022,000,
respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
First Quarter 1997 vs. First Quarter 1996
During the first quarter of 1997, and also during the first quarter
of 1996, the company did not issue any additional series of Mortgage
Certificate-Backed Bonds. 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 $2,164,000 in 1997 and $2,721,000 in 1996. Bond
redemptions were relatively low in this lower interest rate environment,
totaling $587,000 during the first quarter of 1997 and $2,774,000 during
the same quarter of 1996.
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.
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 quarter ended March 31, 1997, the Company operated at breakeven and
there was a net increase in cash and cash equivalents totaling
approximately $55,000. The primary net cash receipt totaled $680,000 from
the redemption of Mortgage Certificates during the quarter. The primary
cash disbursement totaled $587,000 and arose from cash disbursed to redeem
outstanding Bonds from previous series during the quarter.
RECENT DEVELOPMENTS
Effective March 31, 1997, Eugene H. Rudnicki retired as President and
as Director of the Issuer and Senior Vice President of the Underwriter. On
April 16, 1997, David A. Schlosser replaced Mr. Rudnicki as President and a
Director of the Issuer and as Senior Vice President of the Underwriter.
However, effective April 28, 1997, Mr. Schlosser resigned from all of his
positions with the Issuer and the Underwriter. A replacement for Mr.
Schlosser as President of the Issuer has not yet been named, nor have the
shareholders of the Issuer, The Ziegler Companies, Inc. and James G.
Pouros, voted yet to replace Mr. Schlosser as a Director of the Issuer.
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: May 15, 1997 By /s/ Jeffrey C. Vredenbregt
Jeffrey C. Vredenbregt
Vice President and
Assistant Secretary
Dated: May 15, 1997 By /s/Dennis A. Wallestad
Dennis A. Wallestad
Acting Treasurer and
Acting Secretary
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ZMSI II
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 585,701
<SECURITIES> 97,546,583<F3>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,301,634
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 100,460,000
0
1,500,000
<COMMON> 20,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,520,000
<SALES> 0
<TOTAL-REVENUES> 2,164,235<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 150,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,013,322
<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>
