<PAGE>
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, 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 September 30, 1997 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,
1997 1996
<S> <C> <C>
Revenues:
Interest income $2,066,050 $2,410,752
Gain on liquidation of Mortgage
Certificates 200,345 107,697
Total revenues 2,266,395 2,518,449
Expenses:
Interest expense 1,956,503 2,265,653
Amortization of deferred issuance
costs 136,073 128,249
General and administrative 173,819 124,547
Total expenses 2,266,395 2,518,449
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,
1997 1996
<S> <C> <C>
Revenues:
Interest income $6,354,061 $7,412,419
Gain on liquidation of Mortgage
Certificates 304,432 512,369
Total revenues 6,658,493 7,924,788
Expenses:
Interest expense 5,991,020 7,030,427
Amortization of deferred issuance
costs 287,229 558,216
General and administrative 380,244 336,145
Total expenses 6,658,493 7,924,788
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,
1997 1996
<S> <C> <C>
ASSETS
Cash $ 14,855 $ 74,291
Money market investments,
at cost, which approximates
market 556,931 456,228
Total cash and cash
equivalents 571,786 530,519
Assets held by trustee 3,433,636 3,347,344
Accrued interest receivable 666,928 707,253
Mortgage Certificates held by
trustee (net of purchase
discount of $2,598,043
and $2,795,809, respectively) 93,223,595 98,182,510
Deferred issuance costs 2,566,194 2,758,864
Total assets $100,462,139 $105,526,490
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accrued interest payable $ 3,009,043 $ 2,948,545
Mortgage Certificate-Backed
bonds payable 95,905,000 101,047,000
Payable to B. C. Ziegler and
Company 28,096 10,945
Total liabilities 98,942,139 104,006,490
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 $100,462,139 $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)
<TABLE>
<CAPTION>
For the Nine Months Ended
Sept. 30, Sept. 30,
1997 1996
<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 (304,432) (512,369)
Discount accretion on Mortgage
Certificates (75,370) (86,961)
Amortization of deferred
issuance costs 287,229 558,216
Change in assets and liabilities:
Decrease (Increase) in -
Funds held by trustee (86,292) 259,336
Accrued interest receivable 40,325 80,632
Increase (Decrease) in -
Accrued interest payable 60,498 (237,923)
Payable to B. C. Ziegler
and Company 17,151 (296)
Net cash provided by (used in)
operating activities (60,891) 60,635
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption of Mortgage
Certificates 8,396,276 16,577,832
Purchase of Mortgage Certificates (3,057,558) (6,038,041)
Net cash provided by investing
activities 5,338,718 10,539,791
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Mortgage Certificate-
Backed Bonds 3,057,440 6,037,280
Principal payments of Mortgage
Certificate-Backed Bonds (8,294,000) (16,586,000)
Net cash used in financing
activities (5,236,560) (10,548,720)
NET INCREASE IN CASH AND CASH
EQUIVALENTS 41,267 51,706
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 530,519 425,214
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 571,786 $ 476,920
</TABLE>
Interest expense paid during the periods was $5,930,521 and $7,268,350 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
September 30, 1997
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, 1997 consist of the following:
<TABLE>
<CAPTION>
Original Outstanding Principal
Date of Stated Principal Amount
Series Rate Bonds Maturity Amounts at 9/30/97
<S> <C> <C> <C> <C> <C>
10 8.90% 10/1/86 10/1/21 $ 8,200,000 $ 2,294,000
16 9.00% 5/1/87 1/1/22 4,500,000 2,244,000
19 9.15% 6/1/87 5/1/22 5,750,000 3,744,000
20 9.00% 7/1/87 6/1/22 5,418,000 3,437,000
21 9.00% 7/1/87 6/1/22 5,266,000 4,804,000
24 9.20% 10/1/87 2/1/22 5,237,000 1,881,000
34 9.35% 6/1/88 5/15/23 4,163,000 3,283,000
39 9.40% 8/1/88 8/15/23 5,780,000 3,745,000
40 9.50% 9/1/88 9/15/23 6,800,000 1,596,000
41 9.30% 10/1/88 10/15/23 4,655,000 4,025,000
42 9.20% 10/1/88 10/15/23 4,000,000 3,459,000
47 9.75% 5/1/89 2/15/24 3,744,000 1,683,000
49 8.45% 7/1/89 7/15/22 2,740,000 2,562,000
52 9.35% 5/1/90 5/15/20 3,000,000 320,000
55 9.00% 9/1/90 10/1/20 3,244,000 501,000
61 8.00% 9/1/91 11/15/19 3,390,000 1,165,000
62 7.25% 2/1/92 4/15/22 2,925,000 1,214,000
63 7.60% 5/1/92 5/15/22 3,400,000 1,113,000
64 7.40% 6/1/92 6/15/22 3,300,000 1,223,000
65 7.00% 1/1/93 1/15/28 3,029,000 2,935,000
66 7.00% 1/1/93 1/15/28 3,000,000 2,904,000
68 6.25% 4/1/93 5/1/23 3,000,000 2,268,000
69 6.00% 5/1/93 5/1/23 3,022,000 2,062,000
70 6.00% 3/1/94 11/15/28 3,390,000 3,301,000
71 7.00% 4/1/94 9/20/23 3,015,000 2,277,000
72 7.00% 4/1/94 10/15/23 2,897,000 2,800,000
73 7.00% 4/1/94 4/15/24 3,130,000 2,932,000
74 7.10% 5/1/94 2/15/24 3,145,000 3,043,000
75 7.10% 6/1/94 2/15/24 3,290,000 3,182,000
76 7.35% 9/1/94 9/15/29 2,535,000 2,484,000
77 8.00% 2/1/95 10/15/29 3,066,000 3,015,000
78 7.50% 4/1/95 9/15/29 2,597,000 2,561,000
79 6.75% 6/1/95 6/15/22 2,622,000 2,549,000
80 7.00% 9/1/95 7/15/23 2,640,000 2,581,000
81 7.00% 4/1/96 5/15/28 3,237,000 3,206,000
82 7.25% 6/1/96 9/15/30 2,987,000 2,966,000
83 7.00% 4/1/97 2/15/27 3,152,000 3,152,000
139,266,000 94,511,000
American Mortgage Securities, Inc.
Mortgage Certificate-Backed Bonds*
5 7.35% 3/1/92 3/1/22 3,000,000 1,394,000
$142,266,000 $95,905,000
</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, 1997 and December 31, 1996, approximated $96,021,000 and
$109,344,000, respectively.
Note C -- GNMA Certificates
The market values of the GNMA Certificates as of September 30, 1997 and
December 31, 1996, were approximately $98,713,000 and $111,103,000,
respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Third Quarter 1997 vs. Third Quarter 1996
During the third quarters of 1997 and 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, consisting mostly of interest income, for the quarters totaled
approximately $2,266,000 in 1997 and $2,518,000 in 1996. Bond redemptions
totaled $4,449,000 during the third quarter of 1997. They were $9,318,000
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.
First Nine Months 1997 vs. First Nine Months 1996
During the first nine months of 1997, the Company issued one additional
series of Mortgage Certificate-Backed Bonds totaling $3,152,000. This
compares to the issuance of two series totaling $6,224,000 during the first
nine months of 1996. Total revenues, consisting mostly of interest income,
for the periods totaled approximately $6,658,000 in 1997 and $7,925,000 in
1996. Bond redemptions totaled $8,294,000 during the first nine months of
1997. They were $16,586,000 during the same period 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.
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, 1997, the Company operated at breakeven and there was a net
increase in cash and cash equivalents totaling approximately $41,000. The
primary net cash receipt totaled $8,396,000 from the redemption of Mortgage
Certificates during the period. The primary net cash disbursement totaled
$8,294,000 and arose from cash disbursed to redeem outstanding Bonds from
previous series during the period.
<PAGE>
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, 1997 By /s/ Thomas S. Ross
Thomas S. Ross
President
Dated: November 12, 1997 By /s/ Dennis A. Wallestad
Dennis A. Wallestad
Treasurer & Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule
<PAGE>
<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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 571,786
<SECURITIES> 93,223,595<F3>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,462,139
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 95,905,000
0
1,500,000
<COMMON> 20,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,520,000
<SALES> 0
<TOTAL-REVENUES> 6,658,493<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 380,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,278,249
<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>
