<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 June 30, 1998
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, 1998 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,
1998 1997
<S> <C> <C>
Revenues:
Interest income $960,192 $2,142,821
Gain on sale/redemption of
Mortgage Certificates 25,441 85,042
Total revenues 985,633 2,227,863
Expenses:
Interest expense 878,025 2,021,195
Amortization of deferred issuance
costs 40,635 109,394
General and administrative 66,973 97,274
Total expenses 985,633 2,227,863
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,
1998 1997
<S> <C> <C>
Revenues:
Interest income $2,255,947 $4,288,011
Gain on sale/redemption of
Mortgage Certificates 1,054,747 104,087
Total revenues 3,310,694 4,392,098
Expenses:
Interest expense 2,087,179 4,034,517
Amortization of deferred issuance
costs 1,071,202 151,155
General and administrative 152,313 206,426
Total expenses 3,310,694 4,392,098
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,
1998 1997
<S> <C> <C>
ASSETS
Cash $ 72,835 $ 63,542
Money market investments, at
cost which approximates market 888,939 564,243
Total cash and cash
equivalents 961,774 627,785
Assets held by trustee 1,667,387 6,928,519
Accrued interest receivable 310,527 636,857
Mortgage Certificates held by
trustee (net of purchase
discount of $1,378,244 and
$2,450,788, respectively) 48,576,290 88,675,684
Deferred issuance costs 1,349,858 2,421,060
Total assets $52,865,836 $99,289,905
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accrued interest payable $ 1,231,324 $ 2,791,882
Mortgage Certificate-Backed
bonds payable 50,085,000 94,940,000
Payable to B. C. Ziegler and
Company 11,512 20,023
Other liabilities 18,000 18,000
Total liabilities 51,345,836 97,769,905
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 $52,865,836 $99,289,905
</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,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ - $ -
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on sale/redemption of
Mortgage Certificates (1,054,747) (104,087)
Discount accretion on Mortgage
Certificates (28,902) (51,083)
Amortization of deferred issuance
cost 1,071,202 151,155
Change in assets and liabilities:
Decrease (Increase) in -
Assets held by trustee 5,261,132 54,563
Accrued interest receivable 326,330 6,930
Increase (Decrease) in -
Accrued interest payable (1,560,558) (35,289)
Payable to B. C. Ziegler and
Company (8,511) 11,867
Net cash provided by (used in)
operating activities 4,005,946 34,056
CASH FLOWS FROM INVESTING ACTIVITIES
Sale and redemption of Mortgage
Certificates 41,183,043 3,823,034
Purchase of Mortgage Certificates - (3,057,558)
Net cash provided by investing
activities 41,183,043 765,476
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Mortgage Certificate-
Backed Bonds - 3,057,440
Principal payments of Mortgage
Certificate-Backed bonds (44,855,000) (3,845,000)
Net cash used in financing
activities (44,855,000) (787,560)
NET INCREASE IN CASH AND CASH
EQUIVALENTS 333,989 11,972
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 627,785 530,519
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 961,774 $ 542,491
</TABLE>
Interest expense paid during the periods was $3,647,737 and $4,069,806 in 1998
and 1997, 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, 1998 and 1997
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, 1998 consist of the following:
<TABLE>
<CAPTION>
Outstanding
Original Original Principal
Date of Stated Principal Amounts
Series Rate Bonds Maturity Amounts at 6/30/98
<S> <C> <C> <C> <C> <C>
62 7.25% 2/1/92 4/15/22 $ 2,925,000 $ 939,000
63 7.60% 5/1/92 5/15/22 3,400,000 922,000
64 7.40% 6/1/92 6/15/22 3,300,000 992,000
65 7.00% 1/1/93 1/15/28 3,029,000 2,916,000
66 7.00% 1/1/93 1/15/28 3,000,000 2,892,000
68 6.25% 4/1/93 5/1/23 3,000,000 2,061,000
69 6.00% 5/1/93 5/1/23 3,022,000 1,860,000
70 6.00% 3/1/94 11/15/28 3,390,000 3,274,000
71 7.00% 4/1/94 9/20/23 3,015,000 2,007,000
72 7.00% 4/1/94 10/15/23 2,897,000 2,778,000
73 7.00% 4/1/94 4/15/24 3,130,000 2,881,000
74 7.10% 5/1/94 2/15/24 3,145,000 3,016,000
75 7.10% 6/1/94 2/15/24 3,290,000 3,145,000
76 7.35% 9/1/94 9/15/29 2,535,000 2,474,000
78 7.50% 4/1/95 9/15/29 2,597,000 2,553,000
79 6.75% 6/1/95 6/15/22 2,622,000 2,520,000
80 7.00% 9/1/95 7/15/23 2,640,000 2,557,000
81 7.00% 4/1/96 5/15/28 3,237,000 3,183,000
82 7.25% 6/1/96 9/15/30 2,987,000 2,951,000
83 7.00% 4/1/97 2/15/27 3,152,000 3,014,000
60,313,000 48,935,000
American Mortgage Securities, Inc.
Mortgage Certificate-Backed Bonds*
5 7.35% 3/1/92 3/1/22 3,000,000 1,150,000
$63,313,000 $50,085,000
</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.
ZMSI II has seldom sold any of the Mortgage Certificates to an
unrelated third party. It has determined that, because of the nature of
the underlying mortgage obligations, the true market values may be
difficult to determine, but are reasonably close to par value.
Note C -- GNMA Certificates
The market values of the GNMA Certificates as of June 30, 1998 and
December 31, 1997, were approximately par given the nature of the mortgage
obligations underlying the securities and risk of prepayment.
Note D -- Related Party Transaction
The Company sold approximately $39,578,000 of Mortgage Certificates
to B. C. Ziegler and Company, a related company. The Mortgage Certificates
were sold at par which approximated market value. The proceeds from the
Mortgage Certificates were used to call $39,570,000 of bonds which were
outstanding. Because of the high correlation between the purchase discount
on the Mortgage Certificates and the deferred issuance costs, the sale of
the Mortgage Certificates and subsequent replacement of the Bonds at par
value did not result in any significant impact to net income.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Second Quarter 1998 vs. Second Quarter 1997
The company issued no new series of Mortgage Certificate-Backed Bonds
during the second quarter of 1998. This compares to the issuance of one
series totaling $3,152,000 during the second quarter of 1997. 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 $986,000 in
1998 and $2,228,000 in 1997. Bond redemptions totaled $1,035,000 during
the second quarter of 1998 and $3,258,000 during the same quarter of 1997.
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 1998 vs. First Six Months 1997
The company issued no new series of Mortgage Certificate-Backed Bonds
during the first six months of 1998. This compares to the issuance of one
series totaling $3,152,000 during the first six months of 1997. Total
revenues, consisting mostly of interest income, for the periods totaled
$3,311,000 in 1998 and $4,392,000 in 1997. Bond redemptions totaled
$44,855,000 during the first six months of 1998. They were $3,845,000
during the same period of 1997.
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. As reflected in the Condensed Statement of Cash Flows for the
period ended June 30, 1998, there was a net increase in cash and cash
equivalents totaling approximately $334,000. The primary net cash receipt
totaled $41,183,000 from the redemption of Mortgage Certificates during the
period. The primary cash disbursement totaled $44,855,000 and arose from
cash disbursed to redeem outstanding Bonds from previous series during the
period.
The Company expects to have its primary computer systems Year 2000
compliant by the second quarter of 1999. The trustee of the issuer has
indicated that its systems were either Year 2000 compliant when designed
and programmed or have been reprogrammed to be Year 2000 compliant.
<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: August 12, 1998 By /s/ Thomas S. Ross
Thomas S. Ross
President
Dated: August 12, 1998 By /s/ D. Wallestad
Dennis A. Wallestad
Treasurer & Secretary
<PAGE>
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 961,774
<SECURITIES> 48,576,290<F3>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 52,865,836
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 50,103,000
0
1,500,000
<COMMON> 20,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 52,865,836
<SALES> 0
<TOTAL-REVENUES> 3,310,694<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,223,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,087,179
<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>
