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, 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 March 31, 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
March 31, March 31,
1998 1997
<S> <C> <C>
Revenues:
Interest income $1,295,755 $2,145,190
Other 1,029,307 19,045
Total revenues 2,325,062 2,164,235
Expenses:
Interest expense 1,209,155 2,013,322
Amortization of deferred issuance
costs 1,030,567 41,761
General and administrative 85,340 109,152
Total expenses 2,325,062 2,164,235
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>
March 31, December 31,
1998 1997
<S> <C> <C>
ASSETS
Cash $ - $ 63,542
Money market investments, at
cost which approximates market 974,194 564,243
Total cash and cash
equivalents 947,194 627,785
Assets held by trustee 2,099,479 6,928,519
Receivable from B. C. Ziegler
and Company 31,758 -
Accrued interest receivable 316,269 636,857
Mortgage Certificates held by
trustee (net of purchase
discount of $1,416,410 and
$2,450,788, respectively) 49,474,311 88,675,684
Deferred issuance costs 1,390,492 2,421,060
Total assets $54,259,503 $99,289,905
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest payable $ 1,556,019 $ 2,791,882
Bank overdrafts 45,484 -
Mortgage Certificate-Backed
bonds payable 51,120,000 94,940,000
Payable to B. C. Ziegler and
Company - 20,023
Other liabilities 18,000 18,000
Total liabilities 52,739,503 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 $54,259,503 $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 Three Months Ended
March 31, March 31,
1998 1997
<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 (1,029,307) (19,045)
Discount accretion on Mortgage
Certificates (16,220) (25,465)
Amortization of deferred issuance
cost 1,030,567 41,761
Change in assets and liabilities:
Decrease (Increase) in -
Assets held by trustee 4,829,040 (400,989)
Accrued interest receivable 320,588 2,708
Bank overdrafts payable 45,484 -
Increase (Decrease) in -
Accrued interest payable (1,235,863) 277,238
Receivable from B. C. Ziegler
and Company (31,758) -
Payable to B. C. Ziegler and
Company (20,023) 84,906
Net cash provided by (used in)
operating activities 3,892,508 (38,886)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale/Redemption of Mortgage
Certificates 40,246,901 680,438
Net cash provided by investing
activities 40,246,901 680,438
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of Mortgage
Certificate-Backed bonds (43,820,000) (587,000)
Net cash used in financing
activities (43,820,000) (587,000)
NET INCREASE IN CASH AND CASH
EQUIVALENTS 319,409 54,552
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 627,785 530,519
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 947,194 $ 585,071
</TABLE>
Interest expense paid during the periods was $2,445,018 and $1,736,084 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
March 31, 1998 and 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. Comprehensive Income, as
required to be reported by Statement of Financial Accounting Standards No.
130, is equal to Net Income.
Note B -- Mortgage Certificate-Backed Bonds
Bonds outstanding at March 31, 1998 consist of the following:
<TABLE>
<CAPTION>
Outstanding
Original Original Principal
Date of Stated Principal Amounts
Series Rate Bonds Maturity Amounts at 3/31/98
<S> <C> <C> <C> <C> <C>
62 7.25% 2/1/92 4/15/22 $ 2,925,000 $ 1,052,000
63 7.60% 5/1/92 5/15/22 3,400,000 1,054,000
64 7.40% 6/1/92 6/15/22 3,300,000 1,123,000
65 7.00% 1/1/93 1/15/28 3,029,000 2,921,000
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 2,120,000
69 6.00% 5/1/93 5/1/23 3,022,000 1,952,000
70 6.00% 3/1/94 11/15/28 3,390,000 3,281,000
71 7.00% 4/1/94 9/20/23 3,015,000 2,145,000
72 7.00% 4/1/94 10/15/23 2,897,000 2,790,000
73 7.00% 4/1/94 4/15/24 3,130,000 2,916,000
74 7.10% 5/1/94 2/15/24 3,145,000 3,025,000
75 7.10% 6/1/94 2/15/24 3,290,000 3,155,000
76 7.35% 9/1/94 9/15/29 2,535,000 2,479,000
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 2,530,000
80 7.00% 9/1/95 7/15/23 2,640,000 2,565,000
81 7.00% 4/1/96 5/15/28 3,237,000 3,199,000
82 7.25% 6/1/96 9/15/30 2,987,000 2,956,000
83 7.00% 4/1/97 2/15/27 3,152,000 3,121,000
60,313,000 49,829,000
</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 1,291,000
$63,313,000 $51,120,000
</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 must be fully
paid. 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 March 31, 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
First Quarter 1998 vs. First Quarter 1997
During the first quarter of 1998, and also during the first quarter
of 1997, 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 $2,325,062 in 1998 and $2,164,000 in 1997. Bond
redemptions totaled $43,820,000 during the first quarter of 1998 and
$587,000 during the same quarter of 1997.
In accordance with a written agreement with B. C. Ziegler and
Company, a related 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, 1998, the Company operated at breakeven and
there was a net increase in cash and cash equivalents totaling
approximately $319,000. The primary net cash receipt totaled $40,247,000
from the sale or redemption of Mortgage Certificates during the quarter.
The primary cash disbursement totaled $43,820,000 and arose from cash
disbursed to redeem outstanding Bonds during the quarter.
<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: May 14, 1998 By /s/ Thomas S. Ross
Thomas S. Ross
President
Dated: May 14, 1998 By /s/ Dennis A. Wallestad
Dennis A. Wallestad
Treasurer and 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 49474311<F3>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54259503
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 51120000
0
1500000
<COMMON> 20000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1520000
<SALES> 0
<TOTAL-REVENUES> 2325062<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1115907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1209155
<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>
