-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ILO0Pds3chlumssovoH3tg++rHP2uDGWjfyz9do0DQUb2/u0iUhkDUNRMB/US0Jh 6UIONRar9k1tlgwob8hGYg== 0000784013-99-000002.txt : 19990517 0000784013-99-000002.hdr.sgml : 19990517 ACCESSION NUMBER: 0000784013-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZIEGLER MORTGAGE SECURITIES INC II CENTRAL INDEX KEY: 0000784013 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 391539696 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-01726 FILM NUMBER: 99622115 BUSINESS ADDRESS: STREET 1: 215 N MAIN ST CITY: WEST BEND STATE: WI ZIP: 53095 BUSINESS PHONE: 4143345521 MAIL ADDRESS: STREET 1: 215 NORTH MAIN STREET CITY: WEST BEND STATE: WI ZIP: 53095 10-Q 1 FIRST QUARTER 10-Q FOR ZIEGLER MORTGAGE SECURITIES 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, 1999 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, 1999 was 20,000 shares. PART I ZIEGLER MORTGAGE SECURITIES, INC. II CONDENSED STATEMENTS OF INCOME (Unaudited)
For the Three Months Ended March 31, March 31, 1999 1998 Revenues: Interest income $ 738,819 $1,295,755 Gain on sale of Mortgage Certificates 32,975 1,029,307 Total revenues 771,794 2,325,062 Expenses: Interest expense 672,396 1,209,155 Amortization of deferred issuance costs 45,068 1,030,567 Management fee 24,611 (19,179) General and administrative 29,719 104,519 Total expenses 771,794 2,325,062 Income before income taxes - - Provision for income taxes - - Net income $ - $ -
The accompanying notes to condensed financial statements are an integral part of these statements. ZIEGLER MORTGAGE SECURITIES, INC. II CONDENSED BALANCE SHEETS (Unaudited)
March 31, December 31, 1999 1998 ASSETS Cash $ 65,230 $ 49,974 Money market investments, at cost which approximates market 974,645 963,077 Total cash and cash equivalents 1,039,875 1,013,051 Assets held by trustee 1,684,440 4,292,159 Accrued interest receivable 235,796 243,281 Mortgage Certificates held by trustee (net of purchase discount of $1,018,947 and $1,061,640, respectively) 37,315,862 38,586,973 Deferred issuance costs 1,015,332 1,060,400 Accrued income taxes 25 - Total assets $41,291,330 $45,195,864 LIABILITIES AND STOCKHOLDERS' EQUITY Accrued interest payable $ 1,100,271 $ 1,073,417 Mortgage Certificate-Backed bonds payable 38,628,000 42,584,000 Payable to B. C. Ziegler and Company 25,059 447 Other liabilities 18,000 18,000 Total liabilities 39,771,330 43,675,864 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 $41,291,330 $45,195,864
The accompanying notes to condensed financial statements are an integral part of these balance sheets. ZIEGLER MORTGAGE SECURITIES, INC. II CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31, March 31, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ - $ - Adjustments to reconcile net income to net cash used in operating activities: Gain on sale of Mortgage Certificates (32,975) (1,029,307) Discount accretion on Mortgage Certificates (9,718) (16,220) Amortization of deferred issuance cost 45,068 1,030,567 Change in assets and liabilities: Decrease (Increase) in - Assets held by trustee 2,607,719 4,829,040 Accrued interest receivable 7,485 320,588 Accrued income taxes (25) - Bank overdrafts payable - 45,484 Increase (Decrease) in - Accrued interest payable 26,854 (1,235,863) Receivable from B. C. Ziegler and Company - (31,758) Payable to B. C. Ziegler and Company 24,612 (20,023) Net cash provided by operating activities 2,669,020 3,892,508 CASH FLOWS FROM INVESTING ACTIVITIES Sale/Redemption of Mortgage Certificates 1,313,804 40,246,901 Net cash provided by investing activities 1,313,804 40,246,901 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments of Mortgage Certificate-Backed bonds (3,956,000) (43,820,000) Net cash used in financing activities (3,956,000) (43,820,000) NET INCREASE IN CASH AND CASH EQUIVALENTS 26,824 319,409 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,013,051 627,785 CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,039,875 $ 947,194
Interest expense paid during the periods was $645,542 and $2,445,018 in 1999 and 1998, respectively. No taxes have been paid by the Company. The accompanying notes to condensed financial statements are an integral part of these statements. 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. Note B -- Mortgage Certificate-Backed Bonds Bonds outstanding at March 31, 1999 consist of the following:
Outstanding Original Original Principal Date of Stated Principal Amounts Series Rate Bonds Maturity Amounts at 3/31/99 62 7.25% 2/1/92 4/15/22 $ 2,925,000 $ 586,000 63 7.60% 5/1/92 5/15/22 3,400,000 759,000 64 7.40% 6/1/92 6/15/22 3,300,000 755,000 65 7.00% 1/1/93 1/15/28 3,029,000 2,901,000 66 7.00% 1/1/93 1/15/28 3,000,000 2,867,000 68 6.25% 4/1/93 5/1/23 3,000,000 1,739,000 69 6.00% 5/1/93 5/1/23 3,022,000 1,323,000 70 6.00% 3/1/94 11/15/28 3,390,000 3,252,000 71 7.00% 4/1/94 9/20/23 3,015,000 1,556,000 72 7.00% 4/1/94 10/15/23 2,897,000 2,748,000 73 7.00% 4/1/94 4/15/24 3,130,000 2,016,000 74 7.10% 5/1/94 2/15/24 3,145,000 2,987,000 75 7.10% 6/1/94 2/15/24 3,290,000 3,115,000 79 6.75% 6/1/95 6/15/22 2,622,000 2,493,000 81 7.00% 4/1/96 5/15/28 3,237,000 3,161,000 82 7.25% 6/1/96 9/15/30 2,987,000 2,935,000 83 7.00% 4/1/97 2/15/27 3,152,000 2,523,000 52,541,000 37,716,000 American Mortgage Securities, Inc. Mortgage Certificate-Backed Bonds* 5 7.35% 3/1/92 3/1/22 3,000,000 912,000 $55,541,000 $38,628,000
*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 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 March 31, 1999 and December 31, 1998, 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 in February, 1998, and $5,017,000 of Mortgage Certificates to The Ziegler Companies, Inc. in October, 1998, both of which are related companies. The Mortgage certificates were sold at par which approximated market value. The proceeds from the Mortgage Certificates were used to call 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS First Quarter 1999 vs. First Quarter 1998 During the first quarter of 1999, and also during the first quarter of 1998, 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 $772,000 in 1999 and $2,325,000 in 1998. Bond redemptions totaled $3,956,000 during the first quarter of 1999 and $43,820,000 during the same quarter of 1998. 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, 1999, the Company operated at breakeven and there was a net increase in cash and cash equivalents totaling approximately $27,000. The primary net cash receipt totaled $1,314,000 from the sale or redemption of Mortgage Certificates during the quarter. The primary cash disbursement totaled $3,956,000 and arose from cash disbursed to redeem outstanding Bonds during the quarter. 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. Quantitative and Qualitative Disclosure about Market Risk Market risk arises from exposure to changes in interest rates, exchange rates, commodity prices and other relevant market rate or price risk which impact an instrument's financial value. The Company would be exposed to market risk from changes in interest rates, except that the structured nature of the Company's activities minimizes this risk. The cash flows from payments on the Mortgage Certificates are used to retire the principal of the Mortgage Certificate-Backed Bonds Payable. The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates, which include mortgage certificates and bonds payable. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. Principal payments on the Mortgage Certificates will occur as the result of amortization on the underlying mortgages. However, the amount of amortization is difficult to predict and is not estimated in the table. Any cash flows received from principal payments will be used to redeem Mortgage Certificate-Backed Bonds Payable. The fair values of the Mortgage Certificates at March 31, 1999 were approximately par given the nature of the mortgage obligations underlying the securities and the risk of prepayment.
Expected Maturity Dates (In US dollars) ASSETS 1999-2003 Thereafter Total Fair Value Mortgage Certifi- cates (1) $ - $37,315,862 $37,315,862 $37,315,862 Weighted average interest rate 7.22% LIABILITIES Mortgage Certificate- Backed Bonds Payable (1) - 38,628,000 38,628,000 38,171,000 Weighted average interest rate 6.90% (1) Assumes no prepayments.
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, 1999 By /s/ Thomas S. Ross Thomas S. Ross President Dated: May 14, 1999 By /s/ Jeffrey C. Vredenbregt Jeffrey C. Vredenbregt Vice President and Assistant Secretary (Chief Accounting Officer) EXHIBIT INDEX Exhibit Number Description 27 Financial Data Schedule EX-27 2 FIRST QUARTER 1999 FDS FOR ZMSI
5 This schedule contains summary financial information extracted from ZMSI II financial statements and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1999 MAR-31-1999 1,039,875 37,315,862 0 0 0 0 0 0 41,291,330 0 38,628,000 0 1,500,000 20,000 0 41,291,330 0 771,794 0 0 99,398 0 672,396 0 0 0 0 0 0 0 0 0
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