-----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, VVvnRM1p4EJWxHh5pZK6J9yv3CiXOhC5OwtdD3ZUP5fi1MHVzlHTS7L27/HXslPY v6ATTShqbANgb+bgaGBaxg== 0000784013-99-000004.txt : 19990816 0000784013-99-000004.hdr.sgml : 19990816 ACCESSION NUMBER: 0000784013-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99689201 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 SECOND QUARTER 10-Q FOR ZIEGLER MORTGAGE SECS II 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, 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 June 30, 1999 was 20,000 shares. PART I ZIEGLER MORTGAGE SECURITIES, INC. II CONDENSED STATEMENTS OF INCOME (Unaudited)
For the Three Months Ended June 30, June 30, 1999 1998 Revenues: Interest income $ 669,869 $960,192 Gain on sale/redemption of Mortgage Certificates 91,309 25,441 Total revenues 761,178 985,633 Expenses: Interest expense 622,739 878,025 Amortization of deferred issuance costs 101,808 40,635 General and administrative 36,631 66,973 Total expenses 761,178 985,633 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 STATEMENTS OF INCOME (Unaudited)
For the Six Months Ended June 30, June 30, 1999 1998 Revenues: Interest income $1,408,688 $2,255,947 Gain on sale/redemption of Mortgage Certificates 124,285 1,054,747 Total revenues 1,532,973 3,310,694 Expenses: Interest expense 1,295,136 2,087,179 Amortization of deferred issuance costs 146,876 1,071,202 General and administrative 90,961 152,313 Total expenses 1,532,973 3,310,694 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)
June 30, December 31, 1999 1998 ASSETS Cash $ 102,258 $ 49,974 Money market investments, at cost which approximates market 986,158 963,077 Total cash and cash equivalents 1,088,416 1,013,051 Assets held by trustee 1,445,771 4,292,159 Accrued interest receivable 213,278 243,281 Mortgage Certificates held by trustee (net of purchase discount of $918,854 and $1,061,640, respectively) 33,772,036 38,586,973 Deferred issuance costs 913,524 1,060,400 Accrued income taxes 25 - Total assets $37,433,050 $45,195,864 LIABILITIES AND STOCKHOLDERS' EQUITY Accrued interest payable $ 917,616 $ 1,073,417 Mortgage Certificate-Backed bonds payable 34,938,000 42,584,000 Payable to B. C. Ziegler and Company 39,434 447 Other liabilities 18,000 18,000 Total liabilities 35,913,050 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 $37,433,050 $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 Six Months Ended June 30, June 30, 1999 1998 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 (124,285) (1,054,747) Discount accretion on Mortgage Certificates (18,501) (28,902) Amortization of deferred issuance cost 146,876 1,071,202 Change in assets and liabilities: Decrease (Increase) in - Assets held by trustee 2,846,388 5,261,132 Accrued interest receivable 30,003 326,330 Accrued income taxes (25) - Increase (Decrease) in - Accrued interest payable (155,801) (1,560,558) Payable to B. C. Ziegler and Company 38,987 (8,511) Net cash provided by operating activities 2,763,642 4,005,946 CASH FLOWS FROM INVESTING ACTIVITIES Sale and redemption of Mortgage Certificates 4,957,723 41,183,043 Net cash provided by investing activities 4,957,723 41,183,043 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments of Mortgage Certificate-Backed bonds (7,646,000) (44,855,000) Net cash used in financing activities (7,646,000) (44,855,000) NET INCREASE IN CASH AND CASH EQUIVALENTS 75,365 333,989 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,013,051 627,785 CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,088,416 $ 961,774
Interest expense paid during the periods was approximately $1,451,000 and $3,648,000 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 June 30, 1999 and 1998 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, 1999 consist of the following:
Outstanding Original Original Principal Date of Stated Principal Amounts Series Rate Bonds Maturity Amounts at 6/30/99 62 7.25% 2/1/92 4/15/22 $ 2,925,000 $ 491,000 63 7.60% 5/1/92 5/15/22 3,400,000 698,000 64 7.40% 6/1/92 6/15/22 3,300,000 653,000 65 7.00% 1/1/93 1/15/28 3,029,000 2,891,000 66 7.00% 1/1/93 1/15/28 3,000,000 2,863,000 68 6.25% 4/1/93 5/1/23 3,000,000 1,643,000 69 6.00% 5/1/93 5/1/23 3,022,000 1,212,000 70 6.00% 3/1/94 11/15/28 3,390,000 3,239,000 71 7.00% 4/1/94 9/20/23 3,015,000 1,372,000 73 7.00% 4/1/94 4/15/24 3,130,000 2,008,000 74 7.10% 5/1/94 2/15/24 3,145,000 2,977,000 75 7.10% 6/1/94 2/15/24 3,290,000 3,105,000 79 6.75% 6/1/95 6/15/22 2,622,000 2,479,000 81 7.00% 4/1/96 5/15/28 3,237,000 3,154,000 82 7.25% 6/1/96 9/15/30 2,987,000 2,932,000 83 7.00% 4/1/97 2/15/27 3,152,000 2,415,000 49,644,000 34,132,000 American Mortgage Securities, Inc. Mortgage Certificate-Backed Bonds* 5 7.35% 3/1/92 3/1/22 3,000,000 806,000 $52,644,000 $34,938,000
*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 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, 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 In 1998 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS Second Quarter 1999 vs. Second Quarter 1998 During the second quarter of 1999, and also during the second 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 $761,000 in 1999 and $986,000 in 1998. Bond redemptions totaled $3,690,000 during the second quarter of 1999 and $1,035,000 during the same quarter of 1998. 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 1999 vs. First Six Months 1998 During the first six months of 1999, and also during the first six months of 1998, the Company did not issue any additional series of Mortgage Certificate-Backed Bonds. Total revenues, consisting mostly of interest income, for the periods totaled approximately $1,533,000 in 1999 and $3,311,000 in 1998. Bond redemptions totaled $7,646,000 during the first six months of 1999. They were $44,855,000 during the same period of 1998. 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, 1999, there was a net increase in cash and cash equivalents totaling approximately $75,000. The primary net cash receipt totaled approximately $4,958,000 from the redemption of Mortgage Certificates during the period. The primary cash disbursement totaled $7,646,000 and arose from cash disbursed to redeem outstanding Bonds from previous series during the period. The Company's computer systems are Year 2000 compliant. 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 June 30, 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) $ - $34,690,890 $34,690,890 $33,772,036 Weighted average interest rate 7.20% LIABILITIES Mortgage Certificate- Backed Bonds Payable (1) - 34,938,000 34,938,000 34,024,000 Weighted average interest rate 6.89%
(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: August 13, 1999 By /s/ Thomas S. Ross Thomas S. Ross President Dated: August 13, 1999 By /s/ Gary P. Engle Gary P. Engle Secretary and Treasurer EXHIBIT INDEX Exhibit Number Description 27 Financial Data Schedule EX-27 2 SECOND QUARTER 1999 FDS FOR ZMSI II
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. 6-MOS DEC-31-1999 JUN-30-1999 1,088,416 33,772,036 0 0 0 0 0 0 37,433,050 0 34,398,000 0 1,500,000 20,000 0 37,433,050 0 1,532,973 0 0 237,837 0 1,295,136 0 0 0 0 0 0 0 0 0
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