SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
for the fiscal year ended December 31, 2003.
[ ] 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: 1-14103
NB CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-2063921
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 West 55TH Street
New York, New York 10019
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 632-8532
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
8.35% Noncumulative Exchangeable Preferred Stock, Series A, par value $ .01
per share, traded in the form of Depository Shares, each representing a
one-fortieth interest therein
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 registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of December 31, 2003, all Common Stock, par value $ .01 per share, was
held by an affiliate.
As of December 31, 2003, the number of shares of Common Stock outstanding
was 100.
Documents Incorporated by reference:
None.
FORWARD-LOOKING STATEMENTS
From time to time, NB Capital Corporation (the "Company" or "NB Capital")
makes written and oral forward-looking statements, included in this 10-K report
for filling with the U.S Securities and Exchange Commission, in reports to
shareholders, in press releases and in other communications. All such statements
are made pursuant to the "safe harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include, among others, statements with respect to the economy, market changes,
the achievement of strategic objectives, certain risks as well as statements
with respect to our beliefs, plans, expectations, anticipations, estimates and
intentions. These forward-looking statements are typically identified by the
words "may," "could," "should," "would," "suspect," "outlook," "believe,"
"anticipate," "estimate," "expect," "intend," "plan," and words and expressions
of similar import.
By their very nature, such forward-looking statements require us to make
assumptions and involve inherent risks and uncertainties, both general and
specific. There is significant risk that express or implied projections
contained in such statements will not materialize or will not be accurate. A
number of factors could cause actual future results, conditions, actions or
events to differ materially from the targets, expectations, estimates or
intentions expressed in the forward-looking statements. Such differences may be
caused by factors, many of which are beyond the Company's control, which
include, but are not limited to, changes in North American and/or global
economic and financial conditions (particularly fluctuations in interest rates,
currencies and other financial instruments), liquidity, market trends,
regulatory developments and competition in geographic areas where the Company
operates, technological changes, the possible impact on our businesses of
international conflicts and other developments including those relating to the
war on terrorism and the Company's anticipation of and success in managing the
risks implied by the foregoing.
The Company cautions that the foregoing list of important factors is not
exhaustive. Investors and others who base themselves on the Company's
forward-looking statements should carefully consider the above factors as well
as the uncertainties they represent and the risk they entail. The Company
therefore cautions readers not to place undue reliance on these forward-looking
statements. The Company does not undertake to update any forward-looking
statements, whether written or oral, that may be made from time to time by or on
behalf of the Company.
EXCHANGE RATE
References to $ are to United States dollars; references to C$ are to
Canadian dollars. As of December 31, 2003, the Canadian dollar exchange rate was
C$1.2965 = $1.00 and certain amounts stated herein reflect such exchange rate.
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PART I
ITEM 1: BUSINESS
General
On August 20, 1997, NB Capital Corporation (the "Company") was incorporated
under the laws of the State of Maryland for the purposes of providing U.S.
investors with the opportunity to invest in Canadian residential mortgages and
other real estate assets. The Company began operations on September 3, 1997 with
the consummation of an offering of 300,000 shares of its 8.35% Noncumulative
Exchangeable Preferred Stock, Series A (the "Series A Preferred Shares"). The
Series A Preferred Shares trade on the New York Stock Exchange in the form of
Depository Shares, each representing a one-fortieth interest in a Series A
Preferred Share (the "Depository Shares"). National Bank of Canada (the "Bank")
owns all of the Company's issued and outstanding common stock, par value $.01
per share (the "Common Stock"). Accordingly, the Company is a wholly owned
subsidiary of the Bank.
The Company's principal business objective is to acquire, hold, finance and
manage assets consisting of obligations secured by real property ("Mortgage
Assets") as well as certain other qualifying real estate investment trust
("REIT") assets. The Mortgage Assets currently consist of sixty-one
"hypothecation" loans issued to the Company by NB Finance, Ltd. ("NB Finance"),
a Bermuda corporation and a wholly owned subsidiary of the Bank, that are
recourse only to the "Mortgage Loans". Hypothecation loans are loans secured by
the pledge of mortgages as security therefore. The Mortgage Loans consist of
sixty-one pools of, at December 31, 2003, an aggregate 15,246 residential first
mortgages insured by Canada Mortgage and Housing Corporation, an agency of the
Government of Canada ("CMHC"), that are secured by real property located in
Canada. The Company has acquired and expects to continue to acquire its Mortgage
Assets from the Bank and affiliates of the Bank. The Company may also from time
to time, however, acquire Mortgage Assets from unrelated third parties.
The Bank administers the day-to-day operations of the Company pursuant to
an Advisory Agreement, dated September 3, 1997, between the Bank and the Company
(the "Advisory Agreement"). The Bank also services the Mortgage Loans pursuant
to a Servicing Agreement, dated September 3, 1997, between the Bank and NB
Finance (the "Servicing Agreement"). Pursuant to an Assignment Agreement, NB
Finance has assigned to the Company all of its right, title and interest in the
Servicing Agreement.
In order to preserve the Company's status as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"), substantially all of the assets
of the Company consist of the Mortgage Assets issued by NB Finance and other
real estate assets that are of the type set forth in Section 856(c)(6)(B) of the
Code.
For information regarding the Company's revenue and operating profit, see
the Company's financial statements, beginning on page F-1.
Automatic Exchange
Each Series A Preferred Share will be exchanged automatically for one newly
issued 8.45% Noncumulative First Preferred Share, Series Z, of the Bank (a "Bank
Preferred Share") (i) immediately prior to such time, if any, at which the Bank
fails to declare and pay or set aside for payment when due on any dividend on
any issue of its cumulative First Preferred Shares or the Bank fails to pay or
set aside for payment when due any declared dividend on any of its
non-cumulative First Preferred Shares, (ii) in the event that the Bank has a
Tier 1 risk-based capital ratio of less than 4.0% or a total risk-based capital
ratio of less than 8.0%, (iii) in the event that the Superintendent of Financial
Institutions Canada (the "Superintendent") takes control of the Bank pursuant to
the Bank Act (Canada), as amended (the "Bank Act"), or proceedings are commenced
for the winding-up of the Bank pursuant to the Winding-up and Restructuring Act
(Canada), or (iv) in the event that the Superintendent, by order, directs the
Bank to act pursuant to subsection 485(3) of the Bank Act and the Bank elects to
cause the exchange (each, an "Exchange Event"). Upon an Exchange Event, the
holders of the Series A Preferred Shares shall be unconditionally obligated to
surrender to the Bank the certificates representing the Series A Preferred Share
held by such holder, and the Bank
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shall be unconditionally obligated to issue to such holder in exchange for each
such Series A Preferred Share a certificate representing one Bank Preferred
Share.
The Automatic Exchange shall occur as of 8:00 a.m. Eastern Time on the date
for such exchange set forth in the requirements of the Superintendent or, if
such date is not set forth in such requirements as of 8:00 a.m. on the earliest
possible date such exchange could occur consistent with such requirements (the
"Time of Exchange"), as evidenced by the issuance by the Bank of a press release
prior to such time. As of the Time of Exchange, all of the Series A Preferred
Shares will be deemed canceled without any further action by the Company, all
rights of the holders of the Series A Preferred Shares as stockholders of the
Company will cease, and such persons shall thereupon and thereafter be deemed to
be and shall be for all purposes holders of Bank Preferred Shares. The Company
will mail notice of the occurrence of an Exchange Event to each holder of the
Series A Preferred Shares within 30 days of such event, and the Bank will
deliver to each such holder certificates for the Bank Preferred Shares upon
surrender of such holder's certificates for the Series A Preferred Shares. The
charter provides that, immediately after the delivery of such notice, the
existence of the Company shall terminate and the Company will be liquidated and
its affairs wound up in accordance with the procedures of the Maryland General
Corporation Law relating to forfeiture of the charter of a corporation and
expiration of corporate existence. Until such replacement stock certificates are
delivered (or in the event such replacement certificates are not delivered),
certificates previously representing the Series A Preferred Shares shall be
deemed for all purposes to represent the Bank Preferred Shares. Once an Exchange
Event occurs, no action will be required to be taken by holders of the Series A
Preferred Shares, by the Bank or by the Company in order to effect an automatic
exchange as of the Time of Exchange.
Holders of the Series A Preferred Shares, by purchasing the Series A
Preferred Shares, have agreed to be bound by the unconditional obligation to
exchange such Series A Preferred Shares for the Bank Preferred Shares upon the
occurrence of an Exchange Event. The obligation of the holders of the Series A
Preferred Shares to surrender such shares and the obligation of the Bank to
issue the Bank Preferred Shares in exchange for the Series A Preferred Shares
shall be enforceable by the Bank and such holders, respectively, against the
other.
Upon the occurrence of an Exchange Event, the Bank Preferred Shares to be
issued as part of an automatic exchange would constitute a newly issued series
of First Preferred Shares of the Bank and would constitute 100% of the issued
and outstanding Bank Preferred Shares. The Bank Preferred Shares would have the
same liquidation preference and be subject to redemption on the same terms as
the Series A Preferred Shares (except that there would be no redemption for
certain tax-related events). Any accrued and unpaid dividends on the Series A
Preferred Shares as of the Time of Exchange would be accounted for as accrued
and unpaid dividends on the Bank Preferred Shares. The Bank Preferred Shares
would rank pari passu, in terms of dividend payments and liquidation preference,
with, or senior to, any outstanding First Preferred Shares of the Bank. The Bank
Preferred Shares would not entitle the holders to vote except in certain
circumstances. Dividends on the Bank Preferred Shares would be non-cumulative
and payable at the rate of 8.45% per annum of the liquidation preference, if,
when and as declared by the Board of Directors of the Bank. The Bank does not
intend to apply for listing of the Bank Preferred Shares on any national
securities exchange or for quotation of the Bank Preferred Shares through the
National Association of Securities Dealers Automated Quotation System. Absent
the occurrence of an Exchange Event, however, the Bank will not issue any Bank
Preferred Shares, although the Bank will be able to issue First Preferred Shares
in series other than that of the Bank Preferred Shares. There can be no
assurance as to the liquidity of the trading markets for the Bank Preferred
Shares, if issued, or that an active public market for the Bank Preferred Shares
would develop or be maintained.
Holders of the Series A Preferred Shares cannot exchange the Series A
Preferred Shares for the Bank Preferred Shares voluntarily. In addition, absent
the occurrence of an automatic exchange, holders of the Series A Preferred
Shares will have no dividend, voting, liquidation preference or other rights
with respect to the Bank or any security of the Bank.
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Advisory Agreement
The Company entered into the Advisory Agreement with the Bank to administer
the day-to-day operations of the Company. The Bank is responsible for (i)
monitoring the credit quality of Mortgage Assets held by the Company, (ii)
advising the Company with respect to the reinvestment of income from and
payments on, and with respect to the acquisition, management, financing and
disposition of, Mortgage Assets held by the Company, (iii) holding documents
relating to the Company's Mortgage Assets as custodian, (iv) monitoring the
Company's compliance with the requirements necessary to qualify as a REIT and
(v) maintaining its status as a lender approved by the Canadian National Housing
Act (an "NHA-Approved Lender"). As long as any Series A Preferred Shares and,
accordingly, any Depository Shares remain outstanding, the Company may not
renew, terminate, or modify the Advisory Agreement without the approval of a
majority of the Board of Directors of the Company (the "Board of Directors") as
well as of a majority of the Independent Directors. An "Independent Director" is
a Director meeting the criteria specified in 10A-3 of the Securities Exchange
Act of 1934. The Bank may, with the approval of a majority of the Board of
Directors as well as a majority of the Independent Directors, subcontract all or
a portion of its obligations under the Advisory Agreement to one or more related
or unrelated third parties. The Bank will not, in connection with the
subcontracting of any of its obligations under the Advisory Agreement, be
discharged or relieved in any respect from any of its obligations under the
Advisory Agreement. As of the date of this Form 10-K, the Bank has not
subcontracted any of its obligations under the Advisory Agreement.
The Advisory Agreement had an initial term of one year, and has been
renewed six times for additional one-year periods. The last renewal was dated
October 31, 2003 for the 2004 fiscal year. The advisory fee was revised to
$100,000 for 2004 fiscal year. The Company may terminate the Advisory Agreement
at any time upon 60 days' prior written notice. As long as any of the Series A
Preferred Shares or Depository Shares remain outstanding, any decision by the
Company to renew, terminate or modify the Advisory Agreement must be approved by
a majority of the Board of Directors, as well as by a majority of the
Independent Directors. The Bank received an advisory fee equal to $30,000 for
fiscal year 2003 and is entitled to receive $100,000 for fiscal year 2004,
payable in equal quarterly installments with respect to the advisory and
management services provided by it to the Company. Payment of such fees is
subordinated to payments of dividends on the Series A Preferred Shares and,
accordingly, the Depository Shares.
Servicing Agreement
The Mortgage Loans are serviced by the Bank pursuant to the terms of the
Servicing Agreement. The Bank receives a fee equal to 0.25% per annum on the
principal balances of the loans serviced.
The Servicing Agreement, put in place on September 3, 1997, had an initial
term of one year, and has been renewed six times for additional one-year
periods. Last renewal was dated May 14, 2003. The Servicing Agreement requires
the Bank to service Mortgage Loans in a manner generally consistent with normal
mortgage servicing practices of prudent mortgage lending institutions that
service mortgage loans of the same type as the Mortgage Loans, with any
servicing guidelines promulgated by the Company and with relevant government
agency guidelines and procedures. The Servicing Agreement requires the Bank to
service Mortgage Loans solely with a view toward the interests of the Company
and without regard to the interests of the Bank or any of its other affiliates
(including NB Finance). The Bank collects and remits principal and interest
payments, administers mortgage escrow accounts, submits and pursues mortgage
insurance claims and supervises foreclosure proceedings on any Mortgage Loans it
services. The Bank also provides accounting and reporting services with respect
to such Mortgage Loans. The Servicing Agreement requires the Bank to follow such
collection procedures as are customary in normal mortgage servicing practices of
prudent mortgage lending institutions that service mortgage loans of the same
type as the Mortgage Loans. The Bank may from time to time subcontract all or a
portion of its servicing obligations under the Servicing Agreement to a third
party subject to the prior written approval of the Company. The Bank will not,
in connection with subcontracting any of its obligations under the Servicing
Agreement, be discharged or relieved in any respect from its obligation to the
Company to perform its obligations under the Servicing Agreement. As of the date
of this Form 10-K, the Bank has not subcontracted any of its obligations under
the Servicing Agreement.
The Bank is required to pay all expenses related to the performance of its
duties under the Servicing Agreement. The Bank is required to make advances of
taxes and required insurance premiums that are not collected
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from mortgagors with respect to any Mortgage Loan serviced by it, unless it
determines that such advances are non recoverable from the mortgagor, insurance
proceeds or other sources with respect to such Mortgage Loan. If such advances
are made, the Bank generally will be reimbursed prior to the Company being
reimbursed out of the payments with respect to such Mortgage Loan. The Bank also
is entitled to reimbursement for expenses incurred by it in connection with the
liquidation of defaulted Mortgage Loans serviced by it and in connection with
the restoration of mortgaged property. The Bank is responsible to the Company
for any loss suffered as a result of the Bank's failure to make and pursue
timely claims or as a result of actions taken or omissions made by the Bank
which cause the policies to be canceled by the insurer. Subject to approval by
the Company, the Bank may institute foreclosure proceedings, exercise any power
of sale contained in any Mortgage Loan or deed of trust, obtain a deed in lieu
of foreclosure or otherwise acquire title to a mortgaged property underlying a
Mortgage Loan by operation of law or otherwise in accordance with the terms of
the Servicing Agreement. The Bank does not, however, have the authority to enter
into contracts in the name of the Company.
The Company may terminate the Servicing Agreement upon the occurrence of
one or more events specified in the Servicing Agreement. Such events relate
generally to the Bank's proper and timely performance of its duties and
obligations under the Servicing Agreement. In addition, the Company may also
terminate the Servicing Agreement without cause upon 60 days' notice and payment
of a termination fee. The termination fee will be based on the aggregate
outstanding principal amount of the Mortgage Loans then serviced under the
Servicing Agreement.
As is customary in the mortgage loan servicing industry, the Bank is
entitled to retain any late payment charges, penalties and assumption fees
collected in connection with the Mortgage Loans serviced by it. The Bank will
receive any benefit derived from interest earned on collected principal and
interest payments between the date of collection and the date of remittance to
the Company and, to the extent permitted by law, from interest earned on tax and
insurance impound funds with respect to Mortgage Loans serviced by it.
When any mortgaged property underlying a Mortgage Loan is conveyed by a
mortgagor, the Bank generally will enforce any "due-on-sale" clause contained in
the Mortgage Loan, to the extent permitted under applicable law and governmental
regulations. The terms of a particular Mortgage Loan or applicable law, however,
may provide that the Bank is prohibited from exercising the "due-on-sale" clause
under certain circumstances related to the security underlying the Mortgage Loan
and the buyer's ability to fulfill the obligations thereunder. Upon any
assumption of a Mortgage Loan by a transferee, a nominal fee is typically
required, which sum will be retained by the Bank as additional servicing
compensation.
Investment Policy
The Company's principal business objective is to acquire, hold, finance and
manage Mortgage Assets as well as certain other qualifying REIT assets. The
Company's current investment policy is to invest at least 80% of its portfolio
in Mortgage Assets issued by NB Finance and the remainder in any other assets
eligible to be held by a REIT. Such other assets include Mortgage Loans,
residential mortgage loans, mortgage-backed securities, commercial mortgage
loans, partnership interests, cash, cash equivalents, government securities and
shares or interests in other REITs. As of December 31, 2003, Mortgage Assets
issued by NB Finance comprised 95.9% of the Company's portfolio.
The Company expects to continue to follow the foregoing investment policy
approved at the Board on December 6, 2000. However, this policy may be amended
or revised from time to time at the discretion of the Board of Directors (in
certain circumstances subject to the approval of a majority of the Independent
Directors) without a vote of the Company's stockholders. All investments will be
made primarily for income.
Description of the Mortgage Assets
The Mortgage Assets issued by NB Finance are comprised of sixty-one
hypothecation loans issued by NB Finance to the Company. As of December 31,
2003, the principal amount of the Mortgage Assets was approximately $448
million. Each of the sixty-one hypothecation loans comprising the Mortgage
Assets issued by NB Finance is secured by a pool of Mortgage Loans. As of
December 31, 2003, the Mortgage Loans were comprised of, in the aggregate,
15,246 Mortgage Loans in an aggregate amount of approximately C$822 million
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($634 million). The value of each pool of Mortgage Loans comprising the Mortgage
Loans exceeds the principal amount of the hypothecation loan that it secures.
Accordingly, the Mortgage Assets issued by NB Finance are overcollateralized by
the Mortgage Loans. The aggregate amount of such overcollateralization is, as of
December 31, 2003, $186 million. The Company acquired the Mortgage Assets issued
by NB Finance pursuant to the terms of a loan agreement with NB Finance.
Each Mortgage Asset issued by NB Finance is recourse only to the Mortgage
Loans securing such Mortgage Asset. Each pool of Mortgage Loans is comprised of
entirely CMHC-insured residential first mortgages. Each Mortgage Asset issued by
NB Finance is further secured by the residential real properties underlying such
CMHC-insured first mortgages. Such residential real properties are located
primarily in Quebec, Ontario and New Brunswick. Since the Mortgage Loans are
insured, the Company expects little or no loss of principal or interest.
However, CMHC insurance does not guarantee timely payment of interest and
principal. The Mortgage Assets have maturities ranging from January 2004 to
December 2012. The Mortgage Assets pay interest at rates ranging from 5.49% to
10.21%, with a weighted average rate of approximately 8.31% per annum.
Payments of interest are made monthly out of payments on the Mortgage
Loans. Pursuant to an agreement between the Company and NB Finance (the
"Mortgage Loan Assignment Agreement"), dated September 3, 1997, the Company
receives all scheduled payments made on the Mortgage Loans, retains a portion of
any such payments equal to the amount due and payable on the Mortgage Assets
issued by NB Finance and remits the balance, if any, to NB Finance. The Company
also retains a portion of any prepayments of principal in respect of the
Mortgage Loans equal to the proportion of such prepayments that the outstanding
principal amount of the Mortgage Loan bears to the outstanding principal amount
of the Mortgage Assets issued by NB Finance, which amount would be applied to
reduce the outstanding principal amount of the Mortgage Assets issued by NB
Finance. Repayment of the Mortgage Assets issued by NB Finance is secured by an
assignment of the Mortgage Loans to the Company pursuant to the Mortgage Loan
Assignment Agreement, which is governed by the laws of Bermuda.
The assignment of the Mortgage Loans by NB Finance to the Company is
without recourse. The Company has a security interest in the real property
securing the Mortgage Loans and, subject to fulfilling certain procedural
requirements under applicable Canadian law, is entitled to enforce payment on
the Mortgage Loans in its own name if a mortgagor should default thereon. In the
event of such a default, the Company has the same rights as NB Finance to force
a sale of the mortgaged property and satisfy the obligations of NB Finance out
of the proceeds. In the event of a default in respect of a Mortgage Loan, the
amount of the Mortgage Assets issued by NB Finance will be reduced by an amount
equal to the portion thereof allocable to the defaulting mortgage.
Following repayment of the Mortgage Assets issued by NB Finance, the
Company will reassign any outstanding Mortgage Loans (without recourse) and
deliver them to, or as directed by, NB Finance. All payments in respect of the
Mortgage Loans are made in Canadian dollars. The amounts due on the Mortgage
Assets issued by NB Finance are retained by the Company free and clear of and
without withholding or deduction for or on account of any present or future
taxes imposed by or on behalf of Bermuda or any political subdivision thereof or
therein.
Description of the Mortgage Loans
All of the Mortgage Loans were originated in accordance with underwriting
policies customarily employed by the Bank, or with underwriting policies
acceptable to the Bank. With respect to its underwriting policies, the Bank will
not make any residential mortgage loans that exceed a loan to value ratio of 75%
unless such loan is insured. If the residential mortgage loan is CMHC-insured
(i) a cash down payment of between 5% and 24.9% is required, (ii) the monthly
payment for capital, interest, taxes and heating must not exceed 32% of the
gross monthly revenue of the borrower and (iii) the monthly payment for capital,
interest, taxes, heating and all other monthly payments (including, without
limitation, personal loans, lease payments and credit card debt service) must
not exceed 40% of the net monthly revenue of the borrower. Additionally, for all
mortgage loans, an external credit check must be positive. When a loan is
insured, an additional amount may be added to the principal amount of the
mortgage loan representing the premium related thereto. The premium rates vary
in accordance with the principal amount of the loan. Generally, the greater the
loan to value ratio, the greater the premium rate. As is generally the case in
the Canadian residential mortgage business, such underwriting policies are
derived from CMHC - approved underwriting criteria.
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As a CMHC - approved lender, the Bank has access to the National Housing
Act mortgage insurance program. All of the Mortgage Loans are insured by CMHC
pursuant to that program. The bulk of those loans were insured at origination.
Whether a loan is insured at origination or through the CMHC portfolio insurance
program, the insurance is valid until the expiration of the loan.
All of the Mortgage Loans are balloon mortgages. Accordingly, the Mortgage
Loans do not provide for the amortization of the principal balance thereof
equally over their term to maturity and a principal payment equal to the
original balance less any principal amount paid will be due on each Mortgage
Loan at maturity. Balloon mortgages are the most prevalent type of mortgage
offered by Canadian mortgage lenders. At the expiration of the term, the
mortgage is generally renewed, based on then current market conditions, for a
new term. Although the Bank offers terms varying from 3 months to 10 years,
terms exceeding 5 years are relatively rare. Moreover, although the Bank offers
monthly, semi-monthly and weekly pay mortgages, the majorities of the Mortgage
Loans are monthly pay mortgages. In general, loans are amortized over a period
not exceeding 25 years.
The Mortgage Loans provide for limited prepayment rights. For example,
typically up to 10% of the original principal amount of a Mortgage Loan may be
prepaid once annually without penalty. Moreover, a Mortgage Loan may also be
prepaid without penalty if the mortgaged property is sold and the mortgagor
enters into a new mortgage with the same terms and conditions as the Mortgage
Loan. In most other circumstances, prepayments or renegotiations of either the
interest rate or the term of a Mortgage Loan will be subjected to prepayment
penalties. During the first three years following the most recent interest
adjustment date, such penalties are tantamount to a yield maintenance clause.
After three years, such penalties will be limited to three months of interest.
The Company intends and has the ability to hold the Mortgage Loans to
maturity unless there is a prepayment by the customer or a Mortgage Loan is
impaired.
Tax Status
The Company has elected to be taxable as a REIT under Sections 856 through
860 of the Code. As a REIT, the Company generally will not be liable for United
States federal income tax to the extent that it distributes its income to the
holders of its Common Stock and its preferred stock, including the Series A
Preferred Shares and, accordingly, Depository Shares, and maintains its
qualification as a REIT.
As a REIT, the Company is subject to a number of organizational and
operational requirements, including a requirement that it currently distribute
to stockholders at least 90% of its "REIT taxable income". REIT taxable income
is essentially taxable income, as determined in accordance with the Code, with
certain adjustments. The most significant of such adjustments are (i) no
deduction is allowed for dividends received, (ii) a deduction is allowed for
dividends paid (other than the portion of any dividend attributable to net
income from foreclosure property) and for taxes imposed for failing to satisfy
certain statutory REIT requirements, and (iii) net income from foreclosure
property and net income derived from prohibited transactions is excluded from
the determination.
Employees
The Company has nine employees whose salaries are covered by the Advisory
Agreement. The Company does not anticipate that it will require any additional
employees because the Company retains the Bank to perform certain functions
pursuant to the Advisory Agreement. The Company maintains corporate records and
audited financial statements that are separate from those of the Bank and of any
of the Bank's affiliates.
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Competition
The Company does not engage in the business of originating Mortgage Assets.
While the Company will purchase additional Mortgage Assets, it anticipates that
such Mortgage Assets will be purchased from the Bank and/or affiliates of the
Bank. Accordingly, the Company does not compete with mortgage conduit programs,
investment banking firms, savings and loan associations, banks, thrift and loan
associations, finance companies, mortgage bankers or insurance companies in
acquiring its Mortgage Assets.
As of October 31, 2003, the Bank held more than C$14.0 billion of
residential mortgage assets. Slightly more than 74.9% of such mortgages were
located in Quebec, the Bank's principal place of business. The major competitor
of the Bank in Quebec is the Caisses Populaires Desjardins (a credit union).
According to the Bank's economics and strategy department, the market share of
the Bank for such mortgages in Quebec is approximately 16.2% compared with a
significantly greater market share for Caisses Populaires Desjardins.
ITEM 2: PROPERTIES
The principal executive offices of the Company are located in the U.S.
branch office of the Bank at 125 West 55th Street, New York, New York 10019. The
Company neither owns nor leases any properties.
ITEM 3: LEGAL PROCEEDINGS
The Company is not the subject of any material litigation. The Company is
not currently involved in nor, to the Company's knowledge, currently threatened
with any material litigation other than routine litigation arising in the
ordinary course of business, most of which is expected to be covered by
liability insurance.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since the incorporation of the Company, the Bank has owned, and the Bank
expects to continue to own, all of the issued and outstanding shares of the
Common Stock of the Company. The Common Stock is the Company's only class of
common equity issued and outstanding. Accordingly, there is no established
public trading market for the Company's common equity.
For the year ended December 31, 2002, the Company paid one dividend with
respect to the Common Stock in an amount of $10,500,000. For the year ended
December 31, 2003, the Company paid one dividend with respect to the Common
Stock in an amount of $14,500,000.
On January 19, 1998, the Company sold 110 shares of its Adjustable Rate
Cumulative Senior Preferred Shares, par value $.01 per share (the "Senior
Preferred Shares") in a nonpublic offering. The Senior Preferred Shares are not
and were not required to be registered under the Securities Act of 1933, as
amended (the "Securities Act"). The offering of the Senior Preferred Shares was
not underwritten. The Senior Preferred Shares were offered to (a) accredited
investors (as defined in Rule 501(a) of Regulation D under the Securities Act)
in reliance on an exemption from registration pursuant to Section 4(2) of the
Securities Act relating to transactions not involving a public offering and (b)
certain directors and officers of the Company and its affiliates who reside in
Canada and who were able to make certain representations and warranties.
Investors were required to complete an Investor Questionnaire to verify their
status as (a) an accredited investor or (b) a resident of Canada in the
provinces of Quebec or Ontario. The Senior Preferred Shares are not convertible
or exchangeable. The Senior Preferred Shares were offered and sold for $3,000
each or $330,000 in the aggregate and the proceeds were used to meet the working
capital needs of the Company.
ITEM 6: SELECTED FINANCIAL DATA
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2003 2002 2001 2000 1999
$ $ $ $ $
Statement of Income Data:
Operating Revenues................................ 37,895,366 37,707,287 38,387,349 36,319,928 37,426,460
Income from Operations............................ 36,103,421 36,054,804 36,800,230 34,800,780 35,915,518
Income from Operations per Common Share........... 361,034 360,548 368,002 348,008 359,155
$ $ $ $ $
Balance Sheet Data:
Total assets...................................... 478,856,177 482,278,189 481,787,476 482,038,157 484,025,426
Total liabilities................................. 428,663 386,175 379,706 1,849,465 3,355,007
Stockholders' Equity.............................. 478,427,514 481,892,014 481,407,770 480,188,692 480,670,419
Cash Dividends Declared per Common Share.......... 145,000 105,000 105,000 102,000 120,750
-9-
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
General
The Company's principal business objective is to acquire, hold, finance and
manage Mortgage Assets as well as other qualifying REIT assets. The Company has
elected to be taxed as a REIT under the Code and, accordingly, is generally not
liable for United States federal income tax to the extent that it distributes at
least 90% of its taxable income, subject to certain adjustments, to its
stockholders.
Results of Operations
Income from operations for the year ended December 31, 2003 increased by
$48,617 or 0.13 % over the prior year ended December 31, 2002 which decreased by
$745,426 or 2.03 % over the prior year ended December 31, 2001. Operating
revenues for the year ended December 31, 2003, the year ended December 31, 2002
and the year ended December 31, 2001, which were comprised entirely of interest
income, were $37,895,366, $37,707,287 and $38,387,349, respectively. Because the
Company has elected to be taxed as a REIT, no income tax was recorded during the
year except for non-resident income taxes withheld.
Ninety-nine percent of revenues were derived from the Mortgage Assets
issued by NB Finance. The Mortgage Assets issued by NB Finance are
collateralized by the Mortgage Loans that consist of sixty-one pools of
residential first mortgages insured by CMHC and that are secured by real
property located in Canada. The balance of the revenues resulted from interest
on bank deposits and short-term investments (i.e., commercial paper of National
Bank of Canada and U.S. Treasury bills).
Expenses for the year ended December 31, 2003, the year ended December 31,
2002 and the year ended December 31, 2001 totaled $1,791,945, $1,652,483 and
$1,587,119, respectively, of which $1,527,130, $1,387,859 and $1,342,749,
respectively, represent servicing and advisory fees paid to the Bank pursuant to
the Servicing Agreement and the Advisory Agreement. Pursuant to those
agreements, the Bank performs all necessary operations in connection with
administering the Mortgage Assets issued by NB Finance and the Mortgage Loans.
Other professional fees include payment to the transfer agent, external
accounting fees and miscellaneous expenses.
During the year ended December 31, 2003, the Board of Directors of the
Company authorized dividends of, in the aggregate, $25,067,921 on Preferred
Stock (i.e., Senior Preferred Shares and the Series A Preferred Shares and,
accordingly, the Depository Shares) and a dividend of $14,500,000 on Common
Stock.
Capital Resources and Liquidity
The Company's revenues are derived primarily from interest payments on the
Mortgage Assets. As of December 31, 2003, $448 million of Mortgage Assets issued
by NB Finance were over-collateralized by the C$822 million ($634 million) of
Mortgage Loans. The Company believes that the amounts generated from the payment
of interest and principal on such Mortgage Loans will provide more than
sufficient funds to make full payments with respect to the Mortgage Assets
issued by NB Finance and that such payments will provide the Company with
sufficient funds to meet its operating expenses and to pay quarterly dividends
on the Senior Preferred Shares and the Series A Preferred Shares and,
accordingly, the Depository Shares. To the extent that the cash flow from its
Mortgage Assets exceeds those amounts, the Company will use the excess to fund
the acquisition of additional Mortgage Assets and make distributions on the
Common Stock.
The Company does not require any capital resources for its operations and,
therefore, it does not expect to acquire any capital assets in the foreseeable
future.
As at December 31, 2003, the Company had cash resources of $19,405,571,
which represent 4.05% of total assets compared to $5,454,303 or 1.1% of total
assets as at December 31, 2002 and $53,765,605 which represent 11.2% of total
assets as at December 31, 2001. It is expected that the Company will invest in
additional
-10-
Mortgage Assets when cash resources reach 15% of total assets. The liquidity
level is sufficient for the Company to pay fees and expenses pursuant to the
Servicing Agreement and the Advisory Agreement.
The Company's principal short-term and long-term liquidity needs are to pay
quarterly dividends on the Senior Preferred Shares and the Series A Preferred
Shares and, accordingly, the Depository Shares, to pay fees and expenses of the
Bank pursuant to the Servicing Agreement and the Advisory Agreement, and to pay
expenses of advisors, if any, of the Company.
Disclosure of Contractual Obligations
The Company does not have any indebtedness (current or long-term), other
material capital expenditures, balloon payments or other payments due on other
long-term obligations. No negative covenants have been imposed on the Company.
Off-Balance Sheet Accounting
The Company does not have any off-balance sheet obligations.
Disclosure About Market Risk
Any market risk to which the Company would be exposed would result from
fluctuations in (a) interest rates and (b) currency exchange rates affecting the
interest payments received by the Company in respect of the Mortgage Assets
issued by NB Finance. Since the Mortgage Assets are significantly
overcollateralized by the Mortgage Loans, interest rate fluctuations should not
present significant market risk. The Company expects that the interest and
principal generated by the Mortgage Loans should enable full payment by NB
Finance of all of its obligations as they come due. Since the Mortgage Loans are
guaranteed by a fixed ratio of exchange predetermined on the date of purchase
and applicable until the maturity of the Mortgage Loans pursuant to the Mortgage
Loan Assignment Agreement, fluctuations in currency exchange rates should not
present significant market risk.
Critical Accounting Policies
In December 2001, the Securities and Exchange Commission requested that all
registrants discuss their most "critical accounting policies" in management's
discussion and analysis of financial condition and results of operations. The
SEC indicated that a "critical accounting policy" is one which is both important
to the portrayal of the Company's financial condition and results and requires
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. We believe, based on our current business, that there are no critical
accounting policies in connection with the preparation of the financial
statements of NB Capital Corporation.
Recently Issued Accounting Pronouncements
In January 2003, the Company adopted the new U.S Interpretation FIN-46 on
the consolidation of variable interest entities, which applied immediately to
all variable interest entities created after January 31, 2003. Under the
Interpretation, the Company must identify the variable interest entities in
which it has an interest, determine whether it is the primary beneficiary and,
if such is the case, consolidate those entities. The adoption of this new
Interpretation has no material impact on the Company. For variable interest
entities created before February 1, 2003, the provisions of the new
Interpretation will apply to the company effective October 31, 2004. The Company
is currently assessing the impact of the new Interpretation on entities created
before February 1, 2003.
In May 2003, the FASB issued SFAS No.150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, which requires
certain financial instruments that were previously presented on the balance
sheets as equity to be presented as liabilities. Such instruments include
mandatorily redeemable financial instruments and certain options and warrants.
SFAS No.150 is effective for financial
-11-
instruments entered into or modified after May 31, 2003, and otherwise was
effective for the Company as of July 1, 2003. Adoption of this standard had no
impact on the Company's financial position, results of operation or cash flows.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is included under Item 7 of this report under the caption
"Disclosure About Market Risk".
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are contained on pages F-1 through F-10 of this
Form 10-K.
Selected Quarterly Financial Data (Unaudited)
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March June September 2003
31, 2003 30, 2003 30, 2003 31, 2003
$ $ $ $
Statement of Income Data:
Operating Revenues................................ 9,630,658 9,671,618 8,883,397 9,709,693
Income from Operations............................ 9,196,557 9,217,985 8,480,090 9,208,789
Income from Operations per Common Share........... 29,296 29,510 22,130 29,419
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March June September 2003
31, 2003 30, 2003 30, 2003 31, 2003
$ $ $ $
Statement of Income Data:
Operating Revenues................................ 9,596,632 9,261,363 9,436,670 9,412,622
Income from Operations............................ 9,179,230 8,868,797 9,033,670 8,973,107
Income from Operations per Common Share........... 29,116 26,012 27,660 27,054
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
Based on their evaluation as of the end of the period covered by this
report, the Company's President and Chief Financial Officer have concluded that
the Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
-12-
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
Directors and Executive Officers
The Board of Directors of the Company consists of the individuals set forth
below. Mr. Belzile, Mr. Michel and Mr. Dube are Independent Directors. The
Company currently has nine employees and does not anticipate that it will
require additional employees.
As of December 31, 2003, the persons who are directors and executive
officers of the Company are as follows:
Name Age Position and Offices Held Director Since
---- --- ------------------------- --------------
Christian Dube 47 Director 2001
Donna Goral 46 Director and Vice President 2001
Andre Belzile 42 Director 1999
Alain Michel 54 Director and President of the 1997
Audit Committee
Monique Baillergeau 45 Director and Vice President May 2003
Richard Bonvicino 41 Director and Vice President June 2002
Serge Lacroix 46 Director, Chairman of the Board June 2002
and President
Jean Dagenais 45 Chief Financial Officer N/A
James J. Hanks, Jr (Secretary) is an officer of the Company. Sophie
Clermont and Vanessa Fontana (Assistant Secretary) and Martin Ouellet
(Vice-President) are the only other employees of the Company. The following is a
summary of the experience of the executive officers and current directors of the
Company.
Since 1992, Mr. Belzile has been Vice-President and Chief Financial Officer
of Cascades Inc, a producer and marketer of packaging products. Prior to that,
he worked in financial reporting from 1986 to 1990 and was Corporate Director of
Finances from 1990 to 1992 for Cascades Inc. Prior to that, he worked as an
external auditor for the accounting firm Coopers & Lybrand from 1984 to 1986.
Since 2001, Mr. Michel has been a business consultant for the Caisse de
depot et placement du Quebec, a financial institution that manages funds for
public and private pension and insurance funds. Prior to that, he was Senior
Vice-President and Chief Financial Officer of Le Groupe Videotron Ltee. since
September 1994. Prior to that, he was Vice-President of Finance and Treasurer of
Videotron beginning in July 1992.
-13-
Since 1998, Mr. Christian Dube has been Senior Vice-President and Chief
Financial Officer of Domtar Inc, a manufacturer of business papers, commercial
printing and publication papers, and technical and specialty papers. Prior to
that, he was Vice-President Corporate Development and Vice-President Treasurer
of Domtar Inc. between 1996 and 1998. He was Manager, Corporate Finance for the
accounting firm of Coopers & Lybrand from 1992 to 1996. He currently serves on
the Boards of Directors for Norampac Inc and Microcell Communications Inc.
Ms. Donna Goral is a director of NB Finance, Ltd. and has also been
Vice-President - Taxation, USA Operations for National Bank of Canada since
1992. Ms. Goral's tax experience also includes positions with KPMG Peat Marwick
and Ernst & Whinney. She is a member of the American Institute of Public
Accountants, the New York State Society of CPAs and the Institute of
International Bankers.
Serge Lacroix has been Chairman and President of NB Capital Corporation
since June 2002 and director of NB Finance, Ltd. since July 2002. He has been
with National Bank of Canada since 1998 in various positions, most recently as
Managing Director and Senior Vice-President of the New York Branch. Prior to
that, he was General Manager, President and CEO of NBC Financial (UK) Ltd. Prior
to that, he was Senior Vice-President at National Bank Financial between 1993
and 1998. He held various positions at Wood Gundy in London England, Montreal
and Vancouver from 1982 to 1993. Prior to that, he was a Trader at Nesbitt
Thompson Inc. and he started his career in 1976 as a Foreign Exchange Trader
with Banque Canadienne Nationale.
Richard Bonvicino has been with National Bank of Canada since 1996 as Vice
President and Controller. Prior to that, he was Assistant Vice President and
Assistant Controller at ING U.S. Capital Holdings between 1988 and 1996. From
1987 to 1988, he was Senior Auditor at E.F. Hutton Company. Mr. Bonvicino began
his career at Chemical Bank of New York in 1984 as an Auditor - Private Banking
Group and was there until 1987.
Jean Dagenais joined the National Bank of Canada in 1990 as Manager and
Chief Accountant. In 1997, he was promoted to vice-president. As such, he is
responsible for the preparation of the Bank's consolidated financial statements
as well as other financial information presented to management, shareholders and
regulatory authorities. He began is career in 1980 as external auditor with a
major international accounting firm. From 1985 to 1990, he held various
positions in accounting and financial reporting with large corporations. He
studied at the University of Sherbrooke, where he obtained a Bachelor in
Administration. He was admitted to the Order of Certified management Accountants
in 1982 and to the Order of Chartered Accountants in 1983.
Monique Baillergeau was appointed Director of NB Capital and NB Finance,
Ltd. in May 2003. She has been with the National Bank of Canada NY since
February 1986. In 1998, she was assigned to manage the Operations of the London
England Branch for 5 years. She accepted the position of Vice President in
charge of Operations and Administration in New York in May of 2003.
The Company pays the Independent Directors fees for their services. The
Independent Directors receive annual compensation of $10,000 plus a fee of $750
for attendance (in person or by telephone) at each meeting of the Board of
Directors. The Company also pays the directors who comprise the Audit Committee
a fee for their additional services. The Audit Committee is comprised of the
Independent Directors. Each Independent Director receives annual compensation of
$1,500 per year plus a fee of $750 for attendance (in person or by telephone) at
each meeting of the Audit Committee. Additionally, Mr. Michel receives annual
compensation of $1,000 for acting as Chairman of the Audit Committee.
The Company does not pay any compensation to its officers or employees or
to directors who are not Independent Directors.
Audit Committee Financial Expert
The Audit Committee of the Company consists of the three following members
: Mr. Alain Michel (President of the Audit Committee), Mr. Christian Dube and
Mr. Andre Belzile. On May 14, 2003, the Board of Directors of the Company
determined that all three of the members of the Audit Committee are Audit
Committee Financial Experts and are independent.
-14-
Code of Ethics
On October 31, 2003, the Company adopted a Code of Conduct and Ethics (as
an exhibit to this Form 10-K Report) that applies to all of the Company's
directors, officers and employees. No amendments to the provisions of the Code
have been made nor any waivers have been granted by the Company since its
adoption.
In 2003, the Company named Ms. Alexa Topolski the Compliance Officer of the
Company in connection with the Company's effort to keep open lines of dialogue
between management and employees.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and certain other persons to file timely
certain reports regarding ownership of, and transactions in, the Company's
securities with the Securities and Exchange Commission. Copies of the required
filings must also be furnished to the Company.
Based solely on its review of such forms received by it, or written
representations from certain reporting persons, the Company believes that during
the year ended December 31, 2003 all applicable Section 16(a) filing
requirements were met, except that the Initial Statement of Beneficial Ownership
on Form 3 for Monique Baillergeau, a director, was filed late.
-15-
ITEM 11: EXECUTIVE COMPENSATION
Summary Compensation Table
--------------------------
Annual Compensation (1) Long Term
Compensation
Awards
-------------------------------------------------------------------------------------------------------------------------------
Name and Principal Position Year Salary Bonus Other Securities All Other
Annual Underlying Compensation
Compensation Options/SARs(5)
-------------------------------------------------------------------------------------------------------------------------------
Serge Lacroix, CEO 2003 $181,000 $175,000(2) $ 0 - -
2002(4) $ 75,417 $133,152(3) $ 0 1,500 -
--------------------------------
(1) The services of executive officers of the Company are provided pursuant to
the Advisory Agreement between the Bank and the Company (see "Business -
Advisory Agreement"). The advisory fee paid by the Company to the Bank in
2003 was $30,000. This amount includes all compensation payable to the
Company's executive officers for services rendered to the Company.
Accordingly, no executive officer of the Company was paid more than
$100,000 of compensation for the fiscal year ended December 31, 2003 that
would be attributable to services performed for the Company and its
subsidiaries. The compensation disclosed in this table with respect to Mr.
Lacroix represents the entire compensation paid to him by the Bank for
services rendered by him to the Bank and its subsidiaries, including the
Company.
(2) $75,000 paid in May 2003 and $100,000 granted in December 2003 but paid in
January 2004
(3) $8,152 was paid in October 2002. $125,000 bonus granted in December 2002
and paid in January 2003
(4) Mr. Lacroix was appointed Chairman and President of the Company in June
2002.
(5) Stock Appreciation Rights
-16-
SAR Grants in Last Fiscal Year
------------------------------
Mr. Serge Lacroix did not receive SAR award during the fiscal year ended
December 31, 2003.
Individual Grants
-----------------
Number of % of Total Base Expiration Potential
Securities Options/SAR Price Realizable Value at
Underlying Granted Assumed Annual
Options/SARs to Rates of Stock Price
Granted Employees Appreciation
in Fiscal For Options/SAR Term
Name (#) Year (C$/Sh) Date 5% (C$) 10% (C$)
-----------------------------------------------------------------------------------------------------------
Serge Lacroix 0 0%
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
---------------------------------------------------------------------------------------------------------------------
Name Shares Value Realized Number of Securities Underlying Value of Unexercised In-The
Acquired on ($) Unexercised Options/SARs at Money Options/SARs at Fiscal
Exercise Fiscal Year-End (#) Year End ($)
# Exercisable / Unexercisable Exercisable / Unexercisable
---------------------------------------------------------------------------------------------------------------------
Serge Lacroix 0 0 2,450 / 2,350 $34,467.75 / $28 329.25
---------------------------------------------------------------------------------------------------------------------
-17-
Pension Plan Table
Canadian Dollars Years of Service
Remuneration
15 20 25 30 35
C$100,000 C$26,870 C$35,447 C$43,516 C$51,584 C$60,083
125,000 34,370 43,864 51,932 60,000 68,499
150,000 41,870 52,281 60,349 68,417 76,916
175,000 49,370 60,697 68,766 76,834 85,333
200,000 56,870 69,114 77,182 85,250 93,749
225,000 64,370 77,531 85,599 93,667 102,166
250,000 71,870 85,947 94,016 102,084 110,583
300,000 71,870 85,947 94,016 102,084 110,583
The above table illustrates the estimated annual retirement benefit payable
on a straight line annuity basis to participating employees at normal retirement
age (generally age 60), in the earnings and years of service classifications
indicated, under the defined benefit pension plan sponsored by the Bank (the
"Bank Pension Plan") and an excess benefit plan which covers certain employees
of the Bank and its subsidiaries. For each year of service credited to a
participant in the Bank Pension Plan, a participant will be entitled to 2% of
his or her annual eligible earnings, less the amount earned under the Canada or
Quebec pension plans while participating in the Bank Pension Plan. Annual
eligible earnings is defined as a participant's average earnings for such
participant's 60 highest-paid consecutive months, based on salary and 25% of
bonus.
In addition to the Bank Pension Plan, certain employees of the Bank and its
subsidiaries, including those of the Company, may also participate in an excess
benefit plan for participants in the Bank Pension Plan whose benefits are
reduced pursuant to limitations on pensions imposed by the Income Tax Act
(Canada). Employees covered by the excess benefit plan receive a benefit equal
to the amount of benefit disallowed under the Pension Plan due to such
limitations.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Common Stock is the only voting security of the Company issued and
outstanding. As of December 31, 2003, 100 shares of Common Stock were issued and
outstanding and 100% were beneficially owned directly by the Bank. The Bank's
address is National Bank Tower, 600 de La Gauchetiere West, Montreal, Quebec,
H3B 4L2. No officer or director beneficially owns more than five percent of any
class of the Company's securities.
The Company does not maintain any equity compensation plans for its
executive officers.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank administers the day-to-day operations of the Company pursuant to
the Advisory Agreement. See "Business- Advisory Agreement. " The Bank also
services the Mortgage Loans pursuant to the Servicing Agreement. See "Business-
Servicing Agreement. "
-18-
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
Deloitte & Touche LLP's aggregate fees billed for professional services
rendered for the audit of our annual financial statements for the 2003 fiscal
year and the review of the quarterly financial statements for the 2003 fiscal
year were $33,500 (Compared to $29,500 for 2002). The engagement of Deloitte &
Touche LLP for the 2003 fiscal year and the scope of audit, audit-related and
tax services were pre-approved by our Audit Committee.
Audit-Related Fees
Deloitte & Touche LLP's aggregate fees billed for audit-related
professional services (special report on procedures performed on the mortgage
loans) for the 2003 fiscal year were $5,000 (Compared to $3,800 for 2002).
Tax Fees
Deloitte & Touche LLP's aggregate fees for all tax related services for the
2003 fiscal year were $31,250 for tax compliance and consulting services
(Compared to $29,375 for 2002).
The Company's Audit Committee pre-approves the services - both permitted
audit services and permitted non-audit services - of the external auditor before
the external auditor is engaged by the Company to render such permitted audit
services or permitted non-audit services. The Audit Committee evidences its
pre-approval by resolution of the Audit Committee.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The report of independent auditors and financial statements
appearing in Item 8.
(2) The Company is not filing separately financial statement
schedules because of the absence of conditions under which they
are required or because the required information is included in
the financial statements or the notes thereto.
(3) The exhibits required by this item are listed in the Exhibit
Index which appears elsewhere in this Form 10-K and is
incorporated herein by reference. The Company is not a party to
any management contracts or compensation plans or arrangements
required to be filed as exhibits to this Form 10-K.
(b) During the quarter ended December 31, 2003, the Company did not file
any Current Reports on Form 8-K.
-19-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 15th of March,
2004.
NB CAPITAL CORPORATION
By: /s/ Serge Lacroix
------------------------------------
Serge Lacroix
Chairman of the Board and President
(Principal Executive Officer)
By: /s/ Jean Dagenais
------------------------------------
Jean Dagenais
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 15th day of March, 2004.
By: /s/ Donna Goral By: /s/ Alain Michel
---------------------------- ----------------------------------
Donna Goral Alain Michel
Director
By: /s/ Richard Bonvicino By: /s/ Andre Belzile
---------------------------- ----------------------------------
Richard Bonvicino Andre Belzile
Director Director
By: /s/ Christian Dube
----------------------------------
Christian Dube
Director
By: /s/ Monique Baillergeau
----------------------------------
Monique Baillergeau
Director
By: /s/ Serge Lacroix
----------------------------------
Serge Lacroix
Director
-20-
NB CAPITAL CORPORATION
Financial Statements as of
December 31, 2003, 2002 and 2001, and
Independent Auditor's Report
NB CAPITAL CORPORATION
Table of contents
================================================================================
Independent Auditors' Report ...........................................F-1
Balance sheets .........................................................F-2
Statements of income ...................................................F-3
Statements of stockholders' equity .....................................F-4
Statements of cash flows ...............................................F-5
Notes to financial statements ....................................F-6; F-10
DELOITTE
Deloitte & Touche LLP
1 Place Ville Marie
Suite 3000
Montreal QC H3B 4T9
Canada
Tel: (514) 393-7115
Fax: (514) 390-4111
www.deloitte.ca
Independent Auditors' Report
To the Board of Directors and Stockholders of
NB Capital Corporation
We have audited the accompanying balance sheets of NB Capital Corporation (the
"Company") as of December 31, 2003 and 2002 and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2003, 2002 and 2001 and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Montreal, Canada
February 6, 2004
F-1
NB CAPITAL CORPORATION
Balance sheets
as of December 31
(in U.S. dollars)
------------------------------------------------------------------------------------------------------
2003 2002
------------------------------------------------------------------------------------------------------
$ $
Assets
Cash and cash equivalents 19,405,571 5,454,303
Due from an affiliated company 11,111,916 6,977,307
Promissory notes 448,333,456 469,846,279
Accrued interest on cash equivalents 5,234 300
------------------------------------------------------------------------------------------------------
Total assets 478,856,177 482,278,189
------------------------------------------------------------------------------------------------------
Liabilities
Due to the parent company 414,954 344,946
Accounts payable 13,709 41,229
------------------------------------------------------------------------------------------------------
Total liabilities 428,663 386,175
------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, $0.01 par value per share;
10,000,000 shares authorized,
300,000 Series A shares issued and paid 3,000 3,000
110 Senior preferred shares issued and paid 1 1
Common stock, $0.01 par value per share;
1,000 shares authorized,
100 shares issued and paid 1 1
Additional paid-in capital 476,761,014 476,761,014
Retained earnings 1,663,498 5,127,998
------------------------------------------------------------------------------------------------------
Total stockholder's equity 478,427,514 481,892,014
------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity 478,856,177 482,278,189
------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-2
NB CAPITAL CORPORATION
Statements of income
years ended December 31, 2003, 2002 and 2001
(in U.S. dollars)
------------------------------------------------------------------------------------------------------------
2003 2002 2001
------------------------------------------------------------------------------------------------------------
$ $ $
Revenue
Interest income
Short-term investments 346,591 419,235 1,478,790
Promissory notes 37,529,935 37,246,934 36,806,319
Bank interest 18,840 41,118 102,240
------------------------------------------------------------------------------------------------------------
37,895,366 37,707,287 38,387,349
------------------------------------------------------------------------------------------------------------
Expenses
Legal 41,292 98,916 76,080
Other professional fees 223,523 165,708 168,290
Servicing fees 1,497,130 1,357,859 1,317,749
Advisory fees 30,000 30,000 25,000
------------------------------------------------------------------------------------------------------------
1,791,945 1,652,483 1,587,119
------------------------------------------------------------------------------------------------------------
Net income 36,103,421 36,054,804 36,800,230
Preferred stock dividends 25,067,921 25,070,560 25,081,152
------------------------------------------------------------------------------------------------------------
Income available to common stockholders 11,035,500 10,984,244 11,719,078
------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 100 100 100
------------------------------------------------------------------------------------------------------------
Earnings per common share - basic 110,355 109,842 117,191
------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-3
NB CAPITAL CORPORATION
Statements of stockholders' equity
years ended December 31, 2003, 2002 and 2001
(in U.S. dollars)
-------------------------------------------------------------------------------------------------------------------------------
Series A Senior Additional
Preferred Preferred Common Paid-in Retained
Stock Stock Stock Capital Earnings Total
-------------------------------------------------------------------------------------------------------------------------------
$ $ $ $ $ $
Stockholders' equity as of
December 31, 2000 3,000 1 1 476,761,014 3,424,676 480,188,692
-------------------------------------------------------------------------------------------------------------------------------
Net income - - - - 36,800,230 36,800,230
Dividends on senior preferred stock and
Series A preferred stock - - - - (25,081,152) (25,081,152)
-------------------------------------------------------------------------------------------------------------------------------
Dividend on common stock
Stockholders' equity as of - - - - (10,500,000) (10,500,000)
December 31, 2001 3,000 1 1 476,761,014 4,643,754 481,407,770
-------------------------------------------------------------------------------------------------------------------------------
Net income - - - - 36,054,804 36,054,804
Dividends on senior preferred stock and
Series A preferred stock - - - - (25,070,560) (25,070,560)
Dividend on common stock - - - - (10,500,000) (10,500,000)
-------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity as of
December 31, 2002 3,000 1 1 476,761,014 5,127,998 481,892,014
-------------------------------------------------------------------------------------------------------------------------------
Net income - - - - 36,103,421 36,103,421
Dividends on senior preferred stock and
Series A preferred stock - - - - (25,067,921) (25,067,921)
Dividend on common stock - - - - (14,500,000) (14,500,000)
-------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity as of
December 31, 2003 3,000 1 1 476,761,014 1,663,498 478,427,514
-------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-4
NB CAPITAL CORPORATION
Statements of cash flows
years ended December 31, 2003, 2002 and 2001
(in U.S. dollars)
-------------------------------------------------------------------------------------------------------------------
2003 2002 2001
-------------------------------------------------------------------------------------------------------------------
$ $ $
Operating activities
Net income 36,103,421 36,054,804 36,800,230
Adjustment to reconcile net income to
net cash provided by operating activities
Due from an affiliated company (4,134,609) 5,154,888 (6,846,716)
Due to the parent company 70,008 14,215 28,245
Accounts payable (27,520) (7,746) 1,996
Accrued interest on cash equivalents (4,934) 6,410 69,140
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 32,006,366 41,222,571 30,052,895
-------------------------------------------------------------------------------------------------------------------
Investing activities
Investment in promissory notes (176,972,855) (188,141,611) (284,500,923)
Repayments of promissory notes 198,485,678 134,178,298 248,161,027
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 21,512,823 (53,963,313) (36,339,896)
-------------------------------------------------------------------------------------------------------------------
Financing activities
Dividends (39,567,921) (35,570,560) (37,081,152)
-------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (39,567,921) (35,570,560) (37,081,152)
-------------------------------------------------------------------------------------------------------------------
Cash position, beginning of year 5,454,303 53,765,605 97,133,758
-------------------------------------------------------------------------------------------------------------------
Cash position, end of year 19,405,571 5,454,303 53,765,605
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-5
NB CAPITAL CORPORATION
Notes to the financial statements
years ended December 31, 2003, 2002 and 2001
(in U.S. dollars)
================================================================================
1. Incorporation and nature of operations
NB Capital Corporation (the "Company") was incorporated in the state of
Maryland on August 20, 1997. The Company's principal business is to
acquire, hold, finance and manage mortgage assets. The Company issued,
through an Offering Circular, dated August 22, 1997, $300 million of
preferred stock and simultaneously, National Bank of Canada, the parent
company, made a capital contribution in the amount of $183 million. The
Company used the aggregate net proceeds of $477 million to acquire
promissory notes of NB Finance, Ltd., a wholly-owned subsidiary of National
Bank of Canada.
2. Significant accounting policies
Financial statements
The financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America and are
expressed in U.S. dollars.
Promissory notes
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115 "Accounting for certain Investments in debt and equity Securities" and
based on the Company's intentions regarding these instruments, the Company
has classified the Promissory notes as held to maturity and has accounted
for them at amortized cost.
Income taxes
The Company has elected to be taxable as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code of 1986, as amended, and
accordingly, is generally not liable for United States federal income tax
to the extent that it distributes at least 90% of its taxable income to its
stockholders, maintains its qualification as a REIT and complies with
certain other requirements.
Per share data
Basic earnings per share with respect to the Company for the years ended
December 31, 2003, 2002 and 2001 are computed based upon the weighted
average number of common shares outstanding during the year.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting year. Actual results
could differ from those estimates.
F-6
NB CAPITAL CORPORATION
Notes to the financial statements
years ended December 31, 2003, 2002 and 2001
(in U.S. dollars)
================================================================================
Interest on Promissory Notes and Short Term Investments.
Interest income on promissory notes and short term investments is accrued
using the simple interest method based on the amount of principle
outstanding. The accrual of interest is discontinued when management
believes that the collection of interest is doubtful.
3. Promissory notes
The Company entered into loan agreements evidenced by promissory notes with
NB Finance, Ltd., an affiliated company. The promissory notes are
collateralized only by mortgage loans which are secured by residential
first mortgages and insured by the Canada Mortgage and Housing Corporation.
The promissory notes have maturities ranging from January 2004 to December
2012, at rates ranging from 5.49% to 10.21%, with a weighted average rate
of approximately 8.31% per annum.
These rates approximate market interest rates for loans of similar credit
and maturity provisions and, accordingly, management believes that the
carrying value of the promissory notes receivable approximates their fair
value.
2003 2002
------------------------------------
$ $
Promissory notes, beginning of year 469,846,279 415,882,966
Acquisitions 176,972,855 188,141,611
Principal repayments (198,485,678) (134,178,298)
--------------------------------------------------------------------------------------------
Promissory notes, end of year 448,333,456 469,846,279
--------------------------------------------------------------------------------------------
The scheduled principal repayments as of December 31, 2003 are as follows:
$
2004 87,511,017
2005 70,219,702
2006 141,228,851
2007 9,926,597
2008 22,050,106
2009 25,962,019
2010 34,474,357
2011 22,905,432
2012 34,055,375
F-7
NB CAPITAL CORPORATION
Notes to the financial statements
years ended December 31, 2003, 2002 and 2001
(in U.S. dollars)
================================================================================
4. Transactions with an affiliated company
During the year, the Company earned interest from NB Finance, Ltd. on the
promissory notes, in the amount of $37,529,935 ($37,246,934 in 2002 and
$36,806,319 in 2001) (see Note 3).
The amounts due from an affiliated company as of December 31, 2003 and 2002
represent interest and principal repayments due on the promissory notes
from NB Finance, Ltd.
5. Transactions with the parent company
The Company entered into agreements with National Bank of Canada in
relation to the administration of the Company's operations. The agreements
are as follows:
Advisory agreement
In exchange for a fee equal to $30,000 per year, payable in equal quarterly
instalments, National Bank of Canada will furnish advice and
recommendations with respect to all aspects of the business and affairs of
the Company.
Servicing agreement
National Bank of Canada will service and administer the promissory notes
and the collateralized mortgage loans and will perform all necessary
operations in connection with such servicing and administration.
The fee will equal one-twelfth (1/12) of 0.25% per annum of the aggregate
outstanding balance of the collateralized mortgage loans as of the last day
of each calendar month. The average outstanding balance of the
collateralized mortgage loans securing the promissory notes amounted to
$551,360,385 ($557,923,143 in 2002). During the year, fees of $1,497,130
($1,357,859 in 2002 and $1,317,749 in 2001) were charged to the Company.
Custodian agreement
National Bank of Canada will hold all documents relating to the
collateralized mortgage loans. During the years ended December 31, 2003,
2002 and 2001, no fee was charged to the Company.
F-8
NB CAPITAL CORPORATION
Notes to the financial statements
years ended December 31, 2003, 2002 and 2001
(in U.S. dollars)
================================================================================
6. Stockholders' equity
Common stock
The Company is authorized to issue up to 1,000 shares of $0.01 par value
common stock. The common shares issued as at December 31, 2003 are as
follows:
o 100 shares are authorized, issued and paid.
Preferred stock
The Company is authorized to issue up to 10,000,000 shares of $0.01 par
value preferred stock. The preferred shares issued as at December 31, 2003
are as follows:
o 300,000 shares authorized and issued as 8.35% Non-Cumulative
Exchangeable Preferred Stock, Series A, non-voting, ranked senior
to the common stock and junior to the Adjustable Rate Cumulative
Senior Preferred Shares, with a liquidation value of $1,000 per
share, redeemable at the Company's option on or after September
3, 2007, except upon the occurrence of certain changes in tax
laws in the United States of America and in Canada, on or after
September 3, 2002.
Each Series A share is exchangeable, upon the occurrence of
certain events, for one newly issued 8.45% Non-Cumulative First
Preferred Share, Series Z, of National Bank of Canada.
These Series A shares are traded in the form of Depositary
Shares, each representing a one-fortieth interest therein.
o 1,000 shares authorized and 110 shares issued as Adjustable Rate
Cumulative Senior Preferred Shares, non-voting, ranked senior to
the common stock and to the 8.35% Non-Cumulative Exchangeable
Preferred Stock, with a liquidation value of $3,000 per share,
redeemable at the Company's option at any time and retractable at
the holders' option on December 30, 2007 and every ten-year
anniversary thereof.
7. Recent pronouncements
In January 2003, the Company adopted the new U.S Interpretation FIN-46 on the
consolidation of variable interest entities, which applied immediately to all
variable interest entities created after January 31, 2003. Under the
Interpretation, the Company must identify the variable interest entities in
which it has an interest, determine whether it is the primary beneficiary and,
if such is the case, consolidate those entities. The adoption of this new
Interpretation has no material impact on the Company. For variable interest
entities created before February 1, 2003, the provisions of the new
Interpretation will apply to the company effective October 31, 2004. The Company
is currently assessing the impact of the new Interpretation on entities created
before February 1, 2003.
F-9
NB CAPITAL CORPORATION
Notes to the financial statements
years ended December 31, 2003, 2002 and 2001
(in U.S. dollars)
================================================================================
In May 2003, the FASB issued SFAS No.150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, which requires
certain financial instruments that were previously presented on the balance
sheets as equity to be presented as liabilities. Such instruments include
mandatorily redeemable financial instruments and certain options and warrants.
SFAS No.150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise was effective for the Company as of July 1,
2003. Adoption of this standard had no impact on the Company's financial
position, results of operation or cash flows.
F-10
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
3.1.1 Articles of Incorporation and Articles of Amendment and
Restatement and Articles Supplementary of NB Capital
Corporation*
3.2.1 Bylaws of NB Capital Corporation*
4.1 Registration Rights Agreement dated as of September 3, 1997
by and among NB Capital Corporation, National Bank of Canada
and Merrill Lynch, Pierce, Fenner & Smith Incorporated*
10.1 Advisory Agreement dated as of September 3, 1997 between
National Bank of Canada and NB Capital Corporation*
10.2 Servicing Agreement dated as of September 3, 1997 between
National Bank of Canada and NB Finance, Ltd.*
10.3 Loan Agreement dated as of September 3, 1997 between NB
Finance, Ltd. and NB Capital Corporation*
10.4 Custodial Agreement dated as of September 3, 1997 between
National Bank of Canada and NB Capital Corporation*
10.5 Deed of Sale of Mortgage Loans dated September 3, 1997
between National Bank of Canada and NB Finance, Ltd.*
10.6 Mortgage Loan Assignment Agreement dated September 3, 1997
among National Bank of Canada, NB Capital Corporation and NB
Finance, Ltd.*
10.7 Promissory Notes representing the sixteen hypothecation
loans executed by NB Finance, Ltd. in favor of NB Capital
Corporation*
10.8 Deposit Agreement among NB Capital Corporation, National
Bank of Canada and The Bank of Nova Scotia Trust Company of
New York, including Form of Depository Receipt*
10.9 First Supplemental Servicing Agreement dated December 4,
1998 between National Bank of Canada and NB Capital
Corporation*
Exhibit
Number Description
------ -----------
10.10 Loan Agreement dated as of December 4, 1998 between NB
Finance, Ltd. and NB Capital Corporation*
10.11 Custodial Agreement dated as of December 4, 1998 between NB
Capital Corporation and National Bank of Canada*
10.12 Amended and Restated Servicing Agreement dated June 28, 2001
between National Bank of Canada and NB Capital Corporation.*
10.13 Deed of Sale of Mortgage Loans dated December 4, 1998
between National Bank of Canada and NB Finance, Ltd.*
10.14(i) Mortgage Loan Assignment Agreement dated as of December 4,
1998 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada*
10.14(ii) Mortgage Loan Assignment Agreement dated as of December 4,
1998 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada*
10.15(i) Promissory Note representing $25,836,597.23 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
10.15(ii) Promissory Note representing $29,880,126.51 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
10.16 Mortgage Loan Assignment Agreement dated as of September 7,
1999 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada*
10.17 Promissory Note representing $85,989,203.22 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*.
10.18 Mortgage Loan Assignment Agreement dated as of April 14,
2000 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada*
10.19 Promissory Note representing $98,836,341.23 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
10.20 Mortgage Loan Assignment Agreement dated as of September 28,
2000 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada*
10.21 Promissory Note representing $67,323,437.74 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
Exhibit
Number Description
------ -----------
10.22 Mortgage Loan Assignment Agreement dated as of January 30,
2001 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada*
10.23 Promissory Note representing $107,179,964.89 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
10.24 Mortgage Loan Assignment Agreement dated as of June 12, 2001
among NB Finance, Ltd., NB Capital Corporation and National
Bank of Canada*
10.25 Promissory Note representing $121,357,226.22 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
10.26 Mortgage Loan Assignment Agreement dated as of September 24,
2001 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada*
10.27 Promissory Note representing $55,963,732.07 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
10.28 Mortgage Loan Assignment Agreement dated as of January 29,
2002 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada*
10.29 Promissory Note representing $71,866,079.87 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
10.30 Mortgage Loan Assignment Agreement dated as of June 20, 2002
among NB Finance, Ltd., NB Capital Corporation and National
Bank of Canada*
10.31 Promissory Note representing $64,221,362.98 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
10.32 Mortgage Loan Assignment Agreement dated as of December 16,
2002 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada*
10.33 Promissory Note representing $52,054,168.88 executed by NB
Finance, Ltd. in favor of NB Capital Corporation*
10.34 Mortgage Loan Assignment Agreement dated as of May 27, 2003
among NB Finance, Ltd., NB Capital Corporation and National
Bank of Canada**
10.35 Promissory Note representing $70,420,135.45 executed by NB
Finance, Ltd. in favor of NB Capital Corporation**
Exhibit
Number Description
------ -----------
10.36 Mortgage Loan Assignment Agreement dated as of October
21,2003 among NB Finance, Ltd., NB Capital Corporation and
National Bank of Canada**
10.37 Promissory Note representing $106,552,720.44 executed by NB
Finance, Ltd. in favor of NB Capital Corporation**
14.1 NB Capital Code of Ethics**
31.1 Certification of Chairman and President pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002**
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002**
32.1 Written Statement of Chairman and President Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350)**
32.2 Written Statement of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350)**
--------------------
* As previously filed on the Registration Statement on Form S-11 of the
Company (Registration Statement No. 333-47157).
** As filed herewith.