SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31,2001
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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 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)
212-632-8532
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 ____
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
Yes ______ No ______
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 15, 2001
Common Stock
par value $0.01 per share 100
NB CAPITAL CORPORATION
Index
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Page
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Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets -
As of March 31, 2001 and December 31, 2000 1
Statements of Income -
For the three-month periods ended
March 31, 2001 and 2000 2
Statements of Stockholders' Equity -
For the three-month periods ended
March 31, 2001 and 2000 3
Statements of Cash Flows -
For the three-month periods ended
March 31, 2001 and 2000 4
Notes to the financial statements 5
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations 8
Part II. OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K 11
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This report contains certain forward-looking statements and information relating
to NB Capital Corporation (the "Company" or "NB Capital") that are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words "anticipate", "believe", "estimate", "expect" and similar
expressions, as they relate to the Company or the Company's management, are
intended to identify forward-looking statements. Such statements reflect the
current view of the Company's management with respect to future events and the
Company's future performance and are subject to certain risks, uncertainties and
assumptions. Should management's current view of the future or underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The Company
does not intend to update these forward-looking statements.
References to $ are to United States dollars; references to C$ are to Canadian
dollars. As of March 31, 2001, the Canadian dollar exchange rate was C$1.5763 =
$1.00 and certain amounts stated herein reflect such exchange rate.
NB CAPITAL CORPORATION
BALANCE SHEETS
March 31, December 31,
( in U.S. dollars ) 2001 (1) 2000
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Assets
Cash and cash equivalents $ 38,280,563 $ 97,133,758
Due from an affiliated company 10,393,091 5,285,479
Promissory notes 434,844,576 379,543,070
Accrued interest on cash equivalents 12,742 75,850
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483,530,972 482,038,157
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Liabilities
Due to the parent company 348,130 302,486
Accounts payable 31,575 46,979
Dividend payable 0 1,500,000
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379,705 1,849,465
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Stockholders' equity
Preferred stock, $0.01 par value per share;
10,000,000 shares authorized,
110 Senior preferred shares issued and paid 1 1
300,000 Series A shares issued and paid 3,000 3,000
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 6,387,251 3,424,676
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483,151,267 480,188,692
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483,530,972 482,038,157
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(1) Unaudited
See accompanying notes to financial statements.
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NB CAPITAL CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three-month periods ended
March 31,
(in U.S. dollars) 2001 2000
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Revenue
Interest income
Cash equivalents $ 595,598 $ 1,184,638
Promissory notes 9,026,664 7,585,974
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9,622,262 8,770,612
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Expenses
Servicing and advisory fees 348,132 283,573
Legal and other professional fees 41,267 158,845
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389,399 442,418
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Net income 9,232,863 8,328,194
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Preferred stock dividends 6,270,288 6,270,626
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Income available to common stockholders 2,962,575 2,057,568
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Weighted average number of common shares outstanding 100 100
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Earnings per common share - basic 29,626 20,576
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See accompanying notes to financial statements.
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NB CAPITAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Three-month periods ended
March 31,
( in U.S. dollars ) 2001 2000
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PREFERRED STOCK
Balance, beginning and end of period $ 3,001 $ 3,001
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COMMON STOCK AND PAID-IN CAPITAL
Balance, beginning and end of period 476,761,015 476,761,015
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RETAINED EARNINGS
Balance, beginning of period 3,424,676 3,906,403
Net income 9,232,863 8,328,194
Preferred stock dividends (6,270,288) (6,270,626)
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Balance, end of period 6,387,251 5,963,971
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TOTAL STOCKHOLDERS' EQUITY 483,151,267 482,727,987
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See accompanying notes to financial statements.
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NB CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three-month periods ended
March 31,
( in U.S. dollars ) 2001 2000
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OPERATING ACTIVITIES
Net income $ 9,232,863 $ 8,328,194
Items not affecting cash resources
Due from an affiliated company (5,107,612) 8,696,720
Due to the parent company 45,644 (44,232)
Accounts payable (15,404) 30,725
Accrued interest receivable on cash equivalents 63,108 55,954
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Net cash provided by operating activities 4,218,599 17,067,361
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FINANCING ACTIVITIES
Dividends (7,770,288) (9,270,626)
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Net cash used in financing activities (7,770,288) (9,270,626)
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INVESTING ACTIVITIES
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Investment in promissory notes (107,179,965)
Repayments of promissory notes 51,878,459 56,100,390
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Net cash provided by (used in) investing activities (55,301,506) 56,100,390
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Cash position, beginning of period 97,133,758 58,048,336
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Cash position, end of period 38,280,563 121,945,461
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See accompanying notes to financial statements.
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NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2001
(unaudited)
(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 of 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.
Income taxes
The Company has elected to be taxed 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 95% 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 three-month
periods ended March 31, 2001 and 2000 are computed based upon the weighted
average number of common shares outstanding during the period.
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 period. Actual
results could differ from those estimates.
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NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2001
(unaudited)
(in U.S. dollars)
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 April 2001 to March 2006,
at rates ranging from 6.714% to 9.774%, with a weighted average rate of
approximately 7.895% 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.
Promissory notes as of December 31, 2000 $ 379,543,070
Acquisitions 107,179,965
Principal repayments (51,878,459)
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Promissory notes as of March 31, 2001 $ 434,844,576
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The scheduled principal repayments as of March 31,2001 are as follows:
$
2001 147,068,814
2002 37,550,363
2003 96,940,955
2004 57,467,152
2005 90,695,309
2006 5,121,983
4) Transactions with an affiliated company
During the quarters ended March 31, 2001 and March 31, 2000, the Company
earned interest from NB Finance, Ltd. on the promissory notes in the amount
of $9,026,664 and $7,585,974, respectively (see Note 3).
The amount of $10,393,091 due from an affiliated company as of March 31,
2001 and $5,285,479 as of December 31, 2000, represent interest and
principal repayments due on the promissory notes.
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 $25,000 per year, payable in equal quarterly
installments, National Bank of Canada will furnish advice and
recommendations with respect to all aspects of the business and affairs of
the Company. During the three-month periods ended March 31, 2001 and March
31, 2000, fees of $6,250 were charged to the Company.
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NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2001
(unaudited)
(in U.S. dollars)
5) Transactions with the parent company (continued)
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 to 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. For the three-month periods ended
March 31, 2001 and March 31, 2000, the average outstanding balance of the
collateralized mortgage loans were $569,796,242 and $449,143,432,
respectively. During the three-month periods ended March 31, 2001 and March
31, 2000, fees of $341,882 and $277,323 respectively, were charged to the
Company.
Custodian agreement
National Bank of Canada will hold all documents relating to the
collateralized mortgage loans. During the three-month periods ended March
31, 2001 and March 31, 2000, no fee was charged to the Company.
6) Stockholders' equity
Common stock
The Company is authorized to issue up to 1,000 shares of $ 0.01 par value
common stock.
Preferred stock
The Company is authorized to issue up to 10,000,000 shares of $0.01 par
value preferred stock as follows:
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 issue 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.
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, Series A, with a
liquidation value of $3,000 per share, redeemable at the Company's option
at any time and retractable at the holder's option on December 30, 2007 and
every ten-year anniversary thereof.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
The Company's principal business objective is to acquire, hold, finance and
manage assets consisting of obligations secured by real property as well as
other qualifying REIT assets ("Mortgage Assets"). The Company has elected to be
taxed as a 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 95% of its taxable income, subject to
certain adjustments, to its stockholders.
Results of operations:
For the three-month periods ended March 31, 2001 and March 31, 2000, the Company
reported net income of $9,232,863 and $8,328,194, respectively. Revenues, which
were comprised entirely of interest income, were $9,622,262 and $8,770,612
respectively, and expenses were $389,399 and $442,418, respectively. Since the
Company has elected to be taxed as a REIT, no income tax was recorded during the
period.
Ninety-four percent of revenues for the three-month period ended March 31, 2001
and eighty-six percent of revenues for the three-month period ended March 31,
2000 were derived from the Mortgage Assets issued by NB Finance, Ltd., an
affiliated company ("NB Finance"). The Mortgage Assets issued by NB Finance are
collateralized by the "Mortgage Loans" that consist of twenty-six pools of
residential first mortgages insured by Canada Mortgage and Housing Corporation
and which are secured by real property located in Canada. The balance of the
revenues result from interest on cash equivalents.
Expenses for the three-month periods ended March 31, 2001 and 2000, totaled
$389,399 and $442,418, respectively, of which $348,132 and $283,573,
respectively, represent servicing and advisory fees paid to National Bank of
Canada, the Company's direct parent (the "Bank") pursuant to the Servicing
Agreement between the Bank and the Company (the "Servicing Agreement") and the
Advisory Agreement between the Bank and the Company (the"Advisory Agreement"),
whereby the Bank performs all necessary operations in connection with
administering the Mortgage Assets issued by NB Finance and the Mortgage Loans.
Legal and other professional fees include payment to the transfer agent, annual
fees to Security Exchange Commission and other professional fees.
During the three-month period ended March 31, 2001, the Board of Directors of
the Company authorized dividends of, in the aggregate, $6,270,288 ($6,270,626
for the three-month period ended March 31, 2000) on Preferred Stock (i.e.,
Adjustable Rate Cumulative Senior Preferred Shares (the "Senior preferred
Shares") and 8.35% Non-cumulative Exchangeable Preferred Stock, Series A (the
"Series A Preferred Shares") and, accordingly, the Depositary Shares). Such
dividends were paid on March 30, 2001.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS (continued)
Capital Resources and Liquidity:
The Company's revenues are derived from its Mortgage Assets. As of March 31,
2001, $435 million of Mortgage Assets issued by NB Finance were
over-collaterized by the C$802 million ($544 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 Depositary 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 is not expected to acquire any capital assets in the foreseeable
future.
As at March 31, 2001, the Company had cash equivalents of $38,280,563 which
represent 7.9% of total assets compared to $97,133,758 or 20% of total assets as
at December 31, 2000. The decrease in liquidity is attributable to investment in
Mortgage Assets. It is expected that the Company will invest in additional
Mortgage Assets when cash resources reach over 20% of total assets. While this
continues to be the Company's investment policy, the Company maintains
flexibility in this regard. On January 30, 2001, the Company has bought $107
millions in additional Mortgage Assets in order to reduce the increase of
liquidity. 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 Depositary Shares, to pay fees and expenses of the
Bank pursuant to the Servicing Agreement and the Advisory Agreement, and to pay
franchise fees and expenses of advisors, if any, to the Company.
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.
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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.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibit:
Exhibit No. Description
11 Computation of Earnings Per Share
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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SIGNATURES
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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.
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NB CAPITAL CORPORATION
Date May 15, 2001 /s/ Tom Doss
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Tom Doss
Chief Financial Officer and Treasurer
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