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 31,2002
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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
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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
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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
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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, 2002
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, 2002 and December 31, 2001 1
Statements of Income -
For the three-month periods ended March 31, 2002
and 2001 2
Statements of Stockholders' Equity -
For the three-month periods ended March 31, 2002
and 2001 3
Statements of Cash Flows -
For the three-month periods ended March 31, 2002
and 2001 4
Notes to the financial statements 5
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
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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, 2002, the Canadian dollar exchange rate was C$1.5942 =
$1.00 and certain amounts stated herein reflect such exchange rate.
NB CAPITAL CORPORATION
BALANCE SHEETS
March 31, December 31,
(in U.S. dollars) 2002(1) 2001
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Assets
Cash and cash equivalents $ 36,740,121 $ 53,765,605
Due from an affiliated company 6,425,741 12,132,195
Promissory notes 441,531,129 415,882,966
Accrued interest on cash equivalents 5,730 6,710
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$ 484,702,721 $ 481,787,476
===============================================================================
Liabilities
Due to the parent company 347,782 330,731
Accouns payable 35,578 48,975
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383,360 379,706
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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 outstanding 1 1
300,000 Series A shares issued and
outstanding 3,000 3,000
Common stock, $0.01 par value per share;
1,000 shares authorized,
100 shares issued and outstanding 1 1
Additional paid-in capital 476,761,014 476,761,014
Retained earnings 7,555,345 4,643,754
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484,319,361 481,407,770
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484,702,721 481,787,476
===============================================================================
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(1) Unaudited
See accompanying notes to financial statements.
NB CAPITAL CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three-month periods ended Three-month periods ended
March 31, March 31,
(in U.S. Dollars) 2002 2001 2002 2001
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Revenue
Interest income
Cash equivalents $ 108,763 $ 595,598 $ 108,763 $ 595,598
Promissory notes 9,487,870 9,026,664 9,487,870 9,026,664
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9,596,633 9,622,262 9,596,633 9,622,262
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Expenses
Servicing and advisory fees 347,790 348,132 347,790 348,132
Legal and other professional fees 69,612 41,267 69,612 41,267
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417,402 389,399 417,402 389,399
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Net income 9,179,231 9,232,863 9,179,231 9,232,863
Preferred stock dividends 6,267,640 6,270,288 6,267,640 6,270,288
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Income available to common stockholders 2,911,591 2,962,575 2,911,591 2,962,575
==================================================================================================================
Weighted average number of common
shares outstanding 100 100 100 100
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Earnings per common share - basic 29,116 29,626 29,116 29,626
==================================================================================================================
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See accompanying notes to financial statements.
NB CAPITAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Three-month periods ended Three-month periods ended
March 31, March 31,
(in U.S. dollars) 2002 2001 2002 2001
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PREFERRED STOCK
Balance, beginning and end of period $ 3,001 $ 3,001 $ 3,001 $ 3,001
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COMMON STOCK AND PAID-IN CAPITAL
Balance, beginning and end of period 476,761,015 476,761,015 476,761,015 476,761,015
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RETAINED EARNINGS
Balance, beginning of period 4,643,754 3,424,676 4,643,754 3,424,676
Net income 9,179,231 9,232,863 9,179,231 9,232,863
Preferred stock dividends (6,267,640) (6,270,288) (6,267,640) (6,270,288)
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Balance, end of period 7,555,345 6,387,251 7,555,345 6,387,251
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TOTAL STOCKHOLDERS' EQUITY 484,319,361 483,151,267 484,319,361 483,151,267
===========================================================================================================
NB CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three-month periods ended
March 31,
(in U.S. dollars) 2002 2001
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OPERATING ACTIVITIES
Net Income $ 9,179,231 $ 9,232,863
Items not affecting cash resources
Due from an affiliated company 5,706,454 (5,107,612)
Due to the parent company 17,051 45,644
Accounts payable (13,397) (15,404)
Accrued interest receivable on cash equivalents 980 63,108
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Net cash provided by operating activities 14,890,319 4,218,599
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FINANCING ACTIVITIES
Dividends (6,267,640) (7,770,288)
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Net cash used in financing activities (6,267,640) (7,770,288)
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INVESTING ACTIVITIES
Investment in promissory notes (71,866,080) (107,179,965)
Repayments of promissory notes 46,217,917 51,878,459
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Net cash used in investing activities (25,648,163) (55,301,506)
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Cash position, beginning of period 53,765,605 97,133,758
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Cash position, end of period 36,740,121 38,280,563
======================================================================================
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See accompanying notes to financial statements
NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2002
(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.
The interim financial statements for the three months periods are
unaudited, however, the financial statements include, in the opinion of
management, all adjustments necessary for a fair presentation. The
unaudited financial statements should be read in conjunction with the
audited financial statements included in the Company's annual report filed
on form 10-K. The results of the interim financial statements may not be
indicator of the results anticipated in the full year.
Promissory notes
In accordance with Statements 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 taxed as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code of 1986, as amended, and
accordingly, is generally not subject 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 three-month
periods ended March 31, 2002 and 2001 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, 2002
(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 2002 to July 2009,
at rates ranging from 7.312% to 10.211%, with a weighted average rate of
approximately 8.339% 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, 2001 $ 415,882,966
Acquisitions 71,866,080
Principal repayments (46,217,917)
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Promissory notes as of March 31, 2002 $ 441,531,129
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The scheduled principal repayments as of March 31, 2002 are as follows:
2002 $22,898,281 2008 10,549,864
2003 86,841,971 2009 2,120,320
2004 132,049,829
2005 102,011,287
2006 83,381,766
2007 1,677,811
4) Transactions with an affiliated company
During the quarters ended March 31, 2002 and March 31, 2001, the Company
earned interest from NB Finance, Ltd. on the promissory notes in the amount
of $9,487,870 and $9,026,664, respectively (see Note 3).
The amount of $6,425,741 due from an affiliated company as of March 31,
2002 and $12,132,195 as of December 31, 2001 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 $30,000 per year ($25,000 in 2001), 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, 2002
and March 31, 2001, fees of $7,500 and $6,250, respectively were charged to
the Company.
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NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2002
(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, 2002 and March 31, 2001, the average outstanding balance of the
collateralized mortgage loans were $569,142,217 and $569,796,242,
respectively. During the three-month periods ended March 31, 2002 and March
31, 2001, fees of $340,290 and $341,882 respectively, were charged to the
Company.
Custodial agreement
National Bank of Canada will hold all documents relating to the
collateralized mortgage loans. During the three-month periods ended March
31, 2002 and March 31, 2001, 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:
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.
o 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.
o 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, 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 90% of its taxable income, subject to
certain adjustments, to its stockholders.
Results of operations:
For the three-month periods ended March 31, 2002 and March 31, 2001, the Company
reported net income of $9,179,231 and $9,232,863, respectively. Revenues, which
were comprised entirely of interest income, were $9,596,633 and $9,622,262
respectively, and expenses were $417,402 and $389,399, respectively. Since the
Company has elected to be taxed as a REIT, no income tax was recorded during the
period.
Ninety-nine percent of revenues for the three-month period ended March 31, 2002
and ninety-four percent of revenues for the three-month period ended March 31,
2001 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 forty-five 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, 2002 and 2001 totaled
$417,402 and $389,399, respectively, of which $347,790 and $348,132,
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, 2002, the Board of Directors of
the Company authorized dividends, in the aggregate, of $6,267,640,compared to
6,270,288 for the three-month period ended March 31, 2001, on its 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 28, 2002.
- 8 -
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,
2002, $442 million of Mortgage Assets issued by NB Finance were
over-collaterized by the C$842 million ($553 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 of March 31, 2002, the Company had cash equivalents of $36,740,121
representing 7.6% of total assets, compared to $53,765,605, representing 11.2%
of total assets, as of December 31, 2001. The decrease in liquidity is
attributable to investment in Mortgage Assets. It is expected that the Company
will invest in additional Mortgage Assets once cash resources exceed 20% of
total assets. While this continues to be the Company's investment policy, the
Company maintains flexibility in this regard. On January 25, 2002, the Company
bought $72 million in additional Mortgage Assets in order to reduce increased
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.
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 became 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
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
11 Computation of Earnings Per Share
27 Financial Data Schedule
(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
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.
NB CAPITAL CORPORATION
Date May 15, 2002 /s/ Frank de Vries
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Frank de Vries
Director; Chairman of the Board;
President and Chief Executive Officer
- 12 -
EXHIBIT 11
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NB CAPITAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three-month period Three-month period
ended ended
March 31, March 31,
2002 2001
Net income $9,179,231 $9,232,863
Deduct: Senior preferred stock
and series A preferred
stock dividends 6,267,640 6,270,288
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(A) $2,911,591 $2,962,575
Common share outstanding (B) 100 100
Earning per share (A/B) $29,115.91 $29,625.75
- 13 -
EXHIBIT 27
NB CAPITAL CORPORATION
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NB CAPITAL
CORPORATION'S UNAUDITED BALANCE SHEET AS OF MARCH 31, 2002 AND UNAUDITED
STATEMENT OF INCOME FOR THE QUARTER ENDED MARCH 31, 2002 INCLUDED IN NB CAPITAL
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2002
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
NB CAPITAL CORPORATION
Period type 3-MOS
Fiscal year end DEC-31-2002
Period start JAN-01-2002
Period end MAR-31-2002
Cash 36,740,121
Securities 0
Receivables 447,962,600
Allowances 0
Inventory 0
Current assets 484,702,721
PP&E 0
Depreciation 0
Total assets 484,702,721
Current liabilities 383,360
Bonds 0
Preferred mandatory 0
Preferred 3,001
Common 1
Other-SE 484,316,359
Total liability and equity 484,702,721
Sales 0
Total revenues 9,596,633
CGS 0
Total costs 0
Other expenses 417,402
Loss provision 0
Interest expense 0
Income - pre tax 9,179,231
Income - tax 0
Income - continuing 9,179,231
Discontinued 0
Extraordinary 0
Changes 0
Net income 9,179,231
EPS - primary 29,116
EPS - diluted 29,116
- 14 -