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 JUNE 30,2001
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 Identification No.)
incorporation or organization)
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 August 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 June 30, 2001 and December 31, 2000 1
Statements of Income -
For the three-month and six-month periods ended
June 30, 2001 and 2000 2
Statements of Stockholders' Equity -
For the three-month and six-month periods ended
June 30, 2001 and 2000 3
Statements of Cash Flows -
For the six-month periods ended June 30, 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. Exhibits 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 June 30, 2001, the Canadian dollar exchange rate was C$1.5140 =
$1.00 and certain amounts stated herein reflect such exchange rate.
NB CAPITAL CORPORATION
BALANCE SHEETS
June 30, December 31,
(in U.S. dollars) 2001 (1) 2000
Assets
Cash and cash equivalents $ 3,969,069 $ 97,133,758
Due from an affiliated company 16,185,308 5,285,479
Promissory notes 465,313,188 379,543,070
Accrued interest on cash equivalents 930 75,850
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485,468,495 482,038,157
==========================================================================================
Liabilities
Due to the parent company 324,933 302,486
Accounts payable 43,592 46,979
Dividend payable 0 1,500,000
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368,525 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 8,335,954 3,424,676
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485,099,970 480,188,692
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485,468,495 482,038,157
==========================================================================================
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(1) Unaudited
See accompanying notes to financial statements.
-1-
NB CAPITAL CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three-months ended Six-months ended
June 30, June 30,
------------------------ ------------------------
(in U.S. dollars) 2001 2000 2001 2000
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Revenue
Interest income
Cash equivalents $ 529,679 $ 882,972 $ 1,125,277 $ 2,067,510
Promissory notes 8,073,195 8,677,395 17,099,859 16,263,369
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8,602,874 9,560,267 18,225,136 18,330,879
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Expenses
Servicing and advisory fees 324,937 321,717 673,069 605,290
Legal and other professional fees 58,946 57,492 100,213 216,337
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383,883 379,209 773,282 821,627
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Net income 8,218,991 9,181,058 17,451,854 17,509,252
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Preferred stock dividends 6,270,288 6,270,627 12,540,576 12,541,253
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Income available to common stockholders 1,948,703 2,910,431 4,911,278 4,967,999
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Weighted average number of common shares outstanding 100 100 100 100
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Earnings per common share - basic 19,487 29,104 49,113 49,680
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See accompanying notes to financial statements.
-2-
NB CAPITAL CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three-months ended Six-months ended
June 30, June 30,
------------------------- ------------------------
(in U.S. dollars) 2001 2000 2001 2000
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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 and end of period 6,387,251 5,963,971 3,424,676 3,906,403
Net income 8,218,991 9,181,058 17,451,854 17,509,252
Preferred stock dividends (6,270,288) (6,270,627) (12,540,576) (12,541,253)
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Balance, end of period 8,335,954 8,874,402 8,335,954 8,874,402
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TOTAL STOCKHOLDERS' EQUITY 485,099,970 485,638,418 485,099,970 485,638,418
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See accompanying notes to financial statements.
-3-
NB CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six-months ended
June 30,
------------------------
(in U.S. dollars) 2001 2000
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OPERATING ACTIVITIES
Net income $ 17,451,854 $ 17,509,252
Items not affecting cash resources
Due from an affiliated company (10,899,829) (2,380,470)
Due to the parent company 22,447 (6,089)
Accounts payable (3,387) 1,873
Accrued interest receivable on cash equivalents 74,920 53,457
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Net cash provided by operating activities 6,646,005 15,178,023
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FINANCING ACTIVITIES
Dividends (14,040,576) (15,541,253)
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Net cash used in financing activities (14,040,576) (15,541,253)
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INVESTING ACTIVITIES
Investment in promissory notes (228,537,191) (98,836,341)
Repayments of promissory notes 142,767,073 107,414,628
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Net cash used in financing activities (85,770,118) 8,578,287
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Cash position, beginning of period 97,133,758 58,048,336
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Cash position, end of period 3,969,069 66,263,393
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See accompanying notes to financial statements.
-4-
NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
June 30, 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
and six-month periods ended June 30, 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.
-5-
NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
June 30, 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 July 2001 to June 2011,
at rates ranging from 6.217% to 9.774%, with a weighted average rate of
approximately 7.437% 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 March 31, 2001 $ 434,844,576
Acquisitions 121,357,227
Principal repayments (90,888,615)
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Promissory notes as of June 30, 2001 $ 465,313,188
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The scheduled principal repayments as of June 30, 2001 are as follows:
2001 $71,265,413 2007 $2,443
2002 41,954,135 2008 32,677
2003 99,679,459 2009 1,340
2004 145,324,952 2010 1,449
2005 90,505,017 2011 24,278
2006 16,522,025
4) Transactions with an affiliated company
During the quarters ended June 30, 2001 and June 30, 2000, the Company
earned interest from NB Finance, Ltd. on the promissory notes in the amount
of $8,073,195 and $8,677,395, respectively (see Note 3).
The amount of $16,185,308 due from an affiliated company as of June 30,
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 months ended June 30, 2001 and June 30, 2000,
fees of $6,250 were charged to the Company.
-6-
NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
June 30, 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 months ended June 30,
2001 and June 30, 2000, the average outstanding balance of the
collateralized mortgage loans were $524,873,644 and $518,676,139,
respectively. During the three months ended June 30, 2001 and June 30,
2000, fees of $318,687 and $315,467 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 months ended June 30, 2001
and June 30, 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.
-7-
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 months ended June 30, 2001 and June 30, 2000, the Company reported
net income of $8,218,991 and $9,181,058, respectively. Revenues, which were
comprised entirely of interest income, were $8,602,874 and $9,560,267
respectively, and expenses were $383,883 and $379,209, 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 months ended June 30, 2001 and
ninety-one percent of revenues for the three months ended June 30, 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 thirty 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 months ended June 30, 2001 and 2000, totaled $383,883 and
$379,209, respectively, of which $324,937 and $321,717, 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 months ended June 30, 2001, the Board of Directors of the
Company authorized dividends of, in the aggregate, $6,270,288 ($6,270,627 for
the three months ended June 30, 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
June 29, 2001.
-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 June 30,
2001, $465 million of Mortgage Assets issued by NB Finance were
over-collaterized by the C$869 million ($581 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 June 30, 2001, the Company had cash equivalents of $3,969,069 which
represent 0.8% 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 June 12, 2001, the Company has bought $121
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.
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.
-9-
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.
-10-
PART II. OTHER INFORMATION
--------------------------
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.
-11-
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 August 15, 2001 /s/ Tom Doss
-------------------------------
Tom Doss
Chief Financial Officer and Treasurer
-12-
EXHIBIT 11
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NB CAPITAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three months Three months
ended ended
June 30, June 30,
2001 2000
Net income $8,218,991 $9,181,058
Deduct: Senior preferred stock
and series A preferred
stock dividends 6,270,288 6,270,627
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(A) $1,948,703 $2,910,431
Common share outstanding (B) 100 100
Earning per share (A/B) $19,487.03 $29,104.31
-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 JUNE 30, 2001 AND UNAUDITED
STATEMENT OF INCOME FOR THE QUARTER ENDED JUNE 30, 2001 INCLUDED IN NB CAPITAL
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
NB CAPITAL CORPORATION
Period type 3-MOS
Fiscal year end DEC-31-2001
Period start JAN-01-2001
Period end JUN-30-2001
Cash 3,969,069
Securities 0
Receivables 481,499,426
Allowances 0
Inventory 0
Current assets 485,468,495
PP&E 0
Depreciation 0
Total assets 485,468,495
Current liabilities 368,525
Bonds 0
Preferred mandatory 0
Preferred 3,001
Common 1
Other-SE 485,096,968
Total liability and equity 485,468,495
Sales 0
Total revenues 8,602,874
CGS 0
Total costs 0
Other expenses 383,883
Loss provision 0
Interest expense 0
Income - pre tax 8,218,991
Income - tax 0
Income - continuing 8,218,991
Discontinued 0
Extraordinary 0
Changes 0
Net income 8,218,991
EPS - primary 19,487
EPS - diluted 19,487
-14-