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, 1998 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 ____ No X
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 12, 1998
Common Stock
par value $0.01 per share 100
1
<PAGE>
NB CAPITAL CORPORATION
Index
Page
----
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheet - March 31, 1998 and December 31,1997 1
Statement of income - Quarter ended March 31, 1998 2
Statement of stockholders' equity -
Quarter ended March 31, 1998 3
Statement of cash flows - Quarter ended
March 31, 1998 4
Notes to the financial statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 10
- --------------------------------------------------------------------------------
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, 1998, the Canadian dollar exchange rate was C$1.42 =
$1.00 and certain amounts stated herein reflect such exchange rate.
2
<PAGE>
NB CAPITAL CORPORATION
BALANCE SHEET
as of March 31, 1998 and December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
(in US dollars)
March 31, 1998 December 31,1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 26,328,634 $ 20,003,943
Due from an affiliated company 6,454,890 4,504,564
Promissory notes 447,677,329 456,513,825
------------ ------------
$480,460,853 $481,022,332
LIABILITIES
Due to parent company $ 411,465 $ 548,297
Accounts payable 113,720 257,560
Income taxes payable 2,000 80,000
------------ ------------
527,185 885,857
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value per share;
10,000,000 shares authorized,
110 Senior preferred shares issued and paid 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 476,760,016 476,431,381
Retained earnings 3,170,650 3,702,093
------------ ------------
479,933,668 480,136,475
------------ ------------
$480,460,853 $481,022,332
============ ============
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
- 1 -
<PAGE>
NB CAPITAL CORPORATION
STATEMENT OF INCOME
For the quarter ended March 31, 1998
(Unaudited)
(in US dollars)
- --------------------------------------------------------------------------------
REVENUE
INTEREST INCOME
Short-term investments $ 89,404
Promissory notes 9,472,300
Bank interest 358,331
------------
9,920,035
------------
EXPENSES
Servicing and advisory fees 411,465
Legal and other professional fees 64,199
------------
475,664
NET INCOME 9,444,371
Preferred stock dividends 6,273,721
------------
INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 3,170,650
------------
Weighted average number of common shares outstanding 100
------------
Earnings per common share - basic $ 31,707
------------
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
- 2 -
<PAGE>
NB CAPITAL CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
For the quarter ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
(in US dollars)
- ---------------------------------------------------------------------------------------------------------------------
Senior Additional
Preferred Preferred Common Paid-in Retained
Stock Stock Stock Capital Earnings Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity as
of December 31, 1997 - $3,000 $1 $476,431,381 $3,702,093 $480,136,475
----------------------------------------------------------------------------------------
Issuance of
senior preferred stock 1 - - 329,999 - 330,000
Net income - - - - 9,444,371 9,444,371
Dividends
on senior preferred stock
and preferred stock - - - - (6,273,721) (6,273,721)
Dividends
on common stock - - - - (3,702,093) (3,702,093)
Other issuance costs - - - (1,364) - (1,364)
----------------------------------------------------------------------------------------
1 - - 328,635 (531,443) (202,807)
----------------------------------------------------------------------------------------
Stockholders' equity as of
March 31, 1998 $1 $3,000 $1 $476,760,016 $3,170,650 $479,933,668
----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
- 3 -
<PAGE>
NB CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
For the quarter ended March 31, 1998
(Unaudited)
(in US dollars)
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $9,444,371
Items not affecting cash resources
Due from an affiliated company (1,950,326)
Due to parent company (136,832)
Accounts payable (143,840)
Income taxes payable (78,000)
-----------
7,135,373
-----------
FINANCING ACTIVITIES
Issue of senior preferred stock 330,000
Other issuance costs (1,364)
Dividends (9,975,814)
-----------
(9,647,178)
-----------
INVESTING ACTIVITIES
Repayments of promissory notes 8,836,496
-----------
INCREASE IN CASH 6,324,691
Cash position, beginning of quarter 20,003,943
-----------
Cash position, end of quarter $26,328,634
===========
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- 4 -
<PAGE>
NB CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the quarter ended March 31, 1998
(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 upon filing its initial tax return will elect to be taxable
as a Real Estate Investment Trust ("REIT") under the Internal Revenue
Code of 1986, as amended, and accordingly will generally not be 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 quarter
ended March 31, 1998 are computed based upon the weighted average
number of common shares outstanding during the period. In February
1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 "Earnings Per Share". This
pronouncement specifies the computation, presentation and disclosure
requirements for earnings per share. The Company has no outstanding
securities which are dilutive under this pronouncement.
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 -
<PAGE>
3) Promissory notes
On September 3, 1997, 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 consist of 16 notes with maturities ranging from
January 2000 to July 2001, at rates ranging from 6.90% to 9.77%, with
an average rate of approximately 8.40% 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, 1997 456,513,825
Principal repayments 8,836,496
-----------------------------------------------------------------------
Promissory notes as of March 31, 1998 447,677,329
=======================================================================
The scheduled principal repayments are as follows :
1998 33,969,637
1999 91,270,253
2000 180,642,934
2001 141,794,505
4) Transactions with an affiliated company
During the quarter, the Company earned interest from NB Finance, Ltd.
in the amount of $ 9,472,300 (see Note 3).
The amount of $ 6,454,890 due from an affiliated company as of March
31, 1998 represents interest and principal repayments due on the
promissory notes.
5) Transactions with the parent company
In September 1997, 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 quarter, fees of $ 6,250 were charged to the
Company.
- 6 -
<PAGE>
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 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 period, the
average outstanding balance of the collateralized mortgage loans
amounts to $ 563,654,506. During the quarter, fees of $ 405,215 were
charged to the Company.
Custodian agreement
National Bank of Canada will hold all documents relating to the
collateralized mortgage loans. During the quarter, 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 classified as 8.35% Noncumulative 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.
1,000 shares classified as Adjustable Rate Cumulative Senior Preferred
Shares, non-voting, ranked senior to the common stock and to the 8.35%
Noncumulative 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 holder's option on December 30, 2007 and every
ten-year anniversary thereof.
- 7 -
<PAGE>
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 real estate investment trust ("REIT") assets ("Mortgage
Assets"). The Company will elect to be taxable as a REIT under the Internal
Revenue Code of 1986 and, accordingly, will generally not be 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:
The Company commenced its operations on August 20, 1997 and, accordingly, only
certain comparative information is available.
For the three month period ended March 31, 1998, the Company reported net income
of $9,444,371. Revenues, which are comprised entirely of interest income, were
$9,920,035 and expenses were $475,664. Since the Company will elect to be
taxable as a REIT, no income tax was recorded during the period.
Ninety-five percent of revenues were derived from promissory notes (the "Initial
Mortgage Assets") issued by NB Finance, Ltd., an affiliated company ("NB
Finance"). The Initial Mortgage Assets issued by NB Finance are collateralized
by mortgage loans which are secured by residential first mortgages and insured
by Canada Mortgage and Housing Corporation (the "Initial Mortgage Loans"). The
balance of revenues result from interest on bank deposits and short-term
investments (i.e., US Treasury bills).
Expenses for the period totalled $475,664 of which $411,465 represent servicing
and advisory fees paid to National Bank of Canada, the Company's direct parent
(the "Bank") pursuant to the Servicing Agreement, dated September 3, 1997,
between the Bank and the Company (the "Servicing Agreement") and the Advisory
Agreement, dated September 3, 1998, between the Bank and the Company (the
"Advisory Agreement"), whereby the Bank performs all necessary operations in
connection with administering the Initial Mortgage Assets issued by NB Finance
and the Initial Mortgage Loans. Other fees include payment to the transfer agent
and external accounting fees.
On March 18, 1998, the Board of Directors of the Company declared dividends of,
in the aggregate, $6,273,721 on Preferred Stock (i.e., Adjustable Rate
Cumulative Senior Preferred Shares (the "Senior Preferred Shares") and 8.35%
Noncumulative Exchangeable Preferred Stock, Series A (the "Series A Preferred
Shares") and a dividend of $3,702,093 on Common Stock. Such dividends were
paid on March 30, 1998.
Capital Resources and Liquidity:
The Company's revenues are derived from its Mortgage Assets. As of March 31,
1998, $448 million of Initial Mortgage Assets issued by NB Finance were
over-collaterized by the C$778 million ($548 million) of Initial Mortgage Loans.
The Company believes that the amounts generated from the payment of interest and
principal on such Initial Mortgage Loans will provide more than sufficient funds
to make full payments with respect to the Initial Mortgage Assets issued by NB
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (continued)
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. 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, 1998, the Company had cash resources of $26,328,634 which
represent 5.5% of total assets compared to $20,003,943 or 4.2% of total assets
as at December 31, 1997. The increase in liquidity is attributable to cash
received in repayment of promissory notes. It is expected that the Company will
invest in additional Mortgage Assets when cash resources reach 10% 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, 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 payment or other payments due on other
long-term obligations. No negative covenants have been imposed on the Company.
-9-
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 27, 1998, the Company filed Articles Supplementary with the State
Department of Assessments and Taxation of Maryland (the "SDAT") pursuant to
which the Company set the preferences and other terms and qualifications of the
Senior Preferred Shares. On January 29, 1998, 110 Senior Preferred Shares were
offered and sold to (a) accredited investors (as defined under Rule 501(a) under
the Securities Act of 1933, as amended (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 or its affiliates resident in Canada or
otherwise subject to the securities laws of a province of Canada. The Senior
Preferred Shares were sold for $3,000 per share or $330,000 in the aggregate.
The offering of the Senior Preferred Shares was not underwritten. The proceeds
were added to the working capital of the Company. Neither the Articles
Supplementary described above nor the issuance of the Senior Preferred Shares
modify the rights of holders of any other class of securities of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
3.1.1 Articles Supplementary, filed with the
SDAT on January 27, 1998*
3.1.2 Articles Supplementary, filed with the
SDAT on April 15, 1998**
11 Computation of Earnings Per Share
27 Financial Data Schedule
-----------------
* Previously filed as an exhibit to Amendment No. 3 to the
Registration Statement on Form S-4/F-9 of National Bank of
Canada, NB Capital Corporation and NB Finance, Ltd. filed with
the Securities and Exchange Commission (the "Commission") on
February 17, 1998.
** Previously filed as an exhibit to the Form 8A of National Bank
of Canada, NB Capital Corporation and NB Finance, Ltd. filed
with the Commission on May 11, 1998.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
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, 1998 /s/ Tom Doss
------------ ------------------
Tom Doss
Chief Financial Officer and Treasurer
- --------------------------------------------------------------------------------
EXHIBIT 11
NB CAPITAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Net income $9,444,371
Deduct: Senior preferred
stock and preferred
stock dividends 6,273,721
(A) $3,170,650
Common share outstanding (B) 100
Earning per share (A/B) $31,706.50
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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, 1998 AND UNAUDITED
STATEMENT OF INCOME FOR THE QUARTER ENDED MARCH 31, 1998 INCLUDED IN NB CAPITAL
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001049551
<NAME> NB CAPITAL CORPORATION
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,328,634
<SECURITIES> 0
<RECEIVABLES> 454,132,219
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 480,460,853
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 480,460,853
<CURRENT-LIABILITIES> 527,185
<BONDS> 0
0
3,001
<COMMON> 1
<OTHER-SE> 479,930,666
<TOTAL-LIABILITY-AND-EQUITY> 480,460,853
<SALES> 0
<TOTAL-REVENUES> 9,920,035
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 475,664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,444,371
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,444,371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,444,371
<EPS-PRIMARY> 31,707
<EPS-DILUTED> 31,707
</TABLE>
