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 SEPTEMBER 30,2000
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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 November 15, 2000
Common Stock
par value $0.01 per share 100
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NB CAPITAL CORPORATION
Index
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<TABLE>
<CAPTION>
Page
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Part I. FINANCIAL INFORMATION:
<S> <C>
Item 1. Financial Statements
Balance Sheets -
As of September 30, 2000 and December 31, 1999 1
Statements of Income -
For the three-month and nine-month periods ended September 30, 2000 and 1999 2
Statements of Stockholders' Equity -
For the three-month and nine-month periods ended September 30, 2000 and 1999 3
Statements of Cash Flows -
For the nine-month periods ended September 30, 2000 and 1999 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 10
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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 September 30, 2000, the Canadian dollar exchange rate was
C$1.5035 = $1.00 and certain amounts stated herein reflect such exchange rate.
2
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<TABLE>
<CAPTION>
NB CAPITAL CORPORATION
BALANCE SHEETS
September 30, December 31,
(in U.S. dollars) 2000 (1) 1999
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<S> <C> <C>
Assets
Cash and cash equivalents $ 64,604,461 $ 58,048,336
Due from an affiliated company 5,103,619 22,056,729
Promissory notes 419,097,625 403,846,210
Accrued interest on cash equivalents 20,556 74,151
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488,826,261 484,025,426
===================================================================================================================
Liabilities
Due to the parent company 300,367 327,807
Accounts payable 34,990 27,200
Dividend payable 0 3,000,000
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335,357 3,355,007
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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
300,000s 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 11,726,888 3,906,403
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488,490,904 480,670,419
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488,826,261 484,025,426
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</TABLE>
(1) Unaudited
See accompanying notes to financial statements
3
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<TABLE>
<CAPTION>
NB CAPITAL CORPORATION
(Unaudited)
Three-month periods ended Nine-month periods ended
September 30, September 30
(in U.S. dollars) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue
Interest income
Cash equivalents $ 1,407,683 924,381 $ 3,475,193 $ 1,834,953
Promissory notes 8,050,951 8,331,826 24,314,320 26,164,081
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9,458,634 9,256,207 27,789,513 27,999,034
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Expenses
Servicing and advisory fees 300,367 308,762 905,657 948,934
Legal and other professional fees 35,154 120,089 251,491 168,692
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335,521 428,851 1,157,148 1,117,626
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Net income 9,123,113 8,827,356 26,632,365 26,881,408
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Preferred stock dividends 6,270,627 6,269,621 18,811,880 18,808,861
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Income available to common stockholders 2,852,486 2,557,735 7,820,485 8,072,547
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Weighted average number of common shares
outstanding 100 100 100 100
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Earnings per common share - basic 28,525 25,577 78,205 80,725
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</TABLE>
See accompanying notes to financial statements.
4
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<TABLE>
<CAPTION>
NB CAPITAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Three-month periods ended Nine-month periods ended
September 30 September 30
(in U.S. dollars) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
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 8,874,402 10,659,178 3,906,403 5,144,366
Net income 9,123,113 8,827,356 26,632,365 26,881,408
Preferred stock dividends (6,270,627) (6,269,621) (18,811,880) (18,808,861)
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Balance, end of period 11,726,888 13,216,913 11,726,888 13,216,913
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TOTAL STOCKHOLDERS' EQUITY 488,490,904 489,980,929 488,490,904 489,980,929
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</TABLE>
See accompanying notes to financial statements.
5
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<TABLE>
<CAPTION>
NB CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine-month periods ended
September 30
(in U.S. dollars) 2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 26,632,365 $ 26,881,408
Items not affecting cash resources
Due from an affiliated company 16,953,110 (5,542,361)
Due to the parent company (27,440) 4,986
Accounts payable 7,790 102,355
Accrued interest receivable on cash equivalents 53,595 (7,169)
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43,619,420 21,439,219
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FINANCING ACTIVITIES
Dividends (21,811,880) (19,308,861)
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(21,811,880) (19,308,861)
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INVESTING ACTIVITIES
Investment in promissory notes (166,159,779) (85,989,303)
Repayments of promissory notes 150,908,364 87,121,671
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(15,251,415) 1,132,368
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Increase in cash 6,556,125 3,262,726
Cash position, beginning of period 58,048,336 22,178,668
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Cash position, end of period 64,604,461 25,441,394
=================================================================================================================================
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</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
(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., an indirect wholly-owned subsidiary
of National Bank of Canada.
2) Significant accounting policies
Financial statements
The financial statements are prepared in accordance with generally accepted
accounting principles 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 nine-month periods ended September 30, 2000 and 1999 are computed based
upon the weighted average number of common shares outstanding during the
period.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
7
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NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
(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 October 2000 to March
2005, at rates ranging from 7.149% to 9.774%, with a weighted average rate
of approximately 8.232% 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 June 30, 2000 395,267,923
Acquisitions 67,323,438
Principal repayments (43,493,735)
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Promissory notes as of September 30, 2000 419,097,626
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The scheduled principal repayments as of September 30,2000 are as follows:
2000 32,800,109
2001 193,127,352
2002 33,677,606
2003 94,295,582
2004 52,916,226
2005 12,280,751
4) Transactions with an affiliated company
During the quarters ended September 30, 2000 and September 30, 1999, the
Company earned interest from NB Finance, Ltd. on the promissory notes in
the amount of $8,050,951 and $8,331,826, respectively (see Note 3).
The amount of $5,103,619 due from an affiliated company as of September 30,
2000 and $22,056,729 as of December 31, 1999, represent interest and
principal repayments due on the promissory notes.
5) Transactions with the parent company
In 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 three-month periods ended September 30, 2000, and
September 30, 1999, fees of $6,250 were charged to the Company.
8
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NB CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
(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 be 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
September 30, 2000 and September 30, 1999, the average outstanding balance
of the collateralized mortgage loans were $481,649,108 and $507,356,099,
respectively. During the three-month periods ended September 30, 2000 and
September 30, 1999, fees of $294,118 and $302,513 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
September 30, 2000, and September 30, 1999, 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.
9
<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 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 September 30, 2000 and September 30, 1999, the
Company reported net income of $9,123,113 and $8,827,356, respectively.
Revenues, which were comprised entirely of interest income, were $9,458,634 and
$9,256,207 respectively, and expenses were $335,521 and $428,851, respectively.
Since the Company has elected to be taxed as a REIT, no income tax was recorded
during the period.
Eighty-five percent of revenues for the three-month period ended September 30,
2000 and ninety percent of revenues for the three-month period ended September
30, 1999 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 mortgage loans consisting of twenty-three pools of residential
first mortgages (the "Mortgage Loans") 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 September 30, 2000 and 1999, totaled
$335,521 and $428,851, respectively, of which $300,367 and $308,762,
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 September 30, 2000, the Board of Directors
of the Company authorized dividends of, in the aggregate, $6,270,627 ($6,269,621
for the three-month period ended September 30, 1999) 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 September 29, 2000.
10
<PAGE>
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 September
30, 2000, $419 million of Mortgage Assets issued by NB Finance were
over-collaterized by C$765 million ($524 million) of Mortgage Loans. The
Company believes that the amounts generated from the payment of interest and
principal on such Mortgage Loans will provide 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. The
Company does not expect to acquire any capital assets in the foreseeable
future.
As of September 30, 2000, the Company had cash equivalents of $64,604,461,
representing 13.2% of total assets compared to $58,048,336, or 12%, of total
assets as of December 31, 1999. The increase in liquidity is attributable to
cash received in repayment of Mortgage Assets. It is expected that the Company
will invest in additional Mortgage Assets when cash resources reach over 10% of
total assets. While this continues to be the Company's investment policy, the
Company maintains flexibility in this regard. On September 28, 2000, the Company
bought $67 millions in additional Mortgage Assets in order to reduce its
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 to the Company, 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.
11
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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.
<PAGE>
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 November 15, 2000 /s/ Tom Doss
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Tom Doss
Chief Financial Officer and Treasurer
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<PAGE>
EXHIBIT 11
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NB CAPITAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three-month period Three-month period
ended ended
September 30, 2000 September 30, 1999
<S> <C> <C> <C>
Net income $ 9,123,113 $ 8,827,356
Deduct: Senior preferred stock
and series A preferred
stock dividends 6,270,627 6,269,621
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(A) $ 2,852,486 $ 2,557,735
Common share outstanding (B) 100 100
Earning per share (A/B) $ 28,524.86 $ 25,577.35
</TABLE>
