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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

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(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, 2004

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

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NB CAPITAL CORPORATION(Exact name of registrant as specified in its charter)

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Maryland(Jurisdiction of incorporation)

52-2063921(I.R.S. Employer Identification No.)


125 West 55th Street, 
New York, New York(Address of principal executive offices)

10019(Zip Code)


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212-632-8580(Registrant's telephone number, including area code)

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(N/A)(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  [  ]

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  [  ]
    No  [X]

Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest
practicable date.

ClassCommon Stock par value $0.01 per share

Outstanding at November 14, 2004100


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NB CAPITAL CORPORATION

Index

|                               |                                                                                        |                                                                                                                         |    | Page
|------------------------------ | -------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | -- | ----
|Part I. FINANCIAL INFORMATION: |                                                                                        |                                                                                                                        
|Item 1.                        | Financial Statements                                                                   |                                                                                                                         |   
|                               |                                                                                        | Balance Sheets 
      
As of September 30, 2004 and
December 31, 2003                                                  |    | 1   
|                               |                                                                                        | Statements of Income 
      
For the three-month and nine-month periods ended
September 30, 2004 and 2003              |    | 2   
|                               |                                                                                        | Statements of Stockholders' Equity 
      For the three-month and nine-month periods ended
September 30, 2004 and 2003 |    | 3   
|                               |                                                                                        | Statements of Cash Flows 
      For the nine-month periods ended
September 30, 2004 and 2003                           |    | 4   
|                               |                                                                                        | Notes to the financial statements                                                                                       |    | 5   
|Item 2.                        | Management's Discussion and Analysis of Financial Conditions and Results of Operations |                                                                                                                         | 8 
|Item 3.                        | Quantitative and Qualitative Disclosures About Market Risk                             |                                                                                                                         | 10
|Item 4.                        | Controls and Procedures                                                                |                                                                                                                         | 10
|PART II.  OTHER INFORMATION    |                                                                                        |                                                                                                                        
|Item 1.                        | Legal Proceedings                                                                      |                                                                                                                         | 11
|Item 2.                        | Changes in Securities                                                                  |                                                                                                                         | 11
|Item 3.                        | Defaults Upon Senior Securities                                                        |                                                                                                                         | 11
|Item 4.                        | Submission of Matters to a Vote of Security Holders                                    |                                                                                                                         | 11
|Item 5.                        | Other Information                                                                      |                                                                                                                         | 11
|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) 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. On September 30, 2004, the Canadian
dollar exchange rate posted by the Bank of Canada was C$1.2616 = $1.00 and certain amounts
stated herein reflect such exchange rate.

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PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

NB CAPITAL CORPORATION
BALANCE SHEETS

|(in thousands of US dollars)                 | September 30,
2004
(Unaudited) | December 31,
2003
|-------------------------------------------- | ------------------------------ | -----------------
|                                            
|Assets                                       |                                | $                
|                                             |                               
|Current                                      |                               
|Cash and cash equivalents                    |                                | 18,845           
|Due from an affiliated company               |                                | 10,458           
|Accrued interest on cash equivalents         |                                | 1                
|Prepaid expenses                             |                                | 45               
|Promissory notes - current portion           |                                | 61,625           
|                                            
|                                             |                                | 90,974           
|                                             |                               
|Promissory notes                             |                                | 395,156          
|                                            
|                                             |                                | 486,130          
|                                            
|Liabilities                                  |                               
|                                             |                               
|Current                                      |                               
|Due to the parent company                    |                                | 402              
|Accounts payable                             |                                | 45               
|                                            
|                                             |                                | 447              
|                                            
|                                             |                               
|Stockholders' equity                         |                               
|                                             |                               
|Capital stock and Additional paid-in capital |                                | 476,764          
|                                             |                               
|Retained earnings                            |                                | 8,919            
|                                            
|                                             |                                | 485,683          
|                                            
|                                             |                                | 486,130          
|                                            

See accompanying notes to financial
statements.

-1-

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NB CAPITAL CORPORATION
STATEMENTS OF INCOME

|(Unaudited)                                   | Three-months periods ended
September 30, | Nine-months periods ended
September 30,
|--------------------------------------------- | ---------------------------------------- | ---------------------------------------
|
|                                             
|Revenue                                       |                                          |                                        
|Interest income                               |                                         
|Cash equivalents                              |                                          | 108                                    
|Promissory  notes                             |                                          | 9,119                                  
|                                             
|                                              |                                          | 9,227                                  
|                                             
|                                             
|Expenses                                      |                                         
|Servicing and advisory fees                   |                                          | 402                                    
|Legal and other professional fees             |                                          | 83                                     
|                                             
|                                              |                                          | 485                                    
|                                             
|                                             
|Net income                                    |                                          | 8,742                                  
|                                             
|Preferred stock dividends                     |                                          | 6,267                                  
|                                             
|Income available to common stockholders       |                                          | 2,475                                  
|                                             
|Number of common shares outstanding           |                                          | 100                                    
|                                             
|Earnings per common share - basic and diluted |                                          | 25                                     
|                                             

See accompanying notes to financial
statements

-2-

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NB CAPITAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY

|(Unaudited)                          | Three-months periods ended
September 30, | Nine-months periods ended
September 30,
|------------------------------------ | ---------------------------------------- | ---------------------------------------
|
|                                    
|PREFERRED STOCK                      |                                          | $                                      
|Balance, beginning and end of period |                                          | 3                                      
|                                    
|COMMON STOCK AND PAID-IN CAPITAL     |                                         
|Balance, beginning and end of period |                                          | 476,761                                
|                                    
|RETAINED EARNINGS                    |                                         
|Balance, beginning of period         |                                          | 6,444                                  
|Net income                           |                                          | 8,742                                  
|Preferred stock dividends            |                                          | (6,267                                 
|                                    
|Balance, end of period               |                                          | 8,919                                  
|                                    
|                                    
|TOTAL STOCKHOLDERS' EQUITY           |                                          | 485,683                                
|                                    

See accompanying notes to financial
statements.

-3-

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NB CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS

|(Unaudited)                                     | Nine-month periods ended
September 30,
|----------------------------------------------- | --------------------------------------
|
|                                               
|OPERATING ACTIVITIES                            |                                       
|                                                |                                       
|Net income                                      |                                       
|Item not affecting cash resources :             |                                       
|Prepaid expenses                                |                                       
|Due from an affiliated company                  |                                       
|Due to the parent company                       |                                       
|Accounts payable                                |                                       
|Accrued interest receivable on cash equivalents |                                       
|                                               
|Net cash provided by operating activities       |                                       
|                                               
|                                                |                                       
|FINANCING ACTIVITIES                            |                                       
|                                                |                                       
|Dividends                                       |                                       
|                                               
|Net cash used in financing activities           |                                       
|                                               
|                                                |                                       
|INVESTING ACTIVITIES                            |                                       
|                                                |                                       
|Investment in promissory notes                  |                                       
|Repayments of promissory notes                  |                                       
|                                               
|Net cash used in investing activities           |                                       
|                                               
|                                                |                                       
|Cash and cash equivalents, beginning of period  |                                       
|                                               
|Cash and cash equivalents, end of period        |                                       
|                                               

See accompanying notes to financial
statements.

-4-

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NB CAPITAL CORPORATION

NOTES TO THE FINANCIAL STATEMENTSSeptember 30, 2004
(unaudited)(in thousand of U.S. dollars)

|1) |  | Incorporation
and nature of operations
|-- |  | --------------------------------------

| | NB
Capital Corporation (the Company) was incorporated under the laws of 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 a
Prospectus dated August 22, 1997, $300,000 of preferred stock and simultaneously,
National Bank of Canada (the Bank), the Companys parent company, made a
capital contribution in the amount of $183,000. The Company used the aggregate net
proceeds of $477,000 to acquire promissory notes (Promissory notes) issued by
NB Finance, Ltd. (NB Finance), a wholly-owned subsidiary of the Bank.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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-month and nine-month 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 for the year ended December 31, 2003 filed on Form 10-K. The interim financial
statements may not be an 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 liable 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
and diluted earnings per share with respect to the Company for the three-month and
nine-month periods ended September 30, 2004 and 2003 are computed based on the 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-

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NB CAPITAL CORPORATION

NOTES TO THE FINANCIAL STATEMENTSSeptember 30, 2004
(unaudited)(in thousand of U.S. dollars)

| | Interest
on Promissory notes and cash equivalents
| | -------------------------------------------------

| | Interest
income on the Promissory notes and cash equivalents is accrued using the simple interest
method based on the amount of principle outstanding. The accrual of interest is
discontinued when management believes that the collection of interest is doubtful.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3) |  | Promissory
notes
|-- |  | ----------------

| | The
Company entered into loan agreements evidenced by Promissory notes with NB Finance, an
affiliated company. The Promissory notes are collateralized 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 November 2004 to December 2012, at rates
ranging from 5.49% to 10.21%, with a weighted average rate of approximately 8.21% per
annum.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the Promissory notes as at September 30, 2004 is $481,922. Fair value is
estimated by using the present value of expected future cash flows and may not be
indicative of the net realizable value.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | 
|----------------------------------------- | 
|Promissory notes as of December 31, 2003  | 
|Acquisitions                              | 
|Principal repayments                      | 
|                                         
|Promissory notes as of September 30, 2004 | 
|                                         

| | The
scheduled principal repayments on a year end basis as of September 30, 2004 are as follows:
| | -----------------------------------------------------------------------------------------------

|     |  |           | 
|---- |  | --------- | 
|2004 |  | $  21,492 | 
|2005 |  | $  56,258 | 
|2006 |  | $111,613  | 
|2007 |  | $  32,106 | 
|2008 |  | $  32,069 | 

|4) |  | Transactions
with an affiliated company
|-- |  | ---------------------------------------

| | During
the three-month and nine-month periods ended September 30, 2004 and September 30, 2003,
the Company earned interest from NB Finance, on the Promissory notes in the amount of
$9,119 ($8,755 in 2003) and $27,181 (27,888 in 2003) respectively (see Note 3).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
amount of $10,458 due from NB Finance as of September 30, 2004 and $11,112 as of December
31, 2003 represents interest and principal repayments due on the promissory notes.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5) |  | Transactions
with the parent company
|-- |  | ------------------------------------

| | The
Company has entered into agreements with the Bank in relation to the administration of
the Companys operations. The agreements are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | Advisory
agreement
| | ------------------

| | In
exchange for a fee equal to $100 per year ($30 per year in 2003), payable in equal
quarterly installments, the Bank will furnish advice and recommendations with respect to
all aspects of the business and affairs of the Company. During the three-month and
nine-month periods ended September 30, 2004 and September 30, 2003, fees of $25 ($8 in
2003) and $75 ($23 in 2003) were charged to the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-6-

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NB CAPITAL CORPORATION

NOTES TO THE FINANCIAL STATEMENTSSeptember 30, 2004
(unaudited)(in thousand of U.S. dollars)

|5) |  | Transactions
with the parent company (continued)
|-- |  | ------------------------------------------------

| | Servicing
agreement
| | -------------------

| | The
Bank services and administers the Promissory notes and the collateralized mortgage loans
and performs all necessary operations in connection with such servicing and
administration in exchange for a monthly fee based upon the outstanding balance of the
collateralized mortgage.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
monthly fee equals 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 nine-month periods ended September 30, 2004 and September 30, 2003, the average
outstanding balance of the collateralized mortgage loans were $543,160 and $541,889
respectively. During the three-month and nine-month periods ended September 30, 2004 and
September 30, 2003, fees of $377 ($347 in 2003) and $1,109 ($1,091 in 2003) respectively,
were charged to the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Custodial
agreement
| | -------------------

| | The
Bank holds all documents relating to the collateralized mortgage loans. During the
three-month and nine-month periods ended September 30, 2004 and September 30, 2003, no
fee was charged to the Company for custodial services.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6) |  | Stockholdersequity(in
U.S. Dollars)
|-- |  | ------------------------------------

| | Common
stock
| | ------------

| | The
Company is authorized to issue up to 1,000 shares of $ 0.01 par value common stock. To
date:
| | ------------------------------------------------------------------------------------------------

| |  |  | 100
shares have been authorized and issued to the Bank.
| | - |  | -------------------------------------------------------

| | Preferred
stock
| | ---------------

| | The
Company is authorized to issue up to 10,000,000 shares of $0.01 par value preferred
stock. To date:
| | -------------------------------------------------------------------------------------------------------

| |  |  | 300,000
shares of preferred stock have been authorized and issued as 8.35% Non-cumulative
Exchangeable Preferred Stock, Series A (Series A Preferred Shares),
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 or in Canada, on or after
September 3, 2002. These Series A Preferred Shares are traded on the New York Stock
Exchange in the form of Depository Shares, each Depository Share representing a
one-fortieth interest therein.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Each
Series A Preferred Share is exchangeable, upon the occurrence of certain events, for one
newly issue 8.45% Non-cumulative First Preferred Share, Series Z, of the Bank.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 1,000
shares of preferred stock have been authorized (110 issued) as Adjustable Rate Cumulative
Senior Preferred Shares, non-voting, ranked senior to the common stock and to the Series
A Preferred Shares 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-

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This discussion summarizes the
significant factors affecting the Companys results of operations, financial
condition and liquidation / cash flows for the third quarter and nine-months ended
September 30, 2004, compared to the same periods in 2003. This discussion should be read
in connection with the financial statements and notes included in the Companys
annual report on Form 10-K for the year ended December 31, 2003.

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.

# Critical accounting
policies

We believe that there are no critical
accounting policies in connection with the preparation of the financial statements of the
Company.

Results of operations(in thousand of U.S. dollars)

For the three-month periods ended
September 30, 2004 and September 30, 2003, the Company reported net income of $8,742 and
$8,480 respectively. Revenues, which were comprised entirely of interest income, were
$9,227 and $8,883 respectively, and expenses were $485 and $403, 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 September 30, 2004 and ninety-nine percent of revenues for
the three-month period ended September 30, 2003 were derived from the Mortgage Assets
issued by NB Finance. The Mortgage Assets issued by NB Finance are collateralized by the
Mortgage Loans that consist of seventy pools of residential first mortgages
insured by the 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. The increase in revenues for the three-month period ended September 30, 2004
as compared to the three-month period ended September 30, 2003 is mainly attributable to
the increase in the average outstanding balance of the Mortgage Assets from $506,304 in
2003 to $550,758 in 2004. The Company believes that the majority of revenues will continue
to be generated by the Mortgage Assets issued by NB Finance.

Expenses for the three-month periods
ended September 30, 2004 and 2003 totaled $485 and $403, respectively, of which $402 and
$354, respectively, represent servicing and advisory fees paid to the Bank, the
Companys direct parent, 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 and other professional fees.

-8-

---

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

During the three-month period ended
September 30, 2004, the Board of Directors of the Company authorized dividends, in the
aggregate, of $6,267 compared to $6,267 for the three-month period ended September 30,
2003, on its 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 Depository Shares. Such
dividends were paid on September 30, 2004.

Capital Resources and Liquidity(in thousand of U.S. dollars)

The Companys revenues are
derived from interest payments from the Mortgage Assets. As of September 30, 2004, $457
million of Mortgage Assets issued by NB Finance were collateralized by C$806 million ($571
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 Depository 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 September 30, 2004, the Company
had cash equivalents of $18,845 representing 3.88% of total assets, compared to $19,406
representing 4.05% of total assets, as of December 31, 2003. It is expected that the
Company will invest in additional Mortgage Assets once cash resources are close to, but
not exceeding, 20% of total assets. The Company expects to make an investment in Mortgage
Assets in January 2005, in its normal course of business.

While this continues to be the
Companys investment policy, the Company maintains flexibility in this regard. 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 Depository
Shares, to pay fees and expenses of the Bank pursuant to the Servicing Agreement and the
Advisory Agreement, and to pay legal and professional fees and expenses of advisors, if
any.

# Disclosure of
Contractual Obligations

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.

# Off-Balance Sheet
Accounting

The Company does not have any
off-balance sheet obligations.

-9-

---

ITEM 3.  QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change
in the market risks faced by the Company since December 31, 2003. For information
regarding the Companys risks refer to the information under the caption
Disclosure About Market Risk below and to the Companys Annual Report on
Form 10-K for the year ended December 31, 2003.

# Disclosure About Market
Risk

Any market risk to which the Company
would be exposed would result from fluctuations in interest rates that would affect 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, the Company believes that 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 become
due.

ITEM 4.    CONTROLS AND PROCEDURES

Based on their evaluation as of the
end of the period covered by this report, the Companys President and Chief Financial
Officer have concluded that the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)), are effective to ensure that information required
to be disclosed by the Company in reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms.

-10-

---

PART II  OTHER
INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is not the subject of any
material litigation. The Company is not currently involved in nor, to the Companys
knowledge, currently threatened with any material litigation other than routine litigation
arising in the ordinary course of business, most of which is expected to be covered by
liability insurance.

ITEM 2.  CHANGES IN
SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.   DEFAULTS UPON
SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.   EXHIBITS AND
REPORTS ON FORM 8-K

|(a) |  | Exhibits:
|--- |  | ---------

| |  |            
| |  | -----------
| |  | Exhibit No.
| | 
| |  | 11         
| | 
| |  | 31.1       
| | 
| |  | 31.2       
| | 
| |  | 32.1       
| | 
| |  | 32.2       

|(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 November 9, 2004 | /s/ Serge Lacroix
Serge Lacroix
Chairman of the Board and President
|--------------------- | -------------------------------------------------------------------

|Date November 9, 2004 | /s/ Jean Dagenais
Jean Dagenais
Chief Financial Officer
|--------------------- | -------------------------------------------------------

-12-

---