UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549

FORM 10-K

|[X] |  | Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of           1934
for the fiscal year ended December 31, 2004.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|[  ] |  | 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
(State or other jurisdiction of
incorporation or organization) | 52-2063921
(I.R.S. Employer
Identification No.)
|----------------------------------------------------------------------- | -----------------------------------------------

|65 East 55THStreet, 31st Floor 
New York, New York(Address of principal executive offices) | 10022
(Zip code)
|------------------------------------------------------------------------------------------ | ----------------

Registrant's telephone number,
including area code:  (212) 632-8697

Securities registered pursuant to
Section 12(b) of the Act:  None

Securities registered pursuant to
Section 12(g) of the Act:

8.35% Noncumulative Exchangeable Preferred Stock, Series A, par value $ .01 per share, 
traded in the form of Depository
Shares, each representing a one-fortieth interest therein

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]

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

As
of December 31, 2004, all Common Stock, par value $ .01 per share, was held by an
affiliate.

As
of December 31, 2004, the number of shares of Common Stock outstanding was 100.

Documents Incorporated by reference: 
None

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FORWARD-LOOKING STATEMENTS

From
time to time, NB Capital Corporation (the Company or NB Capital)
makes written and oral forward-looking statements, included in this 10-K report for
filling with the U.S. Securities and Exchange Commission, in reports to shareholders, in
press releases and in other communications. All such statements are made pursuant to the
safe harbor provisions of the United States Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, among others, statements
with respect to the economy, market changes, the achievement of strategic objectives,
certain risks as well as statements with respect to our beliefs, plans, expectations,
anticipations, estimates and intentions. These forward-looking statements are typically
identified by the words may, could, should,
would, suspect, outlook, believe,
anticipate, estimate, expect, intend,
plan, and words and expressions of similar import.

By
their very nature, such forward-looking statements require us to make assumptions and
involve inherent risks and uncertainties, both general and specific. There is significant
risk that express or implied projections contained in such statements will not materialize
or will not be accurate. A number of factors could cause actual future results,
conditions, actions or events to differ materially from the targets, expectations,
estimates or intentions expressed in the forward-looking statements. Such differences may
be caused by factors, many of which are beyond the Companys control, which include,
but are not limited to, changes in North American and/or global economic and financial
conditions (particularly fluctuations in interest rates, currencies and other financial
instruments), liquidity, market trends, regulatory developments and competition in
geographic areas where the Company operates, technological changes, the possible impact on
our businesses of international conflicts and other developments including those relating
to the war on terrorism and the Companys anticipation of and success in managing the
risks implied by the foregoing.

The
Company cautions that the foregoing list of important factors is not exhaustive. Investors
and others who base themselves on the Companys forward-looking statements should
carefully consider the above factors as well as the uncertainties they represent and the
risk they entail. The Company therefore cautions readers not to place undue reliance on
these forward-looking statements. The Company does not undertake to update any
forward-looking statements, whether written or oral, that may be made from time to time by
or on behalf of the Company.

EXCHANGE RATE

References
to $ are to United States dollars; references to C$ are to Canadian dollars. As of
December 31, 2004, the Canadian dollar exchange rate was C$1.2020 = $1.00 and certain
amounts stated herein reflect such exchange rate. The exchange rate was obtained from the
Bank of Canada.

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PART I

ITEM 1: BUSINESS

# General

On
August 20, 1997, NB Capital Corporation (the Company) was incorporated under
the laws of the State of Maryland for the purposes of providing U.S. investors with the
opportunity to invest in Canadian residential mortgages and other real estate assets. The
Company began operations on September 3, 1997 with the consummation of an offering of
300,000 shares of its 8.35% Non-cumulative Exchangeable Preferred Stock, Series A (the
Series A Preferred Shares). The Series A Preferred Shares trade on the New
York Stock Exchange in the form of Depository Shares, each representing a one-fortieth
interest in a Series A Preferred Share (the Depository Shares). National Bank
of Canada (the Bank) owns all of the Companys issued and outstanding
common stock, par value $.01 per share (the Common Stock). Accordingly, the
Company is a wholly owned subsidiary of the Bank.

The
Companys principal business objective is to acquire, hold, finance and manage assets
consisting of obligations secured by real property (Mortgage Assets) as well
as certain other qualifying real estate investment trust (REIT) assets. The
Mortgage Assets currently consist of 67 hypothecation loans issued to the
Company by NB Finance, Ltd. (NB Finance), a Bermuda corporation and a wholly
owned subsidiary of the Bank, that are recourse only to the Mortgage Loans.
Hypothecation loans are loans secured by the pledge of mortgages as security therefore.
The Mortgage Loans consist of 67 pools of, at December 31, 2004, an aggregate 12,971
residential first mortgages insured by Canada Mortgage and Housing Corporation, an agency
of the Government of Canada (CMHC), that are secured by real property located
in Canada. The Company has acquired and expects to continue to acquire its Mortgage Assets
from the Bank and affiliates of the Bank. The Company may also from time to time, however,
acquire Mortgage Assets from unrelated third parties.

The
Bank administers the day-to-day operations of the Company pursuant to an Advisory
Agreement, dated September 3, 1997, between the Bank and the Company (the Advisory
Agreement). The Bank also services the Mortgage Loans pursuant to a Servicing
Agreement, dated September 3, 1997, between the Bank and NB Finance (the Servicing
Agreement). Pursuant to an Assignment Agreement, NB Finance has assigned to the
Company all of its right, title and interest in the Servicing Agreement.

In
order to preserve the Companys status as a REIT under the Internal Revenue Code of
1986, as amended (the Code), substantially all of the assets of the Company
consist of the Mortgage Assets issued by NB Finance and other real estate assets that are
of the type set forth in Section 856(c)(6)(B) of the Code.

For
information regarding the Companys revenue and operating profit, see the
Companys financial statements, beginning on page F-1.

# Automatic Exchange

Each
Series A Preferred Share will be exchanged automatically for one newly issued 8.45%
Noncumulative First Preferred Share, Series Z, of the Bank (a Bank Preferred
Share): (i) immediately prior to such time, if any, at which the Bank fails to
declare and pay or set aside for payment when due on any dividend on any issue of its
cumulative First Preferred Shares or the Bank fails to pay or set aside for payment when
due any declared dividend on any of its non-cumulative First Preferred Shares, (ii) in the
event that the Bank has a Tier 1 risk-based capital ratio of less than 4.0% or a total
risk-based capital ratio of less than 8.0%, (iii) in the event that the Superintendent of
Financial Institutions Canada (the Superintendent) takes control of the Bank
pursuant to the Bank Act (Canada), as amended (the Bank Act), or proceedings
are commenced for the winding-up of the Bank pursuant to the Winding-up and Restructuring
Act (Canada), or (iv) in the event that the Superintendent, by order, directs the Bank to
act pursuant to subsection 485(3) of the Bank Act and the Bank elects to cause the
exchange (each, an Exchange Event). Upon an Exchange Event, the holders of the
Series A Preferred Shares shall be unconditionally obligated to surrender to the Bank the
certificates representing the Series A Preferred Share held by such holder, and the Bank

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shall be unconditionally
obligated to issue to such holder in exchange for each such
Series A Preferred Share a certificate representing one Bank Preferred Share.

The
Automatic Exchange shall occur as of 8:00 a.m. Eastern Time on the date for such exchange
set forth in the requirements of the Superintendent or, if such date is not set forth in
such requirements as of 8:00 a.m. on the earliest possible date such exchange could occur
consistent with such requirements (the Time of Exchange), as evidenced by the
issuance by the Bank of a press release prior to such time. As of the Time of Exchange,
all of the Series A Preferred Shares will be deemed canceled without any further action by
the Company, all rights of the holders of the Series A Preferred Shares as stockholders of
the Company will cease, and such persons shall thereupon and thereafter be deemed to be
and shall be for all purposes holders of Bank Preferred Shares. The Company will mail
notice of the occurrence of an Exchange Event to each holder of the Series A Preferred
Shares within 30 days of such event, and the Bank will deliver to each such holder
certificates for the Bank Preferred Shares upon surrender of such holders
certificates for the Series A Preferred Shares. The charter provides that, immediately
after the delivery of such notice, the existence of the Company shall terminate and the
Company will be liquidated and its affairs wound up in accordance with the procedures of
the Maryland General Corporation Law relating to forfeiture of the charter of a
corporation and expiration of corporate existence. Until such replacement stock
certificates are delivered (or in the event such replacement certificates are not
delivered), certificates previously representing the Series A Preferred Shares shall be
deemed for all purposes to represent the Bank Preferred Shares. Once an Exchange Event
occurs, no action will be required to be taken by holders of the Series A Preferred
Shares, by the Bank or by the Company in order to effect an automatic exchange as of the
Time of Exchange.

Holders
of the Series A Preferred Shares, by purchasing the Series A Preferred Shares, have agreed
to be bound by the unconditional obligation to exchange such Series A Preferred Shares for
the Bank Preferred Shares upon the occurrence of an Exchange Event. The obligation of the
holders of the Series A Preferred Shares to surrender such shares and the obligation of
the Bank to issue the Bank Preferred Shares in exchange for the Series A Preferred Shares
shall be enforceable by the Bank and such holders, respectively, against the other.

Upon
the occurrence of an Exchange Event, the Bank Preferred Shares to be issued as part of an
automatic exchange would constitute a newly issued series of First Preferred Shares of the
Bank and would constitute 100% of the issued and outstanding Bank Preferred Shares. The
Bank Preferred Shares would have the same liquidation preference and be subject to
redemption on the same terms as the Series A Preferred Shares (except that there would be
no redemption for certain tax-related events). Any accrued and unpaid dividends on the
Series A Preferred Shares as of the Time of Exchange would be accounted for as accrued and
unpaid dividends on the Bank Preferred Shares. The Bank Preferred Shares would rank pari
passu, in terms of dividend payments and liquidation preference, with, or senior to, any
outstanding First Preferred Shares of the Bank. The Bank Preferred Shares would not
entitle the holders to vote except in certain circumstances. Dividends on the Bank
Preferred Shares would be non-cumulative and payable at the rate of 8.45% per annum of the
liquidation preference, if, when and as declared by the Board of Directors of the Bank.
The Bank does not intend to apply for listing of the Bank Preferred Shares on any national
securities exchange or for quotation of the Bank Preferred Shares through the National
Association of Securities Dealers Automated Quotation System. Absent the occurrence of an
Exchange Event, however, the Bank will not issue any Bank Preferred Shares, although the
Bank will be able to issue First Preferred Shares in series other than that of the Bank
Preferred Shares. There can be no assurance as to the liquidity of the trading markets for
the Bank Preferred Shares, if issued, or that an active public market for the Bank
Preferred Shares would develop or be maintained.

Holders
of the Series A Preferred Shares cannot exchange the Series A Preferred Shares for the
Bank Preferred Shares voluntarily. In addition, absent the occurrence of an automatic
exchange, holders of the Series A Preferred Shares will have no dividend, voting,
liquidation preference or other rights with respect to the Bank or any security of the
Bank.

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# Advisory Agreement

The
Company entered into the Advisory Agreement with the Bank to administer the day-to-day
operations of the Company. The Bank is responsible for (i) monitoring the credit quality
of Mortgage Assets held by the Company, (ii) advising the Company with respect to the
reinvestment of income from and payments on, and with respect to the acquisition,
management, financing and disposition of, Mortgage Assets held by the Company, (iii)
holding documents relating to the Companys Mortgage Assets as custodian, (iv)
monitoring the Companys compliance with the requirements necessary to qualify as a
REIT and (v) maintaining its status as a lender approved by the Canadian National Housing
Act (an NHA-Approved Lender). As long as any Series A Preferred Shares and,
accordingly, any Depository Shares remain outstanding, the Company may not renew,
terminate, or modify the Advisory Agreement without the approval of a majority of the
Board of Directors of the Company (the Board of Directors) as well as of a
majority of the Independent Directors. An Independent Director is a Director
meeting the criteria specified in 10A-3 of the Securities Exchange Act of 1934. The Bank
may, with the approval of a majority of the Board of Directors as well as a majority of
the Independent Directors, subcontract all or a portion of its obligations under the
Advisory Agreement to one or more related or unrelated third parties. The Bank will not,
in connection with the subcontracting of any of its obligations under the Advisory
Agreement, be discharged or relieved in any respect from any of its obligations under the
Advisory Agreement. As of the date of this Form 10-K, the Bank has not subcontracted any
of its obligations under the Advisory Agreement.

The
Advisory Agreement had an initial term of one year, and has been renewed seven times for
additional one-year periods. The last renewal was dated November 3, 2004 and its
expiration date is November 3, 2005. The advisory fee was revised from $30,000 to $100,000
for 2004 fiscal year. The Company may terminate the Advisory Agreement at any time upon 60
days prior written notice. As long as any of the Series A Preferred Shares or
Depository Shares remain outstanding, any decision by the Company to renew, terminate or
modify the Advisory Agreement must be approved by a majority of the Board of Directors, as
well as by a majority of the Independent Directors. The Bank received an advisory fee
equal to $100,000 for fiscal year 2004 and is entitled to receive $100,000 for fiscal year
2005, payable in equal quarterly installments with respect to the advisory and management
services provided by it to the Company. Payment of such fees is subordinated to payments
of dividends on the Series A Preferred Shares and, accordingly, the Depository Shares.

# Servicing Agreement

The
Mortgage Loans are serviced by the Bank pursuant to the terms of the Servicing Agreement.
The Bank receives a fee equal to 0.25% per annum on the principal balances (in CDN$) of
the loans serviced.

The
Servicing Agreement, put in place on September 3, 1997, had an initial term of one year,
and has been renewed seven times for additional one-year periods. The last renewal was
made on May 5, 2004 for a one-year period ending on June 28, 2005. The Servicing Agreement
requires the Bank to service Mortgage Loans in a manner generally consistent with normal
mortgage servicing practices of prudent mortgage lending institutions that service
mortgage loans of the same type as the Mortgage Loans, with any servicing guidelines
promulgated by the Company and with relevant government agency guidelines and procedures.
The Servicing Agreement requires the Bank to service Mortgage Loans solely with a view
toward the interests of the Company and without regard to the interests of the Bank or any
of its other affiliates (including NB Finance). The Bank collects and remits principal and
interest payments, administers mortgage escrow accounts, submits and pursues mortgage
insurance claims and supervises foreclosure proceedings on any Mortgage Loans it services.
The Bank also provides accounting and reporting services with respect to such Mortgage
Loans. The Servicing Agreement requires the Bank to follow such collection procedures as
are customary in normal mortgage servicing practices of prudent mortgage lending
institutions that service mortgage loans of the same type as the Mortgage Loans. The Bank
may from time to time subcontract all or a portion of its servicing obligations under the
Servicing Agreement to a third party subject to the prior written approval of the Company.
The Bank will not, in connection with subcontracting any of its obligations under the
Servicing Agreement, be discharged or relieved in any respect from its obligation to the
Company to perform its obligations under the Servicing Agreement. As of the date of this
Form 10-K, the Bank has not subcontracted any of its obligations under the Servicing
Agreement.

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The
Bank is required to pay all expenses related to the performance of its duties under the
Servicing Agreement. The Bank is required to make advances of taxes and required insurance
premiums that are not collected from mortgagors with respect to any Mortgage Loan serviced
by it, unless it determines that such advances are non recoverable from the mortgagor,
insurance proceeds or other sources with respect to such Mortgage Loan. If such advances
are made, the Bank generally will be reimbursed prior to the Company being reimbursed out
of the payments with respect to such Mortgage Loan. The Bank also is entitled to
reimbursement for expenses incurred by it in connection with the liquidation of defaulted
Mortgage Loans serviced by it and in connection with the restoration of mortgaged
property. The Bank is responsible to the Company for any loss suffered as a result of the
Banks failure to make and pursue timely claims or as a result of actions taken or
omissions made by the Bank which cause the policies to be canceled by the insurer. Subject
to approval by the Company, the Bank may institute foreclosure proceedings, exercise any
power of sale contained in any Mortgage Loan or deed of trust, obtain a deed in lieu of
foreclosure or otherwise acquire title to a mortgaged property underlying a Mortgage Loan
by operation of law or otherwise in accordance with the terms of the Servicing Agreement.
The Bank does not, however, have the authority to enter into contracts in the name of the
Company.

The
Company may terminate the Servicing Agreement upon the occurrence of one or more events
specified in the Servicing Agreement. Such events relate generally to the Banks
proper and timely performance of its duties and obligations under the Servicing Agreement.
In addition, the Company may also terminate the Servicing Agreement without cause upon 60
days notice and payment of a termination fee.  The termination fee will be
based on the aggregate outstanding principal amount of the Mortgage Loans then serviced
under the Servicing Agreement.

As
is customary in the mortgage loan servicing industry, the Bank is entitled to retain any
late payment charges, penalties and assumption fees collected in connection with the
Mortgage Loans serviced by it. The Bank will receive any benefit derived from interest
earned on collected principal and interest payments between the date of collection and the
date of remittance (15th calendar day) to the Company and, to the extent
permitted by law, from interest earned on tax and insurance impound funds with respect to
Mortgage Loans serviced by it.

When
any mortgaged property underlying a Mortgage Loan is conveyed by a mortgagor, the Bank
generally will enforce any due-on-sale clause contained in the Mortgage Loan,
to the extent permitted under applicable law and governmental regulations. A
due-on-sale clause states that the Mortgage loan must be paid when the
mortgaged property is sold. The terms of a particular Mortgage Loan or applicable law,
however, may provide that the Bank is prohibited from exercising the
due-on-sale clause under certain circumstances related to the security
underlying the Mortgage Loan and the buyers ability to fulfill the obligations
thereunder. Upon any assumption of a Mortgage Loan by a transferee, a nominal fee is
typically required, which sum will be retained by the Bank as additional servicing
compensation.

# Investment Policy

The
Companys principal business objective is to acquire, hold, finance and manage
Mortgage Assets as well as certain other qualifying REIT assets. The Companys
current investment policy is to invest at least 80% of its portfolio in Mortgage Assets
issued by NB Finance and the remainder in any other assets eligible to be held by a REIT.
Such other assets include Mortgage Loans, residential mortgage loans, mortgage-backed
securities, commercial mortgage loans, partnership interests, cash, cash equivalents,
government securities and shares or interests in other REITs. As of December 31, 2004,
Mortgage Assets issued by NB Finance comprised 85.80% of the Companys portfolio.

The
Company expects to continue to follow the foregoing investment policy approved at the
Board on December 6, 2000. However, this policy may be amended or revised from time to
time at the discretion of the Board of Directors (in certain circumstances subject to the
approval of a majority of the Independent Directors) without a vote of the Companys
stockholders. All investments will be made primarily for income.

# Description of the
Mortgage Assets

The
Mortgage Assets issued by NB Finance are comprised of 67 hypothecation loans issued by NB
Finance to the Company. As of December 31, 2004, the principal amount of the Mortgage
Assets was approximately $410

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million.           Each
of the 67 hypothecation loans comprising the Mortgage Assets issued by NB
          Finance is secured by a pool of Mortgage Loans. As of December 31, 2004,
          the Mortgage Loans were comprised of, in the aggregate, 12,971 Mortgage Loans
in           an aggregate amount of approximately C$721 million ($600 million). The value
of           each pool of Mortgage Loans comprising the Mortgage Assets exceeds the
principal           amount of the hypothecation loan that it secures. Accordingly, the
Mortgage           Assets issued by NB Finance are overcollateralized by the Mortgage
Loans. The           aggregate amount of such overcollateralization is, as of December
31, 2004, $190           million. The Company acquired the Mortgage Assets issued by NB
Finance pursuant           to the terms of a loan agreement with NB Finance.

Each
Mortgage Asset issued by NB Finance is recourse only to the Mortgage Loans securing such
Mortgage Asset. Each pool of Mortgage Loans is comprised of entirely CMHC-insured
residential first mortgages. Each Mortgage Asset issued by NB Finance is further secured
by the residential real properties underlying such CMHC-insured first mortgages. Such
residential real properties are located primarily in Quebec, Ontario and New Brunswick.
Since the Mortgage Loans are insured, the Company expects little or no loss of principal
or interest. However, CMHC insurance does not guarantee timely payment of interest and
principal. The Mortgage Assets have maturities ranging from January 2005 to December 2012.
The Mortgage Assets pay interest at rates ranging from 5.49% to 10.21%, with a
weighted-average rate of approximately 8.19% per annum.

Payments
of interest are made monthly out of payments on the Mortgage Loans. Pursuant to an
agreement between the Company and NB Finance (the Mortgage Loan Assignment
Agreement), dated September 3, 1997, the Company receives all scheduled payments
made on the Mortgage Loans, retains a portion of any such payments equal to the amount due
and payable on the Mortgage Assets issued by NB Finance and remits the balance, if any, to
NB Finance. The Company also retains a portion of any prepayments of principal in respect
of the Mortgage Loans equal to the proportion of such prepayments that the outstanding
principal amount of the Mortgage Loan bears to the outstanding principal amount of the
Mortgage Assets issued by NB Finance, which amount would be applied to reduce the
outstanding principal amount of the Mortgage Assets issued by NB Finance. Repayment of the
Mortgage Assets issued by NB Finance is secured by an assignment of the Mortgage Loans to
the Company pursuant to the Mortgage Loan Assignment Agreement, which is governed by the
laws of Bermuda.

The
assignment of the Mortgage Loans by NB Finance to the Company is without recourse. The
Company has a security interest in the real property securing the Mortgage Loans and,
subject to fulfilling certain procedural requirements under applicable Canadian law, is
entitled to enforce payment on the Mortgage Loans in its own name if a mortgagor should
default thereon. In the event of such a default, the Company has the same rights as NB
Finance to force a sale of the mortgaged property and satisfy the obligations of NB
Finance out of the proceeds. In the event of a default in respect of a Mortgage Loan, the
amount of the Mortgage Assets issued by NB Finance will be reduced by an amount equal to
the portion thereof allocable to the defaulting mortgage.

Following
repayment of the Mortgage Assets issued by NB Finance, the Company will reassign any
outstanding Mortgage Loans (without recourse) and deliver them to, or as directed by, NB
Finance. All payments in respect of the Mortgage Loans are made in Canadian dollars. The
amounts due on the Mortgage Assets issued by NB Finance are retained by the Company free
and clear of and without withholding or deduction for or on account of any present or
future taxes imposed by or on behalf of Bermuda or any political subdivision thereof or
therein.

# Description of the
Mortgage Loans

All
of the Mortgage Loans were originated in accordance with underwriting policies customarily
employed by the Bank, or with underwriting policies acceptable to the Bank. With respect
to its underwriting policies, the Bank will not make any residential mortgage loans that
exceed a loan to value ratio of 75% unless such loan is insured. If the residential
mortgage loan is CMHC-insured (i) a cash down payment of between 5% and 24.9% is required,
(ii) the monthly payment for capital, interest, taxes and heating must not exceed 32% of
the gross monthly revenue of the borrower and (iii) the monthly payment for capital,
interest, taxes, heating and all other monthly payments (including, without limitation,
personal loans, lease payments and credit card debt service) must not exceed 40% of the
net monthly revenue of the borrower. Additionally, for all mortgage loans, an external
credit check must be positive. When a loan is insured, an additional amount may be added
to the principal amount of the mortgage loan representing the premium related thereto. The
premium rates vary in accordance with the principal

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amount of the loan. Generally, the
greater the loan to value ratio, the greater the premium rate. As is generally the case in
the Canadian residential mortgage business, such underwriting policies are derived from
CMHC  approved underwriting criteria.

As
a CMHC  approved lender, the Bank has access to the National Housing Act mortgage
insurance program. All of the Mortgage Loans are insured by CMHC pursuant to that program.
The bulk of those loans were insured at origination. Whether a loan is insured at
origination or through the CMHC portfolio insurance program, the insurance is valid until
the expiration of the loan.

All
of the Mortgage Loans are balloon mortgages. This means that the Mortgage Loans do not
provide for the amortization of the principal balance thereof equally over their term to
maturity: thus, a principal payment equal to the original balance less any principal
amount paid will be due on each Mortgage Loan at maturity. Balloon mortgages are the most
prevalent type of mortgage offered by Canadian mortgage lenders. At the expiration of the
term, the mortgage is generally renewed, based on then current market conditions, for a
new term. Although the Bank offers terms varying from 3 months to 10 years, terms
exceeding 5 years are relatively rare. Moreover, although the Bank offers monthly,
semi-monthly and weekly pay mortgages, the majority of the Mortgage Loans are monthly pay
mortgages. In general, loans are amortized over a period not exceeding 25 years.

The
Mortgage Loans provide for limited prepayment rights. For example, typically up to 10% of
the original principal amount of a Mortgage Loan may be prepaid once annually without
penalty. Moreover, a Mortgage Loan may also be prepaid without penalty if the mortgaged
property is sold and the mortgagor enters into a new mortgage with the same terms and
conditions as the Mortgage Loan. In most other circumstances, prepayments or
renegotiations of either the interest rate or the term of a Mortgage Loan will be
subjected to prepayment penalties. During the first three years following the most recent
interest adjustment date, such penalties are tantamount to a yield maintenance clause.
After three years, such penalties will be limited to three months of interest.

The
Company intends and has the ability to hold the Mortgage Loans to maturity unless there is
a prepayment by the customer or a Mortgage Loan is impaired.

# Tax Status

The
Company elected to be taxable as a REIT under Sections 856 through 860 of the Code. As a
REIT, the Company generally will not be liable for United States federal income tax to the
extent that it distributes its income to the holders of its Common Stock and its preferred
stock, including the Series A Preferred Shares and, accordingly, Depository Shares, and
maintains its qualification as a REIT.

As
a REIT, the Company is subject to a number of organizational and operational requirements,
including a requirement that it currently distribute to stockholders at least 90% of its
REIT taxable income. REIT taxable income is essentially taxable income, as
determined in accordance with the Code, with certain adjustments. The most significant of
such adjustments are (i) no deduction is allowed for dividends received, (ii) a deduction
is allowed for dividends paid (other than the portion of any dividend attributable to net
income from foreclosure property) and for taxes imposed for failing to satisfy certain
statutory REIT requirements, and (iii) net income from foreclosure property and net income
derived from prohibited transactions is excluded from the determination.

# Employees

The
Company has nine employees whose salaries are covered by the Advisory Agreement. The
Company does not anticipate that it will require any additional employees because the
Company retains the Bank to perform certain functions pursuant to the Advisory Agreement.
The Company maintains corporate records and audited financial statements that are separate
from those of the Bank and of any of the Banks affiliates.

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# Competition

The
Company does not engage in the business of originating Mortgage Assets. While the Company
will purchase additional Mortgage Assets, it anticipates that such Mortgage Assets will be
purchased from the Bank and/or affiliates of the Bank. Accordingly, the Company does not
compete with mortgage conduit programs, investment banking firms, savings and loan
associations, banks, thrift and loan associations, finance companies, mortgage bankers or
insurance companies in acquiring its Mortgage Assets.

As
of October 31, 2004, the Bank held more than C$19.5 billion of residential mortgage
assets. Slightly more than 75.5% of such mortgages were located in Quebec, the Banks
principal place of business. The major competitor of the Bank in Quebec is the Caisses
Populaires Desjardins (a credit union). According to the Banks economics and
strategy department, the market share of the Bank for such mortgages in Quebec is
approximately 15.6% compared with a significantly greater market share for Caisses
Populaires Desjardins.

ITEM 2: PROPERTIES

The
principal executive offices of the Company were located in the U.S. branch office of the
Bank at 125 West 55th Street, New York, New York 10019 on December 31, 2004. The Company
moved its principal executive office to 65 East 55th Street, New York, New York
10022 on March 14, 2005. The Company neither owns nor leases any properties.

ITEM 3: LEGAL PROCEEDINGS

The
Company is not subject to any material litigation. The Company is not currently involved
in nor, to the Companys knowledge, is it 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 4: SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

None.

9

---

PART II

ITEM 5: MARKET FOR REGISTRANT'S
COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Since
the incorporation of the Company, the Bank has owned, and the Bank expects to continue to
own, all of the issued and outstanding shares of the Common Stock of the Company. The
Common Stock is the Companys only class of common equity issued and outstanding.
Accordingly, there is no established public trading market for the Companys common
equity.

For
the year ended December 31, 2003, the Company paid one dividend with respect to the Common
Stock in an amount of $14,500,000. For the year ended December 31, 2004, the Company paid
one dividend with respect to the Common Stock in an amount of $10,500,000. In 2003 the
Company paid a higher dividend to reduce its distribution shortfall at year-end.

On
January 19, 1998, the Company sold 110 shares of its Adjustable Rate Cumulative Senior
Preferred Shares, par value $.01 per share (the Senior Preferred Shares) in a
nonpublic offering. The Senior Preferred Shares are not and were not required to be
registered under the Securities Act of 1933, as amended (the Securities Act).
The offering of the Senior Preferred Shares was not underwritten. The Senior Preferred
Shares were offered to (a) accredited investors (as defined in Rule 501(a) of Regulation D
under 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 and its affiliates who
reside in Canada and who were able to make certain representations and warranties pursuant
to Regulation S of the Securities Act. Investors were required to complete an Investor
Questionnaire to verify their status as: (a) an accredited investor or (b) a resident of
Canada. The Senior Preferred Shares are not convertible or exchangeable. The Senior
Preferred Shares were offered and sold for $3,000 each or $330,000 in the aggregate and
the proceeds were used to meet the working capital needs of the Company.

ITEM 6: SELECTED
FINANCIAL DATA

|                                         | Year Ended
December 31,
2004 | Year Ended
December 31,
2003 | Year Ended
December 31,
2002 | Year Ended
December 31,
2001 | Year Ended
December 31,
2000
|---------------------------------------- | ---------------------------- | ---------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|Statement of Income Data:                |                              |                              |                              |                              |                             
|Operating Revenues                       |                              |                              | $                            | 36,322,291                   |                             
|Income from Operations                   |                              |                              | $                            | 34,459,040                   |                             
|Income from Operations per Common Share  |                              |                              | $                            | 344,590                      |                             
|Balance Sheet Data:                      |                              |                             
|Total assets                             |                              |                              | $                            | 477,763,501                  |                             
|Total liabilities                        |                              |                              | $                            | 444,371                      |                             
|Stockholders' Equity                     |                              |                              | $                            | 477,319,130                  |                             
|Cash Dividends Declared per Common Share |                              |                              | $                            | 105,000                      |                             

10

---

ITEM 7: MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

# General

The
Companys principal business objective is to acquire, hold, finance and manage
Mortgage Assets as well as other qualifying REIT assets. The Company elected to be taxed
as a REIT under the Code and, accordingly, is generally not liable for United States
federal income tax to the extent that it distributes at least 90% of its taxable income,
subject to certain adjustments, to its stockholders.

# Results of Operations

Income
from operations for the year ended December 31, 2004 decreased by $1,644,381 or 4.56 %
over the prior year ended December 31, 2003, which increased by $48,617 or 0.13 % over the
prior year ended December 31, 2002. Operating revenues for the year ended December 31,
2004, the year ended December 31, 2003 and the year ended December 31, 2002, each of which
were comprised entirely of interest income, were $36,322,291, $37,895,366 and $37,707,287,
respectively. The decrease in 2004 was mainly due to lower interest rates on newly
acquired Mortgage Assets. Because the Company has elected to be taxed as a REIT, no income
tax was recorded during the year except for non-resident income taxes withheld.

Ninety-nine
percent of revenues 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 67 pools of residential first mortgages insured by CMHC and that are secured by real
property located in Canada. The balance of the revenues resulted from interest on bank
deposits and short-term investments (i.e., commercial paper of National Bank of Canada and
U.S. Treasury bills).

Expenses
for the year ended December 31, 2004, the year ended December 31, 2003 and the year ended
December 31, 2002 totaled $1,863,251, $1,791,945 and $1,652,483, respectively. Servicing
and advisory fees for the year ended December 31, 2004, the year ended December 31, 2003
and the year ended December 31, 2002 totaled $1,598,279, $1,527,130 and $1,387,859,
respectively. Pursuant to the Servicing Agreement and the Advisory Agreement, the Bank
performs all necessary operations in connection with administering the Mortgage Assets
issued by NB Finance and the Mortgage Loans. Other professional fees include payment to
the transfer agent, external accounting fees and miscellaneous expenses.

During
the year ended December 31, 2004, the Board of Directors of the Company authorized
dividends of, in the aggregate, $25,067,424 on Preferred Stock (i.e., Senior Preferred
Shares and the Series A Preferred Shares and, accordingly, the Depository Shares) and a
dividend of $10,500,000 on Common Stock.

# Capital Resources and
Liquidity

The
Companys revenues are derived primarily from interest payments on the Mortgage
Assets. As of December 31, 2004, $410 million of Mortgage Assets issued by NB Finance were
over-collateralized by C$721 million ($600 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.

11

---

The
Company does not require any capital resources for its operations and, therefore, it does
not expect to acquire any capital assets in the foreseeable future.

As
of December 31, 2004, the Company had cash resources of $58,327,311, or 12.21% of total
assets compared to $19,405,571 or 4.05% of total assets as of December 31, 2003 and
$5,454, or 1.1% of total assets as at December 31, 2002. It is expected that the Company
will invest in additional Mortgage Assets when cash resources reach 15% 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 expects to make a purchase of
additional Mortgage Assets in the beginning of 2005.

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 expenses of advisors, if any,
of the Company.

# Disclosure of
Contractual Obligations

The
Company does not have any indebtedness (current or long-term), 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.

# Disclosure About Market
Risk

Any
market risk to which the Company would be exposed would result from fluctuations in: (a)
interest rates and (b) currency exchange rates affecting the interest payments received by
the Company in respect of the Mortgage Assets issued by NB Finance. Since the Mortgage
Assets are significantly overcollateralized by the Mortgage Loans, interest rate
fluctuations should not present significant market risk. The Company expects that the
interest and principal generated by the Mortgage Loans should enable full payment by NB
Finance of all of its obligations as they come due. Since the Mortgage Loans are
guaranteed by a fixed ratio of exchange predetermined on the date of purchase and
applicable until the maturity of the Mortgage Loans pursuant to the Mortgage Loan
Assignment Agreement, fluctuations in currency exchange rates should not present
significant market risk.

# Critical Accounting
Policies

In
December 2001, the Securities and Exchange Commission requested that all registrants
discuss their most critical accounting policies in managements
discussion and analysis of financial condition and results of operations. The SEC
indicated that a critical accounting policy is one which is both important to
the portrayal of the Companys financial condition and results and requires
managements most difficult, subjective or complex judgments, often as a result of
the need to make estimates about the effect of matters that are inherently uncertain. We
believe, based on our current business, that there are no critical accounting policies in
connection with the preparation of the financial statements of the Company.

# Recently Issued
Accounting Pronouncements

In
December 2003, FASB issued a revised interpretation of FIN 46 (FIN 46-R), which supersedes
FIN 46 and clarifies and expands current accounting guidance for variable interest
entities. FIN 46 and FIN 46-R are effective immediately for all variable interest entities
created after January 31, 2003, and for variable interest entities prior to February 1,
2003, no later than the end of the first reporting period after March 15, 2004. The
adoption of FIN 46 and FIN 46-R did not have a material impact on the Companys
financial reporting and disclosure.

12

---

ITEM 7A: QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This
information is included under Item 7 of this report under the caption Disclosure
About Market Risk.

ITEM 8: FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

The financial
statements are contained on pages F-1 through F-10 of this Form 10-K.

Selected
Quarterly Financial Data (Unaudited)

|                                        | Quarter 
Ended
March
31, 2004 | Quarter 
Ended
June
30, 2004 | Quarter 
Ended
September 
30, 2004 | Quarter 
Ended
December
31, 2004
|--------------------------------------- | ----------------------------- | ---------------------------- | ---------------------------------- | --------------------------------
|Statement of Income Data:               |                               |                              |                                    |                                 
|Operating Revenues                      |                               |                              | $                                  | 8,885,094                       
|Income from Operations                  |                               |                              | $                                  | 8,439,642                       
|Income from Operations per Common Share |                               |                              | $                                  | 84,396                          

|                                        | Quarter 
Ended
March
31, 2003 | Quarter 
Ended
June
30, 2003 | Quarter 
Ended
September 
30, 2003 | Quarter 
Ended
December
31, 2003
|--------------------------------------- | ----------------------------- | ---------------------------- | ---------------------------------- | --------------------------------
|Statement of Income Data:               |                               |                              |                                    |                                 
|Operating Revenues                      |                               |                              | $                                  | 9,630,658                       
|Income from Operations                  |                               |                              | $                                  | 9,196,557                       
|Income from Operations per Common Share |                               |                              | $                                  | 91,965                          

ITEM 9: CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

13

---

ITEM 9A: 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.

PART III

ITEM 10: DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT

# MANAGEMENT

# Directors and Executive
Officers

The Board of Directors of the
Company  consists of the  individuals set forth below.  Mr. Belzile,  Mr. Michel and Mr.
Dubé are  Independent  Directors.  The Company  currently has nine  employees and does
not  anticipate that it will require additional employees.

As of December 31, 2004, the persons
who are directors and executive officers of the Company are as follows:

|Name                | Age | Position and Offices Held | Director Since
|------------------- | --- | ------------------------- | --------------
|Christian Dubé      |     | 48                        |               
|                    |     |                           |               
|Donna Goral         |     | 47                        |               
|André Belzile       |     | 43                        |               
|                    |     |                           |               
|Alain Michel        |     | 55                        |               
|                    |     |                           |               
|Monique Baillergeau |     | 46                        |               
|Hoda Abdelmessih    |     | 50                        |               
|Serge Lacroix       |     | 47                        |               
|                    |     |                           |               
|Jean Dagenais       |     | 46                        |               

14

---

James
J. Hanks, Jr. (Secretary) is an officer of the Company. Vanessa Fontana (Assistant
Secretary), Martin-Pierre Boulianne (Assistant Secretary) and Martin Ouellet
(Vice-President) are the only other employees of the Company. The following is a summary
of the experience of the executive officers and current directors of the Company.

Since
May 2004, Mr. Belzile has been Senior Vice-President Finance and Corporate Affairs of The
Jean Coutu Group (PJC) Inc., a leading retail drugstore chain operating in Canada and the
United States. From 1992 to 2004, he was Vice-President and Chief Financial Officer of
Cascades Inc., a producer and marketer of packaging products. From 1986 to 1992, he
worked in financial reporting for Cascades Inc. From 1984 to 1986, he worked as an
external auditor for the accounting firm Coopers & Lybrand.

Since
2001, Mr. Michel has been a business consultant for the Caisse de dépôt et
placement du Québec,a financial institution that performs management services
for public and private pension and insurance funds. From 1994 until 2001, he was Senior
Vice-President and Chief Financial Officer of Le Groupe Vidéotron Ltée. From
1992 until 1994, he was Vice-President of Finance and Treasurer of Le Groupe
Vidéotron Ltée.

Since
May 2004, Mr. Christian Dubé has been Vice-President and Chief Financial Officer of
Cascades Inc., a leader in the manufacturing of packaging products, tissue paper and
specialty fine papers. From 1998 until 2004, Mr. Dubé occupied the position of
Senior Vice-President and Chief Financial Officer of Domtar Inc. From 1996 until 1998, he
was Vice-President Corporate Development and Vice-President Treasurer of Domtar Inc. He
currently serves on the Board of Directors for Heroux-Devtek Inc.

Ms.
Donna Goral is a director of NB Finance, Ltd. and has also been Vice-President
           Taxation, USA Operations for National Bank of Canada since 1992. Ms.
          Gorals tax experience also includes positions with KPMG Peat Marwick and
          Ernst & Whinney. She is a member of the American Institute of Public
          Accountants, the New York State Society of CPAs and the Institute of
          International Bankers.

Serge
Lacroix has been Chairman of the Board and President of NB Capital Corporation since June
2002 and director of NB Finance, Ltd. since July 2002. He has been with National Bank of
Canada or one of its subsidiaries since 1993 in various positions, most recently as
Managing Director and Senior Vice-President of the New York Branch. Mr. Lacroix was also
General Manager, President and CEO of NBC Financial (UK) Ltd. and Senior Vice-President at
National Bank Financial. From 1982 until 1993, he held various positions at Wood Gundy in
London, Montreal and Vancouver. Prior to that, he was a Trader at Nesbitt Thompson Inc.
and he started his career in 1976 as a Foreign Exchange Trader with Banque Canadienne
Nationale.

Ms.
Hoda Abdelmessih joined the Bank in 1993 as the Treasury Manager. In 1996, Hoda
          assumed the responsibility of Treasury Control and in 1999 was promoted to
          Assistant Vice President of Treasury. In 2001, the Bank decided to repatriate
          all Treasury Back Office functions to Montreal and Hoda was appointed as the
          Project Manager for New York to decommission the Back Office. With the sale of
          the Loan Portfolio to PNC Hodas mandate changed, she became a key person
          in ensuring the conversion of the Loan System that would support all Cross
          Border Loans administered in New York.

Jean
Dagenais joined the National Bank of Canada in 1990 as Manager and Chief Accountant. In
1997, he was promoted to Vice-President. As such, he is responsible for the preparation of
the Banks consolidated financial statements as well as other financial information
presented to management, shareholders and regulatory authorities. He began is career in
1980 as external auditor with a major international accounting firm. From 1985 to 1990, he
held various positions in accounting and financial reporting with large corporations. He
studied at the University of Sherbrooke, where he obtained a Bachelor in Administration.
He was admitted to the Order of Certified Management Accountants in 1982 and to the Order
of Chartered Accountants in 1983.

Monique
Baillergeau was appointed Director of NB Capital and NB Finance, Ltd. in May 2003. She has
been with the National Bank of Canada New York branch since February 1986. In 1998, she
was assigned to manage the Operations of the London branch. In May 2003, she accepted the
position of Vice President in charge of Operations and Administration in New York.

15

---

The
Company pays the Independent Directors fees for their services. The Independent Directors
receive annual compensation of $10,000 plus a fee of $750 for attendance (in person or by
telephone) at each meeting of the Board of Directors. The Company also pays the directors
who comprise the Audit Committee a fee for their additional services. The Audit Committee
is comprised of the Independent Directors. Each Independent Director receives annual
compensation of $1,500 per year plus a fee of $750 for attendance (in person or by
telephone) at each meeting of the Audit Committee. Additionally, Mr. Michel receives
annual compensation of $1,000 for acting as Chairman of the Audit Committee.

The
Company does not pay any compensation to its officers or employees or to directors who are
not Independent Directors.

# Audit Committee
Financial Expert

The
Audit Committee of the Company consists of the three following members : Mr. Alain
Michel (Chairman of the Audit Committee), Mr. Christian Dubé and Mr. André
Belzile. On May 14, 2003, the Board of Directors of the Company determined that all three
of the members of the Audit Committee are Audit Committee Financial Experts and are
independent of the Company and of the Bank.

# Code of Ethics

On
October 31, 2003, the Company adopted a Code of Conduct and Ethics (as an exhibit to this
Form 10-K Report) (the Code) that applies to all of the Companys
directors, officers and employees. No amendments to the provisions of the Code have been
made nor any waivers have been granted by the Company since its adoption. The Company
undertakes to provide a copy of this Code without charge, upon request. Investors may send
a request for a copy of the Code in writing to the Companys principal executive
office by certified mail with a self-addressed envelope attached to such request.

In
2003, the Company named Ms. Alexa Topolski the Compliance Officer of the Company in
connection with the Companys effort to keep open lines of dialogue between
management and employees and her mandate was renewed in 2004.

# Section 16(a) Beneficial
Ownership Reporting Compliance

Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Companys
officers and directors and certain other persons to file timely certain reports regarding
ownership of, and transactions in, the Companys securities with the Securities and
Exchange Commission. Copies of the required filings must also be furnished to the Company.

Based
solely on its review of such forms received by it, or written representations from certain
reporting persons, the Company believes that during the year ended December 31, 2004, all
reports for the Companys executive officers and directors that were required to be
filed under Section 16 of the Securities Exchange Act of 1934 were timely filed.

16

---

ITEM 11: EXECUTIVE
COMPENSATION

Summary Compensation Table

|                   | Annual Compensation(1) | Long Term
Compensation
Awards | 
|------------------ | ---------------------- | ----------------------------- | 
|                  
|
|                  
|Serge Lacroix, CEO |                        | 2004                          | 
|                   |                        | 2003                          | 
|                  

_________________

|(1) |  | The services of executive officers of the Company are provided pursuant to the
               Advisory Agreement between the Bank and the Company (see Business 
               Advisory Agreement).  The advisory fee paid by the Company to the
               Bank in 2004 was $100,000.  This amount includes all compensation payable
               to the Companys executive officers for services rendered to the Company.
                Accordingly, no executive officer of the Company was paid more than
               $100,000 of compensation for the fiscal year ended December 31, 2004 that would
               be attributable to services performed for the Company and its subsidiaries.
                The compensation disclosed in this table with respect to Mr. Lacroix
               represents the entire compensation paid to him by the Bank for services rendered
               by him to the Bank and its subsidiaries, including the Company.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | $50,000 paid in May 2004 and $75,000 granted in December 2004 but paid in
               January 2005; plus an extra $10,000 bonus paid in December 2004 by the Cross
               border NY Group.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | $75,000 paid in May 2003 and $100,000 granted in December 2003 but paid in
               January 2004.
|--- |  | -------------------------------------------------------------------------------------------------------

|(4) |  | SAR means stock appreciation rights.
|--- |  | --------------------------------------

17

---

# SAR Grants in Last
Fiscal Year

Mr.
          Serge Lacroix did not receive a SAR award during the fiscal year ended December
          31, 2004.

|             
|-------------
|
|             
|
|             
|Serge Lacroix
|             

|Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
|--------------------------------------------------------------------------------
|                                                                                
|
|                                                                                
|Serge Lacroix                                                                   
|                                                                                

Value based on a share price of
49.56$, at the closing on last day of the fiscal year ending December 31st, 2004.

18

---

# Pension Plan Table

# (All numbers, Except
for Years of Service, are in Canadian Dollars)

|Canadian Dollars
Remuneration | Years of Service
|----------------------------- | ----------------
|
|100,000                       |                 
|125,000                       |                 
|150,000                       |                 
|175,000                       |                 
|200,000                       |                 
|225,000                       |                 
|250,000                       |                 
|300,000                       |                 

The
above table  illustrates  the  estimated  annual  retirement  benefit  payable on a
straight line annuity basis to  participating  employees at normal  retirement  age
 (generally age 60), in the earnings and years of service  classifications  indicated,
 under the defined  benefit  pension plan  sponsored by the Bank (the "Bank  Pension
 Plan") and an excess  benefit  plan which  covers  certain  employees of the Bank and
its subsidiaries.  For each year of service  credited to a  participant  in the Bank
Pension  Plan, a  participant will be entitled to 2% of his or her annual  eligible
 earnings,  less the amount  earned  under the Canada or Quebec pension plans while
 participating in the Bank Pension Plan.  Annual eligible  earnings is defined as a
participant's  average earnings for such  participant's 60 highest-paid  consecutive
 months,  based on salary and 25% of bonus.

In
addition to the Bank Pension Plan,  certain employees of the Bank and its subsidiaries,
 including those of the Company,  may also  participate  in an excess benefit plan for
 participants  in the Bank Pension Plan whose benefits are reduced  pursuant to
 limitations on pensions  imposed by the Income Tax Act (Canada). Employees  covered by
the excess  benefit  plan  receive a benefit  equal to the amount of benefit  disallowed
under the Pension Plan due to such limitations.

ITEM 12: SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The
Common Stock is the only voting  security of the Company issued and  outstanding.  As of
December 31, 2004, 100 shares of Common Stock were issued and  outstanding  and 100% were
 beneficially  owned directly by the Bank. The Bank's address is National Bank Tower,
 600 de La Gauchetière  West,  Montreal,  Quebec,  H3B 4L2,  Canada.  No officer or
director  beneficially  owns more than five percent of any class of the Company's
securities.

The
Company does not maintain any equity compensation plans for its executive officers.

19

---

ITEM 13: CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

The
Bank  administers the day-to-day  operations of the Company  pursuant to the Advisory
 Agreement. See  "Business-Advisory  Agreement."  The Bank also  services the  Mortgage
 Loans  pursuant to the  Servicing Agreement. See "Business- Servicing Agreement."

ITEM 14: PRINCIPAL ACCOUNTING FEES
AND SERVICES

Audit Fees

Deloitte & Touche LLP's aggregate
fees billed for professional  services  rendered for the audit of our annual financial
 statements  for the 2004 fiscal year and the review of the quarterly  financial
 statements for the 2004 fiscal year were $36,950  (compared  to $33,500 for 2003).  The
 engagement  of Deloitte & Touche LLP for the 2004 fiscal year and the scope of audit,
 audit-related  and tax services were  pre-approved  by our Audit Committee.

Audit-Related Fees

Deloitte & Touche LLP's  aggregate
fees billed for  audit-related  professional  services  (special  report on procedures
 performed  on the  mortgage  loans) for the 2004 fiscal year were $5,300  (compared  to
$5,000 for 2003).

Tax Fees

Deloitte & Touche  LLP's  aggregate
 fees for all tax related  services  for the 2004 fiscal year were $35,000 for tax
compliance and consulting services (compared to $31,250 for 2003).

The  Company's  Audit  Committee
 pre-approves  the services - both  permitted  audit  services and  permitted non-audit
 services - of the external  auditor before the external auditor is engaged by the
Company to render such  permitted  audit  services  or  permitted  non-audit   services.
  The  Audit  Committee  evidences  its pre-approval by resolution of the Audit Committee.

PART IV

ITEM 15: EXHIBITS, FINANCIAL
STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|(a) |  | The
following documents are filed as part of this report:
|--- |  | ---------------------------------------------------------

| | (1) |  | The
 report  of  independent   registered   chartered   accountants  and  financial
                           statements appearing in Item 8.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

| | (2) |  | The
Company is not filing separately  financial  statement schedules because of the
                           absence of  conditions  under  which they are  required  or
 because  the  required                            information is included in the
financial statements or the notes thereto.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

---

| | (3) |  | The
exhibits  required by this item are listed in the Exhibit  Index which  appears
                           elsewhere in this Form                            10-K and is
 incorporated  herein by  reference.  The Company is not a party to any
                           management contracts or compensation plans or arrangements
 required to be filed as                            exhibits to this Form 10-K.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | During
the quarter ended December 31, 2004, the Company did not file any Current  Reports on
                  Form 8-K.
|--- |  | ------------------------------------------------------------------------------------------------------------------------

21

---

SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) 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, on the 31stof March, 2005.

| | NB CAPITAL CORPORATION 

By:   /s/ Serge Lacroix
        Serge Lacroix 
        Chairman of the Board and President
        (Principal Executive Officer) 

By:  /s/ Jean DagenaisJean Dagenais
       Chief Financial Officer
       (Principal Financial Officer)
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities indicated
on the 31stday of March, 2005.

|By:    
/s/ Donna Goral
                 Donna Goral
                 Director | By:  
/s/ Alain Michel
             Alain Michel
             Director
|------------------------------------------------------------------------------ | ----------------------------------------------------------------------

|By:  
/s/ Hoda Abdelmessih
            Hoda Abdelmessih
        Director | By:  
/s /André Belzile
             André Belzile
             Director
|------------------------------------------------------------------------ | ------------------------------------------------------------------------

| | By:  
/s/ Christian Dubé
             Christian Dubé
             Director
| | --------------------------------------------------------------------------

| | By:  
/s / Monique Baillergeau
             Monique Baillergeau
             Director
| | -------------------------------------------------------------------------------------

| | By:  
/s/ Serge Lacroix
             Serge Lacroix
             Director
| | ------------------------------------------------------------------------

22

---

| | NB
CAPITAL CORPORATION
| | ----------------------

| | Financial statements as of 
December 31, 2004, 2003 and 2002, and
Report of Independent Registered Chartered Accountants
| | ------------------------------------------------------------------------------------------------------------------------

---

# NB CAPITAL CORPORATIONTable of contents

---

|                                                       | 
|------------------------------------------------------ | 
|Report of Independent Registered Chartered Accountants | 
|Balance sheets                                         | 
|Statements of income                                   | 
|Statements of stockholders' equity                     | 
|Statements of cash flows                               | 
|Notes to the financial statements                      | 

---

# Report of Independent
Registered Chartered Accountants

To the Board of Directors
and Stockholders of
NB Capital Corporation

We have audited the accompanying
balance sheets of NB Capital Corporation (the Company) as of December 31, 2004
and 2003 and the related statements of income, stockholders equity and cash flows
for each of the three years in the period ended December 31, 2004. These financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for designing
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosure in the financial
statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2004, 2003 and 2002 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted in the
United States of America.

Montreal, Canada

February 8, 2005

F-1

---

# NB CAPITAL CORPORATIONBalance sheets 
as of December 31 2004 and 2003
(in U.S. dollars)

---

|                                            | 2004 | 2003       
|------------------------------------------- | ---- | -----------
|                                           
|
|Assets                                      |      |            
|Current Assets                              |     
|Cash and cash equivalents                   |      | 58,327,311 
|Due from an affiliated company              |      | 9,474,360  
|Promissory notes - current portion          |      | 51,678,372 
|Prepaid expenses                            |      | 30,520     
|Accrued interest on cash equivalents        |      | 25,499     
|                                           
|                                            |      | 119,536,062
|                                            |     
|Promissory notes                            |      | 358,227,439
|                                           
|Total assets                                |      | 477,763,501
|                                           
|                                            |     
|Liabilities                                 |     
|Current Liabilities                         |     
|Due to the parent company                   |      | 414,084    
|Accounts payable                            |      | 30,287     
|                                           
|Total liabilities                           |      | 444,371    
|                                           
|                                            |     
|Stockholders' equity                        |     
|Preferred stock, $0.01 par value per share; |     
|10,000,000 shares authorized,               |     
|300,000 Series A shares issued and paid     |      | 3,000      
|110 Senior preferred shares issued and paid |      | 1          
|Common stock, $0.01 par value per share;    |     
|1,000 shares authorized,                    |     
|100 shares issued and paid                  |      | 1          
|                                            |     
|Additional paid-in capital                  |      | 476,761,014
|                                            |     
|Retained earnings                           |      | 555,114    
|                                           
|Total stockholders' equity                  |      | 477,319,130
|                                           
|Total liabilities and stockholders' equity  |      | 477,763,501
|                                           

See accompanying notes to financial
statements.

F-2

---

# NB CAPITAL CORPORATIONStatements of income
years ended December 31, 2004, 2003 and 2002
(in U.S. dollars)

---

|                                        | 2004 | 2003       | 2002
|--------------------------------------- | ---- | ---------- | ----
|                                       
|
|                                        |     
|Revenue                                 |      |            |     
|Interest income                         |     
|Short-term investments                  |      | 441,053    |     
|Promissory notes                        |      | 35,879,238 |     
|Bank interest                           |      | 2,000      |     
|                                       
|                                        |      | 36,322,291 |     
|                                       
|                                        |     
|Expenses                                |     
|Legal                                   |      | 62,265     |     
|Other professional fees                 |      | 202,707    |     
|Servicing fees                          |      | 1,498,279  |     
|Advisory fees                           |      | 100,000    |     
|                                       
|                                        |      | 1,863,251  |     
|                                       
|                                        |     
|Net income                              |      | 34,459,040 |     
|                                        |     
|Preferred stock dividends               |      | 25,067,424 |     
|                                       
|Income available to common stockholders |      | 9,391,616  |     
|                                       
|                                        |     
|Weighted average number of common       |     
|shares outstanding                      |      | 100        |     
|                                       
|Earnings per common share - basic       |      | 93,916     |     
|                                       

See accompanying notes to financial
statements.

F-3

---

# NB CAPITAL CORPORATIONStatements of stockholders equity
years ended December 31, 2004, 2003 and 2002
(in U.S. dollars)

---

|                                        | Series A
Preferred
Stock | Senior
Preferred
Stock | Common
Stock | Additional
Paid-in
Capital | Required
Earnings | Total
|--------------------------------------- | ------------------------ | ---------------------- | ------------ | -------------------------- | ----------------- | -----
|                                       
|
|Stockholders' equity as of              |                          |                        |              |                            |                   |      
|December 31, 2001                       |                          | 3,000                  |              | 1                          |                   | 1    
|                                       
|Net income                              |                          | --                     |              | --                         |                   | --   
|Dividends on senior preferred stock and |                         
|Series A preferred stock                |                          | --                     |              | --                         |                   | --   
|Dividend on common stock                |                          | --                     |              | --                         |                   | --   
|                                       
|Stockholders' equity as of              |                         
|December 31, 2002                       |                          | 3,000                  |              | 1                          |                   | 1    
|                                       
|                                       
|Net income                              |                          | --                     |              | --                         |                   | --   
|Dividends on senior preferred stock and |                         
|Series A preferred stock                |                          | --                     |              | --                         |                   | --   
|Dividend on common stock                |                          | --                     |              | --                         |                   | --   
|                                       
|Stockholders' equity as of              |                         
|December 31, 2003                       |                          | 3,000                  |              | 1                          |                   | 1    
|                                       
|                                       
|Net income                              |                          | --                     |              | --                         |                   | --   
|Dividends on senior preferred stock and |                         
|Series A preferred stock                |                          | --                     |              | --                         |                   | --   
|Dividend on common stock                |                          | --                     |              | --                         |                   | --   
|                                       
|Stockholders' equity as of              |                         
|December 31, 2004                       |                          | 3,000                  |              | 1                          |                   | 1    
|                                       

See accompanying notes to financial
statements.

F-4

---

# NB CAPITAL CORPORATIONStatements of cash flows
years ended December 31, 2004, 2003 and 2002
(in U.S. dollars)

---

|                                          | 2004 | 2003         | 2002
|----------------------------------------- | ---- | ------------ | ----
|                                         
|
|Operating activities                      |      |              |     
|Net income                                |      | 34,459,040   |     
|Adjustment to reconcile net income to     |     
|net cash provided by operating activities |     
|Prepaid expenses                          |      | (2,520       | )   
|Due from an affiliated company            |      | 1,637,556    |     
|Due to the parent company                 |      | (870         | )   
|Accounts payable                          |      | (11,422      | )   
|Accrued interest on cash equivalents      |      | (20,265      | )   
|                                         
|Net cash provided by operating activities |      | 36,061,519   |     
|                                         
|                                         
|Investing activities                      |     
|Investment in promissory notes            |      | (170,612,901 | )   
|Repayments of promissory notes            |      | 209,040,546  |     
|                                         
|Net cash provided by (used in)            |     
|investing activities                      |      | 38,427,645   |     
|                                         
|                                         
|Financing activities                      |     
|Dividends                                 |      | (35,567,424  | )   
|                                         
|Net cash used in financing activities     |      | (35,567,424  | )   
|                                         
|                                         
|Cash position, beginning of year          |      | 19,405,571   |     
|                                         
|Cash position, end of year                |      | 58,327,311   |     
|                                         

See accompanying notes to financial
statements.

F-5

---

# NB CAPITAL CORPORATIONNotes to the financial statements 
years ended December 31, 2004, 2003 and 2002
(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 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Promissory
notes
| | ----------------

| | In
accordance with Statement 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 taxable 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
earnings per share with respect to the Company for the years ended December 31,
2004, 2003 and 2002 are computed based upon the weighted average number of common shares
outstanding during the year.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 year. Actual results could
differ from those estimates.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-6

---

# NB CAPITAL CORPORATIONNotes to the financial statements 
years ended December 31, 2004, 2003 and 2002
(in U.S. dollars)

---

| | Interest
on promissory notes and short-term investments.
| | --------------------------------------------------------

| | Interest
income on promissory notes and short-term investments 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Reclassification
of prior year balances.
| | ----------------------------------------

| | Certain
prior year balances have been reclassified to conform with the current year presentation.
| | -------------------------------------------------------------------------------------------------

|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 January 2005 to December 2012, at
rates ranging from 5.49% to 10.21%, with a weighted-average rate of approximately 8.19%
per annum.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the Promissory notes as at December 31, 2004 is $431,273,000. Fair value is
estimated by using the present value of expected future cash flows and may not be
indicative of the net realizable value.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | 2004 | 2003        
|----------------------------------- | ---- | ------------
|                                    |     
|
|Promissory notes, beginning of year |      | 448,333,456 
|Acquisitions                        |      | 170,612,901 
|Principal repayments                |      | (209,040,546
|                                   
|Promissory notes, end of year       |      | 409,905,811 
|                                   

| | The
scheduled principal repayments as of December 31, 2004 are as follows:
| | --------------------------------------------------------------------------

|     | $
|---- | -
|2005 |  
|2006 |  
|2007 |  
|2008 |  
|2009 |  
|2010 |  
|2011 |  
|2012 |  

F-7

---

# NB CAPITAL CORPORATIONNotes to the financial statements 
years ended December 31, 2004, 2003 and 2002
(in U.S. dollars)

---

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

| | During
the year, the Company earned interest from NB Finance, Ltd. on the promissory notes, in
the amount of $35,879,238 ($37,529,935 in 2003 and $37,246,934 in 2002) (see Note 3).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
amounts due from an affiliated company as of December 31, 2004 and 2003 represent
interest and principal repayments due on the promissory notes from NB Finance, Ltd.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | In
exchange for a fee equal to $100,000 per year ($30,000 in 2003 and 2002), 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
(in CDN$) of the collateralized mortgage loans as of the last day of each calendar month.
The average outstanding balance of the collateralized mortgage loans securing the
promissory notes amounted to $542,179,064 ($551,360,385 in 2003). During the year, fees
of $1,498,279 ($1,497,130 in 2003 and $1,357,859 in 2002) were charged to the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Custodian
agreement
| | -------------------

| | National
Bank of Canada will hold all documents relating to the collateralized mortgage loans.
During the years ended December 31, 2004, 2003 and 2002, no fee was charged to the
Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest
on bank account and short-term investments
| | ---------------------------------------------------

| | The
Company received $2,000 ($18,840 in 2003 and $41,118 in 2002) in interest on a bank
account held with National Bank of Canada.
| | ----------------------------------------------------------------------------------------------------------------------------------

| | The
Company received $441,053 ($346,591 in 2003 and 419,235 in 2002) in interest on term
deposits held with National Bank of Canada.
| | ------------------------------------------------------------------------------------------------------------------------------------

F-8

---

# NB CAPITAL CORPORATIONNotes to the financial statements 
years ended December 31, 2004, 2003 and 2002
(in U.S. dollars)

---

|6. |  | Stockholdersequity
|-- |  | -------------------

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

| | The
Company is authorized to issue up to 1,000 shares of $0.01 par value common stock. The
common shares issued as at December 31, 2004 are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | 100
shares are authorized, issued and paid.
| |  | - |  | -------------------------------------------

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

| | The
Company is authorized to issue up to 10,000,000 shares of $0.01 par value preferred
stock. The preferred shares issued as at December 31, 2004 are 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
issued 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, with a liquidation value of $3,000 per share, redeemable at
the Companys option at any time and retractable at the holdersoption on
December 30, 2007 and every ten-year anniversary thereof.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. |  | Recent
pronouncements
|-- |  | ---------------------

| | In
December 2003, FASB issued a revised interpretation of FIN 46 (FIN 46-R), which
supersedes FIN 46 and clarifies and expands current accounting guidance for variable
interest entities. FIN 46 and FIN 46-R are effective immediately for all variable
interest entities created after January 31, 2003, and for variable interest entities
prior to February 1, 2003, no later than the end of the first reporting period after
March 15, 2004. The adoption of FIN 46 and FIN 46-R did not have a material impact on the
Companys financial reporting and disclosure.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9

---

# INDEX TO EXHIBITS

|Exhibit
Number | Description
|-------------- | -----------

| | 3.1.1 |  | Articles
of Incorporation and Articles of Amendment and                                Restatement
and Articles Supplementary of NB Capital                                Corporation*
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2.1 |  | Bylaws
of NB Capital Corporation*
| | ----- |  | ---------------------------------

| | 4.1 |  | Registration
Rights Agreement dated as of September 3, 1997                                by and
among NB Capital Corporation, National Bank of Canada                                and
Merrill Lynch, Pierce, Fenner & Smith Incorporated*
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 |  | Advisory
Agreement dated as of September 3, 1997 between                                National
Bank of Canada and NB Capital Corporation*
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 |  | Servicing
Agreement dated as of September 3, 1997 between                                National
Bank of Canada and NB Finance, Ltd.*
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | Loan
Agreement dated as of September 3, 1997 between NB
                               Finance, Ltd. and NB Capital Corporation*
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------

| | 10.4 |  | Custodial
Agreement dated as of September 3, 1997 between                                National
Bank of Canada and NB Capital Corporation*
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 |  | Deed
of Sale of Mortgage Loans dated September 3, 1997                                between
National Bank of Canada and NB Finance, Ltd.*
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 |  | Mortgage
Loan Assignment Agreement dated September 3, 1997                                among
National Bank of Canada, NB Capital Corporation and NB
                               Finance, Ltd.*
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 |  | Promissory
Notes representing the 16 hypothecation loans                                executed by
NB Finance, Ltd. in favor of NB Capital                                Corporation*
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 |  | Deposit
Agreement among NB Capital Corporation, National Bank                                of
Canada and The Bank of Nova Scotia Trust Company of New
                               York, including Form of Depository Receipt*
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9 |  | First
Supplemental Servicing Agreement dated December 4, 1998 between National Bank of Canada
and NB Capital                                Corporation*
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

23

---

| | 10.10 |  | Loan
Agreement dated as of December 4, 1998 between NB Finance, Ltd. and NB Capital
Corporation*
| | ----- |  | ------------------------------------------------------------------------------------------------

| | 10.11 |  | Custodial
Agreement dated as of December 4, 1998 between NB                                Capital
Corporation and National Bank of Canada*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12 |  | Amended
and Restated Servicing Agreement dated June 28, 2001
                               between National Bank of Canada and NB Capital
Corporation.*
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13 |  | Deed
of Sale of Mortgage Loans dated December 4, 1998 between
                               National Bank of Canada and NB Finance, Ltd.*
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14(i) |  | Mortgage
Loan Assignment Agreement dated as of December 4,                                1998
among NB Finance, Ltd., NB Capital Corporation and
                               National Bank of Canada*
| | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14(ii) |  | Mortgage
Loan Assignment Agreement dated as of December 4,                                1998
among NB Finance, Ltd., NB Capital Corporation and
                               National Bank of Canada*
| | --------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15(i) |  | Promissory
Note representing $25,836,597.23 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | -------- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15(ii) |  | Promissory
Note representing $29,880,126.51 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | --------- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16 |  | Mortgage
Loan Assignment Agreement dated as of September 7,                                1999
among NB Finance, Ltd., NB Capital Corporation and
                               National Bank of Canada*
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.17 |  | Promissory
Note representing $85,989,203.22 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*.
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------

| | 10.18 |  | Mortgage
Loan Assignment Agreement dated as of April 14, 2000                                among
NB Finance, Ltd., NB Capital Corporation and National                                Bank
of Canada*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.19 |  | Promissory
Note representing $98,836,341.23 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.20 |  | Mortgage
Loan Assignment Agreement dated as of September 28,                                2000
among NB Finance, Ltd., NB Capital Corporation and
                               National Bank of Canada*
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.21 |  | Promissory
Note representing $67,323,437.74 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

24

---

| | 10.22 |  | Mortgage
Loan Assignment Agreement dated as of January 30,                                2001
among NB Finance, Ltd., NB Capital Corporation and
                               National Bank of Canada*
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.23 |  | Promissory
Note representing $107,179,964.89 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------

| | 10.24 |  | Mortgage
Loan Assignment Agreement dated as of June 12, 2001                                among
NB Finance, Ltd., NB Capital Corporation and National                                Bank
of Canada*
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.25 |  | Promissory
Note representing $121,357,226.22 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------

| | 10.26 |  | Mortgage
Loan Assignment Agreement dated as of September 24,                                2001
among NB Finance, Ltd., NB Capital Corporation and
                               National Bank of Canada*
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.27 |  | Promissory
Note representing $55,963,732.07 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.28 |  | Mortgage
Loan Assignment Agreement dated as of January 29,                                2002
among NB Finance, Ltd., NB Capital Corporation and
                               National Bank of Canada*
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.29 |  | Promissory
Note representing $71,866,079.87 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.30 |  | Mortgage
Loan Assignment Agreement dated as of June 20, 2002                                among
NB Finance, Ltd., NB Capital Corporation and National                                Bank
of Canada*
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.31 |  | Promissory
Note representing $64,221,362.98 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.32 |  | Mortgage
Loan Assignment Agreement dated as of December 16,                                2002
among NB Finance, Ltd., NB Capital Corporation and
                               National Bank of Canada*
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.33 |  | Promissory
Note representing $52,054,168.88 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| | 10.34 |  | Mortgage
Loan Assignment Agreement dated as of May 27, 2003                                among
NB Finance, Ltd., NB Capital Corporation and National                                Bank
of Canada*
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.35 |  | Promissory
Note representing $70,420,135.45 executed by NB                                Finance,
Ltd. in favor of NB Capital Corporation*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

25

---

| | 10.36 |  | Mortgage
Loan Assignment Agreement dated as of October 21,2003 among NB Finance, Ltd., NB Capital
Corporation and                                National Bank of Canada*
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.37 |  | Promissory
Note representing $106,552,720.44 executed by NB Finance, Ltd. in favor of NB Capital
Corporation*
| | ----- |  | -------------------------------------------------------------------------------------------------------------

| | 10.38 |  | Mortgage
Loan Assignment Agreement dated as of April 28, 2004 among NB Finance, Ltd., NB Capital
Corporation and                                National Bank of Canada**
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.39 |  | Promissory
Note representing $76,053,456.93 executed by NB Finance, Ltd. in favor of NB Capital
Corporation**
| | ----- |  | -------------------------------------------------------------------------------------------------------------

| | 10.40 |  | Mortgage
Loan Assignment Agreement dated as of August 26, 2004 among NB Finance, Ltd., NB Capital
Corporation and                                National Bank of Canada**
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.41 |  | Promissory
Note representing $94,559,444.49 executed by NB Finance, Ltd. in favor of NB Capital
Corporation**
| | ----- |  | -------------------------------------------------------------------------------------------------------------

| | 14 |  | NB
Capital Code of Ethics**
| | -- |  | ---------------------------

| | 31.1 |  | Certification
of Chairman and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**
| | ---- |  | ---------------------------------------------------------------------------------------------------

| | 31.2 |  | Certification
of Chief Financial Officer pursuant to Section                                302 of the
Sarbanes-Oxley Act of 2002**
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------

| | 32.1 |  | Written
Statement of Chairman and President Pursuant to                                Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.                                Section
1350)**
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 |  | Written
Statement of Chief Financial Officer Pursuant to                                Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.                                Section
1350)**
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * |  | As
previously filed.
| | - |  | --------------------

| | ** |  | As
filed herewith.
| | -- |  | ------------------

26

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