**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 **Form
        10-Q**
 
 (Mark
        One)
 xQUARTERLY
        REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE
        ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH
        31, 2008
 OR
 oTRANSITION
        REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE
        ACT OF 1934 FOR THE TRANSITION PERIOD FROM__________TO________
  **Commission
        file number**  **1-14103**
 
 NB
        CAPITAL CORPORATION
 **(Exact
        name of registrant as specified in its charter)**
 
 Maryland
              52-2063921**(State
                  or other jurisdiction of**
              **(I.R.S.
                  Employer****incorporation
                  or organization)**
              **Identification
                  No.)**
  65
                  East 55th Street, New York, New York
              10022**(Address
                  of principal executive offices)**
              **(Zip
                  Code)**
 
 1-866-374-8847
 **(Registrant’s
        telephone number, including area code)**
 
 **(N/A)**
 ****  **(Former
        name, former address and former fiscal year, if changed since last
        report)**
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes xNo o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer or a smaller reporting company.
 Large
        Accelerated Filer oAccelerated
        Filer oNon-Accelerated Filer x Smaller
        Reporting Company o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes oNo x
  Indicate
        the number of shares outstanding of each of the issuer’s classes of common
        stock, as of the latest practicable date.
  **Class**
              **Outstanding
                  at May 14, 2008**Common
                  Stockpar
                  value $0.01 per share
              100
  
 
 NB
        CAPITAL CORPORATION
  Index
 PagePart
                    I. FINANCIAL INFORMATION:Item
                    1(a). Financial StatementsBalance
                    Sheets –
                  As
                    of March 31, 2008 and December 31, 2007
                
                
                1Statements
                    of Income –
                  For
                    the three-month periods ended March 31, 2008 and 2007
                
                
                2Statements
                    of Stockholders’ Equity –
                  For
                    the three-month periods ended March 31, 2008 and 2007
                
                
                3Statements
                    of Cash Flows –
                  For
                    the three-month periods ended March 31, 2008 and 2007
                
                
                4Notes
                    to the financial statements
                
                
                5Item
                    1(b). National Bank of Canada Summarized Financial
                    Information
                
                
                8Item
                    2. Management’s Discussion and Analysis of Financial Condition and Results
                    of Operations
                
                
                9Item
                    3. Quantitative and Qualitative Disclosures About Market
                    Risk
                
                
                10Item
                    4. Controls and Procedures
                
                
                11Part
                    II. OTHER INFORMATION :Item
                    5. Other Information
                
                
                11Item
                    6. Exhibits
                
                
                12
  
 References
        to $ are to United States dollars; references to C$ are to Canadian dollars.
        On March
        31,
        2008 ,
        the
        Canadian dollar exchange rate posted by the Bank of Canada was C$1.0265 = $1.00
        and certain amounts stated herein reflect such exchange rate.
  
  PART
            I. FINANCIAL INFORMATION
 ITEM
            1(a). Financial Statements
  ***NB
            CAPITAL CORPORATION***
  ***BALANCE
            SHEETS***
 
 **March
                      31,**
                  
                  December
                      31,**2008**
                  
                  2007***(
                      in thousands of U.S. dollars )***
                  
                  **(Unaudited)**$
                  
                  $**Assets**Current
                      assetsCash
                      and cash equivalents
                  
                  
                  **6,779**
                  
                  
                  16,887Due
                      from an affiliated company
                  
                  
                  **11,725**
                  
                  
                  11,630Promissory
                      notes - current portion (Note 3)
                  
                  
                  **267,685**
                  
                  
                  297,724Prepaid
                      expenses
                  
                  
                  **37**
                  
                  
                  36Accrued
                      interest on cash equivalents
                  
                  
                  **1**
                  
                  
                  5Total
                      current assets
                  
                  
                  **286,227**
                  
                  
                  326,282Promissory
                      notes (Note 3)
                  
                  
                  **193,110**
                  
                  
                  152,356**Total
                      assets******
                  
                  
                  **479,337**
                  
                  
                  478,638**Liabilities**Current
                      liabilitiesDue
                      to the parent company
                  
                  
                  **398**
                  
                  
                  419Accounts
                      payable
                  
                  
                  **82**
                  
                  
                  71**Total
                      liabilities**
                  
                  
                  **480**
                  
                  
                  490**Stockholders'
                      equity**Capital
                      stock and Additional paid-in capital
                  
                  
                  **476,764**
                  
                  
                  476,764Retained
                      earnings
                  
                  
                  **2,093**
                  
                  
                  1,384**Total
                      stockholders' equity**
                  
                  
                  **478,857**
                  
                  
                  478,148**Total
                      liabilities and stockholders' equity**
                  
                  
                  **479,337**
                  
                  
                  478,638
  See
            accompanying notes to the financial statements.
  1
  ***NB
            CAPITAL CORPORATION***
  ***STATEMENTS
            OF INCOME***
  ***(Unaudited)***
 
 **Three-month
                      periods ended****March
                      31,*****(
                      in thousands of U.S. dollars, except per share
                      amounts)***
                  
                  **2008**
                  
                  2007$
                  
                  $**Revenue**Interest
                      incomeCash
                      and cash equivalents
                  
                  
                  **409**
                  
                  
                  942Promissory
                      notes
                  
                  
                  **7,039**
                  
                  
                  6,973****
                  
                  
                  **7,448**
                  
                  
                  7,915**Expenses**Servicing
                      and advisory fees
                  
                  
                  **398**
                  
                  
                  364Legal
                      and other professional fees
                  
                  
                  **72**
                  
                  
                  61****
                  
                  
                  **470**
                  
                  
                  425**Net
                      income**
                  
                  
                  **6,978**
                  
                  
                  7,490Preferred
                      stock dividends
                  
                  
                  **6,269**
                  
                  
                  6,270**Income
                      available to common stockholders**
                  
                  
                  **709**
                  
                  
                  1,220Weighted-average
                      number of common shares outstanding
                  
                  
                  **100**
                  
                  
                  100**Earnings
                      per common share - basic and diluted**
                  
                  
                  **7**
                  
                  
                  12
  See
            accompanying notes to the financial statements.
 
 2
  ***NB
            CAPITAL CORPORATION***
  ***STATEMENTS
            OF STOCKHOLDERS' EQUITY***
  ***(Unaudited)***
 
 **Three-month
                      periods ended****March
                      31,*****(
                      in thousands of U.S. dollars )***
                  
                  **2008**
                  
                  2007$
                  
                  $**Preferred
                      stock****Balance,
                      beginning and end of period**
                  
                  
                  **3**
                  
                  
                  3**Common
                      stock and paid-in capital****Balance,
                      beginning and end of period**
                  
                  
                  **476,761**
                  
                  
                  476,761**Retained
                      earnings**Balance,
                      beginning of period
                  
                  
                  **1,384**
                  
                  
                  2,444Net
                      income
                  
                  
                  **6,978**
                  
                  
                  7,490Preferred
                      stock dividends
                  
                  
                  **(6,269**
                  **)**
                  
                  (6,270
                  )**Balance,
                      end of period**
                  
                  
                  **2,093**
                  
                  
                  3,664**Total
                      stockholders' equity**
                  
                  
                  **478,857**
                  
                  
                  480,428
  See
            accompanying notes to the financial statements.
 
 3
  ***NB
            CAPITAL CORPORATION***
  ***STATEMENTS
            OF CASH FLOWS***
  ***(Unaudited)***
 
 **Three-month
                      periods ended****March
                      31,*****(
                      in thousands of U.S. dollars )*******
                  
                  **2008**
                  
                  2007$
                  
                  $**Operating
                      activities**Net
                      income
                  
                  
                  **6,978**
                  
                  
                  7,490Adjustments
                      for :Prepaid
                      expenses
                  
                  
                  **(1**
                  **)**
                  
                  -Due
                      from an affiliated company
                  
                  
                  **(95**
                  **)**
                  
                  (8,370
                  )Due
                      to the parent company
                  
                  
                  **(21**
                  **)**
                  
                  (1
                  )Accounts
                      payable
                  
                  
                  **11**
                  
                  
                  10Accrued
                      interest receivable on cash equivalents
                  
                  
                  **4**
                  
                  
                  21****
                  
                  
                  **6,876**
                  
                  
                  (850
                  )**Financing
                      activities**Dividends
                  
                  
                  **(6,269**
                  **)**
                  
                  (6,270
                  )**(6,269**
                  **)**
                  
                  (6,270
                  )**Investing
                      activities**Investment
                      in promissory notes
                  
                  
                  **(91,855**
                  **)**
                  
                  (118,363
                  )Repayments
                      of promissory notes
                  
                  
                  **81,140**
                  
                  
                  99,619**(10,715**
                  **)**
                  
                  (18,744
                  )Decrease
                      in cash and cash equivalents
                  
                  
                  **(10,108**
                  **)**
                  
                  (25,864
                  )Cash
                      and cash equivalents, beginning of period
                  
                  
                  **16,887**
                  
                  
                  90,212**Cash
                      and cash equivalents, end of period**
                  
                  
                  **6,779**
                  
                  
                  64,348
  See
            accompanying notes to the financial statements.
  4
  ***NB
        CAPITAL CORPORATION***
 
 ***NOTES
        TO THE FINANCIAL STATEMENTS***
 *March* *31,
        2008*
 (unaudited)
 *(in
        thousands of U.S. dollars)*
 
 **1)
        Incorporation and nature of operations**
 
 NB
        Capital Corporation (the ‘‘Company’’) was incorporated under the laws of the
        State of Maryland on August 20, 1997. The Company's principal business is
        to
        acquire, hold, finance and manage mortgage assets. The Company issued, through
        an Offering Circular dated August 22, 1997, $300,000 of preferred stock and
        simultaneously, National Bank of Canada (the “Bank”), the parent company, made a
        capital contribution in the amount of $183,000. The Company used the aggregate
        net proceeds of $477,000 to acquire promissory notes issued by NB Finance,
        Ltd.
        (“NB Finance”), a wholly-owned subsidiary of the Bank.
 
 **2)
        Significant accounting policies**
 
 ***Financial
        statements***
 
 The
        financial statements are prepared in accordance with accounting principles
        generally accepted in the United States of America and are expressed in U.S.
        dollars.
 
 The
        interim financial statements for the three-month periods
        are unaudited, however, the financial statements include, in the opinion
        of
        management, all adjustments necessary for a fair presentation. The unaudited
        financial statements should be read in conjunction with the audited financial
        statements included in the Company’s annual report for the year ended December
        31, 2007 filed on
        Form 10-K. The interim financial statements may not be an indicator of the
        results anticipated in the full year.
 
 ***Cash
        and cash equivalents***
 
 Cash
        equivalents include short-term, highly liquid investments that are readily
        convertible to known amounts of cash and have a maturity of three months
        or less
        at the acquisition date.
 
 ***Promissory
        notes***
 
 In
        accordance with Statements of Financial Accounting Standards (‘‘SFAS’’) No.115
‘‘Accounting for certain Investments in Debt and Equity Securities’’ and based
        on the Company’s intentions regarding these instruments, the Company has
        classified the Promissory notes as held to maturity and has accounted for
        them
        at amortized cost.
 
 ***Income
        taxes***
 
 The
        Company has elected to be taxed as a Real Estate Investment Trust (‘‘REIT’’)
        under the *Internal
        Revenue Code of 1986* ,
        as
        amended, and accordingly, is generally not liable for United States federal
        income tax to the extent that it distributes at least 90% of its
        taxable income to its stockholders, maintains its qualification as a REIT
        and
        complies with certain other requirements. There is no unrecognized tax
        benefits.
 
 ***Per
        share data***
 
 Basic
        and
        diluted earnings per share with respect to the Company for the three-month
        periods ended  March 31, 2008
        and 2007 are
        computed based on the number of common shares outstanding during the period.
  5
 
 **2)
        Significant accounting policies (continued)**
 
 ***Interest
        on promissory notes and cash and cash equivalents***
 
 Interest
        income on the promissory notes and cash and cash equivalents  is
        accrued using the simple interest method based on the average amount of
        principal outstanding. The accrual of interest is discontinued when management
        believes that the collection of interest is doubtful.
 
 ***Use
        of estimates***
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those estimates.
 
 ***Recent
        accounting standards adopted***
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” (“SFAS 159”), which allows
        measurement of specified financial instruments, warranty and insurance contracts
        at fair value on a contract by contract basis, with changes in fair value
        recognized in earnings in each period. SFAS 159 is effective at the beginning
        of
        the fiscal year that begins after November 15, 2007, and is effective for
        the
        Company in fiscal 2008. The Company states that this standard does not have
        a
        material impact on its financial position or results of operations.
 
 On
        September 15, 2006, the FASB issued FASB Statement No.157, “Fair Value
        Measurements” (“FAS 157”), which establishes a framework for measuring fair
        value in GAAP, and is applicable to other accounting pronouncements where
        fair
        value is considered to be the relevant measurement attribute. FAS 157 also
        expands disclosures about fair value measurements and is effective for the
        Company since January 1, 2008. However, the Company states that this standard
        does not have a material impact on its financial reporting and
        disclosure.
 
 **3)
        Promissory notes**
 
 The
        Company entered into loan agreements evidenced by promissory notes with NB
        Finance, an affiliated company. The promissory notes are collateralized by
        mortgage loans which are secured by residential first mortgages and insured
        by
        the Canada Mortgage and Housing Corporation.
 
 The
        promissory notes have maturities ranging from April 2008 to January 2015,
        at
        rates ranging from 5.37% to 10.15%, with a weighted average rate of
        approximately 5.73% per annum.
 
 The
        fair
        value of the promissory notes as at March
        31,
        2008 is $470,866 .
        Fair
        value is estimated by using the present value of expected future cash flows
        and
        may not be indicative of the net realizable value.
 
 Promissory
                  notes as of December 31, 2007
              
              
              $450,080Acquisitions
              
              
              91,855Principal
                  repayments
              
              
              (81,140
              )Promissory
                  notes as of March 31, 2008
              
              
              $460,795
 
 The
        scheduled principal repayments on a year end basis as of
        March
        31, 2008 are as
        follows:
 
 2008
              
              
              $232,644
              
              
              2013
              
              
              $5,6272009
              
              
              $139,142
              
              
              2014
              
              
              $2,7222010
              
              
              $20,689
              
              
              2015
              
              
              $8,5212011
              
              
              $33,5302012
              
              
              $17,920
  6
  **4)
        Transactions with an affiliated company**
 
 During
        the three-month
        periods ended March 31, 2008 and March 31, 2007, the
        Company earned interest from NB Finance on the Promissory notes in the amount
        of $7,039  ($6,973
        in 2007) (see
        Note
        3).
 
 The
        amount of $11,725 due
        from
        an affiliate as
        of
        March 31, 2008 and $11,630 as of December 31, 2007 represents interest and principal repayments due on the promissory notes
        from NB
        Finance.
 
 **5)
        Transactions with the parent company**
 
 The
        Company has entered into agreements with the Bank in relation to the
        administration of the Company's operations. The agreements are as
        follows:
 
 ***Advisory
        agreement***
 In
        exchange for a fee equal to $100 per year, payable in equal quarterly
        installments, the Bank will furnish advice and recommendations with respect
        to
        all aspects of the business and affairs of the Company. During the
        three-month periods ended March 31, 2008 and March 31, 2007, fees of $25
        ($25 in
        2007) were
        charged to the Company.
 
 ***Servicing
        agreement***
 The
        Bank
        services and administers the promissory notes and the collateralized mortgage
        loans and performs all necessary operations in connection with such servicing
        and administration in exchange for a monthly fee based upon the outstanding
        balance of the collateralized mortgage.
 
 The
        monthly fee equals one-twelfth (1/12) of 0.25% per annum of the aggregate
        outstanding balance of the collateralized mortgage loans as of the last day
        of
        each calendar month. For the
        three-month periods ended March 31, 2008 and March 31, 2007 ,
        the
        average outstanding balance of the collateralized mortgage loans were $530,393
        and $508,662 respectively .
        During the
        three-month periods ended March 31, 2008 and March 31, 2007 ,
        fees of $373
        ($339 in 2007) ,
        were
        charged to the Company.
 
 ***Custodial
        agreement***
 The
        Bank
        holds all documents relating to the collateralized mortgage loans. During the
        three-month periods ended March 31, 2008 and March 31, 2007, no fee
        was charged to the Company for custodial services.
 
 ***Interest
        on cash and cash equivalents***
 The
        Company received interest on cash and cash equivalents held with the Bank
        for
        the three-month
        periods ended March 31, 2008 and March 31, 2007 in the amounts of $409 and
        $942
        respectively.
 
 **6)
        Stockholders' equity**
 *(in U.S. dollars)*
 
 ***Common
        stock***
 The
        Company is authorized to issue up to 1,000 shares of $ 0.01 par value common
        stock. To date:
 
 ·
              100
                  shares have been authorized and issued to the
                  Bank.
 
 ***Preferred
        stock***
 The
        Company is authorized to issue up to 10,000,000 shares of $0.01 par value
        preferred stock. To date:
 
 ·
              300,000
                  shares of preferred stock have been authorized and issued as 8.35%
                  Noncumulative Exchangeable Preferred Stock, Series A (“Series A Preferred
                  Shares”), non-voting, ranked senior to the common stock and junior to
                  the
                  Adjustable Rate Cumulative Senior Preferred Shares, with a liquidation
                  value of $1,000 per share, redeemable at the Company's option on
                  or after
                  September 3, 2007, except upon the occurrence of certain changes
                  in tax
                  laws in the United States or in Canada, on or after September 3,
                  2002.
                  These Series A Preferred Shares are traded on the New York Stock
                  Exchange
                  in the form of Depository Shares, each Depository Share representing
                  a
                  one-fortieth interest therein.
 
 **·**
              Each
                  Series A Preferred Share is exchangeable, upon the occurrence of
                  certain
                  events, for one newly issued 8.45% Noncumulative First Preferred
                  Share,
                  Series Z, of the Bank.
 
 ·
              1,000
                  shares of preferred stock have been authorized (110 issued) as
                  Adjustable
                  Rate Cumulative Senior Preferred Shares, non-voting, ranked senior
                  to the
                  common stock and to the Series A Preferred Shares with a liquidation
                  value
                  of $3,000 per share, redeemable at the Company's option at any
                  time and
                  retractable at the holder's option on December 30, 2007 and every
                  ten-year
                  anniversary thereof.
  7
 
 ITEM
        1(b).  NATIONAL
        BANK OF CANADA SUMMARIZED FINANCIAL INFORMATION
 
 Note
        6 of
        the Notes to the Financial Statements of the Company states that each Series
        A
        Preferred Share is exchangeable, upon the occurrence of certain events, for
        one
        newly issued 8.45% Noncumulative First Preferred Share, Series Z, of the
        Bank.
        Below is the summarized financial information for the Bank for the first
        quarter of its 2008 fiscal year which ended January 31, 2008 .
 **Highlights**Quarter
                      ended January 31
                    (unaudited)
                  
                  
                  
                  
                  
                  %**2008**
                  
                  2007
                  
                  **Change****Operating
                      results**(millions
                      of Canadian dollars)Total
                      revenues
                  
                  
                  **$929**
                  
                  
                  $989
                  
                  
                  (6
                  )Net
                      income
                  
                  
                  **255**
                  
                  
                  240
                  
                  
                  6Return
                      on common shareholders' equity
                  
                  
                  **22.9**
                  **%**
                  
                  20.7
                  %**Per
                      common share**Earnings
                      - basic
                  
                  
                  **$1.58**
                  
                  
                  $1.45
                  
                  
                  9Earnings
                      - diluted
                  
                  
                  **1.58**
                  
                  
                  1.43
                  
                  
                  10Dividends
                      declared
                  
                  
                  **0.62**
                  
                  
                  0.54
                  
                  
                  15Book
                      value
                  
                  
                  **28.13**
                  
                  
                  28.34
                  
                  
                  (1
                  )Stock
                      trading rangeHigh
                  
                  
                  **54.25**
                  
                  
                  66.59Low
                  
                  
                  **45.15**
                  
                  
                  61.36Close
                  
                  
                  **50.53**
                  
                  
                  64.29
 **Financial
                        position**
                    
                    **January
                        31**
                    
                    October
                        31(millions
                        of Canadian dollars)
                    
                    **2008**
                    
                    2007Cash
                      resources and securities
                    
                    
                    **56,262**
                    
                    
                    48,564
                    
                    
                    16Loans
                        and acceptances
                    
                    
                    **52,095**
                    
                    
                    52,045
                    
                    
                    0Other
                        assets
                    
                    
                    **11,767**
                    
                    
                    12,476
                    
                    
                    (6
                    )Total
                        assets
                    
                    
                    **$120,124**
                    
                    
                    $113,085
                    
                    
                    6Deposits
                    
                    
                    **73,122**
                    
                    
                    70,798
                    
                    
                    3Other
                        liabilities
                    
                    
                    **38,833**
                    
                    
                    35,085
                    
                    
                    11Subordinated
                        debentures
                    
                    
                    **1,656**
                    
                    
                    1,605
                    
                    
                    3Non-controlling
                        interest
                    
                    
                    **1,664**
                    
                    
                    960
                    
                    
                    73Preferres
                        shares
                    
                    
                    **400**
                    
                    
                    400
                    
                    
                    -Common
                        shares
                    
                    
                    **1,590**
                    
                    
                    1,575
                    
                    
                    1Contributed
                        surplus
                    
                    
                    **33**
                    
                    
                    32
                    
                    
                    3Retained
                        earnings
                    
                    
                    **2,941**
                    
                    
                    2,793
                    
                    
                    5Accumulated
                        other comprehensive income (loss)
                    
                    
                    **(115**
                    **)**
                    
                    (163
                    )
                    
                    (29
                    )Total
                        liabilities and shareholder's equity
                    
                    
                    **$120,124**
                    
                    
                    $113,085
                    
                    
                    6Capital
                        ratios - BIS under Basel IITier
                        1
                    
                    
                    **9.3**
                    **%**Total
                    
                    
                    **12.9**
                    **%**Capital
                        ratios - BIS under Basel ITier
                        1
                    
                    
                    **9.8**
                    **%**
                    
                    **9.0**
                    **%**Total
                    
                    
                    **13.5**
                    **%**
                    
                    **12.4**
                    **%**Impaired
                        loans, net of specific and general allowances
                    
                    
                    **(168**
                    **)**
                    
                    (179
                    )as
                        a % of loans and acceptances
                    
                    
                    **(0.3)**
                    **%**
                    
                    (0.3)
                    %Assets
                        under administration/management
                    
                    
                    **233,835**
                    
                    
                    239,028
  8
 
 ITEM
                2.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
                  OF OPERATIONS
 
 **Overview**
 *(in
        thousands of U.S. dollars)*
 
 This
        report contains certain forward-looking statements and information relating
        to
        the Company that are based on the beliefs of the Company’s management as well as
        assumptions made by and information currently available to the Company’s
        management. When used in this report, the words “anticipate”, “believe”,
“estimate”, “expect” and similar expressions, as they relate to the Company or
        the Company’s management, are intended to identify forward-looking statements.
        Such statements reflect the current view of the Company’s management with
        respect to future events and the Company’s future performance and are subject to
        certain risks, uncertainties and assumptions. Should management’s current view
        of the future or underlying assumptions prove incorrect, actual results may
        vary
        materially from those described herein as anticipated, believed, estimated
        or
        expected. The Company does not intend to update these forward-looking
        statements.
 
 The
        Company was incorporated under the laws of the State of Maryland on August
        20,
        1997. The Company's principal business is to acquire, hold, finance and manage
        mortgage assets. The Company issued, through an Offering Circular dated August
        22, 1997, $300,000 Series A Preferred Shares and simultaneously, the Bank,
        the
        Company’s parent company, made a capital contribution in the amount of $183,000.
        The Company used the aggregate net proceeds of $477,000 to acquire promissory
        notes (“Promissory notes”) issued by NB Finance, 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 as well as other
        qualifying REIT assets (“Mortgage Assets”). The Company has elected to be taxed
        as a REIT under the Internal Revenue Code of 1986, as amended, and accordingly,
        is generally not liable for United States federal income tax to the extent
        that
        it distributes at least 90% of its
        taxable income, subject to certain adjustments, to its
        stockholders.
 
 This
        discussion summarizes the significant factors affecting the Company’s results of
        operations, financial condition and liquidation / cash flows for the first quarter
        ended March
        31,
        2008 ,
        compared to the same period in 2007 .
        This
        discussion should be read in connection with the financial statements and
        notes
        included in the Company’s annual report on Form 10-K for the year ended December
        31, 2007 .
 
 **Critical
        accounting policies**
 
 We
        believe that there are no critical accounting policies in connection with
        the
        preparation of the financial statements of the Company.
 
 **Results
        of operations**
 *(in
        thousands of U.S. dollars)*
 
 For the
        three-month periods ended March 31, 2008 and March 31, 2007 ,
        the
        Company reported net income of $6,978
        and $7,490 respectively.
        Revenues for the three-month
        periods ended March 31, 2008 and March 31, 2007 ,
        which
        were comprised of interest income on promissory notes and cash and cash
        equivalents, were $7,448
        and $7,915 respectively , and
        expenses were $470
        and
        $425 respectively.
        Since the Company has elected to be taxed as a REIT, no income tax was recorded
        during the period.
 
 Ninety-five
        percent of
        revenues for the three-month
        period ended March 31, 2008 and eighty-eight percent of
        revenues for the three-month period ended March 31, 2007 were
        derived from the Mortgage Assets issued by NB Finance. The proportion of
        revenues derived from the Mortgage Assets was higher than the corresponding
        period of 2007, due to the decrease in the interest rate revenues on cash
        equivalents. The Mortgage Assets issued by NB Finance are collateralized
        by the
“Mortgage Loans” that consist of 46 pools
        of
        residential first mortgages insured by the Canada Mortgage and Housing
        Corporation and which are secured by real property located in Canada .
        The  balance
        of the revenues results from interest on cash equivalents. These revenues
        derived from the interest on cash equivalents are lower in 2008 than 2007
        due to
        a decrease in the amount of the deposit and in the interest rate on term
        deposits held in New York (approximate average deposit of $57,693 with a
        rate
        ranking from 1.75% to 3.75% in the first quarter of 2008 versus approximate
        average deposit of $84,500 with a rate of 4.75% in the first quarter of 2007). The
        Company believes that the majority of revenues will continue to be generated
        by
        the Mortgage Assets issued by NB Finance.
 
 Expenses
        for the three-month
        periods ended March 31, 2008 and March 31, 2007 totaled $470 and $425 respectively,
        of which $398
        and
        $364, respectively,
        represent servicing and advisory fees paid to the Bank, the Company’s direct
        parent, pursuant to the Servicing Agreement between the Bank and the Company
        (the “Servicing Agreement”) and the Advisory Agreement between the Bank and the
        Company (the “Advisory Agreement”), whereby the Bank performs all necessary
        operations in connection with administering the Mortgage Assets issued by
        NB
        Finance and the Mortgage Loans. Expenses
        other than servicing and advisory fees paid to the Bank were legal and
        professional fees, including payments to the transfer agent, and totaled
        $72 and
        $61 for the three-month periods ended March 31, 2008 and March 31, 2007
        respectively.
  9
 
 During
        the three-month periods ended March 31, 2008 and March 31, 2007, the
        Board
        of Directors of the Company authorized dividends, in the aggregate, of $6,269
        and $6,270 respectively on
        its
        Adjustable Rate Cumulative Senior Preferred Shares and the Series A Preferred
        Shares and, accordingly, the Depository Shares. Such dividends were paid
        on March
        31,
        2008 and March 30, 2007 .
 
 **Capital
        Resources and Liquidity**
 *(in
        thousands of U.S. dollars)*
 
 The
        Company’s revenues are derived from interest payments from the Mortgage Assets. As
        of
        March 31, 2008,  $460,795 Mortgage
        Assets issued by NB Finance were collateralized by C$642,606 ($575,994) 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 (see Note 6 of Financial Statements) and the
        Series A Preferred Shares (see Note 6 of Financial Statements) and, accordingly,
        the Depository Shares (see Note 6 of Financial Statements). To the extent
        that
        the cash flow from its Mortgage Assets exceeds those amounts, the Company
        will
        use the excess to fund the acquisition of additional Mortgage Assets and
        make
        distributions on the Common Stock.
 
 The
        Company does not require any capital resources for its operations and,
        therefore, it is not expected to acquire any capital assets in the foreseeable
        future.
 
 As
        of March
        31, 2008 ,
        the
        Company had cash and cash equivalents of $6,779 representing 1.41% of total
        assets, compared to $64,348 representing 13.38% of total assets and $16,887 representing 3.53% of total
        assets, as of March 31, 2007 and as of December
        31, 2007 respectively. The cash
        and cash equivalents decreased because the Company increased its investments
        in
        promissory notes issued by NB Finance. The liquidity level is sufficient
        for the
        Company to pay fees and expenses pursuant to the Servicing Agreement and
        the
        Advisory Agreement. The Company made a purchase of additional Mortgage Assets
        on March
        26,
        2008 .
 
 The
        Company’s primary business is to invest in Promissory notes issued by NB Finance
        and then receive repayments of capital and interest on a monthly basis. For
        the
        three-month periods ended March 31, 2008 and March 31, 2007, the Company
        invested $91,855 and $118,363, respectively, into Promissory notes and received
        $81,140 and $99,619, respectively, in repayments of capital .
 
 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
        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 Arrangements**
 
 The
        Company does not have any off-balance sheet arrangements .
 
 ITEM
        3.  QUANTITATIVE
        AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 There
        has
        been no significant change in the market risks faced by the Company since
        December 31, 2007 .
        For
        information regarding the Company’s risks refer to the information under the
        caption ‘‘Disclosure About Market Risk’’ below and to the Company’s Annual
        Report on Form 10-K for the year ended December 31, 2007 .
  10


**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 over collateralized 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.





ITEM
      4.  CONTROLS
      AND PROCEDURES





See
      Item
      4T.





ITEM
      4T.  CONTROLS
      AND PROCEDURES





(a)
      We
      maintain a system of controls and procedures designed to ensure that information
      required to be disclosed by us in reports that we file or submit under the
      Exchange Act, as amended, is recorded, processed, summarized and reported,
      within time periods specified in the Securities and Exchange Commission’s rules
      and forms and to ensure that information required to be disclosed by us in
      the
      reports that we file or submit under the Exchange Act, as amended, is
      accumulated and communicated to our management, including our President and
      Chief Financial Officer, as appropriate to allow timely decisions regarding
      required disclosure. As of March 31, 2008, under the supervision and with the
      participation of our President and Chief Financial Officer, management has
      evaluated the effectiveness of the design and operation of our disclosure
      controls and procedures. Based on that evaluation, the President and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      effective.





(b)
      Changes in Internal Controls. There were no changes in our internal control
      over
      financial reporting (as
      defined in Rule 13a-15(f) under the Exchange Act) during
      the quarter ended March 31, 2008, that materially affected, or is reasonably
      likely to materially affect, our internal controls over financial
      reporting.





PART
      II - OTHER INFORMATION





ITEM
      5.  OTHER
      INFORMATION





On
      April
      28, 2008, the Company revised its Code of Business Conduct and Ethics to change
      one of the officers to whom any questions regarding the Code of Business Conduct
      and Ethics can be forwarded and any complaints or concerns under the Company’s
      accounting, audit matters or violation of the law can be submitted as well
      as
      other minor changes to the wording of the Code. The Company is attaching the
      revised Code of Business Conduct and Ethics as an exhibit to this quarterly
      report.


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ITEM
      6.  EXHIBITS





Exhibit
                No.
            
            Description11
            
            Computation
                of Earnings Per Share14
            
            Code
                of Business Conduct and Ethics31.1
            
            Certification
                of Chairman and President pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232.1
            
            Certification
                of Chairman and President Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002 (18 U.S.C. Section 1350)32.2
            
            Certification
                of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002 (18 U.S.C. Section
                1350)


12


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.





NB
                CAPITAL CORPORATIONDate
                : May 14, 2008
            /s/
                Donna GoralDonna
                GoralChairman
                of the Board and PresidentDate
                : May 14, 2008
            /s/
                Jean DagenaisJean
                DagenaisChief
                Financial Officer





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