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

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FORM 10-Q

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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2004

OR

| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file Number: 1-14103

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

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Maryland(Jurisdiction of incorporation)

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


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

10019(Zip Code)


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

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(N/A)(Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  [X]    No  [  ]

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

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

ClassCommon Stock par value $0.01 per share

Outstanding at August 12, 2004100


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NB CAPITAL CORPORATION

Index

|                               |                                                                                        |                                                                                                                   |    | Page
|------------------------------ | -------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | -- | ----
|Part I. FINANCIAL INFORMATION: |                                                                                        |                                                                                                                  
|Item 1.                        | Financial Statements                                                                   |                                                                                                                   |   
|                               |                                                                                        | Balance Sheets 
      
As of June 30, 2004 and
December 31, 2003                                                 |    | 1   
|                               |                                                                                        | Statements of Income 
      
For the three-month and six-month periods ended
June 30, 2004 and 2003              |    | 2   
|                               |                                                                                        | Statements of Stockholders' Equity 
      For the three-month and six-month periods ended
June 30, 2004 and 2003 |    | 3   
|                               |                                                                                        | Statements of Cash Flows 
      For the six-month periods ended
June 30, 2004 and 2003                           |    | 4   
|                               |                                                                                        | Notes to the financial statements                                                                                 |    | 5   
|Item 2.                        | Management's Discussion and Analysis of Financial Conditions and Results of Operations |                                                                                                                   | 8 
|Item 3.                        | Quantitative and Qualitative Disclosures About Market Risk                             |                                                                                                                   | 10
|Item 4.                        | Controls and Procedures                                                                |                                                                                                                   | 10
|PART II.  OTHER INFORMATION    |                                                                                        |                                                                                                                  
|Item 1.                        | Legal Proceedings                                                                      |                                                                                                                   | 11
|Item 2.                        | Changes in Securities                                                                  |                                                                                                                   | 11
|Item 3.                        | Defaults Upon Senior Securities                                                        |                                                                                                                   | 11
|Item 4.                        | Submission of Matters to a Vote of Security Holders                                    |                                                                                                                   | 11
|Item 5.                        | Other Information                                                                      |                                                                                                                   | 11
|Item 6.                        | Exhibits and Reports on Form 8-K                                                       |                                                                                                                   | 11

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PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

NB CAPITAL CORPORATION
BALANCE SHEETS

|(in thousands of US dollars)                 | June 30,
2004
Unaudited | December 31,
2003
|-------------------------------------------- | ----------------------- | -----------------
|                                            
|Assets                                       |                         | $                
|Current                                      |                        
|Cash and cash equivalents                    |                         | 55,735           
|Due from an affiliated company               |                         | 13,984           
|Accrued interest on cash equivalents         |                         | 0                
|Prepaid expenses                             |                         | 16               
|Promissory notes - current portion           |                         | 69,097           
|                                            
|                                             |                         | 138,832          
|                                            
|Promissory notes                             |                         | 344,804          
|                                            
|                                             |                         | 483,636          
|                                            
|                                            
|Liabilities                                  |                        
|Current                                      |                        
|Due to the parent company                    |                         | 391              
|Accounts payable                             |                         | 37               
|                                            
|                                             |                         | 428              
|                                            
|                                            
|Stockholders' equity                         |                        
|Capital stock and Additional paid-in capital |                         | 476,764          
|Retained earnings                            |                         | 6,444            
|                                            
|                                             |                         | 483,208          
|                                            
|                                            
|                                             |                         | 483,636          
|                                            

See accompanying notes to financial
statements.

-1-

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NB CAPITAL CORPORATION
STATEMENTS OF INCOME

|                                                     | Three-months periods ended
June 30, | Six-months periods ended
June 30,
|---------------------------------------------------- | ----------------------------------- | ---------------------------------
|
|                                                    
|                                                     |                                     | $                                
|Revenue                                              |                                     |                                  
|Interest income                                      |                                    
|Cash equivalents                                     |                                     | 83                               
|Promissory  notes                                    |                                     | 9,257                            
|                                                    
|                                                     |                                     | 9,340                            
|                                                    
|                                                    
|Expenses                                             |                                    
|Servicing and advisory fees                          |                                     | 391                              
|Legal and other professional fees                    |                                     | 74                               
|                                                    
|                                                     |                                     | 465                              
|                                                    
|                                                    
|Net income                                           |                                     | 8,875                            
|                                                    
|Preferred stock dividends                            |                                     | 6,267                            
|                                                    
|Income available to common stockholders              |                                     | 2,608                            
|                                                    
|                                                    
|Weighted-average number of common shares outstanding |                                     | 100                              
|                                                    
|Earnings per common share - basic and diluted        |                                     | 26                               
|                                                    

See accompanying notes to financial
statements

-2-

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NB CAPITAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY

|                                     | Three-months periods ended
June 30, | Six-months periods ended
June 30,
|------------------------------------ | ----------------------------------- | ---------------------------------
|
|                                    
|PREFERRED STOCK                      |                                     | $                                
|Balance, beginning and end of period |                                     | 3                                
|                                    
|                                    
|COMMON STOCK AND PAID-IN CAPITAL     |                                    
|Balance, beginning and end of period |                                     | 476,761                          
|                                    
|                                    
|RETAINED EARNINGS                    |                                    
|Balance, beginning of period         |                                     | 3,836                            
|Net income                           |                                     | 8,875                            
|Preferred stock dividends            |                                     | (6,267                           
|                                    
|Balance, end of period               |                                     | 6,444                            
|                                    
|                                    
|TOTAL STOCKHOLDERS' EQUITY           |                                     | 483,208                          
|                                    

See accompanying notes to financial
statements.

-3-

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NB CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS

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

See accompanying notes to financial
statements.

-4-

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NB CAPITAL CORPORATION

NOTES TO THE FINANCIAL STATEMENTSJune 30, 2004
(unaudited)(in thousand of 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, $300,000 of preferred stock and simultaneously, National Bank of Canada, the
Companys parent company, made a capital contribution in the amount of $183,000. The
Company used the aggregate net proceeds of $477,000 to acquire promissory notes (Promissory
notes) issued by NB Finance, Ltd. (NB Finance), a wholly-owned
subsidiary of National Bank of Canada (the Bank).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) |  | Significant
accounting policies
|-- |  | -------------------------------

| | Financial
statements
| | --------------------

| | The
financial statements are prepared in accordance with accounting principles generally
accepted in the United States of America and are expressed in U.S. dollars.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
interim financial statements for the three-month and six-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 filed on Form 10-K. The results of the interim financial statements may not be an
indicator of the results anticipated in the full year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | In
accordance with Statements of Financial Accounting Standards (SFAS) No.115
Accounting for certain Investments in Debt and Equity Securities and based on
the Companys intentions regarding these instruments, the Company has classified the
Promissory notes as held to maturity and has accounted for them at amortized cost.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income
taxes
| | ------------

| | The
Company has elected to be taxed as a Real Estate Investment Trust (REIT)
under the Internal Revenue Code of 1986, as amended, and accordingly, is generally
not liable for United States federal income tax to the extent that it distributes at
least 90% of its taxable income to its stockholders, maintains its qualification as a
REIT and complies with certain other requirements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Per
share data
| | --------------

| | Basic
and diluted earnings per share with respect to the Company for the three-month and
six-month periods ended June 30, 2004 and 2003 are computed based upon the weighted
average number of common shares outstanding during the period.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Estimates
| | ---------

| | The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-5-

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NB CAPITAL CORPORATION

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

|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 July 2004 to December 2012, at rates
ranging from 5.49% to 10.21%, with a weighted average rate of approximately 8.44% per
annum.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the Promissory notes as at June 30, 2004 is $438,145. Fair value
is estimated by using the present value of expected future cash flows and may not be
indicative of the net realizable value.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|     |  |           | 
|---- |  | --------- | 
|2004 |  | $  43,045 | 
|2005 |  | $  57,553 | 
|2006 |  | $118,418  | 
|2007 |  | $  10,037 | 
|2008 |  | $  19,651 | 

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

| | During
the three-month and six-month periods ended June 30, 2004 and June 30, 2003, the Company
earned interest from NB Finance on the Promissory notes in the amount of $9,257
($9,556 in 2003) and $18,062 (19,132 in 2003) respectively (see Note 3).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
amount of $13,984 due from an affiliated company as of June 30, 2004 and $11,112 as of
December 31, 2003 represent interest and principal repayments due on the promissory
notes.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | In
exchange for a fee equal to $100 per year ($30 per year in 2003), payable in equal
quarterly installments, the Bank will furnish advice and recommendations with
respect to all aspects of the business and affairs of the Company. During the three-month
and six-month periods ended June 30, 2004 and June 30, 2003, fees of $25 ($8 in 2003) and
$50 ($15 in 2003) were charged to the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-6-

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NB CAPITAL CORPORATION

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

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

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

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

| | The
monthly fee equals to one-twelfth (1/12) of 0.25% per annum of the aggregate outstanding
balance of the collateralized mortgage loans as of the last day of each calendar month.
For the six-month periods ended June 30, 2004 and June 30, 2003, the average outstanding
balance of the collateralized mortgage loans were $539,361 and $559,682 respectively.
During the three-month and six-month periods ended June 30, 2004 and June 30, 2003, fees
of $366 ($383 in 2003) and $732 ($744 in 2003) respectively, were charged to the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

| |  |  | 300,000
shares of preferred stock have been authorized and issued as 8.35%
Non-cumulative Exchangeable Preferred Stock, Series A, 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 shares are
traded on the New York Stock Exchange in the form of Depository Shares, each representing
a one-fortieth interest therein.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  | 1,000
shares have been authorized and 110 shares have been issued as Adjustable Rate Cumulative
Senior Preferred Shares, non-voting, ranked senior to the common stock and to the 8.35%
Non-cumulative Exchangeable Preferred Stock, Series A, with a liquidation value of $3,000
per share, redeemable at the Companys option at any time and retractable at the
holders option on December 30, 2007 and every ten-year anniversary thereof.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-7-

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

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

The Companys principal business
objective is to acquire, hold, finance and manage assets consisting of obligations secured
by real property as well as other qualifying REIT assets (Mortgage Assets).
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended, and accordingly, is generally not liable for United States federal income tax to
the extent that it distributes at least 90% of its taxable income, subject to certain
adjustments, to its stockholders.

# Critical accounting
policies

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

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

For the the three-month periods ended
June 30, 2004 and June 30, 2003, the Company reported net income of $8,875 and $9,218
respectively. Revenues, which were comprised entirely of interest income, were $9,340 and
$9,672 respectively, and expenses were $465 and $454, respectively. Since the Company has
elected to be taxed as a REIT, no income tax was recorded during the period.

Ninety-nine percent of revenues for
the three-month period ended June 30, 2004 and the ninety-nine percent of revenues for the
three-month period ended June 30, 2003 were derived from the Mortgage Assets issued by NB
Finance, Ltd., an affiliated company (NB Finance). The Mortgage Assets issued
by NB Finance are collateralized by the Mortgage Loans that consist of
sixty-three pools of residential first mortgages insured by the Canada Mortgage and
Housing Corporation and which are secured by real property located in Canada. The balance
of the revenues result from interest on cash equivalents. The decrease in revenues for the
three-month period ended June 30, 2004 as compared to the three-month period ended June
30, 2003 is mainly attributable to the decline in the average outstanding balance of the
Mortgage Assets. 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 June 30, 2004 and 2003 totaled $465 and $454, respectively, of which $391 and $390,
respectively, represent servicing and advisory fees paid to National Bank of Canada, the
Companys direct parent (the Bank) pursuant to the Servicing Agreement
between the Bank and the Company (the Servicing Agreement) and the Advisory
Agreement between the Bank and the Company (the Advisory Agreement), whereby
the Bank performs all necessary operations in connection with administering the Mortgage
Assets issued by NB Finance and the Mortgage Loans. Legal and other professional fees
include payment to the transfer agent and other professional fees.

During the three-month period ended
June 30, 2004, the Board of Directors of the Company authorized dividends, in the
aggregate, of $6,267 compared to $6,267 for the three-month period ended June 30, 2003, on
its Adjustable Rate Cumulative Senior Preferred Shares (the Senior Preferred
Shares) and 8.35% Non-cumulative Exchangeable Preferred Stock, Series A (the
Series A Preferred Shares) and, accordingly, the Depository Shares. Such
dividends were paid on June 30, 2004.

-8-

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

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

The Companys revenues are
derived from interest payments from the Mortgage Assets. As of June 30, 2004, $414 million
of Mortgage Assets issued by NB Finance were collateralized by C$747 million ($517
million) of Mortgage Loans. The Company believes that the amounts generated from the
payment of interest and principal on such Mortgage Loans will provide more than sufficient
funds to make full payments with respect to the Mortgage Assets issued by NB Finance and
that such payments will provide the Company with sufficient funds to meet its operating
expenses and to pay quarterly dividends on the Senior Preferred Shares and the Series A
Preferred Shares and, accordingly, the Depository Shares. To the extent that the cash flow
from its Mortgage Assets exceeds those amounts, the Company will use the excess to fund
the acquisition of additional Mortgage Assets and make distributions on the Common Stock.

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

As of June 30, 2004, the Company had
cash equivalents of $55,735 representing 11.52% of total assets, compared to $19,406
representing 4.05% of total assets, as of December 31, 2003. The increase in liquidity is
attributable to repayment of Mortgage Assets. It is expected that the Company will invest
in additional Mortgage Assets once cash resources are close to, but not exceeding, 20% of
total assets. The Company expects to make an investment in Mortgage Assets in August
2004, in its normal course of business.

While this continues to be the
Companys investment policy, the Company maintains flexibility in this regard. The
liquidity level is sufficient for the Company to pay fees and expenses pursuant to the
Servicing Agreement and the Advisory Agreement.

The Companys principal
short-term and long-term liquidity needs are to pay quarterly dividends on the Senior
Preferred Shares and the Series A Preferred Shares and, accordingly, the Depository
Shares, to pay fees and expenses of the Bank pursuant to the Servicing Agreement and the
Advisory Agreement, and to pay franchise fees and expenses of advisors, if any.

# Disclosure of
Contractual Obligations

The Company does not have any
indebtedness (current or long-term), other material capital expenditures, balloon payments
or other payments due on other long-term obligations. No negative covenants have been
imposed on the Company.

# Off-Balance Sheet
Accounting

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

-9-

---

ITEM 3.     QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Disclosure About Market
Risk

Any market risk to which the Company
would be exposed would result from fluctuations in interest rates that would affect the
interest payments received by the Company in respect of the Mortgage Assets issued by NB
Finance. Since the Mortgage Assets are significantly overcollateralized by the Mortgage
Loans, the Company believes that interest rate fluctuations should not present significant
market risk. The Company expects that the interest and principal generated by the Mortgage
Loans should enable full payment by NB Finance of all of its obligations as they become
due.

ITEM 4.    CONTROLS AND PROCEDURES

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

-10-

---

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The Company is not involved in any
pending legal proceedings other than routine legal proceedings occurring in the ordinary
course of business, which involve amounts in the aggregate believed by management to be
immaterial to the financial condition of the Company.

ITEM 2.  CHANGES IN
SECURITIES

None.

ITEM 3.  DEFAULTS UPON
SENIOR SECURITIES

None.

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

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND
REPORTS ON FORM 8-K

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

|(b) | Reports on Form 8-K:
|--- | --------------------

| | No
Reports on Form 8-K were filed during the quarter for which this report is filed.
| | ------------------------------------------------------------------------------------

-11-

---

# SIGNATURES

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

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

|Date August 12, 2004 | /s/ Serge Lacroix
Serge Lacroix
Chairman of the Board and President
|-------------------- | -------------------------------------------------------------------

|Date August 12, 2004 | /s/ Jean Dagenais
Jean Dagenais
Chief Financial Officer
|-------------------- | -------------------------------------------------------

-12-

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