**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**Form      10-Q**

**Commission      file number **
**1-14103**

**(Exact      name of registrant as specified in its charter)**

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

| 65                    East 55th                    Street, New York, New York      |   | 10022                             |
|------------------------------------------------------------------------------------|--------|-----------------------------------|
| **(Address                    of principal executive                    offices)** |   | **(Zip                    Code)** |

**(Registrant’s      telephone number, including area code)**

**(N/A)**

** **
**(Former      name, former address and former fiscal year, if changed since last      report)**

**    Class              **
**Outstanding      at July 19, 2006**

**    **

----

|  Part I. FINANCIAL                INFORMATION:                                                                                                                      |   |    Page |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|
|                                                                                                                                                                          |   |                   |
|     Item                1(a).                Financial Statements                                                                                         |   |                   |
|                                                                                                                                                                          |   |                   |
|         Balance                Sheets -                                                                                               |   |  1                |
|             As                of June 30,                2006 and December 31, 2005                               |   |                   |
|                                                                                                                                                                          |   |                   |
|         Statements                of                Income -                                                                          |   |  2                |
|             For                the                three-month and six-month periods ended June 30, 2006 and 2005  |   |                   |
|                                                                                                                                                                          |   |                   |
|         Statements                of                Stockholders’ Equity -                                                      |   |  3                |
|             For                the                three-month and six-month periods ended June 30, 2006 and 2005  |   |                   |
|                                                                                                                                                                          |   |                   |
|         Statements                of                Cash Flows -                                                                      |   |  4                |
|             For                the                six-month periods ended June 30, 2006 and 2005                  |   |                   |
|                                                                                                                                                                          |   |                   |
|         Notes                to the                financial statements                                                               |   |  5                |
|                                                                                                                                                                          |   |                   |
|     Item                1(b).                National Bank of Canada Summarized Financial Statements                                                      |   |  8                |
|                                                                                                                                                                          |   |                   |
|     Item                2.                Management’s Discussion and Analysis of Financial Condition and                Results of Operations |   |  9                |
|                                                                                                                                                                          |   |                   |
|     Item                3. Quantitative                and Qualitative Disclosures About Market Risk                                                 |   |  11               |
|                                                                                                                                                                          |   |                   |
|     Item                4. Controls                and Procedures                                                                                    |   |  12               |
|                                                                                                                                                                          |   |                   |
|  Part II. OTHER INFORMATION :                                                                                                                                            |   |                   |
|                                                                                                                                                                          |   |                   |
|     Item                1. Legal                Proceedings                                                                                               |   |  12               |
|                                                                                                                                                                          |   |                   |
|     Item                6.                Exhibits                                                                                                        |   |  12               |

----

----

| ***NB                CAPITAL CORPORATION***                 |   |                                |        |                                    |   |
|-------------------------------------------------------------|--------|-------------------------------------|-------------|-----------------------------------------|--------|
|                                                        |   |                                |        |                                    |   |
| ***BALANCE                SHEETS***                         |   |                                |        |                                    |   |
|                                                             |   |                                |        |                                    |   |
|                                                        |   | **June                30,****2006** |        | **December                31,****2005** |   |
| ***(                in thousands of US dollars )***         |   | **(Unaudited)**                     |        |                                    |   |
|                                                        |   |                                |        |                                    |   |
| **Assets**                                                  |   |                                | $           |                                    |   | $ |   |
|                                                        |   |                                |        |                                    |   |   |   |
| **Current**                                                 |   |                                |        |                                    |   |   |   |
| Cash                and cash equivalents                    |   |                                | 69,337      |                                    |   | 59,901 |   |
| Due                from an affiliated company               |   |                                | 16,696      |                                    |   | 9,680 |   |
| Promissory                notes - current portion           |   |                                | 156,300     |                                    |   | 79,840 |   |
| Prepaid                expenses                             |   |                                | 17          |                                    |   | 32 |   |
| Accrued                interest on cash equivalents         |   |                                | 17          |                                    |   | 19 |   |
|                                                        |   |                                | 242,367     |                                    |   | 149,472 |   |
|                                                        |   |                                |        |                                    |   |   |   |
| **Promissory                notes**                         |   |                                | 240,662     |                                    |   | 330,139 |   |
|                                                        |   |                                | **483,029** |                                    |   | **479,611** |   |
|                                                        |   |                                |        |                                    |   |   |   |
|                                                        |   |                                |        |                                    |   |   |   |
| **Liabilities**                                             |   |                                |        |                                    |   |   |   |
|                                                        |   |                                |        |                                    |   |   |   |
| **Current**                                                 |   |                                |        |                                    |   |   |   |
| Due                to the parent company                    |   |                                | 406         |                                    |   | 402 |   |
| Accounts                payable                             |   |                                | 19          |                                    |   | 117 |   |
|                                                        |   |                                | 425         |                                    |   | 519 |   |
|                                                        |   |                                |        |                                    |   |   |   |
|                                                        |   |                                |        |                                    |   |   |   |
| **Stockholders'                equity**                     |   |                                |        |                                    |   |   |   |
|                                                        |   |                                |        |                                    |   |   |   |
|                                                        |   |                                |        |                                    |   |   |   |
| Capital                stock and Additional paid-in capital |   |                                | 476,764     |                                    |   | 476,764 |   |
|                                                        |   |                                |        |                                    |   |   |   |
| Retained                earnings                            |   |                                | 5,840       |                                    |   | 2,328 |   |
|                                                        |   |                                |        |                                    |   |   |   |
|                                                        |   |                                | 482,604     |                                    |   | 479,092 |   |
|                                                        |   |                                |        |                                    |   |   |   |
|                                                        |   |                                |        |                                    |   |   |   |
|                                                        |   |                                |        |                                    |   |   |   |
|                                                        |   |                                | **483,029** |                                    |   | **479,611** |   |

----

----

| ***NB                    CAPITAL CORPORATION***                         |   |                                                   |      |                                                 |   |      |   |     |       |
|-------------------------------------------------------------------------|--------|--------------------------------------------------------|-----------|------------------------------------------------------|--------|-----------|--------|----------|------------|
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |
| ***STATEMENTS                    OF INCOME***                           |   |                                                   |      |                                                 |   |      |   |     |       |
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |
| ***(Unaudited)***                                                       |   |                                                   |      |                                                 |   |      |   |     |       |
|                                                                    |   |  **Three-month                    periods ended** |      |  **Six-month                    periods ended** |   |
|                                                                    |   | **June                    30,**                        |      | **June                    30,**                      |   |
| ***(                    in thousands of US dollars )***                 |   | **2006**                                               |      | **2005**                                             |   | **2006**  |   | **2005** |       |
|                                                                    |   | $                                                      |      | $                                                    |   | $         |   | $        |       |
| **Revenue**                                                             |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
| Interest                    income                                      |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
| Cash                    equivalents                                     |   |                                                   | 491       |                                                 |   | 270       |   |     | 929        |   |   | 496 |   |
| Promissory                    notes                                     |   |                                                   | 7,928     |                                                 |   | 8,709     |   |     | 16,072     |   |   | 17,371 |   |
|                                                                    |   |                                                   | **8,419** |                                                 |   | **8,979** |   |     | **17,001** |   |   | **17,867** |   |
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
| **Expenses**                                                            |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
| Servicing                    and advisory fees                          |   |                                                   | 406       |                                                 |   | 388       |   |     | 827        |   |   | 801 |   |
| Legal                    and other professional fees                    |   |                                                   | 74        |                                                 |   | 92        |   |     | 123        |   |   | 167 |   |
|                                                                    |   |                                                   | **480**   |                                                 |   | **480**   |   |     | **950**    |   |   | **968** |   |
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
| **Net                    income**                                       |   |                                                   | **7,939** |                                                 |   | **8,499** |   |     | **16,051** |   |   | **16,899** |   |
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
| Preferred                    stock dividends                            |   |                                                   | 6,269     |                                                 |   | 6,268     |   |     | 12,539     |   |   | 12,536 |   |
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
| **Income                    available to common stockholders**          |   |                                                   | **1,670** |                                                 |   | **2,231** |   |     | **3,512**  |   |   | **4,363** |   |
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
| Weighted-average                    number of common shares outstanding |   |                                                   | 100       |                                                 |   | 100       |   |     | 100        |   |   | 100 |   |
|                                                                    |   |                                                   |      |                                                 |   |      |   |     |       |   |   |   |   |
| **Earnings                    per common share - basic and diluted**    |   |                                                   | **17**    |                                                 |   | **22**    |   |     | **35**     |   |   | **44** |   |

----

----

| ***NB                    CAPITAL CORPORATION***             |   |                                             |        |                                                 |   |        |   |     |        |
|-------------------------------------------------------------|--------|--------------------------------------------------|-------------|------------------------------------------------------|--------|-------------|--------|----------|-------------|
|                                                        |   |                                             |        |                                                 |   |        |   |     |        |
| ***STATEMENTS                    OF STOCKHOLDERS' EQUITY*** |   |                                             |        |                                                 |   |        |   |     |        |
|                                                        |   |                                             |        |                                                 |   |        |   |     |        |
| ***(Unaudited)***                                           |   |                                             |        |                                                 |   |        |   |     |        |
|                                                        |   | **Three-month                    periods ended** |        |  **Six-month                    periods ended** |   |
|                                                        |   | **June                    30,**                  |        | **June                    30,**                      |   |
| ***(                    in thousands of US dollars )***     |   | **2006**                                         |        | **2005**                                             |   | **2006**    |   | **2005** |        |
|                                                        |   |                                             |        |                                                 |   |        |   |     |        |
| **PREFERRED                    STOCK**                      |   |                                             | $           |                                                 |   | $           |   |     | $           |   |   | $ |   |
| **Balance,                    beginning and end of period** |   |                                             | 3           |                                                 |   | 3           |   |     | 3           |   |   | 3 |   |
|                                                        |   |                                             |        |                                                 |   |        |   |     |        |   |   |   |   |
|                                                        |   |                                             |        |                                                 |   |        |   |     |        |   |   |   |   |
| **COMMON                    STOCK AND PAID-IN CAPITAL**     |   |                                             |        |                                                 |   |        |   |     |        |   |   |   |   |
| **Balance,                    beginning and end of period** |   |                                             | 476,761     |                                                 |   | 476,761     |   |     | 476,761     |   |   | 476,761 |   |
|                                                        |   |                                             |             |                                                 |   |             |   |     |             |   |   |  |   |
|                                                        |   |                                             |             |                                                 |   |             |   |     |             |   |   |  |   |
| **RETAINED                    EARNINGS**                    |   |                                             |             |                                                 |   |             |   |     |             |   |   |  |   |
| Balance,                    beginning of period             |   |                                             | 4,170       |                                                 |   | 2,687       |   |     | 2,328       |   |   | 555 |   |
| Net                    income                               |   |                                             | 7,939       |                                                 |   | 8,499       |   |     | 16,051      |   |   | 16,899 |   |
| Preferred                    stock dividends                |   |                                             | (6,269      | )                                                    |   | (6,268      | )      |     | (12,539     | ) |   | (12,536 | ) |
| **Balance,                    end of period**               |   |                                             | **5,840**   |                                                 |   | **4,918**   |   |     | **5,840**   |   |   | **4,918** |   |
|                                                        |   |                                             |        |                                                 |   |        |   |     |        |   |   |   |   |
|                                                        |   |                                             |        |                                                 |   |        |   |     |        |   |   |   |   |
| **TOTAL                    STOCKHOLDERS' EQUITY**           |   |                                             | **482,604** |                                                 |   | **481,682** |   |     | **482,604** |   |   | **481,682** |   |

----

----

|                                                             |   |                                         |        |     |   |
|------------------------------------------------------------------|--------|----------------------------------------------|-------------|----------|--------|
| ***NB                  CAPITAL CORPORATION***                    |   |                                         |        |     |   |
|                                                             |   |                                         |        |     |   |
| ***STATEMENTS                  OF CASH FLOWS***                  |   |                                         |        |     |   |
|                                                             |   |                                         |        |     |   |
| ***(Unaudited)***                                                |   |                                         |        |     |   |
|                                                             |   | **Six-month                  periods ended** |        |
|                                                             |   | **June                  30,**                |        |
| ***(                  in thousands of US dollars )***            |   | **2006**                                     |        | **2005** |   |
| **OPERATING                  ACTIVITIES**                        |   |                                         |        |     |   |
|                                                             |   | $                                            |        | $        |   |
| Net                  income                                      |   |                                         | 16,051      |     |   | 16,899 |   |
| Items                  not affecting cash resources              |   |                                         |        |     |   |   |   |
| Prepaid                  expenses                                |   |                                         | 15          |     |   | 14 |   |
| Due                  from an affiliated company                  |   |                                         | (7,016      | )        |   | (2,277 | ) |
| Due                  to the parent company                       |   |                                         | 4           |     |   | (26 | ) |
| Accounts                  payable                                |   |                                         | (98         | )        |   | 15 |   |
| Accrued                  interest receivable on cash equivalents |   |                                         | 2           |     |   | 16 |   |
|                                                             |   |                                         |        |     |   |   |   |
| Net                  cash provided by operating activities       |   |                                         | **8,958**   |     |   | **14,641** |   |
|                                                             |   |                                         |        |     |   |   |   |
| **FINANCING                  ACTIVITIES**                        |   |                                         |        |     |   |   |   |
|                                                             |   |                                         |        |     |   |   |   |
| Dividends                                                        |   |                                         | (12,539     | )        |   | (12,536 | ) |
| Net                  cash used in financing activities           |   |                                         | **(12,539** | **)**    |   | **(12,536** | **)** |
|                                                             |   |                                         |        |     |   |   |   |
|                                                             |   |                                         |        |     |   |   |   |
| **INVESTING                  ACTIVITIES**                        |   |                                         |        |     |   |   |   |
|                                                             |   |                                         |        |     |   |   |   |
| Investment                  in promissory notes                  |   |                                         | (82,898     | )        |   | (73,038 | ) |
| Repayments                  of promissory notes                  |   |                                         | 95,915      |     |   | 82,638 |   |
| Net                  cash provided by investing activities       |   |                                         | **13,017**  |     |   | **9,600** |   |
|                                                             |   |                                         |        |     |   |   |   |
|                                                             |   |                                         |        |     |   |   |   |
| Cash                  and cash equivalents, beginning of period  |   |                                         | 59,901      |     |   | 58,327 |   |
| **Cash                  and cash equivalents, end of period**    |   |                                         | **69,337**  |     |   | **70,032** |   |

----

----

***NB      CAPITAL CORPORATION***

***NOTES      TO THE FINANCIAL STATEMENTS***

*June      30, 2006*

*(in      thousands of U.S. dollars)*

**1)         Incorporation and nature of operations**

**2)         Significant accounting policies**

***Financial      statements***

***Cash      and cash equivalents***

***Promissory      notes***

***Income      taxes***

*Internal      Revenue Code of 1986*

***Per      share data***

----

***NB      CAPITAL CORPORATION***

***NOTES      TO THE FINANCIAL STATEMENTS***

*June      30, 2006*

*(in      thousands of U.S. dollars)*

**2)         Significant accounting policies (continued)**

***Estimates***

***Interest      on Promissory notes and cash equivalent***

**3)         Promissory notes**

| Promissory notes as of December 31,              2005                              |  $                409,979                  |    |
|---------------------------------------------------------------------------------------------------|-------------------------------------------------|---------|
| Acquisitions                                                                                      |  82,898                                    |    |
| Principal              repayments                                        |                     (95,915 | )  |
| Promissory              notes as of June 30, 2006         |                  $ 396,962                 |    |

|  2006        |  $ 54,757                  |   | 2011        |  $56,041                       |
|------------------------|--------------------------------------|--------|------------------|-------------------------------------|
|  2007        |  $146,792                       |   | 2012   |  $31,848                       |
|  2008        |                  $  22,198 |   | 2013             |  $ 7,445                  |
|  2009             |                  $  30,982 |   | 2014        |                  $  4,029 |
|  2010   |                  $  34,281 |   | 2015             |                  $ 8,589  |

**4)         Transactions with an affiliated company**

----

***NB      CAPITAL CORPORATION***

***NOTES      TO THE FINANCIAL STATEMENTS***

*June      30, 2006*

*(in      thousands of U.S. dollars)*

**5)         Transactions with the parent company**

***Advisory      agreement***

***Servicing      agreement***

***Custodial      agreement***

***Interest      on cash and cash equivalents***

**6)         Stockholders' equity **

*             (in U.S. Dollars)*

***Common      stock***

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

***Preferred      stock***

| ·   | 300,000                shares of preferred stock have been authorized and issued as 8.35%                Non-cumulative Exchangeable Preferred Stock, Series A (“Series A Preferred                Shares”), non-voting, ranked senior to the common stock and junior to the                Adjustable Rate Cumulative Senior Preferred Shares, with a liquidation                value of $1,000 per share, redeemable at the Company's option on                or after                September 3, 2007, except upon the occurrence of certain changes                in tax                laws in the United States or in Canada, on or after September 3,                2002.                These Series A Preferred Shares are traded on the New York Stock                Exchange                in the form of Depository Shares, each Depository Share representing                a                one-fortieth interest therein. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**6)      Stockholders' equity (continued)**

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

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

**Highlights**

| (unaudited)                                                                                                                                                              |   |                    Quarter ended April 30 |      |   |   | Six                  months ended April 30 |   |     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|-----------|--------|--------|--------------------------------------------|--------|----------|
|                                                                                                                                                                     |   | **2006**                                       |      | 2005   |   | **%****Change**                            |   | **2006** |   | 2005 |   | **%****Change** |   |
| **Operating                  results**                                                                                                                                   |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| (millions                  of Canadian dollars)                                                                                                                          |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Total                  revenues                                                                                                                                          |   |                                           | **$949**  |   |   | $900                                       |   |     | 5 |   |   | **$1,928** |   |   | $1,883 |   |   | 2 |   |
| Net                  income                                                                                                                                              |   |                                           | **214**   |   |   | 202                                        |   |     | 6 |   |   | **431** |   |   | 441 |   |   | (2 | ) |
| Return                  on common shareholders' equity                                                                                                                   |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                     |   |                                           | **20.4**  | %      |   | 19.9                                       | %      |     |   |   |   | **20.2** | **%** |   | 21.8 | % |   |   |   |
| **Per                  common share**                                                                                                                                    |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Earnings                  - basic                                                                                                                                        |   |                                           | **$1.29** |   |   | $1.17                                      |   |     | 10 |   |   | **$2.57** |   |   | $2.56 |   |   | - |   |
| Earnings                  - diluted                                                                                                                                      |   |                                           | **$1.26** |   |   | $1.15                                      |   |     | 10 |   |   | **$2.52** |   |   | $2.52 |   |   | - |   |
| Dividends                  paid                                                                                                                                          |   |                                           | **0.48**  |   |   | 0.42                                       |   |     | 14 |   |   | **0.96** |   |   | 0.84 |   |   | 14 |   |
| Book                  value                                                                                                                                              |   |                                           |      |   |   |                                       |   |     |   |   |   | **25.77** |   |   | 24.19 |   |   | 7 |   |
| Stock                  trading range                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
|     High                                                                                                                                             |   |                                           | **65.60** |   |   | 55.24                                      |   |     |   |   |   | **65.60** |   |   | 55.24 |   |   |   |   |
|     Low                                                                                                                                              |   |                                           | **61.35** |   |   | 48.72                                      |   |     |   |   |   | **58.35** |   |   | 46.39 |   |   |   |   |
|     Close                                                                                                                                            |   |                                           | **62.34** |   |   | 52.41                                      |   |     |   |   |   | **62.34** |   |   | 52.41 |   |   |   |   |
|                                                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| **Financial                  position**                                                                                                                                  |   |                                           |      |   |   |                                       |   |     |   |   |   | **April                  30** |   |   | October                  31 |   |   |   |   |
| (millions                  of Canadian dollars)                                                                                                                          |   |                                           |      |   |   |                                       |   |     |   |   |   | **2006** |   |   | 2005 |   |   |   |   |
|                                                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Cash                  resources and securities                                                                                                                           |   |                                           |      |   |   |                                       |   |     |   |   |   | **53,752** |   |   | 50,389 |   |   | 7 |   |
| Loans                  and acceptances                                                                                                                                   |   |                                           |      |   |   |                                       |   |     |   |   |   | **51,099** |   |   | 50,360 |   |   | 1 |   |
| Other                  assets                                                                                                                                            |   |                                           |      |   |   |                                       |   |     |   |   |   | **6,332** |   |   | 6,849 |   |   | (8 | ) |
| Total                  assets                                                                                                                                            |   |                                           |      |   |   |                                       |   |     |   |   |   | **$111,183** |   |   | $107,598 |   |   | 3 |   |
|                                                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                                                                                 |   |                                           |      |   |   |                                       |   |     |   |   |   | **70,118** |   |   | 61,977 |   |   | 13 |   |
| Other                  liabilities                                                                                                                                       |   |                                           |      |   |   |                                       |   |     |   |   |   | **34,377** |   |   | 39,435 |   |   | (13 | ) |
|                                                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Subordinated                  debentures                                                                                                                                 |   |                                           |      |   |   |                                       |   |     |   |   |   | **1,599** |   |   | 1,102 |   |   | 45 |   |
| Non-controlling                  interest                                                                                                                                |   |                                           |      |   |   |                                       |   |     |   |   |   | **517** |   |   | 487 |   |   | 6 |   |
|                                                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                  shares                                                                                                                                        |   |                                           |      |   |   |                                       |   |     |   |   |   | **400** |   |   | 400 |   |   | - |   |
| Common                  shares                                                                                                                                           |   |                                           |      |   |   |                                       |   |     |   |   |   | **1,558** |   |   | 1,565 |   |   | (0 | ) |
| Retained                  earnings                                                                                                                                       |   |                                           |      |   |   |                                       |   |     |   |   |   | **2,614** |   |   | 2,632 |   |   | (1 | ) |
| Total                  liabilities and shareholder's equity                                                                                                              |   |                                           |      |   |   |                                       |   |     |   |   |   | **$111,183** |   |   | $107,598 |   |   | 3 |   |
|                                                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Capital                  ratios - BIS                                                                                                                                    |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
|     Tier                  1                                                                                                                          |   |                                           |      |   |   |                                       |   |     |   |   |   | **9,1** | **%** |   | 9.6 | % |   |  |   |
| Total                                                                                                                                                                    |   |                                           |      |   |   |                                       |   |     |   |   |   | **12,2** | **%** |   | 12.8 | %(1) |   |   |   |
|                                                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Impaired                  loans, net of specific and general allowances                                                                                                  |   |                                           |      |   |   |                                       |   |     |   |   |   | **(197** | **)** |   | (191 | ) |   |   |   |
|     as                  a %                  of loans and acceptances                                                                                |   |                                           |      |   |   |                                       |   |     |   |   |   | **(0.4** | **)%** |   | (0.4 | )% |   |  |   |
|                                                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| Assets                  under administration/management                                                                                                                  |   |                                           |      |   |   |                                       |   |     |   |   |   | **228,946** |   |   | 221,132 |   |   |   |   |
|                                                                                                                                                                     |   |                                           |      |   |   |                                       |   |     |   |   |   |   |   |   |   |   |   |   |   |
| (1)                  Taking                  into account the issuance of $500 million of subordinated debentures                  on                  November 2, 2005. |   |                                           |      |   |   |                                       |   |

----

**Overview**

*(in      thousands of U.S. dollars)*

**Critical      accounting policies **

**Results      of operations**

*(in      thousands of U.S. dollars)*

----

**Capital      Resources and Liquidity**

*(in      thousand of U.S. dollars)*

----

**Disclosure      of Contractual Obligations**

**Off-Balance      Sheet Arrangements**

**Disclosure      About Market Risk**

----

|   | 10.46 | Mortgage                  Loan Assignment Agreement (2006 February Series 1 Loan) dated as                  of                  February 22, 2006 among NB Finance, Ltd., NB Capital Corporation                  and                  National Bank of Canada |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|
|   | 10.47   | Mortgage                  Loan Assignment Agreement (2006 February Series 2 Loan) dated as of                  February 22, 2006 among NB Finance, Ltd., NB Capital Corporation                  and                  National Bank of Canada |
|--------|-------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.48 | Mortgage                  Loan Assignment Agreement (2006 February Series 3 Loan) dated as                  of February 22, 2006 among NB Finance, Ltd., NB Capital Corporation                  and                  National Bank of Canada |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|
|   | 10.49 | Mortgage                Loan Assignment Agreement (2006 February Series 4 Loan) dated as                of                February 22, 2006 among NB Finance, Ltd., NB Capital Corporation                and                National Bank of Canada |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.50 | Mortgage                Loan Assignment Agreement (2006 February Series 5 Loan) dated as                of                February 22, 2006 among NB Finance, Ltd., NB Capital Corporation                and                National Bank of Canada |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.51 | Mortgage                Loan Assignment Agreement (2006 February Series 6 Loan) dated as                of                February 22, 2006 among NB Finance, Ltd., NB Capital Corporation                and                National Bank of Canada |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.52 | Promissory                Note representing $27,922,152.04 dated as of March 14, 2006 executed                by NB                Finance, Ltd. in favor of NB Capital                Corporation |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.53 | Promissory                Note representing $7,923,538.76 dated as of March 14, 2006 executed                by NB                Finance, Ltd. in favor of NB Capital                Corporation |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.54 | Promissory                Note representing $13,785,881.20 dated as of March 14, 2006 executed                by NB                Finance, Ltd. in favor of NB Capital                Corporation |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.55 | Promissory                Note representing $7,080,309.99 dated as of March 14, 2006 executed                by NB                Finance, Ltd. in favor of NB Capital                Corporation |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.56 | Promissory                Note representing $9,621,169.92 dated as of March 14, 2006 executed                by NB                Finance, Ltd. in favor of NB Capital                Corporation |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10.57 | Promissory                Note representing $16,565,147.29 dated as of March 14, 2006 executed                by NB                Finance, Ltd. in favor of NB Capital                Corporation |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 11 | Computation of Earnings Per              Share |
|--------|----|------------------------------------------------|

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

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

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

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

----

**SIGNATURES**

|                                  |                                                          |            |
|---------------------------------------|---------------------------------------------------------------|-----------------|
|                                  | **NB              CAPITAL  CORPORATION**                 |
|                             |                                                     |       |
| Date: July              26, 2006 |                                                     | /s/ Donna Goral |
|                                  | Donna              Goral                                 |
|                                  | Chairman              of the              Board and President |

|                                  |                                              |              |
|---------------------------------------|---------------------------------------------------|-------------------|
|                                  |                                              |
|                             |                                         |         |
| Date: July              26, 2006 |                                              | /s/ Jean Dagenais |
|                                  | Jean              Dagenais                   |
|                                  | Chief              Financial              Officer |

----