Edgar Filing: NB CAPITAL CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(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, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM__________TO________

Commission file number 1-14103

NB CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

(N/A)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large Accelerated Filer oAccelerated Filer o Non-Accelerated Filer x

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x

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

Class Outstanding at July 19, 2006

Common Stock

par value $0.01 per share 100

NB CAPITAL CORPORATION

Index

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

References to $ are to United States dollars; references to C$ are to Canadian dollars. On June 30, 2006, the Canadian dollar exchange rate posted by the Bank of Canada was C$1.1162 = $1.00 and certain amounts stated herein reflect such exchange rate.

*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

See accompanying notes to the financial statements.

-1-

*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

See accompanying notes to the financial statements.

-2-

*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

See accompanying notes to the financial statements.

-3-


*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

See accompanying notes to the financial statements.

-4-

NB CAPITAL CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2006

(unaudited)

(in thousands of U.S. dollars)

1) Incorporation and nature of operations

NB Capital Corporation (the "Company") was incorporated under the laws of the State of Maryland on August 20, 1997. The Company's principal business is to acquire, hold, finance and manage mortgage assets. The Company issued, through a Prospectus dated August 22, 1997, $300,000 of preferred stock and simultaneously, National Bank of Canada (the “Bank”), the Company’s parent company, made a capital contribution in the amount of $183,000. The Company used the aggregate net proceeds of $477,000 to acquire promissory notes (“Promissory notes”) issued by NB Finance, Ltd. (“NB Finance”), a wholly-owned subsidiary of the Bank.

2) Significant accounting policies

Financial statements

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

The interim financial statements for the three-month and 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 for the year ended December 31, 2005 filed on Form 10-K. The interim financial statements may not be an indicator of the results anticipated in the full year.

Cash and cash equivalents

Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and have a maturity of three months or less at the acquisition date.

Promissory notes

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

Income taxes

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

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, 2006 and 2005 are computed based on the number of common shares outstanding during the period.

NB CAPITAL CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2006

(unaudited)

(in thousands of U.S. dollars)

2) Significant accounting policies (continued)

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.

Interest on Promissory notes and cash equivalent

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

3) Promissory notes

The Company entered into loan agreements evidenced by Promissory notes with NB Finance, an affiliated company. The Promissory notes are collateralized by mortgage loans which are secured by residential first mortgages and insured by the Canada Mortgage and Housing Corporation.

The Promissory notes have maturities ranging from July 2006 to January 2015, at rates ranging from 5.00% to 10.21%, with a weighted average rate of approximately 7.36% per annum.

The fair value of the Promissory notes as at June 30, 2006 is $403,223. 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, 2005	$ 409,979
Acquisitions	82,898
Principal repayments	(95,915	)
Promissory notes as of June 30, 2006	$ 396,962

The scheduled principal repayments on a year end basis as of June 30, 2006 are as follows:

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

During the three-month and six-month periods ended June 30, 2006 and June 30, 2005, the Company earned interest from NB Finance on the Promissory notes in the amount of $7,928 ($8,709 in 2005) and $16,072 ($17,371 in 2005). (see Note 3).

The amount of $16,696 due from an affiliate as of June 30, 2006 and $9,680 as of December 31, 2005 represents interest and principal repayments due on the Promissory notes from NB Finance.

NB CAPITAL CORPORATION

NOTES TO THE FINANCIAL STATEMENTS

June 30, 2006

(unaudited)

(in thousands of U.S. dollars)

5) Transactions with the parent company

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

Advisory agreement

In exchange for a fee equal to $100 per year, payable in equal quarterly installments, the Bank will furnish advice and recommendations with respect to all aspects of the business and affairs of the Company. During the three-month and six-month periods ended June 30, 2006 and June 30, 2005, fees of $25 ($25 in 2005) and $50 ($50 in 2005) were charged to the Company.

Servicing agreement

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

The monthly fee equals one-twelfth (1/12) of 0.25% per annum of the aggregate outstanding balance of the collateralized mortgage loans as of the last day of each calendar month. For the three-month periods ended June 30, 2006 and June 30, 2005, the average outstanding balance of the collateralized mortgage loans were $524,851 and $537,316 respectively. During the three-month and six-month periods ended June 30, 2006 and June 30, 2005, fees of $381 ($363 in 2005) and $777 ($751 in 2005) 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, 2006 and June 30, 2005, no fee was charged to the Company for custodial services.

Interest on cash and cash equivalents

The Company received interest on cash and cash equivalents held with National Bank of Canada for the three-month and six-month periods ended June 30, 2006 and June 30, 2005 in the amounts of $491 ($270 in 2005) and $929 ($496 in 2005) respectively.

6) Stockholders' equity

(in U.S. Dollars)

Common stock

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

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

Preferred stock

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

300,000 shares of preferred stock have been authorized and issued as 8.35% 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.

ITEM 1(b). NATIONAL BANK OF CANADA SUMMARIZED FINANCIAL INFORMATION

Note 6 of the Notes to the Financial Statements of NB Capital Corporation states that 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 National Bank of Canada. Below is the summarized financial information for the National Bank of Canada for the second quarter of its 2006 fiscal year which ended April 30, 2006.

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.

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

Overview

(in thousands of U.S. dollars)

This report contains certain forward-looking statements and information relating to NB Capital Corporation (the “Company”) that are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management. When used in this report, the words “anticipate”, “believe”, “estimate”, “expect” and similar expressions, as they relate to the Company or the Company’s management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company’s management with respect to future events and the Company’s future performance and are subject to certain risks, uncertainties and assumptions. Should management’s current view of the future or underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements.

The Company was incorporated under the laws of the State of Maryland on August 20, 1997. The Company's principal business is to acquire, hold, finance and manage mortgage assets. The Company issued, through a Prospectus dated August 22, 1997, $300,000 of preferred stock and simultaneously, National Bank of Canada (the “Bank”), the Company’s parent company, made a capital contribution in the amount of $183,000. The Company used the aggregate net proceeds of $477,000 to acquire promissory notes (“Promissory notes”) issued by NB Finance, Ltd. (“NB Finance”), a wholly-owned subsidiary of the Bank.

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

This discussion summarizes the significant factors affecting the Company’s results of operations, financial condition and liquidation / cash flows for the second quarter ended June 30, 2006, compared to the same periods in 2005. 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, 2005.

Critical accounting policies

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

Results of operations

(in thousands of U.S. dollars)

For the three-month and six-month periods ended June 30, 2006 and June 30, 2005, the Company reported net income of $7,939 ($8,499 in 2005) and $16,051 ($16,899 in 2005) respectively. Revenues, which were comprised mostly of interest income, were $8,419 ($8,979 in 2005) and $17,001 ($17,867 in 2005) respectively, and expenses were $480 ($480 in 2005) and $950 ($968 in 2005) respectively. Since the Company has elected to be taxed as a REIT, no income tax was recorded during the period.

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

Ninety-four percent of revenues for the three-month period ended June 30, 2006 and ninety-seven percent of revenues for the three-month period ended June 30, 2005 were derived from the Mortgage Assets issued by NB Finance. Ninety-five percent of revenues for the six-month period ended June 30, 2006 and ninety-seven percent of revenues for the six-month period ended June 30, 2005 were derived from the Mortgage Assets issued by NB Finance. The Mortgage Assets issued by NB Finance are collateralized by the “Mortgage Loans” that consist of 61 pools of residential first mortgages insured by the Canada Mortgage and Housing Corporation and which are secured by real property located in Canada. The three percent decrease in the three-month period ended June 30,2006 and the two percent decrease in the six-month period ended June 30, 2006 is mainly due to the inclusion of shorter term Mortgage Loans in all new purchases which results in lower interest rates. The balance of the revenues results from interest on cash equivalents. These revenues are higher in 2006 than 2005 due to an increase in the interest rate on term deposits held in NY (ranging from 4.25% to 4.50% in the second quarter of 2006 versus 2.25% to 2.50% in the second quarter of 2005). 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 and six-month periods ended June 30, 2006 and June 30, 2005 totaled $480 (480$ in 2005) and $950 ($968 in 2005), respectively, of which $406 ($388 in 2005) and $827 ($801 in 2005), respectively, represent servicing and advisory fees paid to the Bank, the Company’s direct parent, pursuant to the Servicing Agreement between the Bank and the Company (the “Servicing Agreement”) and the Advisory Agreement between the Bank and the Company (the “Advisory Agreement”), whereby the Bank performs all necessary operations in connection with administering the Mortgage Assets issued by NB Finance and the Mortgage Loans. Expenses other than servicing and advisory fees paid to the Bank were legal and professional fees, including payments to the transfer agent, and totaled $74 ($92 in 2005) and $123 ($167 in 2005) for the three-month and six-month periods ended June 30, 2006 and 2005, respectively. The decrease in these expenses was due to a reduction in legal fees.

During the three-month and six-month periods ended June 30, 2006 and June 30, 2005, the Board of Directors of the Company authorized dividends, in the aggregate, of $6,269 ($6,268 in 2005) and $12,539 ($12,536 in 2005), 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, 2006 and 2005.

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, 2006, $396,962 Mortgage Assets issued by NB Finance were collateralized by C$638,856 ($496,203) of Mortgage Loans. The Company believes that the amounts generated from the payment of interest and principal on such Mortgage Loans will provide more than sufficient funds to make full payments with respect to the Mortgage Assets issued by NB Finance and that such payments will provide the Company with sufficient funds to meet its operating expenses and to pay quarterly dividends on the Senior Preferred Shares (see Note 6 of Financial Statements) and the Series A Preferred Shares (see Note 6 of Financial Statements) and, accordingly, the Depository Shares (see Note 6 of Financial Statements). To the extent that the cash flow from its Mortgage Assets exceeds those amounts, the Company will use the excess to fund the acquisition of additional Mortgage Assets and make distributions on the Common Stock.

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

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

As of June 30, 2006, the Company had cash and cash equivalents of $69,337 representing 14.36% of total assets, compared to $59,901 representing 12.49% of total assets, as of December 31, 2005. 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.

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 primary business is to invest in promissory notes issued by NB Finance and then receive repayments of capital and interest on a monthly basis. For the six-month periods ended June 30, 2006 and June 30, 2005, the Company invested $82,898 ($73,038 in 2005) into promissory notes and received $95,915 ($82,638 in 2005) in repayments of capital.

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

Disclosure of Contractual Obligations

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

Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in the market risks faced by the Company since December 31, 2005. For information regarding the Company’s risks refer to the information under the caption ‘Disclosure About Market Risk’ below and to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

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.

There has been no change in the Company’s internal control over financial reporting that has occurred during the Company’s fiscal quarter ended June 30, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 6. EXHIBITS

Exhibit No. Description

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

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

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: 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