<PAGE>




                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended September 30, 1999

                        Commission File Number 000-25193

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

             Massachusetts                               04-3439366
       (State or other jurisdiction of      (I.R.S. Employer Identification No.)
       incorporation or organization)

         101 Summer Street                                          02110
       Boston, Massachusetts                                       (Zip Code)
    (Address of principal executive offices)


       Registrant's telephone number, including area code: (617) 880-1000

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 [ ]

The number of shares outstanding of the registrant's sole class of common stock
was 100 shares, $.01 par value per share, as of November 11, 1999. No common
stock was held by non-affiliates of the registrant.




<PAGE>




                     ATLANTIC PREFERRED CAPITAL CORPORATION
                                TABLE OF CONTENTS


                         PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>

                                                                            Page
<S>                                                                          <C>
Item 1.  Financial Statements:

a)       Balance Sheets                                                       1

b)       Statements of Income                                                 2

c)       Statements of Changes in Stockholders' Equity                        3

d)       Statements of Cash Flows                                             4

e)       Notes to Financial Statements                                        5

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                   6

Item 3.  Quantitative and Qualitative Disclosures about Market Risk           13



                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                    14

Item 2.  Changes in Securities and Uses of Proceeds                           14

Item 3.  Defaults Upon Senior Securities                                      14

Item 4.  Submission of Matters to a Vote of Security Holders                  14

Item 5.  Other Information                                                    14

Item 6.  Exhibits and Reports on Form 8-K                                     14

</TABLE>


<PAGE>


                                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                     ATLANTIC PREFERRED CAPITAL CORPORATION
                                 BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                        SEPTEMBER 30,            DECEMBER 31,
                                                                           1999                     1998
                                                                      ---------------          --------------
                                                                        (IN THOUSANDS, EXCEPT SHARE DATA)
                               ASSETS
<S>                                                                     <C>                        <C>
Cash account with Capital Crossing Bank                               $           44               $     146
Money market account with Capital Crossing Bank                               28,802                  10,434
                                                                      ---------------          --------------

          Total cash and cash equivalents                                     28,846                  10,580
                                                                      ---------------          --------------

Loans                                                                        168,081                 163,771
     Less discount                                                          (14,367)                (17,274)
     Less allowance for loan losses                                          (2,855)                 (1,337)
                                                                      ---------------          --------------

          Loans, net                                                         150,859                 145,160
                                                                      ---------------          --------------

Accrued interest receivable                                                      932                     832
Due from Capital Crossing Bank                                                   209                       -
Other assets                                                                      31                     170
                                                                      ---------------          --------------
                                                                        $    180,877               $ 156,742
                                                                      ---------------          --------------
                                                                      ---------------          --------------

                LIABILITIES AND STOCKHOLDERS' EQUITY

Due to Capital Crossing Bank                                            $          -               $     125
Accrued expenses and other liabilities                                           204                     299
                                                                      ---------------          --------------
          Total liabilities                                                      204                     424
                                                                      ---------------          --------------

Stockholders' equity:
Preferred stock, Series A, 9 3/4% non-cumulative, exchangeable; $.01
   par value; $10 liquidation value per share; 1,449,000 shares authorized,
   1,416,130 shares issued and outstanding at September 30, 1999;
   none issued, authorized and outstanding at December 31, 1998                   14                       -
 Preferred stock, Series B, 8% cumulative, non-convertible; $.01
   par value; $1,000 liquidation value per share plus accrued
   dividends; 1,000 shares authorized, issued and outstanding                      -                       -
 Common stock, $.01 par value, 100 shares authorized, issued and
   outstanding                                                                     -                       -
 Additional paid-in capital                                                  167,839                 155,263
 Retained earnings                                                            12,820                   1,055
                                                                      ---------------          --------------
      Total stockholders' equity                                             180,673                 156,318
                                                                      ---------------          --------------
                                                                        $    180,877               $ 156,742
                                                                      ---------------          --------------
                                                                      ---------------          --------------
</TABLE>

                 See accompanying notes to financial statements.

                                       1

<PAGE>



                     ATLANTIC PREFERRED CAPITAL CORPORATION
                              STATEMENTS OF INCOME


<TABLE>
<CAPTION>

                                                                                                                       PERIOD FROM
                                                                                                                        INCEPTION
                                                                      THREE MONTHS ENDED           NINE MONTHS      (MARCH 20, 1998)
                                                               -------------------------------        ENDED              THROUGH
                                                                SEPTEMBER 30,    SEPTEMBER 30,    SEPTEMBER 30,       SEPTEMBER 30,
                                                                    1999             1998             1999               1998
                                                               ---------------  --------------  -----------------  -----------------
                                                                                        (IN THOUSANDS)
<S>                                                                 <C>         <C>                  <C>                  <C>
   Interest income:
        Interest and fees on loans                                  $    4,800  $        4,061       $    13,545          $    8,270
        Interest on money market account with Capital
           Crossing Bank                                                   178              23               566                  23
                                                               ---------------  -------------- ------------------  -----------------
                  Total interest income                                  4,978           4,084            14,111               8,293
                                                               ---------------  -------------- ------------------  -----------------
   Gains  on sales of other real estate owned                               31               -               396                   -
                                                               ---------------  -------------- ------------------  -----------------
   General and administrative expenses:
        Loan servicing and advisory services                               108              92               310                 190
        Other general and administrative                                    46               -                96                   -
                                                               ---------------  -------------- ------------------  -----------------
                  Total general and administrative expenses                154              92               406                 190
                                                               ---------------  -------------- ------------------  -----------------
                  Net income                                             4,855           3,992            14,101               8,103
   Preferred stock dividends                                               364              20               973                  40
                                                               ---------------  -------------- ------------------  -----------------
   Net income available to common stockholder                  $         4,491  $        3,972       $    13,128          $    8,063
                                                               ---------------  -------------- ------------------  -----------------
                                                               ---------------  -------------- ------------------  -----------------
</TABLE>

                 See accompanying notes to financial statements.




                                       2
<PAGE>


                     ATLANTIC PREFERRED CAPITAL CORPORATION
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


                      NINE MONTHS ENDED SEPTEMBER 30, 1999

<TABLE>
<CAPTION>

                                                           Preferred Stock   Preferred Stock
                                         Common Stock         Series A           Series B          Additional
                                        ----------------  --------------------- -----------------    Paid-in     Retained    Total
                                        Shares   Amount    Shares     Amount    Shares   Amount     Capital     Earnings    Amount
                                        -------- -------  --------   --------  -------- -------   ---------  ---------    ----------
                                                                        (dollars in thousands)
<S>                                         <C>    <C>    <C>          <C>      <C>      <C>     <C>          <C>         <C>
Balance at December 31, 1998                100    $  -           -   $    -    1,000    $   -    $ 155,263   $  1,055    $ 156,318
Issuance of preferred stock, Series A         -       -   1,416,130       14        -        -       12,576          -       12,590
Net income                                    -       -           -        -        -        -            -     14,101       14,101
Dividend on preferred stock, Series A         -       -           -        -        -        -            -       (913)        (913)
Cumulative dividend on preferred stock,
Series B                                      -       -           -        -        -        -            -        (60)         (60)
Common stock dividend                         -       -           -        -        -        -            -     (1,363)      (1,363)
                                        -------- -------  ---------  --------  -------- -------  ----------  ---------    ----------
Balance at September  30, 1999              100    $  -   1,416,130    $  14    1,000    $   -   $  167,839   $ 12,820    $ 180,673
                                        -------- -------  ---------  --------  -------- -------  ----------  ---------    ----------
                                        -------- -------  ---------  --------  -------- -------  ----------  ---------    ----------

</TABLE>


        PERIOD FROM INCEPTION (MARCH 20, 1998) THROUGH SEPTEMBER 30, 1998



<TABLE>
<CAPTION>

                                                            Preferred Stock   Preferred Stock
                                          Common Stock         Series A           Series B      Additional
                                         ----------------  ------------------ -----------------   Paid-in     Retained   Total
                                         Shares   Amount   Shares    Amount   Shares   Amount     Capital     Earnings   Amount
                                         -------- -------  -------- --------- -------- -------- ------------  -------- -----------

                                                                          (dollars in thousands)
<S>                                          <C>   <C>          <C>   <C>       <C>      <C>    <C>            <C>      <C>
Issuance of common stock                     100   $   -         -    $    -        -    $   -  $   139,740    $    -   $ 139,740
Issuance of preferred stock, Series B          -       -         -         -    1,000        -        1,000         -       1,000
Net income                                     -       -         -         -        -        -            -     8,103       8,103
Cumulative dividend on preferred stock,
Series B                                       -       -         -         -        -        -            -      (40)        (40)
                                         -------- -------  -------- --------- -------- -------- ------------  -------- -----------
Balance at September  30, 1998               100   $   -         -    $    -    1,000    $   -  $   140,740   $ 8,063   $ 148,803
                                         -------- -------  -------- --------- -------- -------- ------------  -------- -----------
                                         -------- -------  -------- --------- -------- -------- ------------  -------- -----------

</TABLE>


                 See accompanying notes to financial statements.



                                       3
<PAGE>


                     ATLANTIC PREFERRED CAPITAL CORPORATION
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                                              PERIOD FROM
                                                                                                               INCEPTION
                                                                                              NINE            (MARCH 20,
                                                                                          MONTHS ENDED      1998) THROUGH
                                                                                          SEPTEMBER 30,      SEPTEMBER 30,
                                                                                             1999                1998
                                                                                         ----------------  ------------------
                                                                                                   (in thousands)
<S>                                                                                          <C>                  <C>
Cash flows from operating activities:
     Net income                                                                              $    14,101          $    8,103
     Adjustments to reconcile net income to net cash provided by operating activities:
       Discount accretion                                                                        (2,341)             (1,188)
       Net gains on sales and disposition of other real estate owned                               (396)                   -
       Other, net                                                                                  (525)                 303
                                                                                         ----------------  ------------------
          Net cash provided by operating activities                                               10,839               7,218
                                                                                         ----------------  ------------------
Cash flows from investing activities:
     Loan repayments                                                                              32,341              19,654
     Purchases of loans from Capital Crossing Bank                                              (36,774)            (21,609)
     Sales of other real estate owned                                                              1,471                   -
                                                                                         ----------------  ------------------

          Net cash used in investing activities                                                  (2,962)             (1,955)
                                                                                         ----------------  ------------------

Cash flows from financing activities:
     Proceeds from issuance of preferred stock, Series A                                          12,590                   -
     Payment of preferred stock dividends                                                          (838)                   -
     Payment of common stock dividend                                                            (1,363)                   -
                                                                                         ----------------  ------------------
          Net cash from financing activities                                                      10,389                   -
                                                                                         ----------------  ------------------
Net change in cash and cash equivalents                                                           18,266               5,263
Cash and cash equivalents at beginning of period                                                  10,580                   -
                                                                                         ----------------  ------------------
Cash and cash equivalents at end of period                                                   $    28,846          $    5,263
                                                                                         ----------------  ------------------
                                                                                         ----------------  ------------------

Supplemental information:
     Value of loans transferred by Atlantic Preferred Capital's common stockholder
          in exchange for the issuance of common stock and preferred stock, Series B              $    -           $ 140,740
     Dividends declared, not paid on preferred stock, Series A                                       115                   -
     Cumulative dividends accrued, not paid on preferred stock, Series B                              20                  40
     Transfers from loans to other real estate owned                                               1,075                   -
     Income taxes paid                                                                                31                   -

</TABLE>

                 See accompanying notes to financial statements.



                                       4
<PAGE>


                     ATLANTIC PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999

Note 1.           BASIS OF PRESENTATION

Atlantic Preferred Capital Corporation ("Atlantic Preferred Capital") is a
Massachusetts corporation incorporated on March 20, 1998. Capital Crossing Bank
("Capital Crossing"), formerly Atlantic Bank and Trust Company, created Atlantic
Preferred Capital to acquire and hold real estate mortgage assets in a
cost-effective manner and to provide Capital Crossing with an additional means
of raising capital for federal and state regulatory purposes. Capital Crossing
owns, indirectly, all of the outstanding common stock of Atlantic Preferred
Capital. Atlantic Preferred Capital intends to operate in a manner which will
allow it to be taxed as a real estate investment trust, or a "REIT", under the
Internal Revenue Code of 1986, as amended. As a REIT, Atlantic Preferred Capital
generally will not be required to pay federal income tax if it distributes its
earnings to its stockholders and continues to meet a number of other
requirements.

The financial information as of September 30, 1999 and the results of
operations, changes in stockholders' equity and cash flows for the periods ended
September 30, 1999 and the three month period ended September 30, 1998 are
unaudited; however, in the opinion of management, the financial information
reflects all adjustments (consisting solely of normal recurring accruals)
necessary for a fair presentation in accordance with generally accepted
accounting principles. Interim results are not necessarily indicative of results
to be expected for the entire year.

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Material estimates
that are particularly susceptible to significant change in the near term relate
to the determination of the allowance for losses on loans, the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans, the
allocation of purchase discount between amortizing and non-amortizing portions,
and the amortization of discount on loans.

Note 2.           PREFERRED STOCK

On February 1, 1999, Atlantic Preferred Capital closed its initial pubic
offering ("IPO") of 1,260,000 Series A preferred shares. On February 12, 1999,
Atlantic Preferred Capital sold an additional 156,130 Series A preferred shares
in connection with the underwriters' exercise of their overallotment option. The
IPO was made pursuant to a Registration Statement on Form S-11, originally filed
with the Securities and Exchange Commission on November 2, 1998, as amended
(Commission File No. 333-66677), which was declared effective on January 27,
1999. The IPO commenced on January 28, 1999 and terminated shortly thereafter
upon the sale into the public market of all of the registered Series A preferred
shares.

The Series A preferred shares form a series of the preferred stock of Atlantic
Preferred Capital. The Series A preferred shares are validly issued, fully paid
and nonassessable. The holders of the Series A preferred shares have no
preemptive rights with respect to any shares of the capital stock of Atlantic
Preferred Capital. The Series A preferred shares are not subject to any sinking
fund or other obligation of Atlantic Preferred Capital for their repurchase or
retirement. The Series A preferred shares are not convertible into any other
securities of Atlantic Preferred Capital. The Series A preferred shares will be
exchanged on a ten-for-one basis for preferred shares of Capital Crossing if
such exchange is directed by the Federal Deposit Insurance Corporation (the
"FDIC") under certain circumstances. The Series A preferred shares rank senior
to Atlantic Preferred Capital's common stock and Series B preferred stock, as to
dividends and in liquidation.

Holders of Series A preferred shares are entitled to receive, if, when and as
declared by the Board of Directors of Atlantic Preferred Capital out of assets
of Atlantic Preferred Capital legally available therefor, monthly cash dividends
at the rate of 9 3/4% per annum of the liquidation preference (equivalent to
$0.975 per share per annum). If declared, dividends on the Series A preferred
shares for each monthly period are payable on the fifteenth day of the following
month, at such annual rate, to holders of record on the last business day of the
monthly dividend period. Monthly dividend periods commence on the first day of
each month. The amount of dividends, if declared, payable for the initial period
or any period shorter than a full dividend period is computed on the basis of
30-day months, a 360-day year and the actual number of days elapsed in the
period. Dividends in each period accrue from the first day of such period,
whether or not declared or paid for the prior monthly period. During the nine
months ended September 30, 1999, Atlantic Preferred Capital's Board of Directors
declared dividends in the aggregate of $913,000 on Series A preferred shares.


                                       5
<PAGE>


Atlantic Preferred Capital has currently outstanding 1,000 Series B preferred
shares, of which 900 are held, directly or indirectly, by Capital Crossing. The
other 100 Series B preferred shares are held by certain of Capital Crossing's
employees and directors (and/or the spouses of certain employees). All of the
outstanding Series B preferred shares were originally issued to Capital Crossing
in reliance upon the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended. There is no established public trading
market for the Series B preferred shares.

The holders of Series B preferred shares are entitled to receive annual
dividends equal to eight percent (8%) of the liquidation preference of the
Series B preferred shares. Dividends on Series B preferred shares are
cumulative, and all accumulated and unpaid dividends are paid before any
dividends are paid on the common stock. During the nine months ended September
30, 1999, dividends of approximately $60,000 had accrued on Series B preferred
stock. During the nine months ended September 30, 1999, Atlantic Preferred
Capital's Board of Directors declared dividends in the aggregate of $40,000 on
Series B preferred shares.


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

Statements made or incorporated in this Quarterly Report on Form 10-Q include a
number of forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words "anticipates," "believes," "expects," "intends," "future" and words of
similar import which express management's belief, expectations or intentions
regarding the future performance of Atlantic Preferred Capital. Atlantic
Preferred Capital's actual results could differ materially from those set forth
in the forward-looking statements. Certain factors that might cause such
differences are discussed in this Form 10-Q, Atlantic Preferred Capital's Annual
Report on Form 10-K, and Atlantic Preferred Capital's Final Prospectus as filed
with the Securities and Exchange Commission on January 28, 1999, and include,
without limitation: (i) the possible exchange of the Series A preferred shares
for preferred shares of Capital Crossing at the direction of the FDIC if Capital
Crossing becomes or may in the near term become undercapitalized or is placed in
conservatorship or receivership; (ii) risks associated with mortgage loans
generally, and particularly the geographic concentration of Atlantic Preferred
Capital's loan portfolio at September 30, 1999 in the Northeast and California;
and (iii) the failure by Atlantic Preferred Capital to maintain its status as a
REIT for federal income tax purposes.


RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Net income available to common stockholders increased $519,000, or 13.1%, to
$4.5 million for the three months ended September 30, 1999 compared to $4.0
million for the three months ended September 30, 1998. Total interest income
increased $894,000, or 21.9%, to $5.0 million for the three months ended
September 30, 1999, compared to $4.1 million for the three months ended
September 30, 1998. Interest and fees income on loans for the three months ended
September 30, 1999 increased $739,000, or 18.2%, to $4.8 million compared to
$4.1 million for the three months ended September 30, 1998. This was due
primarily to an increase of $29.9 million in the average balance from $127.3
million for the three months ended September 30, 1998 to $157.2 million for the
three months ended September 30, 1999.

The average balance and yield on Atlantic Preferred Capital's loan portfolio is
summarized as follows:


<TABLE>
<CAPTION>

                                                         THREE MONTHS ENDED
                                                            SEPTEMBER 30,
              ----------------------------------------------------------------------------------------------------------
                                      1999                                                   1998
              -----------------------------------------------------  ---------------------------------------------------

                   AVERAGE           INTEREST                             AVERAGE          INTEREST
                   BALANCE            INCOME            YIELD             BALANCE           INCOME           YIELD
              -----------------  ----------------  ----------------  ------------------  --------------  ---------------
                                                       (dollars in thousands)
<S>               <C>                 <C>                   <C>           <C>                <C>                 <C>
Loans, net        $    157,218        $    4,800            12.11%        $    127,320       $   4,061           12.65%

</TABLE>


Gain on sale of other real estate owned of $31,000 for the three months ended
September 30, 1999 consisted of additional funds


                                       6
<PAGE>

received in connection with two properties sold during the first quarter of
1999.

General and administrative expenses for the three months ended September 30,
1999 increased $62,000, or 67.4%, to $154,000 compared to $92,000 for the three
months ended September 30, 1998. This increase is primarily attributable to
accounting, reporting, legal, and printing expenses.

NINE MONTHS ENDED SEPTEMBER 30, 1999 AND PERIOD FROM INCEPTION (MARCH 20, 1998)
THROUGH SEPTEMBER 30, 1998

Net income available to common stockholders increased $5.1 million, or 62.8%, to
$13.1 million for the nine months ended September 30, 1999 compared to the
period from inception through September 30, 1998. Atlantic Preferred Capital
reported total interest income of $14.1 million for the nine months ended
September 30, 1999. Interest and fees on loans were $13.5 million representing a
total average yield of 12.17% for the same period. The average balance of loans
increased from $133.0 for the 1998 period to $148.8 for the 1999 period.

The average balance and yield on Atlantic Preferred Capital's loan portfolio is
summarized as follows:

<TABLE>
<CAPTION>


                                NINE MONTHS ENDED                        PERIOD FROM INCEPTION (MARCH 20, 1998)
                               SEPTEMBER 30, 1999                              THROUGH SEPTEMBER 30, 1998
              -----------------------------------------------------  ---------------------------------------------------

                   AVERAGE        INTEREST                              AVERAGE           INTEREST
                   BALANCE        INCOME              YIELD             BALANCE           INCOME           YIELD
              -----------------  ----------------  ----------------  ------------------  --------------  ---------------
                                                       (dollars in thousands)
<S>               <C>                 <C>                   <C>           <C>                <C>                 <C>
Loans, net        $    148,769        $   13,545            12.17%        $    132,980       $   8,270           12.40%

</TABLE>


For the nine months ended September 30, 1999, Atlantic Preferred Capital
realized gains on sales of other real estate owned of $396,000 due to the sale
of two properties in the first quarter of 1999.

General and administrative expenses for the nine months ended September 30, 1999
consisted of $310,000 in loan servicing and advisory expenses and $96,000 in
other general and administrative expenses. General and administrative expenses
for the period ended September 30, 1998 consisted solely of loan servicing and
advisory expenses totaling $190,000.

Atlantic Preferred Capital intends to pay dividends on its preferred and common
stock in amounts necessary to continue to preserve its status as a REIT under
the Internal Revenue Code.



                                       7
<PAGE>

FINANCIAL CONDITION

LOAN PORTFOLIO

For the nine months ended September 30, 1999, Atlantic Preferred Capital
purchased loans from Capital Crossing, having gross outstanding principal
balances at the time of acquisition of $37.4 million.

The following table sets forth information regarding the composition of the loan
portfolio:

<TABLE>
<CAPTION>

                                                     SEPTEMBER 30,       DECEMBER 31,
                                                         1999               1998
                                                   -----------------  ----------------
Mortgage loans on real estate:                               (in thousands)

      <S>                                               <C>                <C>
      Commercial                                        $   108,357        $   99,695
      One to four family                                      9,636            12,339
      Multifamily                                            47,961            49,854
      Land                                                    1,521             1,458
                                                   -----------------  ----------------
                                                            167,475           163,346

Secured commercial                                              236               251
Other                                                           408               250
                                                   -----------------  ----------------
      Total loan portfolio                                  168,119           163,847
Less discount:
      Non-amortizing discount (1)                           (7,909)          (10,737)
      Amortizing discount                                   (6,458)           (6,537)
      Net deferred loan income                                 (38)              (76)
      Allowance for loan losses                             (2,855)           (1,337)
                                                   -----------------  ----------------
      Loans, net                                        $   150,859       $   145,160
                                                   -----------------  ----------------
                                                   -----------------  ----------------
</TABLE>

(1) Non-amortizing discount is an allocation of the total discount on purchased
    loans accounted for on the cost recovery method until it is determined that
    the amount and timing of collections are reasonably estimable and collection
    is probable.

Atlantic Preferred Capital intends that each loan acquired from Capital Crossing
in the future will be a whole loan, and will be originated or acquired by
Capital Crossing in the ordinary course of its business. Atlantic Preferred
Capital also intends that all loans held by it will be serviced by Capital
Crossing pursuant to the master service agreement between Atlantic Preferred
Capital and Capital Crossing.

Non-accrual loans, net of discount, totaled $1.7 million and $3.9 million at
September 30, 1999 and December 31, 1998, respectively. Loans are generally
placed on non-accrual status and interest is not accrued when the collectibility
of principal and interest is not probable or estimable. Unpaid interest income
previously accrued on such loans is generally reversed against current period
interest income and the loan is accounted for using the cost recovery method,
whereby any amounts received are applied against the recorded amount of the
loan. A loan is returned to accrual status when it becomes evident that all
principal and interest is collectible.

ALLOWANCE FOR LOAN LOSSES AND DISCOUNT

In the normal course of business, the allowance for loan losses will be adjusted
through a provision for loan losses charged to earnings and will be maintained
at a level considered adequate to provide for estimated loan losses.

The provision and the level of the allowance are evaluated on a regular basis by
management and are based upon management's periodic review of the collectibility
of the loans in light of known and inherent risks in the nature and volume of
the loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant change. Ultimately, losses may vary from
current estimates and future additions to the allowance may be necessary.


                                       8
<PAGE>

Loan losses are charged against the allowance when management believes the
collectibility of the loan balance is unlikely. Subsequent recoveries, if any,
are credited to the allowance.

Quarterly reviews of the loan portfolio are performed to identify loans for
which specific allowance allocations are considered prudent. Specific
allocations include the results of measuring impaired loans under SFAS No. 114.
General risk allocations are determined by formula whereby the loan portfolio is
stratified by loan type and by risk rating category. Loss factors are then
applied to each strata based on various considerations including historical loss
experience, delinquency trends, current economic conditions, industry standards
and regulatory guidelines. Any remaining unallocated portion is reviewed for
adequacy in relation to the overall loan portfolio and in recognition of
estimates inherent in the calculation methodology.

Effective January 1, 1999, Atlantic Preferred Capital changed, on a prospective
basis, its method of accounting for purchased loan discounts and the related
recognition of discount loan income and provisions for loan losses. Such
accounting change accounts for discount loan income and loan loss provisions on
an individual loan basis, rather than as previously recognized in the aggregate
on a static purchased pool basis and was accounted for as a "change in estimate"
in accordance with Accounting Principles Board Opinion No. 20. There was no
impact on stockholders' equity on the effective date of the accounting change.
However, the timing of subsequent earnings will be affected by changes in the
amount of estimated collections on individual loans rather than by changes in
the aggregate amount of estimated collections on purchased loan pools. Over the
lives of the respective loans, management does not anticipate that there will be
any material impact in the reported amounts of related discount loan income,
loan loss provisions and loan charge-offs and recoveries as a result of this
change.

In addition, during the first quarter of 1999, Atlantic Preferred Capital
transferred $860,000 from non-amortizing discount to the allowance for loan
losses. Effective January 1, 1999, on a prospective basis, individual loan
balances are reported net of non-amortizing and amortizing discounts, if any.
Under pool accounting such discounts were available for allocation to all loans
purchased as part of a pool; under loan-by-loan accounting all available
discount is allocated to individual loans. Accordingly, in connection with the
accounting change, the transfer of $860,000 of non-amortizing discount to the
allowance for loan losses represented general reserve allocations on outstanding
purchased loan balances. As a result, this transfer contributed to the ratio of
the allowance for loan losses to net loans increasing from 0.91% at December 31,
1998 to 1.86% at September 30, 1999, with a related decrease in the ratio of
non-amortizing discount to net loans. Accordingly, the transfer has no effect on
the amount of total loans, net.



An analysis of the allowance for loan losses follows:

<TABLE>
<CAPTION>

                                                                                                                  Period from
                                             Three Months Ended      Three Months Ended     Nine Months Ended  Inception through
                                             September 30, 1999      September 30, 1998       September 30,      September 30,
                                                                                                  1999               1998
                                            ---------------------- -----------------------  ------------------ ------------------
                                                                          (in thousands)
   <S>                                                 <C>                    <C>                 <C>                 <C>
   Balance at beginning of period                      $    2,855             $     1,337         $     1,337         $        -
   Additions in connection with loans                           -                       -                 658              1,337
   purchased
   Transfer from non-amortizing discount                        -                       -                 860                  -
                                            ---------------------- -----------------------  ------------------ ------------------
   Balance at end of period                            $    2,855             $     1,337         $     2,855        $     1,337
                                            ---------------------- -----------------------  ------------------ ------------------
                                            ---------------------- -----------------------  ------------------ ------------------
</TABLE>



INTEREST RATE RISK

Atlantic Preferred Capital's income consists primarily of interest income on
mortgage assets. Atlantic Preferred Capital does not intend to use any
derivative products to manage its interest rate risk. If there is a decline in
market interest rates, Atlantic Preferred Capital may experience a reduction in
interest income on its mortgage loans and a corresponding decrease in funds
available to be distributed to its stockholders. The reduction in interest
income may result from downward adjustments of the indices upon which the
interest rates on loans are based and from prepayments of mortgage loans with
fixed interest rates, resulting in reinvestment of the proceeds in lower
yielding mortgage loans.


                                       9
<PAGE>


SIGNIFICANT CONCENTRATION OF CREDIT RISK

Concentration of credit risk generally arises with respect to Atlantic Preferred
Capital's loan portfolio when a number of borrowers engage in similar business
activities, or activities in the same geographical region. Concentration of
credit risk indicates the relative sensitivity of Atlantic Preferred Capital's
performance to both positive and negative developments affecting a particular
industry. Atlantic Preferred Capital's balance sheet exposure to geographic
concentrations directly affects the credit risk of the loans within its loan
portfolio. At September 30, 1999 and December 31, 1998, 76.1% and 81.2%,
respectively, of Atlantic Preferred Capital's total loan portfolio consisted of
loans located in New England and California. Consequently, these loans may be
subject to a greater risk of default than other comparable loans in the event of
adverse economic, political or business developments and natural hazards in New
England or California that may affect the ability of property owners to make
payments of principal and interest on the underlying mortgages.

LIQUIDITY RISK MANAGEMENT

The objective of liquidity risk management is to ensure the availability of
sufficient cash flows to meet all of Atlantic Preferred Capital's financial
commitments and to capitalize on opportunities for Atlantic Preferred Capital's
business expansion. In managing liquidity risk, Atlantic Preferred Capital takes
into account various legal limitations placed on a REIT.

       Atlantic Preferred Capital's principal liquidity needs are:

       (1) to maintain the current portfolio size through the acquisition of
           additional mortgage assets as mortgage assets currently in the loan
           portfolio mature, pay down or prepay, and

       (2) to pay dividends on the Series A and B preferred shares.

The acquisition of additional mortgage assets is intended to be funded primarily
through repayment of principal balances of mortgage assets by individual
borrowers. Atlantic Preferred Capital does not have and does not anticipate
having any material capital expenditures. To the extent that the Board of
Directors determines that additional funding is required, Atlantic Preferred
Capital may raise such funds through additional equity offerings, debt financing
or retention of cash flow (after consideration of provisions of the Internal
Revenue Code requiring the distribution by a REIT of at least 95% of its REIT
taxable income and taking into account taxes that would be imposed on
undistributed income), or a combination of these methods. Atlantic Preferred
Capital has no debt outstanding. The organizational documents of Atlantic
Preferred Capital limit the amount of indebtedness which it is permitted to
incur to no more than 100% of the total stockholders' equity of Atlantic
Preferred Capital. Any such debt may include intercompany advances made by
Capital Crossing to Atlantic Preferred Capital.

Atlantic Preferred Capital may also issue additional series of preferred stock.
However, Atlantic Preferred Capital may not issue additional shares of preferred
stock senior to the Series A preferred shares without the consent of holders of
at least two-thirds of the Series A preferred shares outstanding at that time.
Additional shares of preferred stock ranking on a parity with the Series A
preferred shares may not be issued without the approval of a majority of
Atlantic Preferred Capital's independent directors.

YEAR 2000 DISCLOSURE

The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
change occurs, date sensitive systems recognize the year 2000 as 1900 or not at
all. This inability to recognize or properly treat the Year 2000 may cause
systems to incorrectly process critical financial and operational information.

Atlantic Preferred Capital is dependent in virtually every phase of its
operations on Capital Crossing, including the computer and other systems of
Capital Crossing. Accordingly, Atlantic Preferred Capital is addressing the Year
2000 issue with respect to its operations through its relationship with Capital
Crossing under the advisory agreement and the master service agreement. During
1997, the management of Capital Crossing developed an action plan to address the
Year 2000 issue. Capital Crossing uses computer systems (including hardware and
software) primarily to track deposits and loans, transfer funds, prepare
financial reports, and perform financial calculations. Capital Crossing's loan
processing is outsourced to BISYS, Inc. ("BISYS") under a service agreement.
Capital Crossing's deposit processing is outsourced to M&I Data Services, Inc.
("M&I") under a service agreement.

Capital Crossing's plan includes five phases as suggested by the FDIC and other
bank regulatory authorities: awareness, assessment, renovation, validation, and
testing. In 1997, Capital Crossing substantially completed the awareness and
assessment phases of the plan with regard to its computer systems, and
identified those areas that are considered mission critical. Capital Crossing
began working with BISYS, reviewing its plans and determining how to validate
the readiness of its system. Also in connection with the awareness and
assessment phases of the plan, Capital Crossing raised the Year 2000 issue with
its vendors, service providers, and customers. All


                                       10
<PAGE>

vendors listed in Capital Crossing's accounts payable system were sent a
questionnaire on the Year 2000 issue. Some vendors provided written responses to
the questionnaires and others were sent follow-up letters and were telephoned
regarding any follow-up questions or issues. Most of Capital Crossing's vendors
have responded to its questionnaires and follow-up letters. Based on these
responses, most of Capital Crossing's vendors have indicated that they have a
plan to remediate their systems as needed or are already Year 2000 compliant.

In June 1999, Capital Crossing signed agreements with Security First
Technologies and M&I Data Services for essential web hosting and other Internet
related services and for deposit and other processing services. As part of these
arrangements Capital Crossing has received information and assurances as to the
Year 2000 readiness of those service providers.

Capital Crossing is in the process of evaluating the risk of customer failure to
prepare for the Year 2000 issue, any associated effect of the ability of
customers to repay outstanding loans and leases, and impact on the adequacy of
the level of the allowance for loan and lease losses. Capital Crossing currently
considers Year 2000 risks in evaluating the adequacy of the allowance for loan
and lease losses. In accordance with applicable FDIC regulations, Capital
Crossing has also distributed written materials to all of its depositors
(including deposit brokers) with over $250,000 on deposit regarding the Year
2000 issue, including a description of Capital Crossing's plan and the status of
the plan. Capital Crossing also distributed questionnaires to its borrowers with
loans totaling $500,000 or more. Some of these depositors and borrowers provided
written responses to the questionnaires and others were sent follow-up letters
and/or were telephoned regarding any follow-up questions or issues. All of these
depositors and approximately 80% of these borrowers have responded to the
questionnaires and follow-up letters and have indicated that they have a plan to
remediate their systems as needed or are already Year 2000 compliant. Capital
Crossing is continuing to follow-up with those borrowers who have not yet
responded.

Capital Crossing's plan calls for validation and testing with respect to all
mission critical systems. Mission critical systems include loan processing,
deposit processing, general ledger and funds transfer systems. Other systems
that are non-mission critical include the local area network, the network
operating system and desktop applications. In the first half of 1998, Capital
Crossing upgraded its local area network, including the network operating system
and desktop application software. In addition, most of Capital Crossing's
desktop systems were similarly upgraded. The manufacturer of the network
operating system and desktop application software has certified that all of
these products are Year 2000 compliant. Capital Crossing has also conducted
internal testing on these products and has similarly concluded that they are
Year 2000 compliant. Capital Crossing has also installed a test lab simulating a
Year 2000 environment with possible date sensitive components, including
computers, operating systems, and base applications. The manufacturers of its
network operating system and desktop application software have certified that
all of these products are Year 2000 compliant.

Testing of the mission critical systems was completed according to the schedule
prepared by BISYS and, with respect to the funds transfer system, the Federal
Reserve Bank of Boston. The test period ran from November 1998 through April
1999. During this period, the entire test process was performed twice. Capital
Crossing had an opportunity to re-test any applications that produced errors in
the initial testing. No significant Year 2000 processing problems were
encountered in Capital Crossing's testing. Capital Crossing believes that it and
its vendors, customers, and service providers are currently on schedule in
accordance with the plan.

Testing of the M&I systems was completed prior to Capital Crossing's conversion
to the systems. M&I provided detailed results of the Y2K testing. The test
results were reviewed and compared to the BISYS test results by Capital
Crossing's Information Technology staff and an independent auditor. Some minor
differences in testing and reporting methodology were discovered. These were
resolved through discussions with M&I's Y2K team. We have concluded that the M&I
testing validated the operation of the deposit system.

Capital Crossing's executive offices were renovated in 1997 and early 1998, with
new building systems, such as fire and security alarm systems and HVAC system,
installed at such time. All of the contractors and suppliers of such building
systems certified that their systems are Year 2000 compliant. The building
operator and Capital Crossing tested such systems and similarly concluded that
such systems are Year 2000 compliant.

Capital Crossing's risk management program includes emergency backup and
recovery procedures to be followed in the event of failure of a mission-critical
system. These procedures have been expanded to include specific procedures for
potential Year 2000 issues, and contingency plans to protect against Year 2000
related interruptions. Capital Crossing has completed contingency plans which
include backup procedures, identification of alternate suppliers, emergency
plans to handle power outages, telecommunication failures and other such
contingencies.

Based on its review to date, Capital Crossing believes that the primary costs of
addressing the Year 2000 issue will include internal staffing, consulting,
system testing and modification. Capital Crossing currently expects that the
total third party expenses associated with the plan will be approximately
$150,000, and will be incurred primarily from the third quarter of 1998 through
December 31, 1999. The costs are not considered to have a material affect on
operating expenses or budgets of Capital Crossing. Capital Crossing plans to
account for these costs as expense items. The costs include an independent
review by an external firm under an engagement


                                       11
<PAGE>

letter signed June 29, 1998.

While Atlantic Preferred Capital believes that Capital Crossing is taking
reasonable steps with respect to the Year 2000 issue, if the phases of the plan
are not completed on time, the costs associated with becoming Year 2000
compliant exceed Capital Crossing's estimates, third party providers are not
Year 2000 compliant on a timely basis, or customers with material loan
obligations are unable to meet their repayment obligations due to Year 2000
problems, the Year 2000 issue could have a material impact on Capital Crossing's
financial results, and consequently may have a material impact on Atlantic
Preferred Capital's financial results. In addition, Capital Crossing's efforts
to address the Year 2000 issue are being monitored by its federal banking
regulators. Failure to be Year 2000 compliant on a timely basis could subject
Capital Crossing to formal supervisory or enforcement actions. Any of the
foregoing issues could have a material adverse impact on the ability of Capital
Crossing to service Atlantic Preferred Capital's loan portfolio and otherwise
manage its business which could have a material adverse effect on Atlantic
Preferred Capital's business, financial condition or results of operations.

The preceding Year 2000 discussion contains various forward-looking statements
which represent Atlantic Preferred Capital's beliefs or expectations regarding
future events. When used in the Year 2000 discussion, the words "believes,"
"expects," "estimates" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, without
limitation, Capital Crossing's expectations as to when it will complete the
phases of the plan; its estimated costs; and its belief that its internal
systems will be Year 2000 compliant in a timely manner. All forward-looking
statements involve a number of risks and uncertainties that could cause the
actual results to differ materially from the projected results. Factors that may
cause these differences include, but are not limited to, the availability of
qualified personnel and other information technology resources; the ability to
identify and remediate all date sensitive lines of computer code; and the
actions of governmental agencies or other third parties with respect to Year
2000 problems.



                                       12
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Asset and liability management is concerned with the timing and magnitude of the
repricing of assets and liabilities. It is the objective of Atlantic Preferred
Capital to attempt to control risks associated with interest rate movements.
Market risk is the risk of loss from adverse changes in market prices and
interest rates. Atlantic Preferred Capital's market risk arises primarily from
interest rate risk inherent in holding loans. To that end, management actively
monitors and manages its interest rate risk exposure. Atlantic Preferred
Capital's management reviews, among other things, the sensitivity of Atlantic
Preferred Capital's assets and liabilities to interest rate changes, the book
and market values of assets and liabilities, unrealized gains and losses,
purchase and sale activity, and maturities of investments. Capital Crossing's
senior management also approves and establishes pricing and funding decisions
with respect to Atlantic Preferred Capital's overall asset and liability
composition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Interest Rate Risk"; "--Significant Concentration of
Credit Risk" and "--Liquidity Risk Management" beginning on page 9 of this
Quarterly Report on Form 10-Q.

Atlantic Preferred Capital's methods for evaluating interest rate risk include
an analysis of its interest rate sensitivity "gap", which is defined as the
difference between interest-earning assets and interest-bearing liabilities
maturing or repricing within a given time period. A gap is considered positive
when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. During a period of rising interest rates, a negative gap would tend to
adversely affect net interest income, while a positive gap would tend to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income, while a positive gap would tend to adversely affect net interest income.
Because different types of assets and liabilities with the same or similar
maturities may react differently to changes in overall market rates or
conditions, changes in interest rates may affect net interest income positively
or negatively even if an institution were perfectly matched in each maturity
category.

Quantitative information regarding market risk has not changed significantly
since December 31, 1998.





                                       13
<PAGE>



                                     PART II

ITEM 1.  LEGAL PROCEEDINGS

From time to time, Atlantic Preferred Capital may be involved in routine
litigation incidental to its business, including a variety of legal proceedings
with borrowers, which would contribute to Atlantic Preferred Capital's expenses,
including the costs of carrying non-performing assets. Atlantic Preferred
Capital is not currently a party to any material proceedings.

ITEM 2.  CHANGES IN SECURITIES AND USES OF PROCEEDS

Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5.  OTHER INFORMATION

Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits required by Item 601 of Regulation S-K are set forth below.

Exhibit
  No.                   Exhibit
-------          ---------------
  27              Financial Data Schedule

(b) No reports on Form 8-K were filed during the three months ended September
30, 1999.



                                       14
<PAGE>

                                   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.

                                       ATLANTIC PREFERRED CAPITAL CORPORATION

Date: November 11, 1999                BY: /s/ Richard Wayne
                                       ---------------------

                                               Richard Wayne
                                               President



Date: November 11, 1999                BY: /s/ John L. Champion
                                       ------------------------

                                               John L. Champion
                                               Treasurer




                                       15