##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2006
 Commission File Number 000-25193
 CAPITAL CROSSING PREFERRED CORPORATION
  Massachusetts
 04-3439366
 101 Summer Street, Boston, Massachusetts
 02110
 (617) 880-1000
 þ o
  o o þ
 o þ




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##### 



Capital Crossing Preferred Corporation
Table of Contents
 PagePART I  Financial InformationItem 1.
    
    Financial Statements (unaudited):Balance Sheets
    
    1Statements of Income
    
    2Statements of
Changes in Stockholders Equity
    
    3Statements of Cash Flows
    
    4Notes to Unaudited Interim Financial Statements
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    5Executive Level Overview
    
    6Application of Critical Accounting Policies and Estimates
    
    6Results of Operations
    
    8Changes in Financial Conditions
    
    9Interest Rate Risk
    
    11Significant Concentration of Credit Risk
    
    11Liquidity Risk Management
    
    11Impact of Inflation and Changing Prices
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    12Item 4.
    
    Controls and Procedures
    
    13PART II Other InformationItem 1a.
    
    Risk Factors
    
    14Item 6.
    
    Exhibits and Reports on Form 8-K
    
    21Signatures
    
    22Exhibit Index
    
    23EX-31.1 Section 302 Certification of Principal Executive OfficerEX-31.2 Section 302 Certification of Principal Financial OfficerEX 32 Section 906 Certification of Principal Executive Officer & Principal Financial Officer




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##### Table of Contents



PART I
 
 Item 1. Financial Statements
 Capital Crossing Preferred Corporation
 
 Balance Sheets
 (unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005(in thousands)ASSETSCash account with Capital Crossing Bank
    
    $
    199
    
    
    $
    102Interest bearing deposits with Capital Crossing Bank
    
    
    92,801
    
    
    
    88,304Total cash and cash equivalents
    
    
    93,000
    
    
    
    88,406Certificate of deposit
    
    
    200
    
    
    
    296Loans, net of discounts and net deferred loan income
    
    
    112,893
    
    
    
    116,061Less allowance for loan losses
    
    
    (1,963
    )
    
    
    (1,981
    )Loans, net
    
    
    110,930
    
    
    
    114,080Accrued interest receivable
    
    
    535
    
    
    
    544Other assets
    
    
    12
    
    
    
    $
    204,677
    
    
    $
    203,326LIABILITIES AND STOCKHOLDERS EQUITYDue to Capital Crossing Bank
    
    $
    
    
    
    $
    Accrued expenses and other liabilities
    
    
    1,236
    
    
    
    1,230Total liabilities
    
    
    1,236
    
    
    
    1,230Stockholders equity:Preferred stock, Series A, 9.75% non-cumulative,
exchangeable; $.01 par value; $10 liquidation value
per share; 1,449,000 shares authorized, 1,416,130 shares
issued and outstanding
    
    
    14
    
    
    
    14Preferred stock, Series B, 8% cumulative, non-convertible;
$.01 par value; $1,000 liquidation value per share plus
accrued dividends; 1,000 shares authorized, 937 shares
issued and outstanding
    
    
    
    
    
    
    Preferred stock, Series C, 10.25% non-cumulative, exchangeable;
$.01 par value; $10 liquidation value per share; 1,840,000 shares
authorized, issued and outstanding
    
    
    18
    
    
    
    18Preferred stock, Series D, 8.50% non-cumulative, exchangeable;
$.01 par value; $25 liquidation value per share; 1,725,000 shares
authorized, 1,500,000 shares issued and outstanding
    
    
    15
    
    
    
    15Common stock, $.01 par value, 100 shares authorized,
issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    202,049
    
    
    
    202,049Retained earnings
    
    
    1,345
    
    
    
    Total stockholders equity
    
    
    203,441
    
    
    
    202,096$
    204,677
    
    
    $
    203,326
  1




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##### Table of Contents



Capital Crossing Preferred Corporation
 
 Statements of Income
 (unaudited)
 Three Months Ended March 31,2006
    
    
    2005(in thousands)Interest income:Interest and fees on loans
    
    $
    2,332
    
    
    $
    2,485Interest on interest-bearing deposits
    
    
    246
    
    
    
    265Total interest income
    
    
    2,578
    
    
    
    2,750Credit for loan losses
    
    
    13
    
    
    
    128Total interest income, after credit for loan losses
    
    
    2,591
    
    
    
    2,878Other income:Gain on sales of loans
    
    
    482
    
    
    
    Guarantee fee income
    
    
    20
    
    
    
    20Total other income
    
    
    502
    
    
    
    20Operating expenses:Loan servicing and advisory services
    
    
    80
    
    
    
    80Other general and administrative
    
    
    36
    
    
    
    60Total operating expenses
    
    
    116
    
    
    
    140Net income
    
    
    2,977
    
    
    
    2,758Preferred stock dividends
    
    
    1,632
    
    
    
    1,632Net income available to common stockholder
    
    $
    1,345
    
    
    $
    1,126
  2




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##### Table of Contents



Capital Crossing Preferred Corporation
 
 Statements of Changes in Stockholders Equity
 (unaudited)
 Three Months Ended March 31, 2006Preferred Stock
    
    
    Preferred Stock
    
    
    Preferred Stock
    
    
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    TotalSeries A
    
    
    Series B
    
    
    Series C
    
    
    Series D
    
    
    Common Stock
    
    
    Paid-in
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Equity(dollars in thousands)Balance at December 31, 2005
    
    
    1,416,130
    
    
    $
    14
    
    
    
    937
    
    
    $
    
    
    
    
    1,840,000
    
    
    $
    18
    
    
    
    1,500,000
    
    
    $
    15
    
    
    
    100
    
    
    $
    
    
    
    $
    202,049
    
    
    $
    
    
    
    $
    202,096Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,977
    
    
    
    2,977Dividends on preferred stock,
Series A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (345
    )
    
    
    (345
    )Cumulative dividends on
preferred stock, Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Dividends on preferred stock,
Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (471
    )
    
    
    (471
    )Dividends on preferred stock,
Series D
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (797
    )
    
    
    (797
    )Balance at March 31, 2006
    
    
    1,416,130
    
    
    $
    14
    
    
    
    937
    
    
    $
    
    
    
    
    1,840,000
    
    
    $
    18
    
    
    
    1,500,000
    
    
    $
    15
    
    
    
    100
    
    
    $
    
    
    
    $
    202,049
    
    
    $
    1,345
    
    
    $
    203,441
 Three Months Ended March 31, 2005Preferred Stock
    
    
    Preferred Stock
    
    
    Preferred Stock
    
    
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    TotalSeries A
    
    
    Series B
    
    
    Series C
    
    
    Series D
    
    
    Common Stock
    
    
    Paid-in
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Equity(dollars in thousands)Balance at December 31, 2004
    
    
    1,416,130
    
    
    $
    14
    
    
    
    940
    
    
    $
    
    
    
    
    1,840,000
    
    
    $
    18
    
    
    
    1,500,000
    
    
    $
    15
    
    
    
    100
    
    
    $
    
    
    
    $
    216,122
    
    
    $
    
    
    
    $
    216,169Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,758
    
    
    
    2,758Dividends on preferred stock,
Series A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (345
    )
    
    
    (345
    )Cumulative dividends on
preferred stock, Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Dividends on preferred stock,
Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (471
    )
    
    
    (471
    )Dividends on preferred stock,
Series D
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (797
    )
    
    
    (797
    )Balance at March 31, 2005
    
    
    1,416,130
    
    
    $
    14
    
    
    
    940
    
    
    $
    
    
    
    
    1,840,000
    
    
    $
    18
    
    
    
    1,500,000
    
    
    $
    15
    
    
    
    100
    
    
    $
    
    
    
    $
    216,122
    
    
    $
    1,126
    
    
    $
    217,295
 3




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Capital Crossing Preferred Corporation
 
 Statements of Cash Flows
 (unaudited)
 Three Months Ended March 31,2006
    
    
    2005(in thousands)Cash flows provided by operating activities:Net income
    
    $
    2,977
    
    
    $
    2,758Adjustments to reconcile net income to net cash provided by operating activities:Credit for loan losses
    
    
    (13
    )
    
    
    (128
    )Gain on sales of loans
    
    
    (482
    )
    
    
    Other, net
    
    
    3
    
    
    
    (317
    )Net cash provided by operating activities
    
    
    2,485
    
    
    
    2,313Cash flows provided by investing activities:Loan repayments
    
    
    2,870
    
    
    
    4,273Proceeds from loan sales
    
    
    775
    
    
    
    Net decrease in certificate of deposit
    
    
    96
    
    
    
    Net cash provided by investing activities
    
    
    3,741
    
    
    
    4,273Cash flows used in financing activities:Payment of preferred stock dividends
    
    
    (1,632
    )
    
    
    (1,632
    )Net cash used in financing activities
    
    
    (1,632
    )
    
    
    (1,632
    )Net change in cash and cash equivalents
    
    
    4,594
    
    
    
    4,954Cash and cash equivalents at beginning of period
    
    
    88,406
    
    
    
    95,407Cash and cash equivalents at end of period
    
    $
    93,000
    
    
    $
    100,361
  4




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Capital Crossing Preferred Corporation
 
 Notes to Unaudited Interim Financial Statements
 Three Months Ended March 31, 2006 and 2005
 Note 1. Basis of Presentation
    Note 2. Commitments and Contingencies
 Guarantees
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  5




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Executive Level Overview
       
 Application of Critical Accounting Policies and Estimates
  Allowance for Loan Losses.
 6




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Discounts on Acquired Loans.
       7




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Results of Operations for the Three Months Ended March 31, 2006 and 2005
 Interest income
  Three Months Ended March 31,2006
    
    
    2005Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestBalance
    
    
    Income
    
    
    Yield
    
    
    Balance
    
    
    Income
    
    
    Yield(dollars in thousands)Loans, net (1)
    
    $
    113,962
    
    
    $
    2,332
    
    
    
    8.30
    %
    
    $
    120,353
    
    
    $
    2,485
    
    
    
    8.37
    %Interest-bearing deposits
    
    
    90,367
    
    
    
    246
    
    
    
    1.10
    
    
    
    97,854
    
    
    
    265
    
    
    
    1.10Total interest-earning assets
    
    $
    204,329
    
    
    $
    2,578
    
    
    
    5.12
    %
    
    $
    218,207
    
    
    $
    2,750
    
    
    
    5.11
    %
 
 (1)
    
    Non-performing loans are excluded from average balance calculations.     8




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Three Months Ended March 31,2006
    
    
    2005Interest
    
    
    
    
    
    
    InterestIncome
    
    
    Yield
    
    
    Income
    
    
    Yield(dollars in thousands)Regularly scheduled interest and accretion income
    
    $
    2,285
    
    
    
    8.13
    %
    
    $
    2,345
    
    
    
    7.90
    %Interest and fee income recognized on loan payoffs:Nonaccretable discount
    
    
    14
    
    
    
    0.05
    
    
    
    
    
    
    
    Accretable discount
    
    
    21
    
    
    
    0.08
    
    
    
    104
    
    
    
    0.35Other interest and fee income
    
    
    12
    
    
    
    0.04
    
    
    
    36
    
    
    
    0.1247
    
    
    
    0.17
    
    
    
    140
    
    
    
    0.47$
    2,332
    
    
    
    8.30
    %
    
    $
    2,485
    
    
    
    8.37
    %
   Credit for loan losses
  Other income
  Operating expenses
  
 Changes in Financial Condition
 Interest-bearing deposits with Capital Crossing Bank
  Loan portfolio
  9




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March 31, 2006
    
    
    December 31, 2005(in thousands)Mortgage loans on real estate:Commercial real estate
    
    $
    74,135
    
    
    $
    76,398Multi-family residential
    
    
    37,731
    
    
    
    38,392One-to-four family residential
    
    
    1,062
    
    
    
    1,305Total
    
    
    112,928
    
    
    
    116,095Other
    
    
    14
    
    
    
    21Total loans, net of discounts
    
    
    112,942
    
    
    
    116,116Less:Allowance for loan losses
    
    
    (1,963
    )
    
    
    (1,981
    )Net deferred loan fees
    
    
    (49
    )
    
    
    (55
    )Loans, net
    
    $
    110,930
    
    
    $
    114,080
    Discounts on Acquired Loans.
  Three Months EndedMarch 31,2006
    
    
    2005(in thousands)Balance at beginning of period
    
    $
    754
    
    
    $
    883Accretion(1)
    
    
    (20
    )
    
    
    (11
    )Transfers to accretable portion upon improvements in cash flows
    
    
    
    
    
    
    (53
    )Net reductions relating to loans sold
    
    
    (251
    )
    
    
    Balance at end of period
    
    $
    483
    
    
    $
    819
 
 (1)
    
    Accretion of nonaccretable discount is recognized using the cost recovery method. Allowance for Loan Losses.
 10




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Three Months Ended March 31,2006
    
    
    2005(in thousands)Balance at beginning of period
    
    $
    1,981
    
    
    $
    2,497Credit for loan losses
    
    
    (13
    )
    
    
    (128
    )Net reduction relating to loans sold
    
    
    (5
    )
    
    
    Balance at end of period
    
    $
    1,963
    
    
    $
    2,369
 
 Interest Rate Risk
  
 Significant Concentration of Credit Risk
   
 Liquidity Risk Management
   11




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
    
    to maintain an adequate portfolio size through the acquisition of additional
mortgage assets as mortgage assets currently in the loan portfolio mature, pay down
or prepay, and
    
    to pay dividends on the preferred shares and common shares.
   
 Impact of Inflation and Changing Prices
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
    12




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Within
    
    
    Over One
    
    
    Over Two
    
    
    Over Three
    
    
    Over Four
    
    
    OverOne
    
    
    to Two
    
    
    to Three
    
    
    to Four
    
    
    to Five
    
    
    FiveOvernight
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total(dollars in thousands)Interest-bearing deposits
    
    $
    92,801
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    92,8011.10
    %Certificates of deposit
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2002.76
    %Fixed-rate loans (1)
    
    
    
    
    
    
    12,600
    
    
    
    10,753
    
    
    
    9,911
    
    
    
    7,529
    
    
    
    7,581
    
    
    
    16,742
    
    
    
    65,1168.37
    %
    
    
    8.06
    %
    
    
    7.91
    %
    
    
    7.87
    %
    
    
    7.92
    %
    
    
    7.00
    %Adjustable-rate loans (1)
    
    
    11,701
    
    
    
    28,867
    
    
    
    1,808
    
    
    
    1,907
    
    
    
    1,518
    
    
    
    543
    
    
    
    852
    
    
    
    47,1969.85
    %
    
    
    7.75
    %
    
    
    9.00
    %
    
    
    6.65
    %
    
    
    6.42
    %
    
    
    6.60
    %
    
    
    7.64
    %Total rate-sensitive assets
    
    $
    104,502
    
    
    $
    41,667
    
    
    $
    12,561
    
    
    $
    11,818
    
    
    $
    9,047
    
    
    $
    8,124
    
    
    $
    17,594
    
    
    $
    205,313
 
    
 Item 4. Controls and Procedures
   13




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PART II
 
 Item 1A. Risk Factors
 Set forth below are a number of risk factors that may cause Capital Crossing Preferreds
actual results to differ materially from anticipated future results, performance or achievements
expressed or implied by the forward-looking statement.
 All of these factors should be carefully reviewed, and the reader of this Quarterly Report on
Form 10-Q should be aware that there may be other factors that could cause these differences.
 General Business Risks
 A decline in Capital Crossings capital levels may result in the Series A, Series C and Series D
preferred shares being subject to automatic exchange into preferred shares of Capital Crossing
  
    
    a holder of Series A, Series C or Series D preferred shares would be a preferred
stockholder of Capital Crossing at a time when Capital Crossings financial condition was
deteriorating or when Capital Crossing had been placed into bankruptcy, reorganization,
conservatorship or receivership and, accordingly, it is unlikely that Capital Crossing would
be in a financial position to pay any dividends on the preferred shares of Capital Crossing.
An investment in Capital Crossing is also subject to risks that are distinct from the risks
associated with an investment in Capital Crossing Preferred. For example, an investment in
Capital Crossing would involve risks relating to the capital levels of, and other federal
and state regulatory requirements applicable to Capital Crossing and the performance of
Capital Crossings overall loan portfolio and other business lines. Capital Crossing also
has significantly greater liabilities and significantly less stockholders equity than does
Capital Crossing Preferred;
    
    if a liquidation of Capital Crossing occurs, the claims of depositors and creditors of
Capital Crossing and of the FDIC would have priority over the claims of holders of the
preferred shares of Capital Crossing, and therefore, a holder of Series A, Series C and
Series D preferred shares likely would receive, if anything, substantially less than such
holder would receive had the Series A, Series C and Series D preferred shares not been
exchanged for preferred shares of Capital Crossing; and
    
    the exchange of the Series A, Series C or Series D preferred shares for preferred shares
of Capital Crossing would be a taxable event to a holder of Series A, Series C or Series D
preferred shares under the Internal Revenue Code, and such holder would incur a gain or a
loss, as the case may be, measured by the difference between such holders basis in the
Series A, Series C or Series D preferred shares and the fair market value of Capital
Crossing preferred shares received in the exchange.
 Because of Capital Crossing Preferreds obligations to creditors, it may not be able to make
dividend or liquidation payments to holders of the Series A, Series C and Series D preferred shares
  
    
    junior to borrowings of Capital Crossing Preferred, including claims of the FHLBB for
amounts due or which may become due under Capital Crossing Preferreds guarantee of Capital
Crossings obligations to the FHLBB, and any other obligations to Capital Crossing
Preferreds creditors upon its liquidation. As of March 31, 2006, Capital Crossing had
$192.0 million in outstanding FHLBB borrowings; and
    
    senior to Capital Crossing Preferreds common stock and its Series B preferred stock with
regard to payment of dividends and amounts upon liquidation.
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Bank regulators may limit the ability of Capital Crossing Preferred to implement its business plan
and may restrict its ability to pay dividends
     Capital Crossing Preferreds results will be affected by factors beyond its control
  
    
    local and other economic conditions affecting real estate values;
    
    the continued financial stability of a borrower and the borrowers ability to make mortgage payments;
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
    
    the ability of tenants to make lease payments;
    
    the ability of a property to attract and retain tenants, which may in turn be affected by
local conditions, such as oversupply of space or a reduction in demand for rental space in
the area;
    
    regional experiences of adverse business conditions or natural disasters;
    
    interest rate levels and the availability of credit to refinance mortgage loans at or prior to maturity; and
    
    increased operating costs, including energy costs, real estate taxes and costs of
compliance with environmental controls and regulations.
 Capital Crossing Preferreds loans are concentrated in California and New England and adverse
conditions in those markets could adversely affect its operations
  A substantial majority of Capital Crossing Preferreds loans were originated by other parties
  More than half of Capital Crossing Preferreds loan portfolio is made up of commercial mortgage
loans which are generally riskier than other types of loans
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Capital Crossing Preferred may not be able to purchase loans at the same volumes or with the same
yields as it has historically purchased
  
    
    from institutions which sought to eliminate certain loans or categories of loans from their portfolios;
    
    from institutions participating in securitization programs;
    
    from failed or consolidating financial institutions; and
    
    from government agencies.
  Capital Crossing Preferred could be held responsible for environmental liabilities of properties it
acquires through foreclosure
  Capital Crossing Preferred is dependent in virtually every phase of its operations on the diligence
and skill of the management of Capital Crossing
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Capital Crossing Preferreds relationship with Capital Crossing may create conflicts of interest
  Acquisition of mortgage assets.
 Servicing of Capital Crossing Preferred mortgage assets by Capital Crossing.
 Future dispositions by Capital Crossing Preferred of mortgage assets to Capital Crossing or
its affiliates.
 Future modifications of the advisory agreement or master service agreement.
 The terms of Capital Crossing Preferreds guarantee of obligations of Capital Crossing.
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The master loan purchase agreement was not the result of arms-length negotiations.
 Neither Capital Crossing Preferred nor Capital Crossing have specific policies with respect to the
purchase by Capital Crossing Preferred from Capital Crossing of particular loans or pools of loans
  Capital Crossing Preferreds Board of Directors has broad discretion to revise Capital Crossing
Preferreds strategies
  Capital Crossing Preferred does not obtain third-party valuations and therefore it may pay more or
receive less than fair market value for its mortgage assets
  Capital Crossing Preferred may pay more than fair market value for mortgages it purchases from
Capital Crossing because it does not engage in arms- length negotiations with Capital Crossing
  Fluctuations in interest rates could reduce Capital Crossing Preferred earnings and affect its
ability to pay dividends
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Tax Risks Related to REITs
 If Capital Crossing Preferred fails to qualify as a REIT, it will be subject to federal income tax
at regular corporate rates.
   If Capital Crossing Preferred does not distribute 90% of its net taxable income, it may not qualify
as a REIT.
  Capital Crossing Preferred may redeem the Series A, Series C and Series D preferred shares at any
time upon the occurrence of a tax event.
  
    
    dividends paid by Capital Crossing Preferred with respect to its capital stock are not
fully deductible by it for income tax purposes; or
    
    Capital Crossing Preferred are otherwise unable to qualify as a REIT.
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Capital Crossing Preferred has imposed ownership limitations to protect its ability to qualify as a
REIT, however, if ownership of the common stock of Capital Crossing becomes concentrated in a small
number of individuals Capital Crossing Preferred may fail to qualify as a REIT.
  
 Item 6. Exhibits
 31.1
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the President.31.2
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Treasurer.32
    
    Certification pursuant to 18 U.S.C. Section 1350 of the President and Treasurer.
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SIGNATURES
  CAPITAL CROSSING PREFERRED CORPORATION
 Date: May 10, 2006
    
    By:
    
    /s/ Richard WayneRichard WaynePresident (Principal Executive Officer)Date: May 10, 2006
    
    By:
    
    /s/ Edward F. MehmEdward F. MehmTreasurer (Principal Financial Officer)
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EXHIBIT INDEX
 Exhibit
    
    Item
    
    Page Number31.1
    
    
    Certification pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a) of the President.
    
    
    2431.2
    
    
    Certification pursuant to Exchange Act Rules
13a-14(a) and 15d-14(a) of the Treasurer.
    
    
    2532
    
    
    Certification pursuant to 18 U.S.C. Section
1350 of the President and Treasurer.
    
    
    26
 23