<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-Q

<TABLE>
<C>        <S>
   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                        COMMISSION FILE NUMBER 000-25193

                            ------------------------

                     CAPITAL CROSSING PREFERRED CORPORATION

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
             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)
</TABLE>

       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 May 4, 2001.

--------------------------------------------------------------------------------
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<PAGE>
                     CAPITAL CROSSING PREFERRED CORPORATION
                               TABLE OF CONTENTS

                         PART I--FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                         --------
<S>        <C>                                                           <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...................................      7

           Risk Factors and Other Factors Affecting Forward-Looking
           Statements..................................................     13

Item 3.    Quantitative and Qualitative Disclosures about Market
           Risk........................................................     22
</TABLE>

                           PART II--OTHER INFORMATION

<TABLE>
<S>        <C>                                                           <C>
Item 1.    Legal Proceedings...........................................     23

           Signatures..................................................     24
</TABLE>
<PAGE>
                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                     CAPITAL CROSSING PREFERRED CORPORATION

                                 BALANCE SHEETS

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                               MARCH 31,    DECEMBER 31,
                                                                 2001           2000
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                           ASSETS
Cash account with Capital Crossing Bank.....................    $     85      $     85
Interest-bearing deposits with Capital Crossing Bank........      76,427        55,227
                                                                --------      --------
      Total cash and cash equivalents.......................      76,512        55,312
                                                                --------      --------
Certificate of deposit......................................         100           100
Loans, net of deferred loan income..........................     161,078       178,373
  Less discount.............................................     (10,470)      (11,966)
  Less allowance for loan losses............................      (3,792)       (3,795)
                                                                --------      --------
      Loans, net............................................     146,816       162,612
                                                                --------      --------
Accrued interest receivable.................................       1,035         1,159
Other assets................................................          94            --
                                                                --------      --------
                                                                $224,557      $219,183
                                                                ========      ========

            LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities......................    $    267      $    276
                                                                --------      --------
      Total liabilities.....................................         267           276
                                                                --------      --------
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....................................          14            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, 942 and 946
  shares issued and outstanding, respectively...............          --            --
Common stock, $.01 par value, 100 shares authorized, issued
  and outstanding...........................................          --            --
Additional paid-in capital..................................     218,889       218,893
Retained earnings...........................................       5,387            --
                                                                --------      --------
      Total stockholders' equity............................     224,290       218,907
                                                                --------      --------
                                                                $224,557      $219,183
                                                                ========      ========
</TABLE>

                See accompanying notes to financial statements.

                                       1
<PAGE>
                     CAPITAL CROSSING PREFERRED CORPORATION

                              STATEMENTS OF INCOME

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                                                ENDED MARCH 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Interest income:
  Interest and fees on loans................................   $5,049     $3,464
  Interest on interest-bearing deposits.....................      819        318
                                                               ------     ------
      Total interest income.................................    5,868      3,782
                                                               ------     ------
Other income:
  Guarantee fee income......................................       20         --
                                                               ------     ------
Operating expenses:
  Loan servicing and advisory services......................      119         93
  Other real estate owned income............................       --       (245)
  Other general and administrative..........................       18         72
                                                               ------     ------
      Total operating expenses (income).....................      137        (80)
                                                               ------     ------
      Net income............................................    5,751      3,862
Preferred stock dividends...................................      364        366
                                                               ------     ------
Net income available to common stockholder..................   $5,387     $3,496
                                                               ======     ======
</TABLE>

                See accompanying notes to financial statements.

                                       2
<PAGE>
                     CAPITAL CROSSING PREFERRED CORPORATION

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED MARCH 31, 2001
                              ---------------------------------------------------------------------------------------------------
                                                      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,
  2000......................    100       $   --    1,416,130     $14         946      $   --     $218,893     $   --    $218,907
Net income..................     --           --           --      --          --          --           --      5,751       5,751
Dividends on preferred
  stock, Series A...........     --           --           --      --          --          --           --       (345)       (345)
Cumulative dividends on
  preferred stock, Series
  B.........................     --           --           --      --          --          --           --        (19)        (19)
Repurchase of preferred
  stock, Series B...........     --           --           --      --          (4)         --           (4)        --          (4)
                                ---       ------    ---------     ---       -----      ------     --------     ------    --------
Balance at March 31, 2001...    100       $   --    1,416,130     $14         942      $   --     $218,889     $5,387    $224,290
                                ===       ======    =========     ===       =====      ======     ========     ======    ========
</TABLE>

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED MARCH 31, 2000
                              ---------------------------------------------------------------------------------------------------
                                                      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,
  1999......................    100       $   --    1,416,130     $14       1,000      $   --     $167,839     $  814    $168,667
Net income..................     --           --           --      --          --          --           --      3,862       3,862
Dividends on preferred
  stock, Series A...........     --           --           --      --          --          --           --       (346)       (346)
Cumulative dividends on
  preferred stock, Series
  B.........................     --           --           --      --          --          --           --        (20)        (20)
                                ---       ------    ---------     ---       -----      ------     --------     ------    --------
Balance at March 31, 2000...    100       $   --    1,416,130     $14       1,000      $   --     $167,839     $4,310    $172,163
                                ===       ======    =========     ===       =====      ======     ========     ======    ========
</TABLE>

                See accompanying notes to financial statements.

                                       3
<PAGE>
                     CAPITAL CROSSING PREFERRED CORPORATION

                            STATEMENTS OF CASH FLOWS

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Cash flows from operating activities:
  Net income................................................  $ 5,751    $ 3,862
  Adjustments to reconcile net income to net cash from
    operating activities:
    Net gain on sale and disposition of other real estate
      owned.................................................       --       (245)
    Other, net..............................................       21         36
                                                              -------    -------
      Net cash from operating activities....................    5,772      3,653
                                                              -------    -------

Cash flows from investing activities:
  Amortization and payoffs on loans.........................   15,625      6,289
  Proceeds from sales of loans to Capital Crossing Bank.....      171         --
  Sales of other real estate owned..........................       --        679
                                                              -------    -------
      Net cash from investing activities....................   15,796      6,968
                                                              -------    -------

Cash flows used in financing activities:
  Repurchase of preferred stock, Series B...................       (4)        --
  Payment of preferred stock dividends......................     (364)      (366)
                                                              -------    -------
      Net cash used in financing activities.................     (368)      (366)
                                                              -------    -------

Net change in cash and cash equivalents.....................   21,200     10,255
Cash and cash equivalents at beginning of period............   55,312     32,333
                                                              -------    -------
Cash and cash equivalents at end of period..................  $76,512    $42,588
                                                              =======    =======
Supplemental information:
  Dividends declared, not paid, on preferred stock, Series
    A.......................................................  $   115    $   115
  Cumulative dividends accrued, not paid on preferred stock,
    Series B................................................       19         20
</TABLE>

                See accompanying notes to financial statements.

                                       4
<PAGE>
                     CAPITAL CROSSING PREFERRED CORPORATION

                         NOTES TO FINANCIAL STATEMENTS

                   THREE MONTHS ENDED MARCH 31, 2001 AND 2000

NOTE 1.  BASIS OF PRESENTATION

    Capital Crossing Preferred Corporation ("Capital Crossing Preferred"),
formerly Atlantic Preferred Capital Corporation, is a Massachusetts corporation
organized on March 20, 1998, to acquire and hold real estate assets. Capital
Crossing Bank ("Capital Crossing" or the "Bank"), a federally insured
Massachusetts trust company, owns all of Capital Crossing Preferred's common
stock. The Bank is in compliance with its regulatory capital requirements at
March 31, 2001.

    On March 31, 1998, Capital Crossing Preferred was initially capitalized with
the issuance to the Bank of 100 shares of Capital Crossing Preferred's common
stock, $.01 par value, and 1,000 shares of Series B preferred stock, $.01 par
value, with the Bank transferring to Capital Crossing Preferred a portfolio of
loans at its estimated fair value of $140,740,000. Such loans were recorded in
the accompanying balance sheet at the Bank's historical cost, which approximated
their estimated fair values.

    The financial information as of March 31, 2001 and the results of
operations, changes in stockholders' equity and cash flows for the three months
ended March 31, 2001 and 2000 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. These
interim statements are intended to be read in conjunction with the financial
statements presented in Capital Crossing Preferred's Annual Report on Form 10-K
as of and for the year ended December 31, 2000.

    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 allocation of
purchase discount between amortizing and non-amortizing portions, and the rate
at which discount is accreted into interest income.

NOTE 2.  COMMITMENTS AND CONTINGENCIES

    Capital Crossing Preferred has guaranteed all of the obligations of the Bank
under advances the Bank may receive from time to time from the Federal Home Loan
Bank of Boston ("FHLBB"), and has agreed to pledge a significant amount of its
assets in connection with those advances. This guarantee would rank senior to
the Series A preferred shares upon liquidation. Capital Crossing Preferred's
obligations under this agreement are limited by applicable laws pertaining to
fraudulent conveyance and fraudulent transfer. The assets pledged to the FHLBB
will vary from time to time, however the potential exists for Capital Crossing
Preferred to pledge all of its assets to the FHLBB to secure advances to the
Bank. In addition, the Bank has pledged to the FHLBB all of the shares of
Capital Crossing Preferred's capital stock it owns as collateral for its FHLBB
borrowings. Under the terms of the pledge, if the Bank becomes undercapitalized
the FHLBB may require the Bank to dissolve Capital Crossing Preferred such that
the assets of Capital Crossing Preferred are distributed to the Bank. In such
circumstance, holders of the Series A Preferred Stock would receive their
liquidation preference only to the extent there are available assets of Capital
Crossing Preferred following satisfaction of its outstanding obligations,
including its guarantee of the Bank's FHLBB borrowings. At

                                       5
<PAGE>
                     CAPITAL CROSSING PREFERRED CORPORATION

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                   THREE MONTHS ENDED MARCH 31, 2001 AND 2000

NOTE 2.  COMMITMENTS AND CONTINGENCIES (CONTINUED)
March 31, 2001, approximately $20 million or 9% of Capital Crossing Preferred's
assets had been pledged to and accepted by the FHLBB to secure advances to the
Bank. The Bank has also agreed that it will not request or accept advances from
the FHLBB in excess of Capital Crossing Preferred's total stockholder's equity,
less the stockholder's equity attributable to the Series A preferred shares. As
of March 31, 2001, this restriction would limit the Bank's ability to receive
advances in excess of approximately $210 million. As of March 31, 2001, the Bank
had $139.0 million in outstanding FHLBB borrowings.

                                       6
<PAGE>
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 Capital Crossing
Preferred. These forward-looking statements are made as of the date of this
report and we do not undertake to update them at anytime after the date hereof.
Capital Crossing Preferred's actual results could differ materially from those
set forth in the forward-looking statements as a result, among other factors, of
changes in general, national or regional economic conditions, changes in
interest rates, changes in loan and lease default and charge-off rates relating
to a decline in the commercial real estate market or otherwise, 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, risks associated with mortgage loans generally, and particularly
the geographic concentration of Capital Crossing Preferred's loan portfolio at
March 31, 2001 in New England and California, the failure by Capital Crossing
Preferred to maintain its status as a REIT for federal income tax purposes,
changes in the assumptions used in making such forward-looking statements, and
the factors discussed in the section entitled "Risk Factors and Other Factors
Affecting Forward-Looking Statements" on pages 13-21 of this 10-Q.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2001 AND 2000

    Net income available to our common stockholders increased $1.9 million, or
54.1%, to $5.4 million for the three months ended March 31, 2001, compared to
$3.5 million for the three months ended March 31, 2000. This increase was
primarily attributable to an increase in total interest income of $2.1 million,
or 55.2%, to $5.9 million for the three months ended March 31, 2001, compared to
$3.8 million for the three months ended March 31, 2000. Interest income on loans
for the three months ended March 31, 2001 increased $1.6 million, or 45.8%, to
$5.0 million, compared to $3.5 million for the three months ended March 31,
2000.

    The following table sets forth the yields on Capital Crossing Preferred's
earning assets for the periods indicated:

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED MARCH 31,
                                         ------------------------------------------------------------------
                                                      2001                                2000
                                         ------------------------------      ------------------------------
                                         AVERAGE    INTEREST                 AVERAGE    INTEREST
                                         BALANCE     INCOME     YIELD        BALANCE     INCOME     YIELD
                                         --------   --------   --------      --------   --------   --------
                                                               (DOLLARS IN THOUSANDS)
<S>                                      <C>        <C>        <C>           <C>        <C>        <C>
Loans, net (1).........................  $157,557    $5,049     13.00%       $132,881   $  3,464    10.48%
Interest-bearing deposits..............    62,749       819      5.29          37,615        318     3.40
                                         --------    ------     -----        --------   --------    -----
                                         $220,306    $5,868     10.80%       $170,496   $  3,782     8.92%
                                         ========    ======     =====        ========   ========    =====
</TABLE>

------------------------

(1) Non-performing loans are excluded from average balance calculations.

    The weighted average yield on interest-earning assets increased to 10.80%
for the three months ended March 31, 2001 from 8.92% for the three months ended
March 31, 2000. During the three months ended March 31, 2001 and 2000, the yield
on the loan portfolio was 13.00% and 10.48%, respectively. This increase is
primarily a result of an increase in income recognized at the time of

                                       7
<PAGE>
individual loan payoffs. Average loans, net, for the three months ended
March 31, 2001 totaled $157.6 million compared to $132.9 million for the three
months ended March 31, 2000.

    Income on loans includes the portion of the purchase discount that is
accreted into income over the remaining lives of the related loans using the
interest method. Because the carrying value of the loan portfolio is net of
purchase discount, the related yield on this portfolio generally is higher than
the aggregate contractual rate paid on the loans. The total yield includes the
excess of a loan's expected discounted future cash flows over its net
investment, recognized using the interest method.

    When a loan is paid off, the excess of any cash received over the net
investment is recorded as interest income. In addition to the amount of purchase
discount that is recognized at that time, income may also include interest owed
by the borrower prior to Capital Crossing's acquisition of the loan, interest
collected if on non-accrual status and other loan fees ("other interest and fee
income"). The following table sets forth, for the periods indicated, the
components of interest and fees on loans and leases. We cannot assure you that
future interest income, including the yields and related level of such income,
or the relative portion attributable to loan payoffs as compared to other
sources, will increase or remain the same in the future.

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED MARCH 31,
                                                              --------------------------------------------
                                                                     2001                     2000
                                                              -------------------      -------------------
                                                              INTEREST                 INTEREST
                                                               INCOME     YIELD         INCOME     YIELD
                                                              --------   --------      --------   --------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>           <C>        <C>
Regularly scheduled interest and accretion income...........   $4,126     10.62%        $3,421     10.35%
Interest and fee income recognized on loan payoffs:
  Non-amortizing discount...................................      520      1.34             --        --
  Amortizing discount.......................................      238      0.61             28      0.08
  Other interest and fee income.............................      165      0.43             15      0.05
                                                               ------     -----         ------     -----
                                                                  923      2.38             43      0.13
                                                               ------     -----         ------     -----
                                                               $5,049     13.00%        $3,464     10.48%
                                                               ======     =====         ======     =====
</TABLE>

    The amount of loan payoffs and related income is influenced by several
factors, including the interest rate environment, the real estate market in
particular areas, the timing of transactions, and circumstances related to
individual borrowers and loans.

    The average balance of interest-bearing deposits at the Bank increased
$25.1 million to $62.7 million for the three months ended March 31, 2001,
compared to $37.6 million for 2000, as a result of cash accumulated from loan
payoffs. The yield on interest-bearing deposits increased in 2001 because the
rate paid by the Bank on the money market account held by Capital Crossing
Preferred increased in 2001 compared to 2000.

    Guarantee fee income for the three months ended March 31, 2001 increased
$20,000. Effective July 1, 2000, Capital Crossing Preferred entered into an
agreement to make certain assets available to be pledged in connection with
borrowings of Capital Crossing from the FHLBB. Capital Crossing Preferred
receives an annual fee of $80,000 from Capital Crossing under this agreement.

    Loan servicing and advisory services expenses for the three months ended
March 31, 2001 increased $26,000 or 28.0%, to $119,000 compared to $93,000 for
the three months ended March 31, 2000. This increase was due to the overall
increase in the loan portfolio.

    The other real estate owned income of $245,000 for the three months ended
March 31, 2000 consisted of the gain on sale of one property.

                                       8
<PAGE>
    Operating expenses for the three months ended March 31, 2001 decreased
$54,000, or 75.0%, to $18,000 compared to $72,000 for the three months ended
March 31, 2000. This decrease was due primarily to a decrease in professional
services, including consulting and legal services.

    We intend to pay dividends on our preferred stock and common stock in
amounts necessary to continue to preserve our status as a REIT under the
Internal Revenue Code.

FINANCIAL CONDITION

INTEREST-BEARING DEPOSITS WITH CAPITAL CROSSING BANK

    Interest-bearing deposits consist of a money market account with a balance
of $58.9 million at March 31, 2001 and certificates of deposit which totaled
$17.5 million at March 31, 2001 and mature in May 2001.

LOAN PORTFOLIO

    To date, all of Capital Crossing Preferred's loans have been acquired from
Capital Crossing. The following table sets forth information regarding the
composition of the loan portfolio at the dates indicated:

<TABLE>
<CAPTION>
                                                               MARCH 31,     DECEMBER 31,
                                                                 2001            2000
                                                              -----------   --------------
                                                                     (IN THOUSANDS)
<S>                                                           <C>           <C>
Mortgage loans on real estate:
  Commercial................................................   $ 90,991        $ 98,842
  Multi-family residential..................................     63,846          72,520
  One-to-four family residential............................      5,787           6,268
  Land......................................................        540             587
                                                               --------        --------
      Total.................................................    161,164         178,217
Secured commercial..........................................         --             209
Other.......................................................         --              29
                                                               --------        --------
      Total loans, gross....................................    161,164         178,455
Less discount:
  Non-amortizing discount (1)...............................     (5,571)         (6,704)
  Amortizing discount.......................................     (4,899)         (5,262)
  Allowance for loan losses.................................     (3,792)         (3,795)
  Net deferred loan fees....................................        (86)            (82)
                                                               --------        --------
      Loans, net............................................   $146,816        $162,612
                                                               ========        ========
</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.

    Capital Crossing Preferred 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. Capital Crossing
Preferred also intends that all loans held by it will be serviced pursuant to
its master service agreement with Capital Crossing.

    Non-performing loans, net of discount, totaled $220,000 at March 31, 2001
and December 31, 2000.

                                       9
<PAGE>
    The accrual of interest and accretion of discount are generally discontinued
when the collectibility of principal and interest is not probable or estimable.
Unpaid interest income previously accrued on such loans is reversed against
current period interest income. A loan is returned to accrual status when it is
brought current in accordance with management's anticipated cash flows at the
time of acquisition.

ALLOWANCE FOR LOAN LOSSES

    Capital Crossing Preferred maintains an allowance for loan losses that is
increased by provisions charged against earnings, by recoveries of amounts
previously charged-off, allocations of discounts on purchased loans and reduced
by charge-offs on loans. Loans are charged-off when they are deemed to be
uncollectible, or partially charged-off when a portion of a loan is deemed
uncollectible. Recoveries are generally recorded only when cash payments are
received. In general, the loan loss allowance policy requires the maintenance of
allowances sufficient to satisfy estimated probable losses arising from impaired
real estate or other loans.

    In determining the adequacy of the allowance, management initially considers
the loan loss allowances specifically allocated to individual impaired loans,
and next considers the level of general loan loss allowances deemed appropriate
for the balance of the portfolio based on factors including general portfolio
trends relative to asset and portfolio size, asset categories, potential credit
concentrations, non-accrual loan levels, the level of risks associated with
changes in economic and business conditions and other factors. An additional
allowance is maintained based on a judgmental process whereby management
considers qualitative and quantitative assessments of other factors including
regional credit concentration, industry concentration, results of regulatory
examinations, historical loss ranges, portfolio composition, economic conditions
such as interest rates and energy costs and other changes in the portfolio. The
allowance for loan losses is management's estimate of the probable loan losses
incurred as of the balance sheet date and, as such, Capital Crossing Preferred
cannot assure you that management's estimates and the allowances for probable
loan losses will be proven correct in the future.

    Additional factors influencing the calculation of the allowance for loan
losses are particular concentrations within the portfolio, such as the
concentration of loans in California which are approximately 43.4% of the
portfolio at March 31, 2001 and concentrations to individual borrowers.

    We also consider historical losses in assessing the adequacy of the
allowance for loan losses. Due to the limited operating history of Capital
Crossing Preferred, historical losses are not currently an indicator of losses
inherent in the portfolio. Management will continue to monitor historical losses
to assess the adequacy of the allowance for loan losses.

    The following table sets forth an analysis of the allowance for loan losses
for the periods indicated:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Balance at beginning of period..............................   $3,795     $2,855
Transfer to Capital Crossing with loans sold................       (3)        --
                                                               ------     ------
Balance at end of period....................................   $3,792     $2,855
                                                               ======     ======
</TABLE>

    NON-AMORTIZING DISCOUNT.  At the time of acquisition, the excess of the
contractual loan balances over the amount of reasonably estimable and probable
future cash collections is recorded as non-amortizing discount. The
non-amortizing discount is not transferred to amortizing discount and accreted
into income until it is determined that the amount and timing of the cash flows
related to the non-amortizing discount are reasonably estimable and collection
is probable. Non-amortizing discount

                                       10
<PAGE>
generally is reduced and offset against the related principal balance when the
amount at which a loan is resolved or restructured is determined. There is no
effect on the income statement as a result of these reductions.

    The following table sets forth certain information relating to the activity
in the non-amortizing discount for the periods indicated:

<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                                                     ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Balance at beginning of period..............................   $6,704     $7,318
Transfers to amortizing portion, net........................     (622)        (2)
Net reductions related to resolutions and restructures......     (327)        --
Non-amortizing discount relating to loans sold to Capital
  Crossing..................................................     (184)        --
                                                               ------     ------
Balance at end of period....................................   $5,571     $7,316
                                                               ======     ======
</TABLE>

INTEREST RATE RISK

    Capital Crossing Preferred's income consists primarily of interest income on
mortgage assets. Capital Crossing Preferred does not intend to use any
derivative products to manage its interest rate risk. If there is a decline in
market interest rates, Capital Crossing Preferred 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
resulting in reinvestment of the proceeds in lower yielding mortgage loans.

SIGNIFICANT CONCENTRATION OF CREDIT RISK

    Concentration of credit risk generally arises with respect to Capital
Crossing Preferred's loan portfolio when a number of borrowers engage in similar
business activities, or activities in the same geographic region. Concentration
of credit risk indicates the relative sensitivity of Capital Crossing
Preferred's performance to both positive and negative developments affecting a
particular industry. Capital Crossing Preferred's balance sheet exposure to
geographic concentrations directly affects the credit risk of the loans within
its loan portfolio. At March 31, 2001, 31.5% and 43.4%, respectively, of Capital
Crossing Preferred's total loan portfolio consisted of loans located in New
England and California. At December 31, 2000, 31.2% and 41.8%, respectively, of
Capital Crossing Preferred's total loan portfolio consisted of loans located in
New England and California. Consequently, the portfolio may experience a higher
default rate in the event of adverse economic, political or business
developments or 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 Capital Crossing Preferred's financial
commitments and to capitalize on opportunities for Capital Crossing Preferred's
business expansion. In managing liquidity risk, Capital Crossing Preferred takes
into account various legal limitations placed on a REIT.

    Capital Crossing Preferred'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

                                       11
<PAGE>
    (2) to pay dividends on the Series A preferred shares and common shares.

    The acquisition of additional mortgage assets is intended to be funded
primarily through repayment of principal balances of mortgage assets by
individual borrowers. Capital Crossing Preferred 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, Capital
Crossing Preferred 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 90%
of its REIT taxable income and taking into account taxes that would be imposed
on undistributed income), or a combination of these methods. Except for its
obligation to guarantee certain commitments of Capital Crossing, Capital
Crossing Preferred does not currently intend to incur any indebtedness. The
organizational documents of Capital Crossing Preferred limit the amount of
indebtedness which it is permitted to incur without the approval of certain
stockholders to no more than 100% of the total stockholders' equity of Capital
Crossing Preferred. Any such debt may include intercompany advances made by
Capital Crossing to Capital Crossing Preferred.

                                       12
<PAGE>
RISK FACTORS AND OTHER FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

    This Form 10-Q contains statements that are "forward-looking statements."
Capital Crossing Preferred may also make forward-looking statements in other
documents it files with the SEC, in press releases and other written materials,
and in oral statements made by its officers, directors or employees. You can
identify forward-looking statements by the use of the words "believe," "expect,"
"anticipate," "intend," "estimate," "assume" and other similar expressions which
predict or indicate future events and trends and which do not do not relate to
historical matters. You should not rely on forward-looking statements, because
they involve known and unknown risks, uncertainties and other factors, some of
which are beyond the control of Capital Crossing Preferred. These risks,
uncertainties and other factors may cause the actual results, performance or
achievements of Capital Crossing Preferred to be materially different from the
anticipated future results, performance or achievements expressed or implied by
the forward-looking statements.

    Some of the factors that might cause these differences include those set
forth below. You should carefully review all of these factors, and you should be
aware that there may be other factors that could cause these differences. These
forward-looking statements were based on information, plans and estimates at the
date of this report, and Capital Crossing Preferred does not undertake to update
any forward-looking statements to reflect changes in underlying assumptions or
factors, new information, future events or other changes.

A DECLINE IN THE BANK'S CAPITAL LEVELS MAY RESULT IN THE SERIES A PREFERRED
SHARES BEING SUBJECT TO AUTOMATIC EXCHANGE INTO PREFERRED SHARES OF THE BANK

    The returns from an investment in the Series A preferred shares will depend
to a significant extent on the performance and capital of the Bank. A
significant decline in the performance and capital levels of the Bank or the
placement of the Bank into bankruptcy, reorganization, conservatorship or
receivership could result in the automatic exchange of the Series A preferred
shares for preferred shares of the Bank, which would represent an investment in
the Bank and not in us. Under these circumstances:

    - a holder of Series A preferred shares would be a preferred stockholder of
      the Bank at a time when the Bank's financial condition was deteriorating
      or when the Bank had been placed into bankruptcy, reorganization,
      conservatorship or receivership and, accordingly, it is unlikely that the
      Bank would be in a financial position to pay any dividends on the
      preferred shares of the Bank. An investment in the Bank is also subject to
      risks that are distinct from the risks associated with an investment in
      us. For example, an investment in the Bank would involve risks relating to
      the capital levels of, and other federal and state regulatory requirements
      applicable to, the Bank, and the performance of the Bank's overall loan
      portfolio and other business lines. The Bank also has significantly
      greater liabilities and significantly less stockholders' equity than we
      do;

    - if a liquidation of the Bank occurs, the claims of depositors and
      creditors of the Bank and of the FDIC would have priority over the claims
      of holders of the preferred shares of the Bank, and therefore, a holder of
      Series A preferred shares likely would receive substantially less than
      such holder would receive had the Series A preferred shares not been
      exchanged for preferred shares of the Bank; and

    - the exchange of the Series A preferred shares for preferred shares of the
      Bank would be a taxable event to a holder of Series A 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 preferred shares and the fair market value of the
      Bank preferred shares received in the exchange.

                                       13
<PAGE>
BECAUSE OF OUR OBLIGATIONS TO CREDITORS, WE MAY NOT BE ABLE TO MAKE DIVIDEND OR
LIQUIDATION PAYMENTS TO HOLDERS OF THE SERIES A PREFERRED SHARES

    The Series A preferred shares rank:

    - junior to our borrowings, including claims of the Federal Home Loan Bank
      of Boston for amounts due or which may become due under our guarantee of
      the Bank's obligations to the Federal Home Loan Bank of Boston, and any
      other obligations to our creditors upon our liquidation; and

    - senior to our common stock and our Series B preferred stock with regard to
      payment of dividends and amounts upon liquidation.

    If we incur significant indebtedness, we may not have sufficient funds to
make dividend or liquidation payments on the Series A preferred shares. Upon our
liquidation our obligations to our creditors would rank senior to the Series A
preferred shares. At March 31, 2001, we had approximately $267,000 in accounts
payable and other liabilities which, upon our liquidation, would be required to
be paid before any payments could be made to holders of the Series A preferred
shares. In addition, upon our liquidation, dissolution or winding up, if we do
not have sufficient funds to pay the full liquidation amount to the holders of
the Series A preferred shares, such holders may receive less than the $10.00 per
share liquidation amount.

    The terms of the Series A preferred shares limit our ability to incur debt
in excess of 100% of our stockholders' equity without the approval of the
holders of all of the outstanding Series A preferred shares but do not require
that we obtain the approval of the holders of the Series A preferred shares to
issue additional series of preferred shares which rank equal to the Series A
preferred shares as to payment of dividends or amount upon liquidation. As a
result, subject to these limitations, we may incur obligations which may further
limit our ability to make dividend or liquidation payments in the future.

BANK REGULATORS MAY LIMIT OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN AND MAY
RESTRICT OUR ABILITY TO PAY DIVIDENDS

    Because we are a subsidiary of the Bank, federal and state regulatory
authorities will have the right to examine us and our activities and under
certain circumstances, to impose restrictions on the Bank or us which could
impact our ability to conduct our business according to our business plan, which
could materially adversely affect our financial condition and results of
operations:

    - if the Bank's regulators determine that the Bank's relationship to us
      results in an unsafe and unsound banking practice, the regulators could
      restrict our ability to transfer assets, to make distributions to our
      stockholders, including dividends on our Series A preferred shares, or to
      redeem shares of Series A preferred stock or even require the Bank to
      sever its relationship with or divest its ownership interest in us. Such
      actions could potentially result in our failure to qualify as a REIT.

    - payment of dividends on the Series A preferred shares could also be
      subject to regulatory limitations if the Bank becomes undercapitalized.
      The Bank will be deemed undercapitalized if its total risk-based capital
      ratio is less than 8.0%, its Tier 1 risk-based capital ratio is less than
      4.0% or its Tier 1 leverage ratio is less than 4.0%. At March 31, 2001,
      the Bank had a total risk-based capital ratio of 13.33%, a Tier 1
      risk-based capital ratio of 12.07% and a Tier 1 leverage ratio of 9.04%,
      which is sufficient for the Bank to be considered well-capitalized. As
      part of its common stock repurchase program, the Bank has agreed with the
      FDIC to maintain, for so long as the repurchase program continues, capital
      levels of one percent in excess of the regulatory minimums required to be
      categorized as well-capitalized. We cannot assure you that the Bank will
      be well-capitalized under applicable regulations as of any future date.
      For

                                       14
<PAGE>
      purposes of calculating these capital ratios as a percentage of the Bank's
      risk-weighted assets, as opposed to its total assets, the Bank's assets
      are assigned to risk categories based on the relative credit risk of the
      asset in question. These risk weights consist of 0%, for assets deemed
      least risky such as cash, claims backed by the full faith and credit of
      the U.S. government, and balances due from Federal Reserve banks, 20%, for
      assets deemed slightly more risky such as portions of obligations
      conditionally guaranteed by the U.S. government or federal funds sold,
      50%, for assets deemed still more risky such as government issued-revenue
      bonds, one-to-four family residential first mortgage loans and
      well-collateralized multi-family residential first mortgage loans, and
      100% for all other assets, including private sector loans such as
      commercial mortgage loans as well as bank-owned real estate.

    - while we believe that dividends on the Series A preferred shares should
      not be considered distributions by the Bank, the FDIC may not agree with
      this position. Under FDIC regulations on capital distributions, the
      ability of the Bank to make a capital distribution varies depending
      primarily on the Bank's earnings and regulatory capital levels. Capital
      distributions are defined to include payment of dividends, stock
      repurchases, cash-out mergers and other distributions charged against the
      capital accounts of an institution. The FDIC could limit or prohibit the
      payment of dividends on the Series A preferred shares if it determines
      that the payment of those dividends is a capital distribution by the Bank
      and that the Bank's earnings and regulatory capital levels are below
      specified levels.

WE DO NOT HAVE INSURANCE TO COVER OUR EXPOSURE TO BORROWER DEFAULTS AND
BANKRUPTCIES AND SPECIAL HAZARD LOSSES THAT ARE NOT COVERED BY OUR STANDARD
HAZARD INSURANCE POLICIES

    We do not generally obtain general credit enhancements such as mortgagor
bankruptcy insurance or obtain special hazard insurance for our mortgage assets,
other than standard hazard insurance, which will in each case only relate to
individual mortgage loans. Accordingly, we will be subject to risks of borrower
defaults and bankruptcies and special hazard losses, such as losses occurring
from floods, that are not covered by standard hazard insurance. In the event of
a default on any mortgage loan held by us resulting from declining property
values or worsening economic conditions, among other factors, we would bear the
risk of loss of principal to the extent of any deficiency between (1) the value
of the related mortgaged property, plus any payments from an insurer or
guarantor in the case of commercial mortgage loans, and (2) the amount owing on
the mortgage loan.

OUR RESULTS WILL BE AFFECTED BY FACTORS BEYOND OUR CONTROL

    Our mortgage loan portfolio is subject to local economic conditions which
could affect the value of the real estate assets underlying our loans and
therefore, our results of operations will be affected by various conditions in
the real estate market, all of which are beyond our control, such as:

    - 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;

    - 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;

    - 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.

                                       15
<PAGE>
OUR LOANS ARE CONCENTRATED IN CALIFORNIA AND NEW ENGLAND AND ADVERSE CONDITIONS
IN THOSE MARKETS COULD ADVERSELY AFFECT OUR OPERATIONS

    Properties underlying our current mortgage assets are concentrated primarily
in California and New England. As of March 31, 2001, approximately 43.4% of our
mortgage assets were secured by properties located in California and 31.5% in
New England. Adverse economic, political or business developments or natural
hazards may affect these areas and the ability of property owners in these areas
to make payments of principal and interest on the underlying mortgages. If
either region experienced adverse economic, political or business conditions, we
would likely experience higher rates of loss and delinquency on our mortgage
loans than if our loans were more geographically diverse. Additionally,
California has recently experienced dramatic increases in energy prices and
periodic supply shortages. However, the vast majority of the properties
underlying our current mortgage assets in California are located in southern
California which continues to show signs of a strong economy despite the recent
energy problems and we do not believe these energy problems will materially
impact the portion of our mortgage assets secured by properties located in
California.

A SUBSTANTIAL MAJORITY OF OUR LOANS WERE ORIGINATED BY OTHER PARTIES WHOSE LEVEL
OF DUE DILIGENCE MAY BE DIFFERENT THAN THE BANK'S LEVEL OF DUE DILIGENCE

    At March 31, 2001, approximately 88.3% of our loan portfolio consisted of
loans originated by third parties, purchased by the Bank and subsequently
acquired by us from the Bank. Because these loans were originated by third
parties, the Bank generally is not able to conduct the same level of due
diligence on these loans that it would have conducted had it originated them.
Generally, while the Bank conducts an acquisition review, it relies on the
underwriting standards of the parties originating the loans it acquires. The
standards of these loan originators may be substantially different than those of
the Bank. These differences may include less rigorous appraisal requirements and
debt service coverage ratios, and less rigorous analysis of property location
and environmental factors, building condition and age, tenant quality,
compliance with zoning regulations, any use restrictions, easements or right of
ways that may impact the value and the borrower's ability to manage the
property. Other disadvantages of purchased loans versus originated loans may
include the lack of current financial information, incomplete legal
documentation and outdated appraisals.

MORE THAN HALF OF OUR LOAN PORTFOLIO IS MADE UP OF COMMERCIAL MORTGAGE LOANS
WHICH ARE RISKIER THAN OTHER TYPES OF LOANS

    Commercial mortgage loans constituted approximately 56.5% of the loans in
our loan portfolio at March 31, 2001 and generally subject us to greater risks
than other types of loans. Our commercial mortgage loans, like most commercial
mortgage loans, generally lack standardized terms, tend to have shorter
maturities than residential mortgage loans and may not be fully amortizing,
meaning that they have a principal balance or "balloon" payment due on maturity.
The commercial real estate properties underlying our commercial mortgage loans
also tend to be unique and are more difficult to value than residential real
estate properties. They are also subject to relatively greater environmental
risks than other types of loans and to the corresponding burdens and costs of
compliance with environmental laws and regulations. Because of these risks
related to our commercial mortgage loans, we may experience higher rates of
default on our mortgage loans than we would if our loan portfolio was more
diversified and included a greater number of residential and other mortgage
loans.

WE MAY NOT BE ABLE TO PURCHASE LOANS AT THE SAME VOLUMES OR WITH THE SAME YIELDS
AS WE HAVE HISTORICALLY PURCHASED

    To date we have purchased all of the loans in our portfolio from the Bank.
Historically, the Bank has acquired such loans (1) from institutions which
sought to eliminate certain loans or categories of loans from their portfolios,
(2) from institutions participating in securitization programs, (3) from failed

                                       16
<PAGE>
or consolidating financial institutions and (4) from government agencies. Future
loan purchases will depend on the availability of pools of loans offered for
sale and the Bank's ability to submit successful bids or negotiate satisfactory
purchase prices. The acquisition of whole loans is highly competitive.
Consequently, we cannot assure you that the Bank will be able to purchase loans
at the same volumes or with the same yields as it has historically purchased.
This may interfere with our ability to maintain the requisite level of mortgage
assets to maintain our qualification as a REIT. If volumes of loans purchased
decline or the yields on these loans decline further, we would experience a
material adverse effect on our business, financial condition and results of
operations.

WE COULD BE HELD RESPONSIBLE FOR ENVIRONMENTAL LIABILITIES OF PROPERTIES WE
ACQUIRE THROUGH FORECLOSURE

    Approximately 56.5% of the loans in our portfolio at March 31, 2001 were
commercial mortgage loans, which generally are subject to relatively greater
environmental risks than other types of loans. If we are forced to foreclose on
a defaulted mortgage loan to recover our investment we may be subject to
environmental liabilities related to the underlying real property. Hazardous
substances or wastes, contaminants, pollutants or sources thereof may be
discovered on properties during our ownership or after a sale to a third party.
The amount of environmental liability could exceed the value of the real
property. There can be no assurance that we would not be fully liable for the
entire cost of any removal and clean-up on an acquired property, that the cost
of removal and clean-up would not exceed the value of the property or that we
could recoup any of the costs from any third party. In addition, we may find it
difficult or impossible to sell the property prior to or following any such
remediation.

TAX RISKS RELATED TO REITS

IF WE FAIL TO QUALIFY AS A REIT, WE WILL BE SUBJECT TO FEDERAL INCOME TAX AT
REGULAR CORPORATE RATES

    If we fail to qualify as a REIT for any taxable year, we would be subject to
federal income tax, including any applicable alternative minimum tax, on our
taxable income at regular corporate rates. As a result, the amount available for
distribution to our stockholders, would be reduced for the year or years
involved. In addition, unless entitled to relief under statutory provisions, we
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost. The failure to qualify
as a REIT would reduce our net earnings available for distribution to our
stockholders, because of the additional tax liability for the year or years
involved. Our failure to qualify as a REIT would not by itself give us the right
to redeem the Series A preferred shares nor would it give the holders of the
Series A preferred shares the right to have their shares redeemed. Although we
currently intend to operate in a manner designed to qualify as a REIT, future
economic, market, legal, tax or other considerations may cause us to determine
that it is in our best interest and in the best interest of holders of our
common stock and preferred stock to revoke our REIT election. The tax law
prohibits us from electing treatment as a REIT for the four taxable years
following the year of any such revocation.

IF WE DO NOT DISTRIBUTE 90% OF OUR NET TAXABLE INCOME, WE MAY NOT QUALIFY AS A
REIT

    In order to qualify as a REIT, we generally are required each year to
distribute to our stockholders at least 90% (95% for taxable years beginning
before January 1, 2001) of our net taxable income, excluding net capital gains.
We may retain the remainder of REIT taxable income or all or part of our net
capital gain, but will be subject to tax at regular corporate rates on such
income. In addition, we are subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions considered as paid by us with
respect to any calendar year are less than the sum of (1) 85% of our ordinary
income for the calendar year, (2) 95% of our capital gains net income for the
calendar year and (3) 100% of any undistributed income from prior periods. Under
certain circumstances, federal or state regulatory authorities may restrict our
ability, as a subsidiary of the Bank, to make distributions to our stockholders
in an amount necessary to retain our REIT qualification. Such a restriction
could

                                       17
<PAGE>
result in us failing to qualify as a REIT. To the extent our REIT taxable income
may exceed the actual cash received for a particular period, we may not have
sufficient liquidity to make distributions necessary to retain our REIT
qualification.

WE HAVE IMPOSED OWNERSHIP LIMITATIONS TO PROTECT OUR ABILITY TO QUALIFY AS A
REIT, HOWEVER, IF OWNERSHIP OF THE COMMON STOCK OF THE BANK BECOMES CONCENTRATED
IN A SMALL NUMBER OF INDIVIDUALS WE MAY FAIL TO QUALIFY AS A REIT

    To maintain our status as a REIT, not more than 50% in value of our
outstanding shares may be owned, directly or indirectly, by five or fewer
individuals, as defined in the Internal Revenue Code, or the Code, to include
certain entities, during the last half of each taxable year. We currently
satisfy this requirement because for this purpose our common stock held by the
Bank is treated as held by the Bank's stockholders. However, it is possible that
the ownership of the Bank might become sufficiently concentrated in the future
such that five or fewer individuals would be treated as having constructive
ownership of more than 50% of the value of our stock. We may have difficulty
monitoring the daily ownership and constructive ownership of our outstanding
shares and, therefore, we cannot assure you that we will continue to meet the
share ownership requirement. This risk may be increased in the future as the
Bank implements its common stock repurchase program because repurchases may
cause ownership in the Bank to become more concentrated. In addition, while the
fact that the Series A preferred shares may be redeemed or exchanged will not
affect our REIT status prior to any such redemption or exchange, the redemption
or exchange of all or a part of the Series A preferred shares could adversely
affect our ability to satisfy the share ownership requirements in the future.

WE MAY REDEEM THE SERIES A PREFERRED SHARES AT ANY TIME UPON THE OCCURRENCE OF A
TAX EVENT

    At any time following the occurrence of certain changes in the tax laws or
regulations concerning REITs, we will have the right to redeem the Series A
preferred shares in whole, subject to the prior written approval of the FDIC. We
would have the right to redeem the Series A preferred shares if we received an
opinion of counsel to the effect that, as a result of changes to the tax laws or
regulations:

    (1) dividends paid by us with respect to our capital stock are not fully
       deductible by us for income tax purposes; or

    (2) we are otherwise unable to qualify as a REIT.

    The occurrence of such changes in the tax laws or regulations will not,
however, give the holders of the Series A preferred shares any right to have
their shares redeemed.

WE ARE DEPENDENT IN VIRTUALLY EVERY PHASE OF OUR OPERATIONS ON THE DILIGENCE AND
SKILL OF THE MANAGEMENT OF THE BANK

    The Bank, which holds all of our common stock, is involved in virtually
every aspect of our existence. We have five officers and no other employees and
do not have any independent corporate infrastructure. Under an advisory
agreement between us and the Bank, the Bank administers our day-to-day
activities, including monitoring of our credit quality and advising us with
respect to the acquisition, management, financing and disposition of mortgage
assets and our operations generally. Under a master service agreement between us
and the Bank, the Bank services our loan portfolio. The advisory agreement has
an initial term of five years with an automatic one-year renewal feature and the
master service agreement has a one year term with an automatic renewal feature.
Both the master service agreement and the advisory agreement are subject to
earlier termination upon provision of 30 days and 90 days notice, respectively.
The Bank may subcontract all or a portion of its obligations under the advisory
agreement to its affiliates or, with the approval of a majority of the Board of
Directors as well as a majority of the independent directors, subcontract its
obligations under the advisory agreement to unrelated third parties. The Bank
will not, in connection with the subcontracting

                                       18
<PAGE>
of any of its obligations under the advisory agreement, be discharged or
relieved from its obligations under the advisory agreement. The loss of the
services of the Bank, or the inability of the Bank to effectively provide such
services whether as a result of the loss of key members of the Bank's
management, early termination of the agreements or otherwise, and our inability
to replace such services on favorable terms, or at all, could adversely affect
our ability to conduct our operations.

OUR RELATIONSHIP WITH THE BANK MAY CREATE CONFLICTS OF INTEREST

    The Bank and its affiliates may have interests which are not identical to
ours and therefore conflicts of interest have arisen and may arise in the future
with respect to transactions between us and the Bank such as:

    ACQUISITION OF MORTGAGE ASSETS.  We anticipate that we will from time to
time continue to purchase additional mortgage assets. We intend to acquire all
or substantially all of such mortgage assets from the Bank, on terms that are
comparable to those that could be obtained by us if such mortgage assets were
purchased from unrelated third parties. Neither we nor the Bank currently have
specific policies with respect to the purchase by us from the Bank of particular
loans or pools of loans, other than that such assets must be eligible to be held
by a REIT. Although these purchases are structured to take advantage of the
underwriting procedures of the Bank, and while we believe that any agreements
and transactions between us, on the one hand, and the Bank and/or its affiliates
on the other hand, are fair to all parties and consistent with market terms,
neither we nor the Bank have obtained any third-party valuation to confirm
whether we will be paying fiar market value for these loans, nor do we
anticipate doing so in the future. Additionally, through limiting our source of
purchased mortgage assets solely to those originated or purchased by the Bank,
our portfolio will generally reflect the nature, scope and risk of the Bank's
portfolio rather than a more diverse portfolio composed of mortgage loans also
purchased from other lenders.

    SERVICING OF OUR MORTGAGE ASSETS BY THE BANK.  Our loans are serviced by the
Bank pursuant to the terms of the master service agreement. The Bank in its role
as servicer under the terms of the master service agreement receives a fee equal
to 0.20% per annum, payable monthly, on the gross outstanding principal balances
of loans serviced. The master service agreement requires the Bank to service the
loan portfolio in a manner substantially the same as for similar work performed
by the Bank for transactions on its own behalf. This will become especially
important as the Bank services any loans which become classified or are placed
on non-performing status, or are renegotiated due to the financial deterioration
of the borrower. While we believe that the Bank will diligently pursue
collection of any non-performing loans, we cannot assure you that this will be
the case. Our ability to make timely payments of dividends will depend in part
upon the Bank's prompt collection efforts on our behalf.

    FUTURE DISPOSITIONS BY US OF MORTGAGE ASSETS TO THE BANK OR ITS
AFFILIATES.  The master service agreement provides that foreclosures and
dispositions of the mortgage assets are to be performed with a view toward
maximizing our recovery as owner of the mortgage assets, and the Bank shall
service the mortgage assets solely with a view toward our interests, and without
regard to the interests of the Bank or any of its affiliates. However, we cannot
assure you that any such agreement or transaction will be on terms as favorable
to us as would have been obtained from unaffiliated third parties. The Bank may
seek to exercise its influence over our affairs so as to cause the sale of the
mortgage assets owned by us and their replacement by lesser quality loans
purchased from the Bank or elsewhere which could adversely affect out business
and our ability to make timely payments of dividends.

    FUTURE MODIFICATIONS OF THE ADVISORY AGREEMENT OR MASTER SERVICE
AGREEMENT.  Should we seek to modify either the advisory agreement or the master
service agreement, we would rely upon our officers, all of whom are also
officers of the Bank, and/or our directors, a majority of whom are also
directors of the Bank. Thus, our officers and/or directors would be responsible
for taking positions with respect to such agreements that, while in our best
interests, would not be in the best interests of the Bank.

                                       19
<PAGE>
Although the termination, modification or decision not to renew the advisory
agreement and/or the master service agreement requires the approval of a
majority of our independent directors, the Bank, as holder of all of our
outstanding common stock, controls the election of all our directors, including
the independent directors. We cannot assure you that such modifications will be
on terms as favorable to us as those that could have been obtained from
unaffiliated third parties.

    THE TERMS OF OUR GUARANTEE OF OBLIGATIONS OF THE BANK.  We have guaranteed
all of the obligations of the Bank under advances the Bank may receive from time
to time from the Federal Home Loan Bank of Boston, and have agreed to pledge a
significant amount of our assets in connection with those advances. The assets
we pledge to the FHLBB will vary from time to time; however, the potential
exists for us to pledge all of our assets to the FHLBB to secure advances to the
Bank. In addition, the Bank has pledged to the FHLBB all of the shares of our
capital stock it owns as collateral for its FHLBB borrowings. Under the terms of
the pledge, if the Bank becomes undercapitalized the FHLBB may require the Bank
to dissolve Capital Crossing Preferred such that the assets of Capital Crossing
Preferred are distributed to the Bank. In this circumstance the holders of
Series A Preferred Stock, would receive their liquidation preference only to the
extent there are available assets of Capital Crossing Preferred following
satisfaction of our outstanding obligations, including our guarantee of the
Bank's FHLBB borrowings. At March 31, 2001, approximately $20 million, or 9%, of
our assets have been pledged to and accepted by the FHLBB to secure advances to
the Bank. The Bank has also agreed that it will not request or accept advances
from the FHLBB in excess of Capital Crossing Preferred's total stockholders
equity, less the stockholders equity attributable to the Series A preferred
shares. As of March 31, 2001, this restriction would limit the Bank's ability to
receive advances in excess of approximately $210 million. As of March 31, 2001,
the Bank had $139.0 million in outstanding FHLBB borrowings. The guarantee and
pledge were approved by our independent directors, subject to certain
requirements and limitations, including the requirement that the Bank pay us a
guarantee fee. Any default by the Bank on its obligations which would require us
to satisfy our guarantee could adversely affect out business and our ability to
make timely payments of dividends.

    THE MASTER LOAN PURCHASE AGREEMENT WAS NOT THE RESULT OF ARM'S-LENGTH
NEGOTIATIONS.  We acquire loans pursuant to the master mortgage loan puchase
agreement between us and the Bank, at an amount equal to the Bank's net carrying
value for those mortgage assets. While we believe that the master mortgage loan
puchase agreement was fair to all parties and consistent with market terms, all
of our officers and a majority of our directors are also officers and/or
directors of the Bank and/or affiliates of the Bank. The Bank, as holder of all
of our outstanding common stock, controls the election of all our directors,
including the independent directors. We cannot assure you that the master
mortgage loan purchase agreement was entered into on terms as favorable to us as
those that could have been obtained from unaffiliated third parties.

NEITHER WE NOR THE BANK HAVE SPECIFIC POLICIES WITH RESPECT TO THE PURCHASE BY
US FROM THE BANK OF PARTICULAR LOANS OR POOLS OF LOANS

    The lack of specific policies with respect to the purchase by us of loans
from the Bank could result in our acquiring lower quality mortgage assets from
the Bank than if such policies were otherwise in place. Neither we nor the Bank
currently have specific policies with respect to the purchase by us from the
Bank of particular loans or pools of loans, other than that such assets must be
eligible to be held by a REIT. Our Board of Directors has adopted certain
policies to guide the acquisition and disposition of assets but these policies
may be revised from time to time at the discretion of the Board of Directors
without a vote of our stockholders. We intend to acquire all or substantially
all of the additional mortgage assets we may acquire in the future from the Bank
on terms that are comparable to those that could be obtained by us if such
mortgage assets were purchased from unrelated third parties, but we cannot
assure you that this will always be the case.

                                       20
<PAGE>
OUR BOARD OF DIRECTORS HAS BROAD DISCRETION TO REVISE OUR STRATEGIES

    Our Board of Directors has established our investment and operating
strategies. These strategies may be revised from time to time at the discretion
of the Board of Directors without a vote of our stockholders. Changes in our
strategies could have a negative effect on our stockholders.

WE DO NOT OBTAIN THIRD-PARTY VALUATIONS AND THEREFORE WE MAY PAY MORE OR RECEIVE
LESS THAN FAIR MARKET VALUE FOR OUR MORTGAGE ASSETS

    To date, we have not obtained third-party valuations as part of our loan
acquisitions or dispositions and do not anticipate obtaining third-party
valuations for future acquisitions and dispositions of mortgage assets. We do
not intend to obtain third-party valuations even where we are acquiring mortgage
assets from, or disposing mortgage assets to, one of our affiliates, including
the Bank. Accordingly, we may pay our affiliates, including the Bank, more than
the fair market value of mortgage assets we acquire and we may receive less than
the fair market value of the mortgage assets we sell based on a third-party
valuation.

WE MAY PAY MORE THAN FAIR MARKET VALUE FOR MORTGAGES WE PURCHASE FROM THE BANK
BECAUSE WE DO NOT ENGAGE IN ARM'S-LENGTH NEGOTIATIONS WITH THE BANK

    We acquire mortgage assets from the Bank under a master mortgage loan
purchase agreement between us and the Bank, at an amount equal to the Bank's net
carrying value for those mortgages regarding the consideration to be paid.
Accordingly, if the Bank's net carrying value exceeds the fair market value of
the mortgage assets, we would pay the Bank more than the fair market value for
those mortgage assets.

A DECLINE IN INTEREST RATES COULD REDUCE OUR EARNINGS AND AFFECT OUR ABILITY TO
PAY DIVIDENDS

    Our income consists primarily of interest earned on our mortgage assets and
short-term investments. A significant portion of our mortgage assets bear
interest at adjustable rates. If there is a decline in interest rates, then we
will experience a decrease in income available to be distributed to our
stockholders. If interest rates decline, we may also experience an increase in
prepayments on our mortgage assets and may find it difficult to purchase
additional mortgage assets bearing rates sufficient to support payment of
dividends on the Series A preferred shares. Because the dividend rate on the
Series A preferred shares is fixed, a significant decline in interest rates
could materially adversely affect our ability to pay dividends on the Series A
preferred shares.

                                       21
<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 Capital Crossing
Preferred 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. Capital Crossing Preferred's market risk arises primarily from
interest rate risk inherent in holding loans. To that end, management actively
monitors and manages the interest rate risk exposure of Capital Crossing
Preferred.

    Capital Crossing Preferred's management reviews, among other things, the
sensitivity of Capital Crossing Preferred's assets to interest rate changes, the
book and market values of assets, purchase and sale activity, and anticipated
loan payoffs. Capital Crossing's senior management also approves and establishes
pricing and funding decisions with respect to Capital Crossing Preferred's
overall asset and liability composition.

    Capital Crossing Preferred's methods for evaluating interest rate risk
include an analysis of its interest-earning assets maturing or repricing within
a given time period. Since Capital Crossing Preferred has no interest-bearing
liabilities, a period of rising interest rates would tend to result in an
increase in net interest income. A period of falling interest rates, would tend
to adversely affect net interest income.

    The following table sets forth Capital Crossing Preferred's interest-rate
sensitive assets categorized by repricing dates and weighted average rates at
March 31, 2001. For fixed rate instruments, the repricing date is the maturity
date. For adjustable-rate instruments, the repricing date is deemed to be the
earliest possible interest rate adjustment date. Assets that are subject to
immediate repricing are placed in the overnight column.

<TABLE>
<CAPTION>
                                                        WITHIN     ONE TO     TWO TO    THREE TO   FOUR TO      OVER
                                                         ONE        TWO       THREE       FOUR       FIVE       FIVE
                                           OVERNIGHT     YEAR      YEARS      YEARS      YEARS      YEARS      YEARS      TOTAL
                                           ---------   --------   --------   --------   --------   --------   --------   --------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                        <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest-bearing deposits in banks.......  $ 76,527    $     --    $   --     $   --     $   --     $   --     $   --    $ 76,527
  Average interest rate..................      4.93%
Fixed-rate loans (1).....................        --      29,875     7,644      4,872      3,410      2,176      4,221      52,198
  Average interest rate..................                  9.26%     8.88%      8.82%      8.86%      8.84%      8.56%
Adjustable-rate loans (1)................    24,588      79,381     1,432        624      2,731         --         --     108,756
  Average interest rate..................      9.51%       8.74%     8.34%      8.97%      7.77%
                                           --------    --------    ------     ------     ------     ------     ------    --------
    Total rate-sensitive assets..........  $101,115    $109,256    $9,076     $5,496     $6,141     $2,176     $4,221    $237,481
                                           ========    ========    ======     ======     ======     ======     ======    ========
</TABLE>

------------------------------

(1) Loans are presented at gross amounts before deducting discounts on purchased
    loans, the allowance for loan losses and net deferred loan income.

    Based on Capital Crossing Preferred's experience, management applies the
assumption that, on average, approximately 25% of the outstanding fixed and
adjustable rate loans will prepay annually. The above table does not include
loans which have been placed on non-accrual status.

    At March 31, 2001, the fair value of net loans was $151,638,000 as compared
to the net carrying value of net loans of $146,816,000. The fair value of
interest-bearing deposits in banks approximates carrying value.

                                       22
<PAGE>
                                    PART II

ITEM 1. LEGAL PROCEEDINGS

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

                                       23
<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.

<TABLE>
<S>                                                    <C>  <C>
                                                       CAPITAL CROSSING PREFERRED CORPORATION

                                                       By:              /s/ RICHARD WAYNE
                                                            -----------------------------------------
                                                                          Richard Wayne
Date: May 11, 2001                                           President (Principal Executive Officer)

                                                       By:             /s/ JOHN L. CHAMPION
                                                            -----------------------------------------
                                                                         John L. Champion
Date: May 11, 2001                                           Treasurer (Principal Financial Officer)
</TABLE>

                                       24