##### 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, 2008
 Commission File Number 000-25193
 CAPITAL CROSSING PREFERRED CORPORATION
  Massachusetts  (State or other jurisdiction of incorporation or organization)
 04-3439366  (I.R.S. Employer Identification Number)
 101 Summer Street, Boston, Massachusetts
 02110  (Zip Code)
 (617) 880-1000  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 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 Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    6Executive Level Overview
    
    
    6Application of Critical Accounting Policies and Estimates
    
    
    7Results of Operations
    
    
    9Changes in Financial Conditions
    
    
    11Interest Rate Risk
    
    
    12Significant Concentration of Credit Risk
    
    
    12Liquidity Risk Management
    
    
    13Impact of Inflation and Changing Prices
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    13Item 4.
    
    Controls and Procedures
    
    
    14PART II Other InformationItem 1A.
    
    Risk Factors
    
    
    15Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    15Item 5.
    
    Other Information
    
    
    15Item 6.
    
    Exhibits
    
    
    15Signatures
    
    
    16Exhibit Index
    
    
    17EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32 Section 906 Certification of CEO & CFO




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##### Table of Contents



PART I
 
 Item 1. Financial Statements
 Capital Crossing Preferred Corporation
 
 Balance Sheets
 (unaudited)
 March 31,
    
    
    December 31,2008
    
    
    2007(in thousands)ASSETSCash account with parent
    
    $
    208
    
    
    $
    208Interest bearing deposits with parent
    
    
    53,495
    
    
    
    50,373Total cash and cash equivalents
    
    
    53,703
    
    
    
    50,581Loans, net of discounts and net deferred loan income
    
    
    64,213
    
    
    
    66,654Less allowance for loan losses
    
    
    (1,065
    )
    
    
    (1,180
    )Loans, net
    
    
    63,148
    
    
    
    65,474Accrued interest receivable
    
    
    269
    
    
    
    298Other assets
    
    
    26
    
    
    
    5$
    117,146
    
    
    $
    116,358LIABILITIES AND STOCKHOLDERS EQUITYAccrued expenses and other liabilities
    
    $
    1,047
    
    
    $
    989Total liabilities
    
    
    1,047
    
    
    
    989Stockholders equity:Preferred 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 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
    
    
    115,354
    
    
    
    115,354Retained earnings
    
    
    730
    
    
    
    Total stockholders equity
    
    
    116,099
    
    
    
    115,369$
    117,146
    
    
    $
    116,358
  1




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##### Table of Contents



Capital Crossing Preferred Corporation
 
 Statements of Income
 (unaudited)
 Three Months Ended March 31,2008
    
    
    2007(in thousands)Interest income:Interest and fees on loans
    
    $
    1,295
    
    
    $
    1,949Interest on interest-bearing deposits
    
    
    227
    
    
    
    231Total interest income
    
    
    1,522
    
    
    
    2,180Reduction in allowance for loan losses
    
    
    115
    
    
    
    104Total interest income, after reduction in
allowance
for loan losses
    
    
    1,637
    
    
    
    2,284Other income:Guarantee fee income
    
    
    
    
    
    
    20Total other income
    
    
    
    
    
    
    20Operating expenses:Loan servicing and advisory services
    
    
    48
    
    
    
    62Other general and administrative
    
    
    43
    
    
    
    43Total operating expenses
    
    
    91
    
    
    
    105Net income
    
    
    1,546
    
    
    
    2,199Preferred stock dividends
    
    
    816
    
    
    
    1,560Net income available to common stockholder
    
    $
    730
    
    
    $
    639
  2




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##### Table of Contents



Capital Crossing Preferred Corporation
 
 Statements of Changes in Stockholders Equity
 (unaudited)
 Three Months ended March 31, 2008Preferred Stock
    
    
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    TotalSeries B
    
    
    Series D
    
    
    Common Stock
    
    
    Paid-in
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Equity(In Thousands)Balance at December 31, 2007
    
    
    1
    
    
    $
    
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    115,354
    
    
    $
    
    
    
    $
    115,369Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,546
    
    
    
    1,546Cumulative dividends on preferred stock, Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Dividends on preferred stock, Series D
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (797
    )
    
    
    (797
    )Balance at March 31, 2008
    
    
    1
    
    
    $
    
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    115,354
    
    
    $
    730
    
    
    $
    116,099
 Three Months ended March 31, 2007Preferred 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(In Thousands)Balance at December 31, 2006
    
    
    1,416
    
    
    $
    14
    
    
    
    1
    
    
    $
    
    
    
    
    1,840
    
    
    $
    18
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    172,640
    
    
    $
    
    
    
    $
    172,687Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,199
    
    
    
    2,199Redemption of preferred stock, 
Series A and C
    
    
    (1,416
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (1,840
    )
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,529
    )
    
    
    
    
    
    
    (32,561
    )Dividends on preferred stock, Series A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (314
    )
    
    
    (314
    )Cumulative dividends on preferred stock, Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Dividends on preferred stock, Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (430
    )
    
    
    (430
    )Dividends on preferred stock, Series D
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (797
    )
    
    
    (797
    )Balance at March 31, 2007
    
    
    
    
    
    $
    
    
    
    
    1
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    140,111
    
    
    $
    639
    
    
    $
    140,765
  3




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Capital Crossing Preferred Corporation
 
 Statements of Cash Flows
 (unaudited)
 Three Months Ended March 31,2008
    
    
    2007(in thousands)Cash flows provided by operating activities:Net income
    
    $
    1,546
    
    
    $
    2,199Adjustments to reconcile net income to net cash provided by operating activities:Reduction in allowance for loan losses
    
    
    (115
    )
    
    
    (104
    )Other, net
    
    
    66
    
    
    
    (292
    )Net cash provided by operating activities
    
    
    1,497
    
    
    
    1,803Cash flows provided by investing activities:Loan repayments
    
    
    2,441
    
    
    
    3,963Net cash provided by investing activities
    
    
    2,441
    
    
    
    3,963Cash flows used in financing activities:Redemption of preferred stock, Series A and C
    
    
    
    
    
    
    (32,561
    )Payment of preferred stock dividends
    
    
    (816
    )
    
    
    (1,560
    )Net cash used in financing activities
    
    
    (816
    )
    
    
    (34,121
    )Net change in cash and cash equivalents
    
    
    3,122
    
    
    
    (28,355
    )Cash and cash equivalents at beginning of period
    
    
    50,581
    
    
    
    83,900Cash and cash equivalents at end of period
    
    $
    53,703
    
    
    $
    55,545
  4




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##### Table of Contents



Capital Crossing Preferred Corporation
 
 Notes to Financial Statements
 Three Months Ended March 31, 2008 and 2007
 Note 1. Basis of Presentation
        Note 2. Recent Accounting Pronouncements
  5




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   
 Executive Level Overview
      6




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Application of Critical Accounting Policies and Estimates
  Discounts on Acquired Loans.
      Allowance for Loan Losses.
  7




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8




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Results of Operations for the Three Months Ended March 31, 2008 and 2007
 Interest income
  Three Months Ended March 31,2008
    
    
    2007Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestBalance
    
    
    Income
    
    
    Yield
    
    
    Balance
    
    
    Income
    
    
    Yield(dollars in thousands)Loans, net (1)
    
    $
    64,730
    
    
    $
    1,295
    
    
    
    8.05
    %
    
    $
    88,466
    
    
    $
    1,949
    
    
    
    8.93
    %Interest-bearing deposits
    
    
    52,146
    
    
    
    227
    
    
    
    1.75
    
    
    
    82,584
    
    
    
    231
    
    
    
    1.13Total interest-earning assets
    
    $
    116,876
    
    
    $
    1,522
    
    
    
    5.24
    %
    
    $
    171,050
    
    
    $
    2,180
    
    
    
    5.17
    %
 
 (1)
    
    Non-performing loans are excluded from average balance calculations.     9




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##### Table of Contents



Three Months Ended March 31,2008
    
    
    2007Interest
    
    
    
    
    
    
    InterestIncome
    
    
    Yield
    
    
    Income
    
    
    Yield(dollars in thousands)Regularly scheduled interest and accretion income
    
    $
    1,192
    
    
    
    7.41
    %
    
    $
    1,767
    
    
    
    8.10
    %Interest and fee income recognized on loan pay-offs:Accretable discount
    
    
    58
    
    
    
    0.36
    
    
    
    161
    
    
    
    0.74Other interest and fee income
    
    
    45
    
    
    
    0.28
    
    
    
    21
    
    
    
    0.09103
    
    
    
    0.64
    
    
    
    182
    
    
    
    0.83$
    1,295
    
    
    
    8.05
    %
    
    $
    1,949
    
    
    
    8.93
    %
   Reduction in allowance for loan losses
  Other income
  Operating expenses
   Preferred stock dividends
  10




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Changes in Financial Condition
 Interest-bearing deposits with parent
  Loan portfolio
  March 31,
    
    
    December 31,2008
    
    
    2007(in thousands)Mortgage loans on real estate:Commercial real estate
    
    $
    39,351
    
    
    $
    41,400Multi-family residential
    
    
    24,014
    
    
    
    24,396One-to-four family residential
    
    
    865
    
    
    
    877Total
    
    
    64,230
    
    
    
    66,673Other
    
    
    13
    
    
    
    13Total loans, net of discounts
    
    
    64,243
    
    
    
    66,686Less:Allowance for loan losses
    
    
    (1,065
    )
    
    
    (1,180
    )Net deferred loan fees
    
    
    (30
    )
    
    
    (32
    )Loans, net
    
    $
    63,148
    
    
    $
    65,474
    11




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Discounts on Acquired Loans.
  Three Months EndedMarch 31,2008
    
    
    2007(in thousands)Balance at beginning of period
    
    $
    155
    
    
    $
    215Amounts collected under the cost recovery method
    
    
    
    
    
    
    (2
    )Balance at end of period
    
    $
    155
    
    
    $
    213
 Allowance for Loan Losses.
  Three Months EndedMarch 31,2008
    
    
    2007(in thousands)Balance at beginning of period
    
    $
    1,180
    
    
    $
    1,519Reduction in allowance for loan losses
    
    
    (115
    )
    
    
    (104
    )Balance at end of period
    
    $
    1,065
    
    
    $
    1,415
 
 Interest Rate Risk
  
 Significant Concentration of Credit Risk
   12




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Liquidity Risk Management
   
    
    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
    13




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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
    
    $
    53,495
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    53,4951.75
    %Fixed-rate loans (1)
    
    
    
    
    
    
    15,181
    
    
    
    9,832
    
    
    
    7,439
    
    
    
    5,772
    
    
    
    3,548
    
    
    
    6,270
    
    
    
    48,0427.72
    %
    
    
    7.57
    %
    
    
    7.45
    %
    
    
    7.54
    %
    
    
    6.99
    %
    
    
    6.77
    %Adjustable-rate loans (1)
    
    
    1,033
    
    
    
    11,763
    
    
    
    1,734
    
    
    
    504
    
    
    
    386
    
    
    
    259
    
    
    
    
    
    
    
    15,6798.89
    %
    
    
    6.92
    %
    
    
    6.44
    %
    
    
    7.06
    %
    
    
    7.02
    %
    
    
    6.97
    %Total rate-sensitive assets
    
    $
    54,528
    
    
    $
    26,944
    
    
    $
    11,566
    
    
    $
    7,943
    
    
    $
    6,158
    
    
    $
    3,807
    
    
    $
    6,270
    
    
    $
    117,216
 
 (1)
    
    Loans are presented at net amounts before deducting the allowance for loan losses and exclude
non-performing loans.  
 Item 4. Controls and Procedures
   14




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PART II
 
 Item 1A. Risk Factors
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
 Changes in Officers and Directors
  
 Item 6. Exhibits
 31.1
    
    Certification pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) of the President.31.2
    
    Certification pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) of the Chief Financial Officer.32
    
    Certification pursuant to 18 U.S.C. Section 1350 of the President and Chief Financial Officer.
 15




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SIGNATURES
  CAPITAL CROSSING PREFERRED CORPORATION
 Date: May 15, 2008
    By:
    /s/  Nancy E. CoyleNancy E. CoylePresident (Principal Executive Officer) Date: May 15, 2008
    By:
    /s/  Lonnie RothbortLonnie RothbortChief Financial Officer (Principal Financial Officer) 
 16




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EXHIBIT INDEX
 PageExhibit
    
    Item
    
    Number31.1
    
    Certification pursuant to Exchange Act Rules
13a-15(e) and 15d-15(e) of the President.
    
    
    1831.2
    
    Certification pursuant to Exchange Act Rules
13a-15(e) and 15d-15(e) of the Chief Financial
Officer.
    
    
    1932
    
    Certification pursuant to 18 U.S.C. Section 1350
of the President and Chief Financial Officer.
    
    
    20
 17