##### 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, 2009
 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)
 1271
Avenue of the Americas,
46thFloor, New York, New York
 10020  (Zip Code)
 (646) 333-8809  (Registrants telephone number, including area code)
 þ o
 o 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
    
    
    10Executive Level Overview
    
    
    11Application of Critical Accounting Policies and Estimates
    
    
    13Results of Operations for the Three Months Ended March 31, 2009 and 2008
    
    
    15Changes in Financial Conditions
    
    
    17Interest Rate Risk
    
    
    18Significant Concentration of Credit Risk
    
    
    19Liquidity Risk Management
    
    
    19Impact of Inflation and Changing Prices
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4T. Controls and Procedures
    
    
    20PART II Other InformationItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    21Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibit Index
    
    
    23EX-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 31,2009
    
    
    2008(in thousands)ASSETSCash account with parent
    
    $
    199
    
    
    $
    208Interest-bearing deposits with parent
    
    
    45,935
    
    
    
    43,549Total cash and cash equivalents
    
    
    46,134
    
    
    
    43,757Loans held
for sale
    
    
    35,546
    
    
    
    Loans held for investment, net of discounts and net deferred loan income
    
    
    
    
    
    
    52,998Less allowance for loan losses
    
    
    
    
    
    
    (915
    )Loans held for investment, net
    
    
    
    
    
    
    52,083Accrued interest receivable
    
    
    184
    
    
    
    224Other assets
    
    
    26
    
    
    
    3Total assets
    
    $
    81,890
    
    
    $
    96,067LIABILITIES AND STOCKHOLDERS EQUITYAccrued expenses and other liabilities
    
    $
    1,146
    
    
    $
    931Total liabilities
    
    
    1,146
    
    
    
    931Stockholders 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
    
    
    95,121
    
    
    
    95,121Accumulated deficit
    
    
    (14,392
    )
    
    
    Total stockholders equity
    
    
    80,744
    
    
    
    95,136Total liabilities and stockholders equity
    
    $
    81,890
    
    
    $
    96,067
  1




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##### Table of Contents



Capital Crossing Preferred Corporation
 
 Statements of Income
(unaudited)
 Three Months Ended March 31,2009
    
    
    2008(in thousands)Interest income:Interest and fees on loans
    
    $
    829
    
    
    $
    1,295Interest on interest-bearing deposits
    
    
    191
    
    
    
    227Total interest income
    
    
    1,020
    
    
    
    1,522Provision for loan losses
    
    
    (915
    )
    
    
    (115
    )Valuation allowance on loans held for sale
    
    
    (15,181
    )
    
    
    Net revenue
    
    
    (13,246
    )
    
    
    1,637Operating expenses:Loan servicing and advisory services
    
    
    44
    
    
    
    48Other general and administrative
    
    
    286
    
    
    
    43Total operating expenses
    
    
    330
    
    
    
    91Net (loss) income
    
    
    (13,576
    )
    
    
    1,546Preferred stock dividends
    
    
    816
    
    
    
    816Net (loss) income available to common stockholder
    
    $
    (14,392
    )
    
    $
    730
  2




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##### Table of Contents



Capital Crossing Preferred Corporation
 
 Statements of Changes in Stockholders Equity
(unaudited)
 Three Months ended March 31, 2009RetainedPreferred Stock
    
    
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Earnings /
    
    
    TotalSeries B
    
    
    Series D
    
    
    Common Stock
    
    
    Paid-in
    
    
    (Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit )
    
    
    Equity(In Thousands)Balance at December 31, 2008
    
    
    1
    
    
    $
    
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    95,121
    
    
    $
    
    
    
    $
    95,136Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,576
    )
    
    
    (13,576
    )Cumulative dividends on preferred stock, Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Dividends on preferred stock, Series D
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (797
    )
    
    
    (797
    )Balance at March 31, 2009
    
    
    1
    
    
    $
    
    
    
    
    1,500
    
    
    $
    15
    
    
    
    
    
    
    $
    
    
    
    $
    95,121
    
    
    $
    (14,392
    )
    
    $
    80,744Three 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
  3




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Capital Crossing Preferred Corporation
 
 Statements of Cash Flows
(unaudited)
 Three Months Ended March 31,2009
    
    
    2008(in thousands)Cash flows provided by operating activities:Net (loss) income
    
    $
    (13,576
    )
    
    $
    1,546Adjustments to reconcile net income to net cash provided by operating activities:Valuation
allowance on loans held for sale
    
    
    15,181
    
    
    
    Provision for loan losses
    
    
    (915
    )
    
    
    (115
    )Other, net
    
    
    232
    
    
    
    66Net cash provided by operating activities
    
    
    922
    
    
    
    1,497Cash flows provided by investing activities:Loan repayments
    
    
    2,271
    
    
    
    2,441Net cash provided by investing activities
    
    
    2,271
    
    
    
    2,441Cash flows used in financing activities:Payment of preferred stock dividends
    
    
    (816
    )
    
    
    (816
    )Net cash used in financing activities
    
    
    (816
    )
    
    
    (816
    )Net change in cash and cash equivalents
    
    
    2,377
    
    
    
    3,122Cash and cash equivalents at beginning of period
    
    
    43,757
    
    
    
    50,581Cash and cash equivalents at end of period
    
    $
    46,134
    
    
    $
    53,703
  4




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Capital Crossing Preferred Corporation
 
 Notes to Financial Statements
Three Months Ended March 31, 2009 and 2008
 Note 1. Basis of Presentation
        5




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Note 2. Recent Developments
 Bankruptcy of Lehman Brothers Holdings Inc.
  Abandoned Liquidation of the Company.
   Asset Exchange
  Aurora Bank  Regulatory Actions and Capital Levels
  6




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Note 3. Recent Accounting Pronouncements
   " 
 Note 4. Loans
    7




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##### Table of Contents



March 31,2009(in thousands)Mortgage loans on real estate:Commercial real estate
    
    $
    21,463Multi-family residential
    
    
    13,484One-to-four family residential
    
    
    617Total
    
    
    35,564Other
    
    
    9Total loans
    
    
    35,573Less:Net deferred loan fees
    
    
    (27
    )Loans, net of valuation
allowance of $15,181
    
    $
    35,546
  December 31,2008(in thousands)Mortgage loans on real estate:Commercial real estate
    
    $
    31,647Multi-family residential
    
    
    20,384One-to-four family residential
    
    
    981Total
    
    
    53,012Other
    
    
    13Total loans, net of discounts
    
    
    53,025Less:Allowance for loan losses
    
    
    (915
    )Net deferred loan fees
    
    
    (27
    )Loans, net
    
    $
    52,083
  8




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Three Months EndedMarch 31,2009
    
    
    2008(in thousands)Balance at beginning of period
    
    $
    915
    
    
    $
    1,180Provision for loan losses
    
    
    (915
    )
    
    
    (115
    )Balance at end of period
    
    $
    
    
    
    $
    1,065
   Note 5. Fair Market Value of Loans Held for Sale
        Level I
    
    Level II
    
    Level III
    
    Total(in thousands)Loans Held for Sale
    
    
    
    
    
    
    
    
    
    $
    35,546
    
    
    $
    35,546
    
    
    
    
    
    
    $
    35,546
    
    
    $
    35,546
 9




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NetBalance
    
    Payments,
    
    Net
    
    Gains
/ (Losses)

    
    BalanceDecember 31,
    
    Purchases
    
    Transfers
    

Included In Revenue (1)
    
    March 31,2008
    
    and Sales
    
    In/(Out)
    
    Realized
    
    Unrealized
    
    2009(in thousands)Loans Held for Sale
    
    $
    0
    
    
    $
    0
    
    
    $
    50,727
    
    
    $
    0
    
    
    
    ($15,181
    )
    
    $
    35,546Total
    
    $
    0
    
    
    $
    0
    
    
    $
    50,727
    
    
    $
    0
    
    
    
    ($15,181
    )
    
    $
    35,546
 
 (1)
    
    The current period gains/ (losses) from changes in values of Level III
loans represent gains/ (losses) from changes in values of those loans only for the
period(s) in which the loans were classified as Level III. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    10




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Executive Level Overview
       Impact of Economic Recession
  11




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Bankruptcy of LBHI
  Abandoned Liquidation of the Company
   Asset Exchange
  Regulatory Actions Involving Aurora Bank
  12




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Application of Critical Accounting Policies and Estimates
  Loans Held for Sale.
   Discounts on Acquired Loans.
 13




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Allowance for Loan Losses.
    14




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Results of Operations for the Three Months Ended March 31, 2009 and 2008
 Interest income
  Three Months Ended March 31,2009
    
    
    2008Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestBalance
    
    
    Income
    
    
    Yield
    
    
    Balance
    
    
    Income
    
    
    Yield(dollars in thousands)Loans, net (1)
    
    $
    48,847
    
    
    $
    829
    
    
    
    6.88
    %
    
    $
    64,730
    
    
    $
    1,295
    
    
    
    8.05
    %Interest-bearing deposits
    
    
    44,398
    
    
    
    191
    
    
    
    1.74
    
    
    
    52,146
    
    
    
    227
    
    
    
    1.75Total interest-earning assets
    
    $
    93,245
    
    
    $
    1,020
    
    
    
    4.44
    %
    
    $
    116,876
    
    
    $
    1,522
    
    
    
    5.24
    %
 
 (1)
    
    For purposes of providing a meaningful yield comparison, the forgoing table reflects the
average cost of the loans, net of discounts, and not the fair value of the loan portfolio.
Non-performing loans are excluded from average balance calculations.      15




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008Interest
    
    
    
    
    
    
    InterestIncome
    
    
    Yield
    
    
    Income
    
    
    Yield(dollars in thousands)Regularly scheduled interest and accretion income
    
    $
    739
    
    
    
    6.13
    %
    
    $
    1,192
    
    
    
    7.41
    %Interest and fee income recognized on loan payoffs:Accretable discount
    
    
    70
    
    
    
    0.58
    
    
    
    58
    
    
    
    0.36Other interest and fee income
    
    
    20
    
    
    
    0.17
    
    
    
    45
    
    
    
    0.2890
    
    
    
    0.75
    
    
    
    103
    
    
    
    0.64$
    829
    
    
    
    6.88
    %
    
    $
    1,295
    
    
    
    8.05
    %
  Provisionforloanlosses
  Operatingexpenses
   Preferredstockdividends
  16




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Changes in Financial Condition
 Interest-bearingdepositswithparent
  Loanportfolio
  March 31,2009(in thousands)Mortgage loans on real estate:Commercial real estate
    
    $
    21,463Multi-family residential
    
    
    13,484One-to-four family residential
    
    
    617Total
    
    
    35,564Other
    
    
    9Total loans
    
    
    35,573Less:Net deferred loan fees
    
    
    (27
    )Loans, net of valuation allowance
of $15,181
    
    $
    35,546
  December 31,2008(in thousands)Mortgage loans on real estate:Commercial real estate
    
    $
    31,647Multi-family residential
    
    
    20,384One-to-four family residential
    
    
    981Total
    
    
    53,012Other
    
    
    13Total loans, net of discounts
    
    
    53,025Less:Allowance for loan losses
    
    
    (915
    )Net deferred loan fees
    
    
    (27
    )Loans, net
    
    $
    52,083
  17




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AllowanceforLoanLosses
   Three Months EndedMarch 31,2009
    
    
    2008(in thousands)Balance at beginning of period
    
    $
    915
    
    
    $
    1,180Provision for loan losses
    
    
    (915
    )
    
    
    (115
    )Balance at end of period
    
    $
    
    
    
    $
    1,065
  
 Interest Rate Risk
  18




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Significant Concentration of Credit Risk
   
 Liquidity Risk Management
    
 Impact of Inflation and Changing Prices
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  19




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Within
    
    
    Over One
    
    
    Over Two
    
    
    Over Three
    
    
    Over Four
    
    
    OverOne
    
    
    to Two
    
    
    to Three
    
    
    to Four
    
    
    to Five
    
    
    Five
    
    
    
    
    
    
    FairOvernight
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total
    
    
    Value(dollars in thousands)Interest-bearing deposits
    
    $
    45,935
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    45,935
    
    
    $
    45,9351.75
    %Fixed-rate loans (1)
    
    
    
    
    
    
    9,175
    
    
    
    7,634
    
    
    
    6,090
    
    
    
    3,589
    
    
    
    2,709
    
    
    
    5,691
    
    
    
    34,888
    
    
    
    25,5527.03
    %
    
    
    7.10
    %
    
    
    6.84
    %
    
    
    6.48
    %
    
    
    6.35
    %
    
    
    6.13
    %Adjustable-rate loans (1)
    
    
    736
    
    
    
    10,327
    
    
    
    660
    
    
    
    532
    
    
    
    388
    
    
    
    274
    
    
    
    175
    
    
    
    13,092
    
    
    
    7,9938.04
    %
    
    
    5.54
    %
    
    
    6.32
    %
    
    
    6.33
    %
    
    
    6.21
    %
    
    
    6.14
    %
    
    
    5.74
    %Total rate-sensitive assets
    
    $
    46,671
    
    
    $
    19,502
    
    
    $
    8,294
    
    
    $
    6,622
    
    
    $
    3,977
    
    
    $
    2,983
    
    
    $
    5,866
    
    
    $
    93,915
    
    
    $
    79,480
 
 (1)
    
    Loans are presented at net amounts and exclude non-performing loans.   
 Item 4T. Controls and Procedures
   20




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PART II
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
 A number of risk factors, including, without limitation, the risks factor set forth below and
the risk factors found in Item 1A of the Companys Annual Report on Form 10-K for the annual period
ended December 31, 2008, may cause the Companys actual results to differ materially from
anticipated future results, performance or achievements expressed or implied in any forward-looking
statements contained in this Quarterly Report on Form 10-Q or any other report filed by the Company
with the SEC. All of these factors should be carefully reviewed, and the reader of this Quarterly
Report on Form 10-Q should be aware that there may be other factors that could cause difference in
future results, performance or achievements.
 If the Company is unable to consummate the Exchange or an alternative transaction, the Companys
results of operations could be negatively affected.
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 10.1
    
    Asset Exchange Agreement between the Company and Lehman Brothers Bank, FSB (currently known as
Aurora Bank FSB), dated February 5, 2009, incorporated by reference from the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2008.31.1
    
    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.
 21




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CAPITAL CROSSING PREFERRED CORPORATION
 Date: May 20, 2009
    By:
    /s/  Lana FranksLana FranksPresident (Principal Executive Officer)Date: May 20, 2009
    By:
    /s/  Thomas OSullivanThomas OSullivanChief Financial Officer (Principal Financial Officer) 22




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EXHIBIT INDEX
 PageExhibit
    
    Item
    
    Number10.1
    
    Asset Exchange Agreement between the Company and Lehman Brothers Bank, FSB (currently
known as Aurora Bank FSB), dated February 5, 2009, incorporated by reference from the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2008.31.1
    
    Certification pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) of the President.
    
    
    2431.2
    
    Certification pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) of the Chief
Financial Officer.
    
    
    2532
    
    Certification pursuant to 18 U.S.C. Section 1350 of the President and Chief Financial
Officer.
    
    
    26
 23