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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the fiscal year ended December 31, 2005
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from            to
 Commission File Number: 0-23513
 WEBSTER PREFERRED CAPITAL CORPORATION
  Connecticut
    
    06-1478208(State or other jurisdiction of
    
    (I. R. S. Employerincorporation or organization)
    
    Identification Number)
 145 Bank Street, Waterbury, Connecticut
    
    06702(Address of principal executive offices)
    
    (Zip Code)
 203) 465-4366
 Securities registered pursuant to Section 12(b) of the Act:
 Securities registered pursuant to Section 12(g) of the Act:
 Title of Class
    
    Exchange where listedPreferred Stock, $1 par value
    
    NASDAQ
  o þ
  o þ
  þ o
 þ
  o o þ
  o þ




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##### 



WEBSTER PREFERRED CAPITAL CORPORATION
2005 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    5Item 1B.
    
    Unresolved Staff Comments
    
    
    9Item 2.
    
    Properties
    
    
    9Item 3.
    
    Legal Proceedings
    
    
    9Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    10PART IIItem 5.
    
    Market for the Registrants Common Equity and Related Stockholder Matters
    
    
    10Item 6.
    
    Selected Financial Data
    
    
    10Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 8.
    
    Financial Statements and Supplementary Data
    
    
    18Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    28Item 9A.
    
    Controls and Procedures
    
    
    28Item 9B.
    
    Other Information
    
    
    28PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    29Item 11.
    
    Executive Compensation
    
    
    30Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
    
    
    31Item 13.
    
    Certain Relationships and Related Transactions
    
    
    31Item 14.
    
    Principal Accountant Fees and Services
    
    
    32PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    33SIGNATURES
    
    
    34EXHIBITS
    
    
    35EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  2




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Forward Looking Statements
  
 PART I
 
 Item 1. Business
 General
      3




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Residential Mortgage Loans
   Investment Activities
 Mortgage-backed securities
  Other real estate assets
 Regulation
   4




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Taxation
   Employees
  Competition
  
 Item 1A. Risk Factors
  CONTROL BY WEBSTER BANK
  5




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DEPENDENCE UPON WEBSTER BANK AS ADVISOR AND SERVICER
  CONFLICTS OF INTEREST
  RISK OF FUTURE REVISIONS IN POLICIES AND STRATEGIES BY BOARD OF DIRECTORS
  6




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REGULATORY IMPACT ON THE COMPANY
   ADVERSE TAX CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
    7




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GEOGRAPHIC CONCENTRATION
  RISKS RELATED TO CHANGES IN INTEREST RATES
  REAL ESTATE MARKET CONDITIONS
  DELAYS IN LIQUIDATING DEFAULTED MORTGAGE LOANS
  8




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NO CREDIT ENHANCEMENT OR SPECIAL HAZARD INSURANCE
  RISK ASSOCIATED WITH LEVERAGE
    
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
  9




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
     For Year ended December 31,2005
    
    2004Average
    
    $
    11.04
    
    
    
    10.94High
    
    
    13.90
    
    
    
    11.74Low
    
    
    10.24
    
    
    
    10.23
  
 Item 6. Selected Financial Data
  Balance Sheet Data
 At December 31,(In thousands)
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Total assets
    
    $
    511,761
    
    
    
    537,346
    
    
    
    538,471
    
    
    
    631,237
    
    
    
    928,672Available for sale securities
    
    
    41,335
    
    
    
    20,709
    
    
    
    46,116
    
    
    
    110,061
    
    
    
    158,543Residential mortgage loans, net
    
    
    388,136
    
    
    
    475,879
    
    
    
    426,251
    
    
    
    379,590
    
    
    
    588,747Interest-bearing deposits
    
    
    77,000
    
    
    
    29,000
    
    
    
    52,000
    
    
    
    110,500
    
    
    
    167,500Total shareholders equity
    
    
    511,571
    
    
    
    537,160
    
    
    
    538,235
    
    
    
    630,992
    
    
    
    928,426
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Income Statement Data
 For the Year Ended December 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Total interest income
    
    $
    26,708
    
    
    
    26,450
    
    
    
    28,249
    
    
    
    42,255
    
    
    
    58,071Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90Gain on sale of securities
    
    
    
    
    
    
    536
    
    
    
    268
    
    
    
    
    
    
    
    Noninterest expenses
    
    
    294
    
    
    
    399
    
    
    
    329
    
    
    
    310
    
    
    
    384Net income
    
    
    26,414
    
    
    
    26,587
    
    
    
    28,188
    
    
    
    41,945
    
    
    
    57,597Preferred stock dividends
    
    
    863
    
    
    
    863
    
    
    
    863
    
    
    
    863
    
    
    
    863Net income available to common
shareholder
    
    $
    25,551
    
    
    
    25,724
    
    
    
    27,325
    
    
    
    41,082
    
    
    
    56,734
 Significant Statistical Data
 For the Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Net income per common shareBasic
    
    $
    255,505
    
    
    
    257,244
    
    
    
    273,254
    
    
    
    410,816
    
    
    
    567,336Dividends declared per common share
    
    
    249,195
    
    
    
    257,253
    
    
    
    274,366
    
    
    
    412,272
    
    
    
    570,141
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Summary
  
    
    2004 results included $536,000 of gains on sales of securities. There was no
corresponding gains in the 2005 results.
    
    Total interest income increased $258,000 in 2005 primarily due to the increased
yield on short term investments. The overall yield on earning assets increased to 4.97% in
2005 from 4.85% in 2004 as short-term market rates continued to rise throughout 2005. This
was offset, in part, by the downward pricing of adjustable rate mortgages combined with the
lower replacement yield on new mortgage assets.
 Critical Accounting Policies
  Allowance for Loan Losses
  11




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Financial Condition
   At December 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Fixed-rate loans:15 yr. loans
    
    $
    50,842
    
    
    
    63,747
    
    
    
    71,217
    
    
    
    55,956
    
    
    
    81,56620 yr. loans
    
    
    7,218
    
    
    
    8,083
    
    
    
    8,261
    
    
    
    3,132
    
    
    
    4,69325 yr. loans
    
    
    3,718
    
    
    
    4,037
    
    
    
    4,414
    
    
    
    2,542
    
    
    
    2,59830 yr. loans
    
    
    232,742
    
    
    
    273,028
    
    
    
    190,888
    
    
    
    138,008
    
    
    
    191,049Total fixed-rate loans
    
    
    294,520
    
    
    
    348,895
    
    
    
    274,780
    
    
    
    199,638
    
    
    
    279,906Variable-rate loans:15 yr. loans
    
    
    666
    
    
    
    1,009
    
    
    
    2,351
    
    
    
    1,605
    
    
    
    3,01520 yr. loans
    
    
    1,241
    
    
    
    5,246
    
    
    
    3,176
    
    
    
    3,127
    
    
    
    5,36825 yr. loans
    
    
    1,183
    
    
    
    1,382
    
    
    
    1,843
    
    
    
    2,680
    
    
    
    4,58130 yr. loans
    
    
    89,951
    
    
    
    118,287
    
    
    
    144,728
    
    
    
    173,482
    
    
    
    295,835Total variable-rate loans
    
    
    93,041
    
    
    
    125,924
    
    
    
    152,098
    
    
    
    180,894
    
    
    
    308,799Total residential mortgage loans
    
    
    387,561
    
    
    
    474,819
    
    
    
    426,878
    
    
    
    380,532
    
    
    
    588,705Premiums and deferred costs on loans, net
    
    
    2,597
    
    
    
    3,082
    
    
    
    1,479
    
    
    
    1,164
    
    
    
    2,181Less: allowance for loan losses
    
    
    (2,022
    )
    
    
    (2,022
    )
    
    
    (2,106
    )
    
    
    (2,106
    )
    
    
    (2,139
    )Residential mortgage loans, net
    
    $
    388,136
    
    
    
    475,879
    
    
    
    426,251
    
    
    
    379,590
    
    
    
    588,747
 Asset Quality
  12




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Nonperforming Assets and Delinquencies
  At December 31,(Dollars in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Loans accounted for on a nonaccrual basis:Residential fixed-rate loans
    
    $
    
    
    
    
    
    
    
    
    185
    
    
    
    247
    
    
    
    120Residential variable-rate loans
    
    
    97
    
    
    
    179
    
    
    
    173
    
    
    
    209
    
    
    
    425Total nonperforming loans
    
    
    97
    
    
    
    179
    
    
    
    358
    
    
    
    456
    
    
    
    545Other real estate owned
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    79
    
    
    
    88Total nonperforming assets
    
    $
    97
    
    
    
    179
    
    
    
    462
    
    
    
    535
    
    
    
    633Allowance for loan losses
    
    $
    2,022
    
    
    
    2,022
    
    
    
    2,106
    
    
    
    2,106
    
    
    
    2,139Allowance / nonperforming loans
    
    
    2,085
    %
    
    
    1,130
    
    
    
    588
    
    
    
    462
    
    
    
    392Allowance / total mortgage loans
    
    
    0.52
    
    
    
    0.43
    
    
    
    0.49
    
    
    
    0.55
    
    
    
    0.36
  At December 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Past due 30-89 days:Residential fixed-rate loans
    
    $
    723
    
    
    
    279
    
    
    
    287
    
    
    
    643
    
    
    
    583Residential variable-rate loans
    
    
    539
    
    
    
    266
    
    
    
    491
    
    
    
    1,176
    
    
    
    1,749Total
    
    $
    1,262
    
    
    
    545
    
    
    
    778
    
    
    
    1,819
    
    
    
    2,332
 Allowance for Loan Losses
    For the Year Ended December 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Balance at beginning of the year
    
    $
    2,022
    
    
    
    2,106
    
    
    
    2,106
    
    
    
    2,139
    
    
    
    2,059Provision charged to operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90Charge-offs
    
    
    
    
    
    
    (84
    )
    
    
    
    
    
    
    (33
    )
    
    
    (10
    )Balance at end of the year
    
    $
    2,022
    
    
    
    2,022
    
    
    
    2,106
    
    
    
    2,106
    
    
    
    2,139
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Liquidity and Capital Resources
    Asset/Liability Management
  14




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Results of Operations
   For the Years Ended December 31,2005
    
    
    2004
    
    
    2003Average
    
    
    Interest
    
    
    Average
    
    
    Average
    
    
    Interest
    
    
    Average
    
    
    Average
    
    
    Interest
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Income
    
    
    Yield
    
    
    Balance
    
    
    Income
    
    
    Yield
    
    
    Balance
    
    
    Income
    
    
    YieldMortgage loans, net
    
    $
    435,078
    
    
    
    23,052
    
    
    
    5.30
    %
    
    $
    455,756
    
    
    
    24,206
    
    
    
    5.31
    %
    
    $
    412,976
    
    
    
    22,989
    
    
    
    5.57
    %Mortgage-backed securities(a)
    
    
    19,218
    
    
    
    882
    
    
    
    4.59
    
    
    
    29,927
    
    
    
    1,491
    
    
    
    4.98
    
    
    
    79,825
    
    
    
    4,338
    
    
    
    5.43Interest-bearing deposits
    
    
    82,609
    
    
    
    2,774
    
    
    
    3.36
    
    
    
    59,121
    
    
    
    753
    
    
    
    1.27
    
    
    
    84,394
    
    
    
    922
    
    
    
    1.09Total
    
    $
    536,905
    
    
    
    26,708
    
    
    
    4.97
    %
    
    $
    544,804
    
    
    
    26,450
    
    
    
    4.85
    %
    
    $
    577,195
    
    
    
    28,249
    
    
    
    4.89
    %
   Years ended December 31,
    
    
    Years ended December 31,2005 v. 2004
    
    
    2004 v. 2003Increase (Decrease) due to
    
    
    Increase (Decrease) due to(In thousands)
    
    Rate
    
    
    Volume
    
    
    Total
    
    
    Rate
    
    
    Volume
    
    
    TotalInterest on interest-earning assets:Loans, net
    
    $
    (46
    )
    
    
    (1,108
    )
    
    
    (1,154
    )
    
    $
    (1,102
    )
    
    
    2,319
    
    
    
    1,217Mortgage-backed securities
    
    
    (109
    )
    
    
    (500
    )
    
    
    (609
    )
    
    
    (333
    )
    
    
    (2,514
    )
    
    
    (2,847
    )Interest-bearing deposits
    
    
    1,628
    
    
    
    393
    
    
    
    2,021
    
    
    
    136
    
    
    
    (305
    )
    
    
    (169
    )Net change in fully taxable-equivalent
net interest income
    
    $
    1,473
    
    
    
    (1,215
    )
    
    
    258
    
    
    $
    (1,299
    )
    
    
    (500
    )
    
    
    (1,799
    )
  15




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Impact of Inflation and Changing Prices
   Recent Accounting Standards
 Statement of Financial Accounting Standards
 Accounting Changes and Error
Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3, Accounting Changes
 Financial Accounting Standards Board Staff Positions
 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments Accounting
for Certain Investments in Debt and Equity Securities, Accounting for Noncurrent Marketable Equity Securities).
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
   Estimated Market Value Impact(In thousands)
    
    Amortized Cost
    
    
    Market Value
    
    
    -100 BP
    
    
    +100 BPAt December 31, 2005Mortgage-backed securities
    
    $
    41,835
    
    
    
    41,335
    
    
    
    521
    
    
    
    (580
    )Variable-rate residential loans
    
    
    93,041
    
    
    
    92,557
    
    
    
    1,168
    
    
    
    (1,262
    )Fixed-rate residential loans
    
    
    294,520
    
    
    
    293,051
    
    
    
    8,892
    
    
    
    (12,363
    )At December 31, 2004Mortgage-backed securities
    
    $
    20,688
    
    
    
    20,709
    
    
    
    524
    
    
    
    (664
    )Variable-rate residential loans
    
    
    125,924
    
    
    
    125,100
    
    
    
    1,635
    
    
    
    (1,878
    )Fixed-rate residential loans
    
    
    348,895
    
    
    
    354,998
    
    
    
    6,929
    
    
    
    (12,522
    )
     17




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Item 8. Financial Statements and Supplementary Data
 Report of Independent Registered Public Accounting Firm
 
     
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WEBSTER PREFERRED CAPITAL CORPORATION
 STATEMENTS OF CONDITION
 At December 31,(Dollars in thousands, except per share data)
    
    2005
    
    
    2004AssetsCash
    
    $
    3,402
    
    
    
    10,325Interest-bearing deposits
    
    
    77,000
    
    
    
    29,000Mortgage-backed securities available for sale, at fair value (Note 2)
    
    
    41,335
    
    
    
    20,709Residential mortgage loans, net (Note 3)
    
    
    388,136
    
    
    
    475,879Accrued interest receivable
    
    
    1,784
    
    
    
    280Prepaid expenses and other assets
    
    
    104
    
    
    
    1,153Total assets
    
    $
    511,761
    
    
    
    537,346Liabilities and Shareholders EquityAccrued dividends payable
    
    $
    180
    
    
    
    180Accrued expenses and other liabilities
    
    
    10
    
    
    
    6Total liabilities
    
    
    190
    
    
    
    186Shareholders EquitySeries B 8.625% cumulative redeemable preferred stock,
liquidation preference $10 per share; par value $1.00 per share;
1,000,000 shares authorized, issued and outstanding (Note 4)
    
    
    1,000
    
    
    
    1,000Common stock, par value $.01 per share; 1,000 shares authorized,
100 shares issued and outstanding
    
    
    1
    
    
    
    1Paid-in capital
    
    
    513,799
    
    
    
    538,799Distributions in excess of accumulated earnings
    
    
    (2,729
    )
    
    
    (2,661
    )Accumulated other comprehensive (loss) income
    
    
    (500
    )
    
    
    21Total shareholders equity
    
    
    511,571
    
    
    
    537,160Total liabilities and shareholders equity
    
    $
    511,761
    
    
    
    537,346
  19




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WEBSTER PREFERRED CAPITAL CORPORATION
 STATEMENTS OF INCOME
 Years Ended December 31,(In thousands, except per share data)
    
    2005
    
    
    2004
    
    
    2003Interest income:Loans (Note 5)
    
    $
    23,052
    
    
    
    24,206
    
    
    
    22,989Securities and interest-bearing deposits
    
    
    3,656
    
    
    
    2,244
    
    
    
    5,260Total interest income
    
    
    26,708
    
    
    
    26,450
    
    
    
    28,249Provision for loan losses (Note 3)
    
    
    
    
    
    
    
    
    
    
    Interest income after provision for loan losses
    
    
    26,708
    
    
    
    26,450
    
    
    
    28,249Noninterest income:Gain on sale of securities
    
    
    
    
    
    
    536
    
    
    
    268Noninterest expenses:Advisory fee expense paid to parent (Note 6)
    
    
    195
    
    
    
    195
    
    
    
    195Other noninterest expense
    
    
    99
    
    
    
    204
    
    
    
    134Total noninterest expense
    
    
    294
    
    
    
    399
    
    
    
    329Net income(Note 7)
    
    
    26,414
    
    
    
    26,587
    
    
    
    28,188Preferred stock dividends
    
    
    863
    
    
    
    863
    
    
    
    863Net income available to common shareholder
    
    $
    25,551
    
    
    
    25,724
    
    
    
    27,325Basic net income per common share
    
    $
    255,505
    
    
    
    257,244
    
    
    
    273,254
 STATEMENTS OF COMPREHENSIVE INCOME
 Years Ended December 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003Net income
    
    $
    26,414
    
    
    
    26,587
    
    
    
    28,188Other comprehensive loss:Unrealized net holding loss on securities
available for sale arising during the year
    
    
    (521
    )
    
    
    (431
    )
    
    
    (2,973
    )Reclassification adjustment for gains realized during
the year
    
    
    
    
    
    
    (536
    )
    
    
    (268
    )Other comprehensive loss
    
    
    (521
    )
    
    
    (967
    )
    
    
    (3,241
    )Comprehensive income
    
    $
    25,893
    
    
    
    25,620
    
    
    
    24,947
  20




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WEBSTER PREFERRED CAPITAL CORPORATION
 STATEMENTS OF SHAREHOLDERS EQUITY
 Distributions
    
    Accumulatedin Excess of
    
    OtherPreferred
    
    Common
    
    Paid-In
    
    Accumulated
    
    Comprehensive(In thousands, except per share data)
    
    Stock
    
    Stock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    TotalBalance, December 31, 2002
    
    $
    1,000
    
    
    
    1
    
    
    
    628,799
    
    
    
    (3,037
    )
    
    
    4,229
    
    
    
    630,992Net income for 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,188
    
    
    
    
    
    
    
    28,188Net unrealized loss on available
for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,241
    )
    
    
    (3,241
    )Dividends declared and paid:Return of capital dividend on common stock
    
    
    
    
    
    
    
    
    
    
    (90,000
    )
    
    
    
    
    
    
    
    
    
    
    (90,000
    )Common stock ($268,414 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,841
    )
    
    
    
    
    
    
    (26,841
    )Preferred stock Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (863
    )
    
    
    
    
    
    
    (863
    )Balance, December 31, 2003
    
    
    1,000
    
    
    
    1
    
    
    
    538,799
    
    
    
    (2,553
    )
    
    
    988
    
    
    
    538,235Net income for 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,587
    
    
    
    
    
    
    
    26,587Net unrealized loss on available
for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (967
    )
    
    
    (967
    )Dividends declared and paid:Common stock ($258,319 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,832
    )
    
    
    
    
    
    
    (25,832
    )Preferred stock Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (863
    )
    
    
    
    
    
    
    (863
    )Balance, December 31, 2004
    
    
    1,000
    
    
    
    1
    
    
    
    538,799
    
    
    
    (2,661
    )
    
    
    21
    
    
    
    537,160Net income for 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,414
    
    
    
    
    
    
    
    26,414Net unrealized loss on available
for sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (521
    )
    
    
    (521
    )Dividends declared and paid:Return of capital dividend on common stock
    
    
    
    
    
    
    
    
    
    
    (25,000
    )
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Common stock ($256,184 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,619
    )
    
    
    
    
    
    
    (25,619
    )Preferred stock Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (863
    )
    
    
    
    
    
    
    (863
    )Balance, December 31, 2005
    
    $
    1,000
    
    
    
    1
    
    
    
    513,799
    
    
    
    (2,729
    )
    
    
    (500
    )
    
    
    511,571
  21




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##### Table of Contents



WEBSTER PREFERRED CAPITAL CORPORATION
 STATEMENTS OF CASH FLOWS
 Years Ended December 31,(In thousands)
    
    2005
    
    2004
    
    2003Operating Activities:Net income
    
    $
    26,414
    
    
    
    26,587
    
    
    
    28,188Adjustments to reconcile net income to net cash provided
by operating activities:Net amortization and accretion
    
    
    878
    
    
    
    570
    
    
    
    925Gain on sale of securities
    
    
    
    
    
    
    (536
    )
    
    
    (268
    )(Increase) decrease in accrued interest receivable
    
    
    (1,504
    )
    
    
    71
    
    
    
    841Increase (decrease) in total liabilities
    
    
    4
    
    
    
    (50
    )
    
    
    (9
    )Decrease (increase) in prepaid expenses and other assets
    
    
    1,049
    
    
    
    520
    
    
    
    (150
    )Net cash provided by operating activities
    
    
    26,841
    
    
    
    27,162
    
    
    
    29,527Investing Activities:Purchase of mortgage-backed securities
    
    
    (24,658
    )
    
    
    
    
    
    
    (30,530
    )Principal repayments on mortgage-backed securities
    
    
    3,441
    
    
    
    9,270
    
    
    
    81,874Proceeds from sales of mortgage-backed securities
    
    
    
    
    
    
    15,600
    
    
    
    9,248(Increase) decrease in short-term investments
    
    
    (48,000
    )
    
    
    23,000
    
    
    
    58,500Purchase of loans
    
    
    
    
    
    
    (145,900
    )
    
    
    (195,140
    )Principal repayments of loans, net
    
    
    86,935
    
    
    
    95,817
    
    
    
    147,734Proceeds from other real estate owned sales
    
    
    
    
    
    
    95
    
    
    
    175Net cash provided (used) by investing activities
    
    
    17,718
    
    
    
    (2,118
    )
    
    
    71,861Financing Activities:Dividends paid on common and preferred stock
    
    
    (26,482
    )
    
    
    (26,695
    )
    
    
    (27,704
    )Return of capital dividend
    
    
    (25,000
    )
    
    
    
    
    
    
    (90,000
    )Net cash used by financing activities
    
    
    (51,482
    )
    
    
    (26,695
    )
    
    
    (117,704
    )Decrease in cash and cash equivalents
    
    
    (6,923
    )
    
    
    (1,651
    )
    
    
    (16,316
    )Cash and equivalents at beginning of year
    
    
    10,325
    
    
    
    11,976
    
    
    
    28,292Cash and equivalents at end of year
    
    $
    3,402
    
    
    
    10,325
    
    
    
    11,976Supplemental Schedule of Non-Cash Investing Activity:Transfer of residential mortgage loans to other real
estate owned
    
    $
    
    
    
    
    60
    
    
    
    200
  22




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##### Table of Contents



WEBSTER PREFERRED CAPITAL CORPORATION
 NOTES TO FINANCIAL STATEMENTS
 Note 1: Summary of Significant Accounting Policies
 a) Business
   b) Basis of Financial Statement Presentation
  c) Loans
   d) Allowance for Loan Losses
   23




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##### Table of Contents



e) Mortgage-Backed Securities
  f) Net Income Per Common Share
  g) Comprehensive Income
  h) Statement of Cash Flows
  Note 2: Mortgage-Backed Securities Available for Sale
  Amortized
    
    Unrealized
    
    Unrealized
    
    Estimated(In thousands)
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueDecember 31, 2005Available for sale portfolio
    
    $
    41,835
    
    
    
    
    
    
    
    (500
    )
    
    
    41,335December 31, 2004Available for sale portfolio
    
    $
    20,688
    
    
    
    21
    
    
    
    
    
    
    
    20,709
    24




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##### Table of Contents



Note 3: Residential Mortgage Loans, Net
  At December 31,(In thousands)
    
    2005
    
    2004Fixed-rate loans:15 yr. loans
    
    $
    50,842
    
    
    
    63,74720 yr. loans
    
    
    7,218
    
    
    
    8,08325 yr. loans
    
    
    3,718
    
    
    
    4,03730 yr. loans
    
    
    232,742
    
    
    
    273,028Total fixed-rate loans
    
    
    294,520
    
    
    
    348,895Variable-rate loans:15 yr. loans
    
    
    666
    
    
    
    1,00920 yr. loans
    
    
    1,241
    
    
    
    5,24625 yr. loans
    
    
    1,183
    
    
    
    1,38230 yr. loans
    
    
    89,951
    
    
    
    118,287Total variable-rate loans
    
    
    93,041
    
    
    
    125,924Total residential mortgage loans
    
    
    387,561
    
    
    
    474,819Premiums and deferred fees on loans, net
    
    
    2,597
    
    
    
    3,082Less: allowance for loan losses
    
    
    (2,022
    )
    
    
    (2,022
    )Residential mortgage loans, net
    
    $
    388,136
    
    
    
    475,879
  Years Ended December 31,(In thousands)
    
    2005
    
    2004
    
    2003Balance at beginning of year
    
    $
    2,022
    
    
    
    2,106
    
    
    
    2,106Provision charged to operations
    
    
    
    
    
    
    
    
    
    
    Charge-offs
    
    
    
    
    
    
    (84
    )
    
    
    Balance at end of year
    
    $
    2,022
    
    
    
    2,022
    
    
    
    2,106
  25




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##### Table of Contents



Note 4: Redeemable Preferred Stock
  Note 5: Servicing
   Note 6: Advisory Services
   Note 7: Income Taxes
   26




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##### Table of Contents



Note 8: Summary of Estimated Fair Values of Financial Instruments
  At December 31,(In thousands)
    
    2005
    
    2004Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash
    
    $
    3,402
    
    
    
    3,402
    
    
    
    10,325
    
    
    
    10,325Interest-bearing deposits
    
    
    77,000
    
    
    
    77,000
    
    
    
    29,000
    
    
    
    29,000Mortgage-backed securities
    
    
    41,335
    
    
    
    41,335
    
    
    
    20,709
    
    
    
    20,709Residential mortgages
    
    
    390,158
    
    
    
    385,608
    
    
    
    477,901
    
    
    
    480,098Less: allowance for loan losses
    
    
    (2,022
    )
    
    
    (2,022
    )
    
    
    (2,022
    )
    
    
    (2,022
    )Residential mortgages, net
    
    
    388,136
    
    
    
    383,586
    
    
    
    475,879
    
    
    
    478,076
    27




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##### Table of Contents



Note 9: Selected Quarterly Financial Data (unaudited)
 2005(In thousands, except share data)
    
    First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth QuarterInterest income
    
    $
    6,670
    
    
    
    6,732
    
    
    
    6,693
    
    
    
    6,613Noninterest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noninterest expenses
    
    
    57
    
    
    
    79
    
    
    
    80
    
    
    
    78Net income
    
    
    6,613
    
    
    
    6,653
    
    
    
    6,613
    
    
    
    6,535Preferred dividends
    
    
    216
    
    
    
    215
    
    
    
    216
    
    
    
    216Net income available to common
shareholder
    
    $
    6,397
    
    
    
    6,438
    
    
    
    6,397
    
    
    
    6,319Basic net income per common share
    
    $
    63,970
    
    
    
    64,380
    
    
    
    63,970
    
    
    
    63,185
 2004(In thousands, except share data)
    
    First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth QuarterInterest income
    
    $
    6,402
    
    
    
    6,687
    
    
    
    6,666
    
    
    
    6,695Noninterest income
    
    
    
    
    
    
    352
    
    
    
    184
    
    
    
    Noninterest expenses
    
    
    120
    
    
    
    144
    
    
    
    58
    
    
    
    77Net income
    
    
    6,282
    
    
    
    6,895
    
    
    
    6,792
    
    
    
    6,618Preferred dividends
    
    
    216
    
    
    
    215
    
    
    
    216
    
    
    
    216Net income available to common
shareholder
    
    $
    6,066
    
    
    
    6,680
    
    
    
    6,576
    
    
    
    6,402Basic net income per common share
    
    $
    60,660
    
    
    
    66,800
    
    
    
    65,760
    
    
    
    64,024
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Item 9A. Disclosure Controls and Procedures
   
 Item 9B. Other Information
 None
 28




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##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant
   Name
    
    Age at December 31, 2005
    
    Position and Offices HeldWilliam T. Bromage
    
    
    60
    
    
    President and DirectorHarriet Munrett Wolfe
    
    
    52
    
    
    DirectorWilliam J. Healy
    
    
    61
    
    
    DirectorGregory S. Madar
    
    
    43
    
    
    Senior Vice President, Chief
Accounting Officer and
Assistant SecretaryMark S. Lyon
    
    
    45
    
    
    Secretary
  William T. Bromage
 Harriet Munrett Wolfe
 William J. Healy
 Gregory S. Madar
 Mark S. Lyon
 Code of Ethics
  29




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##### Table of Contents



Audit Committee Matters
  Section 16(a) Beneficial Ownership Reporting Compliance
  
 Item 11. Executive Compensation
    The Advisor
   30




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
  Name and Address of Beneficial Owner
    
    Amount of Beneficial Ownership
    
    Percent of Class of Outstanding SharesWebster Bank
145 Bank Street
Waterbury, CT 06702
    
    100 shares
    
    Common  100%William T. Bromage
President and Director
    
    -0-
    
    -0-Harriet Munrett Wolfe
Director
    
    -0-
    
    -0-William J. Healy
Director
    
    -0-
    
    -0-Gregory S. Madar
Senior Vice President, Chief
Accounting Officer and Assistant
Secretary
    
    300 shares
    
    Series B Preferred Stock*Mark S. Lyon
Secretary
    
    -0-
    
    -0-All Officers and Directors as a group
    
    300 shares
    
    Series B Preferred Stock*
 
 *
    
    Less then one percent  
 Item 13. Certain Relationships and Related Transactions
  31




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##### Table of Contents



Dependence upon Webster Bank as Advisor and Servicer
  
 Item 14. Principal Accountant Fees and Services
 Audit and Non-Audit Fees
  2005
    
    
    2004Audit Fees (1)
    
    $
    29,000
    
    
    
    26,800Audit Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    Total
    
    $
    29,000
    
    
    
    26,800
 
 (1)
    
    Audit Fees consist of fees billed for professional services rendered for the audit of
the Companys annual financial statements and review of the interim financial statements
included in quarterly reports, and services that are normally provided in connection with
statutory and regulatory filings or engagements.Before the principal accountant is engaged by the Company to render audit or non-audit
services, the engagement is approved by the Companys Board of Directors. 32




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
    Exhibit Number
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Webster Preferred Capital
Corporation (the Company) (incorporated herein by reference from Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1997).3.3
    
    Certificate of Amendment for the Series B 8.625% Cumulative Redeemable
Preferred Stock of the Company (incorporated herein by reference from Exhibit 3.3 to
the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1997).3.4
    
    Amended and Restated By-Laws of the Company (incorporated herein by reference
from Exhibit 3.4 to the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).4.2
    
    Specimen of certificate representing the Series B 8.625% Cumulative Redeemable
Preferred Stock of the Company (incorporated herein by reference from Exhibit 4.2 to
the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1997).10.1
    
    Mortgage Assignment Agreement, made as of March 17, 1997, by and between
Webster Bank and the Company (incorporated herein by reference from Exhibit 10.1 to the
Companys Registration Statement on Form S-11 (File No. 333-38685) filed with the
Securities and Exchange Commission (the SEC) on October 24, 1997).10.2
    
    Master Service Agreement, dated March 17, 1997, between Webster Bank and the
Company (incorporated herein by reference from Exhibit 10.2 to the Companys
Registration Statement on Form S-11 (File No. 333-38685) filed with the SEC on October
24, 1997).10.3
    
    Advisory Service Agreement, made as of October 20, 1997, by and between Webster
Bank and the Company (incorporated herein by reference from Exhibit 10.3 to the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1997).31.1
    
    Certificate of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Written Statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by the Companys Principal Executive Officer.32.2
    
    Written Statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by the Companys Principal Financial Officer.
 (b)
    
    See (a) (3) for a list of all exhibits filed herewith or incorporated by reference.(c)
    
    There are no financial statements or financial statement schedules which were excluded from
this Report which are required to be included herein.
 33




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##### Table of Contents



SIGNATURES
  WEBSTER PREFERRED CAPITAL CORPORATIONRegistrantBY:
    
    /s/ William T. BromageWilliam T. Bromage, President and DirectorDate: March 28, 2006
  By:
    
    /s/ William T. BromageWilliam T. Bromage, President and Director(Principal Executive Officer)By:
    
    /s/ Gregory S. MadarGregory S. Madar, Senior Vice President,Treasurer and Assistant Secretary(Principal Financial and Accounting Officer)By:
    
    /s/ William J. HealyWilliam J. Healy, DirectorBy:
    
    /s/ Harriet M. WolfeHarriet Munrett Wolfe, Director
 34