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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

Commission File Number: 000-33461

FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 91-1971389                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|111 Pine Street, 2nd Floor, San Francisco, California          |  | 94111                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (415) 392-1400

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to
Section 12(g) of the Act:

8.875% Noncumulative Perpetual Series B Preferred Stock

7.25% Noncumulative Perpetual Series D Preferred Stock

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 ̈

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No x

The number
of shares outstanding of the registrants common stock, par value $0.01 per share, as of August 4, 2006 was 29,353,033 shares.



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FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

TABLE OF CONTENTS



|                               |  |                                                                                              |  |   
|------------------------------ |  | -------------------------------------------------------------------------------------------- |  | --
|PART I  FINANCIAL INFORMATION
|                               |  |                                                                                             
|Item 1.                        |  | Financial Statements (Unaudited):                                                            |  |   
|                               |  |                                                                                             
|                               |  | Balance Sheet at June 30, 2006 and December 31, 2005                                         |  | 3 
|                               |  |                                                                                             
|                               |  | Statement of Income for the Three and Six Months Ended June 30, 2006 and 2005                |  | 4 
|                               |  |                                                                                             
|                               |  | Statement of Changes in Stockholders Equity for the Six Months Ended June 30, 2006 and 2005 |  | 5 
|                               |  |                                                                                             
|                               |  | Statement of Cash Flows for the Six Months Ended June 30, 2006 and 2005                      |  | 6 
|                               |  |                                                                                             
|                               |  | Notes to Financial Statements                                                                |  | 7 
|                               |  |                                                                                             
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations        |  | 11
|                               |  |                                                                                             
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                   |  | 15
|                               |  |                                                                                             
|Item 4.                        |  | Controls and Procedures                                                                      |  | 16
|                              
|PART II  OTHER INFORMATION   
|                               |  |                                                                                             
|Item 1.                        |  | Legal Proceedings                                                                            |  | 16
|                               |  |                                                                                             
|Item 1A.                       |  | Risk Factors                                                                                 |  | 17
|                               |  |                                                                                             
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                  |  | 17
|                               |  |                                                                                             
|Item 3.                        |  | Defaults Upon Senior Securities                                                              |  | 17
|                               |  |                                                                                             
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                          |  | 17
|                               |  |                                                                                             
|Item 5.                        |  | Other Information                                                                            |  | 17
|                               |  |                                                                                             
|Item 6.                        |  | Exhibits                                                                                     |  | 17
|                               | 
|SIGNATURES                     |  | 18                                                                                          



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PART 1 - FINANCIAL INFORMATION



|Item 1. | Financial Statements.
|------- | ---------------------

The following interim
financial statements as of and for the three and six months ended June 30, 2006 are unaudited. However, the financial statements reflect all adjustments (which included only normal recurring adjustments) that are, in the opinion of management,
necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented.

FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)

BALANCE SHEET

(Unaudited)



|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                      |  | June 30, 2006 |             |   | December 31,2005 |  
|ASSETS                                                                                                                                                                                |  |               |             |   |                  |   |             |  
|Cash and short-term investments on deposit with First Republic Bank                                                                                                                   |  | $             | 6,441,000   |   |                  | $ | 17,250,000  |  
|                                                                                                                                                                                      |  |              
|Single family mortgage loans                                                                                                                                                          |  |               | 290,661,000 |   |                  |   | 283,530,000 |  
|Multifamily mortgage loans                                                                                                                                                            |  |               | 36,423,000  |   |                  |   | 31,249,000  |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total mortgage loans                                                                                                                                                                  |  |               | 327,084,000 |   |                  |   | 314,779,000 |  
|                                                                                                                                                                                      |  |              
|Less: Allowance for loan losses                                                                                                                                                       |  |               | (481,000    | ) |                  |   | (481,000    | )
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Loans, net                                                                                                                                                                            |  |               | 326,603,000 |   |                  |   | 314,298,000 |  
|                                                                                                                                                                                      |  |              
|Accrued interest receivable                                                                                                                                                           |  |               | 1,626,000   |   |                  |   | 1,469,000   |  
|Prepaid expenses                                                                                                                                                                      |  |               | 16,000      |   |                  |   | 3,000       |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total Assets                                                                                                                                                                          |  | $             | 334,686,000 |   |                  | $ | 333,020,000 |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|                                                                                                                                                                                      |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                  |  |               |             |   |                  |   |             |  
|Liabilities:                                                                                                                                                                          |  |               |             |   |                  |   |             |  
|Payable to First Republic Bank (Note 3)                                                                                                                                               |  | $             | 25,000      |   |                  | $ | 25,000      |  
|Other payables                                                                                                                                                                        |  |               | 71,000      |   |                  |   | 77,000      |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total liabilities                                                                                                                                                                     |  |               | 96,000      |   |                  |   | 102,000     |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|                                                                                                                                                                                      |  |              
|Stockholders equity (Note 4 and 5):                                                                                                                                                  |  |               |             |   |                  |   |             |  
|Preferred stock, $0.01 par value per share; 10,000,000 shares authorized:                                                                                                             |  |               |             |   |                  |   |             |  
|10.50% perpetual, exchangeable, noncumulative Series A preferred stock; $1,000 liquidation value per share; 55,000 shares authorized, issued
and outstanding                          |  |               | 55,000,000  |   |                  |   | 55,000,000  |  
|8.875% perpetual, exchangeable, noncumulative Series B preferred stock; $25 liquidation value per share; 1,840,000 shares authorized,
1,680,000 shares issued and outstanding         |  |               | 42,000,000  |   |                  |   | 42,000,000  |  
|5.70% perpetual, convertible, exchangeable, noncumulative Series C preferred stock; $1,000 liquidation value per share; 10,000 shares
authorized, 7,000 shares issued and outstanding |  |               | 7,000,000   |   |                  |   | 7,000,000   |  
|7.25% perpetual, exchangeable, noncumulative Series D preferred stock; $25 liquidation value per share; 2,400,000 shares authorized, issued
and outstanding                           |  |               | 60,000,000  |   |                  |   | 60,000,000  |  
|Common stock, $0.01 par value; 50,000,000 shares authorized; 29,353,033 and 29,353,353 shares issued and outstanding at June 30, 2006 and
December 31, 2005, respectively             |  |               | 294,000     |   |                  |   | 294,000     |  
|Additional paid-in capital                                                                                                                                                            |  |               | 168,824,000 |   |                  |   | 168,824,000 |  
|Retained earnings (accumulated deficit)                                                                                                                                               |  |               | 1,472,000   |   |                  |   | (200,000    | )
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total stockholders equity                                                                                                                                                            |  |               | 334,590,000 |   |                  |   | 332,918,000 |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|                                                                                                                                                                                      |  |              
|Total Liabilities and Stockholders Equity                                                                                                                                            |  | $             | 334,686,000 |   |                  | $ | 333,020,000 |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  

See accompanying notes to financial statements.



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FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)

STATEMENT OF INCOME

(Unaudited)



|                                                                       |  |                            |           |                           |   |           |  |      |           |  |   |          
|---------------------------------------------------------------------- |  | -------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                                       |  | Three Months EndedJune 30, |           | Six Months Ended June 30,
|                                                                       |  | 2006                       |           | 2005                      |   | 2006      |  | 2005
|Interest income:                                                       |  |                            |           |                           |   |           |  |      |           |  |   |          
|Interest on mortgage loans                                             |  | $                          | 4,472,000 |                           | $ | 4,042,000 |  | $    | 8,822,000 |  | $ | 8,053,000
|Interest on short-term investments on deposit with First Republic Bank |  |                            | 65,000    |                           |   | 37,000    |  |      | 116,000   |  |   | 59,000   
|                                                                       |  |                            |           |                           |   |           |  |      |           |  |   |          
|Total interest income                                                  |  |                            | 4,537,000 |                           |   | 4,079,000 |  |      | 8,938,000 |  |   | 8,112,000
|                                                                       |  |                            |           |                           |   |           |  |      |           |  |   |          
|                                                                       |  |                            |           |                          
|Operating expense:                                                     |  |                            |           |                           |   |           |  |      |           |  |   |          
|Advisory fees expense payable to First Republic Bank (Note 3)          |  |                            | 25,000    |                           |   | 25,000    |  |      | 50,000    |  |   | 50,000   
|General and administrative expense                                     |  |                            | 46,000    |                           |   | 69,000    |  |      | 90,000    |  |   | 130,000  
|                                                                       |  |                            |           |                           |   |           |  |      |           |  |   |          
|Total operating expense                                                |  |                            | 71,000    |                           |   | 94,000    |  |      | 140,000   |  |   | 180,000  
|                                                                       |  |                            |           |                           |   |           |  |      |           |  |   |          
|                                                                       |  |                            |           |                          
|Net income                                                             |  |                            | 4,466,000 |                           |   | 3,985,000 |  |      | 8,798,000 |  |   | 7,932,000
|                                                                       |  |                            |           |                          
|Dividends on preferred stock (Note 6)                                  |  |                            | 3,563,000 |                           |   | 3,564,000 |  |      | 7,126,000 |  |   | 7,126,000
|                                                                       |  |                            |           |                           |   |           |  |      |           |  |   |          
|                                                                       |  |                            |           |                          
|Net income available to common stockholders                            |  | $                          | 903,000   |                           | $ | 421,000   |  | $    | 1,672,000 |  | $ | 806,000  
|                                                                       |  |                            |           |                           |   |           |  |      |           |  |   |          

See accompanying notes to financial statements.



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FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)

STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(Unaudited)



|                                  |  |                 |             |              |   |                            |  |   |                                        |   |  |       |            |   |  |   |             |  
|--------------------------------- |  | --------------- | ----------- | ------------ | - | -------------------------- |  | - | -------------------------------------- | - |  | ----- | ---------- | - |  | - | ----------- | -
|                                  |  | Preferred Stock |             | Common Stock |   | Additional Paid-in Capital |  |   | RetainedEarnings (Accumulated Deficit) |   |  | Total |           
|Balance as of January 1, 2005     |  | $               | 164,000,000 |              | $ | 294,000                    |  | $ | 166,923,000                            |   |  | $     | (200,000   | ) |  | $ | 331,017,000 |  
|Net income                        |  |                 |            |              |   |                           |  |   |                                       |   |  |       | 7,932,000  |   |  |   | 7,932,000   |  
|Dividends on preferred stock      |  |                 |            |              |   |                           |  |   |                                       |   |  |       | (7,126,000 | ) |  |   | (7,126,000  | )
|Repurchase shares of common stock |  |                 |            |              |   |                           |  |   | (23,000                                | ) |  |       |           |   |  |   | (23,000     | )
|                                  |  |                 |             |              |   |                            |  |   |                                        |   |  |       |            |   |  |   |             |  
|Balance as of June 30, 2005       |  | $               | 164,000,000 |              | $ | 294,000                    |  | $ | 166,900,000                            |   |  | $     | 606,000    |   |  | $ | 331,800,000 |  
|                                  |  |                 |             |              |   |                            |  |   |                                        |   |  |       |            |   |  |   |             |  
|                                  |  |                 |             |              |  
|Balance as of January 1, 2006     |  | $               | 164,000,000 |              | $ | 294,000                    |  | $ | 168,824,000                            |   |  | $     | (200,000   | ) |  | $ | 332,918,000 |  
|Net income                        |  |                 |            |              |   |                           |  |   |                                       |   |  |       | 8,798,000  |   |  |   | 8,798,000   |  
|Dividends on preferred stock      |  |                 |            |              |   |                           |  |   |                                       |   |  |       | (7,126,000 | ) |  |   | (7,126,000  | )
|                                  |  |                 |             |              |   |                            |  |   |                                        |   |  |       |            |   |  |   |             |  
|Balance as of June 30, 2006       |  | $               | 164,000,000 |              | $ | 294,000                    |  | $ | 168,824,000                            |   |  | $     | 1,472,000  |   |  | $ | 334,590,000 |  
|                                  |  |                 |             |              |   |                            |  |   |                                        |   |  |       |            |   |  |   |             |  

See accompanying notes to financial statements.



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FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)

STATEMENT OF CASH FLOWS

(Unaudited)



|                                                                                  |  |                           |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | Six Months Ended June 30, |            
|                                                                                  |  | 2006                      |             |   | 2005 |  
|Operating activities:                                                             |  |                           |             |   |      |   |             |  
|Net income                                                                        |  | $                         | 8,798,000   |   |      | $ | 7,932,000   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |             |   |      |   |             |  
|Amortization of premium on loans                                                  |  |                           | 152,000     |   |      |   | 123,000     |  
|(Increase) decrease in accrued interest receivable                                |  |                           | (157,000    | ) |      |   | 6,000       |  
|Increase in receivable from First Republic Bank                                   |  |                           |            |   |      |   | (3,000      | )
|Increase in prepaid expenses                                                      |  |                           | (13,000     | ) |      |   | (10,000     | )
|Increase in payable to First Republic Bank                                        |  |                           |            |   |      |   | 6,000       |  
|(Decrease) increase in other payables                                             |  |                           | (6,000      | ) |      |   | 61,000      |  
|                                                                                  |  |                           |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |                           | 8,774,000   |   |      |   | 8,115,000   |  
|                                                                                  |  |                           |             |   |      |   |             |  
|                                                                                  |  |                          
|Investing activities:                                                             |  |                           |             |   |      |   |             |  
|Loans acquired from First Republic Bank                                           |  |                           | (52,193,000 | ) |      |   | (34,272,000 | )
|Principal payments on loans                                                       |  |                           | 39,736,000  |   |      |   | 39,112,000  |  
|                                                                                  |  |                           |             |   |      |   |             |  
|Net cash (used for) provided by investing activities                              |  |                           | (12,457,000 | ) |      |   | 4,840,000   |  
|                                                                                  |  |                           |             |   |      |   |             |  
|                                                                                  |  |                          
|Financing activities:                                                             |  |                           |             |   |      |   |             |  
|Dividends paid on preferred stock                                                 |  |                           | (7,126,000  | ) |      |   | (7,126,000  | )
|Dividends paid on common stock                                                    |  |                           |            |   |      |   | (1,000      | )
|Repurchase of common stock                                                        |  |                           |            |   |      |   | (23,000     | )
|                                                                                  |  |                           |             |   |      |   |             |  
|Net cash used for financing activities                                            |  |                           | (7,126,000  | ) |      |   | (7,150,000  | )
|                                                                                  |  |                          
|(Decrease) increase in cash and cash equivalents                                  |  |                           | (10,809,000 | ) |      |   | 5,805,000   |  
|Cash and cash equivalents at beginning of year                                    |  |                           | 17,250,000  |   |      |   | 4,476,000   |  
|                                                                                  |  |                           |             |   |      |   |             |  
|Cash and cash equivalents at end of period                                        |  | $                         | 6,441,000   |   |      | $ | 10,281,000  |  
|                                                                                  |  |                           |             |   |      |   |             |  

See accompanying notes to financial statements.



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FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)

NOTES TO FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

First Republic Preferred Capital Corporation (the Company) is a
Nevada corporation formed by First Republic Bank (the Bank) in April 1999 for the purpose of raising capital for the Bank. The Companys principal business is acquiring, holding, financing and managing assets secured by real estate
mortgages and other obligations secured by real property, as well as certain other qualifying real estate investment trust (REIT) assets (collectively, the Mortgage Assets). The Mortgage Assets presently held by the Company
are loans secured by single family and multifamily real estate properties (Mortgage Loans) that were acquired from the Bank. The Company expects that all, or substantially all, of its Mortgage Assets will continue to be Mortgage Loans
acquired from the Bank. The Company has elected to be taxed as a REIT and intends to make distributions to its stockholders such that the Company is relieved of substantially all income taxes relating to ordinary income under applicable tax
regulations. Accordingly, no provision for income taxes is included in the accompanying financial statements.

As of June 30, 2006,
the Company has issued 29,353,033 shares of common stock, par value $0.01 per share. The Bank owns all of the common stock, except for 240 shares held by certain of the Banks former employees. Earnings per share data is not presented, as the
Companys common stock is not publicly traded.

These interim financial statements are intended to be read in conjunction with the
Companys 2005 Annual Report on Form 10-K, Financial Statements and Notes thereto. Interim results should not be considered indicative of results to be expected for the full year.

The results of operations of the Company and the Bank are subject to various risks, including business, economic, legal and regulatory conditions and
factors. Additional information is included in Item 1A, Risk Factors, in the Companys Annual Report on Form 10-K for the year ended December 31, 2005 and in filings made subsequent to the filing of the 2005 Form 10-K.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different
assumptions or conditions. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses.

Mortgage Loans

Mortgage Loans are carried at the principal amount outstanding, net of purchase
discounts and premiums. Discounts or premiums on Mortgage Loans are accreted or amortized as yield adjustments over the contractual lives of the loans using methods that approximate the interest method. The unaccreted discount or unamortized premium
on a loan sold or paid in full is recognized in income at the time of sale or payoff.

The Company has purchased Mortgage Loans from the
Bank at the Banks carrying amount, which generally has approximated the fair value of the loans purchased. If a significant difference were to exist between the Banks carrying amount and the fair value of loans at the date of purchase,
the Company would record the difference as a capital contribution by the Bank or a capital distribution to the Bank and would not adjust the basis of the loans.

Interest income from loans is recognized in the month earned and is net of servicing fees paid to the Bank. The Company places a loan on nonaccrual status, and interest income is not recorded on the loan, when the
loan becomes more than 90 days delinquent, except for a single family loan that is well secured and in the process of collection, or



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at such earlier times as management determines that the ultimate collection of all contractually due principal or interest is unlikely. When a loan is placed
on nonaccrual status, interest income may be recorded when cash is received if the Companys recorded investment in such loan is deemed collectible. When, in managements judgment, the borrowers ability to make periodic interest and
principal payments resumes, the loan is returned to accrual status. The Company classifies a loan as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement.

Allowance for Loan Losses

The Company maintains an allowance for loan losses that can be reasonably anticipated based upon specific conditions at the time. The Company considers a number of factors, including the Companys and the
Banks past loss experience, the Banks underwriting policies, the amount of past due and nonperforming loans, legal requirements, recommendations or requirements of regulatory authorities, current economic conditions and other factors. If
the Company were to determine that an additional provision is required, the Company would provide for loan losses by charging current income.

Other
Real Estate Owned

Real estate acquired through foreclosure is recorded at the lower of cost or fair value, less estimated costs to sell
such real estate. The Company records costs related to holding real estate as expenses when incurred. The Company has not owned any real estate since inception.

Statement of Cash Flows

For the purpose of reporting cash flows, cash and cash equivalents include cash on hand and
short-term investments on deposit with the Bank. As a REIT making sufficient dividend distributions, the Company paid no income taxes for the six months ended June 30, 2006 or for the fiscal year ended December 31, 2005.

Note 3. Related Party Transactions

The
Companys related party transactions include the acquisition of Mortgage Loans from the Bank, loan servicing fees paid to the Bank and advisory fees paid to the Bank. The following table presents the Companys related party transactions
for the three and six months ended June 30, 2006 and 2005:



|                                       |  |                             |            |                           |   |            |  |      |            |  |   |           
|-------------------------------------- |  | --------------------------- | ---------- | ------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                       |  | Three Months Ended June 30, |            | Six Months Ended June 30,
|                                       |  | 2006                        |            | 2005                      |   | 2006       |  | 2005
|Mortgage Loans acquired from the Bank: |  |                             |            |                           |   |            |  |      |            |  |   |           
|Principal                              |  | $                           | 23,965,000 |                           | $ | 22,796,000 |  | $    | 52,035,000 |  | $ | 34,206,000
|Premium (discount)                     |  |                             | 28,000     |                           |   | 13,000     |  |      | 158,000    |  |   | 66,000    
|                                       |  |                             |            |                           |   |            |  |      |            |  |   |           
|Total Mortgage Loans acquired          |  |                             | 23,993,000 |                           |   | 22,809,000 |  |      | 52,193,000 |  | $ | 34,272,000
|                                       |  |                             |            |                          
|Loan servicing fee expense             |  |                             | 205,000    |                           |   | 198,000    |  |      | 400,000    |  |   | 394,000   
|Advisory fee expense                   |  | $                           | 25,000     |                           | $ | 25,000     |  | $    | 50,000     |  | $ | 50,000    

Since inception, the Company has acquired all of its Mortgage Loans from the Bank. All purchases
were at a price equal to the Banks carrying value of the loans, which approximated the fair value of the Mortgage Loans.

The Bank
retains loan servicing fees on the Companys Mortgage Loans under a loan purchase and servicing agreement pursuant to which the Bank performs, among other things, servicing of loans held by the Company in accordance with normal industry
practice. In its capacity as servicer, the Bank receives Mortgage Loan payments on behalf of the Company and holds the payments in custodial accounts at the Bank. The loan purchase and servicing agreement is renewable on an annual basis. Pursuant to
the agreement, the Bank charges an annual servicing fee of 0.25% of the gross average outstanding principal balances of the Mortgage Loans that the Bank services. The Company records loan servicing fees monthly as a reduction of interest income.



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The Company pays advisory fees to the Bank under an advisory agreement pursuant to which the Bank
administers the day-to-day operations of the Company. The Bank is responsible for: (i) monitoring the credit quality of the Mortgage Assets held by the Company; (ii) advising the Company with respect to the reinvestment of income from, and
principal payments on, the Mortgage Assets, and with respect to the acquisition, management, financing and disposition of the Mortgage Assets; and (iii) monitoring the Companys compliance with the requirements necessary to qualify as a
REIT. The advisory agreement is renewable on an annual basis. The advisory fees were $100,000 per annum for 2006 and 2005, payable in equal quarterly installments. At June 30, 2006 and at December 31, 2005, the Company had advisory fees
payable to the Bank of $25,000.

In addition to the related party transactions above, the Bank has purchased shares of the Companys
Series A preferred stock. At June 30, 2006 and at December 31, 2005, the Bank owned 25,410 shares, with a liquidation preference value of $25.4 million. For the first six months of 2006 and for all of 2005, the Bank did not purchase any
shares.

Note 4. Preferred Stock

At
June 30, 2006, the Company was authorized to issue 10,000,000 shares of preferred stock, of which 4,142,000 shares were outstanding. The Company has issued and outstanding shares for each of the following series of preferred stock, par value
$0.01 per share at June 30, 2006 and December 31, 2005:



|                                                                         |  |   |            
|------------------------------------------------------------------------ |  | - | -----------
|Series A  55,000 shares authorized, issued and outstanding              |  | $ | 55,000,000 
|Series B  1,840,000 shares authorized, 1,680,000 issued and outstanding |  |   | 42,000,000 
|Series C  10,000 shares authorized, 7,000 issued and outstanding        |  |   | 7,000,000  
|Series D  2,400,000 shares authorized, issued and outstanding           |  |   | 60,000,000 
|                                                                         |  |   |            
|Total preferred stock                                                    |  | $ | 164,000,000
|                                                                         |  |   |            

Shares of preferred stock for each series are referred to below as Preferred Shares
for that series and are collectively referred to as the Preferred Shares.

In June 1999, the Company issued 55,000 Series A
Preferred Shares. The Companys proceeds from this issuance were $55 million; the Bank paid all expenses of the offering, including underwriting commissions and discounts. The Series A Preferred Shares are not redeemable prior to June 1,
2009. Holders of the Series A Preferred Shares are entitled to receive, if authorized and declared by the board of directors of the Company, noncumulative dividends at a rate of 10.5% per annum, or $105 per annum per share. Dividends on the
Series A Preferred Shares, if authorized and declared, are payable semiannually in arrears on June 30 and December 30 of each year.

In June 2001, the Company issued 7,000 Series C Preferred Shares. The Companys proceeds from this issuance were $7 million; the Bank paid all expenses of the offering, including underwriting commissions and discounts. The Series C
Preferred Shares are not redeemable prior to June 16, 2007. The Series C Preferred Shares are convertible into common stock of the Bank at a price of $20.38 per share. The single holder of the Series C Preferred Shares is entitled to receive,
if authorized and declared by the board of directors of the Company, noncumulative dividends at a rate of 5.7% per annum, or $57 per annum per share. Dividends on the Series C Preferred Shares, if authorized and declared, are payable
semiannually in arrears on June 30 and December 30 of each year.

In January 2002, the Company issued 1,680,000 Series B
Preferred Shares. The Companys proceeds from this issuance were $42 million; the Bank paid all expenses of the offering, including underwriting commissions and discounts. The Series B Preferred Shares are not redeemable prior to
December 30, 2006. Holders of the Series B Preferred Shares are entitled to receive, if authorized and declared by the board of directors of the Company, noncumulative dividends at a rate of 8.875% per annum, or $2.21875 per annum per
share. Dividends on the Series B Preferred Shares, if authorized and declared, are payable quarterly in arrears on March 30, June 30, September 30, and December 30 of each year.

In June 2003, the Company issued 2,400,000 Series D Preferred Shares. The Companys proceeds from this issuance were $60 million; the Bank paid all
expenses of the offering, including underwriting commissions and discounts. The Series D Preferred Shares are not redeemable prior to June 27, 2008. Holders of the Series D Preferred Shares are entitled to receive, if authorized and declared by
the board of directors of the Company,



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noncumulative dividends at a rate of 7.25% per annum, or $1.8125 per annum per share. Dividends on the Series D Preferred Shares, if authorized and
declared, are payable quarterly in arrears on March 30, June 30, September 30, and December 30 of each year.

Upon the occurrence of an adverse change in relevant tax laws, the Company will have the right to redeem the Preferred Shares, in whole (but not in part). The liquidation preference for each of the Series A Preferred Shares and the Series C
Preferred Shares is $1,000 per share plus the semiannual dividend thereon accrued through the date of redemption for the dividend period in which the redemption occurs. The liquidation preference for each of the Series B Preferred Shares and the
Series D Preferred Shares is $25 per share plus the quarterly dividend thereon accrued through the date of redemption for the dividend period in which the redemption occurs.

The Preferred Shares will be exchanged into preferred shares of the Bank upon the occurrence of certain events. The exchange rate for each of the Series
A Preferred Shares and the Series C Preferred Shares is 1:1. The exchange rate for each of the Series B Preferred Shares and Series D Preferred Shares is 1:1/40. Except under certain limited circumstances, the holders of the Preferred Shares have no
voting rights.

Note 5. Common Stock

At June 30, 2006, the Company was authorized to issue 50,000,000 shares of common stock with a par value of $0.01 per share, of which 29,353,033 shares were outstanding. The Company issued no common stock in 2005 or during the first
six months of 2006. In January 2005, the Company tendered an offer to repurchase the 9,840 shares that were issued to 123 current and former employees of the Bank. The Company repurchased 320 shares of common stock in the first six months of 2006
and 9,200 shares in the first six months of 2005. At June 30, 2006, 120 individuals had accepted the offer of $2.50 per share, or $200 for each owner. At June 30, 2006, a total of 240 shares were held by the Banks former employees.

Holders of common stock are entitled to receive dividends if and when authorized and declared by the board of directors out of funds
legally available therefor after all preferred dividends have been paid for the full year.

Note 6. Dividends on Preferred Stock and Common Stock

The following table presents the dividends on Preferred Shares that the Company has paid in the three and six months ended
June 30, 2006 and 2005:



|                          |  |                            |           |                           |   |           |  |      |           |  |   |          
|------------------------- |  | -------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                          |  | Three Months EndedJune 30, |           | Six Months Ended June 30,
|                          |  | 2006                       |           | 2005                      |   | 2006      |  | 2005
|Series A Preferred Shares |  | $                          | 1,443,000 |                           | $ | 1,444,000 |  | $    | 2,887,000 |  | $ | 2,887,000
|Series B Preferred Shares |  |                            | 932,000   |                           |   | 932,000   |  |      | 1,864,000 |  |   | 1,864,000
|Series C Preferred Shares |  |                            | 100,000   |                           |   | 100,000   |  |      | 200,000   |  |   | 200,000  
|Series D Preferred Shares |  |                            | 1,088,000 |                           |   | 1,088,000 |  |      | 2,175,000 |  |   | 2,175,000
|                          |  |                            |           |                           |   |           |  |      |           |  |   |          
|Total                     |  | $                          | 3,563,000 |                           | $ | 3,564,000 |  | $    | 7,126,000 |  | $ | 7,126,000
|                          |  |                            |           |                           |   |           |  |      |           |  |   |          

Dividends on Preferred Shares are payable if, when and as authorized and declared by the
Companys board of directors. If the board of directors does not authorize a dividend on any of the Preferred Shares for any respective dividend period, holders of each class of Preferred Shares will not be entitled to be paid that dividend
later or to recover any unpaid dividend whether or not funds are, or subsequently become, available. The board of directors, in its business judgment, may determine that it would be in the best interest of the Company to pay less than the full
amount of the stated dividend on each series of Preferred Shares for any dividend period. However, to remain qualified as a REIT, the Company must distribute annually at least 90% of its REIT taxable income (excluding deductions for any
dividends paid and any net capital gains) to stockholders, and, generally, the Company cannot pay dividends on common stock for periods in which less than full dividends are paid on each series of Preferred Shares.

The Company expects to pay the holders of common stock an amount of dividends that when aggregated with the dividends paid to holders of the Preferred
Shares is not less than 90% of the Companys REIT taxable income



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(excluding deductions for any dividends paid and any net capital gains) in order to remain qualified as a REIT. The Company did not declare dividends on its
common stock during the first six months of 2006 or 2005.

Note 7. Concentration of Credit Risk

At June 30, 2006, the Company held Mortgage Loans secured by real estate properties located primarily in California (79% in total). Future economic,
political or other developments in California could adversely affect the value of the Mortgage Loans. See Financial Condition - Significant Concentration of Credit Risk under Managements Discussion and Analysis of Financial
Condition and Results of Operations.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

Introduction

This discussion summarizes the significant factors affecting the financial condition as
of June 30, 2006 and results of operations of the Company for the three and six months ended June 30, 2006. This discussion is provided to increase the understanding of, and should be read in conjunction with, the unaudited interim
financial statements, accompanying notes and tables included in this quarterly report.

Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect managements current views and assumptions and are subject to known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to,
statements regarding the following:



| |  |  | business strategy;
| | - |  | ------------------



| |  |  | estimates regarding capital requirements and the need for additional financing; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | plans, objectives, expectations and intentions contained in this report that are not historical facts.
| | - |  | ------------------------------------------------------------------------------------------------------

Forward-looking statements often include words such as may, will, would, should, could,
expect, anticipate, believe, estimate, project, predict, intend, potential, continue, or similar expressions. Statements that contain these
words should be read carefully because they discuss future expectations, contain projections of future results of operation or of financial condition or state other forward-looking information. There may be events in the future, however, that cannot
be accurately predicted or controlled and that may cause actual results to differ materially from the expectations described in the forward-looking statements. The reader is cautioned that all forward-looking statements involve risks and
uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to, competitive pressure in the mortgage lending industry; changes in the interest rate environment that reduce
margins; general economic conditions, either nationally or regionally, that are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for loan losses; changes in the
regulatory environment; changes in business conditions, particularly in San Francisco and Los Angeles counties and the New York area and in the home mortgage lending industry; and changes in the securities markets. Other risks, uncertainties and
factors are discussed elsewhere in this report, in other Company filings with the Securities and Exchange Commission (SEC) (including in Item 1A, Risk Factors, in the Companys 2005 Annual Report on Form 10-K) and
in materials incorporated therein by reference.

Throughout this document, Company, we, our or
us refers to First Republic Preferred Capital Corporation and Bank refers to First Republic Bank.



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Critical Accounting Policies

The discussion and analysis of the Companys financial condition and results of operation are based upon the Companys financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to allowance for loan losses, credit risks, estimated loan lives, interest rate risk, investments, and contingencies and litigation.
Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of the Companys assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company considers accounting for allowance for loan losses to be a critical accounting policy because it is a complex process involving difficult and subjective judgments, assumptions and estimates. The allowance
for loan losses is an estimate that can change under different assumptions and conditions. The Company estimates credit losses resulting from the inability of borrowers to make required payments. If the financial condition of borrowers were to
deteriorate, resulting in an impairment of their ability to make payments, or the value of collateral securing Mortgage Loans were to decline, an increase in the allowance may be required by charging current income. A significant decline in the
credit quality of the Companys loan portfolio could have a material adverse affect on the Companys financial condition and results of operations.

Results of Operations

Overview

Net income was $4,466,000 for the second quarter of 2006, compared with $3,985,000 for the second quarter of 2005. The increase was primarily due to an increase in interest income resulting from higher interest rates and operating expenses
remaining relatively stable. The ratio of earnings to fixed charges was 1.25x and 1.23x for the three and six months ended June 30, 2006 and 1.12x and 1.11x for the same periods in 2005. Dividend payments were 100% of fixed charges.

Total Interest Income

Total interest income
increased in the second quarter of 2006 compared with the same period in 2005 due to higher loan and short-term investment yields. The following table presents the average balances and yields on the Companys interest-earning assets for the
periods indicated:



|                              |  |                             |         |                |      |       |  |      |                |  |                |         |       |   |       |  |      |  
|----------------------------- |  | --------------------------- | ------- | -------------- | ---- | ----- |  | ---- | -------------- |  | -------------- | ------- | ----- | - | ----- |  | ---- | -
|                              |  | Three Months Ended June 30, |        
|                              |  | 2006                        |         |                | 2005 |      
|($ in thousands)              |  | AverageBalance              |         | InterestIncome |      | Yield |  |      | AverageBalance |  | InterestIncome |         | Yield |  
|Loans                         |  | $                           | 328,898 |                | $    | 4,472 |  | 5.43 | %              |  | $              | 327,401 |       | $ | 4,042 |  | 4.93 | %
|Short-term investments        |  |                             | 7,013   |                |      | 65    |  | 3.66 |                |  |                | 6,289   |       |   | 37    |  | 2.29 |  
|                              |  |                             |         |                |      |       |  |      |                |  |                |         |       |   |       |  |      |  
|Total interest-earning assets |  | $                           | 335,911 |                | $    | 4,537 |  | 5.40 | %              |  | $              | 333,690 |       | $ | 4,079 |  | 4.88 | %
|                              |  |                             |         |                |      |       |  |      |                |  |                |         |       |   |       |  |      |  
|                              | 
|                              |  | Six Months Ended June 30,   |        
|                              |  | 2006                        |         |                | 2005 |      
|($ in thousands)              |  | AverageBalance              |         | InterestIncome |      | Yield |  |      | AverageBalance |  | InterestIncome |         | Yield |  
|Loans                         |  | $                           | 327,986 |                | $    | 8,822 |  | 5.38 | %              |  | $              | 327,243 |       | $ | 8,053 |  | 4.92 | %
|Short-term investments        |  |                             | 6,808   |                |      | 116   |  | 3.39 |                |  |                | 5,450   |       |   | 59    |  | 2.13 |  
|                              |  |                             |         |                |      |       |  |      |                |  |                |         |       |   |       |  |      |  
|Total interest-earning assets |  | $                           | 334,794 |                | $    | 8,938 |  | 5.34 | %              |  | $              | 332,693 |       | $ | 8,112 |  | 4.87 | %
|                              |  |                             |         |                |      |       |  |      |                |  |                |         |       |   |       |  |      |  

Interest income on Mortgage Loans increased $430,000, or 11%, in the second quarter of 2006
compared with the same period in 2005 as the average yield increased 50 basis point to 5.43% from 4.93%. Loan yields began a modest increase starting in the second half of 2004 as the Federal Reserve Bank has raised the federal funds rate



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seventeen times since June 2004 to 5.25% in June 2006. The weighted average coupon rate on Mortgage Loans increased to 5.64% at June 30, 2006 from 5.30%
at December 31, 2005 and 5.10% at June 30, 2005. In addition, the yield on Mortgage Loans increased due to a change in the portfolio mix from intermediate fixed and fixed rate loans to adjustable rate mortgage loans (ARMs),
which bear interest rates indexed to short-term rates that rose rapidly over the period. See Quantitative and Qualitative Disclosures about Market Risks.

Included in interest income on mortgage loans is a reduction for loan servicing fees that the Bank retains. The annual servicing fee is 25 basis points on the gross average outstanding principal balance of the
Mortgage Loans that the Bank services. Loan servicing fees were $205,000 and $400,000 for the three and six months of 2006 and $198,000 and $394,000 for the three and six months of 2005.

Interest income on short-term investments increased for the three and six-month periods ended June 30, 2006, compared with the same periods in 2005,
due to both the increase in the average investment balance and higher interest rates. The average yield on the Companys interest-bearing money market account continued to rise to 3.66% in the second quarter of 2006 as interest rates began to
rise mid-2004, compared with 2.29% for the second quarter of 2005.

Operating Expense

The Company incurs advisory fee expenses payable to the Bank pursuant to an advisory agreement with the Bank. For 2006 and 2005, advisory fees were
$100,000 per annum. Advisory fees were $25,000 and $50,000 for the three and six months ended June 30, 2006 and 2005.

General and
administrative expenses primarily consisted of audit fees, rating agency fees, exchange listing fees and other stockholder costs. These fees and other operating expense were $46,000 and $90,000 for the three and six months of 2006 and $69,000 and
$130,000 for the same periods in 2005. The second quarter of 2006 reflected lower audit accrual fees and no rating agency fee charges.

Financial
Condition

Short-term Investments on Deposit with the Bank

At June 30, 2006 and December 31, 2005, short-term investments on deposit consisted entirely of a money market account held at the Bank. Generally, the balance in this account reflects principal and interest
received on the Mortgage Loans.

Mortgage Loans

The loan portfolio at June 30, 2006 and December 31, 2005 consisted of both single family and multifamily mortgage loans acquired from the Bank. The Company anticipates that in the future it will continue to acquire all of its
loans from the Bank.

The Company has purchased from the Bank loans with a period of interest only payments. Underwriting standards for all
loans have required a high level of borrower net worth, substantial post-loan liquidity, excellent FICO scores and significant down payments. At June 30, 2006, approximately $178.3 million of loans, or 62% of the Companys single family
loan portfolio, allowed interest only payments for varying periods. These interest only loans had an average LTV ratio at June 30, 2006 of approximately 54%, based on appraised value at the time of origination. None of the Companys
interest only home loans had an LTV ratio at origination of more than 80%.

Nonaccrual Loans and Allowance for Loan Losses

A loan is placed on nonaccrual status when any installment of principal or interest is over 90 days past due, except for any single family loan that is
well secured and in the process of collection or when the Company determines that the ultimate collection of all contractually due principal or interest is unlikely. The Company classifies a loan as impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.



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At June 30, 2006 and December 31, 2005, there were no nonaccrual loans, impaired loans or loans
that were troubled debt restructurings. In addition, at June 30, 2006 and December 31, 2005, there were no accruing loans that were contractually past due more than 90 days.

The following table presents information with respect to the Companys allowance for loan losses:



|                                                  |  |                                   |             |   |                                     |   |             |   |  |   |             |  
|------------------------------------------------- |  | --------------------------------- | ----------- | - | ----------------------------------- | - | ----------- | - |  | - | ----------- | -
|                                                  |  | For the Six Months Ended June 30, |             |   | For the Year EndedDecember 31, 2005 |  
|                                                  |  | 2006                              |             |   | 2005                                |   |            
|Allowance for Loan Losses                         |  |                                   |             |   |                                     |   |             |   |  |   |             |  
|Balance, beginning of period                      |  | $                                 | 481,000     |   |                                     | $ | 481,000     |   |  | $ | 481,000     |  
|Provision charged to expense                      |  |                                   |            |   |                                     |   |            |   |  |   |            |  
|Chargeoffs                                        |  |                                   |            |   |                                     |   |            |   |  |   |            |  
|Recoveries                                        |  |                                   |            |   |                                     |   |            |   |  |   |            |  
|                                                  |  |                                   |             |   |                                     |   |             |   |  |   |             |  
|Balance, end of period                            |  | $                                 | 481,000     |   |                                     | $ | 481,000     |   |  | $ | 481,000     |  
|                                                  |  |                                   |             |   |                                     |   |             |   |  |   |             |  
|                                                  |  |                                   |            
|Average Mortgage Loans for the period             |  | $                                 | 327,986,000 |   |                                     | $ | 327,243,000 |   |  | $ | 326,174,000 |  
|Total Mortgage Loans at period end                |  | $                                 | 327,084,000 |   |                                     | $ | 320,765,000 |   |  | $ | 314,779,000 |  
|                                                  |  |                                   |            
|Ratio of allowance for loan losses to total loans |  |                                   | 0.15        | % |                                     |   | 0.15        | % |  |   | 0.15        | %

Significant Concentration of Credit Risk

Concentration of credit risk generally arises with respect to the loan portfolio when a number of borrowers engage in similar business activities or
activities in the same geographical region. Concentration of credit risk indicates the relative sensitivity of the Companys performance to both positive and negative developments affecting a particular industry. The balance sheet exposure to
geographic concentrations directly affects the credit risk of the Companys Mortgage Loans.

The Companys Mortgage Loans are
concentrated in California, and adverse conditions there could adversely affect its operations. The following table presents an analysis of Mortgage Loans at June 30, 2006 by major geographic location:



|                    |  |                      |         |   |                          |   |        |                  |        |   |                |   |  |                      |        |   |       |   |        |                 |  |   |        |   |  |   |       |   |  |   |         |   |  |     |  
|------------------- |  | -------------------- | ------- | - | ------------------------ | - | ------ | ---------------- | ------ | - | -------------- | - |  | -------------------- | ------ | - | ----- | - | ------ | --------------- |  | - | ------ | - |  | - | ----- | - |  | - | ------- | - |  | --- | -
|                    |  | SanFranciscoBay Area |         |   | Greater NewYork CityArea |   |        | LosAngelesCounty |        |   | SanDiegoCounty |   |  | OtherCaliforniaAreas |        |   | Other |   |        | LasVegas,Nevada |  |   | Total  |  
|($ in thousands)    |  |                      |         |   |                          |   |        |                  | Amount |   |                | % | 
|Single family       |  | $                    | 164,358 |   |                          | $ | 38,211 |                  |        | $ | 26,105         |   |  | $                    | 11,798 |   |       | $ | 21,172 |                 |  | $ | 25,606 |   |  | $ | 3,411 |   |  | $ | 290,661 |   |  | 89  | %
|Multifamily         |  |                      | 28,171  |   |                          |   | 857    |                  |        |   | 4,040          |   |  |                      | 657    |   |       |   | 2,698  |                 |  |   |       |   |  |   |      |   |  |   | 36,423  |   |  | 11  |  
|                    |  |                      |         |   |                          |   |        |                  |        |   |                |   |  |                      |        |   |       |   |        |                 |  |   |        |   |  |   |       |   |  |   |         |   |  |     |  
|Total               |  | $                    | 192,529 |   |                          | $ | 39,068 |                  |        | $ | 30,145         |   |  | $                    | 12,455 |   |       | $ | 23,870 |                 |  | $ | 25,606 |   |  | $ | 3,411 |   |  | $ | 327,084 |   |  | 100 | %
|                    |  |                      |         |   |                          |   |        |                  |        |   |                |   |  |                      |        |   |       |   |        |                 |  |   |        |   |  |   |       |   |  |   |         |   |  |     |  
|                    |  |                      |         |   |                          |   |        |                  |       
|Percent by location |  |                      | 59      | % |                          |   | 12     | %                |        |   | 9              | % |  |                      | 4      | % |       |   | 7      | %               |  |   | 8      | % |  |   | 1     | % |  |   | 100     | % |  |     |  

Properties underlying Mortgage Loans were concentrated primarily in California. At June 30,
2006, approximately 79% of Mortgage Loans were secured by properties located in California, and the weighted average loan to value ratio on the Mortgage Loans was approximately 52% based upon the appraised values of the properties at the time the
loans were originated.

Liquidity and Capital Resources

The Companys principal liquidity needs are to pay dividends and to fund the acquisition of additional Mortgage Assets as borrowers repay Mortgage Loans. The Company intends to fund the acquisition of additional
Mortgage Loans with the proceeds of principal repayments on its current portfolio of Mortgage Loans. Proceeds from interest payments will be reinvested until used for the payment of operating expenses and dividends. The Company does not anticipate
that it will have any other material capital expenditures. The cash generated from interest and principal



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payments on Mortgage Assets is expected to provide sufficient funds for operating requirements and dividend payments in accordance with the requirements to
be taxed as a REIT for the foreseeable future.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk.
|------- | -----------------------------------------------------------

Interest Rate Risk Management

The Company services fixed-rate dividend obligations to preferred stockholders and operating
expenses by the collection of interest income from its Mortgage Loans. To meet dividend payments, the Company maintains an average interest-earning asset balance of approximately two times the liquidation preference of its outstanding preferred
shares. The Companys earnings to fixed charges ratio was 1.25x for the second quarter of 2006, compared with 1.22x for the prior quarter and 1.13x for the year 2005.

Since mid-2004, interest rates have moved up from 40-year historical lows. The average yield on average interest-earning assets rose to 5.40% for the
second quarter of 2006, up 12 basis points from 5.28% for the prior quarter and up 52 basis points from 4.88% for the second quarter of 2005. The increase in the yield for the second quarter of 2006 compared with the second quarter of 2005 was due
to rising interest rates and a change in the portfolio mix to higher-yielding loans. The portfolio mix at June 30, 2006 changed over the past twelve months as the level of ARMs increased and the level of intermediate fixed rate loans and fixed
rate loans decreased. ARMs grew to 63% of Mortgage Loans at June 30, 2006 from 53% at June 30, 2005. The weighted average coupon rate for ARMs at June 30, 2006 increased 99 basis points from a year ago, while the weighted average
coupon rate for intermediate fixed rate loans declined and the weighted average coupon rate for fixed rate loans remained the same. The weighted average remaining maturity of Mortgage Loans was 23.3 years at June 30, 2006 and 23.7 years at
June 30, 2005.

For ARMs, the timing of changes in average yields depends on the underlying interest rate index, the timing of changes
in the index, and the frequency of adjustments to the loan rate. The weighted average coupon rate for ARMs was 5.78% at June 30, 2006, up 52 basis points from 5.26% at December 31, 2005 and up 99 basis points from 4.79% at June 30,
2005 due to the rise in short-term rates. The increase in ARM loan yields was mitigated by the increase in ARM loans indexed to COFI. COFI is a lagging index that tends to respond more slowly to changes in the general interest rate environment than
a market rate index. At June 30, 2006, ARM loans indexed to COFI were 85% of total ARMs and 54% of Mortgage Loans, compared with 77% of total ARMs and 41% of Mortgage Loans at June 30, 2005.

For intermediate fixed and fixed rate loans, the gross principal outstanding at June 30, 2006 was $119.2 million, or 37% of Mortgage Loans, down
from $151.0 million at June 30, 2005, or 47% of Mortgage Loans. The weighted average coupon rate for intermediate fixed rate loans declined 9 basis points to 5.24% at June 30, 2006 from 5.33% at June 30, 2005. The weighted average
coupon rate for fixed rate loans was 5.68% at June 30, 2006 and at June 30, 2005. A portion of the repayments of intermediate fixed and fixed rate loans were reinvested in ARMs.

The following table presents an analysis of Mortgage Loans at June 30, 2006 by interest rate type:



|                            |  |         |         |                   |      |   |                       |    |                 |     |  
|--------------------------- |  | ------- | ------- | ----------------- | ---- | - | --------------------- | -- | --------------- | --- | -
|($ in thousands)            |  | Balance |         | NetCoupon (1) (2) |      |   | Monthsto NextReset(1) |    | % of TotalLoans |    
|ARM loans:                  |  |         |         |                   |      |   |                       |    |                 |     |  
|COFI                        |  | $       | 177,700 |                   | 5.66 | % |                       | 1  |                 | 54  | %
|CMT                         |  |         | 26,106  |                   | 6.42 |   |                       | 5  |                 | 8   |  
|LIBOR                       |  |         | 4,127   |                   | 6.75 |   |                       | 3  |                 | 1   |  
|                            |  |         |         |                   |      |   |                       |    |                 |     |  
|Total ARMs                  |  |         | 207,933 |                   | 5.78 |   |                       | 2  |                 | 63  |  
|                            |  |         |         |                   |      |   |                       |    |                 |     |  
|Intermediate fixed:         |  |         |         |                   |      |   |                       |    |                 |     |  
|12 months to 36 months      |  |         | 51,966  |                   | 5.18 |   |                       | 20 |                 | 16  |  
|37 months to 60 months      |  |         | 16,413  |                   | 5.39 |   |                       | 37 |                 | 5   |  
|Greater than 60 months      |  |         | 7,470   |                   | 5.35 |   |                       | 85 |                 | 3   |  
|                            |  |         |         |                   |      |   |                       |    |                 |     |  
|Total intermediate fixed    |  |         | 75,849  |                   | 5.24 |   |                       | 30 |                 | 24  |  
|                            |  |         |         |                   |      |   |                       |    |                 |     |  
|Total adjustable rate loans |  |         | 283,782 |                   | 5.63 |   |                       | 9  |                 | 87  |  
|Fixed rate loans            |  |         | 43,302  |                   | 5.68 |   |                       |    |                 | 13  |  
|                            |  |         |         |                   |      |   |                       |    |                 |     |  
|Total Mortgage Loans        |  | $       | 327,084 |                   | 5.64 | % |                       |    |                 | 100 | %
|                            |  |         |         |                   |      |   |                       |    |                 |     |  

---

|(1) | Weighted average.
|--- | -----------------



|(2) | Net of servicing fees retained by the Bank.
|--- | -------------------------------------------



15



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##### Table of Contents

The following table presents maturities or interest rate adjustments based upon the contractual
maturities or adjustment dates as of June 30, 2006:



|                                    |  |                 |         |   |                |   |         |              |  |   |              |   |  |          |         |   |                   |   |         |       |  |   |          |   |  |   |        
|----------------------------------- |  | --------------- | ------- | - | -------------- | - | ------- | ------------ |  | - | ------------ | - |  | -------- | ------- | - | ----------------- | - | ------- | ----- |  | - | -------- | - |  | - | -------
|($ in thousands)                    |  | 6 Monthsor Less |         |   | >6 to 12Months |   |         | >1 to 3Years |  |   | >3 to 5Years |   |  | >5 Years |         |   | Not RateSensitive |   |         | Total
|Cash and investments                |  | $               | 6,441   |   |                | $ |        |              |  | $ |             |   |  | $        |        |   |                   | $ |        |       |  | $ |         |   |  | $ | 6,441  
|Loans                               |  |                 | 207,971 |   |                |   | 22,980  |              |  |   | 63,179       |   |  |          | 19,015  |   |                   |   | 13,458  |       |  |   |         |   |  |   | 326,603
|Other assets                        |  |                 |        |   |                |   |        |              |  |   |             |   |  |          |        |   |                   |   |        |       |  |   | 1,642    |   |  |   | 1,642  
|                                    |  |                 |         |   |                |   |         |              |  |   |              |   |  |          |         |   |                   |   |         |       |  |   |          |   |  |   |        
|Total assets                        |  | $               | 214,412 |   |                | $ | 22,980  |              |  | $ | 63,179       |   |  | $        | 19,015  |   |                   | $ | 13,458  |       |  | $ | 1,642    |   |  | $ | 334,686
|                                    |  |                 |         |   |                |   |         |              |  |   |              |   |  |          |         |   |                   |   |         |       |  |   |          |   |  |   |        
|                                    |  |                 |         |   |                |   |        
|Other liabilities                   |  | $               |        |   |                | $ |        |              |  | $ |             |   |  | $        |        |   |                   | $ |        |       |  | $ | 96       |   |  | $ | 96     
|Stockholders equity                |  |                 |        |   |                |   |        |              |  |   |             |   |  |          |        |   |                   |   |        |       |  |   | 334,590  |   |  |   | 334,590
|                                    |  |                 |         |   |                |   |         |              |  |   |              |   |  |          |         |   |                   |   |         |       |  |   |          |   |  |   |        
|Total liabilities and equity        |  | $               |        |   |                | $ |        |              |  | $ |             |   |  | $        |        |   |                   | $ |        |       |  | $ | 334,686  |   |  | $ | 334,686
|                                    |  |                 |         |   |                |   |         |              |  |   |              |   |  |          |         |   |                   |   |         |       |  |   |          |   |  |   |        
|                                    |  |                 |         |   |                |   |        
|Repricing gap  positive (negative) |  | $               | 214,412 |   |                | $ | 22,980  |              |  | $ | 63,179       |   |  | $        | 19,015  |   |                   | $ | 13,458  |       |  | $ | (333,044 | ) |  |   |        
|                                    |  |                 |         |   |                |   |         |              |  |   |              |   |  |          |         |   |                   |   |         |       |  |   |          |   |  |   |        
|                                    |  |                 |         |   |                |   |        
|Cumulative repricing gap:           |  |                 |         |   |                |   |         |              |  |   |              |   |  |          |         |   |                   |   |         |       |  |   |          |   |  |   |        
|Dollar amount                       |  | $               | 214,412 |   |                | $ | 237,392 |              |  | $ | 300,571      |   |  | $        | 319,586 |   |                   | $ | 333,044 |       |  |   |          |   |  |   |        
|                                    |  |                 |         |   |                |   |         |              |  |   |              |   |  |          |         |   |                   |   |         |       |  |   |          |   |  |   |        
|                                    |  |                 |         |   |                |   |        
|Percent of total assets             |  |                 | 64.1    | % |                |   | 70.9    | %            |  |   | 89.8         | % |  |          | 95.5    | % |                   |   | 99.5    | %     |  |   |          |   |  |   |        
|                                    |  |                 |         |   |                |   |         |              |  |   |              |   |  |          |         |   |                   |   |         |       |  |   |          |   |  |   |        

The Company has not engaged in business activities related to foreign currency
transactions or commodity-based instruments and has not made any investments in equity securities subject to price fluctuations.



|Item 4. | Controls and Procedures.
|------- | ------------------------

Evaluation of Disclosure Controls and
Procedures

As required by SEC rules, the Company carried out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act as of the end of the period covered by this report. The Companys management, including the Companys chief
executive officer and chief financial officer, supervised and participated in the evaluation. Based on that evaluation, the chief executive officer and the chief financial officer concluded that the Companys disclosure controls and procedures,
as of June 30, 2006, were effective for providing reasonable assurance that information required to be disclosed by the Company in such reports was accumulated and communicated to the Companys management, including its chief executive
officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial
Reporting

There were no significant changes in the Companys internal control over financial reporting during the quarter ended
June 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

PART IIOTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

Not Applicable



16



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##### Table of Contents

|Item 1A. | Risk Factors.
|-------- | -------------

There are risks, many beyond the
Companys control, which could cause the Companys results to differ significantly from managements expectations. Some of these factors are described in the Companys Annual Report on Form 10-K for the year ended
December 31, 2005. Any factor described in the Companys 2005 Form 10-K or in this report could, by itself or together with one or more other factors, adversely affect the Companys business, results of operations and/or
financial condition. There are factors not described in the Companys 2005 Form 10-K or in this report that could cause results to differ from the Companys expectations.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

Not Applicable



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

Not Applicable



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

Not Applicable



|Item 5. | Other Information.
|------- | ------------------

Not Applicable



|Item 6. | Exhibits.
|------- | ---------



|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|12   |  | Statement of computation of ratios of earnings to fixed charges.                                                       
|     | 
|31.1 |  | Certification pursuant to 15 U.S.C. 7m(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       
|     | 
|31.2 |  | Certification pursuant to 15 U.S.C. 7m(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



17



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIRST REPUBLIC PREFERRED CAPITAL CORPORATION



|                      |  |  |  |  |  |     |  |                              
|--------------------- |  |  |  |  |  | --- |  | -----------------------------
|Date: August 10, 2006 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  |  |  | By: |  | /s/ JAMES J. BAUMBERGER      
|                      |  |  |  |  |  |     |  | James J. Baumberger          
|                      |  |  |  |  |  |     |  | President and Director       
|                      |  |  |  |  |  |     |  | (Principal Executive Officer)
|                      |  | 
|Date: August 10, 2006 |  |  |  | 
|                      |  |  |  | 
|                      |  |  |  |  |  | By: |  | /s/ WILLIS H. NEWTON, JR.    
|                      |  |  |  |  |  |     |  | Willis H. Newton, Jr.        
|                      |  |  |  |  |  |     |  | Vice President,              
|                      |  |  |  |  |  |     |  | Chief Financial Officer,     
|                      |  |  |  |  |  |     |  | Treasurer and Director       
|                      |  |  |  |  |  |     |  | (Principal Financial Officer)



18



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##### Table of Contents

INDEX TO EXHIBITS



|              |  |                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Title                                                                                                          
|12            |  | Statement of computation of ratios of earnings to fixed charges.                                                       
|              | 
|31.1          |  | Certification pursuant to 15 U.S.C. 7m(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       
|              | 
|31.2          |  | Certification pursuant to 15 U.S.C. 7m(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.       
|              | 
|32.1          |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              | 
|32.2          |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.