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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarter ended June 30, 2006
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from            to
 Commission File Number: 0-23513
 WEBSTER PREFERRED CAPITAL CORPORATION
  Connecticut
    
    06-1478208(State or other jurisdiction of
    
    (I. R. S. Employerincorporation or organization)
    
    Identification Number)145 Bank Street, Waterbury, Connecticut
    
    06702(Address of principal executive offices)
    
    (Zip Code)
  þ o
  o o þ
 o þ




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##### 



WEBSTER PREFERRED CAPITAL CORPORATION
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1.Interim Financial Statements (unaudited):Statements of Condition at June 30, 2006 and December 31, 2005
    
    
    3Statements of Income for the Three and Six Months ended June 30, 2006 and 2005
    
    
    4Statements of Comprehensive Income for the Three and Six Months ended
June 30, 2006 and 2005
    
    
    4Statements of Cash Flows for the Six Months ended June 30, 2006 and 2005
    
    
    5Notes to the Interim Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    12Item 4.Controls and Procedures
    
    
    13PART II  OTHER INFORMATION
    
    
    13Item 1.Legal Proceedings
    
    
    13Item 1A.Risk Factors
    
    
    13Item 2.Unregistered sales of Equity Securities and use of Proceeds
    
    
    13Item 3.Defaults Upon Senior Services
    
    
    13Item 4.Submission of Matters to a Vote on Security Holders
    
    
    13Item 5.Other information
    
    
    13Item 6.Exhibits
    
    
    14SIGNATURE
    
    
    15EXHIBITSEX-10.1: AMENDED AND RESTATED MASTER SERVICE AGREEMENTEX-10.2: AMENDED AND RESTATED ADVISORY SERVICE AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
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Item 1. Interim Financial Statements
 WEBSTER PREFERRED CAPITAL CORPORATION
 
 STATEMENTS OF CONDITION
(unaudited)
 (Dollars in thousands, except share and per share data)
    
    June 30, 2006
    
    December 31, 2005AssetsCash
    
    $
    9,665
    
    
    
    3,402Interest-bearing deposits
    
    
    111,000
    
    
    
    77,000Mortgage-backed securities available for sale, at fair value (Note 2)
    
    
    38,261
    
    
    
    41,335Residential mortgage loans, net (Note 3)
    
    
    362,126
    
    
    
    388,136Accrued interest receivable
    
    
    2,207
    
    
    
    1,784Prepaid expenses and other assets
    
    
    213
    
    
    
    104Total assets
    
    $
    523,472
    
    
    
    511,761Liabilities and Shareholders EquityAccrued dividends payable
    
    $
    180
    
    
    
    180Accrued expenses and other liabilities
    
    
    183
    
    
    
    10Total liabilities
    
    
    363
    
    
    
    190Shareholders EquitySeries B 8.625% cumulative redeemable preferred stock,
liquidation preference $10 per share; par value $1.00 per share:1,000,000 shares authorized, issued and outstanding
    
    
    1,000
    
    
    
    1,000Common stock, par value $.01 per share:Authorized
 1,000 sharesIssued and outstanding - 100 shares
    
    
    1
    
    
    
    1Paid-in capital
    
    
    513,799
    
    
    
    513,799Retained earnings (distributions in excess of accumulated earnings)
    
    
    9,544
    
    
    
    (2,729
    )Accumulated other comprehensive loss
    
    
    (1,235
    )
    
    
    (500
    )Total shareholders equity
    
    
    523,109
    
    
    
    511,571Total liabilities and shareholders equity
    
    $
    523,472
    
    
    
    511,761
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WEBSTER PREFERRED CAPITAL CORPORATION
 
 STATEMENTS OF INCOME
(unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(Dollars in thousands, except per share data)
    
    2006
    
    2005
    
    2006
    
    2005Interest income:Loans (Note 4)
    
    $
    5,127
    
    
    
    5,934
    
    
    $
    10,322
    
    
    
    12,081Securities and short-term investments
    
    
    1,755
    
    
    
    798
    
    
    
    3,207
    
    
    
    1,321Total interest income
    
    
    6,882
    
    
    
    6,732
    
    
    
    13,529
    
    
    
    13,402Noninterest expense:Advisory fee to parent
    
    
    51
    
    
    
    60
    
    
    
    100
    
    
    
    109Other
    
    
    64
    
    
    
    19
    
    
    
    94
    
    
    
    27Total noninterest expense
    
    
    115
    
    
    
    79
    
    
    
    194
    
    
    
    136Net income
    
    
    6,767
    
    
    
    6,653
    
    
    
    13,335
    
    
    
    13,266Preferred stock dividends
    
    
    215
    
    
    
    215
    
    
    
    431
    
    
    
    431Net income available to common shareholder
    
    $
    6,552
    
    
    
    6,438
    
    
    $
    12,904
    
    
    
    12,835Net income per common share:Basic and diluted
    
    $
    65,520
    
    
    
    64,380
    
    
    $
    129,040
    
    
    
    128,350
 
 STATEMENTS OF
COMPREHENSIVE INCOME
(unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(In thousands)
    
    2006
    
    2005
    
    2006
    
    2005Net income
    
    $
    6,767
    
    
    
    6,653
    
    
    $
    13,335
    
    
    
    13,266Other comprehensive (loss) income:Unrealized net holding (loss) gain on securities
available for sale arising during the period
    
    
    (504
    )
    
    
    232
    
    
    
    (735
    )
    
    
    (85
    )Comprehensive income
    
    $
    6,263
    
    
    
    6,885
    
    
    $
    12,600
    
    
    
    13,181
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WEBSTER PREFERRED CAPITAL CORPORATION
 
 STATEMENTS OF CASH FLOWS
(unaudited)
 Six Months Ended June 30,(In thousands)
    
    2006
    
    2005Cash flow from operating activities:Net income
    
    $
    13,335
    
    
    
    13,266Adjustments to reconcile net income to net cash provided by
operating activities:Net amortization and accretion
    
    
    414
    
    
    
    381(Increase) decrease in accrued interest receivable
    
    
    (423
    )
    
    
    77Increase in accrued expenses and other liabilities
    
    
    173
    
    
    
    6(Increase) decrease in prepaid expenses and other assets
    
    
    (109
    )
    
    
    160Net cash provided by operating activities
    
    
    13,390
    
    
    
    13,890Cash flow from investing activities:Principal repayments on mortgage-backed securities
    
    
    2,327
    
    
    
    1,763Principal repayments of loans
    
    
    25,608
    
    
    
    42,281Increase in short-term investments
    
    
    (34,000
    )
    
    
    (66,000
    )Net cash used by investing activities
    
    
    (6,065
    )
    
    
    (21,956
    )Cash flow from financing activities:Dividends paid on common and preferred stock
    
    
    (1,062
    )
    
    
    (1,130
    )Increase (decrease) in cash and cash equivalents
    
    
    6,263
    
    
    
    (9,196
    )Cash and cash equivalents at beginning of period
    
    
    3,402
    
    
    
    10,325Cash and cash equivalents at end of period
    
    $
    9,665
    
    
    
    1,129
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WEBSTER PREFERRED CAPITAL CORPORATION
 
 NOTES TO INTERIM FINANCIAL STATEMENTS
 NOTE 1: BASIS OF PRESENTATION
  NOTE 2: MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
  Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Estimated(In thousands)
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueJune 30, 2006Available for Sale Portfolio
    
    $
    39,496
    
    
    
    
    
    
    
    (1,235
    )
    
    
    38,261December 31, 2005Available for Sale Portfolio
    
    $
    41,835
    
    
    
    
    
    
    
    (500
    )
    
    
    41,335
   Less Than Twelve Months
    
    Twelve Months or Longer
    
    TotalFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    Unrealized(In thousands)
    
    Value
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesAvailable for Sale:Mortgage-backed securities
    
    $
    23,073
    
    
    
    (417
    )
    
    
    15,188
    
    
    
    (818
    )
    
    
    38,261
    
    
    
    (1,235
    )
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WEBSTER PREFERRED CAPITAL CORPORATION
 NOTES TO INTERIM FINANCIAL STATEMENTS
 NOTE 3: RESIDENTIAL MORTGAGE LOANS, NET
  (In thousands)
    
    June 30, 2006
    
    December 31, 2005Fixed-rate loans:15 yr. loans
    
    $
    46,256
    
    
    
    50,84220 yr. loans
    
    
    6,941
    
    
    
    7,21825 yr. loans
    
    
    3,231
    
    
    
    3,71830 yr. loans
    
    
    223,186
    
    
    
    232,742Total fixed-rate loans
    
    
    279,614
    
    
    
    294,520Variable-rate loans:15 yr. loans
    
    
    445
    
    
    
    66620 yr. loans
    
    
    668
    
    
    
    1,24125 yr. loans
    
    
    1,137
    
    
    
    1,18330 yr. loans
    
    
    79,909
    
    
    
    89,951Total variable-rate loans
    
    
    82,159
    
    
    
    93,041Total residential mortgage loans
    
    
    361,773
    
    
    
    387,561Premiums and deferred costs on loans, net
    
    
    2,375
    
    
    
    2,597Less: allowance for loan losses
    
    
    (2,022
    )
    
    
    (2,022
    )Residential mortgage loans, net
    
    $
    362,126
    
    
    
    388,136
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WEBSTER PREFERRED CAPITAL CORPORATION
 NOTES TO INTERIM FINANCIAL STATEMENTS
 NOTE 4: SERVICING
   8




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WEBSTER PREFERRED CAPITAL CORPORATION
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
  Forward Looking Statements
  Summary
  
    
    For the first six months of 2006, average loans decreased
$81.8 million, short term investments increased $31.7 million
and average securities increased $20.0 million compared to
the first six months of 2005.
    
    The yield on earning assets for the six months ended June
30, 2006 was 5.28% compared to 4.94% for the same period in
2005.
 Changes in Financial Condition
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Asset Quality
   June 30,
    
    December 31,(In thousands)
    
    2006
    
    2005Loans accounted for on a nonaccrual basis:Residential variable-rate loans
    
    $
    231
    
    
    $
    97Total nonperforming loans and assets
    
    $
    231
    
    
    $
    97
  Liquidity and Capital Resources
    Asset/Liability Management
  10




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WEBSTER PREFERRED CAPITAL CORPORATION
 MANAGEMENTS DISCUSSION AND ANALYSIS
 Results of Operations
    Three Months Ended
    
    Three Months EndedJune 30, 2006
    
    June 30, 2005Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    Average(In thousands)
    
    Balance
    
    Income
    
    Yield
    
    Balance
    
    Income
    
    YieldMortgage loans
    
    $
    370,932
    
    
    
    5,127
    
    
    
    5.53
    %
    
    $
    447,518
    
    
    
    5,934
    
    
    
    5.30
    %Mortgage-backed securities (a)
    
    
    38,903
    
    
    
    479
    
    
    
    4.93
    
    
    
    19,231
    
    
    
    217
    
    
    
    4.51Short-term investments
    
    
    103,033
    
    
    
    1,276
    
    
    
    4.95
    
    
    
    78,813
    
    
    
    581
    
    
    
    2.95Total
    
    $
    512,868
    
    
    
    6,882
    
    
    
    5.37
    %
    
    $
    545,562
    
    
    
    6,732
    
    
    
    4.94
    %
 Six Months Ended
    
    Six Months EndedJune 30, 2006
    
    June 30, 2005Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    Average(In thousands)
    
    Balance
    
    Income
    
    Yield
    
    Balance
    
    Income
    
    YieldMortgage loans
    
    $
    377,523
    
    
    
    10,322
    
    
    
    5.47
    %
    
    $
    459,371
    
    
    
    12,081
    
    
    
    5.26
    %Mortgage-backed securities (a)
    
    
    39,755
    
    
    
    972
    
    
    
    4.89
    
    
    
    19,722
    
    
    
    449
    
    
    
    4.55Short-term investments
    
    
    94,735
    
    
    
    2,235
    
    
    
    4.72
    
    
    
    63,051
    
    
    
    872
    
    
    
    2.77Total
    
    $
    512,013
    
    
    
    13,529
    
    
    
    5.28
    %
    
    $
    542,144
    
    
    
    13,402
    
    
    
    4.94
    %
 (a)
    
    Unrealized net gains and losses are excluded from the average balance.  Three Months Ended June 30,
    
    Six Months Ended June 30,2006 v. 2005
    
    2006 v. 2005Increase (Decrease) due to
    
    Increase (Decrease) due to(In thousands)
    
    Rate
    
    Volume
    
    Total
    
    Rate
    
    Volume
    
    TotalInterest on interest-earning assets:Mortgage loans
    
    $
    243
    
    
    
    (1,050
    )
    
    
    (807
    )
    
    $
    463
    
    
    
    (2,222
    )
    
    
    (1,759
    )Mortgage-backed securities
    
    
    21
    
    
    
    241
    
    
    
    262
    
    
    
    35
    
    
    
    488
    
    
    
    523Short-term investments
    
    
    479
    
    
    
    216
    
    
    
    695
    
    
    
    796
    
    
    
    567
    
    
    
    1,363Net change in net interest income
    
    $
    743
    
    
    
    (593
    )
    
    
    150
    
    
    $
    1,294
    
    
    
    (1,167
    )
    
    
    127
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WEBSTER PREFERRED CAPITAL CORPORATION
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Estimated Market Value Impact(In thousands)
    
    Amortized Cost
    
    Market Value
    
    -100 BP
    
    +100 BPAt June 30, 2006Interest sensitive assets:Mortgage-backed securities
    
    $
    39,496
    
    
    
    38,261
    
    
    
    510
    
    
    
    (519
    )Variable-rate residential loans
    
    
    82,159
    
    
    
    80,511
    
    
    
    1,222
    
    
    
    (1,433
    )Fixed-rate residential loans
    
    
    279,614
    
    
    
    269,204
    
    
    
    10,837
    
    
    
    (12,053
    )Total
    
    
    
    
    
    
    
    
    
    $
    12,569
    
    
    
    (14,005
    )At December 31, 2005Interest sensitive assets:Mortgage-backed securities
    
    $
    41,835
    
    
    
    41,335
    
    
    
    521
    
    
    
    (580
    )Variable-rate residential loans
    
    
    93,041
    
    
    
    92,557
    
    
    
    1,168
    
    
    
    (1,262
    )Fixed-rate residential loans
    
    
    294,520
    
    
    
    293,051
    
    
    
    8,892
    
    
    
    (12,363
    )Total
    
    
    
    
    
    
    
    
    
    $
    10,581
    
    
    
    (14,205
    )
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WEBSTER PREFERRED CAPITAL CORPORATION
 
 Item 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  (1)
    
    Election of Officers
    
    William T, Bromage was elected to serve as Chairman.
    
    William T. Bromage and William J. Healy were elected to serve on the Audit committee.
    
    Gregory S. Madar was elected as Senior Vice President, Chief
Accounting Officer and Assistant Secretary.
    
    Mark S. Lyon was elected as Secretary.
    
    Renee P. Seefried and Katherine Vines Trumbull were each
elected as an Assistant Secretary.(2)
    
    Appointment of KPMG LLP as independent auditor for the fiscal year ending December 31,
2006.(3)
    
    Approval of an increase in the annual Advisory fee payable pursuant to the Amended
and Restated Advisory Service Agreement, dated as of March 31,
2006, by and between Webster Bank and the Company from $195,000 to $205,000.
 
 Item 5. Other Information
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Item 6. Exhibits
 Exhibit Number
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of
Webster Preferred Capital Corporation (the Company)
(incorporated herein by reference from Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).3.2
    
    Certificate of Amendment for the Series B 8.625% Cumulative
Redeemable Preferred Stock of the Company (incorporated
herein by reference from Exhibit 3.3 to the Companys
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).3.3
    
    Amended and Restated By-Laws of the Company (incorporated herein by
reference from Exhibit 3.4 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1997).4.1
    
    Specimen of certificate representing the Series B 8.625% Cumulative
Redeemable Preferred Stock of the Company (incorporated herein by
reference from Exhibit 4.2 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1997).10.1
    
    Amended and Restated Master Service Agreement dated March 31, 2006,
between Webster Bank, National Association and the Company.10.2
    
    Amended and Restated Advisory Service Agreement dated March 31, 2006,
between Webster Bank, National Association and the Company.31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, signed by the Companys Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, signed by the Companys Principal Financial Officer.32.1
    
    Written Statement pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, signed by the Companys Principal Executive Officer.32.2
    
    Written Statement pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, signed by the Companys Principal Financial Officer.
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SIGNATURE
  WEBSTER PREFERRED CAPITAL CORPORATION
RegistrantDate:
August 8, 2006BY:
    
    /s/ Gregory S. MadarGregory S. Madar,Senior Vice President,Chief Accounting Officer & Assistant SecretaryPrincipal Financial and Accounting Officer
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EXHIBIT INDEX
 Exhibit Number
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of
Webster Preferred Capital Corporation (the Company)
(incorporated herein by reference from Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).3.2
    
    Certificate of Amendment for the Series B 8.625% Cumulative
Redeemable Preferred Stock of the Company (incorporated
herein by reference from Exhibit 3.3 to the Companys
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).3.3
    
    Amended and Restated By-Laws of the Company (incorporated herein by
reference from Exhibit 3.4 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1997).4.1
    
    Specimen of certificate representing the Series B 8.625% Cumulative
Redeemable Preferred Stock of the Company (incorporated herein by
reference from Exhibit 4.2 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1997).10.1
    
    Amended and Restated Master Service Agreement dated March 31, 2006,
between Webster Bank, National Association and the Company.10.2
    
    Amended and Restated Advisory Service Agreement dated March 31, 2006,
between Webster Bank, National Association and the Company.31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, signed by the Companys Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, signed by the Companys Principal Financial Officer.32.1
    
    Written Statement pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, signed by the Companys Principal Executive Officer.32.2
    
    Written Statement pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, signed by the Companys Principal Financial Officer.