Webster Preferred Capital (WBSTP) 10-Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2006

OR

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-23513

WEBSTER PREFERRED CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Connecticut	06-1478208
(State or other jurisdiction of	(I. R. S. Employer
incorporation or organization)	Identification Number)
145 Bank Street, Waterbury, Connecticut	06702
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (203) 465-4366

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.  þ  Yes     o  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.

Large accelerated filer  o     Accelerated filer  o     Non-accelerated filer  þ

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

The number of shares outstanding of each of the registrant’s classes of common stock, as of October 31, 2006 was: 100 shares.

WEBSTER PREFERRED CAPITAL CORPORATION

INDEX

	Page
PART I — FINANCIAL INFORMATION
Item 1. Interim Financial Statements (unaudited):
Statements of Condition at September 30, 2006 and December 31, 2005		3
Statements of Income for the Three and Nine Months ended September 30, 2006 and 2005		4
Statements of Comprehensive Income for the Three and Nine Months ended September 30, 2006 and 2005		4
Statements of Cash Flows for the Nine Months ended September 30, 2006 and 2005		5
Notes to the Interim Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3.Quantitative and Qualitative Disclosures About Market Risk		13
Item 4.Controls and Procedures		14
PART II – OTHER INFORMATION		14
Item 1. Legal Proceedings		14
Item 1A.Risk Factors		14
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds		14
Item 3.Defaults Upon Senior Securities		14
Item 4.Submission of Matters to a Vote on Security Holders		14
Item 5.Other Information		14
Item 6.Exhibits		15
SIGNATURE		16
EXHIBITS		17
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

2

Item 1. Interim Financial Statements

WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF CONDITION

(unaudited)

(Dollars in thousands, except share and per share data)	September 30, 2006			December 31, 2005
Assets
Cash	$	5,322			3,402
Interest-bearing deposits		79,000			77,000
Mortgage-backed securities available for sale, at fair value (Note 2)		36,886			41,335
Residential mortgage loans, net (Note 3)		386,745			388,136
Accrued interest receivable		2,248			1,784
Prepaid expenses and other assets		672			104
Total assets	$	510,873			511,761
Liabilities and Shareholders’ Equity
Accrued dividends payable	$	180			180
Accrued expenses and other liabilities		191			10
Total liabilities		371			190
Shareholders’ Equity
Series 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			1,000
Common stock, par value $.01 per share:
Authorized — 1,000 shares
Issued and outstanding — 100 shares		1			1
Paid-in capital		513,799			513,799
Distributions in excess of accumulated earnings		(4,298	)		(2,729	)
Accumulated other comprehensive income (loss)		—			(500	)
Total shareholders’ equity		510,502			511,571
Total liabilities and shareholders’ equity	$	510,873			511,761

See accompanying notes to interim financial statements.

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WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF INCOME

(unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(Dollars in thousands, except per share data)	2006			2005		2006			2005
Interest income:
Loans (Note 4)	$	5,352			5,609	$	15,674			17,690
Securities and short-term investments		1,631			1,084		4,838			2,405
Total interest income		6,983			6,693		20,512			20,095
Loss on write-down of securities available for sale to fair value		(526	)		—		(526	)		—
Noninterest expense:
Advisory fee to parent		51			37		151			146
Other		32			43		126			70
Total noninterest expense		83			80		277			216
Net income		6,374			6,613		19,709			19,879
Preferred stock dividends		216			216		647			647
Net income available to common shareholder	$	6,158			6,397	$	19,062			19,232
Net income per common share:
Basic and diluted	$	61,580			63,970	$	190,620			192,320

STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands)	2006		2005			2006			2005
Net income	$	6,374		6,613		$	19,709			19,879
Other comprehensive income (loss):
Reclassification adjustment for loss on write-down of securities available for sale included in net income		526		—			526			—
Unrealized net holding gain (loss) on securities available for sale arising during the period		209		(210	)		(26	)		(295	)
Comprehensive income	$	7,109		6,403		$	20,209			19,584

See accompanying notes to interim financial statements.

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WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended September 30,
(In thousands)	2006			2005
Cash flow from operating activities:
Net income	$	19,709			19,879
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization and accretion		402			620
Loss on write down of securities available for sale to fair value		526			—
(Increase) decrease in accrued interest receivable		(464	)		230
Increase in accrued expenses and other liabilities		181			6
Increase in prepaid expenses and other assets		(568	)		(64	)
Net cash provided by operating activities		19,786			20,671
			��
Cash flow from investing activities:
Principal repayments on mortgage-backed securities		4,393			2,710
Principal repayments of loans		42,003			65,201
Loans purchased		(40,984	)		—
Increase in short-term investments		(2,000	)		(79,000	)
Net cash provided by (used in) investing activities		3,412			(11,089	)
Cash flow from financing activities:
Dividends paid on common and preferred stock		(21,278	)		(18,465	)
Increase (decrease) in cash and cash equivalents		1,920			(8,883	)
Cash and cash equivalents at beginning of period		3,402			10,325
Cash and cash equivalents at end of period	$	5,322			1,442

See accompanying notes to interim financial statements.

5

WEBSTER PREFERRED CAPITAL CORPORATION

NOTES TO INTERIM FINANCIAL STATEMENTS

(unaudited)

NOTE 1: BASIS OF PRESENTATION

The accompanying interim financial statements represent the accounts of Webster Preferred Capital Corporation (the “Company” or “WPCC”), a wholly-owned subsidiary of Webster Bank, and have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Amounts in prior period financial statements are reclassified whenever necessary to conform to current period presentations. The results of operations for the nine months ended September 30, 2006 are not necessarily indicative of the results which may be expected for the year as a whole.

The preparation of the Consolidated Interim Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the Interim Financial Statements, and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates. These Interim Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in WPCC’s Annual Report on Form 10-K for the year ended December 31, 2005.

NOTE 2: MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

The following table sets forth certain information regarding the mortgage-backed securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(In thousands)	Cost		Gains		Losses			Fair Value
September 30, 2006
Available for Sale Portfolio	$	36,886		—		—			36,886
December 31, 2005
Available for Sale Portfolio	$	41,835		—		(500	)		41,335

At September 30, 2006 and December 31, 2005, all mortgage-backed securities available for sale were issued by government agencies or government-sponsored enterprises. There were no sales of mortgage-backed securities during the nine months ended September 30, 2006 and 2005.

At September 30, 2006, there were no temporarily-impaired investments.

As disclosed in Webster Financial Corporation’s (“Webster”) press release issued on October 17, 2006 and filed on Form 8-K, Webster evaluated the available for sale securities portfolio in light of changing market conditions and other factors, and determined that Webster will sell of all its mortgage-backed securities classified as available for sale. The Company made a similar evaluation with respect to its available for sale portfolio, resulting in a decision to sell its entire portfolio of mortgage-backed securities available for sale. At September 30, 2006 the Company held $36.9 million of such securities that it wrote-down to fair value.

The unrealized loss on the available for sale mortgage-backed securities portfolio of $526 thousand, was recognized in the consolidated statement of income for the three months ended September 30, 2006. The sale of the $36.9 million in mortgage backed securities available for sale was completed during October of 2006.

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WEBSTER PREFERRED CAPITAL CORPORATION

NOTES TO INTERIM FINANCIAL STATEMENTS(continued)

NOTE 3: RESIDENTIAL MORTGAGE LOANS, NET

A summary of the Company’s residential mortgage loans by type and original maturity follows:

(In thousands)	September 30, 2006			December 31, 2005
Fixed-rate loans:
15 yr. loans	$	45,607			50,842
20 yr. loans		7,996			7,218
25 yr. loans		3,205			3,718
30 yr. loans		254,235			232,742
Total fixed-rate loans		311,043			294,520
Variable-rate loans:
15 yr. loans		464			666
20 yr. loans		659			1,241
25 yr. loans		1,114			1,183
30 yr. loans		73,209			89,951
Total variable-rate loans		75,446			93,041
Total residential mortgage loans		386,489			387,561
Premiums and deferred costs on loans, net		2,278			2,597
Less: allowance for loan losses		(2,022	)		(2,022	)
Residential mortgage loans, net	$	386,745			388,136

As of September 30, 2006, 80.5% of the Company’s residential mortgage loans are fixed-rate loans and 19.5% are adjustable-rate loans.

There has been no activity in the allowance for loan losses for the nine months ended September 30, 2006 and 2005.

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WEBSTER PREFERRED CAPITAL CORPORATION

NOTES TO INTERIM FINANCIAL STATEMENTS(continued)

NOTE 4: SERVICING

The mortgage loans owned by the Company are serviced by Webster Bank National Association (“Webster Bank”) pursuant to the terms of a servicing agreement. Webster Bank in its role as servicer under the terms of the servicing agreement is herein referred to as the “Servicer.” The Servicer receives fees at an annual rate of (i) 8 basis points for fixed-rate loan servicing and collection, (ii) 8 basis points for variable-rate loan servicing and collection and (iii) 5 basis points for all other services to be provided, as needed, in each case based on the daily outstanding balances of all the Company’s loans for which the Servicer is responsible. The services provided to the Company by Webster Bank are at the level of a sub-servicing agreement. As such, the Company estimates that the fees paid to Webster Bank for servicing approximates fees that would be paid if the Company operated as an unaffiliated entity. Servicing fees paid for the three and nine months ended September 30, 2006 were $76,000 and $226,000 respectively, and for the three and nine months ended September 30, 2005 were $84,000 and $265,000, respectively. Servicing fees are netted against interest income in the Statements of Income, as they are considered a reduction in yield to the Company.

The Servicer is entitled to retain any late payment charges, prepayment fees, penalties and assumption fees collected in connection with mortgage loans serviced by it. The Servicer receives the benefit, if any, derived from interest earned on collected principal and interest payments between the date of collection and the date of remittance to the Company and from interest earned on tax and insurance escrow funds with respect to mortgage loans serviced by it. At the end of each calendar month, the Servicer is required to invoice the Company for all fees and charges due to the Servicer.

8

WEBSTER PREFERRED CAPITAL CORPORATION

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Company is a subsidiary of Webster Bank and has elected to be treated as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company will generally not be subject to federal income tax for as long as it maintains its qualification as a REIT, requiring among other things, that it currently distribute to stockholders at least 90% of its “REIT taxable income” (not including capital gains and certain items of noncash income). The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s financial statements and other financial data included elsewhere herein and in conjunction with the Company’s 2005 Annual Report on Form 10-K.

Forward Looking Statements

This report contains forward looking statements within the meaning of the Securities Exchange Act of 1934, as amended. Actual results, performance or developments may differ materially from those expressed or implied by such forward looking statements as a result of market uncertainties and other factors. Some important factors that would cause actual results to differ from those in any forward looking statements include changes in interest rates and the general economy in the Connecticut market area where a substantial portion of the real estate securing the Company’s loans are located, legislative and regulatory changes, changes in tax laws and policies, and changes in accounting policies, principles or guidelines. Such developments could have an adverse impact on the Company’s financial position and results of operations. An example of such a forward looking statement is the “Quantitative and Qualitative Disclosures About Market Risk” section in Management’s Discussion and Analysis. Except as required by law, the Company does not undertake to update any such forward looking statements.

Summary

WPCC’s total interest income of $7.0 million for the three months ended September 30, 2006 and $20.5 million for the nine months ended September 30, 2006 approximated the amounts for the same periods a year earlier. However, the mix of interest income changed due to the following factors:

• For the three months ended September 30, 2006, average loans decreased $43.0 million, short term investments increased $18.4 million and average securities decreased $14.3 million compared to the three months ended September 30, 2005.

• For the nine months ended September 30, 2006, average loans decreased $68.8 million, short term investments increased $16.2 million and average securities increased $19.1 million compared to the nine months ended September 30, 2005.

• The yield on earning assets for the nine months ended September 30, 2006 was 5.37% compared to 4.93% for the nine months ended September 30, 2005.

Changes in Financial Condition

Total assets, consisting primarily of residential mortgage loans, were $510.9 million at September 30, 2006, a decrease of $0.9 million from $511.8 million at December 31, 2005. Residential mortgage loans decreased $1.4 million primarily as a result of repayments of $42.0 million substantially offset by purchases of $41.0 million. These cash flows were generally replaced with the purchase of interest-bearing deposits. Shareholders’ equity decreased to $510.5 million at September 30, 2006 from $511.6 million at December 31, 2005, due to the payment of $21.3 million in dividends while recording net income of $19.7 million for the first nine months of 2006.

9

WEBSTER PREFERRED CAPITAL CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

Asset Quality

The Company maintains asset quality by investing in residential real estate loans that have been conservatively underwritten and by aggressively managing nonperforming assets. At September 30, 2006 and December 31, 2005, residential real estate loans comprised the entire loan portfolio. All such residential loans were purchased from Webster Bank. The Company also invests in short-term jumbo certificates of deposit, and prior to the October 2006 sale, in government agency or government-sponsored enterprise issued mortgage-backed securities.

The following table details the Company’s nonperforming assets:

	September 30,		December 31,
(In thousands)	2006		2005
Loans accounted for on a nonaccrual basis:
Residential variable-rate loans	$	78	$	97
Total nonperforming loans and assets	$	78	$	97

At September 30, 2006 and December 31, 2005, the allowance for loan losses was approximately $2.0 million. Management believes that the allowance for loan losses is adequate to cover probable losses inherent in the current portfolio.

Liquidity and Capital Resources

The primary sources of liquidity for the Company are principal and interest payments from the residential mortgage loans and mortgage-backed securities portfolios. The primary uses of liquidity are purchases of residential mortgage loans and mortgage-backed securities and the payment of dividends on the common and preferred stock.

While scheduled loan amortization, maturing securities, short-term investments and securities repayments are predictable sources of funds, loan and mortgage-backed security prepayments can vary greatly and are influenced by factors such as general interest rates, economic conditions and competition. One of the inherent risks of investing in loans and mortgage-backed securities is the possibility prepayments of principal prior to maturity at prepayment rates different than those estimated at the time of purchase. This generally occurs because of changes in market interest rates.

In the unlikely event that principal and interest payments on its mortgage assets are insufficient to meet its operating needs, WPCC has the ability to raise additional funds. For example, WPCC’s residential mortgage loans are underwritten to meet secondary market requirements and could easily be sold or securitized as mortgage-backed securities and used as borrowing collateral, although the Company had no plans to do so at September 30, 2006 and December 31, 2005.

Asset/Liability Management

The goal of the Company’s asset/liability management policy is to manage interest-rate risk so as to maximize net interest income over time in changing interest rate environments while maintaining acceptable levels of risk. The Company prepares estimates of the level of prepayments and the effect of such prepayments on the level of future earnings due to reinvestment of funds at rates different than those that currently exist. The Company is unable to predict future fluctuations in interest rates. The market values of the Company’s financial assets are sensitive to fluctuations in market interest rates. The market values of fixed-rate loans and mortgage-backed securities tend to decline in value as interest rates rise. If interest rates decrease, the market value of loans and mortgage-backed securities generally will tend to increase with the level of prepayments also normally increasing. The interest income earned on the Company’s variable-rate, interest-sensitive instruments, which represent primarily variable-rate mortgage loans, may change due to changes in quoted interest-rate indices. The variable-rate mortgage loans generally re-price based on a stated margin over U.S. Treasury Securities indices of varying maturities, the terms of which are established at the time that the loan is closed. At September 30, 2006, 19.5% of the Company’s residential mortgage loans were variable-rate loans.

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WEBSTER PREFERRED CAPITAL CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS(continued)

Results of Operations

For the three and nine months ended September 30, 2006, the Company reported net income of $6.4 million and $19.7 million, respectively, which approximated the net income for the three and nine months ended September 30, 2005.

In its third quarter earnings release issued on October 17, 2006, Webster Financial Corporation announced the repositioning of its available for sale securities portfolio and management’s decision to sell all mortgage-backed securities classified as available for sale. The Company took similar action with respect to its available for sale portfolio. As a result, the Company recognized a loss on the write-down of available for sale mortgage-backed securities to fair value of $526,000 as of September 30, 2006. The Company completed the sale of its available for sale mortgage-backed securities portfolio during October of 2006. Sale proceeds, initially re-invested in interest bearing deposits, are expected to be used to purchase additional residential mortgage loans from Webster Bank.

Interest income of $7.0 million for the three months ended September 30, 2006 and $20.5 million for the nine months ended September 30, 2006 was flat compared to $6.7 million and $20.1 million for the same periods last year. Interest rates increased by 44 basis points and average earning assets decreased by $33.5 million for the nine months ended September 30, 2006 compared to the same period in 2005.

The following table shows the major categories of average interest-earning assets, together with their respective interest income and the rates earned by the Company:

	Three Months Ended							Three Months Ended
	September 30, 2006							September 30, 2005
	Average		Interest		Average			Average		Interest			Average
(In thousands)	Balance		Income		Yield			Balance		Income			Yield
Mortgage loans	$	382,629		5,352		5.59	%	$	425,616		5,609			5.27	%
Mortgage-backed securities (a)		36,299		464		5.11			17,924		205			4.57
Short-term investments		87,620		1,167		5.33			101,946		879			3.45
Total	$	506,548		6,983		5.51	%	$	545,486		6,693	��		4.91	%

	Nine Months Ended							Nine Months Ended
	September 30, 2006							September 30, 2005
	Average		Interest		Average			Average		Interest		Average
(In thousands)	Balance		Income		Yield			Balance		Income		Yield
Mortgage loans	$	379,244		15,674		5.51	%	$	447,995		17,690		5.27	%
Mortgage-backed securities (a)		38,085		1,436		5.03			18,985		654		4.59
Short-term investments		92,337		3,402		4.91			76,158		1,751		3.07
Total	$	509,666		20,512		5.37	%	$	543,138		20,095		4.93	%

(a) Unrealized net gains and losses are excluded from the average balance.

11

Net interest income also can be understood in terms of the impact of changing rates and changing volumes. The following table describes the extent to which changes in interest rates and changes in volume of interest-earning assets have impacted interest income during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume) and (iii) the net change. The change attributable to the combined impact of volume and rate has been allocated proportionately to the change due to volume and the change due to rate.

	Three Months Ended September 30,								Nine Months Ended September 30,
	2006 v. 2005								2006 v. 2005
	Increase (Decrease) due to								Increase (Decrease) due to
(In thousands)	Rate		Volume			Total			Rate		Volume			Total
Interest on interest-earning assets:
Mortgage loans	$	331		(588	)		(257	)	$	369		(2,385	)		(2,016	)
Mortgage-backed securities		17		242			259			67		715			782
Short-term investments		425		(137	)		288			1,221		430			1,651
Net change in net interest income	$	773		(483	)		290		$	1,657		(1,240	)		417

There were no provisions for loan losses for the three and nine months ended September 30, 2006 and 2005.

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WEBSTER PREFERRED CAPITAL CORPORATION

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following table summarizes the estimated market value of the Company’s interest-sensitive assets at September 30, 2006 and December 31, 2005 and the projected change to market values if interest rates instantaneously increase or decrease by 100 basis points.

					Estimated Market Value Impact
(In thousands)	Amortized Cost		Market Value		-100 BP		+100 BP
At September 30, 2006
Interest sensitive assets:
Mortgage-backed securities	$	36,886		36,886	$	1		(1	)
Variable-rate residential loans		75,446		75,373		729		(1,039	)
Fixed-rate residential loans		311,043		308,304		7,042		(12,698	)
Total					$	7,772		(13,738	)
At December 31, 2005
Interest 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	)

Interest-sensitive assets, when shocked by a minus 100 basis point rate change, experience a favorable $7.8 million change in market value at September 30, 2006 compared to a favorable $10.6 million market value change at December 31, 2005. These changes in market value represent 1.8% of interest-sensitive assets at September 30, 2006 and 2.5% at December 31, 2005. A plus 100 basis point rate change results in an unfavorable $13.7 million, or 3.2%, change in market value at September 30, 2006 compared to an unfavorable $14.2 million, or 3.3%, market value change at December 31, 2005. Changes in the projected market value due to the instantaneous rate changes at September 30, 2006 compared to December 31, 2005 are a result of changes in outstanding balances of the assets, and do not represent a significant change due to interest rates since year end.

Based on the asset/liability mix at September 30, 2006, management estimates that a gradual 200 basis point increase in interest rates over a 12 month period would increase net income over that period by approximately 3.8%. A gradual 200 basis point decrease in interest rates is projected to decrease net income by approximately 4.0%. At December 31, 2005, a projected 200 basis point increase and a 200 basis point decrease in rates produced a net income increase of 5.4% and a net income decrease of 5.9%, respectively.

The Company’s interest rate sensitive assets are subject to prepayment risk. Prepayment risk is inherently difficult to estimate and is dependent upon a number of economic, financial and behavioral variables. The Company uses a sophisticated mortgage prepayment modeling system to estimate prepayments and the corresponding impact on market value and net interest income. The model uses information that includes the instrument type, coupon spread, loan age and other factors in its projections.

These assumptions are inherently uncertain and, as a result, the simulation analyses cannot precisely estimate the impact that higher or lower rate environments will have on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, changes in cash flow patterns and market conditions, as well as changes in management’s strategies. Management believes that the Company’s interest rate risk position at September 30, 2006, represents a reasonable level of risk.

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WEBSTER PREFERRED CAPITAL CORPORATION

Item 4. CONTROLS AND PROCEDURES

As of September 30, 2006 the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its principal executive officer and its principal financial officer, of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms. There was no change in the Company’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incident to its business, to which the Company is a party or of which any of its property is the subject.

Item 1A. Risk Factors

During the third quarter of 2006, there were no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

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

As outlined in Webster’s press release issued on October 17, 2006 and filed on Form 8-K, Webster evaluated the available for sale securities portfolio in light of changing market conditions and other factors, and it was determined that Webster will sell of all its mortgage-backed securities classified as available for sale. The Company made a similar evaluation with respect to its available for sale portfolio, resulting in a decision to sell its entire portfolio of mortgage-backed securities available for sale. At September 30, 2006 the Company held $36.9 million of such securities that it wrote-down to fair value.

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Item 6. Exhibits

Exhibit Number	Description
3.1	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).
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

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

	WEBSTER PREFERRED CAPITAL CORPORATION
	Registrant
Date: November 09, 2006
	BY:	/s/ Gregory S. Madar
		Gregory S. Madar,
		Senior Vice President,
		Chief Accounting Officer & Assistant Secretary
		Principal Financial and Accounting Officer

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EXHIBIT INDEX

Exhibit Number	Description
3.1	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).
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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