Webster Preferred Capital (WBSTP) 10-Q 2007 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2007

OR

¨ 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 incorporation or organization)	(I. R. S. Employer 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.    x  Yes    ¨  No

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

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    x  No

The number of shares outstanding of each of the registrant’s classes of common stock, as of July 31, 2007 was: 100 shares.

WEBSTER PREFERRED CAPITAL CORPORATION

INDEX

			Page
PART I – FINANCIAL INFORMATION
Item 1.	Interim Financial Statements (unaudited):
		Statements of Condition at June 30, 2007 and December 31, 2006	3
		Statements of Income for the Three and Six Months ended June 30, 2007 and 2006	4
		Statements of Comprehensive Income for the Three and Six Months ended June 30, 2007 and 2006	4
		Statements of Cash Flows for the Six Months ended June 30, 2007 and 2006	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		12
Item 4.	Controls and Procedures		13
PART II – OTHER INFORMATION			13
Item 1.	Legal Proceedings		13
Item 1A.	Risk Factors		13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		13
Item 3.	Defaults Upon Senior Securities		13
Item 4.	Submission of Matters to a Vote of Security Holders		13
Item 5.	Other Information		13
Item 6.	Exhibits		14
SIGNATURE			15
EXHIBITS			16

2

Item 1. INTERIM FINANCIAL STATEMENTS

WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF CONDITION

(unaudited)

(Dollars in thousands, except share data)	June 30, 2007			December 31, 2006
Assets
Cash	$	10,859		$	56,356
Interest-bearing deposits		46,000			80,000
Residential mortgage loans, net		293,050			372,201
Accrued interest receivable		1,418			1,859
Prepaid expenses and other assets		885			1,574
Total assets	$	352,212		$	511,990
Liabilities and Shareholders’ Equity
Accrued dividends payable	$	180		$	180
Accrued expenses and other liabilities		11			36
Total liabilities		191			216
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		353,799			513,799
Distributions in excess of accumulated earnings		(2,779	)		(3,026	)
Total shareholders’ equity		352,021			511,774
Total liabilities and shareholders’ equity	$	352,212		$	511,990

See accompanying notes to interim financial statements.

3

WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF INCOME

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share data)	2007			2006			2007			2006
Interest income:
Loans	$	4,284		$	5,127		$	8,906		$	10,322
Securities and short-term investments		629			1,755			1,329			3,207
Total interest income		4,913			6,882			10,235			13,529
Recovery of loan losses		(250	)		—			(250	)		—
Total interest income after recovery of loan losses		5,163			6,882			10,485			13,529
Noninterest expense:
Advisory fee to parent		52			51			103			100
Other		48			64			75			94
Total noninterest expense		100			115			178			194
Net income		5,063			6,767			10,307			13,335
Preferred stock dividends		215			215			431			431
Net income available to common shareholder	$	4,848		$	6,552		$	9,876		$	12,904
Net income per common share:
Basic	$	48,480		$	65,520		$	98,760		$	129,040
STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2007			2006			2007			2006
Net income	$	5,063		$	6,767		$	10,307		$	13,335
Other comprehensive loss:
Unrealized net holding loss on securities available for sale arising during the period		—			(504	)		—			(735	)
Comprehensive income	$	5,063		$	6,263		$	10,307		$	12,600

4

WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended June 30,
(In thousands)	2007			2006
Cash flow from operating activities:
Net income	$	10,307		$	13,335
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization and accretion		94			414
Recovery of loan losses		(250	)		—
Decrease (increase) in accrued interest receivable		441			(423	)
(Decrease) increase in accrued expenses and other liabilities		(25	)		173
Decrease (increase) in prepaid expenses and other assets		689			(109	)
Net cash provided by operating activities		11,256			13,390
Cash flow from investing activities:
Principal repayments on mortgage-backed securities		—			2,327
Net decrease in residential mortgage loans		79,307			25,608
Net decrease (increase) in short-term investments		34,000			(34,000	)
Net cash provided by (used in) investing activities		113,307			(6,065	)
Cash flow from financing activities:
Dividends paid on common and preferred stock		(10,060	)		(1,062	)
Return of capital dividends		(160,000	)		—
Net cash used in financing activities		(170,060	)		(1,062	)
(Decrease) increase in cash and cash equivalents		(45,497	)		6,263
Cash and cash equivalents at beginning of period		56,356			3,402
Cash and cash equivalents at end of period	$	10,859		$	9,665

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 three months ended June 30, 2007 are not necessarily indicative of the results which may be expected for the year as a whole.

The preparation of the 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 Financial Statements and Notes thereto included in WPCC’s Annual Report on Form 10-K for the year ended December 31, 2006.

NOTE 2: Residential Mortgage Loans, Net

Loans represent assets that the Company acquires from Webster Bank at carrying value. While these transfers represent legal sales by Webster Bank, Webster Bank may not record the transfers as sales for GAAP accounting purposes because of its 100% direct ownership interest in the Company. Accordingly, the Company’s assets represent non-recourse receivables from Webster Bank which are fully collateralized by the underlying loans. The underlying loans are whole loans secured by first mortgages or deeds of trust on single family (one-to-four unit) residential real estate properties located primarily in Connecticut. The assets continue to be classified as residential loans in the Company’s financial statements because the returns on and the recoverability of these non-recourse receivables are entirely dependent on the performance of the underlying residential loans.

Loans are stated at the principal amounts outstanding, adjusted by deferred loan costs, and the allowance for loan losses. Interest on loans is credited to income as earned based on the rate applied to principal amounts outstanding. Interest which is more than 90 days past due is not accrued. Such interest ultimately collected, if any, is credited to income in the period received. Deferred loan fees/costs on loans acquired are recognized in interest income over the lives of the loans using a method approximating the interest method. Servicing fees paid to the Servicer (as defined in Note 3 below) are charged against interest income.

The Company’s residential mortgage loans are not within the scope of Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS No. 118, since these are homogenous loans with relatively small balances that are collectively evaluated for impairment.

6

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

(In thousands)	June 30, 2007			December 31, 2006
Fixed-rate loans:
15 yr. loans	$	27,819		$	29,401
20 yr. loans		7,979			6,652
25 yr. loans		3,514			2,857
30 yr. loans		138,144			198,172
Total fixed-rate loans		177,456			237,082
Variable-rate loans:
15 yr. loans		676			877
20 yr. loans		610			559
25 yr. loans		931			1,012
30 yr. loans		114,085			133,265
Total variable-rate loans		116,302			135,713
Total residential mortgage loans		293,758			372,795
Premiums and deferred costs on loans, net		1,064			1,428
Less: allowance for loan losses		(1,772	)		(2,022	)
Residential mortgage loans, net	$	293,050		$	372,201

As of June 30, 2007, 60.4% of the Company’s residential mortgage loans are fixed-rate loans and 39.6% are variable-rate loans.

There has been a recovery of loan losses of $250,000 for the six months ended June 30, 2007 compared to no recovery of loan losses in the same period in 2006. The recovery of loan losses is primarily a result of the overall decline in loans outstanding.

NOTE 3: 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 six months ended June 30, 2007 were $60,000 and $126,000, respectively, and for the three and six months ended June 30, 2006 were $74,000 and $150,000. 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.

7

NOTE 4: Accounting for Uncertainty in Income Taxes:

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109” (“FIN 48”). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.

On January 1, 2007 the Company adopted the provisions of FIN 48 and there was no impact on the financial statements. Upon the adoption of this standard, the Company performed an analysis of its tax positions to determine whether there may be uncertainties that require further analysis under FIN 48 based on their specific facts and circumstances. The Company did not identify any tax positions that contained significant uncertainties at January 1, 2007 or June 30, 2007.

The Company has no interest or penalties recognized in its statements of income for the three months ended June 30, 2007 and 2006, or in its balance sheet at June 30, 2007. Such interest and penalties would be classified as income taxes in its statement of income.

The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2003 through 2006, The Company’s state income tax returns are also open to audit under the statute of limitations for the years ending December 31, 2003 through 2006.

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 2006 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 $4.9 million for the three months ended June 30, 2007 decreased $2.0 million or 29.0% compared to $6.9 million for the three months ended June 30, 2006. Interest income for the six month period ending June 30, 2007 was $10.2 million, a decrease of $3.3 million or 24.4% compared to $13.5 million for the six months ended June 30, 2006. The decrease in interest income is due to the following factors:

• For the three months ended June 30, 2007, average loans decreased $68.2 million, average short term investments decreased $46.5 million and average securities decreased $38.9 million compared to the three months ended June 30, 2006. The yield on earning assets for the three months ended June 30, 2007 was 5.47% compared to 5.37% for the three months ended June 30, 2006.

• For the six months ended June 30, 2007, average loans decreased $60.2 million, average short term investments decreased $28.7 million and average securities decreased $39.7 million compared to the six months ended June 30, 2006. The yield on earning assets for the six months ended June 30, 2007 was 5.34% compared to 5.28% for the six months ended June 30, 2006.

Changes in Financial Condition

Total assets, consisting primarily of residential mortgage loans, were $352.2 million at June 30, 2007, a decrease of $159.8 million from $512.0 million at December 31, 2006. Residential mortgage loans decreased $79.2 million primarily as a result of transfers to Webster Bank of $90.5 million, repayments of $39.1 million offset by acquisitions of $50.4 million. Interest bearing deposits decreased by $34.0 million and cash decreased by $45.5 million compared to December 31, 2006. The resulting net cash was primarily used to pay a $160.0 million return of capital dividend to Webster Bank in the first quarter of 2007. Shareholders’ equity decreased by $159.8 million to $352.0 million at June 30, 2007 from $511.8 million at December 31, 2006, due to the payment of $160.0 million in return of capital dividend and $10.1 million in common and preferred dividends partially offset by net income of $10.3 million for the first six months of 2007.

9

Loans represent assets that the Company acquires from Webster Bank at carrying value. While these transfers represent legal sales by Webster Bank, Webster Bank may not record the transfers as sales for GAAP accounting purposes because of its 100% direct ownership interest in the Company. Accordingly, the Company’s assets represent non-recourse receivables from Webster Bank which are fully collateralized by the underlying loans. The underlying loans are whole loans secured by first mortgages or deeds of trust on single family (one-to-four unit) residential real estate properties located primarily in Connecticut. The assets continue to be classified as residential loans in the Company’s financial statements because the returns on and the recoverability of these non-recourse receivables are entirely dependent on the performance of the underlying residential loans.

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 June 30, 2007 and December 31, 2006, residential real estate loans comprised the entire loan portfolio. All such residential loans were acquired from Webster Bank. The Company also invests in short-term interest bearing deposits.

The following table details the Company’s nonperforming assets:

(In thousands)	June 30, 2007		December 31, 2006
Nonaccrual loans	$	441	$	211
Total nonperforming loans and assets	$	441	$	211

At June 30, 2007 the allowance for loan losses was approximately $1.8 million compared to $2.0 million at December 31, 2006. Total loans decreased $79.0 million from December 31, 2006 and $68.0 million from June 30, 2006. As a result of the decreases in the outstanding loan balances the loan allowance decreased by $0.2 million at June 30, 2007 as compared to December 31, 2006. 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 short term investments. The primary uses of liquidity are acquisitions of residential mortgage loans and short term investments and the payment of dividends on the common and preferred stock.

While scheduled loan amortization and short-term investments are predictable sources of funds, loan 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 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 June 30, 2007.

10

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 tend to decline in value as interest rates rise. If interest rates decrease, the market value of loans generally will tend to increase with the level of prepayments also normally increasing. At June 30, 2007 the Company had no mortgage backed securities. 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 June 30, 2007, 39.6% of the Company’s residential mortgage loans were variable-rate loans.

Results of Operations

For the three months ended June 30, 2007, the Company reported net income of $5.1 million, a decrease of $1.7 million or 25.2% compared to the same period in 2006.

Interest income was $4.9 million for the three months ended June 30, 2007, a decrease of $2.0 million or 28.6% from the comparable same period in 2006. The decrease in interest income was primarily related to a reduction in average interest earning assets of $153.6 million for the three months ended June 30, 2007 compared to the three months ended June 30, 2006, offset by an increase in yields on earning assets of 10 basis points.

Interest income was $10.2 million for the six months ended June 30, 2007, a decrease of $3.3 million or 24.3% from the comparable period in 2006. The decrease in interest income was primarily related to a reduction in average interest earning assets of $128.7 million for the six months ended June 30, 2007 compared to the six months ended June 30, 2006, offset by an increase in yields on earning assets of 6 basis points.

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 June 30, 2007						Three Months Ended June 30, 2006
(In thousands)	Average Balance		Interest Income		Average Yield		Average Balance		Interest Income		Average Yield
Mortgage loans	$	302,718	$	4,284	5.66	%	$	370,932	$	5,127	5.53	%
Mortgage-backed securities		—		—	—			38,903		479	4.93
Short-term investments		56,502		629	4.45			103,033		1,276	4.95
Total	$	359,220	$	4,913	5.47	%	$	512,868	$	6,882	5.37	%
	Six Months Ended June 30, 2007						Six Months Ended June 30, 2006
(In thousands)	Average Balance		Interest Income		Average Yield		Average Balance		Interest Income		Average Yield
Mortgage loans	$	317,304	$	8,906	5.61	%	$	377,523	$	10,322	5.47	%
Mortgage-backed securities		—		—	—			39,755		972	4.89
Short-term investments		66,044		1,329	4.02			94,735		2,235	4.72
Total	$	383,348	$	10,235	5.34	%	$	512,013	$	13,529	5.28	%

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 June 30, 2007 v. 2006 Increase (Decrease) due to									Six Months Ended June 30, 2007 v. 2006 Increase (Decrease) due to
(In thousands)	Rate			Volume			Total			Rate			Volume			Total
Interest on interest-earning assets:
Mortgage loans	$	270		$	(1,113	)	$	(843	)	$	1,041		$	(2,457	)	$	(1,416	)
Mortgage-backed securities		(240	)		(239	)		(479	)		(486	)		(486	)		(972	)
Short-term investments		(124	)		(523	)		(647	)		(21	)		(885	)		(906	)
Net change in net interest income	$	(94	)	$	(1,875	)	$	(1,969	)	$	534		$	(3,828	)	$	(3,294	)

There was a recovery of loan losses of $250 thousand for the three months ended June 30, 2007 and no recovery of loan losses for the three months ended June 30, 2006.

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 June 30, 2007 and December 31, 2006 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 June 30, 2007
Interest sensitive assets:
Fixed-rate residential loans	$	177,456	$	173,556	$	6,361	$	(7,524	)
Variable-rate residential loans		116,302		115,674		1,539		(1,741	)
Total					$	7,900		(9,265	)
At December 31, 2006
Interest sensitive assets:
Fixed-rate residential loans	$	237,082	$	236,076	$	6,399	$	(10,210	)
Variable-rate residential loans		135,713		135,948		1,806		(2,064	)
Total					$	8,205		(12,274	)

Interest-sensitive assets, when shocked by a minus 100 basis point rate change, experience a favorable $7.9 million change in market value at June 30, 2007 compared to a favorable $8.2 million market value change at December 31, 2006. These changes in market value represent 2.73% of interest-sensitive assets at June 30, 2007 and 2.4% at December 31, 2006. A plus 100 basis point rate change results in an unfavorable $9.3 million, or -3.20%, change in market value at June 30, 2007 compared to an unfavorable $12.3 million, or -3.1%, market value change at December 31, 2006. Changes in the projected market value due to the instantaneous rate changes at June 30, 2007 compared to December 31, 2006 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.

12

Based on the asset/liability mix at June 30, 2007, 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 3.6%. A gradual 200 basis point decrease in interest rates is projected to decrease net income by approximately 3.9%. At December 31, 2006, a projected 200 basis point increase and a 200 basis point decrease in rates produced a net income increase of 4.5% and a net income decrease of 5.0%, 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 June 30, 2007, represents a reasonable level of risk.

Item 4. CONTROLS AND PROCEDURES

As of June 30, 2007 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 first six months of 2007, 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, 2006.

Item 2. UNREGISTERED SALESOF EQUITY SECURITIESAND USEOF PROCEEDS

Not Applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

Item 4. SUBMISSIONOF MATTERSTOA VOTEOF SECURITY HOLDERS

The Company held an annual meeting of stockholders on April 11, 2007. All 3 of the Company’s continuing directors, William T. Bromage, Gerald P. Plush and Harriet Munrett Wolfe, were reelected at the meeting and each such director received 100 votes for election (which votes constitute 100% of the issued and outstanding common stock). In addition the following items were approved, each receiving 100 votes in favor:

(1) Election of Officers

• William T, Bromage was elected to serve as President and Chairman.

• William T. Bromage and Gerald P. Plush 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 the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2007.

Item 5. OTHER INFORMATION

None

13

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 Principal 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 18 U.S.C. § 1350, as created by section 906 of the Sarbanes-Oxley Act of 2002, signed by the Company’s Principal Executive Officer.
32.2	Written Statement pursuant to 18 U.S.C. § 1350, as created by section 906 of the Sarbanes-Oxley Act of 2002, signed by the Company’s Principal Financial Officer.

14

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: August 13, 2007
	BY:	/s/ Gregory S. Madar
		Gregory S. Madar Senior Vice President, Chief Accounting Officer and Assistant Secretary (Principal Financial and Accounting Officer)

15

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 Principal 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 18 U.S.C. § 1350, as created by section 906 of the Sarbanes-Oxley Act of 2002, signed by the Company’s Principal Executive Officer.
32.2	Written Statement pursuant to 18 U.S.C. § 1350, as created by section 906 of the Sarbanes-Oxley Act of 2002, signed by the Company’s Principal Financial Officer.

16