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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K



|[X] |  | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2003
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

OR



|[  ] |  | 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




(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) 578-2286

Securities registered pursuant to Section 12(a) of the Act:Not Applicable

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

|                              |  |                      
|----------------------------- |  | ---------------------
|Title of Class                |  | Exchange where listed
|                              |  |                      
|Preferred Stock, $1 par value |  | NASDAQ               

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [  ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12B-2). Yes [  ] No [X].

State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrants most recently completed
second fiscal quarter. N/A

The number of shares outstanding of each of the registrants classes of
common stock, as of February 29, 2004 is: 100 shares





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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                             
|                                                   | Item 2. Properties                                                                           
|                                                   | Item 3. Legal Proceedings                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                           
|                                                   | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                                                   | Item 6. Selected Financial Data                                                              
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                   | Item 8. Financial Statements and Supplementary Data                                          
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                                   | Item 9A. Disclosure Controls and Procedures                                                  
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                   | Item 11. Executive Compensation                                                              
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                   | Item 13. Certain Relationships and Related Transactions                                      
|                                                   | Item 14. Principal Accountant Fees and Services                                              
|PART IV                                           
|                                                   | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                        
|EX-31.1:CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER
|EX-31.2:CERTIFICATE OF PRINCIPAL FINANCIAL OFFICER
|EX-32.1: 906 STATEMENT OF PRIN. EXECUTIVE OFFICER 
|EX-32.2:906 STATEMENT OF PRIN. FINANCIAL OFFICER  



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WEBSTER PREFERRED CAPITAL CORPORATION
2003 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                       |  | Page
|           |  |                                                                                       |  |     
|           |  | PART I                                                                                |  |     
|Item 1.    |  | Business                                                                              |  | 3   
|Item 2.    |  | Properties                                                                            |  | 6   
|Item 3.    |  | Legal Proceedings                                                                     |  | 6   
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 7   
|          
|           |  | PART II                                                                               |  |     
|Item 5.    |  | Market for the Registrants Common Equity and
Related Stockholder Matters             |  | 7   
|Item 6.    |  | Selected Financial Data                                                               |  | 8   
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 9   
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 14  
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 15  
|Item 9.    |  | Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure  |  | 25  
|Item 9A.   |  | Controls and Procedures                                                               |  | 25  
|          
|           |  | PART III                                                                              |  |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 26  
|Item 11.   |  | Executive Compensation                                                                |  | 27  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
and Management                        |  | 28  
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 28  
|Item 14.   |  | Principal Accountant Fees and Services                                                |  | 29  
|          
|           |  | PART IV                                                                               |  |     
|Item 15.   |  | Exhibits, Financial Statement Schedules, and
Reports on Form 8-K                      |  | 30  
|           |  |                                                                                       |  |     
|SIGNATURES |  |                                                                                       |  | 32  
|           |  |                                                                                       |  |     
|EXHIBITS   |  |                                                                                       |  | 33  

2



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Forward Looking Statements

This Annual 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 could cause actual results to differ from
those in any forward-looking statements include changes in interest rates and
general economics in the Connecticut market area where a substantial portion of
the real estate securing the Companys loans is located, legislative and
regulatory changes, changes in tax laws and policies, and changes in accounting
policies, principals or guidelines. Such developments could have an adverse
impact on the Companys financial position and results of operations. An
example of a forward-looking statement in this Annual Report is the
Quantitative and Qualitative Disclosures about Market Risk section contained
in Managements Discussion and Analysis.




PART I




Item 1. Business

General

Webster Preferred Capital Corporation (the Company or WPCC) is a
Connecticut corporation incorporated in March 1997. The Company acquires, holds
and manages real estate mortgage assets (mortgage assets), including, but not
limited to, residential mortgage loans, mortgage-backed securities and
commercial mortgage loans. At December 31, 2003 and 2002, the mortgage assets
owned by the Company were comprised of residential mortgage loans and
mortgage-backed securities. Although the Company may acquire and hold a
variety of mortgage assets, its present intention is to acquire only
residential mortgage loans and mortgage-backed securities. The Company intends
to hold such assets to generate net income for distribution to its shareholders
based on the spread between the interest income earned on the mortgage assets
and the cost of its capital and operations. The Company may invest up to 5% of
the total value of its portfolio in assets other than residential mortgage
loans and mortgage-backed securities eligible to be held by real estate
investment trusts (REITs).

All of the Companys common stock is owned by Webster Bank. Webster Bank has
indicated to the Company that, for as long as any of the Companys preferred
shares are outstanding, Webster Bank intends to maintain direct ownership of
100% of the outstanding common stock of the Company. Pursuant to the Companys
Certificate of Incorporation, the Company cannot redeem, or make any other
payments or distributions with respect to shares of its common stock to the
extent such redemptions, payments or distributions would cause the Companys
total shareholders equity (as determined in accordance with accounting
principles generally accepted in the United States of America) to be less than
250% of the aggregate liquidation value of the issued and outstanding preferred
shares. The preferred shares are not exchangeable into capital stock or other
securities of Webster Bank or Webster Financial Corporation (Webster), the
parent company of Webster Bank, and do not constitute regulatory capital of
either Webster Bank or Webster. The Company has no subsidiaries.

The Company operates a single segment  acquiring, holding and managing real
estate mortgage assets.

The Company has elected to be treated as a REIT under the Internal Revenue
Code, as amended (the Code). The Company generally will not be subject to
federal and Connecticut state income tax to the extent that it distributes its
earnings to its shareholders and maintains its qualification as a REIT.

Total assets of the Company were $538.5 million at December 31, 2003, a
decrease of $92.7 million from $631.2 million at December 31, 2002, primarily
due to return of capital dividends to the common stockholder of $90.0 million.
As a result, shareholders equity was $538.2 million at
December 31, 2003 as compared to
$631.0 million at December 31, 2002.

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Residential Mortgage Loans

The Company may, from time to time, acquire both conforming and nonconforming
residential mortgage loans. Conventional, conforming residential mortgage loans
comply with the requirements for inclusion in a loan guarantee program
sponsored by either Freddie Mac or Fannie Mae. Nonconforming residential
mortgage loans do not qualify for these programs in one or more aspects. The
nonconforming residential mortgage loans that the Company purchases generally
have original principal balances which exceed the limits for these programs.
The Companys nonconforming residential mortgage loans are expected to meet the
requirements for sale to national private mortgage conduit programs or other
investors in the secondary mortgage market.

Residential mortgage loans are evidenced by a promissory note secured by a
mortgage or deed of trust or other similar security instrument creating a first
lien on a single family (one-to-four unit) residential property, including
stock allocated to a dwelling unit in a residential cooperative housing
corporation. Residential real estate properties underlying residential
mortgage loans consist of individual dwelling units, individual cooperative
apartment units, individual condominium units, two- to four-family dwelling
units, planned unit developments and townhouses.

A summary of the Companys residential mortgage loans by original maturity for
the last five years follows:

|                                          |              |      |                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         | 
|----------------------------------------- | ------------ | ---- | --------------- | ------- |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                                          |              |      | At December 31,
|                                          |              |      |                
|(In thousands)                            |              | 2003 |                 | 2002    |  | 2001 |         | 2000    |  | 1999
|                                          |              |      |                 |         |  |      |         |         |  |     
|Fixed-rate loans:                         |              |      |                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |        
|                                          | 15 yr. loans |      | $               | 71,217  |  |      |         | 55,956  |  |      |         | 81,566  |  |  |         | 102,348 |  |  |         | 113,950 | 
|                                          | 20 yr. loans |      |                 | 8,261   |  |      |         | 3,132   |  |      |         | 4,693   |  |  |         | 5,107   |  |  |         | 5,322   | 
|                                          | 25 yr. loans |      |                 | 4,414   |  |      |         | 2,542   |  |      |         | 2,598   |  |  |         | 2,899   |  |  |         | 2,758   | 
|                                          | 30 yr. loans |      |                 | 190,888 |  |      |         | 138,008 |  |      |         | 191,049 |  |  |         | 223,438 |  |  |         | 227,977 | 
|                                          |              |      |                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         | 
|Total fixed-rate loans                    |              |      | 274,780         |         |  |      | 199,638 |         |  |      | 279,906 |         |  |  | 333,792 |         |  |  | 350,007 |        
|                                          |              |      |                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         | 
|Variable-rate loans:                      |              |      |                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |        
|                                          | 15 yr. loans |      |                 | 2,351   |  |      |         | 1,605   |  |      |         | 3,015   |  |  |         | 4,700   |  |  |         | 6,108   | 
|                                          | 20 yr. loans |      |                 | 3,176   |  |      |         | 3,127   |  |      |         | 5,368   |  |  |         | 7,505   |  |  |         | 7,839   | 
|                                          | 25 yr. loans |      |                 | 1,843   |  |      |         | 2,680   |  |      |         | 4,581   |  |  |         | 6,214   |  |  |         | 6,759   | 
|                                          | 30 yr. loans |      |                 | 144,728 |  |      |         | 173,482 |  |      |         | 295,835 |  |  |         | 418,461 |  |  |         | 476,647 | 
|                                          |              |      |                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         | 
|Total variable-rate loans                 |              |      | 152,098         |         |  |      | 180,894 |         |  |      | 308,799 |         |  |  | 436,880 |         |  |  | 497,353 |        
|                                          |              |      |                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         | 
|Total residential mortgage loans          |              |      | 426,878         |         |  |      | 380,532 |         |  |      | 588,705 |         |  |  | 770,672 |         |  |  | 847,360 |        
|Premiums and deferred costs on loans, net |              |      | 1,479           |         |  |      | 1,164   |         |  |      | 2,181   |         |  |  | 3,235   |         |  |  | 3,762   |        
|Less: allowance for loan losses           |              |      | (2,106          | )       |  |      | (2,106  | )       |  |      | (2,139  | )       |  |  | (2,059  | )       |  |  | (1,912  | )      
|                                          |              |      |                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         | 
|Residential mortgage loans, net           |              | $    | 426,251         |         |  |      | 379,590 |         |  |      | 588,747 |         |  |  | 771,848 |         |  |  | 849,210 |        
|                                          |              |      |                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         | 

Investment Activities

MORTGAGE-BACKED SECURITIES. The Company may, from time to time, acquire
fixed-rate or adjustable-rate mortgage-backed securities representing interests
in pools of residential mortgage loans. A portion of any of the mortgage-backed
securities that the Company purchases may have been originated by Webster Bank
by exchanging pools of mortgage loans for the mortgage-backed securities. The
mortgage loans underlying the mortgage-backed securities are secured by single
family residential properties located throughout the United States.

The Company intends to acquire only investment-grade mortgage-backed securities
issued or guaranteed by Fannie Mae, Freddie Mac and Government National
Mortgage Association (GNMA). The Company does not intend to acquire any
interest-only, principal-only or high-risk mortgage-backed securities. Further,
the Company does not intend
to acquire any residual interests in real estate mortgage conduits or any
interests, other than as a creditor, in any taxable mortgage pools.

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OTHER REAL ESTATE ASSETS. Although the Company presently intends to invest
only in residential mortgage loans and mortgage-backed securities, the Company
may invest up to 5% of the total value of its portfolio in assets other than
residential mortgage loans and mortgage-backed securities eligible to be held
by REITs. In addition to commercial mortgage loans, such assets could include
cash and cash equivalents. The Company does not intend to invest in securities
or interests of persons primarily engaged in real estate activities. At
December 31, 2003 and 2002, the Company did not hold any commercial mortgage
loans.

Regulation

The Company is a wholly-owned subsidiary of Webster Bank. Webster Bank is
subject to extensive regulation, supervision and examination by the Office of
Thrift Supervision (the OTS) as its primary federal regulator. Webster Bank
also is subject to regulation, supervision and examination by the Federal
Deposit Insurance Corporation (the FDIC) and, as to certain matters, by the
Board of Governors of the Federal Reserve System. These federal banking
regulatory authorities have the right to examine the Company and its activities
as a subsidiary of Webster Bank.

If Webster Bank were to become undercapitalized under prompt corrective
action initiatives of the OTS, the OTS has the authority to require, among
other things, that Webster Bank or the Company alter, reduce or terminate any
activity that the OTS determines poses an excessive risk to Webster Bank. The
Company does not believe that its activities currently pose, or in the future
will pose, such a risk to Webster Bank; however, there can be no assurance in
that regard. The regulators also could restrict transactions between Webster
Bank and the Company, including the transfer of assets, or require Webster Bank
to divest or liquidate the Company. Webster Bank could further be directed to
take prompt corrective action if federal regulators determined that Webster
Bank was in an unsafe or unsound condition or engaging in an unsafe or unsound
practice. In light of Webster Banks control of the Company, as well as the
Companys dependence and reliance upon the skills and diligence of Webster
Banks officers and employees, some or all of the foregoing actions and
restrictions could have an adverse effect on the operations of the Company,
including causing the Company to fail to qualify as a REIT.

Pursuant to OTS regulations and the Companys Certificate of Incorporation, the
Company maintains a separate corporate existence from Webster Bank. In the
event Webster Bank should be placed into receivership or conservatorship by
federal bank regulators, such federal bank regulators would control Webster
Bank. There can be no assurance that these regulators would not cause Webster
Bank, as sole holder of the common stock, to take action adverse to the
interest of holders of the preferred shares of the Company.

Taxation

The Company has elected to be treated as a REIT under Sections 856 through 860
of the Code, commencing with its taxable year ended December 31, 1997. As a
REIT, the Company generally will not be subject to federal and Connecticut
income taxes on its net income and capital gains that it distributes to the
holders of its common stock and preferred stock. Prior to January 16, 2001,
Webster Bank was not subject to Connecticut state income tax on dividends to it
by the Company. This exemption expired with the redemption of the Series A
Preferred Stock.

To maintain REIT status, an entity must meet a number of organizational and
operational requirements, including a requirement that it currently distribute
to stockholders at least 90% of its REIT taxable income (not including
capital gains and certain items of non-cash income). If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal and
Connecticut state income tax at regular corporate rates. Notwithstanding
qualification for taxation as a REIT, the Company may be subject to federal,
state and/or local tax, on undistributed REIT taxable income and net income
from prohibited transactions.

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. The Company intends to
operate so as to qualify as a REIT under the Code. Although the Company
believes that it is owned, organized and operates in such a manner as to
qualify as a REIT, no assurance can be given as to the Companys ability to
remain qualified as a REIT.
Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters
and circumstances, not entirely within the Companys control, may affect the
Companys ability to qualify as a REIT. Although the

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Company is not aware of
any proposal in Congress to amend the tax laws in a manner that would
materially and adversely affect the Companys ability to operate as a REIT, no
assurance can be given that new legislation, regulations, administrative
interpretations or court decisions will not significantly change the tax laws
in the future with respect to qualification as a REIT or the federal income tax
consequences of such qualification.

If, in any taxable year, the Company fails to qualify as a REIT, the Company
would not be allowed a deduction for distributions to stockholders in computing
its federal taxable income and would be subject to federal and Connecticut
state income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. As a result, the amount available
for distribution to the Companys stockholders would be reduced for the year or
years involved. In addition, unless entitled to relief under certain statutory
provisions, the Company would also be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
A failure of the Company to qualify as a REIT would not by itself give the
Company the right to redeem the preferred shares, nor would it give the holders
of the preferred shares the right to have their shares redeemed.

Notwithstanding that the Company currently intends to operate in a manner
designed to qualify as a REIT, future economic, market, legal, tax or other
considerations may cause the Company to determine that it is in the best
interest of the Company and the holders of its common stock and preferred stock
to revoke the REIT election. The tax law prohibits the Company from electing
treatment as a REIT for the four taxable years following the year of such
revocation.

In the event that the Company has insufficient available cash on hand or is
otherwise precluded from making dividend distributions in amounts sufficient to
maintain its status as a REIT or to avoid imposition of an excise tax, the
Company may avail itself of consent dividend procedures. A consent dividend is
a hypothetical dividend, as opposed to an actual dividend, declared by the
Company and treated for U.S. federal tax purposes as though it had actually
been paid to stockholders who were the owners of shares on the last day of the
year and who executed the required consent form, and then recontributed by
those stockholders to the Company. The Company would use the consent dividend
procedures only with respect to its common stock.

Employees

The Company has three officers. The executive officers are described further
below in Item 10, Directors and Officers. The Company does not anticipate
that it will require any additional employees because it has retained an
advisor to administer the day-to-day activities of the Company pursuant to an
Advisory Agreement.

Competition

The Company does not engage in the business of originating mortgage loans.
While the Company does intend to acquire additional mortgage assets, we anticipate that
these additional mortgage assets will be acquired from Webster Bank.
Accordingly, the Company does not compete or expect to compete with mortgage conduit
programs, investment banking firms, savings and loan associations, banks,
thrift and loan associations, finance companies, mortgage bankers or insurance
companies in acquiring our mortgage assets. Webster Bank, from which we expect
to continue to purchase most or all of our mortgage assets in the future, will
face competition from these organizations.




Item 2. Properties

Not Applicable.




Item 3. Legal Proceedings

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

6



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

No matter was submitted during the fourth quarter of the fiscal year 2003 to
security holders for a vote.






PART II




Item 5. Market for Registrants Common Equity and Related Stockholder Matters

All of the Companys common stock is owned by Webster Bank, and consequently
there is no market for such securities. The Companys Series B 8.625%
Cumulative Redeemable Preferred Stock (the Series B Preferred Stock) is
traded on the NASDAQ Stock Markets National Market Tier under the symbol
WBSTP.

The Series B Preferred Stock was not redeemable (barring certain circumstances)
prior to January 15, 2003. On and after January 15, 2003, the Series B
Preferred shares could have been redeemed at the option of the Company, in
whole or in part, at a redemption price of $10 per share, plus any accrued and
unpaid dividends. At this time, management has no plans to redeem the Series B
Preferred Stock.

Dividends declared and paid on the common stock in 2003 and 2002 totaled $26.8
million and $41.5 million, respectively. Dividends declared on the Series B
Preferred Stock in 2003 and 2002 totaled $862,500 for each year.

The following table provides information concerning the market price of the
Series B Preferred Stock. At December 31, 2003, the closing market price was
$11.70.

|        |  |                             |       |      |  |  |       | 
|------- |  | --------------------------- | ----- | ---- |  |  | ----- | 
|        |  | For Year ended December 31,
|        |  |                            
|        |  | 2003                        |       | 2002
|        |  |                             |       |     
|Average |  | $                           | 10.74 |      |  |  | 10.45 | 
|High    |  |                             | 12.29 |      |  |  | 11.25 | 
|Low     |  |                             | 10.00 |      |  |  | 9.96  | 
|        |  |                             |       |      |  |  |       | 

Dividends will be declared at the discretion of the Board of Directors after
considering the Companys distributable funds, financial requirements, tax
considerations and other factors. The Companys distributable funds will
consist primarily of interest and principal payments on the Mortgage Assets
held by it, and the Company anticipates that a significant portion of such
assets will bear interest at adjustable rates. Accordingly, if there is a
decline in interest rates, the Company may experience a decrease in income
available to be distributed to its shareholders. However, the Company
currently expects that both its cash available for distribution and its REIT
taxable income will exceed the amount needed to pay dividends on the Preferred
Shares, even in the event of a significant decline in interest rate levels,
because (i) the Companys Mortgage Assets are interest-bearing, (ii) the Series
B Preferred Stock is not expected to exceed 15% of the Companys
capitalization, and (iii) the Company does not anticipate incurring any
indebtedness.

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Item 6. Selected Financial Data

The selected financial data set forth below is based upon and should be read in
conjunction with the Companys audited financial statements and notes thereto
appearing elsewhere in this document.

Balance Sheet Data

|                                       |  |                 |         |      |  |      |         |      |  |      |         |  |  |  |         |  |  |  |         | 
|-------------------------------------- |  | --------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- |  |  |  | ------- | 
|                                       |  | At December 31,
|                                       |  |                
|(In thousands)                         |  | 2003            |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                       |  |                 |         |      |  |      |         |      |  |     
|Total assets                           |  | $               | 538,471 |      |  |      | 631,237 |      |  |      | 928,672 |  |  |  | 968,198 |  |  |  | 967,209 | 
|Available for sale securities          |  |                 | 46,116  |      |  |      | 110,061 |      |  |      | 158,543 |  |  |  | 76,927  |  |  |  | 95,647  | 
|Residential mortgage loans, net        |  |                 | 426,251 |      |  |      | 379,590 |      |  |      | 588,747 |  |  |  | 771,848 |  |  |  | 849,210 | 
|Interest-bearing deposits              |  |                 | 52,000  |      |  |      | 110,500 |      |  |      | 167,500 |  |  |  | 97,500  |  |  |  |        | 
|Mandatorily redeemable preferred stock |  |                 |        |      |  |      |        |      |  |      |        |  |  |  | 40,000  |  |  |  | 40,000  | 
|Total shareholders equity             |  |                 | 538,235 |      |  |      | 630,992 |      |  |      | 928,426 |  |  |  | 927,334 |  |  |  | 926,227 | 
|                                       |  |                 |         |      |  |      |         |      |  |      |         |  |  |  |         |  |  |  |         | 

Income Statement Data

|                                           |  |                                 |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|------------------------------------------ |  | ------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                           |  | For the Year Ended December 31,
|                                           |  |                                
|(In thousands)                             |  | 2003                            |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                           |  |                                 |        |      |  |      |        |      |  |     
|Total interest income                      |  | $                               | 28,249 |      |  |      | 42,255 |      |  |      | 58,071 |  |  |  | 65,312 |  |  |  | 64,219 | 
|Provision for loan losses                  |  |                                 |       |      |  |      |       |      |  |      | 90     |  |  |  | 190    |  |  |  | 480    | 
|Gain on sale of securities                 |  |                                 | 268    |      |  |      |       |      |  |      |       |  |  |  | 94     |  |  |  |       | 
|Noninterest expenses                       |  |                                 | 329    |      |  |      | 310    |      |  |      | 384    |  |  |  | 3,534  |  |  |  | 3,522  | 
|                                           |  |                                 |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|Net income                                 |  |                                 | 28,188 |      |  |      | 41,945 |      |  |      | 57,597 |  |  |  | 61,682 |  |  |  | 60,217 | 
|Preferred stock dividends                  |  |                                 | 863    |      |  |      | 863    |      |  |      | 863    |  |  |  | 863    |  |  |  | 862    | 
|                                           |  |                                 |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|Net income available to common
shareholder |  | $                               | 27,325 |      |  |      | 41,082 |      |  |      | 56,734 |  |  |  | 60,819 |  |  |  | 59,355 | 
|                                           |  |                                 |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 

Significant Statistical Data

|                                    |                   |      |                                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |         | 
|----------------------------------- | ----------------- | ---- | ------------------------------- | ------- |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                                    |                   |      | For the Year Ended December 31,
|                                    |                   |      |                                
|                                    |                   | 2003 |                                 | 2002    |  | 2001 |         | 2000    |  | 1999
|                                    |                   |      |                                 |         |  |      |         |         |  |     
|Net income per common share         |                   |      |                                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |        
|                                    | Basic and diluted |      | $                               | 273,254 |  |      |         | 410,816 |  |      |         | 567,336 |  |  |         | 608,189 |  |  |         | 593,550 | 
|Dividends declared per common share |                   |      | 274,366                         |         |  |      | 412,272 |         |  |      | 570,141 |         |  |  | 615,050 |         |  |  | 602,910 |        
|                                    |                   |      |                                 |         |  |      |         |         |  |      |         |         |  |  |         |         |  |  |         |        

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Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations

The Company has elected to be treated as a REIT under the Code and will
generally not be subject to federal and Connecticut 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.

Summary

WPCCs net income for 2003 declined to $28.2 million from $41.9 million in 2002
due to the following factors:



| |  |  | WPCC paid return of capital dividends of $90 million and $300 million
in 2003 and 2002, respectively. This reduced average earning assets to
$577.2 million in 2003 from $760.8 million during 2002.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The average return on assets declined to 4.89% from 5.55% due to the
low interest rate environment during 2002 and 2003.                                                                            

During 2003, WPCC purchased $195.1 million of loans from Webster Bank.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. We
believe that our most critical accounting policies upon which our financial
condition depends, and which involve the most complex or subjective decisions
or assessments are as follows:

Allowance for Loan Losses
Arriving at an appropriate level of allowance for loan losses involves a high
degree of judgment. The Companys allowance for loan losses provides for
probable losses based upon evaluations of known and inherent risks in the loan
portfolio. Management uses historical information to assess the adequacy of
the allowance for loan losses as well as the prevailing business and economic
environment; as it is affected by changing economic conditions and various
other external factors, subsequent changes in these factors may impact the
portfolio in ways currently unforeseen. The allowance is increased by
provisions for loan losses and by recoveries of loans previously charged-off
and reduced by loans charged-off.

Financial Condition

Total assets, consisting primarily of residential mortgage loans and
mortgage-backed securities, were $538.5 million at December 31, 2003, a
decrease of $92.7 million from $631.2 million at December 31, 2002. The
primary factor causing the decline in total assets was the return on capital
dividend of $90.0 million during 2003. Cash flow from mortgage loans and
mortgage-backed securities, primarily due to accelerated prepayments throughout
2003 arising from the low interest rate environment, resulted in large cash
inflows. With the increased cash flow, WPCC purchased $195.1 million in
residential loans from Webster Bank and returned $90.0 million to its
shareholder. The decline in accrued interest receivable of $841,000 is due to
the decline in earning assets, as well as lower interest rates, primarily on
interest-bearing deposits. As a result of the return of capital dividend,
shareholders equity declined to $538.2 million at December 31, 2003 from
$631.0 million at December 31, 2002.

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Asset Quality

The Company maintains asset quality by acquiring residential real estate loans
that have been conservatively underwritten and by aggressively managing
nonperforming assets. During 2003, all loan purchases by the Company were from
Webster Bank. As such, the Companys asset quality is dependent upon Webster
Banks ability to maintain conservative underwriting standards. At December 31,
2003, residential real estate loans comprised the entire loan portfolio. The
Company also invests in government agency or government-sponsored agency issued
mortgage-backed securities.

Nonperforming Assets and Delinquencies

The following table details the Companys nonperforming assets for the last
five years:

|                                           |                                 |                            |       |                 |     |      |       |      |     |      |       |     |     |  |       |     |     |  |       |     |       | 
|------------------------------------------ | ------------------------------- | -------------------------- | ----- | --------------- | --- | ---- | ----- | ---- | --- | ---- | ----- | --- | --- |  | ----- | --- | --- |  | ----- | --- | ----- | 
|                                           |                                 |                            |       | At December 31,
|                                           |                                 |                            |       |                
|(Dollars in thousands)                     |                                 | 2003                       |       | 2002            |     | 2001 |       | 2000 |     | 1999
|                                           |                                 |                            |       |                 |     |      |       |      |     |     
|Loans accounted for on a nonaccrual basis: |                                 |                            |       |                 |     |      |       |      |     |      |       |     |     |  |       |     |     |  |       |    
|                                           | Residential fixed-rate loans    |                            | $     | 185             |     |      |       | 247  |     |      |       | 120 |     |  |       | 231 |     |  |       | 319 |      
|                                           | Residential variable-rate loans |                            |       | 173             |     |      |       | 209  |     |      |       | 425 |     |  |       | 186 |     |  |       | 830 |      
|                                           |                                 |                            |       |                 |     |      |       |      |     |      |       |     |     |  |       |     |     |  |       |     |      
|                                           |                                 | Total nonperforming loans  |       |                 | 358 |      |       |      | 456 |      |       |     | 545 |  |       |     | 417 |  |       |     | 1,149 | 
|Other real estate owned                    |                                 |                            | 104   |                 |     |      | 79    |      |     |      | 88    |     |     |  | 288   |     |     |  | 60    |    
|                                           |                                 |                            |       |                 |     |      |       |      |     |      |       |     |     |  |       |     |     |  |       |     |      
|                                           |                                 | Total nonperforming assets |       | $               | 462 |      |       |      | 535 |      |       |     | 633 |  |       |     | 705 |  |       |     | 1,209 | 
|                                           |                                 |                            |       |                 |     |      |       |      |     |      |       |     |     |  |       |     |     |  |       |     |      
|Allowance for loan losses                  |                                 | $                          | 2,106 |                 |     |      | 2,106 |      |     |      | 2,139 |     |     |  | 2,059 |     |     |  | 1,912 |    
|Allowance / nonperforming loans            |                                 |                            | 588   | %               |     |      | 462   |      |     |      | 392   |     |     |  | 494   |     |     |  | 166   |    
|Allowance / total mortgage loans           |                                 |                            | 0.49  |                 |     |      | 0.55  |      |     |      | 0.36  |     |     |  | 0.27  |     |     |  | 0.22  |    
|                                           |                                 |                            |       |                 |     |      |       |      |     |      |       |     |     |  |       |     |     |  |       |     |      

The following table sets forth information as to the Companys loans past due 30-89 days and still accruing:

|                     |                                 |       |   |                 |     |      |  |       |       |      |  |       |       |  |  |        |        |  |  |       |        | 
|-------------------- | ------------------------------- | ----- | - | --------------- | --- | ---- |  | ----- | ----- | ---- |  | ----- | ----- |  |  | ------ | ------ |  |  | ----- | ------ | 
|                     |                                 |       |   | At December 31,
|                     |                                 |       |   |                
|(In thousands)       |                                 | 2003  |   | 2002            |     | 2001 |  | 2000  |       | 1999
|                     |                                 |       |   |                 |     |      |  |       |       |     
|Past due 30-89 days: |                                 |       |   |                 |     |      |  |       |       |      |  |       |       |  |  |        |        |  |  |      
|                     | Residential fixed-rate loans    |       | $ | 287             |     |      |  | 643   |       |      |  | 583   |       |  |  | 5,809  |        |  |  | 4,453 |       
|                     | Residential variable-rate loans |       |   | 491             |     |      |  | 1,176 |       |      |  | 1,749 |       |  |  | 12,513 |        |  |  | 8,430 |       
|                     |                                 |       |   |                 |     |      |  |       |       |      |  |       |       |  |  |        |        |  |  |       |       
|                     |                                 | Total |   | $               | 778 |      |  |       | 1,819 |      |  |       | 2,332 |  |  |        | 18,322 |  |  |       | 12,883 | 
|                     |                                 |       |   |                 |     |      |  |       |       |      |  |       |       |  |  |        |        |  |  |       |       

Allowance for Loan Losses

An allowance for loan losses is established based upon a review of the loan
portfolio, loss experience, specific problem loans, current and anticipated
economic conditions and other pertinent factors which, in managements
judgment, deserve current recognition in estimating probable loan losses.

Management believes that the allowance for loan losses is adequate. While
management believes it uses the best available information to recognize losses
on loans, future additions to the allowance may be necessary based on actual
results or changes in information used. In addition, various regulatory
agencies, as an integral part of their examination process of Webster Bank,
periodically may review the Companys allowance for loan losses. Such agencies
may require the Company to recognize additions to the allowance for loan losses
based on judgments different from those of management.

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A detail of the change in the allowance for loan losses for the periods
indicated follows:

|                                 |                            |      |                                 |       |  |      |       |       |  |      |       |       |  |  |       |       |  |  |       |       | 
|-------------------------------- | -------------------------- | ---- | ------------------------------- | ----- |  | ---- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                                 |                            |      | For the Year Ended December 31,
|                                 |                            |      |                                
|(In thousands)                   |                            | 2003 |                                 | 2002  |  | 2001 |       | 2000  |  | 1999
|                                 |                            |      |                                 |       |  |      |       |       |  |     
|Balance at beginning of the year |                            | $    | 2,106                           |       |  |      | 2,139 |       |  |      | 2,059 |       |  |  | 1,912 |       |  |  | 1,555 |      
|Provision charged to operations  |                            |      |                                |       |  |      |      |       |  |      | 90    |       |  |  | 190   |       |  |  | 480   |      
|Charge-offs                      |                            |      |                                |       |  |      | (33   | )     |  |      | (10   | )     |  |  | (43   | )     |  |  | (123  | )    
|Recoveries                       |                            |      |                                |       |  |      |      |       |  |      |      |       |  |  |      |       |  |  |      |      
|                                 |                            |      |                                 |       |  |      |       |       |  |      |       |       |  |  |       |       |  |  |       |      
|                                 | Balance at end of the year |      | $                               | 2,106 |  |      |       | 2,106 |  |      |       | 2,139 |  |  |       | 2,059 |  |  |       | 1,912 | 
|                                 |                            |      |                                 |       |  |      |       |       |  |      |       |       |  |  |       |       |  |  |       |      

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 ability of such instruments to incur 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.

Dividends on the Series B Preferred Stock are payable at the rate of 8.625% per
annum (an amount equal to $.8625 per annum per share), in all cases if, when
and as declared by the Board of Directors of the Company. Dividends on the
preferred shares are cumulative and, if declared, payable on January 15, April
15, July 15 and October 15 in each year. The Company periodically makes
dividend payments on its common stock in accordance with Company by-laws.
Common stock dividends are paid to comply with REIT qualification rules. REIT
qualification rules require that 90% of net taxable income for the year be
distributed to shareholders. In June 2003, the Company declared and paid a
return of capital dividend to Webster Bank, the Companys sole common
shareholder, of $90.0 million. Accelerated prepayments during 2002 and
throughout 2003 resulted in increased cash levels for the company. This
dividend returns the cash to the Companys common shareholder.

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. WPCCs mortgage-backed securities, which total $46.1
million would supply adequate collateral for borrowings through repurchase
agreements. In addition, its 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.

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 reprice 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 December 31, 2003, 35.6% of the Companys
residential mortgage loans were variable-rate loans.

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Results of Operations

Net income declined to $28.2 million for the 2003 year from $41.9 million the
previous year and $57.6 million in 2001. This decline is due entirely to
declines in interest income as WPCC has no interest-bearing liabilities and
noninterest income and expense are minimal.

The decline in interest income of $14.0 million, or 33.1%, from 2002 to 2003
was due to a combination of a decline in yield on earning assets and a decline
in outstanding earning assets. Due to the low interest rate environment during
2002 and 2003, mortgage asset prepayments accelerated. These assets were
replaced with ones earning a lower yield. The decline in balances was due to
accelerated prepayments and the $90.0 million return of capital dividend to the
common shareholder. The declines in 2001 to 2002 resulted from the same
factors; low interest rate environment and a return of capital dividend to
shareholders ($300.0 million in 2002).

|                           |       |         |                                  |         |          |       |         |         |         |        |          |       |         |         |         |         |          |       |         |        |  |  |      |      |   |   |         |         |  |  |        |        |  |  |      |      |  
|-------------------------- | ----- | ------- | -------------------------------- | ------- | -------- | ----- | ------- | ------- | ------- | ------ | -------- | ----- | ------- | ------- | ------- | ------- | -------- | ----- | ------- | ------ |  |  | ---- | ---- | - | - | ------- | ------- |  |  | ------ | ------ |  |  | ---- | ---- | -
|                           |       |         | For the Years Ended December 31,
|                           |       |         |                                 
|                           |       |         | 2003                             |         | 2002     |       | 2001   
|                           |       |         |                                  |         |          |       |        
|                           |       |         | Average                          |         | Interest |       | Average |         | Average |        | Interest |       | Average |         | Average |         | Interest |       | Average
|(Dollars in thousands)     |       | Balance |                                  | Income  |          | Yield |         | Balance |         | Income |          | Yield |         | Balance |         | Income  |          | Yield
|                           |       |         |                                  |         |          |       |         |         |         |        |          |       |         |         |         |         |          |      
|Mortgage loans, net        |       | $       | 412,976                          |         |          |       | 22,989  |         |         |        | 5.57     | %     |         | $       | 495,598 |         |          |       | 31,161  |        |  |  | 6.29 | %    |   | $ | 704,930 |         |  |  | 47,807 |        |  |  | 6.78 | %   
|Mortgage-backed securities |       |         | 79,825                           |         |          |       | 4,338   |         |         |        | 5.43     |       |         |         | 136,517 |         |          |       | 8,863   |        |  |  | 6.49 |      |   |   | 102,794 |         |  |  | 6,742  |        |  |  | 6.56 |     
|Interest-bearing deposits  |       |         | 84,394                           |         |          |       | 922     |         |         |        | 1.09     |       |         |         | 128,662 |         |          |       | 2,231   |        |  |  | 1.73 |      |   |   | 94,625  |         |  |  | 3,522  |        |  |  | 3.72 |     
|                           |       |         |                                  |         |          |       |         |         |         |        |          |       |         |         |         |         |          |       |         |        |  |  |      |      |   |   |         |         |  |  |        |        |  |  |      |     
|                           | Total |         | $                                | 577,195 |          |       |         | 28,249  |         |        |          | 4.89  | %       |         | $       | 760,777 |          |       |         | 42,255 |  |  |      | 5.55 | % |   | $       | 902,349 |  |  |        | 58,071 |  |  |      | 6.44 | %
|                           |       |         |                                  |         |          |       |         |         |         |        |          |       |         |         |         |         |          |       |         |        |  |  |      |      |   |   |         |         |  |  |        |        |  |  |      |     

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 and
interest-bearing liabilities have impacted interest income and interest expense
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.

|                                                           |                            |      |                            |        |                            |       |        |        |   |        |         |        |   |   |        |        |   |  |         |         |   |  |         |         |  
|---------------------------------------------------------- | -------------------------- | ---- | -------------------------- | ------ | -------------------------- | ----- | ------ | ------ | - | ------ | ------- | ------ | - | - | ------ | ------ | - |  | ------- | ------- | - |  | ------- | ------- | -
|                                                           |                            |      | Years ended December 31,   |        | Years ended December 31,  
|                                                           |                            |      | 2003 v. 2002               |        | 2002 v. 2001              
|                                                           |                            |      |                            |        |                           
|                                                           |                            |      | Increase (Decrease) due to |        | Increase (Decrease) due to
|(In thousands)                                             |                            | Rate |                            | Volume |                            | Total |        | Rate   |   | Volume |         | Total 
|                                                           |                            |      |                            |        |                            |       |        |        |   |        |         |       
|Interest on interest-earning assets:                       |                            |      |                            |        |                            |       |        |        |   |        |         |        |   |   |        |        |   |  |         |         |   |  |         |        
|                                                           | Loans, net                 |      | $                          | (3,327 | )                          |       |        | (4,845 | ) |        |         | (8,172 | ) |   | $      | (3,258 | ) |  |         | (13,388 | ) |  |         | (16,646 | )
|                                                           | Mortgage-backed securities |      |                            | (1,277 | )                          |       |        | (3,248 | ) |        |         | (4,525 | ) |   |        | (73    | ) |  |         | 2,194   |   |  |         | 2,121   |  
|                                                           | Interest-bearing deposits  |      |                            | (678   | )                          |       |        | (631   | ) |        |         | (1,309 | ) |   |        | (2,286 | ) |  |         | 995     |   |  |         | (1,291  | )
|                                                           |                            |      |                            |        |                            |       |        |        |   |        |         |        |   |   |        |        |   |  |         |         |   |  |         |         |  
|Net change in fully taxable-equivalent
net interest income |                            |      | $(5,282                    | )      |                            |       | (8,724 | )      |   |        | (14,006 | )      |   | $ | (5,617 | )      |   |  | (10,199 | )       |   |  | (15,816 | )      
|                                                           |                            |      |                            |        |                            |       |        |        |   |        |         |        |   |   |        |        |   |  |         |         |   |  |         |         |  

There was no provision for loan losses for the years ended December 31, 2003,
and 2002. The provision for loan losses for the year ended December 31, 2001
amounted to $90,000. The decline in the provision for loan losses is reflective
of the decrease in the total residential mortgage loan portfolio from 2001
levels, due to accelerated prepayments in mortgage loans, as well as the
continued low level of nonperforming loans and charge-offs.

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Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared
in accordance with accounting principles generally accepted in the United
States of America, which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation.

Unlike most industrial companies, virtually all of the assets and liabilities
of a real estate investment trust are monetary in nature. As a result, interest
rates have a more significant impact on a real estate corporations performance
than the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude as the price of
goods and services. In the current interest rate environment, the maturity
structure of the Companys assets is critical to the maintenance of acceptable
performance levels.

Recent Financial Accounting Standards

In December 2003, the FASB issued FASB Interpretation No. (FIN) 46 (revised),
Consolidation of Variable Interest Entities", which addresses how a business
enterprise should evaluate whether it has a controlling financial interest in
an entity through means other than voting rights and, accordingly, should
consolidate the variable interest entity (VIE). FIN 46R replaces FIN 46 that
was issued in January 2003. A public company that is not a small business
issuer (as defined in applicable SEC regulations) is required to apply FIN 46R
to variable interests generally as of March 31, 2004 and to special-purpose
entities as of December 31, 2003. For any VIEs that must be consolidated under
FIN 46R and were created before January 1, 2004, the assets, liabilities and
non-controlling interest of the VIE initially would be measured at their
carrying amounts, and any difference between the net amount added to the
balance sheet and any previously recognized interest would be recorded as a
cumulative effect of an accounting change. FIN 46R was adopted as of December
31, 2003 and resulted in no impact on the Companys financial statements.

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS or Statement) No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity.SFAS No. 150 establishes standards for how an issuer clarifies,
measures and discloses in its financial statements certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires that an issuer classify financial instruments that are within its
scope as liabilities, in most circumstances. Such financial instruments include
(i) financial instruments that are issued in the form of shares that are
mandatorily redeemable; (ii) financial instruments that embody an obligation to
repurchase the issuers equity shares, or are indexed to such obligation, and
that require the issuer to settle the obligation by transferring assets; (iii)
financial instruments that embody an obligation that the issuer may settle by
issuing a variable number of its equity shares if, at inception, the monetary
value of the obligation is predominantly based on a fixed amount, variations in
something other than the fair value of the issuers equity shares or variations
inversely related to changes in the fair value of the issuers equity shares;
and (iv) certain freestanding financial instruments. SFAS No. 150 was to be
effective for contracts entered into or modified after May 31, 2003, and was to
be otherwise effective at the beginning of the first interim period beginning
after June 15, 2003. However, the effective date of the Statements provisions
related to classification and measurement of certain manditorily redeemable
non-controlling interests has been deferred indefinitely by the FASB, pending
further Board action. Adoption of SFAS No. 150 on July 1, 2003 did not have an
impact on the Companys results of operations.

In April 2003, the FASB issued SFAS No. 149, Accounting for Derivative
Instruments and Hedging Activities  an amendment of FASB Statement No. 133.
This Statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.This amendment should promote
more consistency as to the reporting of contracts that fall under the scope of
derivatives or hybrids. SFAS No. 149 is to be applied prospectively to all
hedging activities and contracts revised or created after September 30, 2003.
This statement has no impact on the Companys financial statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The following table summarizes the estimated market values of the Companys
interest-sensitive assets at December 31, 2003 and 2002, and the projected
change to market values if interest rates instantaneously increase or decrease
by 100 basis points. The Company had no interest-sensitive liabilities at
December 31, 2003 and 2002.

|                     |                                 |                |   |              |  |         |  |         |  |  |                               |       |  |  |  |         |  
|-------------------- | ------------------------------- | -------------- | - | ------------ |  | ------- |  | ------- |  |  | ----------------------------- | ----- |  |  |  | ------- | -
|                     |                                 |                |   |              |  |         |  |         |  |  | Estimated
Market
Value Impact
|                     |                                 |                |   |              |  |         |  |         |  |  |                              
|(In thousands)       |                                 | Amortized Cost |   | Market Value |  | -100 BP |  | +100 BP
|                     |                                 |                |   |              |  |         |  |        
|At December 31, 2003 |                                 |                |   |              |  |         |  |         |  |  |                               |       |  |  |  |        
|                     | Mortgage-backed securities      |                | $ | 45,128       |  |         |  | 46,116  |  |  |                               | 1,138 |  |  |  | (1,513  | )
|                     | Variable-rate residential loans |                |   | 152,098      |  |         |  | 152,310 |  |  |                               | 2,448 |  |  |  | (2,545  | )
|                     | Fixed-rate residential loans    |                |   | 274,780      |  |         |  | 284,081 |  |  |                               | 6,771 |  |  |  | (10,852 | )
|                     |                                 |                |   |              |  |         |  |         |  |  |                               |       |  |  |  |         |  
|At December 31, 2002 |                                 |                |   |              |  |         |  |         |  |  |                               |       |  |  |  |        
|                     | Mortgage-backed securities      |                | $ | 105,832      |  |         |  | 110,061 |  |  |                               | 1,942 |  |  |  | (2,912  | )
|                     | Variable-rate residential loans |                |   | 180,894      |  |         |  | 186,182 |  |  |                               | 1,629 |  |  |  | (1,610  | )
|                     | Fixed-rate residential loans    |                |   | 199,638      |  |         |  | 211,622 |  |  |                               | 1,110 |  |  |  | (5,741  | )
|                     |                                 |                |   |              |  |         |  |         |  |  |                               |       |  |  |  |         |  

Interest-sensitive assets, when impacted by a minus 100 basis point rate
change, results in a favorable $10.4 million change in market values for 2003
compared to a favorable $4.7 million market value change in 2002. These
changes represent 2.15% of interest-sensitive assets in 2003 and 0.92% in 2002.
A plus 100 basis point rate change results in an unfavorable $14.9 million, or
3.09%, change in 2003, compared to an unfavorable $10.3 million or 2.02%,
change in 2002.

Based on the Companys asset/liability mix at December 31, 2003, management
estimates that an instantaneous 100 basis point increase in interest rates
would increase net income over the next twelve months by 4.5%. An
instantaneous 100 basis point decline in interest rates would decrease net
income by 5.8%. These estimates assume that management takes no action to
mitigate any negative effects from changing interest rates.

In particular, 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 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 Websters interest-rate risk
position at December 31, 2003, represents a reasonable level of risk.

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Item 8. Financial Statements and Supplementary Data

Independent Auditors Report

The Board of Directors and Shareholders of
Webster Preferred Capital Corporation

We have audited the accompanying statements of condition of Webster Preferred
Capital Corporation (a subsidiary of Webster Bank) as of December 31, 2003 and
2002, and the related statements of income, comprehensive income, shareholders
equity, and cash flows for each of the years in the three-year period ended
December 31, 2003. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Webster Preferred Capital
Corporation as of December 31, 2003 and 2002, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 2003 in conformity with accounting principles generally accepted
in the United States of America.

KPMG LLP
Hartford, Connecticut
March 5, 2004

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WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF CONDITION

|                                                                                                                                                                                     |  |                 |         |      |  |  |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------- | ------- | ---- |  |  | ------- | -
|                                                                                                                                                                                     |  | At December 31,
|                                                                                                                                                                                     |  |                
|(Dollars in thousands, except per share data)                                                                                                                                        |  | 2003            |         | 2002
|                                                                                                                                                                                     |  |                 |        
|Assets                                                                                                                                                                               |  |                 |         |      |  |  |         |  
|Cash                                                                                                                                                                                 |  | $               | 11,976  |      |  |  | 28,292  |  
|Interest-bearing deposits                                                                                                                                                            |  |                 | 52,000  |      |  |  | 110,500 |  
|Mortgage-backed securities available for sale, at fair value (Note 2)                                                                                                                |  |                 | 46,116  |      |  |  | 110,061 |  
|Residential mortgage loans, net (Note 3)                                                                                                                                             |  |                 | 426,251 |      |  |  | 379,590 |  
|Accrued interest receivable                                                                                                                                                          |  |                 | 351     |      |  |  | 1,192   |  
|Other real estate owned                                                                                                                                                              |  |                 | 104     |      |  |  | 79      |  
|Prepaid expenses and other assets                                                                                                                                                    |  |                 | 1,673   |      |  |  | 1,523   |  
|                                                                                                                                                                                     |  |                 |         |      |  |  |         |  
|Total assets                                                                                                                                                                         |  | $               | 538,471 |      |  |  | 631,237 |  
|                                                                                                                                                                                     |  |                 |         |      |  |  |         |  
|Liabilities and Shareholders Equity                                                                                                                                                 |  |                 |         |      |  |  |         |  
|Accrued dividends payable                                                                                                                                                            |  | $               | 180     |      |  |  | 180     |  
|Accrued expenses and other liabilities                                                                                                                                               |  |                 | 56      |      |  |  | 65      |  
|                                                                                                                                                                                     |  |                 |         |      |  |  |         |  
|Total liabilities                                                                                                                                                                    |  |                 | 236     |      |  |  | 245     |  
|                                                                                                                                                                                     |  |                 |         |      |  |  |         |  
|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 (Note 4) |  |                 | 1,000   |      |  |  | 1,000   |  
|Common stock, par value $.01 per share; 1,000 shares authorized,
100 shares issued and outstanding                                                                                   |  |                 | 1       |      |  |  | 1       |  
|Paid-in capital                                                                                                                                                                      |  |                 | 538,799 |      |  |  | 628,799 |  
|Distribution in excess of accumulated earnings                                                                                                                                       |  |                 | (2,553  | )    |  |  | (3,037  | )
|Accumulated other comprehensive income                                                                                                                                               |  |                 | 988     |      |  |  | 4,229   |  
|                                                                                                                                                                                     |  |                 |         |      |  |  |         |  
|Total shareholders equity                                                                                                                                                           |  |                 | 538,235 |      |  |  | 630,992 |  
|                                                                                                                                                                                     |  |                 |         |      |  |  |         |  
|Total liabilities and shareholders equity                                                                                                                                           |  | $               | 538,471 |      |  |  | 631,237 |  
|                                                                                                                                                                                     |  |                 |         |      |  |  |         |  

See accompanying notes to financial statements.

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WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF INCOME

|                                                             |                           |      |                          |         |  |      |        |         |  |  |        |         | 
|------------------------------------------------------------ | ------------------------- | ---- | ------------------------ | ------- |  | ---- | ------ | ------- |  |  | ------ | ------- | 
|                                                             |                           |      | Years Ended December 31,
|                                                             |                           |      |                         
|(In thousands, except per share data)                        |                           | 2003 |                          | 2002    |  | 2001
|                                                             |                           |      |                          |         |  |     
|Interest income:                                             |                           |      |                          |         |  |      |        |         |  |  |        |        
|Loans (Note 5)                                               |                           | $    | 22,989                   |         |  |      | 31,161 |         |  |  | 47,807 |        
|Securities and interest-bearing deposits                     |                           |      | 5,260                    |         |  |      | 11,094 |         |  |  | 10,264 |        
|                                                             |                           |      |                          |         |  |      |        |         |  |  |        |        
|                                                             | Total interest income     |      |                          | 28,249  |  |      |        | 42,255  |  |  |        | 58,071  | 
|                                                            
|Provision for loan losses (Note 3)                           |                           |      |                         |         |  |      |       |         |  |  | 90     |        
|                                                             |                           |      |                          |         |  |      |        |         |  |  |        |        
|Interest income after provision for loan losses              |                           |      | 28,249                   |         |  |      | 42,255 |         |  |  | 57,981 |        
|                                                            
|Noninterest income:                                          |                           |      |                          |         |  |      |        |         |  |  |        |        
|Gain on sale of securities                                   |                           |      | 268                      |         |  |      |       |         |  |  |       |        
|                                                            
|Noninterest expenses:                                        |                           |      |                          |         |  |      |        |         |  |  |        |        
|Advisory fee expense paid to parent (Note 6)                 |                           |      | 195                      |         |  |      | 186    |         |  |  | 158    |        
|Dividends on mandatorily redeemable preferred
stock (Note 4) |                           |      |                         |         |  |      |       |         |  |  | 123    |        
|Other noninterest expense                                    |                           |      | 134                      |         |  |      | 124    |         |  |  | 103    |        
|                                                             |                           |      |                          |         |  |      |        |         |  |  |        |        
|                                                             | Total noninterest expense |      |                          | 329     |  |      |        | 310     |  |  |        | 384     | 
|                                                             |                           |      |                          |         |  |      |        |         |  |  |        |        
|                                                            
|Net income(Note 7)                                           |                           |      | 28,188                   |         |  |      | 41,945 |         |  |  | 57,597 |        
|Preferred stock dividends                                    |                           |      | 863                      |         |  |      | 863    |         |  |  | 863    |        
|                                                             |                           |      |                          |         |  |      |        |         |  |  |        |        
|Net income available to common shareholder                   |                           | $    | 27,325                   |         |  |      | 41,082 |         |  |  | 56,734 |        
|                                                             |                           |      |                          |         |  |      |        |         |  |  |        |        
|Net income per common share:                                 |                           |      |                          |         |  |      |        |         |  |  |        |        
|                                                             | Basic and diluted         |      | $                        | 273,254 |  |      |        | 410,816 |  |  |        | 567,336 | 
|                                                             |                           |      |                          |         |  |      |        |         |  |  |        |        

STATEMENTS OF COMPREHENSIVE INCOME

|                                   |                                                                                            |      |                          |        |   |      |        |       |  |  |        |     | 
|---------------------------------- | ------------------------------------------------------------------------------------------ | ---- | ------------------------ | ------ | - | ---- | ------ | ----- |  |  | ------ | --- | 
|                                   |                                                                                            |      | Years Ended December 31,
|                                   |                                                                                            |      |                         
|(In thousands)                     |                                                                                            | 2003 |                          | 2002   |   | 2001
|                                   |                                                                                            |      |                          |        |   |     
|Net income                         |                                                                                            | $    | 28,188                   |        |   |      | 41,945 |       |  |  | 57,597 |    
|                                  
|Other comprehensive (loss) income: |                                                                                            |      |                          |        |   |      |        |       |  |  |        |    
|                                   | Unrealized net holding (loss) gain on securities
available forsale arising during the year |      |                          | (3,509 | ) |      |        | 3,017 |  |  |        | 858 | 
|                                  
|                                   | Reclassification adjustment for gains realized during
the year                             |      |                          | 268    |   |      |        |      |  |  |        |    | 
|                                   |                                                                                            |      |                          |        |   |      |        |       |  |  |        |    
|Other comprehensive (loss) income  |                                                                                            |      | (3,241                   | )      |   |      | 3,017  |       |  |  | 858    |    
|                                   |                                                                                            |      |                          |        |   |      |        |       |  |  |        |    
|Comprehensive income               |                                                                                            | $    | 24,947                   |        |   |      | 44,962 |       |  |  | 58,455 |    
|                                   |                                                                                            |      |                          |        |   |      |        |       |  |  |        |    

See accompanying notes to financial statements.

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WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF SHAREHOLDERS EQUITY

|                                                     |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  |               |         |             |  |        |   |  |  |         |          |  
|---------------------------------------------------- | ------------------------------------------ | ----- | --------- | ----- | ------ | ------- | ------- | -------- | ----------- | ------ | ------------- | -------- | - |  | ------------- | ------- | ----------- |  | ------ | - |  |  | ------- | -------- | -
|                                                     |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  | Distributions |         | Accumulated |  |        |   | 
|                                                     |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  | in Excess of  |         | Other       |  |        |   | 
|                                                     |                                            |       | Preferred |       | Common |         | Paid-In |          | Accumulated |        | Comprehensive |          |   |  |              
|(In thousands, except per share data)                |                                            | Stock |           | Stock |        | Capital |         | Earnings |             | Income |               | Total   
|                                                     |                                            |       |           |       |        |         |         |          |             |        |               |         
|Balance, December 31, 2000                           |                                            | $     | 1,000     |       |        |         | 1       |          |             |        | 928,799       |          |   |  | (2,820        | )       |             |  | 354    |   |  |  | 927,334 |         
|Net income for 2001                                  |                                            |       |          |       |        |         |        |          |             |        |              |          |   |  | 57,597        |         |             |  |       |   |  |  | 57,597  |         
|Net unrealized gain on available for
sale securities |                                            |       |          |       |        |         |        |          |             |        |              |          |   |  |              |         |             |  | 858    |   |  |  | 858     |         
|Dividends declared and paid:                         |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  |               |         |             |  |        |   |  |  |         |         
|                                                     | Common stock ($565,000 per share)          |       |           |      |        |         |         |         |             |        |               |         |   |  |               | (56,500 | )           |  |        |  |  |  |         | (56,500  | )
|                                                     | Preferred stock series B                   |       |           |      |        |         |         |         |             |        |               |         |   |  |               | (863    | )           |  |        |  |  |  |         | (863     | )
|                                                     |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  |               |         |             |  |        |   |  |  |         |         
|Balance, December 31, 2001                           |                                            |       | 1,000     |       |        |         | 1       |          |             |        | 928,799       |          |   |  | (2,586        | )       |             |  | 1,212  |   |  |  | 928,426 |         
|Net income for 2002                                  |                                            |       |          |       |        |         |        |          |             |        |              |          |   |  | 41,945        |         |             |  |       |   |  |  | 41,945  |         
|Net unrealized gain on available for
sale securities |                                            |       |          |       |        |         |        |          |             |        |              |          |   |  |              |         |             |  | 3,017  |   |  |  | 3,017   |         
|Dividends declared and paid:                         |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  |               |         |             |  |        |   |  |  |         |         
|                                                     | Return of capital dividend on common stock |       |           |      |        |         |         |         |             |        |               | (300,000 | ) |  |               |        |             |  |        |  |  |  |         | (300,000 | )
|                                                     | Common stock ($415,330 per share)          |       |           |      |        |         |         |         |             |        |               |         |   |  |               | (41,533 | )           |  |        |  |  |  |         | (41,533  | )
|                                                     | Preferred stock series B                   |       |           |      |        |         |         |         |             |        |               |         |   |  |               | (863    | )           |  |        |  |  |  |         | (863     | )
|                                                     |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  |               |         |             |  |        |   |  |  |         |         
|Balance, December 31, 2002                           |                                            |       | 1,000     |       |        |         | 1       |          |             |        | 628,799       |          |   |  | (3,037        | )       |             |  | 4,229  |   |  |  | 630,992 |         
|Net income for 2003                                  |                                            |       |          |       |        |         |        |          |             |        |              |          |   |  | 28,188        |         |             |  |       |   |  |  | 28,188  |         
|Net unrealized loss on available
for sale securities |                                            |       |          |       |        |         |        |          |             |        |              |          |   |  |              |         |             |  | (3,241 | ) |  |  | (3,241  | )       
|Dividends declared and paid:                         |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  |               |         |             |  |        |   |  |  |         |         
|                                                     | Return of capital dividend on common stock |       |           |      |        |         |         |         |             |        |               | (90,000  | ) |  |               |        |             |  |        |  |  |  |         | (90,000  | )
|                                                     | Common stock ($268,414 per share)          |       |           |      |        |         |         |         |             |        |               |         |   |  |               | (26,841 | )           |  |        |  |  |  |         | (26,841  | )
|                                                     | Preferred stock series B                   |       |           |      |        |         |         |         |             |        |               |         |   |  |               | (863    | )           |  |        |  |  |  |         | (863     | )
|                                                     |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  |               |         |             |  |        |   |  |  |         |         
|Balance, December 31, 2003                           |                                            | $     | 1,000     |       |        |         | 1       |          |             |        | 538,799       |          |   |  | (2,553        | )       |             |  | 988    |   |  |  | 538,235 |         
|                                                     |                                            |       |           |       |        |         |         |          |             |        |               |          |   |  |               |         |             |  |        |   |  |  |         |         

See accompanying notes to financial statements.

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WEBSTER PREFERRED CAPITAL CORPORATION

STATEMENTS OF CASH FLOWS

|                                                                                  |                                                          |      |                          |      |   |      |          |       |   |  |         |        |  
|--------------------------------------------------------------------------------- | -------------------------------------------------------- | ---- | ------------------------ | ---- | - | ---- | -------- | ----- | - |  | ------- | ------ | -
|                                                                                  |                                                          |      | Years Ended December 31,
|                                                                                  |                                                          |      |                         
|(In thousands)                                                                    |                                                          | 2003 |                          | 2002 |   | 2001
|                                                                                  |                                                          |      |                          |      |   |     
|Operating Activities:                                                             |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Net income                                                                        |                                                          | $    | 28,188                   |      |   |      | 41,945   |       |   |  | 57,597  |       
|Adjustments to reconcile net income to net cash provided
by operating activities: |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|                                                                                  | Provision for loan losses                                |      |                          |     |   |      |          |      |   |  |         | 90     |  
|                                                                                  | Depreciation and amortization                            |      |                          | 925  |   |      |          | 902   |   |  |         | 693    |  
|                                                                                  | Gain on sale of securities                               |      |                          | (268 | ) |      |          |      |   |  |         |       |  
|                                                                                  | Decrease in accrued interest receivable                  |      |                          | 841  |   |      |          | 2,370 |   |  |         | 1,075  |  
|                                                                                  | Decrease in total liabilities                            |      |                          | (9   | ) |      |          | (1    | ) |  |         | (618   | )
|                                                                                  | (Increase) decrease in prepaid expenses and other assets |      |                          | (150 | ) |      |          | 4,859 |   |  |         | (6,380 | )
|                                                                                  |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Net cash provided by operating activities                                         |                                                          |      | 29,527                   |      |   |      | 50,075   |       |   |  | 52,457  |       
|                                                                                  |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Investing Activities:                                                             |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Purchase of mortgage-backed securities                                            |                                                          |      | (30,530                  | )    |   |      |         |       |   |  | (99,747 | )     
|Principal collected on mortgage-backed securities                                 |                                                          |      | 81,874                   |      |   |      | 51,614   |       |   |  | 19,349  |       
|Proceeds from sales of mortgage-backed securities                                 |                                                          |      | 9,248                    |      |   |      |         |       |   |  |        |       
|Decrease (increase) in interest-bearing deposits                                  |                                                          |      | 58,500                   |      |   |      | 57,000   |       |   |  | (70,000 | )     
|Purchase of loans                                                                 |                                                          |      | (195,140                 | )    |   |      |         |       |   |  | (6,401  | )     
|Principal repayments of loans, net                                                |                                                          |      | 147,734                  |      |   |      | 207,957  |       |   |  | 188,175 |       
|Proceeds from REO sales                                                           |                                                          |      | 175                      |      |   |      | 192      |       |   |  | 384     |       
|                                                                                  |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Net cash provided by investing activities                                         |                                                          |      | 71,861                   |      |   |      | 316,763  |       |   |  | 31,760  |       
|                                                                                  |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Financing Activities:                                                             |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Dividends paid on common and preferred stock                                      |                                                          |      | (27,704                  | )    |   |      | (42,396  | )     |   |  | (57,363 | )     
|Return of capital dividend to common shareholder                                  |                                                          |      | (90,000                  | )    |   |      | (300,000 | )     |   |  |        |       
|Redemption of Series A preferred stock                                            |                                                          |      |                         |      |   |      |         |       |   |  | (40,000 | )     
|                                                                                  |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Net cash used by financing activities                                             |                                                          |      | (117,704                 | )    |   |      | (342,396 | )     |   |  | (97,363 | )     
|                                                                                  |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|(Decrease) increase in cash and cash equivalents                                  |                                                          |      | (16,316                  | )    |   |      | 24,442   |       |   |  | (13,146 | )     
|Cash and cash equivalents at beginning of year                                    |                                                          |      | 28,292                   |      |   |      | 3,850    |       |   |  | 16,996  |       
|                                                                                  |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Cash and cash equivalents at end of year                                          |                                                          | $    | 11,976                   |      |   |      | 28,292   |       |   |  | 3,850   |       
|                                                                                  |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|Supplemental Schedule of Non-Cash Investing Activity:                             |                                                          |      |                          |      |   |      |          |       |   |  |         |       
|                                                                                  | Loans transferred to REO                                 |      | $                        | 200  |   |      |          | 183   |   |  |         | 193    |  

See accompanying notes to financial statements

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WEBSTER PREFERRED CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

Note 1: Summary of Significant Accounting Policies

a) BusinessWebster Preferred Capital Corporation (the Company) is a Connecticut
corporation incorporated in March 1997 and a subsidiary of Webster Bank, which
is a wholly-owned subsidiary of Webster Financial Corporation (Webster). The
Company acquires, holds and manages real estate mortgage assets (mortgage
assets). As of December 31, 2003, mortgage assets owned by the Company
consisted of whole loans secured by first mortgages or deeds of trusts on
single family (one-to-four unit) residential real estate properties
(residential mortgage loans), located primarily in Connecticut and
mortgage-backed securities, secured by these same type of loans, located
throughout the country.

The Company has elected to be treated as a real estate investment trust
(REIT) under the Internal Revenue Code of 1986, as amended (the Code), and
will generally not be subject to federal income tax to the extent that it
distributes its earnings to its stockholders and maintains its qualification as
a REIT. All of the shares of the Companys common stock, par value $0.01 per
share, are owned by Webster Bank, which is a federally-chartered and
federally-insured savings bank. Webster Bank has indicated to the Company
that, for as long as any of the Companys preferred shares are outstanding,
Webster Bank intends to maintain direct ownership of 100% of the outstanding
common stock of the Company.

b) Basis of Financial Statement PresentationThe financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. In preparing
the financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities, and
disclosure of contingent assets and liabilities, as of the date of the
financial statements, and revenues and expenses for the periods presented. The
actual results of the Company could differ from those estimates. An example of
a material estimate that is susceptible to near-term changes is the allowance
for loan losses.

c) LoansLoans are stated at the principal amounts outstanding, net of deferred loan
fees and/or costs and an 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. Loan origination fees, net of certain direct origination
costs, and premiums and discounts on loans purchased are
recognized in interest income over the lives of the loans using a method
approximating the interest method. Servicing fees paid to the Servicer are
charged against loan interest income.

The Companys residential mortgage loans are exempt from the disclosure
provisions of the Statement of Financial Accounting Standard (SFAS) No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
since the Companys loans are comprised of large groups of smaller balance
loans which are collectively evaluated for impairment.

d) Allowance for Loan Losses
An allowance for loan losses is established based upon a review of the loan
portfolio, loss experience, specific problem loans, economic conditions and
other pertinent factors which, in managements judgment, deserve current
recognition in estimating probable loan losses.

Management believes that the allowance for loan losses is adequate. While
management believes it uses the best available information to recognize
probable losses on loans, future additions to the allowance may be necessary
based upon actual results or changes in the above mentioned factors. In
addition, various regulatory agencies, as an integral part of their examination
process of Webster Bank, periodically may review the Companys allowance for
loan losses. Such agencies may require the Company to recognize additions to
the allowance for loan losses based on judgments different from those of
management.

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e) Mortgage-Backed Securities
Mortgage-backed securities are U.S. government agency or government sponsored
agency issued securities and are classified as available for sale. Available
for sale securities are carried at fair value with unrealized gains and losses
recorded as adjustments to shareholders equity. The adjustment to
shareholders equity is not tax-effected, as the Company is generally not
subject to federal and state income tax. Management intends to hold these
securities for indefinite periods of time as part of its asset/liability
strategy and may sell the securities in response to changes in interest rates,
changes in prepayment risk or other factors. One of the risks inherent when
investing in mortgage-backed securities is the ability of such instruments to
incur prepayments of principal prior to maturity. Because of prepayments, the
weighted-average yield of these securities may also change, which could affect
earnings. Realized gains and losses on the sales of securities are recorded
using the specific identification method. Unrealized losses on securities are
charged to earnings when the decline in fair value is judged to be other than
temporary.

f) Other Real Estate Owned
Other real estate owned consists of properties acquired through foreclosure
proceedings or acceptance of a deed in lieu of foreclosure. Other real estate
owned is reported at the lower of fair value less estimated selling expenses or
carrying value of the loan at the time of foreclosure. Operating expenses are
charged to current period earnings and gains and losses upon disposition are
reflected in the statement of income when realized.

g) Net Income Per Common Share
Basic net income per common share is calculated by dividing net income
available to common shareholders by the weighted-average number of shares of
common stock outstanding. Diluted net income per common share is calculated by
dividing net income available to common shareholders by the weighted-average
diluted common shares. The Company has no dilutive items. The
weighted-average number of shares used in the computation of basic and diluted
earnings per common share for the years ended December 31, 2003, 2002 and 2001
was 100.

h) Comprehensive Income
The purpose for reporting comprehensive income is to report a measure of all
changes in equity of an enterprise that result from recognized transactions and
other economic events of the period other than transactions with owners in
their capacity as owners. Comprehensive income includes net income and certain
changes in equity from non-owner sources that are not recognized in the income
statement (such as net unrealized gains and losses on securities available for
sale).

i) Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company defines cash on hand
and in banks to be cash and cash equivalents.

j) Reclassification
Certain 2002 financial statement balances as previously reported have been
reclassified to conform to the 2003 financial statement presentation.

Note 2: Mortgage-Backed Securities Available for Sale
The following table sets forth certain information regarding the
mortgage-backed securities:

|                  |                              |      |           |         |            |        |            |            |           |  |  |   |  |  |  |         | 
|----------------- | ---------------------------- | ---- | --------- | ------- | ---------- | ------ | ---------- | ---------- | --------- |  |  | - |  |  |  | ------- | 
|                  |                              |      | Amortized |         | Unrealized |        | Unrealized |            | Estimated
|(In thousands)    |                              | Cost |           | Gains   |            | Losses |            | Fair Value
|                  |                              |      |           |         |            |        |            |           
|December 31, 2003 |                              |      |           |         |            |        |            |            |           |  |  |   |  |  |  |        
|                  | Available for sale portfolio |      | $         | 45,128  |            |        |            | 988        |           |  |  |  |  |  |  | 46,116  | 
|                  |                              |      |           |         |            |        |            |            |           |  |  |   |  |  |  |         | 
|December 31, 2002 |                              |      |           |         |            |        |            |            |           |  |  |   |  |  |  |        
|                  | Available for sale portfolio |      | $         | 105,832 |            |        |            | 4,229      |           |  |  |  |  |  |  | 110,061 | 
|                  |                              |      |           |         |            |        |            |            |           |  |  |   |  |  |  |         | 

During 2003, one fixed mortgage-backed security was sold for $9.2 million
producing a net gain of $268,000. There were no sales of mortgage-backed
securities for the year ending December 31, 2002 or 2001.

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Note 3: Residential Mortgage Loans, Net

A summary of residential mortgage loans, net, by type and original maturity
follows:

|                                         |                                 |      |                 |         |   |  |         |         |  
|---------------------------------------- | ------------------------------- | ---- | --------------- | ------- | - |  | ------- | ------- | -
|                                         |                                 |      | At December 31,
|                                         |                                 |      |                
|(In thousands)                           |                                 | 2003 |                 | 2002   
|                                         |                                 |      |                 |        
|Fixed-rate loans:                        |                                 |      |                 |         |   |  |         |        
|                                         | 15 yr. loans                    |      | $               | 71,217  |   |  |         | 55,956  |  
|                                         | 20 yr. loans                    |      |                 | 8,261   |   |  |         | 3,132   |  
|                                         | 25 yr. loans                    |      |                 | 4,414   |   |  |         | 2,542   |  
|                                         | 30 yr. loans                    |      |                 | 190,888 |   |  |         | 138,008 |  
|                                         |                                 |      |                 |         |   |  |         |         |  
|Total fixed-rate loans                   |                                 |      | 274,780         |         |   |  | 199,638 |        
|                                         |                                 |      |                 |         |   |  |         |         |  
|Variable-rate loans:                     |                                 |      |                 |         |   |  |         |        
|                                         | 15 yr. loans                    |      |                 | 2,351   |   |  |         | 1,605   |  
|                                         | 20 yr. loans                    |      |                 | 3,176   |   |  |         | 3,127   |  
|                                         | 25 yr. loans                    |      |                 | 1,843   |   |  |         | 2,680   |  
|                                         | 30 yr. loans                    |      |                 | 144,728 |   |  |         | 173,482 |  
|                                         |                                 |      |                 |         |   |  |         |         |  
|Total variable-rate loans                |                                 |      | 152,098         |         |   |  | 180,894 |        
|                                         |                                 |      |                 |         |   |  |         |         |  
|Total residential mortgage loans         |                                 |      | 426,878         |         |   |  | 380,532 |        
|Premiums and deferred fees on loans, net |                                 |      | 1,479           |         |   |  | 1,164   |        
|                                         | Less: allowance for loan losses |      |                 | (2,106  | ) |  |         | (2,106  | )
|                                         |                                 |      |                 |         |   |  |         |         |  
|Residential mortgage loans, net          |                                 | $    | 426,251         |         |   |  | 379,590 |        
|                                         |                                 |      |                 |         |   |  |         |         |  

A detail of the change in the allowance for loan losses, for the periods indicated, follows:

|                                |                        |      |                          |       |  |      |       |       |  |  |       |       | 
|------------------------------- | ---------------------- | ---- | ------------------------ | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                                |                        |      | Years Ended December 31,
|                                |                        |      |                         
|(In thousands)                  |                        | 2003 |                          | 2002  |  | 2001
|                                |                        |      |                          |       |  |     
|Balance at beginning of year    |                        | $    | 2,106                    |       |  |      | 2,139 |       |  |  | 2,059 |      
|Provision charged to operations |                        |      |                         |       |  |      |      |       |  |  | 90    |      
|Charge-offs                     |                        |      |                         |       |  |      | (33   | )     |  |  | (10   | )    
|                                |                        |      |                          |       |  |      |       |       |  |  |       |      
|                                | Balance at end of year |      | $                        | 2,106 |  |      |       | 2,106 |  |  |       | 2,139 | 
|                                |                        |      |                          |       |  |      |       |       |  |  |       |      

No loans were considered impaired at either December 31, 2003 or 2002. Nonaccrual loans totaled $358,000
and $456,000 at December 31, 2003 and 2002, respectively.

Note 4: Redeemable Preferred Stock

In December 1997, the Company raised $50.0 million, less expenses, in a public
offering of 40,000 shares of Series A 7.375% cumulative redeemable preferred
stock, liquidation preference $1,000 per share, and 1.0 million shares of
Series B 8.625% cumulative redeemable preferred stock, liquidation preference
$10 per share.

The Company was required to redeem all outstanding Series A Preferred Shares on
January 15, 2001 at a redemption price of $1,000 per share, plus accrued and
unpaid dividends. This redemption took place on January 16, 2001, due to a
legal holiday on January 15, 2001.

The Series B preferred stock was not redeemable prior to January 15, 2003,
except upon the occurrence of a specified tax event. The redemption is at the
option of the Company, which has no current plans to redeem the Series B
preferred stock.

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Note 5: Servicing

The mortgage loans owned by the Company are serviced by 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
years 2003, 2002 and 2001 were $326,000, $387,000 and $556,000 respectively.
Servicing fees are included in interest income on the Statement of Income, as
they are classified as 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.

Note 6: Advisory Services

Advisory services are being provided pursuant to an agreement with Webster Bank
to provide the Company with the following types of services: administer the
day-to-day operations, monitor the credit quality of the real estate mortgage
assets, advise with respect to the acquisition, management, financing, and
disposition of real estate mortgage assets and provide the necessary executive
administration, human resource, accounting and control, technical support,
record keeping, copying, telephone, mailing and distribution, investment and
funds management services. Webster Bank received an annual fee of $195,000,
with respect to the advisory services provided to the Company in 2003, an
increase from $186,000 in 2002 and $157,500 in 2001. The Company estimates
that the fees paid to Webster Bank for advisory services approximate fees that
would be paid for such services if the Company were an unaffiliated entity.

Operating expenses outside the scope of the advisory agreement are paid
directly by the Company. Such expenses include but are not limited to the
following: fees for third party consultants, attorneys, and external auditors
and any other expenses incurred that are not directly related to the advisory
agreement.

Note 7: Income Taxes

The Company has elected to be treated as a REIT under Sections 856 through 860
of the Code, and believes that its organization and method of operation meet
the requirements for qualification as a REIT. As a REIT, the Company generally
will not be subject to federal income tax on net income and capital gains that
it distributes to the holders of its common and preferred stock. Therefore, no
provision for federal income taxes has been included in the accompanying
financial statements.

To maintain REIT status, an entity must meet a number of organizational and
operational requirements, including a requirement that it currently distributes
to stockholders at least 90% of its REIT taxable income (not including
capital gains and certain items of non-cash income). If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal income tax
at regular corporate rates.

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Note 8: Summary of Estimated Fair Values of Financial Instruments

A summary of estimated fair values of financial instruments consist of the
following:

|                                |  |                 |         |            |  |          |         |            |  |  |         |   |  |  |         |  
|------------------------------- |  | --------------- | ------- | ---------- |  | -------- | ------- | ---------- |  |  | ------- | - |  |  | ------- | -
|                                |  | At December 31,
|                                |  |                
|(In thousands)                  |  | 2003            |         | 2002      
|                                |  |                 |         |           
|                                |  | Carrying        |         | Estimated  |  | Carrying |         | Estimated 
|                                |  | Amount          |         | Fair Value |  | Amount   |         | Fair Value
|                                |  |                 |         |            |  |          |         |           
|Assets:                         |  |                 |         |            |  |          |         |            |  |  |         |   |  |  |         |  
|Cash                            |  | $               | 11,976  |            |  |          | 11,976  |            |  |  | 28,292  |   |  |  | 28,292  |  
|Interest-bearing deposits       |  |                 | 52,000  |            |  |          | 52,000  |            |  |  | 110,500 |   |  |  | 110,500 |  
|Mortgage-backed securities      |  |                 | 46,116  |            |  |          | 46,116  |            |  |  | 110,061 |   |  |  | 110,061 |  
|Residential mortgages           |  |                 | 428,357 |            |  |          | 436,391 |            |  |  | 381,696 |   |  |  | 397,804 |  
|Less: allowance for loan losses |  |                 | (2,106  | )          |  |          | (2,106  | )          |  |  | (2,106  | ) |  |  | (2,106  | )
|                                |  |                 |         |            |  |          |         |            |  |  |         |   |  |  |         |  
|Residential mortgages, net      |  |                 | 426,251 |            |  |          | 434,285 |            |  |  | 379,590 |   |  |  | 395,698 |  

The Company uses Websters Asset/Liability simulation model to estimate the
fair value of its residential mortgage loans. Fair value is estimated by
discounting the average expected cash flows over multiple interest rate paths.
An arbitrage-free trinomial lattice term structure model generates the interest
rate paths. The month-end LIBOR/Swap yield curve and swap option volatilities
are used as the input for deriving forward rates for future months. Cash flows
for all instruments are created for each rate path using product specific
behavioral models and account specific system data. Discount rates are matched
with the time period of the expected cash flow. The Asset/Liability simulation
software is enhanced with a mortgage prepayment model and a Collateralized
Mortgage Obligation database provided by two leading financial software
companies. Instruments with explicit options (i.e., caps, floors, puts and
calls) and implicit options (i.e., prepayment and early withdrawal ability)
require such a rate and cash flow modeling approach to more accurately quantify
value. A spread is added to the discount rates to reflect credit and option
risks embedded in each instrument. Spreads and prices are calibrated to
observable market instruments when available or to estimates based on industry
standards.

The carrying amounts for interest-bearing deposits other than time deposits
approximate fair value since they mature in 90 days or less and do not present
unanticipated credit concerns. The fair value of mortgage-backed securities
(see Note 2) is estimated based on prices or quotations received from third
parties or pricing services

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Companys entire holdings or any part of a
particular financial instrument. Fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
factors are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.

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Note 9: Selected Quarterly Financial Data (unaudited)

|                                           |                   |               |       |                |  |               |       |                |  |  |       |        |  |  |       |        | 
|------------------------------------------ | ----------------- | ------------- | ----- | -------------- |  | ------------- | ----- | -------------- |  |  | ----- | ------ |  |  | ----- | ------ | 
|2003                                       |                   |               |       |                |  |               |       |                |  |  |       |        |  |  |       |       
|                                          
|(In thousands, except share data)          |                   | First Quarter |       | Second Quarter |  | Third Quarter |       | Fourth Quarter
|                                           |                   |               |       |                |  |               |       |               
|Net interest income                        |                   | $             | 8,201 |                |  |               | 7,183 |                |  |  | 6,343 |        |  |  | 6,522 |       
|Noninterest income                         |                   |               |      |                |  |               |      |                |  |  |      |        |  |  | 268   |       
|Noninterest expenses                       |                   |               | 80    |                |  |               | 80    |                |  |  | 75    |        |  |  | 94    |       
|                                           |                   |               |       |                |  |               |       |                |  |  |       |        |  |  |       |       
|Net income                                 |                   |               | 8,121 |                |  |               | 7,103 |                |  |  | 6,268 |        |  |  | 6,696 |       
|Preferred dividends                        |                   |               | 216   |                |  |               | 215   |                |  |  | 216   |        |  |  | 216   |       
|                                           |                   |               |       |                |  |               |       |                |  |  |       |        |  |  |       |       
|Net income available to common
shareholder |                   | $             | 7,905 |                |  |               | 6,888 |                |  |  | 6,052 |        |  |  | 6,480 |       
|                                           |                   |               |       |                |  |               |       |                |  |  |       |        |  |  |       |       
|Net income per common share                |                   |               |       |                |  |               |       |                |  |  |       |        |  |  |       |       
|                                           | Basic and diluted |               | $     | 79,048         |  |               |       | 68,880         |  |  |       | 60,520 |  |  |       | 64,806 | 
|                                           |                   |               |       |                |  |               |       |                |  |  |       |        |  |  |       |       

|                                           |                   |               |        |                |  |               |        |                |  |  |        |        |  |  |       |        | 
|------------------------------------------ | ----------------- | ------------- | ------ | -------------- |  | ------------- | ------ | -------------- |  |  | ------ | ------ |  |  | ----- | ------ | 
|2002                                       |                   |               |        |                |  |               |        |                |  |  |        |        |  |  |       |       
|                                          
|(In thousands, except share data)          |                   | First Quarter |        | Second Quarter |  | Third Quarter |        | Fourth Quarter
|                                           |                   |               |        |                |  |               |        |               
|Net interest income                        |                   | $             | 12,456 |                |  |               | 11,076 |                |  |  | 10,260 |        |  |  | 8,463 |       
|Noninterest expenses                       |                   |               | 71     |                |  |               | 92     |                |  |  | 80     |        |  |  | 67    |       
|                                           |                   |               |        |                |  |               |        |                |  |  |        |        |  |  |       |       
|Net income                                 |                   |               | 12,385 |                |  |               | 10,984 |                |  |  | 10,180 |        |  |  | 8,396 |       
|Preferred dividends                        |                   |               | 216    |                |  |               | 215    |                |  |  | 216    |        |  |  | 216   |       
|                                           |                   |               |        |                |  |               |        |                |  |  |        |        |  |  |       |       
|Net income available to common
shareholder |                   | $             | 12,169 |                |  |               | 10,769 |                |  |  | 9,964  |        |  |  | 8,180 |       
|                                           |                   |               |        |                |  |               |        |                |  |  |        |        |  |  |       |       
|Net income per common share                |                   |               |        |                |  |               |        |                |  |  |        |        |  |  |       |       
|                                           | Basic and diluted |               | $      | 121,693        |  |               |        | 107,686        |  |  |        | 99,644 |  |  |       | 81,793 | 
|                                           |                   |               |        |                |  |               |        |                |  |  |        |        |  |  |       |       

A copy of Webster Preferred Capital Corporations 2003 Annual Report will be
provided to shareholders upon request.




Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

The Company has no changes in or disagreements with its outside accountants on
accounting and financial disclosures.




Item 9A. Disclosure Controls and Procedures

The Companys management, including the Companys principal executive officer
and principal financial officer, evaluated the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) as of December 31, 2003. Based upon that
evaluation, the President and Treasurer concluded that the Companys disclosure
controls and procedures were effective in ensuring that information required to
be disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.

There were no changes made in the Companys internal controls over financial
reporting that occurred during the Companys most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

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PART III




Item 10. Directors and Executive Officers of the Registrant

The Companys Board of Directors currently consists of three members. Directors
are elected for a one-year term. The Company currently has three officers. The
Company has no other employees.

The persons who are current directors and executive officers of the Company are
as follows:

|                      |  |     |    |                           |  |                                                         
|--------------------- |  | --- | -- | ------------------------- |  | --------------------------------------------------------
|Name                  |  | Age |    | Position and Offices Held
|                      |  |     |    |                          
|Ross M. Strickland    |  |     | 54 |                           |  | President and Director                                  
|                      |  |     |    |                           |  |                                                         
|Harriet Munrett Wolfe |  |     | 50 |                           |  | Director                                                
|                      |  |     |    |                           |  |                                                         
|William J. Healy      |  |     | 59 |                           |  | Director                                                
|                      |  |     |    |                           |  |                                                         
|Gregory S. Madar      |  |     | 41 |                           |  | Senior Vice President, Treasurer and
Assistant Secretary
|                      |  |     |    |                           |  |                                                         
|John D. Benjamin      |  |     | 56 |                           |  | Senior Vice President and Secretary                     

The following is a summary of the experience of the officers and directors of
the Company:

Ross M. Strickland has been the President and a director of the Company since
1997. He is also the Executive Vice President of Consumer Finance for Webster
Bank, a position he has held since his employment began in 1991. Prior to
joining Webster Bank, he was Executive Vice President of Residential Lending
with the former Northeast Savings, F.A., Hartford, Connecticut, from 1988 to
1991. Prior to joining Northeast Savings, he was National Sales Manager, Credit
Resources Group, for Shearson Lehman Brothers.

Harriet Munrett Wolfe has been a
director of the Company since 1997. She is
also the Executive Vice President, General Counsel and Secretary of Webster and
Webster Bank. Ms. Wolfe joined Webster and Webster Bank in March 1997 as
Senior Vice President and Counsel, was appointed Secretary in June 1997 and
General Counsel in September 1999. In January 2003, she was appointed
Executive Vice President. Prior to joining Webster and Webster Bank, she was
in private practice. From November 1990 to January 1996, she was Vice
President and Senior Counsel of Shawmut Bank Connecticut, N.A., Hartford,
Connecticut.

William J. Healy has been a director of the Company since 2001. He is also the
Executive Vice President and Chief Financial Officer of Webster and Webster
Bank, positions he has held since April 2001. Prior to joining Webster, Mr.
Healy was Executive Vice President and Chief Financial Officer of Summit
Bancorp, a bank holding company in Princeton, NJ. From 1994 to 1998, Mr. Healy
was Executive Vice President and Controller for Summit.

Gregory S. Madar has been the Senior Vice President, Treasurer and Assistant
Secretary of the Company since 2001 and an executive officer of the Company
since March 2004. He served as the Secretary of the Company from March 1997
to March 1999 and Assistant Secretary since 1999. He is also Senior Vice President and Controller of Webster
Bank. Mr. Madar, a Certified Public Accountant, joined Webster Bank in 1995 as
Vice President and Tax Manager and was elected Senior Vice President and
Assistant Controller in January 2000. In February 2003, he was promoted to
Senior Vice President and Controller. Prior to joining Webster Bank, he was
Controller of Millane Nurseries, Inc. from 1993 to 1995. Prior to joining
Millane Nurseries, he was a tax manager with KPMG LLP (KPMG) in Hartford. He
was associated with KPMG from 1987 to 1993.

John D. Benjamin has served as
Secretary of the Company since March 1999 and an executive officer
since March 2004. He
is also Assistant Secretary and Senior Compliance Officer of Webster and Senior
Vice President, Assistant Secretary and Senior Compliance Officer of
Webster Bank, positions he has held since 1996.

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Mr. Benjamin joined Webster
Banks predecessor, First Federal Savings and Loan Association of Waterbury, in
1970. He has served in various management positions and was elected Vice
President in 1984 and Senior Vice President in 1991.

Code of Ethics

The Company has a code of ethics that applies to all employees, as well as each
member of the Companys Board of Directors. The code of ethics is available at
Webster Banks website at www.websteronline.com.

Audit Committee Matters

The entire Board of Directors serves
as the audit committee of the Company. The Company, as an indirect subsidiary of
Webster Financial Corporation (NYSE:
WBS), is relying on the exemption
provided in Section 10A-3(c)(2) of the Securities Exchange Act of 1934.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Companys directors and executive officers and persons who own more than 10% of
its Series B Preferred Stock to file with the SEC initial reports of ownership
of the Companys equity securities and to file subsequent reports when there
are changes in such ownership. Based on a review of reports submitted to the
Company, the Company believes that during the fiscal year ended December 31,
2003, all Section 16(a) filing requirements applicable to the Companys
officers, directors and more than 10% owners were complied with on a timely
basis.




Item 11. Executive Compensation

The Company currently has three officers, none of whom receive separate
compensation as employees of the Company. The Company has retained an advisor
to perform certain functions pursuant to an Advisory Service Agreement
described below under The Advisor. Each officer of the Company currently is
also an officer of Webster Bank. The Company maintains corporate and
accounting records that are separate from those of Webster Bank and any of
Webster Banks affiliates.

It is not currently anticipated that the officers, directors or employees of
the Company will have any pecuniary interest in any Mortgage Asset to be
acquired or disposed of by the Company or in any transaction in which the
Company has an interest.

The Company does not pay the directors of the Company fees for their services
as directors. Although no direct compensation is paid by the Company, under the
Advisory Services Agreement, the Company reimburses Webster Bank for its
proportionate share of the salaries of such person for services rendered.

The Advisor

The Company has entered into an Advisory Service Agreement (the Advisory
Agreement) with Webster Bank to administer the day-to-day operations of the
Company. Webster Bank in its role as advisor under the terms of the Advisory
Agreement is herein referred to as the Advisor. The Advisor is responsible
for (i) monitoring the credit quality of the mortgage assets held by the
Company, (ii) advising the Company with respect to the acquisition, management,
financing and disposition of the Companys mortgage assets, and (iii)
maintaining custody of the documents related to the Companys mortgage assets.
The Advisor may at any time subcontract all or a portion of its obligations
under the Advisory Agreement to one or more of its affiliates involved in the
business of managing mortgage assets. If no affiliate of the Advisor is
engaged in the business of managing mortgage assets, the Advisor may, with the
approval of a majority of the Board of Directors, subcontract all or a portion
of its obligations under the Advisory Agreement to unrelated third parties.
The Advisor may assign its rights or obligations under the Advisory Agreement
to any affiliate of the Company. The Advisor will not, in connection with the
subcontracting of any of its obligations under the Advisory Agreement, be
discharged or relieved in any respect from its obligations under the Advisory
Agreement.

The Advisory Agreement had an initial term of two years, and has been renewed
for additional one-year periods. It will continue to be renewed until notice
of nonrenewal is delivered by either party to the other party. The Advisory
Agreement may be terminated by the Company at any time upon 90 days prior
written notice. The Advisor is entitled

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to receive an advisory fee equal to
$195,000 per year beginning January 1, 2003 with respect to the advisory
services provided by it to the Company, as per the amended agreement adopted on
December 19, 2002. The fee may be revised to reflect changes in the actual
costs incurred by the Advisor in providing services.

The Advisory Agreement provides that the liability of the Advisor to the
Company for any loss due to the Advisors performing or failing to perform the
services under the Advisory Agreement shall be limited to those losses
sustained by the Company which are a direct result of the Advisors negligence
or willful misconduct. It also provides that under no circumstances shall the
Advisor be liable for any consequential or special damages and that in no event
shall the Advisors total combined liability to the Company for all claims
arising under or in connection with the Advisory Agreement be more than the
total amount of all fees payable by the Company to the Advisor under the
Advisory Agreement during the year immediately proceeding the year in which the
first claim giving rise to such liability arises. The Advisory Agreement also
provides that to the extent that third parties make claims against the Advisor
arising out of the services provided thereunder, the Company will indemnify the
Advisor against all loss arising therefrom.




Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of March 5, 2004, the number and percentage
of the outstanding shares of either our Common Stock or Series B Preferred
Stock beneficially owned by (i) all persons known by the Company to own more
than five percent of such shares, (ii) each director of the Company, and (iii)
each executive officer of the Company, and (iv) all executive officers and
directors of the Company as group.

|                                                                          |  |                                |     |                                        |  |                           |                          |  
|------------------------------------------------------------------------- |  | ------------------------------ | --- | -------------------------------------- |  | ------------------------- | ------------------------ | -
|Name and Address of Beneficial                                            |  |                                |     |                                        |  |                           |                          |  
|Owner                                                                     |  | Amount of Beneficial Ownership |     | Percent of Class of Outstanding Shares
|                                                                          |  |                                |     |                                       
|Webster Bank
145 Bank Street
Waterbury, CT 06702                          |  |                                | 100 |                                        |  | Common  100%            
|                                                                         
|Ross M. Strickland
President and Director                                 |  |                                | -0- |                                        |  |                           | -0-                      |  
|                                                                         
|Harriet Munrett Wolfe
Director                                            |  |                                | -0- |                                        |  |                           | -0-                      |  
|                                                                         
|William J. Healy
Director                                                 |  |                                | -0- |                                        |  |                           | -0-                      |  
|                                                                         
|Gregory S. Madar
Senior Vice President, Treasurer
and Assistant Secretary |  |                                | 300 |                                        |  | Series B Preferred Stock*
|                                                                         
|John D. Benjamin
Senior Vice President and Secretary                      |  |                                | -0- |                                        |  |                           | -0-                      |  
|                                                                         
|All
officers and directors as a group                                     |  |                                | 300 |                                        |  |                           | Series B Preferred
Stock | *



---




Item 13. Certain Relationships and Related Transactions

The Company is organized as a subsidiary of Webster Bank, is controlled by and
through advisory and servicing agreements and is totally reliant on Webster
Bank. The Companys Board of Directors consists entirely of Webster Bank
employees and, through the advisory and servicing agreements, Webster Bank and
its affiliates are involved in every aspect of the Companys existence.
Webster Bank administers the day-to-day activities of the Company in its role
as Advisor under the Advisory Agreement and acts as Servicer of the Companys
Mortgage Loans under the Servicing Agreement. In addition, all of the officers
of the Company are also officers of Webster Bank. As the holder of all of the
outstanding voting stock of the Company, Webster Bank generally will have the
right to elect all of the
directors of the Company. For a description of the fees Webster Bank is
entitled to receive under the advisory and servicing agreements, see Notes 5
and 6 to the Companys Financial Statements included as part of Item 8.

Dependence upon Webster Bank as Advisor and Servicer

The Company is dependent on the diligence and skill of the officers and
employees of Webster Bank as its Advisor for the selection, structuring and
monitoring of the Companys mortgage assets. In addition, the Company is
dependent

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upon the expertise of Webster Bank as its Servicer for the servicing
of the mortgage loans. The personnel deemed most essential to the Companys
operations are Webster Banks loan servicing and administration personnel, and
the staff of its finance department. The loan servicing and administration
personnel advise the Company in the selection of mortgage assets, and provide
loan-servicing oversight. The finance department assists in the administrative
operations of the Company. The Advisor may subcontract all or a portion of its
obligations under the Advisory Agreement to one or more affiliates, and under
certain conditions to non-affiliates, involved in the business of managing
mortgage assets. The Advisor may assign its rights or obligations under the
Advisory Agreement, and the Servicer may assign its rights and obligations
under the Servicing Agreement, to any affiliate of the Company involved in the
business of managing real estate mortgage assets. Under the Advisory
Agreement, the Advisor may subcontract its obligations to unrelated third
parties with the approval of the Board of Directors of the Company. In the
event the Advisor or the Servicer subcontracts or assigns its rights or
obligations in such a manner, the Company will be dependent upon the
subcontractor or affiliate to provide services. Although Webster Bank has
indicated to the Company that it has no plans in this regard, if Webster Bank
were to subcontract all of its loan servicing to an outside third party, it
also would do so with respect to mortgage assets under the Servicing Agreement.
Under such circumstances, there may be additional risks as to the costs of such
services and the ability to identify a subcontractor suitable to the Company.
The Servicer does not believe it would subcontract those duties unless it could
not perform such duties efficiently and economically itself.




Item 14. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table presents fees for professional audit services rendered by
KPMG LLP for the audit of the Companys annual financial statements for the
years ended December 31, 2003 and December 31, 2002 and fees billed for other
services rendered by KPMG LLP during those periods.

|                   |  |             |        |             |  |   |        | 
|------------------ |  | ----------- | ------ | ----------- |  | - | ------ | 
|                   |  | Fiscal 2003 |        | Fiscal 2002
|                   |  |             |        |            
|Audit Fees (1)     |  | $           | 25,000 |             |  | $ | 22,000 | 
|Audit Related Fees |  |             |       |             |  |   |       | 
|Tax Fees           |  |             |       |             |  |   |       | 
|All Other Fees     |  |             |       |             |  |   |       | 
|                   |  |             |        |             |  |   |        | 
|Total              |  | $           | 25,000 |             |  | $ | 22,000 | 
|                   |  |             |        |             |  |   |        | 



---

|(1) |  | Audit Fees consist of fees billed for professional services rendered for
the audit of the Companys consolidated annual financial statements and
review of the interim consolidated financial statements included in
quarterly reports and services that are normally provided by KPMG LLP in
connection with statutory and regulatory filings or engagements.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

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PART IV




Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K



|(a)(1) |  | The following financial statements are filed as a part of this Report:                           
|------ |  | -------------------------------------------------------------------------------------------------
|      
|       |  | Statements of Condition at December 31, 2003 and 2002                                            
|      
|       |  | Statements of Income for years ended December 31, 2003, 2002 and 2001                            
|      
|       |  | Statements of Comprehensive Income for years ended December 31, 2003, 2002 and 2001              
|      
|       |  | Statements of Shareholders Equity for years ended December 31, 2003, 2002 and 2001              
|      
|       |  | Statements of Cash Flows for years ended December 31, 2003, 2002 and 2001                        
|      
|       |  | Notes to Financial Statements                                                                    
|      
|       |  | Independent Auditors Report                                                                     
|      
|(a)(2) |  | There are no financial statement schedules which are required to be filed as part of this form.  
|      
|(a)(3) |  | See below for all exhibits filed herewith or incorporated by reference and the Index to Exhibits.

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|               |  |                                                                                                                                                                                                                                                                                                                        
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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).                                                                
|               |  |                                                                                                                                                                                                                                                                                                                        
|3.3            |  | Certificate of Amendment for the Series B 8.625% Cumulative
Redeemable Preferred Stock of the Company (incorporated herein by
reference from Exhibit 3.3 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1997).                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                        
|3.4            |  | Amended and Restated By-Laws of the Company (incorporated
herein by reference from Exhibit 3.4 to the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 1997).                                                                                                                               
|               |  |                                                                                                                                                                                                                                                                                                                        
|4.2            |  | Specimen of certificate representing the Series B 8.625%
Cumulative Redeemable Preferred Stock of the Company (incorporated
herein by reference from Exhibit 4.2 to the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 1997).                                                             
|               |  |                                                                                                                                                                                                                                                                                                                        
|10.1           |  | Mortgage Assignment Agreement, made as of March 17, 1997, by
and between Webster Bank and the Company (incorporated herein by
reference from Exhibit 10.1 to the Companys Registration Statement
on Form S-11 (File No. 333-38685) filed with the Securities and
Exchange Commission (the SEC) on October 24, 1997).
|               |  |                                                                                                                                                                                                                                                                                                                        
|10.2           |  | Master Service Agreement, dated March 17, 1997, between
Webster Bank and the Company (incorporated herein by reference from
Exhibit 10.2 to the Companys Registration Statement on Form S-11
(File No. 333-38685) filed with the SEC on October 24, 1997).                                                            
|               |  |                                                                                                                                                                                                                                                                                                                        
|10.3           |  | Advisory Service Agreement, made as of October 20, 1997, by
and between Webster Bank and the Company (incorporated herein by
reference from Exhibit 10.3 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1997).                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                        
|31.1           |  | Certificate of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                        
|31.2           |  | Certificate of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                                        
|32.1           |  | Written Statement pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, signed by the Companys Principal
Executive Officer.                                                                                                                                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                        
|32.2           |  | Written Statement pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, signed by the Companys Principal
Financial Officer.                                                                                                                                                                                      



|(b) |  | No reports on Form 8-K were filed during the fourth quarter of 2003.                                                                              
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | See (a) (3) for a list of all exhibits filed herewith or incorporated by
reference and the Index to Exhibits.                                     
|   
|(d) |  | There are no financial statements and financial statement schedules which
were excluded from this Report which are required to be included herein.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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                           
| |  |                                       |  |                                           
| |  | BY:                                   |  | /s/ Ross M. Strickland                    
| |  |                                       |  |                                           
| |  |                                       |  | Ross M. Strickland, President and Director
| |  |                                       |  |                                           
| |  | Date: March 11, 2004                 

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of March 11, 2004.

| |  |     |  |                                             
| |  | --- |  | --------------------------------------------
| |  | By: |  | /s/ Ross M. Strickland                      
| |  |     |  |                                             
| |  |     |  | Ross M. Strickland, President and Director  
| |  |     |  | (Principal Executive Officer)               
| |  |     |  |                                             
| |  | By: |  | /s/ Gregory S. Madar                        
| |  |     |  |                                             
| |  |     |  | Gregory S. Madar, Senior Vice President,    
| |  |     |  | Treasurer and Assistant Secretary           
| |  |     |  | (Principal Financial and Accounting Officer)
| |  |     |  |                                             
| |  | By: |  | /s/ William J. Healy                        
| |  |     |  |                                             
| |  |     |  | William J. Healy, Director                  
| |  |     |  |                                             
| |  | By: |  | /s/ Harriet M. Wolfe                        
| |  |     |  |                                             
| |  |     |  | Harriet Munrett Wolfe, Director             

32