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, 1999

                                       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(g) of the Act:
                          Preferred Stock, $1 par value
                          -----------------------------
                                (Title of class)


         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


         The  aggregate  market  value  of  the  voting  common  stock  held  by
non-affiliates of the registrant is not applicable.

         The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is: 100 shares


<PAGE>



                      WEBSTER PREFERRED CAPITAL CORPORATION
                          1999 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
                                                       PART I
<S>          <C>                                                                                               <C>
Item  1.     Business........................................................................................    3

                  General....................................................................................    3
                  Changes in Financial Condition.............................................................    3
                  Asset Quality..............................................................................    3
                  Nonaccrual Assets..........................................................................    4
                  Residential Mortgage Loans.................................................................    4
                  Allowance for Loan Losses..................................................................    5
                  Investment Activities......................................................................    5
                  Liquidity and Capital Resources............................................................    6
                  Regulation.................................................................................    6
                  Taxation...................................................................................    7

Item  2.     Properties......................................................................................    8
Item  3.     Legal Proceedings...............................................................................    8
Item  4.     Submission of Matters to a Vote of Security Holders.............................................    8

                                                       PART II

Item  5.     Market for the Registrant's Common Equity and
               Related Stockholder Matters...................................................................    9
Item  6.     Selected Financial Data.........................................................................   10
Item  7.     Management's Discussion and Analysis of Financial Condition
               and Results of Operations ....................................................................   11
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........................................................   26

                                                      PART III

Item 10.     Directors and Executive Officers of the Registrant..............................................   27
Item 11.     Executive Compensation..........................................................................   28
Item 12.     Security Ownership of Certain Beneficial Owners
               and Management................................................................................   29
Item 13.     Certain Relationships and Related Transactions..................................................   29

                                                      PART IV

Item 14.     Exhibits, Financial Statement Schedules, and
             Reports on Form 8-K ............................................................................   30
</TABLE>



                                       2
<PAGE>

                                     PART I
ITEM 1.  BUSINESS

GENERAL


         Webster Preferred Capital  Corporation (the "Company") is a Connecticut
corporation  incorporated  in March 1997. The Company was formed by Webster Bank
to provide a  cost-effective  means of raising funds,  including  capital,  on a
consolidated basis for Webster Bank. The Company's strategy is to acquire,  hold
and manage real estate mortgage assets  ("Mortgage  Assets"),  including but not
limited to residential mortgage loans, mortgage-backed securities and commercial
mortgage loans. In March 1997, Webster Bank contributed $617.0 million,  net, of
Mortgage Assets,  as part of the formation of the Company.  In November 1997 and
during 1998,  Webster Bank contributed  approximately  $120.4 million and $182.8
million,  respectively,  in cash which the Company used to purchase  residential
mortgage loans and mortgage-backed securities. During 1999, Webster Bank made no
contributions  to the Company.  As of December  31, 1999 and 1998,  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").  As of  December  31,  1999,  approximately  41.3%  of the  Company's
residential  mortgage loans are fixed-rate  loans and 58.7% are  adjustable-rate
loans.

         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 generally
accepted  accounting   principles)  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  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.
Furthermore,  the Company  and  Webster  Bank will  benefit  significantly  from
federal and state tax treatment of dividends  paid by the Company as a result of
its  qualification as a REIT. The dividends paid on the preferred shares will be
deductible  for  federal  income  tax  purposes  as a  result  of the  Company's
qualification as a REIT.


CHANGES IN FINANCIAL CONDITION


         Total  assets were $967.2  million at December  31, 1999, a decrease of
$3.8 million from $971.0 million at December 31, 1998.  Shareholder's equity was
$926.2 million at December 31, 1999 and $929.7 million at December 31, 1998.


ASSET QUALITY


         The Company maintains high asset quality by acquiring  residential real
estate loans that have been conservatively  underwritten,  aggressively managing
nonaccrual  assets and maintaining  adequate reserve  coverage.  At December 31,
1999,  residential  real estate loans comprised the entire loan  portfolio.  The
Company also invests in highly rated mortgage-backed securities.


                                       3
<PAGE>

NONACCRUAL ASSETS


         The  aggregate  amount of  nonaccrual  assets  was  approximately  $1.1
million, $1.3 million and $1.3 million,  respectively at December 31, 1999, 1998
and 1997.  The  following  table  details  the  Company's  nonaccrual  assets at
December 31, 1999, 1998 and 1997:


<TABLE>
<CAPTION>
(Dollars In Thousands)                                          1999              1998               1997
----------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>                <C>
Nonaccrual Assets:
       Residential Fixed-Rate Loans                           $  319            $   71             $  158
       Residential Variable-Rate Loans                           830             1,206              1,145
----------------------------------------------------------------------------------------------------------
             Total                                           $ 1,149           $ 1,277            $ 1,303
==========================================================================================================
</TABLE>


At  December  31,  1999,  1998 and  1997 the  allowance  for  loan  losses  were
approximately  $1.9 million,  $1.6 million,  and $1.5 million or 166%,  121% and
118%, respectively, of nonaccrual assets, and .23%, .19% and .24%, respectively,
of total mortgage loans,  net.  Management  believes that the allowance for loan
losses is adequate to cover expected losses in the portfolio.


RESIDENTIAL MORTGAGE LOANS


A summary of the Company's  carrying  amount of  residential  mortgage  loans at
December 31, 1999 and 1998 follows:

<TABLE>
<CAPTION>
(Dollars In Thousands)                                                        1999                   1998
----------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                     <C>
Fixed-Rate Loans:
       15 yr. Loans                                                     $  113,950              $ 114,924
       20 yr. Loans                                                          5,322                  3,213
       25 yr. Loans                                                          2,758                  1,849
       30 yr. Loans                                                        227,977                192,490
----------------------------------------------------------------------------------------------------------
              Total Fixed-Rate Loans                                       350,007                312,476
----------------------------------------------------------------------------------------------------------
Variable-Rate Loans:
       15 yr. Loans                                                          6,108                  5,222
       20 yr. Loans                                                          7,839                  6,504
       25 yr. Loans                                                          6,759                  8,578
       30 yr. Loans                                                        476,647                484,824
----------------------------------------------------------------------------------------------------------
              Total Variable-Rate Loans                                    497,353                505,128
----------------------------------------------------------------------------------------------------------
       Total Residential Mortgage Loans                                $   847,360              $ 817,604
       Premiums and Deferred Fees on Loans, Net                              3,762                  3,585
       Less: Allowance for Loan Losses                                      (1,911)                (1,555)
----------------------------------------------------------------------------------------------------------
              Residential Mortgage Loans, Net                          $   849,209              $ 819,634
==========================================================================================================
</TABLE>


In March 1997, Webster Bank contributed approximately $617.0 million of Mortgage
Assets,  net as  part  of the  formation  of the  Company.  The  $617.0  million
consisted  of  $215.8  million  of  fixed-rate  loans,  and  $401.3  million  of
variable-rate  loans,  net of premiums,  deferred fees on loans and an allowance
for loan losses. During 1998, Webster Bank contributed $182.8 million of cash to
the Company, of which $131.0 million was used to purchase additional residential
mortgage loans. During 1999, Webster Bank made no contributions to the Company.




                                       4
<PAGE>

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 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
changes in economic conditions. 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.

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

<TABLE>
<CAPTION>
                                                                                               For the Period from
                                                                                                 March 17, 1997
                                                             For Year Ended December 31,       (Date of Inception)
(In Thousands)                                                    1999          1998           to December 31, 1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>                      <C>
Balance at Beginning of Period                                  $ 1,555       $ 1,538                  $    -
Allowance for Loan Losses on Acquired Loans                           -             -                   1,544
Provision Charged to Operations                                     480           300                       -
Charge-offs                                                        (124)         (284)                     (6)
Recoveries                                                           -              1                       -
---------------------------------------------------------------------------------------------------------------------
       Balance at End of Period                                 $ 1,911       $ 1,555                 $ 1,538
=====================================================================================================================
</TABLE>


INVESTMENT ACTIVITIES

         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 the Federal Home Loan Mortgage
Corp. ("Freddie Mac") or Fannie Mae. Nonconforming residential mortgage loans do
not qualify in one or more  respects  for  purchase by Fannie Mae or Freddie Mac
under their standard programs. The nonconforming residential mortgage loans that
the Company purchases  generally have original  principal  balances which exceed
the limits for Freddie Mac or Fannie Mae 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.

         Each  residential  mortgage loan will be 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.

         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



                                       5
<PAGE>

estate  mortgage  conduits or any  interests,  other than as a creditor,  in any
taxable mortgage pools.

         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, 1999 and 1998, the Company did not hold any commercial  mortgage
loans.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's  principal  liquidity  needs will be to fund dividends on
outstanding capital stock. The Company does not anticipate that it will have any
other material  capital  expenditures.  The Company believes that cash generated
from the payment of interest and  principal on its Mortgage  Assets will provide
sufficient  funds to meet its  operating  requirements  and to pay  dividends in
accordance  with the  requirements  to be  taxed  as a REIT for the  foreseeable
future.  To the extent  that the Company  accumulates  cash in order to meet its
dividend  requirements,  it may invest  such cash in  short-term  securities  or
money-market instruments.

REGULATION

         Webster Bank, which owns 100% of the Company's common stock, is subject
to supervision and regulation by, among others, the Office of Thrift Supervision
(the "OTS") and the Federal Deposit Insurance Corporation (the "FDIC").  Because
the Company is a subsidiary of Webster  Bank,  such federal  banking  regulatory
authorities have the right to examine the Company and its activities. If Webster
Bank becomes  "undercapitalized" under "prompt corrective action" initiatives of
the federal bank regulators,  such regulatory  authorities have the authority to
require,  among other  things,  Webster Bank or the Company to alter,  reduce or
terminate any activity that the regulator  determines poses an excessive risk to
Webster Bank. The Company does not believe that its activities  presently do, or
in the  future  will,  pose 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;  require
Webster Bank to divest or liquidate the Company; or require that Webster Bank be
sold.  Webster Bank could  further be directed to take any other action that the
regulatory  agency  determines  will  better  carry  out the  purpose  of prompt
corrective  action.  Webster  Bank could be subject to these  prompt  corrective
action restrictions 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 skill and  diligence of Webster Bank 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's failure to qualify as a REIT.

         Pursuant  to  OTS   regulations   and  the  Company's   Certificate  of
Incorporation,  the  Company  is  required  to  maintain  a  separate  corporate
existence from Webster Bank,  notwithstanding  that Webster Bank owns all of the
common  stock and all of the  directors  and officers of the Company are Webster
Bank employees.  In the event Webster Bank should be placed into receivership by
federal bank  regulators,  such federal bank  regulators  would be in control of
Webster Bank.  There can be no assurance that they would not cause Webster Bank,
as sole  holder of the  common  stock,  to take  action  adverse  to  holders of
preferred shares.



                                       6
<PAGE>

TAXATION

         The Company  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 state
income tax on net income and capital gains that it distributes to the holders of
its common stock and 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 95% of its  "REIT  taxable  income"  (not
including capital gains and certain items of non-cash income). For taxable years
beginning after December 31, 2000,  this  requirement  will be relaxed,  but the
Company still will be required to distribute  90% of its "REIT taxable  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,  commencing  with
its taxable year ended December 31, 1997.  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 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 or new 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.


                                       7
<PAGE>

ITEM 2.  PROPERTIES

         Not Applicable.

ITEM 3.  LEGAL PROCEEDINGS

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was  submitted  during the fourth  quarter of the fiscal year
1999 to security holders for a vote.


                                       8
<PAGE>

                                     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 A
7.375% Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock") is
not listed on any exchange or approved for quotation on the NASDAQ Stock Market.
The Company's Series B 8.625% Cumulative Redeemable Preferred Stock (the "Series
B Preferred  Stock") is traded  over-the-counter  and quoted on the NASDAQ Stock
Market's National Market Tier under the symbol "WBSTP."

         Dividends  declared  and  paid on the  common  stock  in 1999  and 1998
totaled $60.3 million and $58.2 million, respectively. Dividends declared on the
Series A Preferred  Stock in 1999 and 1998  totaled  $3.0 million for each year.
Dividends  declared  on the Series B  Preferred  Stock in 1999 and 1998  totaled
$862,500 for each year.

         The market price for the Series B Preferred Stock averaged  $10.247 and
$10.597  for the years  ending  December  31, 1999 and 1998,  respectively.  The
Series B Preferred  Stock reached a low of $9.125 and a high of $11,  during the
year ended  December 31,  1999.  The Series B Preferred  Stock  reached a low of
$10.125 and a high of $11, during the year ended December 31, 1998.

         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 A and Series B
Preferred Stock are not expected to exceed 15% of the Company's  capitalization,
and (iii) the Company does not anticipate incurring any indebtedness.


                                       9
<PAGE>

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.

FINANCIAL CONDITION DATA:

<TABLE>
<CAPTION>
BALANCE SHEET DATA                                                                      At December 31,
(In Thousands)                                                                    1999                    1998
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                    <C>
Available for Sale Securities, at Fair Value                                          $95,647                $118,262
Residential Mortgage Loans, Net                                                       849,210                 819,634
Total Assets                                                                          967,209                 970,961
Total Liabilities                                                                         982                   1,243
Mandatorily Redeemable Preferred Stock                                                 40,000                  40,000
Total Shareholders' Equity                                                            926,227                 929,718
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                                                                For the Period from
                                                                                                   March 17, 1997
INCOME STATEMENT DATA                                        For Year Ended December 31,      (Date of Inception) to
(In Thousands)                                                1999                 1998          D0ecember 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>                     <C>
Total Interest Income                                                $64,219          $62,134                 $38,065
Provision for Loan Losses                                                480              300                       -
Gain on Sale of Securities                                                 -              261                       -
Noninterest Expenses                                                   3,522            3,836                     220
----------------------------------------------------------------------------------------------------------------------
Income Before Taxes                                                   60,217           58,259                  37,845
Income Taxes                                                               -                -                       -
----------------------------------------------------------------------------------------------------------------------
Net Income                                                            60,217           58,259                  37,845
Preferred Stock Dividends                                                862              862                     168
----------------------------------------------------------------------------------------------------------------------
Net Income Available to Common Shareholders                          $59,355          $57,397                 $37,677
======================================================================================================================

----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                                                                For the Period from
                                                                                                  March 17, 1997
                                                              For Year Ended December 31,       (Date of Inception)
SIGNIFICANT STATISTICAL DATA*                                  1999               1998          to December 31, 1997
----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                 <C>                  <C>
Net Income per Common Share
       Basic                                                 $593,550            $573,970             $376,770
       Diluted                                               $593,550            $573,970             $376,770
Dividends Declared per Common Share                          $602,910            $582,250             $380,470
----------------------------------------------------------------------------------------------------------------------
</TABLE>

*No ratio of earnings to fixed  charges is presented  because the Company has no
fixed charges.



                                       10
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         The Company is a  subsidiary  of Webster Bank and was  incorporated  in
March  1997 to  provide  a  cost-effective  means of  raising  funds,  including
capital,  on a consolidated  basis for Webster Bank. In March 1997, Webster Bank
contributed  approximately $617.0 million of mortgage assets, net as part of the
formation  of the  Company.  In November  1997,  and during  1998,  Webster Bank
contributed approximately $120.4 million, and $182.8 million,  respectively,  of
cash  which  the  Company  used  to  purchase  mortgage-backed   securities  and
residential  mortgage loans.  During 1999, Webster Bank made no contributions to
the  Company.  Total assets at December 31, 1999 and December 31, 1998 were $967
million and $971  million,  respectively,  consisting  primarily of  residential
mortgage loans and mortgage-backed securities.

         The Company has elected to be treated as a REIT under the Code and will
generally  not be subject to federal  income tax for as long as it maintains its
qualification  as a REIT,  requiring  among  other  things,  that  it  currently
distribute  to  stockholders  at least 95% of its  "REIT  taxable  income"  (not
including capital gains and certain items of noncash income).  For taxable years
beginning after December 31, 2000,  this  requirement  will be relaxed,  but the
Company still will be required to distribute  90% of its "REIT taxable  income."
The Company and Webster  Bank will also benefit  significantly  from federal and
state  tax  treatment  of  dividends  paid by the  Company  as a  result  of its
qualification  as a REIT.  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.

ASSET QUALITY

         The Company maintains high asset quality by acquiring  residential real
estate loans that have been conservatively  underwritten,  aggressively managing
nonaccrual  assets and maintaining  adequate reserve  coverage.  At December 31,
1999  and  1998,  residential  real  estate  loans  comprised  the  entire  loan
portfolio. The Company also invests in highly rated mortgage-backed securities.

NONACCRUAL ASSETS

         The aggregate  amount of nonaccrual  assets at December 31, 1999,  1998
and 1997  were  approximately  $1.1  million,  $1.3  million  and $1.3  million,
respectively.  The following  table details the Company's  nonaccrual  assets at
December 31, 1999, 1998 and 1997:

NONACCRUAL ASSETS:

<TABLE>
<CAPTION>
(In Thousands)                                                          1999                1998              1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                <C>              <C>
Loans Accounted for on a Nonaccrual Basis:
        Residential Fixed-Rate Loans                                        $  319             $  71            $  158
        Residential Variable-Rate Loans                                        830             1,206             1,145
-----------------------------------------------------------------------------------------------------------------------
              Total                                                        $ 1,149           $ 1,277           $ 1,303
=======================================================================================================================
</TABLE>

         At December 31, 1999,  1998 and 1997,  the  allowances  for loan losses
were  approximately $1.9 million,  $1.6 million and $1.5 million,  or 166%, 121%
and 118%,  respectively,  of  nonaccrual  assets.  Management  believes that the
allowance for loan losses is adequate to cover expected losses in the portfolio.

LIQUIDITY AND CAPITAL RESOURCES

         The  primary  sources of  liquidity  for the Company are net cash flows
from operating activities,  investing activities and financing  activities.  Net
cash flows from operating  activities  primarily include net income, net changes
in  prepaid  expenses  and  other  assets,   accrued  interest   receivable  and
adjustments  for  noncash  items  such as  amortization  on  deferred  fees  and
premiums,  and  mortgage-backed  securities net amortization and accretion.  Net
cash  flows  from  investing  activities  primarily  include  the  purchase  and
repayments of residential real estate loans and mortgage backed  securities that
are classified as available for sale.  Net cash flows from financing  activities
primarily  include net changes in capital  generally related to stock issuances,
capital contributions from Webster Bank and dividend payments.



                                       11
<PAGE>

         While  scheduled loan  amortization,  maturing  securities,  short-term
investments and securities repayments are predictable sources of funds, loan and
mortgage-backed  security prepayments are greatly influenced by 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.  The  market  values of
fixed-rate loans and mortgage-backed securities are sensitive to fluctuations in
market  interest  rates,  declining in value as interest rates rise. If interest
rates  decrease,  the market value of loans generally will tend to increase with
the level of prepayments also normally increasing.

         Dividends  on the Series A  Preferred  Stock are payable at the rate of
7.375%  per  annum (an  amount  equal to $73.75  per annum per  share),  and the
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, commencing January 15, 1998.

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 must provide for  sufficient  liquidity  for daily  operations.  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 and as such the market values of
certain of the  Company's  financial  assets are  sensitive to  fluctuations  in
market  interest  rates.  Changes in interest  rates can affect the value of its
loans and other  interest-earning  assets.  At December 31,  1999,  58.7% of the
Company's  residential  mortgage loans were  variable-rate  loans. The Company's
management  believes these  residential  mortgage loans are less likely to incur
prepayments of principal.

RESULTS OF OPERATIONS

         For the years ended  December 31, 1999 and 1998,  the Company  reported
net income of $60.2  million and $58.3  million,  respectively  or $593,550  and
$573,970, respectively, per common share on a diluted basis. From March 17, 1997
(date of  inception)  to December 31, 1997,  the Company  reported net income of
$37.8 million, or $376,770 per common share on a diluted basis.

         Total  interest  income  for 1999  amounted  to $64.2  million,  net of
servicing fees, an increase of $2.1 million from $62.1 million, net of servicing
fees, in 1998. The average balance of total mortgage  loans,  net, for the years
ended  December  31, 1999 and  December  31, 1998 was $849.8  million and $755.7
million, respectively, and the yield was 6.72% and 6.95%, respectively.

         The provision for loan losses for the years ended December 31, 1999 and
1998,  amounted to $480,000 and $300,000,  respectively.  There was no provision
for loan losses for the period of March 17, 1997 (date of inception) to December
31,  1997.  The  provision  for loan losses  reflects  the increase in the total
residential mortgage loan portfolio.

         Noninterest expenses for the years ended December 31, 1999 and 1998 and
for the period of March 17,  1997  (date of  inception)  to  December  31,  1997
amounted to $3.5 million, $3.8 million and $220,000,  respectively, and included
advisory  fees,  dividends on Series A Preferred  Stock and  amortized  start-up
costs. No income tax expense was recorded for any of the periods.



                                       12
<PAGE>

IMPACT OF INFLATION AND CHANGING PRICES

         The financial  statements and related data  presented  herein have been
prepared in accordance  with generally  accepted  accounting  principles,  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 are critical to the
maintenance of acceptable performance levels.

RECENT FINANCIAL ACCOUNTING STANDARDS

         In June 1998, the Financial  Accounting Standards Board ("FASB") issued
Statement  of  Financial  Accounting  Standards  SFAS No. 133,  "Accounting  for
Derivative  Instruments  and Hedging  Activities."  This  statement  establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, (collectively referred to as
derivatives) and for hedging activities.  The accounting for changes in the fair
value of a  derivative  depends on the intended  use of the  derivative  and the
resulting  designation.  Under this  statement,  an entity  that elects to apply
hedge  accounting  is required to  establish  at the  inception of the hedge the
method it will use for assessing the effectiveness of the hedging derivative and
the measurement  approach for  determining the ineffective  aspect of the hedge.
Those methods must be consistent  with the entities  approach to managing  risk.
SFAS No. 133 amended,  is now effective for all fiscal  quarters of fiscal years
beginning  after  June 15,  2000.  SFAS No.  133 is not  expected  to impact the
Company  since it does not engage in hedging  activities  or utilize  derivative
instruments.

         In April  1998,  the AICPA  Accounting  Standards  Executive  Committee
issued Statement of Position 98-5,  Reporting on the Cost of Start-up Activities
("SOP 98-5"). SOP 98-5 is applicable to all non-government entities and requires
that costs of start-up activities,  including organization costs, be expensed as
incurred.  SOP 98-5 is  effective  for  financial  statements  for fiscal  years
beginning after December 15, 1998.  Restatement of previously  issued  financial
statements is not permitted. Initial application of SOP 98-5 should be as of the
beginning  of the  fiscal  year in which the SOP 98-5 is first  adopted  and the
unamortized  portion of previously  capitalized  start-up cost should be written
off.  The Company  wrote off the  remaining  amount of  organizational  costs of
$114,330 in December 1998 due to the adoption of SOP 98-5.

YEAR 2000 READINESS DISCLOSURE STATEMENT

         There has been no disruption to the company's  operations since January
1, 2000 and any further disruption is not expected. The company will continue to
monitor its position.


                                       13
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The  following  table  summarizes  the  estimated  market  value of the
Company's  interest-sensitive  assets  and  interest-sensitive   liabilities  at
December  31,  1999 and 1998,  and the  projected  change  to  market  values if
interest rates instantaneously increase or decrease by 100 basis points.

<TABLE>
<CAPTION>
                                                                                       Estimated Market Value Impact
(In Thousands)                              Book Value         Market Value               -100 BP           +100 BP
----------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>                 <C>               <C>
AT DECEMBER 31, 1999
Interest Sensitive Assets:
      Mortgage-Backed Securities                 $  97,086            $ 95,647            $ 2,617           $ (3,276)
      Variable-Rate Residential Loans              497,353             492,946             10,570            (12,670)
      Fixed-Rate Residential Loans                 350,007             343,634             11,533            (14,017)
Interest-Sensitive Liabilities:
      Series A Preferred Stock                      40,000              40,000              2,667             (3,084)
----------------------------------------------------------------------------------------------------------------------

AT DECEMBER 31, 1998
Interest Sensitive Assets:
      Mortgage-Backed Securities                 $ 117,146           $ 118,262            $ 1,734           $ (3,169)
      Variable-Rate Residential Loans              505,128             521,221              5,472             (7,572)
      Fixed-Rate Residential Loans                 312,476             320,623              4,285             (9,575)
Interest-Sensitive Liabilities:
      Series A Preferred Stock                      40,000              40,000                348             (3,638)
----------------------------------------------------------------------------------------------------------------------
</TABLE>

FORWARD LOOKING STATEMENTS

         Statements  in  Management's  Discussion  and  Analysis  in the section
captioned "Year 2000 Readiness  Disclosure  Statement" and in "Quantitative  and
Qualitative Disclosures about Market Risk" are forward-looking statements within
the meaning of the Securities Exchange Act of 1934, as amended.  Actual results,
performance  or  developments  may differ  materially  from those  expressed  or
implied by such  forward-looking  statements as a result of market uncertainties
and other factors.  Some important  factors that would cause actual results that
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.  Such
developments  could have an adverse impact on the Company's  financial  position
and results of operations.


                                       14
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders of
Webster Preferred Capital Corporation
Waterbury, Connecticut


We have audited the  accompanying  statements of condition of Webster  Preferred
Capital  Corporation  (a subsidiary of Webster Bank) as of December 31, 1999 and
1998, and the related statements of income, shareholders' equity, and cash flows
for each of the years in the  two-year  period  ended  December 31, 1999 and the
period of March 17,  1997  (date of  inception)  to  December  31,  1997.  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  generally   accepted  auditing
standards.  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, 1999 and 1998, and the results of its operations
and its cash flows for each of the years in the two-year  period ended  December
31, 1999  and the  period of March 17, 1997 (date of  inception) to December 31,
1997 in conformity with generally accepted accounting principles.




---------------
KPMG LLP
Hartford, Connecticut
January 28, 2000




                                       15
<PAGE>

WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF CONDITION
(Dollars in Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                           ------------------------------------------
                                                                                   1999                  1998
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                 <C>
ASSETS
Cash                                                                                   $  16,667            $  26,964
Mortgage-Backed Securities Available for Sale at Fair Value (Note 2)                      95,647              118,262
Residential Mortgage Loans, Net (Note 3)                                                 849,210              819,634
Accrued Interest Receivable                                                                5,285                5,422
Other Real Estate Owned                                                                       60                    -
Prepaid Expenses and Other Assets                                                            340                  679
----------------------------------------------------------------------------------------------------------------------
     TOTAL ASSETS                                                                      $ 967,209            $ 970,961
======================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Accrued Dividends Payable                                                                $   885            $   1,019
Accrued Expenses and Other Liabilities                                                        97                  224
----------------------------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES                                                                       982                1,243
----------------------------------------------------------------------------------------------------------------------

MANDATORILY REDEEMABLE PREFERRED STOCK (NOTE 4)
     Series A 7.375% Cumulative Redeemable Preferred Stock,
         Liquidation preference $1,000 per share; par value $1.00 per
         share; 40,000 shares authorized, issued and outstanding                          40,000               40,000

SHAREHOLDERS' EQUITY (NOTE 5)

     Series  B  8.625%  Cumulative   Redeemable  Preferred  Stock,   Liquidation
         preference $10 per share; par value $1.00 per
         share; 1,000,000 shares authorized, issued and outstanding                        1,000                1,000
     Common Stock, par value $.01 per share:
         Authorized - 1,000 shares
         Issued and Outstanding - 100 shares                                                   1                    1
     Paid-in Capital                                                                     928,799              928,799
     Distributions in Excess of Accumulated Earnings                                     (2,134)               (1,198)
     Accumulated Other Comprehensive (Loss) Income                                       (1,439)                1,116
----------------------------------------------------------------------------------------------------------------------
     TOTAL SHAREHOLDERS' EQUITY                                                          926,227              929,718
----------------------------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       $  967,209           $  970,961
======================================================================================================================
</TABLE>

See accompanying notes to financial statements



                                       16
<PAGE>

WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF INCOME
(Dollars In Thousands, Except Share Data)


<TABLE>
<CAPTION>
                                                                                                For the Period from
                                                                                               March 17, 1997 (Date
                                                             For the Year Ended December 31,     of Inception) to
                                                          -----------------------------------    December 31, 1997
                                                                      1999            1998
----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                   <C>               <C>
Interest Income:
Loans                                                        $      57,105         $  52,486         $  37,177
Securities                                                           7,114             9,648               888
----------------------------------------------------------------------------------------------------------------------
        Total Interest Income                                       64,219            62,134            38,065
Provision for Loan Losses (Note 3)                                     480               300                 -
----------------------------------------------------------------------------------------------------------------------
Interest Income After Provision for Loan Losses                     63,739            61,834            38,065

Noninterest Income:
Gain on Sale of Securities                                               -               261                 -

Noninterest Expenses:
Advisory Fee Expense Paid to Parent (Note 7)                           150               150               127
Dividends on Mandatorily Redeemable Preferred Stock                  2,950             2,950                66
Amortization of Start-up Costs                                           -               291                17
Other Noninterest Expenses                                             422               445                10
----------------------------------------------------------------------------------------------------------------------
        Total Noninterest Expenses                                   3,522             3,836               220

Income Before Taxes                                                 60,217            58,259            37,845
Income Taxes (Note 8)                                                    -                 -                 -
----------------------------------------------------------------------------------------------------------------------
NET INCOME                                                          60,217            58,259            37,845
Preferred Stock Dividends                                              862               862               168
----------------------------------------------------------------------------------------------------------------------

Net Income Available to Common Shareholders                    $    59,355         $  57,397         $  37,677
======================================================================================================================

Net Income Per Common Share
        Basic                                                    $ 593,550        $  573,970         $ 376,770
        Diluted                                                  $ 593,550        $  573,970         $ 376,770

----------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements



                                       17
<PAGE>

WEBSTER PREFERRED CAPITAL  CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars In Thousands, Except Per Share Data)


<TABLE>
<CAPTION>
                                                                                Distributions   Accumulated
                                                                                 in Excess of      Other
                                        Preferred        Common      Paid-In     Accumulated   Comprehensive
                                          Stock           Stock      Capital        Earnings    Income (Loss)      Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>        <C>             <C>             <C>         <C>
Balance, March 17, 1997
(date of inception)                         $       -       $   -    $             $       -      $    -         $        -
-----------------------------------------------------------------------------------------------------------------------------

Comprehensive Income:
Net Income for 1997                                 -           -              -        37,845             -          37,845
Net unrealized gains on Available
      for Sale Securities, net of
      reclassification adjustments                  -           -              -             -            64              64
                                                                                                              ---------------
Total Comprehensive Income                                                                                            37,909
                                                                                                              ---------------

Contributions by Webster Bank                   2,000           1        735,382             -             -         737,383
Preferred Stock Redeemed                       (2,000)          -          2,000             -             -               -
Net Proceeds from Sale of Preferred
Stock Series B                                  1,000           -          8,575             -             -           9,575
Dividends Declared:
      Common Stock ($380,470 per share)             -           -              -       (38,047)            -         (38,047)
      Preferred Stock ($74.60 per share)            -           -              -          (149)            -            (149)
      Preferred Stock Series B
      ($0.019 per share)                            -           -              -           (19)            -             (19)
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                    $ 1,000       $   1      $ 745,957       $  (370)        $  64       $ 746,652
-----------------------------------------------------------------------------------------------------------------------------

Comprehensive Income:
Net Income for 1998                                 -           -              -        58,259             -          58,259
Net unrealized gains on Available
      for Sale Securities, net of
      reclassification adjustments                  -           -              -             -         1,052           1,052
                                                                                                              ---------------
Total Comprehensive Income                                                                                            59,311
                                                                                                              ---------------

Contributions by Webster Bank                       -           -        182,842             -             -         182,842
Dividends Declared:
      Common Stock ($582,250 per share)             -           -              -        (58,225)           -         (58,225)
      Preferred Stock Series B
      ($0.8625 per share)                           -           -              -           (862)           -            (862)
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                    $ 1,000       $   1      $ 928,799       $ (1,198)     $ 1,116       $ 929,718
-----------------------------------------------------------------------------------------------------------------------------

Comprehensive Income:
Net Income for 1999                                 -           -              -         60,217            -          60,217
Net unrealized losses on Available
      for Sale Securities, net of
      reclassification adjustments                  -           -              -               -      (2,555)        (2,555)
                                                                                                               --------------
Total Comprehensive Income                                                                                            57,662
                                                                                                               --------------

Dividends Declared:
      Common Stock ($602,910 per share)             -           -              -        (60,291)           -        (60,291)
      Preferred Stock Series B
      ($0.8625 per share)                           -           -              -           (862)           -           (862)
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                    $ 1,000       $   1      $ 928,799       $ (2,134)    $ (1,439)      $ 926,227
=============================================================================================================================
</TABLE>


See accompanying notes to financial statements



                                       18
<PAGE>

WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)

<TABLE>
<CAPTION>

                                                                          For the Year Ended      For the Period from
                                                                             December 31,           March 17, 1997
                                                                     --------------------------  (Date of Inception)
                                                                          1999            1998    to December 31, 1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>                 <C>
OPERATING ACTIVITIES:
Net Income                                                             $ 60,217       $ 58,259            $ 37,845
Adjustments to Reconcile Net Cash Provided by Operating
Activities:
      Provision for Loan Losses                                             480            300                   -
      Accretion of Securities Discount                                      (36)        (1,493)               (215)
      Amortization of Deferred Loan Fees and Premiums                     1,157          1,467                 444
      Gain on Sale of Securities                                              -           (261)                  -
      Decrease (Increase) in Accrued Interest Receivable                    137           (897)             (4,525)
      Decrease (Increase) in Prepaid Expenses and Other Assets              339            466                (129)
      (Decrease) Increase in Accrued Liabilities                           (261)           334                 909
----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                                62,033         58,175              34,329
----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of  Mortgage-Backed Securities                                       -        (51,682)           (119,971)
Principal Collected on Mortgage-Backed Securities                        20,096          7,233                 160
Proceeds from Sales of Mortgage-Backed Securities                             -         49,083                   -
Purchase of Loans                                                      (194,929)      (389,123)            (98,835)
Principal Repayments of Loans, Net                                      163,656        203,356              79,776
-----------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities                                   (11,177)      (181,133)           (138,870)
-----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Dividends Declared on Common and Preferred Stock                        (61,153)       (59,087)            (38,215)
Net Proceeds from Issuance of Preferred Stock                                 -              -              48,562
Contributions from Parent                                                     -        182,842             120,361
----------------------------------------------------------------------------------------------------------------------
Net Cash (Used) Provided by Financing Activities                        (61,153)       123,755             130,708
----------------------------------------------------------------------------------------------------------------------

(Decrease) increase in Cash and Cash Equivalents                        (10,297)           797              26,167
Cash and Cash Equivalents at Beginning of Period                         26,964         26,167                   -
----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period                             $ 16,667       $ 26,964            $ 26,167
======================================================================================================================

SUPPLEMENTAL DISCLOSURES:
      Income Taxes Paid                                                  $    -         $    -              $    -
      Interest Paid                                                      $    -         $    -              $    -

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITY:
      Contribution of Mortgage Assets, net by Webster Bank in
        exchange for 100 shares of common stock and 2,000
        shares of 10% Cumulative Non-Convertible Preferred Stock
                                                                         $    -         $    -           $ 617,022

      On December 22, 1997, the Company redeemed from Webster Bank
        2,000 shares of preferred stock; Webster Bank concurrently
        contributed the proceeds to the
        Company as additional paid-in capital                            $    -         $    -            $  2,000
</TABLE>



See accompanying notes to financial statements



                                       19
<PAGE>

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) BUSINESS
         Webster 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.  The Company was
organized to provide a cost-effective  means of raising funds,  including equity
capital,  on a consolidated basis for Webster Bank. The Company acquires,  holds
and manages real estate  mortgage  assets  ("mortgage  assets").  In March 1997,
Webster Bank contributed approximately $617.0 million of mortgage assets, net as
part of the  formation  of the Company.  As of December  31, 1999,  the 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.

         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 PRESENTATION
         The  financial   statements  have  been  prepared  in  conformity  with
generally accepted accounting principles. 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.  A  material  estimate  that is  susceptible  to
near-term changes includes the allowance for loan losses.


c) 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 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
changes in economic conditions. 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.


d) 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 cost with an allowance  for losses to provide for declines in value.
Operating  expenses are charged to current period  earnings and gains and losses
upon  disposition are reflected in the statement of income when realized.  As of
December 31, 1999,  there was $59,857 in other real estate owned by the Company.
As of December 31, 1998, there was no other real estate owned by the Company.



                                       20
<PAGE>

e) LOANS
         Loans are stated at the  principal  amounts  outstanding.  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,  premiums and discounts on loans
purchased are recognized in interest  income over the lives of the loans using a
method approximating the interest method.

         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.

f) MORTGAGE-BACKED SECURITIES
         Mortgage-backed  securities are U.S.  government  agency 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 of a
mortgage backed security is judged to be other than temporary.

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 adjusted net income 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, 1999, 1998 and 1997 was 100.


h) STATEMENT OF CASH FLOWS
         For purposes of the Statement of Cash Flows, the Company considers cash
on hand and in banks to be cash and cash equivalents.


i) FAIR VALUE OF FINANCIAL INSTRUMENTS
         The fair  value of  securities  (Note 2) is  estimated  based on prices
published in financial newspapers or quotations received from securities dealers
or pricing services.

         In estimating  the fair value of  residential  mortgage loans (Note 3),
the portfolio was classified into two categories,  fixed-rate mortgage loans and
variable-rate mortgage loans. The categories were further segmented into 15, 20,
25,  and 30 year  contractual  maturities.  The fair value of each  category  is
calculated by discounting  scheduled cash flows through estimated maturity using
market discount rates.

         The  calculation  of fair value  estimates of financial  instruments is
dependent  upon  certain   subjective   assumptions  and  involves   significant
uncertainties,   resulting  in   variability   in  estimates   with  changes  in
assumptions.  Potential  taxes and other  expenses  that would be incurred in an
actual sale or settlement are not reflected in the amounts disclosed. Fair value
estimates  are not intended to reflect the  liquidation  value of the  financial
instruments.

j) COMPREHENSIVE INCOME
         The  Company   adopted  the  provisions  of  SFAS  No.  130  "Reporting
Comprehensive Income" on January 1, 1998. SFAS No. 130 establishes standards for
the reporting and display of  comprehensive  income and its components  (such as
changes in net unrealized  securities  gains and losses).  Comprehensive  income
includes net income and any changes in equity from non-owner sources that bypass
the income  statement.  The purpose  for reporting  comprehensive  income is  to


                                       21
<PAGE>

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.  Applications of SFAS No.
130 will not have an impact on the amounts previously reported for net income or
affect the comparability of previously issued financial statements.

k) RECLASSIFICATION
         Certain financial  statement balances as previously  reported have been
reclassified to conform to the 1999 Financial Statement Presentation.

NOTE 2: MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

         In March 1998,  Webster Bank  contributed  $51.8 million in cash to the
Company  which was used to purchase  Government  National  Mortgage  Association
("GNMA") mortgage-backed securities.  During 1999, Webster Bank did not make any
contributions to the Company. The following table sets forth certain information
regarding the mortgage-backed securities:

<TABLE>
<CAPTION>
(In Thousands)                                                          Mortgage-Backed Securities
----------------------------------------------------------------------------------------------------------------------
                                                            Recorded         Unrealized    Unrealized       Estimated
December 31, 1999                                             Value             Gains         Losses        Fair Value
----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>               <C>          <C>            <C>
      Available for Sale Portfolio:                          $ 97,086          $    989     $ (2,428)      $   95,647
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                            Recorded         Unrealized    Unrealized       Estimated
December 31, 1998                                             Value             Gains         Losses        Fair Value
----------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                 <C>                 <C>
      Available for Sale Portfolio:                         $ 117,146           $ 1,116       $      -     $ 118,262
----------------------------------------------------------------------------------------------------------------------
</TABLE>

         There were no sales of  mortgage-backed  securities for the year ending
December  31,   1999.   During   1998,   the  Company  sold  $48.8   million  of
mortgage-backed securities which resulted in a gain of $261,431.

         All mortgage-backed  securities have a contractual  maturity of over 10
years.  The weighted  average yield at December 31, 1999 is 6.79%.  Although the
stated final maturity of these  obligations are long-term,  the weighted average
life is much shorter due to scheduled repayments and prepayments.


                                       22
<PAGE>

NOTE 3:  RESIDENTIAL  MORTGAGE LOANS, NET

A summary of the carrying  amount and fair market value of residential  mortgage
loans, net follows:

<TABLE>
<CAPTION>
                                                                               December 31,
                                                   ------------------------------------------------------------------
                                                                  1999                             1998
                                                   ------------------------------------------------------------------
                                                       Carrying         Fair Market      Carrying       Fair Market
(In Thousands)                                          Amount             Value          Amount          Value
---------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>              <C>             <C>
Fixed-Rate Loans:
       15 yr. Loans                                      $   113,950    $   112,123      $ 114,924       $ 117,278
       20 yr. Loans                                            5,322          5,229          3,213           3,315
       25 yr. Loans                                            2,758          2,679          1,849           1,906
       30 yr. Loans                                          227,977        223,603        192,490         198,124
-------------------------------------------------------------------------------------------------------------------
        Total Fixed-Rate Loans                               350,007        343,634        312,476         320,623
-------------------------------------------------------------------------------------------------------------------
Variable-Rate Loans:
       15 yr. Loans                                            6,108          6,059          5,222           5,367
       20 yr. Loans                                            7,839          7,927          6,504           6,716
       25 yr. Loans                                            6,759          6,624          8,578           8,820
       30 yr. Loans                                          476,647        472,336        484,824         500,318
-------------------------------------------------------------------------------------------------------------------
        Total Variable-Rate Loans                            497,353        492,946        505,128         521,221
-------------------------------------------------------------------------------------------------------------------
       Total Residential Mortgage Loans                    $ 847,360      $ 836,580      $ 817,604       $ 841,844

       Premiums and Deferred Fees on Loans, Net                3,761                         3,585
       Less: Allowance for Loan Losses                        (1,912)                       (1,555)
-------------------------------------------------------------------------------------------------------------------

        Residential Mortgage Loans, Net                    $ 849,210                     $ 819,634
===================================================================================================================
</TABLE>

         In March 1997, Webster Bank contributed approximately $617.0 million of
mortgage assets, net as part of the formation of the Company. The $617.0 million
consisted  of  $215.8  million  of  fixed-rate  loans,  and  $401.3  million  of
variable-rate  loans,  net of premiums,  deferred fees on loans and an allowance
for loan losses.  During 1998,  Webster Bank contributed $182.8 million of cash,
to the  Company,  of  which  $131.0  million  was  used to  purchase  additional
residential loans. As of December 31, 1999, approximately 41.3% of the Company's
residential  mortgage loans are  fixed-rate  loans and  approximately  58.7% are
adjustable-rate loans.

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

<TABLE>
<CAPTION>
                                                                                               For the Period from
                                                                                                 March 17, 1997
                                                             Year Ended December 31,           (Date of Inception)
(In Thousands)                                             1999                  1998          to December 31, 1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>                    <C>
Balance at Beginning of Period                                  $ 1,555        $  1,538                 $     -
Allowance for Loan Losses on Acquired Loans                           -               -                   1,544
Provision Charged to Operations                                     480             300                       -
Charge-offs                                                       (123)            (284)                     (6)
Recoveries                                                            -               1                       -
---------------------------------------------------------------------------------------------------------------------
  Balance at End of Period                                      $ 1,912        $  1,555                $ 1 ,538
=====================================================================================================================
</TABLE>


                                       23
<PAGE>

NOTE 4: MANDATORILY REDEEMABLE PREFERRED STOCK

On December 24, 1997,  the Company raised $40.0  million,  less  expenses,  in a
public  offering of 40,000 shares of its Series A 7.375%  cumulative  redeemable
preferred stock, liquidation preference $1,000 per share.

The Company is 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.

The Series A  Preferred  Shares are not  redeemable  prior to January  15,  1999
except upon the  occurrence of a tax event.  A tax event can occur when a change
in existing laws and  regulations  results in a substantial  risk that dividends
paid by the Company will no longer be fully  deductible  for federal  income tax
purposes or that dividends paid by the Company to Webster Bank will no longer be
fully deductible for state income tax purposes.  Upon the occurrence of such tax
event,  during the period  beginning  January 15, 1999 through January 14, 2001,
the Series A Preferred Shares may be redeemed at the option of the Company.

NOTE 5:  SHAREHOLDERS' EQUITY

On March 17, 1997,  the Company's  date of inception,  Webster Bank  contributed
$617.0  million of mortgage  assets,  net in exchange for 100 shares of $.01 par
value common stock and 2,000 shares of $.01 par value ($1,000  stated value) 10%
cumulative nonconvertible preferred stock.

On November 24, 1997, Webster Bank contributed  approximately  $120.4 million in
cash  to  the  Company,   which  was  used  by  the  Company  to  purchase  GNMA
mortgage-backed securities (Note 2).

On December 15, 1997,  Webster Bank  redeemed all 2,000 shares of $.01 par value
($1,000  stated  value)  10%  cumulative   nonconvertible  preferred  stock  and
concurrently  contributed  the  proceeds  to the Company as  additional  paid-in
capital.

On December 24, 1997, the Company raised $10 million, less expenses, in a public
offering  of  1,000,000  shares  of its  Series B 8.625%  cumulative  redeemable
preferred  stock,  liquidation  preference $10 per share. The Series B Preferred
Shares may be  redeemed  at the option of the  Company on or after  January  15,
2003.

During 1998,  Webster Bank contributed  $182.8 million,  of cash to the Company,
which was used to purchase additional mortgage-backed securities and residential
mortgage loans.

During 1999, there were no additional contributions of cash from Webster Bank to
the Company.

NOTE 6: 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 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  impound 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.


                                       24
<PAGE>

NOTE 7: 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 is entitled to receive an annual fee of
$150,000 with respect to the advisory services provided to the Company.

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 8: 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 Stock 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 95% of its "REIT taxable income" (not including capital
gains and certain items of non-cash  income).  For the taxable  years  beginning
after December 31, 2000, the  requirement  will be relaxed but the Company still
will be required to distribute 90% of its "REIT taxable  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.

NOTE 9: OTHER COMPREHENSIVE INCOME

The  following   table   summarizes   reclassification   adjustments  for  other
comprehensive  income and the related  tax effects for the years ended  December
31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                      BEFORE             INCOME TAX
                                                                       TAX               (EXPENSE)          NET-OF-TAX
  (In Thousands)                                                      AMOUNT             OR BENEFIT           AMOUNT
  -----------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                      <C>           <C>
  Unrealized net loss on available for sale securities:
     Unrealized net holding loss arising during the period             $  (2,555)                  -          $  (2,555)
     Less: Reclassification adjustment for gains
        realized during the period                                             -                   -                  -
  -----------------------------------------------------------------------------------------------------------------------
      Other comprehensive loss at December 31, 1999                      $(2,555)                  -            $(2,555)
  -----------------------------------------------------------------------------------------------------------------------

  Unrealized gain on available for sale securities:
     Unrealized holding gains arising during the period                $  1,313                     -          $   1,313
     Less: Reclassification adjustment for gains
        realized during the period                                          261                     -                261
  -----------------------------------------------------------------------------------------------------------------------
      Other comprehensive income at December 31, 1998                  $  1,052                     -          $   1,052
  -----------------------------------------------------------------------------------------------------------------------

  Unrealized gain on available for sale securities:
     Unrealized holding gains arising during the period              $       64                     -         $       64
     Less: Reclassification adjustment for gains
        realized during the period                                            -                     -                  -
  -----------------------------------------------------------------------------------------------------------------------
      Other comprehensive income at December 31, 1997                $       64                     -         $       64
  =======================================================================================================================
</TABLE>


                                       25
<PAGE>

NOTE 10: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
1999
(In Thousands, Except Share Data)             First Quarter        Second Quarter      Third Quarter   Fourth Quarter
----------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                   <C>                <C>              <C>
Net Interest Income                                $ 15,506              $ 16,200           $ 16,180         $ 16,333
Provision for Loan Losses                               120                   120                120              120
Gain on Sale of Securities                                -                     -                  -                -
Noninterest Expenses                                    876                   883                882              881
                                          ----------------------------------------------------------------------------
NET INCOME                                           14,510                15,197             15,178           15,332
Preferred Dividends                                     216                   215                216              215
                                          ----------------------------------------------------------------------------
Net Income Available to Common
       Shareholders                                $ 14,294              $ 14,982           $ 14,962         $ 15,117
                                          ============================================================================
Net Income Per Common Share
       Basic                                      $ 142,940             $ 149,820          $ 149,620        $ 151,170
                                          ============================================================================
       Diluted                                    $ 142,940             $ 149,820          $ 149,620        $ 151,170
                                          ============================================================================
</TABLE>
<TABLE>
<CAPTION>
1998
(In Thousands, Except Share Data)             First Quarter        Second Quarter      Third Quarter   Fourth Quarter
----------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                   <C>                <C>              <C>
Net Interest Income                                $ 14,154              $ 16,035           $ 16,158         $ 15,787
Provision for Loan Losses                                 -                     -                150              150
Gain on Sale of Securities                                -                     -                261                -
Noninterest Expenses                                    925                   946                933            1,032
                                          ----------------------------------------------------------------------------
NET INCOME                                           13,229                15,089             15,336           14,605
Preferred Dividends                                     216                   216                216              214
                                          ----------------------------------------------------------------------------
Net Income Available to Common
       Shareholders                                $ 13,013              $ 14,873           $ 15,120         $ 14,391
                                          ============================================================================
Net Income Per Common Share
       Basic                                      $ 130,130             $ 148,730          $ 151,200        $ 143,908
                                          ============================================================================
       Diluted                                    $ 130,130             $ 148,730          $ 151,200        $ 143,908
                                          ============================================================================
</TABLE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         Not Applicable.


                                       26
<PAGE>

                                    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 four
officers. The Company has no other employees.

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

<TABLE>
<CAPTION>
NAME                                        AGE                      POSITION AND OFFICES HELD
----                                        ---                      -------------------------
<S>                                         <C>               <C>
Ross M. Strickland                          50                President and Director

Harriet Munrett Wolfe                       46                Director

Gregory S. Madar                            37                Vice President and Assistant Secretary

Peter J. Swiatek                            41                Treasurer and Director

John D. Benjamin                            52                Secretary
</TABLE>

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

         Ross M.  Strickland is the President and a director of the Company.  He
is also the Executive Vice President -- Mortgage  Banking of Webster and Webster
Bank,  positions  he has held  since his  employment  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 is a director of the  Company.  She is also the
Senior 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. 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.  Prior to
joining Shawmut,  she was Associate Legal Counsel and Assistant Secretary of the
former Citytrust, Bridgeport, Connecticut.

         Gregory S. Madar is the Vice  President and Assistant  Secretary of the
Company.  He served as the  Secretary  of the  Company  from March 1997 to March
1999. He is also Senior Vice President and Assistant 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.  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.

         Peter J. Swiatek is the Treasurer and a director of the Company.  He is
also Senior Vice  President  and  Controller  of Webster Bank and  Controller of
Webster. Mr. Swiatek joined Webster in 1990 as Vice President of Accounting.  He
was  elected  Controller  of Webster  and  Webster  Bank in 1992 and Senior Vice
President of Webster Bank in 1993.  Prior to joining  Webster Bank,  Mr. Swiatek
was the Controller of the former The Bank of Hartford.

         John D.  Benjamin has served as  Secretary  of the Company  since March
1999. 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.  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.


                                       27
<PAGE>

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 officers and persons who own more than 10%
of its Series A Preferred Stock or 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, 1999, 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 four 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 will maintain corporate records and audited
financial  statements  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 intend to pay the  directors  of the Company fees
for their services as directors. Although no direct compensation will be paid by
the Company,  under the Advisory Services Agreement,  the Company will reimburse
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  has an initial term of two years,  and will be
renewed   automatically  for  additional   one-year  periods  unless  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 will be entitled to receive an advisory fee equal to
$150,000 per year with respect to the  advisory  services  provided by it to the
Company.  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


                                       28
<PAGE>

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  executive  officers  and  directors  of the Company do not own any
shares of stock in the Company or Webster Bank.

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 6 and 7 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  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  will advise the Company in the  selection  of  Mortgage  Assets,  and
provide loan  servicing  oversight.  The finance  department  will assist 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.


                                       29
<PAGE>

                                     PART IV

ITEM 14.  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, 1999 and 1998

         Statements  of Income for years ended  December 31, 1999,  1998 and the
         period from March 17, 1997 (date of inception) to December 31, 1997

         Statements of  Shareholders'  Equity for years ended December 31, 1999,
         1998 and the period from March 17, 1997 (date of inception) to December
         31, 1997

         Statements  of Cash Flows for years ended  December 31, 1999,  1998 and
         the period from March 17, 1997 (date of inception) to December 31, 1997

         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 (c)  below  for all  exhibits  filed  herewith  and  the  Index  to
         Exhibits.

(b)      Reports on Form 8-K.  Not applicable.

(c)      Exhibits.

         The following exhibits either are filed as a part of this Report or are
incorporated herein by reference:

      EXHIBIT NUMBER                            DESCRIPTION
      --------------                            -----------

            3.1         Amended and Restated  Certificate  of  Incorporation  of
                        Webster  Preferred  Capital  Corporation (the "Company")
                        (incorporated  herein by  reference  from Exhibit 3.1 to
                        the Company's  Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).

            3.2         Certificate   of  Amendment  for  the  Series  A  7.375%
                        Cumulative  Redeemable  Preferred  Stock of the  Company
                        (incorporated  herein by  reference  from Exhibit 3.2 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).

            4.1         Specimen of certificate representing the Series A 7.375%
                        Cumulative  Redeemable  Preferred  Stock of the  Company
                        (incorporated  herein by  reference  from Exhibit 4.1 to
                        the Company's Annual Report on Form 10-K for the  fiscal


                                       30
<PAGE>

                        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).

            21          Subsidiaries  of the  Company  (incorporated  herein  by
                        reference from Exhibit 21 to the Company's Annual Report
                        on Form 10-K for the  fiscal  year  ended  December  31,
                        1997).

            27          Financial Data Schedule.



(d)      There are no financial  statements  and financial  statement  schedules
         which were  excluded from this Report which are required to be included
         herein.


                                       31
<PAGE>

                                   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:
                                    --------------------------------------------
                                     Ross M. Strickland, President and Director

                                Date: March 22, 2000


         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 22, 2000.

By:
     ----------------------------------------------
       Ross M. Strickland President and Director
       (Principal Executive Officer)


By:
     ----------------------------------------------
       Peter J. Swiatek, Treasurer and Director
       (Principal Financial Officer and Principal
       Accounting Officer)


By:
     ----------------------------------------------
       Harriet Munrett Wolfe, Director


                                       32
<PAGE>

                                INDEX TO EXHIBITS

      EXHIBIT NUMBER                        DESCRIPTION
      --------------                        -----------

            3.1         Amended and Restated  Certificate  of  Incorporation  of
                        Webster  Preferred  Capital  Corporation (the "Company")
                        (incorporated  herein by  reference  from Exhibit 3.1 to
                        the Company's  Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).

            3.2         Certificate   of  Amendment  for  the  Series  A  7.375%
                        Cumulative  Redeemable  Preferred  Stock of the  Company
                        (incorporated  herein by  reference  from Exhibit 3.2 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).

            4.1         Specimen of certificate representing the Series A 7.375%
                        Cumulative  Redeemable  Preferred  Stock of the  Company
                        (incorporated  herein by  reference  from Exhibit 4.1 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).

            21          Subsidiaries  of the  Company  (incorporated  herein  by
                        reference from Exhibit 21 to the Company's Annual Report
                        on Form 10-K for the  fiscal  year  ended  December  31,
                        1997).

            27          Financial Data Schedule.


                                       33