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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q [X]
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended September 30, 2004
 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 
  Connecticut
    
    06-1478208(State or other jurisdiction of
    
    (I. R. S. Employerincorporation or organization)
    
    Identification Number)
 145 Bank Street, Waterbury, Connecticut
    
    06702(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (203) 578-2286 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 whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).


Yes [  ]     No [X]. The number of shares outstanding of each of the registrants classes of
common stock, as of October 31, 2004 is: 100 shares. 1




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WEBSTER PREFERRED CAPITAL CORPORATION  
 INDEX PagePART I  FINANCIAL INFORMATIONItem 1.Interim Financial Statements (unaudited):Statements of Condition at September 30, 2004 and December 31, 2003
    
    
    3Statements of Income for the Three and Nine Months ended September 30, 2004 and 2003
    
    
    4Statements of Comprehensive Income for the Three and Nine Months ended
September 30, 2004 and 2003
    
    
    4Statements of Cash Flows for the Nine Months ended September 30, 2004 and 2003
    
    
    5Notes to the Interim Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    13Item 4.Controls and Procedures
    
    
    14PART II  OTHER INFORMATION
    
    
    14SIGNATURE
    
    
    16EXHIBITS
    
    
    17CERTIFICATIONCERTIFICATIONCERTIFICATIONCERTIFICATION
  2




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WEBSTER PREFERRED CAPITAL CORPORATION 
 Item 1. Interim Financial Statements 
 STATEMENTS OF CONDITION
(unaudited) (Dollars in thousands, except share data)
    
    September 30, 2004
    
    December 31, 2003AssetsCash
    
    $
    5,430
    
    
    
    11,976Short-term investments
    
    
    65,000
    
    
    
    52,000Mortgage-backed securities available for sale, at fair value (Note 2)
    
    
    21,492
    
    
    
    46,116Residential mortgage loans, net (Note 3)
    
    
    445,299
    
    
    
    426,251Accrued interest receivable
    
    
    228
    
    
    
    351Prepaid expenses and other assets
    
    
    1,579
    
    
    
    1,777Total assets
    
    $
    539,028
    
    
    
    538,471Liabilities and Shareholders EquityAccrued dividends payable
    
    $
    180
    
    
    
    180Accrued expenses and other liabilities
    
    
    62
    
    
    
    56Total liabilities
    
    
    242
    
    
    
    236Shareholders EquitySeries B 8.625% cumulative redeemable preferred stock,
liquidation preference $10 per share; par value $1.00 per share;
1,000,000 shares authorized, issued and outstanding
    
    
    1,000
    
    
    
    1,000Common stock, par value $.01 per share:Authorized - 1,000 sharesIssued and outstanding - 100 shares
    
    
    1
    
    
    
    1Paid-in capital
    
    
    538,799
    
    
    
    538,799Distributions in excess of accumulated earnings
    
    
    (1,064
    )
    
    
    (2,553
    )Accumulated other comprehensive income
    
    
    50
    
    
    
    988Total shareholders equity
    
    
    538,786
    
    
    
    538,235Total liabilities and shareholders equity
    
    $
    539,028
    
    
    
    538,471
 See accompanying notes to interim financial statements. 3




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WEBSTER PREFERRED CAPITAL CORPORATION 
 STATEMENTS OF INCOME
(unaudited) Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(Dollars in thousands, except per share data)
    
    2004
    
    2003
    
    2004
    
    2003Interest income:Loans (Note 4)
    
    $
    6,167
    
    
    
    5,294
    
    
    
    17,945
    
    
    
    17,286Securities and short-term investments
    
    
    499
    
    
    
    1,049
    
    
    
    1,810
    
    
    
    4,441Total interest income
    
    
    6,666
    
    
    
    6,343
    
    
    
    19,755
    
    
    
    21,727Provision for loan losses (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest income after provision for loan losses
    
    
    6,666
    
    
    
    6,343
    
    
    
    19,755
    
    
    
    21,727Noninterest income:Gain on sale of securities (Note 2)
    
    
    184
    
    
    
    
    
    
    
    536
    
    
    
    Noninterest expense:Advisory fee to parent
    
    
    48
    
    
    
    48
    
    
    
    146
    
    
    
    146Other
    
    
    10
    
    
    
    27
    
    
    
    176
    
    
    
    89Total noninterest expense
    
    
    58
    
    
    
    75
    
    
    
    322
    
    
    
    235Net income
    
    
    6,792
    
    
    
    6,268
    
    
    
    19,969
    
    
    
    21,492Preferred stock dividends
    
    
    216
    
    
    
    216
    
    
    
    647
    
    
    
    647Net income available to common shareholder
    
    $
    6,576
    
    
    
    6,052
    
    
    
    19,322
    
    
    
    20,845Net income per common share:Basic and diluted
    
    $
    65,760
    
    
    
    60,520
    
    
    
    193,220
    
    
    
    208,450
 
 STATEMENTS OF COMPREHENSIVE INCOME
(unaudited) Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(In thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    6,792
    
    
    
    6,268
    
    
    
    19,969
    
    
    
    21,492Other comprehensive income (loss):Unrealized net holding gain (loss) on securities
available for sale arising during the period
    
    
    284
    
    
    
    (1,072
    )
    
    
    (402
    )
    
    
    (2,661
    )Reclassification adjustment for gains included
in net income
    
    
    (184
    )
    
    
    
    
    
    
    (536
    )
    
    
    Other comprehensive income (loss)
    
    
    100
    
    
    
    (1,072
    )
    
    
    (938
    )
    
    
    (2,661
    )Comprehensive income
    
    $
    6,892
    
    
    
    5,196
    
    
    
    19,031
    
    
    
    18,831
 See accompanying notes to interim financial statements. 4




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WEBSTER PREFERRED CAPITAL CORPORATION 
 STATEMENTS OF CASH FLOWS
(unaudited) Nine Months Ended September 30,(In thousands)
    
    2004
    
    2003Cash flow from operating activities:Net income
    
    $
    19,969
    
    
    
    21,492Adjustments to reconcile net income to net cash provided by
operating activities:Gain on sale of securities
    
    
    (536
    )
    
    
    Net amortization and accretion
    
    
    405
    
    
    
    755Decrease in accrued interest receivable
    
    
    123
    
    
    
    787Increase in accrued liabilities
    
    
    6
    
    
    
    143Decrease in prepaid expenses and other assets
    
    
    94
    
    
    
    175Net cash provided by operating activities
    
    
    20,061
    
    
    
    23,352Cash flow (used) provided by investing activities:Purchase of mortgage-backed securities
    
    
    
    
    
    
    (30,530
    )Principal repayments on mortgage-backed securities
    
    
    8,532
    
    
    
    74,513Purchase of loans
    
    
    (95,121
    )
    
    
    (145,517
    )Principal repayments of loans
    
    
    75,767
    
    
    
    125,828(Increase) decrease in short-term investments
    
    
    (13,000
    )
    
    
    29,500Proceeds from sale of mortgaged-backed securities
    
    
    15,600
    
    
    
    Proceeds from OREO sale
    
    
    95
    
    
    
    176Net cash (used) provided by investing activities
    
    
    (8,127
    )
    
    
    53,970Cash flow used by financing activities:Dividends paid on common and preferred stock
    
    
    (18,480
    )
    
    
    (13,488
    )Return of capital dividend
    
    
    
    
    
    
    (90,000
    )Net cash used by financing activities
    
    
    (18,480
    )
    
    
    (103,488
    )Decrease in cash and cash equivalents
    
    
    (6,546
    )
    
    
    (26,166
    )Cash and cash equivalents at beginning of period
    
    
    11,976
    
    
    
    28,292Cash and cash equivalents at end of period
    
    $
    5,430
    
    
    
    2,126Supplemental schedule of noncash transactions:Transfer of residential mortgage loans to other real estate owned
    
    $
    60
    
    
    
    97
 See accompanying notes to interim financial statements. 5




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WEBSTER PREFERRED CAPITAL CORPORATION 
 NOTES TO INTERIM FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION The accompanying interim financial statements represent the accounts of Webster
Preferred Capital Corporation (the Company or WPCC) and have been prepared
in conformity with accounting principles generally accepted in the United
States of America. The statements include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. All adjustments were of a normal recurring nature.
The results of operations for interim periods are not necessarily indicative of
the results which may be expected for the year as a whole. These interim
financial statements should be read in conjunction with the financial
statements and notes thereto included in WPCCs 2003 Annual Report on Form
10-K. NOTE 2: MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE The following table sets forth certain information regarding the
mortgage-backed securities: Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Estimated(In thousands)
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueSeptember 30, 2004Available for Sale Portfolio
    
    $
    21,442
    
    
    
    50
    
    
    
    
    
    
    
    21,492December 31, 2003Available for Sale Portfolio
    
    $
    45,128
    
    
    
    988
    
    
    
    
    
    
    
    46,116
 At September 30, 2004 and December 31, 2003, all mortgage-backed securities
available for sale were issued by government or government-sponsored agencies.
WPCC sold mortgage-backed securities with a market value of $15.6 million
during the nine months ended September 30, 2004, which resulted in a net gain
of $536,000. There were no sales during the nine months ended September 30,
2003. 6




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WEBSTER PREFERRED CAPITAL CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS(continued) NOTE 3: RESIDENTIAL MORTGAGE LOANS, NET A summary of the Companys residential mortgage loans, net, follows: (In thousands)
    
    September 30, 2004
    
    December 31, 2003Fixed-rate loans:15 yr. loans
    
    $
    60,463
    
    
    
    71,21720 yr. loans
    
    
    7,466
    
    
    
    8,26125 yr. loans
    
    
    4,063
    
    
    
    4,41430 yr. loans
    
    
    257,898
    
    
    
    190,888Total fixed-rate loans
    
    
    329,890
    
    
    
    274,780Variable-rate loans:15 yr. loans
    
    
    1,379
    
    
    
    2,35120 yr. loans
    
    
    2,298
    
    
    
    3,17625 yr. loans
    
    
    1,409
    
    
    
    1,84330 yr. loans
    
    
    110,983
    
    
    
    144,728Total variable-rate loans
    
    
    116,069
    
    
    
    152,098Total residential mortgage loans
    
    
    445,959
    
    
    
    426,878Premiums and deferred costs on loans, net
    
    
    1,362
    
    
    
    1,479Less: allowance for loan losses
    
    
    (2,022
    )
    
    
    (2,106
    )Residential mortgage loans, net
    
    $
    445,299
    
    
    
    426,251
 As of September 30, 2004, 74% of the Companys residential mortgage loans are
fixed-rate loans and 26% are adjustable-rate loans. A detail of the change in the allowance for loan losses follows: Nine Months EndedSeptember 30,(In thousands)
    
    2004
    
    2003Balance at beginning of period
    
    $
    2,106
    
    
    
    2,106Charge-offs
    
    
    84
    
    
    
    Balance at end of period
    
    $
    2,022
    
    
    
    2,106
 7




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WEBSTER PREFERRED CAPITAL CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS(continued) NOTE 4: SERVICING The mortgage loans owned by the Company are serviced by Webster Bank, National
Association (Webster Bank) pursuant to the terms of a servicing agreement.
Webster Bank is the sole holder of the Companys common stock. 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 Company estimates that the fees paid to Webster Bank for
servicing approximate fees that would be paid if the Company operated as an
unaffiliated entity. Servicing fees paid for the three and nine months ended
September 30, 2004 were $91,000 and $263,000 and for the three and nine months
ended September 30, 2003 were $72,000 and $244,000, respectively. Servicing
fees are reflected as a charge against interest income on the Statements of
Income, as they are classified as a reduction in yield to the Company. The Servicer is entitled to retain any late payment charges, prepayment fees,
penalties and assumption fees collected in connection with mortgage loans
serviced by it. The Servicer receives the benefit, if any, derived from
interest earned on collected principal and interest payments between the date
of collection and the date of remittance to the Company and from interest
earned on tax and insurance escrow funds with respect to mortgage loans
serviced by it. At the end of each calendar month, the Servicer is required to
invoice the Company for all fees and charges due to the Servicer. 8




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WEBSTER PREFERRED CAPITAL CORPORATION 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS General The Company is a subsidiary of Webster Bank and has elected to be treated as a
real estate investment trust (REIT) under the Internal Revenue Code of 1986,
as amended (the Code). The Company will generally not be subject to federal
income tax for as long as it maintains its qualification as a REIT, requiring
among other things, that it currently distribute to stockholders at least 90%
of its REIT taxable income (not including capital gains and certain items of
noncash income). The following discussion of the Companys financial condition
and results of operations should be read in conjunction with the Companys
financial statements and other financial data included elsewhere herein and in
conjunction with the Companys 2003 Annual Report on Form 10-K. Forward Looking Statements This report contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934, as amended. Actual results, performance or
developments may differ materially from those expressed or implied by such
forward-looking statements as a result of market uncertainties and other
factors. Some important factors that would cause actual results to differ from
those in any forward-looking statements include changes in interest rates and
the general economy in the Connecticut market area where a substantial portion
of the real estate securing the Companys loans are located, legislative and
regulatory changes, changes in tax laws and policies, and changes in accounting
policies, principles or guidelines. Such developments could have an adverse
impact on the Companys financial position and results of operations. An
example of such a forward-looking statement is the Quantitative and
Qualitative Disclosures About Market Risk section in Managements Discussion
and Analysis. Summary WPCCs net income increased to $6.8 million for the three months ended
September 30, 2004 from $6.3 million during the same period a year earlier but
declined to $20.0 million for the nine months ended September 30, 2004 from
$21.5 million during the same period a year earlier due to the following
factors:  
    
    For the first nine months of 2004, average earning assets
declined $38.0 million from the same period a year earlier due
to the increased level of prepayment activity and slower reinvestment
of cash flow.
However, average earning assets increased by $15.1 million for
the third quarter of 2004 compared to the year ago quarter due to the
reinvestment of accumulated cash flow through purchase of $95.1 million in mortgage loans from Webster Bank during the second quarter of 2004.
    
    The yield on earning assets declined for the nine months ended September 30, 2004 to 4.79% from 4.93% due to the low
interest rate environment in 2003 and 2004. The downward repricing of adjustable rate mortgages combined with the low
replacement yield on new mortgage assets combined to decrease the return on assets. The overall yield for the third quarter
increased due to a higher percentage of mortgage loans in the current third quarter than a year ago. Changes in Financial Condition Total assets, consisting primarily of residential mortgage loans were $539.0
million at September 30, 2004, an increase of $557,000 from $538.5 million at
December 31, 2003. Residential mortgage loans increased $19.0 million as a
result of purchases of $95.1 million in residential loans from Webster Bank
during the second quarter of 2004 partially offset by paydowns of
existing loans. These purchases were funded by cash flow on
mortgage related assets and the sale of securities. Mortgage-backed
securities decreased $24.6 million due to the sale of
$15.6 million of securities during 2004, as well as monthly
principal repayments. Shareholders equity
increased to $538.8 million at September 30, 2004 from $538.2 million at
December 31, 2003, due primarily to the net income earned during for the first
nine months of 2004. Asset Quality The Company maintains asset quality by investing in residential real estate
loans that have been conservatively underwritten and by aggressively managing
nonperforming assets. At September 30, 2004, residential real estate loans
comprised the entire loan portfolio. All such residential loans were purchased
from Webster Bank. The Company also invests in government agency or
government-sponsored agency issued mortgage-backed securities and short-term
jumbo CDs. 9




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WEBSTER PREFERRED CAPITAL CORPORATION MANAGEMENTS DISCUSSION AND ANALYSIS(continued) The following table details the Companys nonperforming assets: September 30,
    
    December 31,(In thousands)
    
    2004
    
    2003Loans accounted for on a nonaccrual basis:Residential fixed-rate loans
    
    $
    582
    
    
    
    185Residential variable-rate loans
    
    
    
    
    
    
    173Total nonperforming loans
    
    
    582
    
    
    
    358Other real estate owned
    
    
    
    
    
    
    104Total nonperforming assets
    
    $
    582
    
    
    
    462
 At September 30, 2004 and December 31, 2003, the allowance for loan losses was
approximately $2.0 million and $2.1 million, respectively, or 347% and 588% of
nonperforming loans, respectively. The balance at September 30, 2004
represents one loan, which was paid off on October 1, 2004. Management believes that the allowance for
loan losses is adequate to cover probable losses inherent in the current
portfolio. Liquidity and Capital Resources The primary sources of liquidity for the Company are principal and interest
payments from the residential mortgage loans and mortgage-backed securities
portfolios. The primary uses of liquidity are purchases of residential
mortgage loans and mortgage-backed securities and the payment of dividends on
the common and preferred stock. While scheduled loan amortization, maturing securities, short-term investments
and securities repayments are predictable sources of funds, loan and
mortgage-backed security prepayments can vary greatly and are influenced by
factors such as general interest rates, economic conditions and competition.
One of the inherent risks of investing in loans and mortgage-backed securities
is the ability of such instruments to incur prepayments of principal prior to
maturity at prepayment rates different than those estimated at the time of
purchase. The principal factor affecting these prepayments is changes in market
interest rates. In the unlikely event that principal and interest payments on its mortgage
assets are insufficient to meet its operating needs, WPCC has the ability to
raise additional funds. WPCCs mortgage-backed securities, which total $21.5
million, would supply adequate collateral for borrowings through repurchase
agreements. In addition, its residential mortgage loans are underwritten to
meet secondary market requirements and could easily be sold or securitized as
mortgage-backed securities and used as borrowing collateral. Asset/Liability Management The goal of the Companys asset/liability management policy is to manage
interest rate risk so as to maximize net interest income over time in changing
interest rate environments while maintaining acceptable levels of market risk.
The Company prepares estimates of the level of prepayments and the effect of
such prepayments on the level of future earnings due to reinvestment of funds
at rates different than those that currently exist. The Company is unable to
predict future fluctuations in interest rates. The market values of the
Companys financial assets are sensitive to fluctuations in market interest
rates. The market values of fixed-rate loans and mortgage-backed securities
tend to decline in value as 10




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WEBSTER PREFERRED CAPITAL CORPORATION MANAGEMENTS DISCUSSION AND ANALYSIS(continued) interest rates rise. If interest rates decrease, the market value of loans and
mortgage-backed securities generally will tend to increase with the level of
prepayments also normally increasing. The interest income earned on the
Companys variable-rate interest-sensitive instruments, which are primarily
variable-rate mortgage loans, may change due to changes in quoted interest rate
indices. The variable-rate mortgage loans generally reprice based on a stated
margin over U.S. Treasury Securities indices of varying maturities, the terms
of which are established at the time that the loan is closed. At September 30,
2004, 26% of the Companys residential mortgage loans were variable-rate loans. Results of Operations For the three and nine months ended September 30, 2004, the Company reported
net income of $6.8 million and $20.0 million, compared to the three and nine
months ended September 30, 2003 which amounted to $6.3 million and $21.5
million, respectively. The following table shows the major categories of average interest-earning
assets, together with their respective interest income and the rates earned by
the Company: Three Months Ended
    
    Three Months EndedSeptember 30, 2004
    
    September 30, 2003Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    Average(In thousands)
    
    Balance
    
    Income
    
    Yield
    
    Balance
    
    Income
    
    YieldMortgage loans
    
    $
    465,071
    
    
    
    6,167
    
    
    
    5.30
    %
    
    $
    388,691
    
    
    
    5,294
    
    
    
    5.45
    %Mortgage-backed securities (a)
    
    
    23,605
    
    
    
    281
    
    
    
    4.76
    
    
    
    68,305
    
    
    
    851
    
    
    
    4.98Short-term investments
    
    
    62,043
    
    
    
    218
    
    
    
    1.41
    
    
    
    78,647
    
    
    
    198
    
    
    
    1.01Total
    
    $
    550,719
    
    
    
    6,666
    
    
    
    4.84
    %
    
    $
    535,643
    
    
    
    6,343
    
    
    
    4.74
    %
 Nine Months Ended
    
    Nine Months EndedSeptember 30, 2004
    
    September 30, 2003Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    Average(In thousands)
    
    Balance
    
    Income
    
    Yield
    
    Balance
    
    Income
    
    YieldMortgage loans
    
    $
    450,768
    
    
    
    17,945
    
    
    
    5.31
    %
    
    $
    407,112
    
    
    
    17,286
    
    
    
    5.66
    %Mortgage-backed securities (a)
    
    
    33,081
    
    
    
    1,249
    
    
    
    5.03
    
    
    
    89,176
    
    
    
    3,679
    
    
    
    5.50Short-term investments
    
    
    65,819
    
    
    
    561
    
    
    
    1.14
    
    
    
    91,392
    
    
    
    762
    
    
    
    1.11Total
    
    $
    549,668
    
    
    
    19,755
    
    
    
    4.79
    %
    
    $
    587,680
    
    
    
    21,727
    
    
    
    4.93
    %
 (a) Unrealized net gains are excluded from average balance The decline in interest income for the current nine month period of $2.0
million, or 9.1%, as compared to a year earlier was due to a reduction in
earning assets due to repayment of mortgage assets as well as a decline in the
yield on earning assets. Due to the low interest rate environment during 2003
and 2004, mortgage prepayments accelerated. Those repayments were reinvested
into assets earning a lower yield. The Company also returned capital to its
common stockholder in the second quarter of 2003. For the third quarter of 2004, interest income increased $323,000, or 5.1%, as
compared to the same period a year earlier. The increase is due chiefly to a
larger volume of earning assets, especially the higher yielding mortgage loans. WPCC
purchased $95.1 million of mortgage loans from Webster Bank during the second
quarter of 2004. Interest income also can be understood in terms of the impact of changing rates
and changing volumes. The following table describes the extent to which
changes in interest rates and changes in volume of interest-earning assets have
impacted interest income during the periods indicated. 11




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WEBSTER PREFERRED CAPITAL CORPORATION MANAGEMENTS DISCUSSION AND ANALYSIS(continued) Information is provided in each category with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) changes attributable to changes in rates (changes in rates multiplied by
prior volume) and (iii) the net change. The change attributable to the
combined impact of volume and rate has been allocated proportionately to the
change due to volume and the change due to rate. Three Months Ended September 30,
    
    Nine Months Ended September 30,2004 v. 2003
    
    2004 v. 2003Increase (Decrease) due to
    
    Increase (Decrease) due to(In thousands)
    
    Rate
    
    Volume
    
    Total
    
    Rate
    
    Volume
    
    TotalInterest on interest-earning assets:Mortgage loans
    
    $
    (148
    )
    
    
    1,021
    
    
    
    873
    
    
    $
    (663
    )
    
    
    1,322
    
    
    
    659Mortgage-backed securities
    
    
    (36
    )
    
    
    (534
    )
    
    
    (570
    )
    
    
    (291
    )
    
    
    (2,139
    )
    
    
    (2,430
    )Short-term investments
    
    
    68
    
    
    
    (48
    )
    
    
    20
    
    
    
    7
    
    
    
    (208
    )
    
    
    (201
    )Net change in fully taxable-equivalent
net interest income
    
    $
    (116
    )
    
    
    439
    
    
    
    323
    
    
    $
    (947
    )
    
    
    (1,025
    )
    
    
    (1,972
    )
 There were no provisions for loan losses for the three and nine months ended
September 30, 2004 and 2003. There were sales of mortgage-backed securities with a market value of $15.6
million for the nine months ended September 30, 2004 resulting in a net gain of
$536,000. There were no sales of mortgage-backed securities for the nine months
ended September 30, 2003. 12




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##### Table of Contents



WEBSTER PREFERRED CAPITAL CORPORATION 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following table summarizes the estimated market value of the Companys
interest-sensitive assets at September 30, 2004 and December 31, 2003 and the
projected change to market values if interest rates instantaneously increase or
decrease by 100 basis points. Estimated Market Value Impact(In thousands)
    
    Amortized Cost
    
    Market Value
    
    -100 BP
    
    +100 BPAt September 30, 2004Interest sensitive assets:Mortgage-backed securities
    
    $
    21,442
    
    
    
    21,492
    
    
    
    484
    
    
    
    (661
    )Variable-rate residential loans
    
    
    116,069
    
    
    
    116,090
    
    
    
    1,621
    
    
    
    (1,759
    )Fixed-rate residential loans
    
    
    329,890
    
    
    
    335,464
    
    
    
    8,523
    
    
    
    (13,826
    )Total
    
    
    
    
    
    
    
    
    
    $
    10,628
    
    
    
    (16,246
    )At December 31, 2003Interest sensitive assets:Mortgage-backed securities
    
    $
    45,128
    
    
    
    46,116
    
    
    
    1,138
    
    
    
    (1,513
    )Variable-rate residential loans
    
    
    152,098
    
    
    
    152,310
    
    
    
    2,448
    
    
    
    (2,545
    )Fixed-rate residential loans
    
    
    274,780
    
    
    
    284,081
    
    
    
    6,771
    
    
    
    (10,852
    )Total
    
    
    
    
    
    
    
    
    
    $
    10,357
    
    
    
    (14,910
    )
 Interest-sensitive assets, when impacted by an instantaneous 100 basis point
rate decrease results in a projected increase in net market value of $10.6
million at September 30, 2004 compared to a projected increase of $10.4 million
at December 31, 2003. These changes in net market value represent 2.2% of
interest-sensitive assets at September 30, 2004 and 2.1% at December 31, 2003.
Interest-sensitive assets, when impacted by an instantaneous 100 basis point
rate increase results in a projected decrease in net market value of $16.2
million at September 30, 2004 compared to a projected decrease of $14.9 million
at December 31, 2003. These changes in net market value represent 3.4% of
interest-sensitive assets at September 30, 2004 and 3.1% at December 31, 2003.
Changes in the projected net market value due to the instantaneous rate changes
when comparing such amounts at September 30, 2004 and December 31, 2003 are a
result of changes in outstanding balances of the assets, and do not represent a
significant change since year end. Based on the asset/liability mix at September 30, 2004, simulation analyses
project that a gradual 200 basis point increase in interest rates over a 12
month period would increase net income over that period by approximately 3.6%.
A gradual 100 basis point decrease in interest rates is projected to decrease
net income by approximately 2.4%. In particular, the Companys interest rate sensitive assets are subject to
prepayment risk. Prepayment risk is inherently difficult to estimate and is
dependent upon a number of economic, financial and behavioral variables. The
Company uses a sophisticated mortgage prepayment modeling system to estimate
prepayments and the corresponding impact on market value and net interest
income. The model uses information that includes the instrument type, coupon
spread, loan age and other factors in its projections. These assumptions are inherently uncertain and, as a result, the simulation
analyses cannot precisely estimate the impact that higher or lower rate
environments will have on net interest income. Actual results will differ from
simulated results due to timing, magnitude and frequency of interest rate
changes, changes in cash flow patterns and market conditions, as well as
changes in managements strategies. Management believes that the Companys
interest rate risk position at September 30, 2004, represents a reasonable
level of risk. 13




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##### Table of Contents



WEBSTER PREFERRED CAPITAL CORPORATION 
 Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Companys management, including the Principal Executive Officer and
Principal Financial Officer, evaluated the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) (the Exchange Act) as of the end of the period covered by this
report. Based upon that evaluation, the Companys management, including the
Principal Executive Officer and Principal Financial Officer concluded that the
Companys disclosure controls and procedures were effective in alerting them in
a timely manner to any material information relating to the Company required to
be included in the Companys Exchange Act filings. Changes in Internal Controls There were no changes made in the Companys internal controls over financial
reporting that occurred during the Companys most recent fiscal quarter that
has materially affected or is reasonably likely to materially affect, the
Companys internal controls over financial reporting. 
 PART II  OTHER INFORMATION Item 1. Legal Proceedings There are no material pending legal proceedings, other than ordinary routine
litigation incident to the registrants business, to which the Company is a
party or of which any of its property is subject. Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds Not Applicable. Item 3. Default Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. Item 5. Other Information Not Applicable 14




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##### Table of Contents



Item 6. Exhibits Exhibit Number
    
    Description3.1
    
    Amended and Restated Certificate of
Incorporation of Webster Preferred Capital Corporation (the
Company) (incorporated herein by reference from
Exhibit 3.1 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 1997).3.3
    
    Certificate of Amendment for the
Series B 8.625% Cumulative Redeemable Preferred Stock of the
Company (incorporated herein by reference from Exhibit 3.3 to
the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 1997).3.4
    
    Amended and Restated By-Laws of the
Company (incorporated herein by reference from Exhibit 3.4 to
the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 1997).4.2
    
    Specimen of certificate
representing the Series B 8.625% Cumulative Redeemable Preferred
Stock of the Company (incorporated herein by reference from
Exhibit 4.2 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 1997).31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, signed by the Companys Principal Executive
Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, signed by the Companys Principal Financial
Officer.32.1
    
    Written Statement pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, signed by the Companys
Principal Executive Officer.32.2
    
    Written Statement pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, signed by the Companys
Principal Financial Officer.
 15




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##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. WEBSTER PREFERRED CAPITAL CORPORATIONRegistrantBY:
    
    /s/ Gregory S. MadarGregory S. Madar,Senior Vice President,Treasurer & Assistant SecretaryPrincipal Financial and Accounting OfficerDate: November 5, 2004
 16