UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]  Quarterly  Report  Pursuant  to Section 13 or 15(d) of the  Securities
             Exchange Act of 1934 For the Quarter Ended June 30, 1998

                                       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 No.)


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 [ ]

      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>
                                      INDEX

<TABLE>
                                                                               PAGE NO.
                                                                               --------
<S>                                                                               <C>
PART I - FINANCIAL INFORMATION

Statements of Condition at June 30, 1998 and December 31, 1997                      3

Statements  of Income for the Three Months Ended June 30, 1998 and June 30, 1997
and for the Six Months Ended June 30, 1998 and the Period from March 17, 1997
(Date of Inception) to June 30, 1997                                                4

Statements of Cash Flows for the Six Months Ended June 30, 1998 and the Period
from March 17, 1997 (Date of Inception) to June 30, 1997                            5

Condensed Notes to Financial Statements                                             6

Management's Discussion and Analysis of Financial Statements                       10

Quantitative and Qualitative Disclosures About Market Risk                         15


PART II - OTHER INFORMATION                                                        16


SIGNATURES                                                                         17


INDEX TO EXHIBITS                                                                  18
</TABLE>

                                        2

<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF CONDITION (unaudited)
(Dollars in Thousands, except share data)
<TABLE>
<CAPTION>
                                                                                June 30,            December 31,
         Assets                                                                   1998                  1997
------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                    <C>      
Cash                                                                            $ 27,611               $  26,167
Mortgage-Backed Securities Available for Sale (Note 2)                           171,822                 120,090
Residential Mortgage Loans, Net (Note 3)                                         753,818                 635,634
Accrued Interest Receivable                                                        5,352                   4,525
Other Real Estate Owned                                                               86                       -
Prepaid Expenses and Other Assets                                                  1,050                   1,145
------------------------------------------------------------------------------------------------------------------
                Total Assets                                                    $959,739                $787,561
==================================================================================================================

Liabilities and Shareholders' Equity
------------------------------------------------------------------------------------------------------------------
Accrued Dividends Payable                                                       $    794                $    491
Accrued Expenses and Other Liabilities                                               610                     418
------------------------------------------------------------------------------------------------------------------
                Total Liabilities                                                  1,404                     909
==================================================================================================================

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                                                             888,799                 745,957
     Retained Earnings                                                            27,516                       -
     Distributions in Excess of Accumulated Earnings                                   -                    (370)
     Accumulated Other Comprehensive Income                                        1,019                      64
------------------------------------------------------------------------------------------------------------------
                Total Shareholders' Equity                                       918,335                 746,652
------------------------------------------------------------------------------------------------------------------
                Total Liabilities and Shareholders' Equity                      $959,739                $787,561
==================================================================================================================
</TABLE>

See accompanying condensed notes to financial statements

                                        3
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF INCOME (unaudited)
(Dollars in Thousands, except share data)

<TABLE>
<CAPTION>
                                                                      Three           Three            Six        For the Period
                                                                      Months          Months         Months        From March 17,
                                                                      Ended           Ended          Ended         1997 (Date of
                                                                     June 30,        June 30,       June 30,        Inception) to
                                                                       1998            1997           1998          June 30, 1997
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>           <C>              <C>     
Interest Income:
Loans                                                                $ 13,140         $11,767       $ 25,114        $ 13,613
Securities                                                              2,895               -          5,075               -
----------------------------------------------------------------------------------------------------------------------------------
       Total Interest Income                                           16,035          11,767         30,189          13,613
----------------------------------------------------------------------------------------------------------------------------------
Provision For Loan Losses                                                   -               -              -               -

----------------------------------------------------------------------------------------------------------------------------------
Interest Income After Provision for Loan Losses                        16,035          11,767         30,189          13,613
----------------------------------------------------------------------------------------------------------------------------------

Noninterest Expenses:
Advisory Fee Expense Paid to Parent                                        38              39             75              52
Dividends on Mandatorily Redeemable Preferred
Stock                                                                     738               -          1,475               -
Amortization of Start-Up Costs                                            137               5            259               5
Other Noninterest Expenses                                                 33               1             63               2
----------------------------------------------------------------------------------------------------------------------------------
       Total Noninterest Expenses                                         946              45          1,872              59
----------------------------------------------------------------------------------------------------------------------------------

Income Before Taxes                                                    15,089          11,722         28,317          13,554
Income Taxes                                                                -               -              -               -
----------------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                             15,089          11,722         28,317          13,554
Preferred Stock Dividends                                                 216              50            431              58
----------------------------------------------------------------------------------------------------------------------------------

Net Income Available to Common Shareholder                          $  14,873       $  11,672       $ 27,886        $ 13,496
==================================================================================================================================

Net Income Per Common Share:
           Basic                                                    $ 148,730       $ 116,720       $278,860        $134,960
           Diluted                                                  $ 148,730       $ 116,720       $278,860        $134,960
==================================================================================================================================
</TABLE>

See accompanying condensed notes to financial statements

                                                                 
                                       4
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                        Period from
                                                                                     March 17, 1997
                                                               Six Months Ended      (Date of Inception)
                                                                 June 30, 1998        to June 30, 1997
-----------------------------------------------------------------------------------------------------------
<S>                                                                <C>                  <C>     
OPERATING ACTIVITIES:
Net Income                                                         $28,317                 $13,554
Adjustments to Reconcile Net Cash Provided (Used) by
Operating Activities:
Accretion of Securities Discount                                    (1,021)                      -
Amortization of Deferred Fees and Premiums                            (196)                    149
Increase in Accrued Interest Receivable                               (827)                 (3,751)
Increase in Accrued Liabilities                                      1,668                     216
Increase in Prepaid Expenses and Other Assets                           95                    (107)
---------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                           28,036                  10,061
---------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
Purchase of Securities                                             (51,682)                      -
Principal Collected on Securities                                    1,927                       -
Purchase of Loans                                                 (213,655)                (25,028)
Principal Repayments of Loans, Net                                  95,580                  28,381
--------------------------------------------------------------------------------------------------------
Net Cash (Used) Provided by Investing Activities                  (167,830)                  3,353
--------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
Dividends Paid on  Common and Preferred Stock                       (1,603)                      -
Contributions from Webster Bank                                    142,841                       1
--------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                          141,238                       1
--------------------------------------------------------------------------------------------------------

Increase in Cash and Cash Equivalents                                1,444                  13,415
Cash and Cash Equivalents at Beginning of Period                    26,167                       -
--------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period                        $ 27,611                 $13,415
--------------------------------------------------------------------------------------------------------

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

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITY:
     Transfer of Residential Mortgage Loans to Other Real
           Estate Owned                                                110                       -
     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
</TABLE>

See accompanying condensed notes to financial statements

                                        5
<PAGE>
Webster Preferred Capital Corporation
CONDENSED NOTES TO FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying  financial 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 the three and six month  periods  ended June 30,
1998 are not necessarily indicative of the results which may be expected for the
year as a whole.  These financial  statements should be read in conjunction with
the financial  statements  and notes thereto  included in the Webster  Preferred
Capital Corporation 1997 Annual Report to shareholders.

NOTE 2 - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

In November 1997 and March 1998,  Webster Bank  contributed  $120.4  million and
$51.8 million,  respectively,  in cash to Webster Preferred Capital  Corporation
(the  "Company"),  which  was  used to  purchase  Government  National  Mortgage
Association ("GNMA")  mortgage-backed  securities and Fannie Mae mortgage-backed
securities.  The  following  table  sets  forth  certain  information  regarding
mortgage-backed securities:


<TABLE>
<CAPTION>
(In Thousands)                                          Mortgage-Backed Securities
---------------------------------------------------------------------------------------------------------
                                          Recorded     Unrealized         Unrealized            Estimated
June 30, 1998                                Value       Gains              Losses             Fair Value
---------------------------------------------------------------------------------------------------------
<S>                                   <C>                <C>                <C>                 <C>      
Available for Sale Portfolio          $    170,803       $     1,019        $         -         $ 171,822
---------------------------------------------------------------------------------------------------------


---------------------------------------------------------------------------------------------------------
                                          Recorded     Unrealized         Unrealized            Estimated
December 31, 1997                            Value        Gains             Losses             Fair Value
---------------------------------------------------------------------------------------------------------
Available for Sale Portfolio           $   120,026       $         64       $         -         $ 120,090
---------------------------------------------------------------------------------------------------------
</TABLE>


All mortgage-backed securities have a contractual maturity of over 10 years. The
weighted  average  yield at June 30, 1998 is 6.76%.  Although  the stated  final
maturity of these  obligations  are  long-term,  the  weighted  average  life is
generally much shorter due to scheduled  repayments and prepayments.  There were
no sales of  mortgage-backed  securities  for the  period  from  January 1, 1998
through June 30, 1998.

                                        6


<PAGE>
Webster Preferred Capital Corporation

CONDENSED NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 3 - RESIDENTIAL MORTGAGE LOANS, Net


A summary of the Company's residential mortgage loans, net, follows:

<TABLE>
<CAPTION>
                                                             June 30,         December 31,
                                                              1998                 1997
------------------------------------------------------------------------------------------
                                                             Carrying            Carrying
(In Thousands)                                                 Amount              Amount
------------------------------------------------------------------------------------------
<S>                                                           <C>                  <C>    
Fixed-Rate Loans:
         Fixed Rate 15 yr. Loans                               $101,166             $59,631
         Fixed Rate 20 yr. Loans                                  1,963               1,636
         Fixed Rate 25 yr. Loans                                  1,330                 813
         Fixed Rate 30 yr. Loans                                170,154             161,884
-------------------------------------------------------------------------------------------
              Total Fixed-Rate Loans                            274,613             223,964
--------------------------------------------------------------------------------------------
Variable-Rate Loans:
         Variable Rate 15 yr. Loans                               6,203               4,896
         Variable Rate 20 yr. Loans                               4,993               4,004
         Variable Rate 25 yr. Loans                               8,511               8,553
         Variable Rate 30 yr. Loans                             457,790             393,924
--------------------------------------------------------------------------------------------
               Total Variable-Rate Loans                        477,497             411,377
--------------------------------------------------------------------------------------------

        Total Residential Mortgage Loans                       $752,110            $635,341
--------------------------------------------------------------------------------------------
         Premiums and Deferred Fees on Loans, Net                 3,090               1,831
        Less Allowance for Loan Losses                           (1,382)             (1,538)
--------------------------------------------------------------------------------------------

               Residential Mortgage Loans, Net                 $753,818            $635,634
--------------------------------------------------------------------------------------------
</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, $401.3 million of variable rate
loans, net of premiums, deferred fees on loans and an allowance for loan losses.
In April  1998 and May  1998,  Webster  Bank  contributed  $50  million  and $41
million,  respectively,  to the Company,  which was used to purchase  additional
residential mortgage loans.

NOTE 4 - MANDATORILY REDEEMABLE PREFERRED STOCK

On December 24, 1997, the Company raised $40 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.

                                        7


<PAGE>
Webster Preferred Capital Corporation

CONDENSED NOTES TO FINANCIAL STATEMENTS (continued)

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 a tax
event,  and at any time on and after January 15, 1999 through  January 14, 2001,
the Series A Preferred Shares may be redeemed at the option of the Company.

NOTE 5 - CAPITAL STRUCTURE

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.

Dividends  on the Series B 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.

NOTE 6 - COMPREHENSIVE INCOME

The Company adopted the provisions of Statement of Financial Accounting Standard
("SFAS") No. 130, "Reporting  Comprehensive  Income" as of 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 of
reporting  comprehensive  income is to report a measure of all changes in equity
of an enterprise  that result from  recognized  transactions  and other economic
events of the period other than  transactions  with owners in their  capacity as
owners.  Application of SFAS No. 130 will not impact amounts previously reported
for net  income or affect  the  comparability  of  previously  issued  financial
statements.

The following table summarizes  comprehensive  income for the three months ended
June 30, 1998 and June 30,  1997 and the six months  ended June 30, 1998 and for
the period from March 17, 1997 (date of inception) to June 30, 1997:


<TABLE>
<CAPTION>
(In Thousands)                                        Three         Three                       For the Period from
                                                      Months        Months        Six Months         March 17, 1997
                                                    Ended June    Ended June      Ended June    (Date of Inception)
                                                     30, 1998      30, 1997        30, 1998        to June 30, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>              <C>                 <C>    
Net Income                                           $15,089        $11,722          $28,317             $13,554
Other Comprehensive Income
       Unrealized gains (losses) on securities           (64)             -              955                   -
-------------------------------------------------------------------------------------------------------------------
       Total Comprehensive Income                    $15,025        $11,722          $29,272             $13,554
-------------------------------------------------------------------------------------------------------------------
</TABLE>


                                        8
<PAGE>
Webster Preferred Capital Corporation

CONDENSED NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 7 - ACCOUNTING STANDARDS

In June 1997, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement  establishes  standards  for  the  method  in  which  public  business
enterprises  report  information  about operating  segments in annual  financial
statements and requires that those enterprises report selected information about
operating  segments in interim  reports issued to  shareholders.  This statement
requires that public business  enterprises  report  quantitative and qualitative
information  about its reportable  segments,  including profit or loss,  certain
specific revenue and expense items and segment assets.  This SFAS does not apply
to the Company since the Company has only one reportable operating segment.

In April  1998,  the  AICPA  Accounting  Standards  Executive  Committee  issued
Statement of Position 98-5,  Reporting on the Costs of Start-up Activities ("SOP
98-5").  SOP 98-5 is  applicable to all  non-governmental  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 the SOP should be as of the
beginning  of the  fiscal  year  in  which  the  SOP is  first  adopted  and the
unamortized portion of previously  capitalized  start-up costs should be written
off and reported as the cumulative  effect of a change in accounting  principle.
The Company  does expect the  adoption of SOP 98-5 to have a material  impact on
its operations.











                                        9


<PAGE>
Webster Preferred Capital  Corporation

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS

GENERAL

Webster Preferred Capital Corporation (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,  March
1998, April 1998, and May 1998,  Webster Bank contributed  approximately  $120.4
million,  $51.8 million,  $50 million,  and $41 million,  respectively,  in cash
which the Company used to purchase  mortgage-backed  securities and  residential
mortgage loans.  Total assets at June 30, 1998 were $959.7  million,  consisting
primarily of residential mortgage loans 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 (the "Code"),  and will generally not be
subject to federal income tax for as long as it maintains its  qualifications 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).  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.

During the second  quarter,  the Board of  Directors  of the Company  authorized
management of the Company to pursue a voluntary dissolution.  However, no action
in that regard has been taken by the Company,  pending the evaluation of Webster
Bank, as well as the Company. Any such voluntary dissolution would be subject to
applicale provisions of Connecticut law (e.g., receipt of stockholder  approval)
as well as the  terms of the  Copany's  Series A  7.375%  Cumulative  Redeemable
Preferred  Stock,  par value $1.00 per share,  and the Company's Series B 8.625%
Cumulative  Redeemable  Preferred Stock, par value $1.00 per share. 

In May  1998,  legislation  was  passed in  Connecticut  that  allows  financial
institutions  to  establish   Mortgage   Passive   Investment   Company  ("PIC")
subsidiaries beginning in 1999. The use of a PIC subsidiary by Connecticut-based
financial  institutions  such as  Webster  Bank,  can  significantly  reduce  or
eliminate state income tax expense of such financial institutions.  Webster Bank
will evaluate the benefits,  if any, of the  establishment of a PIC. The ability
to form a PIC is an  alternative to Webster Bank  increasing or maintaining  its
investment in the Company.

CHANGES IN FINANCIAL CONDITION

         Total  assets  were  $959.7  million at June 30,  1998,  an increase of
$172.1  million from $787.6  million at December 31, 1997. The increase in total
assets is primarily  attributable to the purchase of additional  mortgage-backed
securities  of $51.7  million  and to the  purchase  of  additional  residential
mortgage loans of $213.7 million,  offset by loan repayments of $95 million. The
increases were funded by contributions from Webster Bank and net earnings. Total
net  foreclosed  properties  were  $86,000  at  June  30,  1998.  There  were no
foreclosed  properties  at December  31, 1997.  Shareholders'  equity was $918.3
million at June 30, 1998 and $746.7 million at December 31, 1997.

ASSET QUALITY

The Company  maintains asset quality by acquiring  residential real estate loans
that have been  conservatively  underwritten,  aggressively  managing nonaccrual
assets and maintaining adequate reserve coverage. At June 30, 1998,  residential
real estate loans comprised the entire loan portfolio.  The Company also invests
in highly rated mortgage-backed securities.

                                      10


<PAGE>
Webster Preferred Capital  Corporation

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)

The aggregate  amount of nonaccrual  loans was  $1,015,777 at June 30, 1998. The
following table details the Company's nonaccrual assets:

<TABLE>
<CAPTION>
                                                          At June 30,     At December 31,
(In Thousands)                                                1998              1997
--------------------------------------------------------------------------------------------
<S>                                                      <C>                <C>      
Loans Accounted for on a Nonaccrual Basis:
      Residential Fixed-Rate Loans                       $   104            $     158
      Residential Variable-Rate Loans                        911                1,145
--------------------------------------------------------------------------------------------
            Total Nonaccrual Loans                         1,015                1,303
      Residential Foreclosed Properties                       86                    -
--------------------------------------------------------------------------------------------
           Total Nonaccrual Assets                       $ 1,101            $   1,303
============================================================================================
</TABLE>


At June 30,  1998 the  allowance  for loan losses was $1.4  million,  or 136% of
nonaccrual loans and 126% of total nonaccrual assets.  Management  believes that
the  allowance  for loan  losses is  adequate  to cover  expected  losses in the
portfolio.

The net decrease in  nonaccrual  assets of $203,000 at June 30, 1998 as compared
to the December 31, 1997 balance is due primarily to the reduction of nonaccrual
loans.

A detail of the change in the allowance for loan losses for the six months ended
June 30, 1998 follows:

(In Thousands)                                     At June 30, 1998
---------------------------------------------------------------------
Balance at Beginning of Period                        $  1,538
Provisions Charged to Operations                             -
Charge-offs                                               (157)
Recoveries                                                   1
---------------------------------------------------------------------
Balance at End of Period                              $  1,382
=====================================================================


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 June  30,  1998,  63.5%  of the
Company's  residential  mortgage  loans were  variable  rate loans.  The Company
believes these  residential  mortgage loans are less likely to incur prepayments
of principal.

                                       11


<PAGE>
Webster Preferred Capital  Corporation

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)

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  of  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,
contributions from Webster Bank and dividend payments.

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 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
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.

                                       12


<PAGE>
Webster Preferred Capital  Corporation

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)

RESULTS OF OPERATIONS

GENERAL

The Company  reported net income of $28.3 million,  or $278,860 per common share
on a diluted  basis for the six months  ended  June 30,  1998,  compared  to net
income of $13.6 million, or $134,960 per common share on a diluted basis for the
period from March 17, 1997 (date of inception) to June 30, 1997.

NET INTEREST INCOME

Total interest income for the six months ended June 30, 1998 and the period from
March 17, 1997 (date of inception)  to June 30, 1997 amounted to $30.2  million,
and $13.6 million,  respectively. The following table shows the major categories
of average  interest-earning  assets,  their respective  interest income and the
rates earned by the Company:

<TABLE>
<CAPTION>
                                    THREE MONTHS ENDED JUNE 30, 1998           THREE MONTHS ENDED JUNE 30, 1997
-----------------------------------------------------------------------------------------------------------------
                                   Average       Interest        Average        Average    Interest      Average
(In Thousands)                     Balance         Income          Yield        Balance     Income         Yield
-----------------------------------------------------------------------------------------------------------------
<S>                               <C>             <C>              <C>         <C>          <C>             <C>  
Mortgage Loans                    $750,944        $13,140          7.00%       $623,575     $11,767         7.56%
Mortgage-Backed Securities         172,233          2,882          6.69%              -           -             -
Interest Bearing Deposits              929             13          5.60%              -           -             -
-----------------------------------------------------------------------------------------------------------------
     Total                        $924,106        $16,035          6.94%       $623,575     $11,767         7.56%
=================================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                        THE PERIOD FROM MARCH 17, 1997 (DATE
                                   SIX MONTHS ENDED JUNE 30, 1998          OF INCEPTION) TO JUNE 30, 1997
------------------------------------------------------------------------------------------------------------
                                 Average     Interest       Average        Average      Interest     Average
(In Thousands)                   Balance       Income         Yield        Balance        Income       Yield
------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>             <C>         <C>            <C>           <C>  
Mortgage Loans                  $706,022      $25,114         7.11%       $364,711       $13,613       7.48%
Mortgage-Backed Securities       150,902        5,033         6.64%              -             -           -
Interest Bearing Deposits          1,454           42         5.78%              -             -           -
------------------------------------------------------------------------------------------------------------
     Total                      $858,378      $30,189         7.03%       $364,711       $13,613       7.48%
============================================================================================================
</TABLE>


                                       13
<PAGE>
Webster Preferred Capital  Corporation

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)

PROVISION FOR LOAN LOSSES

There were no provisions  for loan losses for the six months ended June 30, 1998
or the period from March 17, 1997 (date of inception) to June 30, 1997.

NONINTEREST EXPENSES

Noninterest  expenses for the six months ended June 30, 1998 and the period from
March 17, 1997 (date of inception)  to June 30, 1997 amounted to $1,872,000  and
$59,000,  respectively,  and  included  advisory  fees,  dividends  on  Series A
Preferred Stock, and amortization of start-up costs.

INCOME TAXES

No income tax expense was recorded for the six months ended June 30, 1998 or the
period from March 17, 1997 (date of inception) to June 30, 1997.

                                       14


<PAGE>
Webster Preferred Capital  Corporation

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 June 30, 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
                                                    Book         Market    ---------------------------
(In Thousands)                                      Value        Value      -100 BP      +100 BP
-------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>            <C>        <C>     
Interest-Sensitive Assets:
     Mortgage-Backed Securities                    $170,803     $171,822       $3,430     $(5,334)
     Variable-Rate Residential Mortgage Loans       477,497      487,237        5,089      (7,225)
     Fixed-Rate Residential Mortgage Loans          274,613      281,475        3,999      (8,997)
Interest-Sensitive Liabilities:
     Series A Preferred Stock                        40,000       39,168        1,455      (2,425)
--------------------------------------------------------------------------------------------------------
</TABLE>


                                       15
<PAGE>
Webster Preferred Capital Corporation

                           PART II - OTHER INFORMATION


Item 1.  LEGAL PROCEEDINGS  - Not Applicable

Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS  -  Not Applicable

Item 3.  DEFAULTS UPON SENIOR SECURITIES  -  Not Applicable

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

              The Company  held an annual  meeting of  stockholders  on April 7,
         1998. Each of the Company's three directors,  John V. Brennan,  Harriet
         Munrett Wolfe and Ross M. Strickland,  was elected at the meeting,  and
         each such  director  received 100 votes cast for election  (which votes
         constitute 100% of the issued and outstanding common stock).

Item 5.  OTHER INFORMATION - Not Applicable

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

      Exhibit No.      Description
      -----------      -----------

          27            Financial Data Schedule

         (b) No reports on Form 8-K were filed during the quarter ended June 30,
             1998.

                                       16


<PAGE>
Webster Preferred Capital Corporation



                                   SIGNATURES

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

                                   WEBSTER PREFERRED CAPITAL CORPORATION
                                   -------------------------------------
                                                  Registrant


Date:   August 7, 1998             By:       /s/ Peter J. Swiatek
                                             ---------------------
                                             Peter J. Swiatek
                                             Vice President and Treasurer
                                             Principal Financial Officer
                                             Principal Accounting Officer

                                       17
<PAGE>
Webster Preferred Capital Corporation


                                INDEX TO EXHIBITS




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

                  27                      Financial Data Schedule



















                                       18