##### Table of Contents



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 June 30, 2004 OR  [  ]
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  Commission File Number: 0-23513 WEBSTER PREFERRED CAPITAL CORPORATION 
  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 July 31, 2004 is: 100 shares.




---



##### Table of Contents



WEBSTER PREFERRED CAPITAL CORPORATION INDEX PagePART I - FINANCIAL INFORMATIONItem 1.Interim Financial Statements (unaudited):Statements of Condition at June 30, 2004 and December 31, 2003
    
    
    3Statements of Income for the Three and Six Months Ended June 30, 2004 and 2003
    
    
    4Statements of Comprehensive Income for the Three and Six Months Ended
June 30, 2004 and 2003
    
    
    4Statements of Cash Flows for the Six Months Ended June 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




---



##### Table of Contents



WEBSTER PREFERRED CAPITAL CORPORATION 
 Item 1. Interim Financial Statements 
 STATEMENTS OF CONDITION (unaudited)
 (Dollars in thousands, except share data)
    
    June 30, 2004
    
    December 31, 2003AssetsCash
    
    $
    1,193
    
    
    
    11,976Short-term investments
    
    
    47,000
    
    
    
    52,000Mortgage-backed securities available for sale, at fair value (Note 2)
    
    
    26,396
    
    
    
    46,116Residential mortgage loans, net (Note 3)
    
    
    472,363
    
    
    
    426,251Accrued interest receivable
    
    
    369
    
    
    
    351Other real estate owned
    
    
    
    
    
    
    104Prepaid expenses and other assets
    
    
    2,093
    
    
    
    1,673Total assets
    
    $
    549,414
    
    
    
    538,471Liabilities and Shareholders EquityAccrued dividends payable
    
    $
    180
    
    
    
    180Accrued expenses and other liabilities
    
    
    97
    
    
    
    56Total liabilities
    
    
    277
    
    
    
    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
    
    
    
    538,799Retained earnings (distributions in excess of accumulated earnings)
    
    
    9,387
    
    
    
    (2,553
    )Accumulated other comprehensive (loss) income
    
    
    (50
    )
    
    
    988Total shareholders equity
    
    
    549,137
    
    
    
    538,235Total liabilities and shareholders equity
    
    $
    549,414
    
    
    
    538,471
 See accompanying notes to interim financial statements. 3




---



##### Table of Contents



WEBSTER PREFERRED CAPITAL CORPORATION 
 STATEMENTS OF INCOME (unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(Dollars in thousands, except per share data)
    
    2004
    
    2003
    
    2004
    
    2003Interest income:Loans (Note 4)
    
    $
    6,122
    
    
    
    5,617
    
    
    $
    11,778
    
    
    
    11,992Securities and short-term investments
    
    
    565
    
    
    
    1,566
    
    
    
    1,311
    
    
    
    3,392Total interest income
    
    
    6,687
    
    
    
    7,183
    
    
    
    13,089
    
    
    
    15,384Provision for loan losses (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest income after provision for loan losses
    
    
    6,687
    
    
    
    7,183
    
    
    
    13,089
    
    
    
    15,384Noninterest income:Gain on sale of securities
    
    
    352
    
    
    
    
    
    
    
    352
    
    
    
    Noninterest expense:Advisory fee to parent
    
    
    49
    
    
    
    50
    
    
    
    98
    
    
    
    98Other
    
    
    95
    
    
    
    30
    
    
    
    166
    
    
    
    62Total noninterest expense
    
    
    144
    
    
    
    80
    
    
    
    264
    
    
    
    160Net income
    
    
    6,895
    
    
    
    7,103
    
    
    
    13,177
    
    
    
    15,224Preferred stock dividends
    
    
    215
    
    
    
    215
    
    
    
    431
    
    
    
    431Net income available to common shareholder
    
    $
    6,680
    
    
    
    6,888
    
    
    $
    12,746
    
    
    
    14,793Net income per common share:Basic and diluted
    
    $
    66,800
    
    
    
    68,880
    
    
    $
    127,460
    
    
    
    147,930
 
 STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(In thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    6,895
    
    
    
    7,103
    
    
    $
    13,177
    
    
    
    15,224Other comprehensive loss:Unrealized
net holding loss on securities
available for sale arising during the period
    
    
    (849
    )
    
    
    (1,034
    )
    
    
    (686
    )
    
    
    (1,589
    )Reclassification adjustment for gains included
in net income
    
    
    (352
    )
    
    
    
    
    
    
    (352
    )
    
    
    Other comprehensive loss
    
    
    (1,201
    )
    
    
    (1,034
    )
    
    
    (1,038
    )
    
    
    (1,589
    )Comprehensive income
    
    $
    5,694
    
    
    
    6,069
    
    
    $
    12,139
    
    
    
    13,635
 See accompanying notes to interim financial statements. 4




---



##### Table of Contents



WEBSTER PREFERRED CAPITAL CORPORATION 
 STATEMENTS OF CASH FLOWS
(unaudited) Six Months Ended June 30,(In thousands)
    
    2004
    
    2003Cash flow from operating activities:Net income
    
    $
    13,177
    
    
    
    15,224Adjustments to reconcile net income to net cash provided by
operating activities:Gain on sale of securities
    
    
    (352
    )
    
    
    Net amortization and accretion
    
    
    278
    
    
    
    472(Increase) decrease in accrued interest receivable
    
    
    (18
    )
    
    
    654Increase (decrease) in accrued liabilities
    
    
    41
    
    
    
    (12
    )Increase in prepaid expenses and other assets
    
    
    (420
    )
    
    
    (34
    )Net cash provided by operating activities
    
    
    12,706
    
    
    
    16,304Cash flow used by investing activities:Purchase of mortgage-backed securities
    
    
    
    
    
    
    (30,530
    )Principal repayments on mortgage-backed securities
    
    
    7,582
    
    
    
    54,631Purchase of loans
    
    
    (95,121
    )
    
    
    (70,302
    )Principal repayments of loans
    
    
    48,813
    
    
    
    81,247Decrease in short-term investments
    
    
    5,000
    
    
    
    39,000Proceeds from sale of mortgaged-backed securities
    
    
    11,379
    
    
    
    Proceeds from OREO sale
    
    
    95
    
    
    
    79Net cash (used) provided by investing activities
    
    
    (22,252
    )
    
    
    74,125Cash flow used by financing activities:Dividends paid on common and preferred stock
    
    
    (1,237
    )
    
    
    (13,273
    )Return of capital dividend
    
    
    
    
    
    
    (90,000
    )Net cash used by financing activities
    
    
    (1,237
    )
    
    
    (103,273
    )Decrease in cash and cash equivalents
    
    
    (10,783
    )
    
    
    (12,844
    )Cash and cash equivalents at beginning of period
    
    
    11,976
    
    
    
    28,292Cash and cash equivalents at end of period
    
    $
    1,193
    
    
    
    15,448Supplemental
schedule of noncash transactions:Transfer of
residential mortgage loans to other real estate owned
    
    $
    60
    
    
    
    96
 See accompanying notes to interim financial statements. 5




---



##### Table of Contents



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 ValueJune 30, 2004Available for Sale Portfolio
    
    $
    26,446
    
    
    
    
    
    
    
    50
    
    
    
    26,396December 31, 2003Available for Sale Portfolio
    
    $
    45,128
    
    
    
    988
    
    
    
    
    
    
    
    46,116
 At June 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 $11.4 million
during the six months ended June 30, 2004, which resulted in a net gain of
$352,000. There were no sales during the six months ended June 30, 2003. 6




---



##### Table of Contents



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)
    
    June 30, 2004
    
    December 31, 2003Fixed-rate loans:15 yr. loans
    
    $
    64,301
    
    
    
    71,21720 yr. loans
    
    
    8,167
    
    
    
    8,26125 yr. loans
    
    
    4,369
    
    
    
    4,41430 yr. loans
    
    
    266,703
    
    
    
    190,888Total fixed-rate loans
    
    
    343,540
    
    
    
    274,780Variable-rate loans:15 yr. loans
    
    
    1,880
    
    
    
    2,35120 yr. loans
    
    
    2,324
    
    
    
    3,17625 yr. loans
    
    
    1,590
    
    
    
    1,84330 yr. loans
    
    
    123,579
    
    
    
    144,728Total variable-rate loans
    
    
    129,373
    
    
    
    152,098Total residential mortgage loans
    
    
    472,913
    
    
    
    426,878Premiums and deferred costs on loans, net
    
    
    1,472
    
    
    
    1,479Less: allowance for loan losses
    
    
    (2,022
    )
    
    
    (2,106
    )Residential mortgage loans, net
    
    $
    472,363
    
    
    
    426,251
 As of June 30, 2004, 73% of the Companys residential mortgage loans are
fixed-rate loans and 27% are adjustable-rate loans. A detail of the change in the allowance for loan losses follows: Six Months EndedJune 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




---



##### Table of Contents



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, N.A.) pursuant to the terms of a servicing agreement.
Webster Bank, N.A. is the sole holder of the Companys common stock. Webster
Bank, N.A. 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, N.A. for servicing approximate fees that would be paid if the
Company operated as an unaffiliated entity. Servicing fees paid for the three
and six months ended June 30, 2004 were $88,000 and $172,000 and for the three
and six months ended June 30, 2003 were $78,000 and $172,000, 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




---



##### Table of Contents



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, N.A. 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 declined to $6.9 million for the three months ended June 30,
2004 from $7.1 million during the same period a year earlier and also declined
to $13.2 million for the six months ended June 30, 2004 from $15.2 million
during the same period a year earlier due to the following factors:  .
    
    Average outstanding earning assets declined by $65.0 million for the
six month period and $44.8 million for the three month period as a
result of a $90 million return of capital dividend during the second
quarter of 2003..
    
    The yield on earning assets declined for the six months ended June 30,
2004 to 4.77% from 5.01% 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. Changes in Financial Condition Total assets, consisting primarily of residential mortgage loans were $549.4
million at June 30, 2004, an increase of $10.9 million from $538.5 million at
December 31, 2003. Residential mortgage loans increased $46.1 million as a
result of purchases of $95.1 million in residential loans from Webster Bank,
N.A. during the second quarter of 2004. These purchases were funded by cash flow
on mortgage related assets, sale of securities, and decrease in short-term
investments. Shareholders equity increased to $549.1 million at June 30, 2004
from $538.2 million at December 31, 2003, due primarily to the net income
earned during for the first six 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 June 30, 2004, residential real estate loans
comprised the entire loan portfolio. All such residential loans were purchased
from Webster Bank, N.A. The Company also invests in government agency or
government-sponsored agency issued mortgage-backed securities and short-term
jumbo CDs. 9




---



##### Table of Contents



WEBSTER PREFERRED CAPITAL CORPORATION MANAGEMENTS DISCUSSION AND ANALYSIS(continued) The following table details the Companys nonperforming assets: June 30,
    
    December 31,(In thousands)
    
    2004
    
    2003Loans accounted for on a nonaccrual basis:Residential fixed-rate loans
    
    $
    90
    
    
    
    185Residential variable-rate loans
    
    
    182
    
    
    
    173Total nonperforming loans
    
    
    272
    
    
    
    358Other real estate owned
    
    
    
    
    
    
    104Total nonperforming assets
    
    $
    272
    
    
    
    462
 At June 30, 2004 and December 31, 2003, the allowance for loan losses was
approximately $2.0 million and $2.1 million, respectively, or 743% and 588% of
nonperforming loans, respectively. 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 $26.4
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




---



##### Table of Contents



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 June 30,
2004, 27% of the Companys residential mortgage loans were variable-rate loans. Results of Operations For the three and six months ended June 30, 2004, the Company reported net
income of $6.9 million and $13.2 million, respectively, or $66,800 and $127,460
respectively, per common share on a diluted basis, compared to the three and
six months ended June 30, 2003 which amounted to $7.1 million and $15.2
million, respectively, or $68,880 and $147,930, respectively, per common share
on a diluted basis. 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 EndedJune 30, 2004
    
    June 30, 2003Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    Average(In thousands)
    
    Balance
    
    Income
    
    Yield
    
    Balance
    
    Income
    
    YieldMortgage loans
    
    $
    463,468
    
    
    
    6,122
    
    
    
    5.28
    %
    
    $
    396,092
    
    
    
    5,617
    
    
    
    5.67
    %Mortgage-backed securities (a)
    
    
    32,881
    
    
    
    399
    
    
    
    4.85
    
    
    
    89,146
    
    
    
    1,213
    
    
    
    5.44Short-term investments
    
    
    65,451
    
    
    
    166
    
    
    
    1.01
    
    
    
    121,374
    
    
    
    353
    
    
    
    1.16Total
    
    $
    561,800
    
    
    
    6,687
    
    
    
    4.76
    %
    
    $
    606,612
    
    
    
    7,183
    
    
    
    4.74
    %
 Six Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2003Average
    
    Interest
    
    Average
    
    Average
    
    Interest
    
    Average(In thousands)
    
    Balance
    
    Income
    
    Yield
    
    Balance
    
    Income
    
    YieldMortgage loans
    
    $
    443,558
    
    
    
    11,778
    
    
    
    5.31
    %
    
    $
    416,475
    
    
    
    11,992
    
    
    
    5.76
    %Mortgage-backed securities (a)
    
    
    37,871
    
    
    
    968
    
    
    
    5.11
    
    
    
    99,786
    
    
    
    2,828
    
    
    
    5.67Short-term investments
    
    
    67,728
    
    
    
    343
    
    
    
    1.01
    
    
    
    97,870
    
    
    
    564
    
    
    
    1.15Total
    
    $
    549,157
    
    
    
    13,089
    
    
    
    4.77
    %
    
    $
    614,131
    
    
    
    15,384
    
    
    
    5.01
    %
  (a)
    
    Unrealized net gains are excluded from average balance The decline in interest income for the current three and six month periods of
$496,000 and $2.3 million, or 6.9% and 14.9%, 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. In
addition, this lower interest rate environment affected the yield earned on
short-term and adjustable rate investments. 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




---



##### Table of Contents



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 June 30,
    
    Six Months Ended June 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
    
    $
    (398
    )
    
    
    903
    
    
    
    505
    
    
    $
    (966
    )
    
    
    752
    
    
    
    (214
    )Mortgage-backed securities
    
    
    (120
    )
    
    
    (694
    )
    
    
    (814
    )
    
    
    (254
    )
    
    
    (1,606
    )
    
    
    (1,860
    )Short-term investments
    
    
    (41
    )
    
    
    (146
    )
    
    
    (187
    )
    
    
    (63
    )
    
    
    (158
    )
    
    
    (221
    )Net change in fully taxable-equivalent
net interest income
    
    $
    (559
    )
    
    
    63
    
    
    
    (496
    )
    
    $
    (1,283
    )
    
    
    (1,012
    )
    
    
    (2,295
    )
 There were no provisions for loan losses for the three and six months ended
June 30, 2004 and 2003. There were sales of mortgage-backed securities with a market value of $11.4
million for the three months ended June 30, 2004 resulting in a net gain of
$352,000. There were no sales of mortgage-backed securities for the three and
six months ended June 30, 2003. 12




---



##### 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 June 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 June 30, 2004Interest sensitive assets:Mortgage-backed securities
    
    $
    26,446
    
    
    
    26,396
    
    
    
    685
    
    
    
    (883
    )Variable-rate residential loans
    
    
    129,373
    
    
    
    128,377
    
    
    
    2,102
    
    
    
    (2,276
    )Fixed-rate residential loans
    
    
    343,540
    
    
    
    344,637
    
    
    
    12,161
    
    
    
    (15,436
    )Total
    
    
    
    
    
    
    
    
    
    $
    14,948
    
    
    
    (18,595
    )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 $14.9
million at June 30, 2004 compared to a projected increase of $10.4 million at
December 31, 2003. These changes in net market value represent 3.0% of
interest-sensitive assets at June 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 $18.6
million at June 30, 2004 compared to a projected decrease of $14.9 million at
December 31, 2003. These changes in net market value represent 3.7% of
interest-sensitive assets at June 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 June 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 June 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 3.4%. A
gradual 100 basis point decrease in interest rates is projected to decrease net
income by approximately 1.9%. 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 June 30, 2004, represents a reasonable level of
risk. 13




---



##### 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. Changes in Securities and Use of Proceeds and Issuer Purchases of
Equity Securities 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




---



##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number
    
    Description31.1
    
    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.
 (b) No reports on Form 8-K were filed during the quarter ended June 30, 2004. 15




---



##### 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 Secretary
Principal Financial and Accounting OfficerDate: August 6, 2004
 16