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 September 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>
WEBSTER PREFERRED CAPITAL CORPORATION

                                      INDEX

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

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

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

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

Condensed Notes to Financial Statements                                                       6

Management's Discussion and Analysis of Financial Statements                                 11


Quantitative and Qualitative Disclosures About Market Risk                                   17

Forward Looking Statement                                                                    17


PART II - OTHER INFORMATION                                                                  18

SIGNATURES                                                                                   19

INDEX TO EXHIBITS                                                                            20
</TABLE>

                                        2
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF CONDITION (unaudited)
(Dollars in Thousands, except share data)

<TABLE>
<CAPTION>
                                                                                     September 30,    December 31,
         Assets                                                                          1998,            1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>             <C>      
Cash                                                                                      $ 11,187        $  26,167
Interest Bearing Deposits                                                                      525                -
Mortgage-Backed Securities Available for Sale (Note 2)                                     122,342          120,090
Residential Mortgage Loans, Net (Note 3)                                                   796,777          635,634
Accrued Interest Receivable                                                                  5,466            4,525
Other Real Estate Owned                                                                          -                -
Prepaid Expenses and Other Assets (Note 7)                                                     913            1,145
--------------------------------------------------------------------------------------------------------------------
                Total Assets                                                              $937,210        $ 787,561
=====================================================================================================================


Liabilities and Shareholders' Equity
--------------------------------------------------------------------------------------------------------------------
Accrued Dividends Payable                                                                $    794        $      491
Accrued Expenses and Other Liabilities                                                        232               418
--------------------------------------------------------------------------------------------------------------------
                Total Liabilities                                                           1,026               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                                                                      4,636                 -
     Distributions in Excess of Accumulated Earnings                                            -              (370)
     Accumulated Other Comprehensive Income                                                 1,748                64
--------------------------------------------------------------------------------------------------------------------
                Total Shareholders' Equity                                                896,184           746,652
--------------------------------------------------------------------------------------------------------------------
                Total Liabilities and Shareholders' Equity                               $937,210         $ 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>
                                                                                                                  For the Period  
                                                                                                                   From March 17, 
                                                         Three Months        Three Months     Nine Months          1997 (Date of
                                                             Ended               Ended           Ended             Inception) to
                                                         September 30,       September 30,   September 30,         September 30,
                                                             1998                1997            1998                  1997
                                                    --------------------------------------------------------------------------------
<S>                                                        <C>                  <C>            <C>                <C>     
Interest Income:
Loans                                                      $ 13,412             $11,790        $ 38,526           $ 25,403
Securities                                                    2,746                   -           7,821                  -
------------------------------------------------------------------------------------------------------------------------------
       Total Interest Income                                 16,158              11,790          46,347             25,403
------------------------------------------------------------------------------------------------------------------------------
Provision For Loan Losses                                       150                   -             150                  -

------------------------------------------------------------------------------------------------------------------------------
Interest Income After Provision for Loan Losses              16,008              11,790          46,197             25,403
------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Gain on Sale of Securities                                      261                   -             261                 -
------------------------------------------------------------------------------------------------------------------------------
       Total Noninterest Income                                 261                   -             261                 -
------------------------------------------------------------------------------------------------------------------------------

Noninterest Expenses:
Advisory Fee Expense Paid to Parent                              38                  38             113                90
Dividends on Mandatorily Redeemable                                     
  Preferred Stock                                               738                   -           2,213                 -
Amortization of Start-Up Costs (Note 7)                         137                   7             396                12
Other Noninterest Expenses                                       20                   6              83                 8
------------------------------------------------------------------------------------------------------------------------------
       Total Noninterest Expenses                               933                  51           2,805               110
------------------------------------------------------------------------------------------------------------------------------
                                                                        
Income Before Taxes                                          15,336              11,739          43,653            25,293
Income Taxes                                                      -                   -               -                 -
------------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                   15,336              11,739          43,653            25,293
Preferred Stock Dividends                                       216                  50             647               108
------------------------------------------------------------------------------------------------------------------------------
                                                                        
Net Income Available to Common Shareholder                $  15,120           $  11,689        $ 43,006          $ 25,185
=============================================================================================================================
                                                                       
Net Income Per Common Share:
           Basic                                          $ 151,200           $ 116,890        $430,060          $251,850
           Diluted                                        $ 151,200           $ 116,890        $430,060          $251,850
=============================================================================================================================
</TABLE>


See accompanying condensed notes to financial statements

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

<TABLE>
<CAPTION>
                                                                                          For the Period from
                                                                                             March 17, 1997
                                                                Nine Months Ended        (Date of Inception) to
                                                               September 30, 1998          September 30, 1997
-----------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                          <C>    
OPERATING ACTIVITIES:
Net Income                                                          $43,653                      $25,293
Adjustments to Reconcile Net Cash Provided (Used) by
Operating Activities:
Provision for Loan Losses                                               150                            -
Accretion of Securities Discount                                     (1,558)                           -
Amortization of Deferred Fees and Premiums                            1,048                          242
Gains on Sale of Securities                                            (261)                           -
Increase in Accrued Interest Receivable                                (941)                      (3,935)
Increase in Accrued Liabilities                                       2,026                          284
Increase (Decrease) in Prepaid Expenses and Other Assets                232                         (101)
---------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                            44,349                       21,783
---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of Securities                                              (51,682)                           -
Principal Collected on Securities                                     3,852                            -
Proceeds from Sales of Securities                                    49,083                            -
Increase in Interest Bearing Deposits                                  (525)                           -
Purchase of Loans                                                  (306,332)                     (60,330)
Principal Repayments of Loans, Net                                  143,990                       51,488
---------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities                              (161,614)                      (8,842)
--------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Dividends Paid on  Common and Preferred Stock                       (40,556)                           -
Contributions from Webster Bank                                     142,841                            1
--------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                           102,285                            1
--------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents                    (14,980)                      12,942
Cash and Cash Equivalents at Beginning of Period                     26,167                            -
--------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period                          $11,187                      $12,942
---------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURES:
     Income Taxes Paid                                              $    -                      $      -
     Interest Paid                                                       -                             -
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITY:
     Transfer of Residential Mortgage Loans to Other
       Real Estate Owned                                                 -                             -
     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 nine month periods ended  September
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
September 30, 1998                    Value     Gains         Losses      Fair Value
--------------------------------------------------------------------------------------
<S>                               <C>           <C>          <C>         <C>      
Available for Sale Portfolio      $  120,594    $  1,748     $   -       $ 122,342
--------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                   Recorded   Unrealized    Unrealized     Estimated
December 31, 1997                     Value      Gains        Losses      Fair Value
--------------------------------------------------------------------------------------
<S>                               <C>           <C>          <C>         <C>      
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 September 30, 1998 is 6.73%. Although the stated final
maturity of these  obligations are long-term,  the weighted average life is much
shorter due to scheduled  repayments  and  prepayments.  Gains and losses on the
sales of securities are recorded using the specific identification method.


                                        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>
                                                     September 30,     December 31,
                                                       1998               1997
-------------------------------------------------------------------------------------
                                                     Carrying          Carrying
(In Thousands)                                         Amount            Amount
-------------------------------------------------------------------------------------
<S>                                                   <C>                <C>    
Fixed-Rate Loans:
         Fixed Rate 15 yr. Loans                       $106,570           $59,631
         Fixed Rate 20 yr. Loans                          1,969             1,636
         Fixed Rate 25 yr. Loans                          1,301               813
         Fixed Rate 30 yr. Loans                        181,724           161,884
-------------------------------------------------------------------------------------
              Total Fixed-Rate Loans                    291,564           223,964
-------------------------------------------------------------------------------------
Variable-Rate Loans:
         Variable Rate 15 yr. Loans                       5,750             4,896
         Variable Rate 20 yr. Loans                       4,808             4,004
         Variable Rate 25 yr. Loans                       8,403             8,553
         Variable Rate 30 yr. Loans                     484,370           393,924
-------------------------------------------------------------------------------------
               Total Variable-Rate Loans                503,331           411,377
-------------------------------------------------------------------------------------

        Total Residential Mortgage Loans               $794,895          $635,341
-------------------------------------------------------------------------------------
        Premiums and Deferred Fees on Loans, Net          3,414             1,831
        Less Allowance for Loan Losses                   (1,532)           (1,538)
-------------------------------------------------------------------------------------
               Residential Mortgage Loans, Net         $796,777          $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

All  of the  Company's  common  stock  is  owned  by  Webster  Bank,  which  has
contributed $880.2 million of capital.

On December 24, 1997, the Company raised $10 million, less expenses, in a public
offering  of  1,000,000  shares  of its  Series B 8.625%  cumulative  redeemable
preferred stock, liquidation preference $10 per share.

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.

See also Note 4 as to the Company's Series A Preferred Shares.

                                        8
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION


CONDENSED NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------


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
September 30, 1998 and  September  30, 1997 and the nine months ended  September
30, 1998 and for the period from March 17, 1997 (date of inception) to September
30, 1997:


<TABLE>
<CAPTION>
(In Thousands)                                                                                              For the Period
                                                                                                            from March 17,
                                                    Three Months       Three Months      Nine Months        1997 (Date of
                                                       Ended              Ended             Ended           Inception) to
                                                   September 30,      September 30,     September 30,       September 30,
                                                        1998               1997              1998                1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>                <C>                <C>    
Net Income                                            $15,336            $11,739            $43,653            $25,293
Other Comprehensive Income:
         Unrealized gains on securities                   990                  -              1,945                  -
         Less reclassification adjustment for
                 gains included in net income             261                  -                261
---------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income                                729                  -              1,684
---------------------------------------------------------------------------------------------------------------------------
      Total Comprehensive Income                      $16,065            $11,739            $45,337            $25,293
===========================================================================================================================
</TABLE>

                                        9

<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 will write off on or about January 1, 1999,  approximately  $774,000
due to the adoption of SOP 98-5.

                                       10
<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  September  30,  1998 were  $937.2  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.  In November 1998,
prior to any action having been taken in that regard,  the Board of Directors of
the Company determined that a dissolution of the Company was not advisable.

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
is evaluating 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 $937.2  million at September  30, 1998,  an increase of $149.6
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, offset by the sale of mortgage-backed securities of
$49 million,  and to the purchase of additional  residential  mortgage  loans of
$303.7 million,  offset by loan repayments of $143.9 million. The increases were
funded by contributions from Webster Bank and net earnings. Shareholders' equity
was $896.1  million at  September  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  September  30,  1998,
residential  real estate loans comprised the entire loan portfolio.  The Company
also invests in highly rated mortgage-backed securities.

                                       11
<PAGE>
WEBSTER PREFERRED CAPITAL  CORPORATION



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


The aggregate amount of nonaccrual loans was $807,906 at September 30, 1998. The
following table details the Company's nonaccrual assets:

                                              At September 30,   At December 31,
(In Thousands)                                      1998                1997
--------------------------------------------------------------------------------
Loans Accounted for on a Nonaccrual Basis:

      Residential Fixed-Rate Loans                    $   71     $     158
      Residential Variable-Rate Loans                    737         1,145
--------------------------------------------------------------------------------
            Total Nonaccrual Loans                       808         1,303
      Residential Foreclosed Properties                    -             -
--------------------------------------------------------------------------------
           Total Nonaccrual Assets                    $  808     $   1,303
================================================================================


At September 30, 1998 the allowance for loan losses was $1.5 million, or 189% 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 $495,000  at  September  30, 1998 as
compared to the December 31, 1997 balance is due to the  reduction of nonaccrual
loans through a sale of such loans.

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

(In Thousands)                                   At September 30, 1998
----------------------------------------------------------------------
Balance at Beginning of Period                         $  1,538
Provisions Charged to Operations                            150
Charge-offs                                                (157)
Recoveries                                                    1
----------------------------------------------------------------------
Balance at End of Period                               $  1,532
======================================================================

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 September 30, 1998,  63.3% 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.

                                       12
<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.

                                       13


<PAGE>
WEBSTER PREFERRED CAPITAL  CORPORATION


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


RESULTS OF OPERATIONS

GENERAL

The net income available to common shareholders  reported by the Company for the
three and nine months  period  ended  September  30, 1998 was $15.1  million and
$43.0 million, respectively, or $151,200 and $430,060,  respectively, per common
share  on  a  diluted  basis,   compared  to  net  income  available  to  common
shareholders  for the three months ended  September  30, 1997 and for the period
from March 17, 1997 (date of inception) to September 30, 1997 which  amounted to
$11.7  million  and $25.2  million,  respectively,  or  $116,890  and  $251,850,
respectively, per common share on a diluted basis.

 NET INTEREST INCOME

Total interest income for the three and nine months ended September 30, 1998 was
$16.2 million,  and $46.3 million  respectively,  compared to the income for the
three  months  ended  September  30, 1997 and for the period from March 17, 1997
(date of inception) to September 30, 1997 which amounted to $11.8  million,  and
$25.4 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 SEPT. 30, 1998          THREE MONTHS ENDED SEPT. 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                       $783,696       $13,412          6.85%       $623,527       $11,790          7.56%
Mortgage-Backed Securities            150,367         2,516          6.69%              -             -              -
Interest Bearing Deposits              20,066           229          4.57%              -             -              -
----------------------------------------------------------------------------------------------------------------------
     Total                           $954,129       $16,157          6.77%       $623,527       $11,790          7.56%
----------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                                                 THE PERIOD FROM MARCH 17, 1997 (DATE
                                         NINE MONTHS ENDED SEPT.  30, 1998          OF INCEPTION) TO SEPT. 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                       $732,197       $38,526          7.02%       $451,918       $25,403          7.49%
Mortgage-Backed Securities            149,845         7,521          6.69%              -             -              -
Interest Bearing Deposits               8,667           300          4.58%              -             -              -
----------------------------------------------------------------------------------------------------------------------
     Total                           $890,709       $46,347          6.94%       $451,918       $25,403          7.49%
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       14
<PAGE>
WEBSTER PREFERRED CAPITAL  CORPORATION


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


PROVISION FOR LOAN LOSSES

There were $150,000 in provisions  for loan losses for the three and nine months
ended  September 30, 1998.  The  provision for loan losses  reflects the sizable
increase in the company's total residential  mortgage loan portfolio and related
credit risks.  There were no provisions for the three months ended September 30,
1997 or for the period from March 17, 1997 (date of  inception) to September 30,
1997.

NONINTEREST EXPENSES

Noninterest  expenses  for the three and nine months  ended  September  30, 1998
amounted to $933,000 and $2,805,000,  respectively,  compared to the noninterest
expenses for the three months ended September 30, 1997 and the period from March
17, 1997 (date of inception) to September 30, 1997 which amounted to $51,000 and
$110,000,  respectively.  Noninterest expenses 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 three or nine months ended  September
30, 1998 nor for the three months ended  September 1997 or the period from March
17, 1997 (date of inception)  to September 30, 1997.  The Company has elected to
be treated as a REIT under  Section 856 through 860 under the  Internal  Revenue
Code,  commencing with its taxable year ending December 31, 1997. As a REIT, the
Company  generally  will not be subject to federal  income tax on net income and
capital  gains  that it  distributes  to the  holders  of its  Common  Stock and
Preferred Stock.

YEAR 2000

The "Year 2000" issue refers to the potential  impact of the failure of computer
programs and equipment to give proper  recognition of dates beyond  December 31,
1999 and other issues related to the Year 2000 century date change.

I.  THE COMPANY'S STATE OF READINESS

The Company has  assessed the issues  regarding  Year 2000 and since the Company
depends on Webster Bank as Advisor and Servicer,  as agreed upon in the Advisory
Service Agreement and the Master Service Agreement,  the Company will be reliant
on  Webster  Bank  and  its  parent  company,   Webster  Financial   Corporation
("Webster"),  to ensure  proper  date  recognition.  The  Company  has  reviewed
documentation  provided by Webster and has determined that Webster is taking the
appropriate steps to become Year 2000 compliant.

II.  THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES

The Company  currently pays a monthly servicing and managerial fee to Webster as
agreed upon in the Advisory Service Agreement and the Master Service  Agreement.
The Company should not incur any costs associated with Year 2000 issues that are
not  covered  under  the  Advisory  Service  Agreement  and the  Master  Service
Agreement.  The Advisory  Service  Agreement  and the Master  Service  Agreement
include  technical  support,  and  administrative  services,  in  which  Webster
monitors and  supervises  the  performance  of all parties who have contracts to
perform services for the Company.



                                       15
<PAGE>


WEBSTER PREFERRED CAPITAL  CORPORATION


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

III.  THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES

The Company is in the process of identifying and evaluating  potential Year 2000
related  worst case  scenarios  that could result from 1)  Webster's  failure to
identify,  test,  and validate  all critical  date  dependent  applications  and
embedded  microchips  that affect core business  processes and 2) the failure of
external forces,  such as third party vendors,  and utilities,  to have properly
remediated their systems.

Potential worst case scenarios being  addressed,  include:  extended  electrical
power outage,  extended telephone communication outage, and excessive media hype
and community fear.

The Company is unable to estimate  lost revenue  related to Year 2000 issues due
to the  uncertainties  of the impact and  effects of  external  forces and their
potential extended disruptions.


IV.  THE COMPANY'S CONTINGENCY PLANS

A contingency  plan is being  drafted by the Company to address each  identified
potential worst case scenario. Alternative solutions for business resumption and
approaches  to  minimize  the  impact of each  scenario  are  being  formulated.
Proposed  approaches  to  address  potential   scenarios  include:   designating
alternate  offices as  emergency  locations  with  alternate  power  sources and
identifying alternate communication methods.


AVAILABILITY OF WEBSTER'S DISCLOSURE

Webster's  Year 2000  disclosures  are  available in detail in its September 30,
1998, Form 10-Q.

                                       16
<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 September 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                  $120,594     $122,342       $1,017     $(2,951)
     Variable-Rate Residential Mortgage           503,331      520,909        4,834      (6,063)
     Loans
     Fixed-Rate Residential Mortgage Loans        291,564      301,850        1,950      (6,766)
Interest-Sensitive Liabilities:
     Series A Preferred Stock                      40,000       40,686          118        (510)
------------------------------------------------------------------------------------------------
</TABLE>


FORWARD LOOKING STATEMENTS
--------------------------------------------------------------------------------
Statements  in  Management's  Discussion  and Analysis in the section  captioned
"Year 2000" and in "Quantitative and Qualitative  Disclosures about Market Risk"
are forward-looking statements within the meaning of the Securities Exchange Act
of 1934, as amended.  Actual  results,  performance or  developments  may differ
materially from those expressed or implied by such forward-looking statements as
a result of market uncertainties and other factors.  Some important factors that
would  cause  actual  results  that  differ  from  those in any  forward-looking
statements  include  changes in  interest  rates and  general  economics  in the
Connecticut market area where a substantial  portion of the real estate securing
the Company's loans is located.  Such developments  could have an adverse impact
on the Company's financial position and results of operations.

                                       17
<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
              - Not Applicable

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
September 30, 1998.

                                       18


<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:   November 13, 1998          By:    /s/ Peter J. Swiatek
                                          -----------------------
                                          Peter J. Swiatek
                                          Vice President and Treasurer
                                          Principal Financial Officer
                                          Principal Accounting Officer

                                         
                                       19
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION


                                INDEX TO EXHIBITS

              EXHIBIT NUMBER                     DESCRIPTION
              --------------                     -----------
                    27                         Financial Data Schedule

                                  













                                       20