Webster Preferred Capital (WBSTP) 10-Q 2009 Q3 Quarterly report

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 quarterly period ended September 30, 2009

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

(Exact name of registrant as specified in its charter)

Connecticut	06-1478208
(State or other jurisdiction of incorporation or organization)	(I. R. S. Employer Identification Number)

Webster Plaza, Waterbury, Connecticut	06702
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (203) 465-4366

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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ¨  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of outstanding shares of the registrant’s common stock, $.01 par value, as of October 30, 2009 was 100.

WEBSTER PREFERRED CAPITAL CORPORATION

INDEX

	Page
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements	3
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.Controls and Procedures	16
PART II – OTHER INFORMATION	16
Item 1.Legal Proceedings	16
Item 1A.Risk Factors	16
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.Defaults Upon Senior Securities	16
Item 4.Submission of Matters to a Vote of Security Holders	16
Item 5.Other Information	16
Item 6.Exhibits	17
SIGNATURES	18
EXHIBITS	19

2

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

WEBSTER PREFERRED CAPITAL CORPORATION

CONDENSED BALANCE SHEETS

(In thousands, except share and per share data)	September 30, 2009			December 31, 2008
	(unaudited)
Assets:
Cash	$	4,960		$	8,680
Residential mortgage loans, net		161,230			187,696
Accrued interest receivable		644			809
Prepaid expenses and other assets		8			—
Total assets	$	166,842		$	197,185
Liabilities:
Accrued dividends payable to preferred shareholders	$	180		$	180
Accrued expenses and other liabilities		132			34
Total liabilities		312			214
Shareholders’ Equity:
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		169,799			198,799
Distributions in excess of accumulated earnings		(4,270	)		(2,829	)
Total shareholders’ equity		166,530			196,971
Total liabilities and shareholders’ equity	$	166,842		$	197,185

See accompanying notes to condensed financial statements.

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WEBSTER PREFERRED CAPITAL CORPORATION

CONDENSED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2009		2008		2009		2008
Interest income:
Loans, net of servicing fees	$	2,082	$	3,459	$	6,878	$	10,933
Interest-bearing deposit		—		48		—		454
Total interest income		2,082		3,507		6,878		11,387
Provision for loan losses		187		—		717		170
Total interest income after provision for loan losses		1,895		3,507		6,161		11,217
Noninterest expense:
Advisory fee expense paid to Parent		55		51		161		154
Foreclosed property expenses		3		59		3		68
Other		20		24		97		82
Total noninterest expense		78		134		261		304
Net income		1,817		3,373		5,900		10,913
Preferred stock dividends		216		216		647		647
Net income available to common shareholder	$	1,601	$	3,157	$	5,253	$	10,266
Net income per common share: Basic	$	16,010	$	31,570	$	52,530	$	102,660
Dividends per common share	$	16,000	$	30,000	$	66,944	$	105,740

See accompanying notes to condensed financial statements.

4

WEBSTER PREFERRED CAPITAL CORPORATION

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

	Nine Months Ended September 30,
(In thousands)	2009			2008
Beginning Balance:	$	196,971		$	327,683
Net Income		5,900			10,913
Dividends on preferred stock		(647	)		(647	)
Dividends on common stock		(6,694	)		(10,574	)
Return of capital to Parent		(29,000	)		(70,000	)
Ending Balance	$	166,530		$	257,375

See accompanying notes to condensed financial statements.

5

WEBSTER PREFERRED CAPITAL CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
(In thousands)	2009			2008
Cash flow from operating activities:
Net income	$	5,900		$	10,913
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization and accretion		42			148
Write-down of foreclosed properties		—			56
Provision for loan losses		717			170
Decrease in accrued interest receivable		165			144
Increase in accrued expenses and other liabilities		98			180
(Increase) decrease in prepaid expenses and other assets		(8	)		306
Net cash provided by operating activities		6,914			11,917
Cash flow from investing activities:
Net decrease in short-term investments		—			41,000
Net decrease in residential mortgage loans		25,707			29,936
Net cash provided by investing activities		25,707			70,936
Cash flow from financing activities:
Dividends paid on preferred stock		(647	)		(647	)
Dividends paid on common stock		(6,694	)		(10,574	)
Return of capital to Parent		(29,000	)		(70,000	)
Net cash used in financing activities		(36,341	)		(81,221	)
Net (decrease) increase in cash and cash equivalents		(3,720	)		1,632
Cash and cash equivalents at beginning of period		8,680			2,543
Cash and cash equivalents at end of period	$	4,960		$	4,175
Noncash investing and financing activities:
Transfer of loans and leases, net to foreclosed properties	$	—		$	140

See accompanying notes to condensed financial statements.

6

WEBSTER PREFERRED CAPITAL CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: Basis of Presentation

General

The accompanying condensed financial statements represent the accounts of Webster Preferred Capital Corporation (the “Company” or “WPCC”), a subsidiary of Webster Bank, National Association (“Webster Bank”). The Company is a subsidiary of Webster Bank and has elected to be treated as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company will generally not be subject to federal income tax for as long as it maintains its qualification as a REIT, requiring among other things, that it currently distribute to stockholders at least 90% of its “REIT taxable income” (not including capital gains and certain items of noncash income).

The accompanying condensed financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s financial statements and notes thereto for the year ended December 31, 2008 included in WPCC’s Annual Report on Form 10-K filed with the SEC on March 10, 2009 (the “2008 Form 10-K”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Amounts in prior period financial statements are reclassified whenever necessary to conform to current period presentations. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the results which may be expected for the year as a whole. WPCC has evaluated subsequent events for potential recognition and/or disclosure through November 10, 2009, the date the condensed financial statements included in this Quarterly Report on Form 10-Q were filed with the SEC.

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements, and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates. The allowance for loan losses is particularly subject to change.

NOTE 2: New Authoritative Accounting Guidance

Accounting Standards Codification. The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) became effective on July 1, 2009. At that date, the ASC became FASB’s officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

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NOTE 3: Residential Mortgage Loans

The Company has acquired all loans from Webster Bank at a price equal to Webster Bank’s carrying value. While these transfers represent legal sales by Webster Bank, Webster Bank may not record the transfers as sales for GAAP purposes because of its 100% direct ownership interest in the Company. Accordingly, the Company’s assets represent non-recourse receivables from Webster Bank which are fully collateralized by the underlying loans. The underlying loans are whole loans secured by first mortgages or deeds of trust on single family (one-to-four unit) residential real estate properties located primarily in Connecticut. The assets continue to be classified as residential loans in the Company’s condensed financial statements because the returns on and the recoverability of these non-recourse receivables are entirely dependent on the performance of the underlying residential loans.

A summary of the Company’s residential mortgage loans by type and original maturity follows:

(In thousands)	September 30, 2009			December 31, 2008
Fixed-rate loans:
15 yr. loans	$	6,052		$	7,591
20 yr. loans		3,926			5,991
25 yr. loans		2,786			3,029
30 yr. loans		83,700			93,329
Total fixed-rate loans		96,464			109,940
Adjustable-rate loans:
15 yr. loans		876			438
20 yr. loans		119			557
25 yr. loans		403			444
30 yr. loans		65,247			77,704
Total adjustable-rate loans		66,645			79,143
Total residential mortgage loans		163,109			189,083
Premiums and deferred costs on loans, net		754			796
Less: allowance for loan losses		(2,633	)		(2,183	)
Residential mortgage loans, net	$	161,230		$	187,696

As of September 30, 2009, 59.1% of the Company’s residential mortgage loans are fixed-rate loans and 40.9% are adjustable-rate loans.

Loans are stated at the principal amounts outstanding, adjusted by net deferred loan costs, fees, premiums, and the allowance for loan losses. Interest on loans is credited to income as earned based on the rate applied to principal amounts outstanding. Interest which is more than 90 days past due is not accrued. Such interest ultimately collected, if any, is credited to income in the period received. At September 30, 2009 there were $5.6 million of non-accruing loans. Deferred loan costs, fees and premiums on loans acquired are recognized in interest income over the lives of the loans using a method approximating the interest method. Servicing fees paid to the Servicer (as defined in Note 5) are recorded as a component of interest income.

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The following table details the Company’s nonperforming loans:

	September 30, 2009				December 31, 2008
(Dollars in thousands)	Principal Balance		% of Loans		Principal Balance		% of Loans
Total non-accrual loans	$	5,620	3.45	%	$	823	0.44	%

Non-performing loans consist of twenty six loans at September 30, 2009. Non-performing loans increased by $4.8 million to $5.6 million at September 30, 2009 compared to $0.8 million at December 31, 2008. There were seven and twenty one loans that became non-performing during the three and nine months ended September 30, 2009, respectively.

A loan whose terms have been modified due to the financial difficulties of a borrower is reported by the Company as a troubled debt restructure (“TDR”). All TDRs are placed in non-accruing status until the loan qualifies for return to accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months. All fees and expenses associated with a TDR are expensed as incurred. At September 30, 2009 the Company had TDRs of $2.5 million. Ten non-accruing loans and one accruing loan have been restructured to a TDR during the nine months ending September 30, 2009. The partial charge offs for the restructured loans totaled approximately $20,000.

Note 4: Allowance for Loan Losses:

The disruption and volatility in the domestic and global financial and capital markets that began in 2008 continued to affect the banking industry through the third quarter of 2009. There continues to be rising unemployment, a substantial increase in delinquencies, limited refinancing options, and continued declining real estate values. The Company is not immune to some negative consequences arising from overall economic weakness and, in particular, a sharp downturn in the housing market, both locally and nationally. Decreases in real estate values could adversely affect the value of property used as collateral for loans. Adverse changes in the economy may have a negative effect on the ability of the Company’s borrowers to make timely loan payments, which would have an adverse impact on the Company’s earnings. A further increase in loan delinquencies would decrease net interest income and increase loan losses, causing potential increases in the provision and allowance for credit losses.

Management performs a quarterly review of the loan portfolio to determine the adequacy of the allowance for loan losses and the amount of provision for loan losses required. Several factors influence the amount of the provision, including loan growth and changes in portfolio mix as well as net charge-offs, and the economic environment. The allowance for loan losses is maintained at a level that management believes is adequate to absorb probable losses inherent in the loan portfolio and in unfunded credit commitments. This allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged-off and is reduced by charge-offs on loans.

A summary of the changes in the allowance for loan losses follows:

	Three months ended September 30,					Nine months ended September 30,
(In thousands)	2009			2008		2009			2008
Balance at beginning of period	$	2,633		$	1,933	$	2,183		$	1,772
Provision for loan losses		187			—		717			170
Net charge-offs		(187	)		—		(267	)		(9	)
Balance at end of period	$	2,633		$	1,933	$	2,633		$	1,933

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NOTE 5: Servicing

The mortgage loans owned by the Company are serviced by Webster Bank pursuant to the terms of a servicing agreement. Webster Bank, in its role as servicer under the terms of the servicing agreement, is herein referred to as the “Servicer.” The Servicer receives fees at an annual rate of (i) 8 basis points for fixed-rate loan servicing and collection, (ii) 8 basis points for variable-rate loan servicing and collection and (iii) 5 basis points for all other services to be provided, as needed, in each case based on the daily outstanding balances of all the Company’s loans for which the Servicer is responsible. The services provided to the Company by Webster Bank are at the level of a sub-servicing agreement. As such, the Company estimates that the fees paid to Webster Bank for servicing approximates fees that would be paid if the Company operated as an unaffiliated entity. Servicing fees paid for the three and nine months ended September 30, 2009 were $33,000 and $105,000, respectively, and for the three and nine months ended September 30, 2008 were $50,000 and $155,000, respectively. Servicing fees are netted against interest income in the condensed statements of income, as they are considered 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.

NOTE 6: Fair Value Measurements

FASB ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. A detailed description of the valuation methodologies used in estimating the fair value of financial instruments is set forth in the 2008 Form 10-K.

	September 30, 2009				December 31, 2008
(In thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and due from depository institutions	$	4,960	$	4,960	$	8,680	$	8,680
Residential loans, net		161,230		166,902		187,696		176,805

NOTE 7: Subsequent Events

The Company’s management has evaluated potential subsequent events for recording and / or disclosure through November 10, 2009, the date the accompanying Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 was issued. At such time there were no items requiring disclosure.

10

WEBSTER PREFERRED CAPITAL CORPORATION

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Company is a subsidiary of Webster Bank and has elected to be treated as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company will generally not be subject to federal income tax for as long as it maintains its qualification as a REIT, requiring among other things, that it currently distribute to stockholders at least 90% of its “REIT taxable income” (not including capital gains and certain items of noncash income). The following discussion of the Company’s condensed 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 2008 Annual Report on Form 10-K.

Forward Looking Statements and Factors that Could Affect Future Results

This Quarterly Report on Form 10-Q, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, expectations, and estimates that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see Item 1A. Risk Factors of our Annual Report on Form 10-K, as updated from time to time, and in our other filings made from time to time with the SEC after the date of this report.

However, other factors besides those listed above, or in our Quarterly Report or in our Annual Report, also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Except as required by law the Company does not undertake to update any forward-looking statements.

Summary

Total interest income net of servicing fees of $2.1 and $6.9 million for the three and nine months ended September 30, 2009, respectively, a decrease of $1.4 and $4.5 million or 40.0% and 39.5%, compared to $3.5 million and $11.4 million for the three and nine months ended September 30, 2008, respectively. The decrease is due to a decrease in interest rates and average loan balances.

For the three and nine months ended September 30, 2009 average loans decreased $79.9 million and $82.7 million, respectively, and average short term investments decreased by $9.3 million and $19.6 million, respectively, compared to the three and nine months ended September 30, 2008. The yield on earning assets for the three and nine months ended September 30, 2009 was 4.98% and 5.23%, respectively, compared to 5.47% for the three and nine months ended September 30, 2008.

Changes in Financial Condition

Total assets, consisting primarily of residential mortgage loans, were $166.8 million at September 30, 2009, a decrease of $30.4 million from $197.2 million at December 31, 2008. Residential mortgage loans decreased $26.5 million primarily as a result of principal repayments. There were no loan transactions with Webster Bank during the three and nine months ended September 30, 2009. Cash decreased by $3.7 million compared to December 31, 2008. Shareholders’ equity decreased by $30.4 million to $166.5 million at September 30, 2009 from $197.0 million at December 31, 2008, primarily due to a $29.0 million in return of capital to Webster Bank and $7.3 million in common and preferred dividends partially offset by net income of $5.9 million for the nine months ended September 30, 2009.

11

Asset Quality

At September 30, 2009 and December 31, 2008, residential real estate loans comprised the entire loan portfolio. All residential loans were acquired from Webster Bank. The Company from time to time also invests in short-term investments.

The following table details the Company’s non-performing loans:

	September 30, 2009				December 31, 2008
(Dollars in thousands)	Principal Balance		% of Loans		Principal Balance		% of Loans
Total non-accrual loans	$	5,620	3.45	%	$	823	0.44	%

The following table details the Company’s past due loans:

	September 30, 2009				December 31, 2008
(Dollars in thousands)	Principal Balance		% of Loans		Principal Balance		% of Loans
Past Due 30-89 days
Residential loans	$	2,054	1.26	%	$	4,785	2.53	%
Total past due loans	$	2,054	1.26	%	$	4,785	2.53	%

At September 30, 2009 and December 31, 2008, the allowance for loan losses was approximately $2.6 million and $2.2 million, respectively. Management believes that the allowance for loan losses is adequate to cover probable losses inherent in the portfolio.

Non-performing loans consist of twenty six loans at September 30, 2009. Non-performing loans increased by $4.8 million to $5.6 million at September 30, 2009 compared to $0.8 million at December 31, 2008. There were seven and twenty one loans that became non-performing during the three and nine months ended September 30, 2009, respectively.

The provision for loan losses for the three and nine months ended September 30, 2009 was $187,000 and $717,000, respectively, compared to none and $170,000 for the three and nine months ended September 30, 2008. Total delinquent loans at September 30, 2009 were $2.1 million, an decrease of $2.7 million from December 31, 2008. A loan is deemed to be delinquent for reporting purposes when it is more than 30 days past due. The increase in non-performing loans in this current period of economic uncertainty is reflected in the increased provision for the three and nine months ended September 30, 2009.

A loan whose terms have been modified due to the financial difficulties of a borrower is reported by the Company as a troubled debt restructure (“TDR”). All TDRs are placed in non-accruing status until the loan qualifies for return to accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months. All fees and expenses associated with a TDR are expensed as incurred. At September 30, 2009 the Company had $2.5 million in TDRs. Ten non-accruing loans and one accruing loan have been restructed to a TDR during the nine months ending September 30, 2009. The partial change offs for the restructured loans totaled approximately $20,000.

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Liquidity and Capital Resources

The primary sources of liquidity for the Company are principal and interest payments from the residential mortgage loans. The primary uses of liquidity are acquisitions of residential mortgage loans and the payment of dividends on the common and preferred stock.

While scheduled loan amortization and maturities of short-term investments are predictable sources of funds, loan prepayments can vary greatly and are influenced by factors such as general interest rates and economic conditions. One of the inherent risks of investing in loans is the possibility 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.

In the unlikely event that principal and interest payments on its mortgage assets are insufficient to meet its operating needs, the Company has the ability to raise additional funds. For example, the Company’s residential mortgage loans are underwritten to meet secondary market requirements and could be sold or securitized as mortgage-backed securities and used as borrowing collateral, although the Company had no plans to do so at September 30, 2009.

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 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 fair market values of the Company’s financial assets are sensitive to fluctuations in market interest rates. The market values of fixed-rate loans tend to decline in value as interest rates rise. If interest rates decrease, the market value of loans and 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 represent primarily variable-rate mortgage loans, may change due to changes in quoted interest-rate indices. The variable-rate mortgage loans generally re-price based on a stated margin over U.S. Treasury Securities indices of varying maturities, the terms of which are established at the time that the loan is closed. At September 30, 2009, 40.9% of the Company’s residential mortgage loans were adjustable-rate loans.

Results of Operations

For the three months ended September 30, 2009, the Company reported net income available to the common shareholder of $1.6 million, a decrease of $1.6 million, or 50.0%, compared to the same period in 2008. For the nine months ended September 30, 2009, the Company reported net income available to the common shareholders of $5.3 million, a decrease of $5.0 million or 48.8% compared to the same period in 2008. The trend is due to declining loan balances and interest rates.

Interest income net of servicing fees for the three months ended September 30, 2009 was $2.1 million, a decrease of $1.4 million, or 40.0%, compared to $3.5 million for the three months ended September 30, 2008. The decrease in interest income was primarily related to a reduction in average interest earning assets of $89.2 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. The average yield for mortgage loans declined by 62 basis points. There were no short-term investments during the third quarter of 2009.

Interest income net of servicing fees for the nine months ended September 30, 2009 was $6.9 million, a decrease of $4.5 million, or 39.5% compared to $11.4 million for the nine months ended September 30, 2008. The decrease in interest income was primarily related to a reduction in interest earning assets of $102.3 million for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. The yield for mortgage loans decreased by 42 basis points. There were no short-term investments during the nine months ending September 30, 2009.

The following table shows the categories of average interest-earning assets, together with their respective interest income and the rates earned by the Company:

	Three Months Ended						Three Months Ended
	September 30, 2009						September 30, 2008
(Dollars in thousands)	Average Balance		Interest Income		Average Yield		Average Balance		Interest Income		Average Yield
Mortgage loans	$	167,160	$	2,082	4.98	%	$	247,031	$	3,459	5.60	%
Short-term investments		—		—	—			9,348		48	2.05
Total	$	167,160	$	2,082	4.98	%	$	256,379	$	3,507	5.47	%
	Nine Months Ended						Nine Months Ended
	September 30, 2009						September 30, 2008
(Dollars in thousands)	Average Balance		Interest Income		Average Yield		Average Balance		Interest Income		Average Yield
Mortgage loans	$	175,432	$	6,878	5.23	%	$	258,100	$	10,933	5.65	%
Short-term investments		—		—	—			19,602		454	3.09
Total	$	175,432	$	6,878	5.23	%	$	277,702	$	11,387	5.47	%

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Net 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. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume) and (iii) the net change. The change attributable to the combined impact of volume and rate has been allocated proportionately to the change due to volume and the change due to rate.

	Three Months Ended September 30, 2009 v. 2008 Increase (Decrease) due to									Nine Months Ended September 30, 2009 v. 2008 Increase (Decrease) due to
(In thousands)	Rate			Volume			Total			Rate			Volume			Total
Interest on interest-earning assets:
Mortgage loans	$	(342	)	$	(1,035	)	$	(1,377	)	$	(761	)	$	(3,294	)	$	(4,055	)
Short-term investments		—			(48	)		(48	)		—			(454	)		(454	)
Net change in net interest income	$	(342	)	$	(1,083	)	$	(1,425	)	$	(761	)	$	(3,748	)	$	(4,509	)

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WEBSTER PREFERRED CAPITAL CORPORATION

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following table summarizes the estimated market value of the Company’s interest-sensitive assets at September 30, 2009 and December 31, 2008 and the projected change in market values if interest rates instantaneously increase by 100 basis points.

					Estimated Market Value Impact
(In thousands)	Amortized Cost		Market Value		-100 BP	+100 BP
At September 30, 2009
Interest sensitive assets:
Fixed-rate residential loans	$	96,464	$	99,554	N/A	$	(3,497	)
Adjustable-rate residential loans		66,645		67,348	N/A		(635	)
	$	163,109	$	166,902	N/A	$	(4,132	)
At December 31, 2008
Interest sensitive assets:
Fixed-rate residential loans	$	109,940	$	112,627	N/A	$	(3,669	)
Adjustable-rate residential loans		79,143		78,144	N/A		(786	)
	$	189,083	$	190,771	N/A	$	(4,455	)

Interest-sensitive assets, when shocked by a plus 100 basis point rate change, results in an unfavorable $4.1 million, or 2.5%, change in market value at September 30, 2009 compared to an unfavorable $4.5 million, or 2.3%, market value change at December 31, 2008. Changes in the projected market value due to the instantaneous rate changes at September 30, 2009 compared to December 31, 2008 are a result of changes in outstanding balances of the assets, and do not represent a significant change due to interest rates since year end.

Based on the asset/liability mix at September 30, 2009, management estimates that a gradual 200 basis point increase in interest rates over a 12 month period would increase net income over that period by approximately 2.7%. At December 31, 2008, a projected 200 basis point increase in rates produced a net income increase of 4.1%.

The Company’s interest rate sensitive assets are subject to prepayment risk. Prepayment risk is inherently difficult to estimate and is dependent upon a number of economic, financial and behavioral variables. The Company uses a sophisticated mortgage prepayment modeling system to estimate prepayments and the corresponding impact on market value and net interest income. The model uses information that includes the instrument type, coupon spread, loan age and other factors in its projections.

These assumptions are inherently uncertain and, as a result, the simulation analyses cannot precisely estimate the impact that higher or lower rate environments will have on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, changes in cash flow patterns and market conditions, as well as changes in management’s strategies. Management believes that the Company’s interest rate risk position at September 30, 2009 represents a reasonable level of risk.

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Item 4. CONTROLS AND PROCEDURES

As of September 30, 2009 the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its principal executive officer and its principal financial officer, of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms. There was no change in the Company’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control 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 its business, to which the Company is a party or of which any of its property is the subject.

Item 1A. RISK FACTORS

During the third quarter of 2009, there were no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Item 2. UNREGISTERED SALESOF EQUITY SECURITIESAND USEOF PROCEEDS

Not Applicable.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

Item 4. SUBMISSIONOF MATTERSTOA VOTEOF SECURITY HOLDERS

Not Applicable.

Item 5. OTHER INFORMATION

None.

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Item 6. Exhibits

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of Webster Preferred Capital Corporation (the “Company”) (incorporated herein by reference from Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
3.2	Certificate of Amendment of Rights and Preferences of the Series B 8.625% Cumulative Redeemable Preferred Stock of the Company (incorporated herein by reference from Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
3.3	Amended and Restated By-Laws of the Company (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 9, 2007).
4.1	Specimen of certificate representing the Series B 8.625% Cumulative Redeemable Preferred Stock of the Company (incorporated herein by reference from Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.

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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 CORPORATION
	Registrant
Date: November 10, 2009
	BY:	/s/ Douglas O. Hart
		Douglas O. Hart Senior Vice President, Chief Financial Officer (Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of Webster Preferred Capital Corporation (the “Company”) (incorporated herein by reference from Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
3.2	Certificate of Amendment of Rights and Preferences of the Series B 8.625% Cumulative Redeemable Preferred Stock of the Company (incorporated herein by reference from Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
3.3	Amended and Restated By-Laws of the Company (incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 9, 2007).
4.1	Specimen of certificate representing the Series B 8.625% Cumulative Redeemable Preferred Stock of the Company (incorporated herein by reference from Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.

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