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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

[X]

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003

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

Registrant’s telephone number, including area code: (203) 578-2286

Securities registered pursuant to Section 12(a) of the Act: Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ].

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12B-2). Yes [  ] No [X].

     State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. N/A

     The number of shares outstanding of each of the registrant’s classes of common stock, as of February 29, 2004 is: 100 shares

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WEBSTER PREFERRED CAPITAL CORPORATION
2003 FORM 10-K ANNUAL REPORT
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Forward Looking Statements

This Annual Report contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended. Actual results, performance or developments may differ materially from those expressed or implied by such forward-looking statements as a result of market uncertainties and other factors. Some important factors that could cause actual results to 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, legislative and regulatory changes, changes in tax laws and policies, and changes in accounting policies, principals or guidelines. Such developments could have an adverse impact on the Company’s financial position and results of operations. An example of a forward-looking statement in this Annual Report is the “Quantitative and Qualitative Disclosures about Market Risk” section contained in Management’s Discussion and Analysis.

PART I

Item 1. Business

General

Webster Preferred Capital Corporation (the “Company” or “WPCC”) is a Connecticut corporation incorporated in March 1997. The Company acquires, holds and manages real estate mortgage assets (“mortgage assets”), including, but not limited to, residential mortgage loans, mortgage-backed securities and commercial mortgage loans. At December 31, 2003 and 2002, the mortgage assets owned by the Company were comprised of residential mortgage loans and mortgage-backed securities. Although the Company may acquire and hold a variety of mortgage assets, its present intention is to acquire only residential mortgage loans and mortgage-backed securities. The Company intends to hold such assets to generate net income for distribution to its shareholders based on the spread between the interest income earned on the mortgage assets and the cost of its capital and operations. The Company may invest up to 5% of the total value of its portfolio in assets other than residential mortgage loans and mortgage-backed securities eligible to be held by real estate investment trusts (“REITs”).

All of the Company’s common stock is owned by Webster Bank. Webster Bank has indicated to the Company that, for as long as any of the Company’s preferred shares are outstanding, Webster Bank intends to maintain direct ownership of 100% of the outstanding common stock of the Company. Pursuant to the Company’s Certificate of Incorporation, the Company cannot redeem, or make any other payments or distributions with respect to shares of its common stock to the extent such redemptions, payments or distributions would cause the Company’s total shareholders’ equity (as determined in accordance with accounting principles generally accepted in the United States of America) to be less than 250% of the aggregate liquidation value of the issued and outstanding preferred shares. The preferred shares are not exchangeable into capital stock or other securities of Webster Bank or Webster Financial Corporation (“Webster”), the parent company of Webster Bank, and do not constitute regulatory capital of either Webster Bank or Webster. The Company has no subsidiaries.

The Company operates a single segment – acquiring, holding and managing real estate mortgage assets.

The Company has elected to be treated as a REIT under the Internal Revenue Code, as amended (the “Code”). The Company generally will not be subject to federal and Connecticut state income tax to the extent that it distributes its earnings to its shareholders and maintains its qualification as a REIT.

Total assets of the Company were $538.5 million at December 31, 2003, a decrease of $92.7 million from $631.2 million at December 31, 2002, primarily due to return of capital dividends to the common stockholder of $90.0 million. As a result, shareholder’s equity was $538.2 million at December 31, 2003 as compared to $631.0 million at December 31, 2002.

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Residential Mortgage Loans

The Company may, from time to time, acquire both conforming and nonconforming residential mortgage loans. Conventional, conforming residential mortgage loans comply with the requirements for inclusion in a loan guarantee program sponsored by either Freddie Mac or Fannie Mae. Nonconforming residential mortgage loans do not qualify for these programs in one or more aspects. The nonconforming residential mortgage loans that the Company purchases generally have original principal balances which exceed the limits for these programs. The Company’s nonconforming residential mortgage loans are expected to meet the requirements for sale to national private mortgage conduit programs or other investors in the secondary mortgage market.

Residential mortgage loans are evidenced by a promissory note secured by a mortgage or deed of trust or other similar security instrument creating a first lien on a single family (one-to-four unit) residential property, including stock allocated to a dwelling unit in a residential cooperative housing corporation. Residential real estate properties underlying residential mortgage loans consist of individual dwelling units, individual cooperative apartment units, individual condominium units, two- to four-family dwelling units, planned unit developments and townhouses.

A summary of the Company’s residential mortgage loans by original maturity for the last five years follows:

Investment Activities

MORTGAGE-BACKED SECURITIES. The Company may, from time to time, acquire fixed-rate or adjustable-rate mortgage-backed securities representing interests in pools of residential mortgage loans. A portion of any of the mortgage-backed securities that the Company purchases may have been originated by Webster Bank by exchanging pools of mortgage loans for the mortgage-backed securities. The mortgage loans underlying the mortgage-backed securities are secured by single family residential properties located throughout the United States.

The Company intends to acquire only investment-grade mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac and Government National Mortgage Association (“GNMA”). The Company does not intend to acquire any interest-only, principal-only or high-risk mortgage-backed securities. Further, the Company does not intend to acquire any residual interests in real estate mortgage conduits or any interests, other than as a creditor, in any taxable mortgage pools.

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OTHER REAL ESTATE ASSETS. Although the Company presently intends to invest only in residential mortgage loans and mortgage-backed securities, the Company may invest up to 5% of the total value of its portfolio in assets other than residential mortgage loans and mortgage-backed securities eligible to be held by REITs. In addition to commercial mortgage loans, such assets could include cash and cash equivalents. The Company does not intend to invest in securities or interests of persons primarily engaged in real estate activities. At December 31, 2003 and 2002, the Company did not hold any commercial mortgage loans.

Regulation

The Company is a wholly-owned subsidiary of Webster Bank. Webster Bank is subject to extensive regulation, supervision and examination by the Office of Thrift Supervision (the “OTS”) as its primary federal regulator. Webster Bank also is subject to regulation, supervision and examination by the Federal Deposit Insurance Corporation (the “FDIC”) and, as to certain matters, by the Board of Governors of the Federal Reserve System. These federal banking regulatory authorities have the right to examine the Company and its activities as a subsidiary of Webster Bank.

If Webster Bank were to become “undercapitalized” under “prompt corrective action” initiatives of the OTS, the OTS has the authority to require, among other things, that Webster Bank or the Company alter, reduce or terminate any activity that the OTS determines poses an excessive risk to Webster Bank. The Company does not believe that its activities currently pose, or in the future will pose, such a risk to Webster Bank; however, there can be no assurance in that regard. The regulators also could restrict transactions between Webster Bank and the Company, including the transfer of assets, or require Webster Bank to divest or liquidate the Company. Webster Bank could further be directed to take prompt corrective action if federal regulators determined that Webster Bank was in an unsafe or unsound condition or engaging in an unsafe or unsound practice. In light of Webster Bank’s control of the Company, as well as the Company’s dependence and reliance upon the skills and diligence of Webster Bank’s officers and employees, some or all of the foregoing actions and restrictions could have an adverse effect on the operations of the Company, including causing the Company to fail to qualify as a REIT.

Pursuant to OTS regulations and the Company’s Certificate of Incorporation, the Company maintains a separate corporate existence from Webster Bank. In the event Webster Bank should be placed into receivership or conservatorship by federal bank regulators, such federal bank regulators would control Webster Bank. There can be no assurance that these regulators would not cause Webster Bank, as sole holder of the common stock, to take action adverse to the interest of holders of the preferred shares of the Company.

Taxation

The Company has elected to be treated as a REIT under Sections 856 through 860 of the Code, commencing with its taxable year ended December 31, 1997. As a REIT, the Company generally will not be subject to federal and Connecticut income taxes on its net income and capital gains that it distributes to the holders of its common stock and preferred stock. Prior to January 16, 2001, Webster Bank was not subject to Connecticut state income tax on dividends to it by the Company. This exemption expired with the redemption of the Series A Preferred Stock.

To maintain REIT status, an entity must meet a number of organizational and operational requirements, including a requirement that it currently distribute to stockholders at least 90% of its “REIT taxable income” (not including capital gains and certain items of non-cash income). If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal and Connecticut state income tax at regular corporate rates. Notwithstanding qualification for taxation as a REIT, the Company may be subject to federal, state and/or local tax, on undistributed REIT taxable income and net income from prohibited transactions.

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. The Company intends to operate so as to qualify as a REIT under the Code. Although the Company believes that it is owned, organized and operates in such a manner as to qualify as a REIT, no assurance can be given as to the Company’s ability to remain qualified as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances, not entirely within the Company’s control, may affect the Company’s ability to qualify as a REIT. Although the

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Company is not aware of any proposal in Congress to amend the tax laws in a manner that would materially and adversely affect the Company’s ability to operate as a REIT, no assurance can be given that new legislation, regulations, administrative interpretations or court decisions will not significantly change the tax laws in the future with respect to qualification as a REIT or the federal income tax consequences of such qualification.

If, in any taxable year, the Company fails to qualify as a REIT, the Company would not be allowed a deduction for distributions to stockholders in computing its federal taxable income and would be subject to federal and Connecticut state income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. As a result, the amount available for distribution to the Company’s stockholders would be reduced for the year or years involved. In addition, unless entitled to relief under certain statutory provisions, the Company would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. A failure of the Company to qualify as a REIT would not by itself give the Company the right to redeem the preferred shares, nor would it give the holders of the preferred shares the right to have their shares redeemed.

Notwithstanding that the Company currently intends to operate in a manner designed to qualify as a REIT, future economic, market, legal, tax or other considerations may cause the Company to determine that it is in the best interest of the Company and the holders of its common stock and preferred stock to revoke the REIT election. The tax law prohibits the Company from electing treatment as a REIT for the four taxable years following the year of such revocation.

In the event that the Company has insufficient available cash on hand or is otherwise precluded from making dividend distributions in amounts sufficient to maintain its status as a REIT or to avoid imposition of an excise tax, the Company may avail itself of consent dividend procedures. A consent dividend is a hypothetical dividend, as opposed to an actual dividend, declared by the Company and treated for U.S. federal tax purposes as though it had actually been paid to stockholders who were the owners of shares on the last day of the year and who executed the required consent form, and then recontributed by those stockholders to the Company. The Company would use the consent dividend procedures only with respect to its common stock.

Employees

The Company has three officers. The executive officers are described further below in Item 10, “Directors and Officers”. The Company does not anticipate that it will require any additional employees because it has retained an advisor to administer the day-to-day activities of the Company pursuant to an Advisory Agreement.

Competition

The Company does not engage in the business of originating mortgage loans. While the Company does intend to acquire additional mortgage assets, we anticipate that these additional mortgage assets will be acquired from Webster Bank. Accordingly, the Company does not compete or expect to compete with mortgage conduit programs, investment banking firms, savings and loan associations, banks, thrift and loan associations, finance companies, mortgage bankers or insurance companies in acquiring our mortgage assets. Webster Bank, from which we expect to continue to purchase most or all of our mortgage assets in the future, will face competition from these organizations.

Item 2. Properties

Not Applicable.

Item 3. Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incident to the registrant’s business, to which the Company is a party or of which any of its property is subject.

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Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted during the fourth quarter of the fiscal year 2003 to security holders for a vote.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

All of the Company’s common stock is owned by Webster Bank, and consequently there is no market for such securities. The Company’s Series B 8.625% Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”) is traded on the NASDAQ Stock Market’s National Market Tier under the symbol “WBSTP”.

The Series B Preferred Stock was not redeemable (barring certain circumstances) prior to January 15, 2003. On and after January 15, 2003, the Series B Preferred shares could have been redeemed at the option of the Company, in whole or in part, at a redemption price of $10 per share, plus any accrued and unpaid dividends. At this time, management has no plans to redeem the Series B Preferred Stock.

Dividends declared and paid on the common stock in 2003 and 2002 totaled $26.8 million and $41.5 million, respectively. Dividends declared on the Series B Preferred Stock in 2003 and 2002 totaled $862,500 for each year.

The following table provides information concerning the market price of the Series B Preferred Stock. At December 31, 2003, the closing market price was $11.70.

Dividends will be declared at the discretion of the Board of Directors after considering the Company’s distributable funds, financial requirements, tax considerations and other factors. The Company’s distributable funds will consist primarily of interest and principal payments on the Mortgage Assets held by it, and the Company anticipates that a significant portion of such assets will bear interest at adjustable rates. Accordingly, if there is a decline in interest rates, the Company may experience a decrease in income available to be distributed to its shareholders. However, the Company currently expects that both its cash available for distribution and its “REIT taxable income” will exceed the amount needed to pay dividends on the Preferred Shares, even in the event of a significant decline in interest rate levels, because (i) the Company’s Mortgage Assets are interest-bearing, (ii) the Series B Preferred Stock is not expected to exceed 15% of the Company’s capitalization, and (iii) the Company does not anticipate incurring any indebtedness.

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Item 6. Selected Financial Data

The selected financial data set forth below is based upon and should be read in conjunction with the Company’s audited financial statements and notes thereto appearing elsewhere in this document.

Balance Sheet Data

Income Statement Data

Significant Statistical Data

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company has elected to be treated as a REIT under the Code and will generally not be subject to federal and Connecticut income tax for as long as it maintains its qualification as a REIT, requiring among other things, that it currently distribute to stockholders at least 90% of its “REIT taxable income” (not including capital gains and certain items of noncash income). The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s financial statements and other financial data included elsewhere herein.

Summary

WPCC’s net income for 2003 declined to $28.2 million from $41.9 million in 2002 due to the following factors:

	•		WPCC paid return of capital dividends of $90 million and $300 million in 2003 and 2002, respectively. This reduced average earning assets to $577.2 million in 2003 from $760.8 million during 2002.
	•		The average return on assets declined to 4.89% from 5.55% due to the low interest rate environment during 2002 and 2003.

During 2003, WPCC purchased $195.1 million of loans from Webster Bank.

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies upon which our financial condition depends, and which involve the most complex or subjective decisions or assessments are as follows:

Allowance for Loan Losses
Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio. Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business and economic environment; as it is affected by changing economic conditions and various other external factors, subsequent changes in these factors may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off.

Financial Condition

Total assets, consisting primarily of residential mortgage loans and mortgage-backed securities, were $538.5 million at December 31, 2003, a decrease of $92.7 million from $631.2 million at December 31, 2002. The primary factor causing the decline in total assets was the return on capital dividend of $90.0 million during 2003. Cash flow from mortgage loans and mortgage-backed securities, primarily due to accelerated prepayments throughout 2003 arising from the low interest rate environment, resulted in large cash inflows. With the increased cash flow, WPCC purchased $195.1 million in residential loans from Webster Bank and returned $90.0 million to its shareholder. The decline in accrued interest receivable of $841,000 is due to the decline in earning assets, as well as lower interest rates, primarily on interest-bearing deposits. As a result of the return of capital dividend, shareholders’ equity declined to $538.2 million at December 31, 2003 from $631.0 million at December 31, 2002.

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Asset Quality

The Company maintains asset quality by acquiring residential real estate loans that have been conservatively underwritten and by aggressively managing nonperforming assets. During 2003, all loan purchases by the Company were from Webster Bank. As such, the Company’s asset quality is dependent upon Webster Bank’s ability to maintain conservative underwriting standards. At December 31, 2003, residential real estate loans comprised the entire loan portfolio. The Company also invests in government agency or government-sponsored agency issued mortgage-backed securities.

Nonperforming Assets and Delinquencies

The following table details the Company’s nonperforming assets for the last five years:

The following table sets forth information as to the Company’s loans past due 30-89 days and still accruing: