UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarter Ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission File Number: 0-23513
WEBSTER PREFERRED CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-1478208
----------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
145 BANK STREET, WATERBURY, CONNECTICUT 06702
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(203) 578-2286
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is: 100 shares
<PAGE>
INDEX
<TABLE>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Statements of Condition at June 30, 1998 and December 31, 1997 3
Statements of Income for the Three Months Ended June 30, 1998 and June 30, 1997
and for the Six Months Ended June 30, 1998 and the Period from March 17, 1997
(Date of Inception) to June 30, 1997 4
Statements of Cash Flows for the Six Months Ended June 30, 1998 and the Period
from March 17, 1997 (Date of Inception) to June 30, 1997 5
Condensed Notes to Financial Statements 6
Management's Discussion and Analysis of Financial Statements 10
Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION 16
SIGNATURES 17
INDEX TO EXHIBITS 18
</TABLE>
2
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF CONDITION (unaudited)
(Dollars in Thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 27,611 $ 26,167
Mortgage-Backed Securities Available for Sale (Note 2) 171,822 120,090
Residential Mortgage Loans, Net (Note 3) 753,818 635,634
Accrued Interest Receivable 5,352 4,525
Other Real Estate Owned 86 -
Prepaid Expenses and Other Assets 1,050 1,145
- ------------------------------------------------------------------------------------------------------------------
Total Assets $959,739 $787,561
==================================================================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------------------------------------------
Accrued Dividends Payable $ 794 $ 491
Accrued Expenses and Other Liabilities 610 418
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,404 909
==================================================================================================================
Mandatorily Redeemable Preferred Stock (Note 4)
Series A 7.375% Cumulative Redeemable Preferred Stock
liquidation preference $1,000 per share; par value $1.00 per share
40,000 shares authorized, issued and outstanding 40,000 40,000
Shareholders' Equity (Note 5)
- ------------------------------------------------------------------------------------------------------------------
Series B 8.625% Cumulative Redeemable Preferred Stock
liquidation preference $10 per share; par value $1.00 per share;
1,000,000 shares authorized, issued and outstanding 1,000 1,000
Common Stock, par value $.01 per share:
Authorized - 1,000 shares
Issued and Outstanding - 100 shares 1 1
Paid-in Capital 888,799 745,957
Retained Earnings 27,516 -
Distributions in Excess of Accumulated Earnings - (370)
Accumulated Other Comprehensive Income 1,019 64
- ------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 918,335 746,652
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $959,739 $787,561
==================================================================================================================
</TABLE>
See accompanying condensed notes to financial statements
3
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF INCOME (unaudited)
(Dollars in Thousands, except share data)
<TABLE>
<CAPTION>
Three Three Six For the Period
Months Months Months From March 17,
Ended Ended Ended 1997 (Date of
June 30, June 30, June 30, Inception) to
1998 1997 1998 June 30, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 13,140 $11,767 $ 25,114 $ 13,613
Securities 2,895 - 5,075 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 16,035 11,767 30,189 13,613
- ----------------------------------------------------------------------------------------------------------------------------------
Provision For Loan Losses - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Income After Provision for Loan Losses 16,035 11,767 30,189 13,613
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest Expenses:
Advisory Fee Expense Paid to Parent 38 39 75 52
Dividends on Mandatorily Redeemable Preferred
Stock 738 - 1,475 -
Amortization of Start-Up Costs 137 5 259 5
Other Noninterest Expenses 33 1 63 2
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 946 45 1,872 59
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Taxes 15,089 11,722 28,317 13,554
Income Taxes - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME 15,089 11,722 28,317 13,554
Preferred Stock Dividends 216 50 431 58
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income Available to Common Shareholder $ 14,873 $ 11,672 $ 27,886 $ 13,496
==================================================================================================================================
Net Income Per Common Share:
Basic $ 148,730 $ 116,720 $278,860 $134,960
Diluted $ 148,730 $ 116,720 $278,860 $134,960
==================================================================================================================================
</TABLE>
See accompanying condensed notes to financial statements
4
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Period from
March 17, 1997
Six Months Ended (Date of Inception)
June 30, 1998 to June 30, 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $28,317 $13,554
Adjustments to Reconcile Net Cash Provided (Used) by
Operating Activities:
Accretion of Securities Discount (1,021) -
Amortization of Deferred Fees and Premiums (196) 149
Increase in Accrued Interest Receivable (827) (3,751)
Increase in Accrued Liabilities 1,668 216
Increase in Prepaid Expenses and Other Assets 95 (107)
- ---------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 28,036 10,061
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of Securities (51,682) -
Principal Collected on Securities 1,927 -
Purchase of Loans (213,655) (25,028)
Principal Repayments of Loans, Net 95,580 28,381
- --------------------------------------------------------------------------------------------------------
Net Cash (Used) Provided by Investing Activities (167,830) 3,353
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Dividends Paid on Common and Preferred Stock (1,603) -
Contributions from Webster Bank 142,841 1
- --------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 141,238 1
- --------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 1,444 13,415
Cash and Cash Equivalents at Beginning of Period 26,167 -
- --------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 27,611 $13,415
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid $ - $ -
Interest Paid - -
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITY:
Transfer of Residential Mortgage Loans to Other Real
Estate Owned 110 -
Contribution of Mortgage Assets, net by Webster Bank in
exchange for 100 shares of common stock and 2,000 Shares
of 10% Cumulative Non-Convertible Preferred Stock - 617,022
</TABLE>
See accompanying condensed notes to financial statements
5
<PAGE>
Webster Preferred Capital Corporation
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. All adjustments were of a normal recurring nature.
The results of operations for the three and six month periods ended June 30,
1998 are not necessarily indicative of the results which may be expected for the
year as a whole. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Webster Preferred
Capital Corporation 1997 Annual Report to shareholders.
NOTE 2 - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
In November 1997 and March 1998, Webster Bank contributed $120.4 million and
$51.8 million, respectively, in cash to Webster Preferred Capital Corporation
(the "Company"), which was used to purchase Government National Mortgage
Association ("GNMA") mortgage-backed securities and Fannie Mae mortgage-backed
securities. The following table sets forth certain information regarding
mortgage-backed securities:
<TABLE>
<CAPTION>
(In Thousands) Mortgage-Backed Securities
- ---------------------------------------------------------------------------------------------------------
Recorded Unrealized Unrealized Estimated
June 30, 1998 Value Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale Portfolio $ 170,803 $ 1,019 $ - $ 171,822
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Recorded Unrealized Unrealized Estimated
December 31, 1997 Value Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------------
Available for Sale Portfolio $ 120,026 $ 64 $ - $ 120,090
- ---------------------------------------------------------------------------------------------------------
</TABLE>
All mortgage-backed securities have a contractual maturity of over 10 years. The
weighted average yield at June 30, 1998 is 6.76%. Although the stated final
maturity of these obligations are long-term, the weighted average life is
generally much shorter due to scheduled repayments and prepayments. There were
no sales of mortgage-backed securities for the period from January 1, 1998
through June 30, 1998.
6
<PAGE>
Webster Preferred Capital Corporation
CONDENSED NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 3 - RESIDENTIAL MORTGAGE LOANS, Net
A summary of the Company's residential mortgage loans, net, follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
- ------------------------------------------------------------------------------------------
Carrying Carrying
(In Thousands) Amount Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed-Rate Loans:
Fixed Rate 15 yr. Loans $101,166 $59,631
Fixed Rate 20 yr. Loans 1,963 1,636
Fixed Rate 25 yr. Loans 1,330 813
Fixed Rate 30 yr. Loans 170,154 161,884
- -------------------------------------------------------------------------------------------
Total Fixed-Rate Loans 274,613 223,964
- --------------------------------------------------------------------------------------------
Variable-Rate Loans:
Variable Rate 15 yr. Loans 6,203 4,896
Variable Rate 20 yr. Loans 4,993 4,004
Variable Rate 25 yr. Loans 8,511 8,553
Variable Rate 30 yr. Loans 457,790 393,924
- --------------------------------------------------------------------------------------------
Total Variable-Rate Loans 477,497 411,377
- --------------------------------------------------------------------------------------------
Total Residential Mortgage Loans $752,110 $635,341
- --------------------------------------------------------------------------------------------
Premiums and Deferred Fees on Loans, Net 3,090 1,831
Less Allowance for Loan Losses (1,382) (1,538)
- --------------------------------------------------------------------------------------------
Residential Mortgage Loans, Net $753,818 $635,634
- --------------------------------------------------------------------------------------------
</TABLE>
In March 1997, Webster Bank contributed approximately $617.0 million of mortgage
assets, net as part of the formation of the Company. The $617.0 million
consisted of $215.8 million of fixed rate loans, $401.3 million of variable rate
loans, net of premiums, deferred fees on loans and an allowance for loan losses.
In April 1998 and May 1998, Webster Bank contributed $50 million and $41
million, respectively, to the Company, which was used to purchase additional
residential mortgage loans.
NOTE 4 - MANDATORILY REDEEMABLE PREFERRED STOCK
On December 24, 1997, the Company raised $40 million, less expenses, in a public
offering of 40,000 shares of its Series A 7.375% cumulative redeemable preferred
stock, liquidation preference $1,000 per share.
The Company is required to redeem all outstanding Series A Preferred Shares on
January 15, 2001 at a redemption price of $1,000 per share, plus accrued and
unpaid dividends.
7
<PAGE>
Webster Preferred Capital Corporation
CONDENSED NOTES TO FINANCIAL STATEMENTS (continued)
The Series A Preferred Shares are not redeemable prior to January 15, 1999
except upon the occurrence of a tax event. A tax event can occur when a change
in existing laws and regulations results in a substantial risk that dividends
paid by the Company will no longer be fully deductible for federal income tax
purposes or that dividends paid by the Company to Webster Bank will no longer be
fully deductible for state income tax purposes. Upon the occurrence of a tax
event, and at any time on and after January 15, 1999 through January 14, 2001,
the Series A Preferred Shares may be redeemed at the option of the Company.
NOTE 5 - CAPITAL STRUCTURE
On December 24, 1997, the Company raised $10 million, less expenses, in a public
offering of 1,000,000 shares of its Series B 8.625% cumulative redeemable
preferred stock, liquidation preference $10 per share.
Dividends on the Series B Stock are payable at the rate of 8.625% per annum (an
amount equal to $.8625 per annum per share), in all cases if, when and as
declared by the Board of Directors of the Company. Dividends on the preferred
shares are cumulative and, if declared, payable on January 15, April 15, July 15
and October 15 in each year.
NOTE 6 - COMPREHENSIVE INCOME
The Company adopted the provisions of Statement of Financial Accounting Standard
("SFAS") No. 130, "Reporting Comprehensive Income" as of January 1, 1998. SFAS
No. 130, establishes standards for the reporting and display of comprehensive
income and its components ( such as changes in net unrealized securities gains
and losses). Comprehensive income includes net income and any changes in equity
from non-owner sources that bypass the income statement. The purpose of
reporting comprehensive income is to report a measure of all changes in equity
of an enterprise that result from recognized transactions and other economic
events of the period other than transactions with owners in their capacity as
owners. Application of SFAS No. 130 will not impact amounts previously reported
for net income or affect the comparability of previously issued financial
statements.
The following table summarizes comprehensive income for the three months ended
June 30, 1998 and June 30, 1997 and the six months ended June 30, 1998 and for
the period from March 17, 1997 (date of inception) to June 30, 1997:
<TABLE>
<CAPTION>
(In Thousands) Three Three For the Period from
Months Months Six Months March 17, 1997
Ended June Ended June Ended June (Date of Inception)
30, 1998 30, 1997 30, 1998 to June 30, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $15,089 $11,722 $28,317 $13,554
Other Comprehensive Income
Unrealized gains (losses) on securities (64) - 955 -
- -------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $15,025 $11,722 $29,272 $13,554
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Webster Preferred Capital Corporation
CONDENSED NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 7 - ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the method in which public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim reports issued to shareholders. This statement
requires that public business enterprises report quantitative and qualitative
information about its reportable segments, including profit or loss, certain
specific revenue and expense items and segment assets. This SFAS does not apply
to the Company since the Company has only one reportable operating segment.
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-up Activities ("SOP
98-5"). SOP 98-5 is applicable to all non-governmental entities and requires
that costs of start-up activities, including organization costs, be expensed as
incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. Restatement of previously issued financial
statements is not permitted. Initial application of the SOP should be as of the
beginning of the fiscal year in which the SOP is first adopted and the
unamortized portion of previously capitalized start-up costs should be written
off and reported as the cumulative effect of a change in accounting principle.
The Company does expect the adoption of SOP 98-5 to have a material impact on
its operations.
9
<PAGE>
Webster Preferred Capital Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
GENERAL
Webster Preferred Capital Corporation (the "Company") is a subsidiary of Webster
Bank and was incorporated in March 1997 to provide a cost-effective means of
raising funds, including capital, on a consolidated basis for Webster Bank. In
March 1997, Webster Bank contributed approximately $617.0 million of mortgage
assets, net as part of the formation of the Company. In November 1997, March
1998, April 1998, and May 1998, Webster Bank contributed approximately $120.4
million, $51.8 million, $50 million, and $41 million, respectively, in cash
which the Company used to purchase mortgage-backed securities and residential
mortgage loans. Total assets at June 30, 1998 were $959.7 million, consisting
primarily of residential mortgage loans and mortgage-backed securities.
The Company has elected to be treated as a real estate investment trust ("REIT")
under the Internal Revenue Code of 1986 (the "Code"), and will generally not be
subject to federal income tax for as long as it maintains its qualifications as
a REIT, requiring among other things, that it currently distribute to
stockholders at least 95% of its "REIT taxable income" ( not including capital
gains and certain items of noncash income). The following discussion of the
Company's financial condition and results of operations should be read in
conjunction with the Company's financial statements and other financial data
included elsewhere herein.
During the second quarter, the Board of Directors of the Company authorized
management of the Company to pursue a voluntary dissolution. However, no action
in that regard has been taken by the Company, pending the evaluation of Webster
Bank, as well as the Company. Any such voluntary dissolution would be subject to
applicale provisions of Connecticut law (e.g., receipt of stockholder approval)
as well as the terms of the Copany's Series A 7.375% Cumulative Redeemable
Preferred Stock, par value $1.00 per share, and the Company's Series B 8.625%
Cumulative Redeemable Preferred Stock, par value $1.00 per share.
In May 1998, legislation was passed in Connecticut that allows financial
institutions to establish Mortgage Passive Investment Company ("PIC")
subsidiaries beginning in 1999. The use of a PIC subsidiary by Connecticut-based
financial institutions such as Webster Bank, can significantly reduce or
eliminate state income tax expense of such financial institutions. Webster Bank
will evaluate the benefits, if any, of the establishment of a PIC. The ability
to form a PIC is an alternative to Webster Bank increasing or maintaining its
investment in the Company.
CHANGES IN FINANCIAL CONDITION
Total assets were $959.7 million at June 30, 1998, an increase of
$172.1 million from $787.6 million at December 31, 1997. The increase in total
assets is primarily attributable to the purchase of additional mortgage-backed
securities of $51.7 million and to the purchase of additional residential
mortgage loans of $213.7 million, offset by loan repayments of $95 million. The
increases were funded by contributions from Webster Bank and net earnings. Total
net foreclosed properties were $86,000 at June 30, 1998. There were no
foreclosed properties at December 31, 1997. Shareholders' equity was $918.3
million at June 30, 1998 and $746.7 million at December 31, 1997.
ASSET QUALITY
The Company maintains asset quality by acquiring residential real estate loans
that have been conservatively underwritten, aggressively managing nonaccrual
assets and maintaining adequate reserve coverage. At June 30, 1998, residential
real estate loans comprised the entire loan portfolio. The Company also invests
in highly rated mortgage-backed securities.
10
<PAGE>
Webster Preferred Capital Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)
The aggregate amount of nonaccrual loans was $1,015,777 at June 30, 1998. The
following table details the Company's nonaccrual assets:
<TABLE>
<CAPTION>
At June 30, At December 31,
(In Thousands) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Loans Accounted for on a Nonaccrual Basis:
Residential Fixed-Rate Loans $ 104 $ 158
Residential Variable-Rate Loans 911 1,145
- --------------------------------------------------------------------------------------------
Total Nonaccrual Loans 1,015 1,303
Residential Foreclosed Properties 86 -
- --------------------------------------------------------------------------------------------
Total Nonaccrual Assets $ 1,101 $ 1,303
============================================================================================
</TABLE>
At June 30, 1998 the allowance for loan losses was $1.4 million, or 136% of
nonaccrual loans and 126% of total nonaccrual assets. Management believes that
the allowance for loan losses is adequate to cover expected losses in the
portfolio.
The net decrease in nonaccrual assets of $203,000 at June 30, 1998 as compared
to the December 31, 1997 balance is due primarily to the reduction of nonaccrual
loans.
A detail of the change in the allowance for loan losses for the six months ended
June 30, 1998 follows:
(In Thousands) At June 30, 1998
- ---------------------------------------------------------------------
Balance at Beginning of Period $ 1,538
Provisions Charged to Operations -
Charge-offs (157)
Recoveries 1
- ---------------------------------------------------------------------
Balance at End of Period $ 1,382
=====================================================================
ASSET/LIABILITY MANAGEMENT
The goal of the Company's asset/liability management policy is to manage
interest-rate risk so as to maximize net interest income over time in changing
interest-rate environments while maintaining acceptable levels of risk. The
Company must provide for sufficient liquidity for daily operations. The Company
prepares estimates of the level of prepayments and the effect of such
prepayments on the level of future earnings due to reinvestment of funds at
rates different than those that currently exist. The Company is unable to
predict future fluctuations in interest rates and as such the market values of
certain of the Company's financial assets are sensitive to fluctuations in
market interest rates. Changes in interest rates can affect the value of its
loans and other interest-earning assets. At June 30, 1998, 63.5% of the
Company's residential mortgage loans were variable rate loans. The Company
believes these residential mortgage loans are less likely to incur prepayments
of principal.
11
<PAGE>
Webster Preferred Capital Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of liquidity for the Company are net cash flows from
operating activities, investing activities and financing activities. Net cash
flows from operating activities primarily include net income, net changes in
prepaid expenses and other assets, accrued interest receivable and adjustments
for noncash items such as amortization of deferred fees and premiums, and
mortgage-backed securities net amortization and accretion. Net cash flows from
investing activities primarily include the purchase and repayments of
residential real estate loans and mortgage backed securities that are classified
as available for sale. Net cash flows from financing activities primarily
include net changes in capital generally related to stock issuances,
contributions from Webster Bank and dividend payments.
While scheduled loan amortization, maturing securities, short term investments
and securities repayments are predictable sources of funds, loan and
mortgage-backed security prepayments are greatly influenced by general interest
rates, economic conditions and competition. One of the inherent risks of
investing in loans and mortgage-backed securities is the ability of such
instruments to incur prepayments of principal prior to maturity at prepayment
rates different than those estimated at the time of purchase. This generally
occurs because of changes in market interest rates. The market values of
fixed-rate loans and mortgage-backed securities are sensitive to fluctuations in
market interest rates, declining in value as interest rates rise. If interest
rates decrease, the market value of loans generally will tend to increase with
the level of prepayments also normally increasing.
Dividends on the Series A Stock are payable at the rate of 7.375% per annum (an
amount equal to $73.75 per annum per share), and the dividends on the Series B
Stock are payable at the rate of 8.625% per annum (an amount equal to $.8625 per
annum per share), in all cases if, when and as declared by the Board of
Directors of the Company. Dividends on the preferred shares are cumulative and,
if declared, payable on January 15, April 15, July 15 and October 15 in each
year.
12
<PAGE>
Webster Preferred Capital Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)
RESULTS OF OPERATIONS
GENERAL
The Company reported net income of $28.3 million, or $278,860 per common share
on a diluted basis for the six months ended June 30, 1998, compared to net
income of $13.6 million, or $134,960 per common share on a diluted basis for the
period from March 17, 1997 (date of inception) to June 30, 1997.
NET INTEREST INCOME
Total interest income for the six months ended June 30, 1998 and the period from
March 17, 1997 (date of inception) to June 30, 1997 amounted to $30.2 million,
and $13.6 million, respectively. The following table shows the major categories
of average interest-earning assets, their respective interest income and the
rates earned by the Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998 THREE MONTHS ENDED JUNE 30, 1997
- -----------------------------------------------------------------------------------------------------------------
Average Interest Average Average Interest Average
(In Thousands) Balance Income Yield Balance Income Yield
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans $750,944 $13,140 7.00% $623,575 $11,767 7.56%
Mortgage-Backed Securities 172,233 2,882 6.69% - - -
Interest Bearing Deposits 929 13 5.60% - - -
- -----------------------------------------------------------------------------------------------------------------
Total $924,106 $16,035 6.94% $623,575 $11,767 7.56%
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
THE PERIOD FROM MARCH 17, 1997 (DATE
SIX MONTHS ENDED JUNE 30, 1998 OF INCEPTION) TO JUNE 30, 1997
- ------------------------------------------------------------------------------------------------------------
Average Interest Average Average Interest Average
(In Thousands) Balance Income Yield Balance Income Yield
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans $706,022 $25,114 7.11% $364,711 $13,613 7.48%
Mortgage-Backed Securities 150,902 5,033 6.64% - - -
Interest Bearing Deposits 1,454 42 5.78% - - -
- ------------------------------------------------------------------------------------------------------------
Total $858,378 $30,189 7.03% $364,711 $13,613 7.48%
============================================================================================================
</TABLE>
13
<PAGE>
Webster Preferred Capital Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)
PROVISION FOR LOAN LOSSES
There were no provisions for loan losses for the six months ended June 30, 1998
or the period from March 17, 1997 (date of inception) to June 30, 1997.
NONINTEREST EXPENSES
Noninterest expenses for the six months ended June 30, 1998 and the period from
March 17, 1997 (date of inception) to June 30, 1997 amounted to $1,872,000 and
$59,000, respectively, and included advisory fees, dividends on Series A
Preferred Stock, and amortization of start-up costs.
INCOME TAXES
No income tax expense was recorded for the six months ended June 30, 1998 or the
period from March 17, 1997 (date of inception) to June 30, 1997.
14
<PAGE>
Webster Preferred Capital Corporation
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table summarizes the estimated market value of the Company's
interest-sensitive assets and interest- sensitive liabilities at June 30, 1998,
and the projected change to market values if interest rates instantaneously
increase or decrease by 100 basis points.
<TABLE>
<CAPTION>
Estimated Market Value
Impact
Book Market ---------------------------
(In Thousands) Value Value -100 BP +100 BP
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-Sensitive Assets:
Mortgage-Backed Securities $170,803 $171,822 $3,430 $(5,334)
Variable-Rate Residential Mortgage Loans 477,497 487,237 5,089 (7,225)
Fixed-Rate Residential Mortgage Loans 274,613 281,475 3,999 (8,997)
Interest-Sensitive Liabilities:
Series A Preferred Stock 40,000 39,168 1,455 (2,425)
- --------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Webster Preferred Capital Corporation
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held an annual meeting of stockholders on April 7,
1998. Each of the Company's three directors, John V. Brennan, Harriet
Munrett Wolfe and Ross M. Strickland, was elected at the meeting, and
each such director received 100 votes cast for election (which votes
constitute 100% of the issued and outstanding common stock).
Item 5. OTHER INFORMATION - Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1998.
16
<PAGE>
Webster Preferred Capital Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEBSTER PREFERRED CAPITAL CORPORATION
-------------------------------------
Registrant
Date: August 7, 1998 By: /s/ Peter J. Swiatek
---------------------
Peter J. Swiatek
Vice President and Treasurer
Principal Financial Officer
Principal Accounting Officer
17
<PAGE>
Webster Preferred Capital Corporation
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27 Financial Data Schedule
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-01-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 27,611
<SECURITIES> 171,822
<RECEIVABLES> 755,200
<ALLOWANCES> (1,382)
<INVENTORY> 0
<CURRENT-ASSETS> 6,488
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 959,739
<CURRENT-LIABILITIES> 1,404
<BONDS> 0
40,000
1,000
<COMMON> 1
<OTHER-SE> 917,334
<TOTAL-LIABILITY-AND-EQUITY> 959,739
<SALES> 30,189
<TOTAL-REVENUES> 30,189
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 28,317
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,317
<EPS-PRIMARY> 278,880
<EPS-DILUTED> 278,860
</TABLE>
