UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended September 30, 2000
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 Number)
145 BANK STREET, WATERBURY, CONNECTICUT 06702
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 578-2286
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
---- ----
The number of shares outstanding of the registrant's common stock as
of the latest practicable date is: 100 shares.
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Statements of Condition at September 30, 2000 and December 31, 1999.......................................... 3
Statements of Income for the Three and Nine Months Ended September 30, 2000 and September 30, 1999 .......... 4
Statements of Cash Flows for the Nine Months Ended September 30, 2000 and September 30, 1999................. 5
Notes to the Financial Statements............................................................................ 6
Management's Discussion and Analysis of Financial Statements................................................. 9
Quantitative and Qualitative Disclosures About Market Risk................................................... 12
Forward Looking Statements................................................................................... 12
PART II - OTHER INFORMATION.................................................................................. 13
SIGNATURES................................................................................................... 14
INDEX TO EXHIBITS ........................................................................................... 15
</TABLE>
2
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF CONDITION (UNAUDITED)
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 99,721 $ 16,667
Mortgage-Backed Securities Available for Sale, at Fair Value (Note 2) 75,936 95,647
Residential Mortgage Loans, Net (Note 3) 801,998 849,210
Accrued Interest Receivable 4,616 5,285
Other Real Estate Owned 192 60
Prepaid Expenses and Other Assets 493 340
----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 982,956 $ 967,209
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued Dividends Payable $ 794 $ 885
Accrued Expenses and Other Liabilities 87 97
----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 881 982
----------------------------------------------------------------------------------------------------------------------
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
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 928,799 928,799
Distributions in Excess of Accumulated Earnings -- (2,134)
Retained Earnings 13,488 --
Accumulated Other Comprehensive Loss (1,213) (1,439)
----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 942,075 926,227
----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 982,956 $ 967,209
======================================================================================================================
</TABLE>
See accompanying notes to the financial statements
3
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
(Dollars In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 14,130 $ 14,367 $ 42,776 $ 42,411
Securities 2,239 1,813 6,205 5,475
----------------------------------------------------------------------------------------------------------------------
Total Interest Income 16,369 16,180 48,981 47,886
Provision for Loan Losses (Note 3) 30 120 160 360
----------------------------------------------------------------------------------------------------------------------
Interest Income After Provision for Loan Losses 16,339 16,060 48,821 47,526
Noninterest Income:
Gain on Sale of Investments -- -- 94 --
Noninterest Expenses:
Advisory Fee Expense Paid to Parent 39 38 118 113
Dividends on Mandatorily Redeemable Preferred Stock 738 737 2,213 2,212
Other Noninterest Expenses 113 107 316 316
----------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 890 882 2,647 2,641
----------------------------------------------------------------------------------------------------------------------
Income Before Taxes 15,449 15,178 46,268 44,885
Income Taxes -- -- -- --
----------------------------------------------------------------------------------------------------------------------
NET INCOME 15,449 15,178 46,268 44,885
Preferred Stock Dividends 216 216 647 647
Net Income Available to Common Shareholder $ 15,233 $ 14,962 $ 45,621 $ 44,238
======================================================================================================================
Net Income Per Common Share:
Basic $ 152,330 $ 149,620 $ 456,210 $ 442,380
Diluted $ 152,330 $ 149,620 $ 456,210 $ 442,380
----------------------------------------------------------------------------------------------------------------------
See accompanying notes to the financial statements
</TABLE>
4
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 46,268 $ 44,885
Adjustments to Reconcile Net Cash Provided by Operating Activities:
Provision for Loan Losses 160 360
Accretion of Securities Discount (17) (34)
Amortization of Deferred Loan Cost and Premiums 608 942
Gains on Sale of Securities (94) --
Decrease (Increase) in Accrued Interest Receivable 669 (25)
(Decrease) Increase in Accrued Liabilities (101) 257
(Increase) Decrease in Prepaid Expenses and Other Assets (153) 254
---------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 47,340 46,639
---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of Mortgage Backed Securities (34,192) --
Proceeds Collected from Sale of Mortgage Backed Securities 47,388 --
Principal Collected on Mortgage-Backed Securities 6,853 17,241
Purchase of Loans (31,087) (194,929)
Proceeds from REO Sale 92 --
Purchase of Deferred Fees 657 --
Principal Repayments of Loans, Net 76,650 136,410
---------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities 66,361 (41,278)
---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Dividends Paid on Common and Preferred Stock (30,647) (15,872)
---------------------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities (30,647) (15,872)
---------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 83,054 (10,511)
Cash and Cash Equivalents at Beginning of Period 16,667 26,964
---------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 99,721 $ 16,453
=====================================================================================================================
SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid $ -- $ --
Interest Paid $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITY:
Transfer of Residential Loans to Other Real Estate Owned $ 266 $ 26
</TABLE>
See accompanying notes to the financial statements
5
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. All adjustments were of a normal recurring nature.
The results of operations for the three and nine month periods ended September
30, 2000 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 1999 Annual Report to shareholders.
NOTE 2: MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE, AT FAIR VALUE
The following table sets forth certain information regarding the mortgage-backed
securities:
<TABLE>
<CAPTION>
(In Thousands) Mortgage-Backed Securities
--------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated Fair
September 30, 2000 Cost Gains Losses Value
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale Portfolio $ 77,149 $ 244 $ (1,457) $ 75,936
========================================================================================================
Amortized Unrealized Unrealized Estimated Fair
December 31, 1999 Cost Gains Losses Value
--------------------------------------------------------------------------------------------------------
Available for Sale Portfolio $ 97,086 $ 989 $ (2,428) $ 95,647
========================================================================================================
</TABLE>
All mortgage-backed securities have a contractual maturity of over 10 years. The
weighted average yield at September 30, 2000 is 6.37%. Although the stated final
maturity of these obligations are long-term, the weighted average life is much
shorter due to scheduled repayments and prepayments. Gains and losses on the
sales of securities are recorded using the specific identification method.
6
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
NOTE 3: RESIDENTIAL MORTGAGE LOANS, NET
A summary of the Company's residential mortgage loans, net, follows:
September 30, December 31,
2000 1999
--------------------------------------------------------------------------------
Carrying Carrying
(In Thousands) Amount Amount
--------------------------------------------------------------------------------
Fixed-Rate Loans:
15 yr. Loans $ 105,528 $ 113,950
20 yr. Loans 5,150 5,322
25 yr. Loans 2,916 2,758
30 yr. Loans 226,599 227,977
--------------------------------------------------------------------------------
Total Fixed-Rate Loans 340,193 350,007
--------------------------------------------------------------------------------
Variable-Rate Loans:
15 yr. Loans 5,406 6,108
20 yr. Loans 8,115 7,839
25 yr. Loans 6,561 6,759
30 yr. Loans 441,256 476,647
--------------------------------------------------------------------------------
Total Variable-Rate Loans 461,338 497,353
--------------------------------------------------------------------------------
Total Residential Mortgage Loans 801,531 847,360
Premiums and Deferred Costs on Loans, Net 2,496 3,762
Less: Allowance for Loan Losses (2,029) (1,912)
--------------------------------------------------------------------------------
Residential Mortgage Loans, Net $ 801,998 $ 849,210
================================================================================
As of September 30, 2000, approximately 42.4% of the Company's residential
mortgage loans are fixed-rate loans and approximately 57.6% are adjustable-rate
loans.
A detail of the change in the allowance for loan losses, for the periods
indicated follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In Thousands) September 30, September 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at Beginning of Period $ 2,017 $ 1,742 $ 1,912 $ 1,555
Provision Charged to Operations 30 120 160 360
Charge-offs (18) (71) (43) (124)
------------------------------------------------------------------------------------------------------------------
Balance at End of Period $ 2,029 $ 1,791 $ 2,029 $ 1,791
==================================================================================================================
</TABLE>
7
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4: MANDATORILY REDEEMABLE PREFERRED STOCK
--------------------------------------------------------------------------------
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.
The Series A Preferred Shares may be redeemed at the option of the Company at
any time on and after January 15, 1999 through January 14, 2001 at the
applicable early redemption price.
NOTE 5: OTHER COMPREHENSIVE INCOME
The following table summarizes reclassification adjustments for other
comprehensive income and the related tax effects:
<TABLE>
<CAPTION>
BEFORE INCOME TAX
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 TAX (EXPENSE) NET-OF-TAX
(In Thousands) AMOUNT OR BENEFIT AMOUNT
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gain on available for sale securities:
Unrealized holding gains arising during the period $ 1,026 -- $ 1,026
Less: Reclassification adjustment for losses
realized during the period -- -- --
------------------------------------------------------------------------------------------------------------------------
Other comprehensive gain at September 30, 2000 $ 1,026 -- $ 1,026
========================================================================================================================
Unrealized loss on available for sale securities:
Unrealized holding losses arising during the period $ (394) -- $ (394)
Less: Reclassification adjustment for gains
realized during the period -- -- --
------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss at September 30, 1999 $ (394) -- $ (394)
========================================================================================================================
BEFORE INCOME TAX
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 TAX (EXPENSE) NET-OF-TAX
(In Thousands) AMOUNT OR BENEFIT AMOUNT
------------------------------------------------------------------------------------------------------------------------
Unrealized gain on available for sale securities:
Unrealized holding gains arising during the period $ 320 -- $ 320
Less: Reclassification adjustment for gains
realized during the period 94 -- 94
------------------------------------------------------------------------------------------------------------------------
Other comprehensive gain at September 30, 2000 $ 226 -- $ 226
========================================================================================================================
Unrealized loss on available for sale securities:
Unrealized holding losses arising during the period $ (2,289) -- $ (2,289)
Less: Reclassification adjustment for gains
realized during the period -- -- --
------------------------------------------------------------------------------------------------------------------------
Other comprehensive income at September 30, 1999 $ (2,289) -- $ (2,289)
========================================================================================================================
</TABLE>
8
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
GENERAL
-------
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. Total assets at September 30, 2000 and
December 31, 1999 were $983.0 million and $967.2 million, respectively,
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 qualification 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). Webster Bank also benefits significantly from
state tax treatment of dividends paid by the Company as a result of its
qualification as a REIT. The following discussion of the Company's financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1999 Annual Report to Shareholders and other financial data included elsewhere
herein.
CHANGES IN FINANCIAL CONDITION
------------------------------
Total assets, consisting primarily of residential mortgage loans and
mortgage-backed securities, were $983.0 million at September 30, 2000, an
increase of $15.8 million from $967.2 million at December 31, 1999. The increase
in total assets is primarily attributable to net income of $46.3 million less
the payment of common and preferred stock dividends of $30.6 million.
Shareholders' equity was $942.1 million at September 30, 2000 and $926.2 million
at December 31, 1999.
ASSET QUALITY
-------------
The Company's asset quality reflects the residential real estate loans that have
been acquired from Webster Bank. The Company aggressively manages nonaccrual
assets. At September 30, 2000, residential real estate loans comprised the
entire loan portfolio. The Company also invests in highly rated mortgage-backed
securities.
The aggregate amount of nonaccrual loans was $528,000 at September 30, 2000. The
following table details the Company's nonaccrual loans at September 30, 2000 and
December 31, 1999:
September 30, December 31,
(In Thousands) 2000 1999
----------------------------------------------------------------- --------------
Loans Accounted for on a Nonaccrual Basis:
Residential Fixed-Rate Loans $ 231 $ 319
Residential Variable-Rate Loans 105 830
Other Real Estate Owned 192 60
------- --------------------------------------------------------- --------------
Total Nonaccrual Assets $ 528 $ 1,209
======= ========================================================= ==============
At September 30, 2000 the allowance for loan losses was approximately $2.0
million, or 384% of nonaccrual assets. Management believes that the allowance
for loan losses is adequate to cover expected losses in the portfolio.
<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 on 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, capital
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 Preferred 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 Preferred 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 payable on January 15, April 15, July 15 and October 15 of each
year.
The Series A Preferred Stock will be redeemed on January 15, 2001. The Company
has sufficient cash to redeem the stock without outside funding. The Company
expects sufficient cash flow from loan payment streams to replenish its cash.
ASSET/LIABILITY MANAGEMENT
The goal of the Company's asset/liability management policy is to manage
interest-rate risk so as to maximize net interest income over time in changing
interest-rate environments while maintaining acceptable levels of risk. The
Company must provide for sufficient liquidity for daily operations. The Company
prepares estimates of the level of prepayments and the effect of such
prepayments on the level of future earnings due to reinvestment of funds at
rates different than those that currently exist. The Company is unable to
predict future fluctuations in interest rates and as such the market values of
certain of the Company's financial assets are sensitive to fluctuations in
market interest rates. Changes in interest rates can affect the value of its
loans and other interest-earning assets. At September 30, 2000, 57.6% 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.
10
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 2000, the Company reported net
income of $15.4 million and $46.3 million, respectively, or $152,330 and
$456,210, respectively, per common share on a diluted basis, compared to the
three and nine months ended September 30, 1999 which amounted to $15.2 million
and $44.9 million, respectively, or $149,620 and $442,380, respectively, per
common share on a diluted basis.
Total interest income for the three and nine months ended September 30, 2000
amounted to $16.4 million and $49.0 million, respectively, net of servicing
fees, compared to the three and nine months ended September 30, 1999 which
amounted to $16.2 million and $47.9 million, respectively. The following table
shows the major categories of average interest-earning assets, their respective
interest income and the yields earned by the Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
Average Interest Average Average Interest Average
(In Thousands) Balance Income Yield Yield Income Yield
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans $ 822,926 $ 14,130 6.87% $ 862,179 $ 14,367 6.67%
Mortgage-Backed Securities 69,297 1,105 6.38 101,852 1,596 6.27
Interest Bearing Deposits 70,867 1,134 6.39 15,275 217 5.68
----------------------------------------------------------------------------------------------------------------------
Total $ 963,090 $ 16,369 6.80% $ 979,306 $ 16,180 6.61%
----------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
Average Interest Average Average Interest Average
(In Thousands) Balance Income Yield Balance Income Yield
----------------------------------------------------------------------------------------------------------------------
Mortgage Loans $ 834,474 $ 42,776 6.84% $ 844,091 $ 42,411 6.70%
Mortgage-Backed Securities 73,354 3,658 6.65 107,460 5,064 6.28
Interest Bearing Deposits 55,609 2,547 6.11 11,542 411 4.74
----------------------------------------------------------------------------------------------------------------------
Total $ 963,437 $ 48,981 6.78% $963,093 $47,886 6.63%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The provision for loan losses for the three and nine months ended September 30,
2000, amounted to $30,000 and $160,000, respectively, compared to $120,000 and
$360,000 for the three and nine months ended September 30, 1999. The reduction
in the provision for loan losses reflects the decline in the total residential
mortgage loan portfolio.
Noninterest expenses for the three and nine months ended September 30, 2000
amounted to $890,000 and $2.6 million, respectively, compared to the noninterest
expenses for the three and nine months ended September 30, 1999 which amounted
to $882,000 and $2.6 million, respectively. Noninterest expenses included
advisory fees and dividends on Series A Preferred Stock. No income tax expense
was recorded for either period.
RECENT FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. Under this statement, an entity that elects to apply
hedge accounting is required to establish at the inception of the hedge the
method it will use for assessing the effectiveness of the hedging derivative and
11
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
the measurement approach for determining the ineffective aspect of the hedge.
Those methods must be consistent with the entity's approach to managing risk.
SFAS No. 133, as amended by SFAS No. 137, is now effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Upon adoption, hedging
relationships must be designated anew and documented pursuant to the provisions
of this statement. Early adoption is permitted; however, retroactive application
is prohibited. This SFAS is not expected to impact the Company since the Company
does not engage in hedging activities or utilize derivative instruments.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table summarizes the estimated market value of the Company's
interest-sensitive assets and interest-sensitive liabilities at September 30,
2000 and the projected change to market values if interest rates instantaneously
increase or decrease by 100 basis points.
<TABLE>
<CAPTION>
Estimated Market Value Impact
--------------------------------------
(In Thousands) Book Value Market Value -100 BP +100 BP
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT SEPTEMBER 30, 2000
Interest Sensitive Assets:
Mortgage-Backed Securities $ 77,149 $ 75,936 $ 1,521 $ (2,027)
Variable-Rate Residential Loans 461,338 425,762 7,248 (9,007)
Fixed-Rate Residential Loans 340,193 332,938 9,877 (12,201)
Interest-Sensitive Liabilities:
Series A Preferred Stock 40,000 40,000 2,297 (2,961)
----------------------------------------------------------------------------------------------------------------------
Estimated Market Value Impact
--------------------------------------
(In Thousands) Book Value Market Value -100 BP +100 BP
----------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1999
Interest Sensitive Assets:
Mortgage-Backed Securities $ 99,939 $ 98,766 $ 2,201 $ (3,065)
Variable-Rate Residential Loans 516,661 517,466 10,083 (12,498)
Fixed-Rate Residential Loans 357,979 356,312 10,847 (14,108)
Interest-Sensitive Liabilities:
Series A Preferred Stock 40,000 40,000 2,269 (2,850)
----------------------------------------------------------------------------------------------------------------------
</TABLE>
FORWARD LOOKING STATEMENTS
Statements in Management's Discussion and Analysis in the section captioned
"Quantitative and Qualitative Disclosures About Market Risk" are forward-looking
statements within the meaning of the Securities Exchange Act of 1934, as
amended. Actual results, performance or developments may differ materially from
those expressed or implied by such forward-looking statements as a result of
market uncertainties and other factors. Some important factors that would cause
actual results to differ from those in any forward-looking statements include
changes in interest rates and the general economy in the Connecticut market area
where a substantial portion of the real estate securing the Company's loans are
located. Such developments could have an adverse impact on the Company's
financial position and results of operations.
12
<PAGE>
WEBSTER PREFERRED CAPITAL CORPORATION
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Numbers Description
--------------- -----------
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September 30,
2000.
13
<PAGE>
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
BY: /s/ Peter J. Swiatek
---------------------------------
Peter J. Swiatek,
Vice President & Treasurer
Principal Financial Officer
Principal Accounting Officer
Director
Date: November , 2000
14
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27 Financial Data Schedule.
15
