WEBSTER FINANCIAL CORP
10-Q, 1998-11-13
SAVINGS INSTITUTION, FEDERALLY CHARTERED
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                                   (Mark One)

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934


For the period ending SEPTEMBER 30, 1998
                      -------------------

                                       or

[ ]  Transition  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934

For the transition period from     to   

Commission File Number:   0-15213


                          WEBSTER FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)


          Delaware                                             06-1187536
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)



Webster  Plaza, Waterbury, Connecticut                                  06720
(Address of principal executive offices)                              (Zip Code)

                                 (203) 753-2921
              (Registrant's telephone number, including area code)

             (Former name, former address and former fiscal year, if
                           changed since last report.)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                                                  [X] Yes [ ] No

     Indicate  the  number of shares  outstanding  for the  issuer's  classes of
common stock, as of the latest practicable date.

Common Stock (par value $ .01)                      37,876,994 SHARES
- ------------------------------       -------------------------------------------
           (Class)                   Issued and Outstanding at November 1, 1998



<PAGE>



 Webster Financial Corporation and Subsidiaries

                                      INDEX

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

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

     Consolidated Statements of Operations for the Three and Nine Months Ended
     September 30, 1998 and 1997                                                                                  4

     Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997                  5

     Condensed Notes to Consolidated Financial Statements                                                         6

     Management's Discussion and Analysis of Consolidated  Financial Statements                                  13

     Quantitative and Qualitative Disclosures about Market Risk                                                  20

     Forward Looking Statements                                                                                  20

     Year 2000 Impact                                                                                            21


PART II - OTHER INFORMATION                                                                                      24

SIGNATURES                                                                                                       25

EXHIBIT INDEX                                                                                                    26
</TABLE>

                                        2


<PAGE>




Webster Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in Thousands, Except Share Data)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
                                                                                    SEPTEMBER 30,       DECEMBER 31,
ASSETS                                                                                  1998               1997      
                                                                                   --------------    ----------------
                                                                                     (unaudited)
<S>                                                                                 <C>                <C>        
Cash and Due from Depository Institutions                                           $   127,795        $   151,322
Interest-bearing Deposits                                                                 8,728             77,104
Securities: (Note 2)
   Trading at Fair Value                                                                 97,849             84,749
   Available for Sale, at Fair Value                                                  3,150,556          3,092,287
   Held to Maturity, (Market Value: $444,726 in 1998;
        $412,061 in 1997)                                                               439,836            412,237
Loans Receivable, Net                                                                 4,931,885          4,995,570
Accrued Interest Receivable                                                              55,863             52,658
Premises and Equipment, Net                                                              79,372             71,887
Foreclosed Properties, Net                                                                6,153             12,224
Intangible Assets                                                                        81,037             78,493
Cash Surrender Value of Bank Owned Life Insurance                                       139,146             12,750
Prepaid Expenses and Other Assets                                                        45,466             54,606
                                                                                    -----------        -----------
   TOTAL ASSETS                                                                     $ 9,163,686        $ 9,095,887
                                                                                    ===========        ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits                                                                            $ 5,621,371        $ 5,719,030
Federal Home Loan Bank Advances                                                       1,607,322          1,516,634
Reverse Repurchase Agreements and Other Borrowings (Note 6)                           1,046,804          1,032,963
Advance Payments by Borrowers for Taxes and Insurance                                    17,271             30,570
Accrued Expenses and Other Liabilities                                                  105,425             84,851
                                                                                    -----------        -----------
   Total Liabilities                                                                  8,398,193          8,384,048
                                                                                    -----------        -----------

Corporation-Obligated Mandatorily Redeemable Capital
   Securities of Subsidiary Trust                                                       150,000            145,000
Preferred Stock of Subsidiary Corporation                                                49,577             49,577

SHAREHOLDERS' EQUITY
Common Stock, $.01 par value:
   Authorized - 50,000,000 shares;
   Issued - 38,353,424 shares at September 30, 1998 and
        37,574,176 shares at December 31, 1997                                              384                376
Paid-in Capital                                                                         247,709            241,552
Retained Earnings (Note 7)                                                              297,697            257,954
Less Treasury Stock at cost, 410,030 shares at September 30, 1998
   and 45,916 shares at December 31, 1997                                               (11,567)            (1,116)
Less Employee Stock Ownership Plan Shares Purchased with Debt                            (1,340)            (1,971)
Accumulated Other Comprehensive Income                                                   33,033             20,467
                                                                                    -----------        -----------
   Total Shareholders' Equity                                                           565,916            517,262
                                                                                    -----------        -----------
   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       $ 9,163,686        $ 9,095,887
                                                                                    ===========        ===========
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                        3

<PAGE>


Webster Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                         SEPTEMBER 30,                   SEPTEMBER 30,
                                                                       1998         1997            1998           1997
                                                                     ------      ---------        --------       --------
                                                                          (unaudited)                    (unaudited)
<S>                                                                 <C>            <C>            <C>            <C>     
INTEREST INCOME:
 Loans                                                              $ 95,056       $ 97,957       $287,949       $288,469
 Securities and Interest-bearing Deposits                             57,227         52,551        183,161        135,201
                                                                    --------       --------       --------       --------
   Total Interest Income                                             152,283        150,508        471,110        423,670
                                                                    --------       --------       --------       --------

INTEREST EXPENSE:
Interest on Deposits                                                  55,465         55,614        169,158        168,148
Interest on Borrowings                                                37,175         29,830        119,261         68,479
                                                                    --------       --------       --------       --------
   Total Interest Expense                                             92,640         85,444        288,419        236,627
                                                                    --------       --------       --------       --------

NET INTEREST INCOME                                                   59,643         65,064        182,691        187,043
Provision for Loan Losses                                              1,500         10,828          5,300         22,138
                                                                    --------       --------       --------       --------
Net Interest Income After Provision for Loan Losses                   58,143         54,236        177,391        164,905
                                                                    --------       --------       --------       --------

NONINTEREST INCOME:
Fees and Service Charges                                              12,039          8,343         31,104         23,373
Gain on Sale of Loans and Loan Servicing, Net                            235            194          2,800            551
Gain on Sale of Securities, Net                                        1,143          1,169         11,269          1,845
Other Noninterest Income                                               2,977          1,189          8,357          4,308
                                                                    --------       --------       --------       --------
   Total Noninterest Income                                           16,394         10,895         53,530         30,077
                                                                    --------       --------       --------       --------

NONINTEREST EXPENSES:
Salaries and Employee Benefits                                        19,640         19,572         58,396         57,741
Occupancy Expense of Premises                                          4,251          4,174         12,018         12,184
Furniture and Equipment Expenses                                       4,352          3,321         12,990         10,231
Foreclosed Property Expenses and Provisions, Net (Note 5)                  8          1,902            567          3,403
Intangible Amortization                                                2,512          2,304          7,174          6,950
Marketing Expenses                                                     1,837          2,187          5,866          5,802
Acquisition Related Expenses (Note 8)                                     --          9,934         17,400         29,792
Capital Securities Expense                                             3,692          3,660         11,046          7,706
Dividends on Preferred Stock of Subsidiary Corporation                 1,037             --          3,113             --
Other Operating Expenses                                               8,651          8,316         25,721         25,518
                                                                    --------       --------       --------       --------
   Total Noninterest Expenses                                         45,980         55,370        154,291        159,327
                                                                    --------       --------       --------       --------

Income Before Income Taxes                                            28,557          9,761         76,630         35,655
Income Tax Expense                                                     8,474          4,386         27,426         13,814
                                                                    --------       --------       --------       --------

NET INCOME                                                          $ 20,083       $  5,375       $ 49,204       $ 21,841
                                                                    ========       ========       ========       ========

Net Income Per Common Share:
   Basic                                                            $   0.53       $   0.14       $   1.30       $   0.58
   Diluted                                                          $   0.52       $   0.14       $   1.27       $   0.56

Dividends Declared Per Common Share                                 $   0.11       $   0.10       $   0.32       $   0.30
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                        4

<PAGE>



Webster Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)

<TABLE>
<CAPTION>
                                                                             NINE MONTHS ENDED  SEPTEMBER 30,
                                                                                1998                  1997
                                                                            ------------          ------------
<S>                                                                         <C>                   <C>         
OPERATING ACTIVITIES:
Net Income                                                                  $     49,204          $     21,841
Adjustments to Reconcile Net Income to Net
  Cash Provided (Used) by Operating Activities:
   Provision for Loan Losses                                                       5,300                22,138
   Provision for Foreclosed Property Losses                                          285                 1,328
   Provision for Depreciation and Amortization                                     9,334                 8,346
   Amortization of Securities Premiums, Net                                        2,540                (1,029)
   Amortization of Hedging Costs, Net                                              3,485                 2,273
   Amortization and Write-down of  Intangibles                                     7,174                 6,950
   Amortization of Mortgage Servicing Rights                                       1,388                   473
   Gain on Sale of Deposits                                                           --                  (546)
   Loss on Sale of Premises & Equipment                                               --                   912
   Gains on Sale of  Foreclosed Properties, Net                                     (678)                 (787)
   Loans and Securities Gains, Net                                               (15,343)               (2,107)
   (Loss) Gains on Trading Securities, Net                                         1,274                  (289)
   Decrease (Increase) in Trading Securities                                      10,803               (32,447)
   Loans Originated for Sale                                                     (26,097)              (43,358)
   Sale of Loans, Originated for Sale                                            106,107                43,893
   Increase in Interest Receivable                                                (2,960)               (5,045)
   Increase in Interest Payable                                                    3,263                10,947
   (Decrease) Increase in Accrued Expenses and Other Liabilities, Net            (48,703)               13,524
   Increase in Cash Surrender Value of Bank Owned Life Insurance                  (3,396)                   --
   Increase in Prepaid Expenses and Other Assets, Net                               (607)               (6,715)
   Pooling Adjustments, Net                                                        7,860                    -- 
                                                                            ------------          ------------
      Net Cash Provided by Operating Activities                                  110,233                40,302
                                                                            ------------          ------------

INVESTING ACTIVITIES:
  Purchases of Securities, Available for Sale                                 (1,892,632)           (1,711,921)
  Purchases of Securities, Held to Maturity                                     (151,988)              (16,713)
  Maturities of Securities                                                       117,683               139,194
  Proceeds from Sale of Securities, Available for Sale                         1,142,403               137,189
  Purchases of Bank Owned Life Insurance                                        (123,000)                   --
  Net Decrease (Increase) in Interest-bearing Deposits                            65,941               (96,757)
  Purchase of Loans                                                              (66,173)             (120,078)
  Net Decrease (Increase) in Loans                                                35,432               (12,483)
  Proceeds from Sale of Foreclosed Properties                                     10,937                18,845
  Principal Collected on Mortgage-backed Securities                              842,653               248,634
  Purchases of Premises and Equipment, Net                                       (16,395)               (7,664)
                                                                            ------------          ------------
     Net Cash Used by Investing Activities                                       (35,139)           (1,421,754)
                                                                            ------------          ------------

FINANCING ACTIVITIES:
  Net Decrease in Deposits                                                      (114,573)             (174,696)
  Repayment of FHLB Advances                                                  (3,568,579)           (4,025,440)
  Proceeds from FHLB Advances                                                  3,616,970             4,696,989
  Repayment of Reverse Repurchase Agreements & Other Borrowings              (11,079,560)           (3,211,095)
  Proceeds from Reverse Repurchase Agreements & Other Borrowings              11,094,745             4,004,754
  Net Decrease in Advance Payments for Taxes and Insurance                       (19,111)              (13,564)
  Net Proceeds from Issuance of Capital Securities                                    --               141,558
  Cash Dividends to Common and Preferred Shareholders                            (14,358)              (11,587)
  Common Stock Repurchased                                                       (22,583)               (6,020)
  Exercise of Stock Options                                                        8,428                 3,149
                                                                            ------------          ------------
     Net Cash (Used) Provided by Financing Activities                            (98,621)            1,404,048
                                                                            ------------          ------------
  (Decrease) Increase in Cash and Cash Equivalents                               (23,527)               22,596
  Cash and Cash Equivalents at Beginning of Period                               151,322               131,567
                                                                            ------------          ------------
  Cash and Cash Equivalents at End of Period                                $    127,795          $    154,163
                                                                            ============          ============

  SUPPLEMENTAL DISCLOSURES:
     Income Taxes Paid                                                      $     30,447          $     20,862
     Interest Paid                                                               284,266               225,028

  SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
     Transfer of Loans to Foreclosed Properties                                   12,750                24,496
     Transfer of Securities from HTM to AFS                                           --               109,329
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                        5

<PAGE>



Webster Financial Corporation and Subsidiaries

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

     The accompanying  consolidated financial statements include all adjustments
which are, in the opinion of management,  necessary for a fair  presentation  of
the results for the interim periods presented.  All adjustments were of a normal
recurring nature. The results of operations for the three and nine month periods
ended September 30, 1998 are not necessarily indicative of the results which may
be expected for the year as a whole.  The  accompanying  consolidated  financial
statements have been adjusted to reflect a two-for-one stock split,  effected in
the form of a stock dividend,  effective for  shareholders of record as of April
6, 1998.

     On April 15, 1998, Webster acquired Eagle Financial Corp. ("Eagle") through
a  merger  transaction.  The  transaction  was  accounted  for as a  pooling  of
interests. Accordingly, the financial statements as of and for the periods prior
to the Eagle  transaction  have been  restated  to reflect the  combination.  On
September  1,  1998,  Webster  completed  its  acquisition  of Damman  Insurance
Associates  ("Damman").  The  transaction  was  accounted for as a purchase and,
therefore,  periods  prior to the  merger  date  have not been  restated.  These
financial  statements should be read in conjunction with the restated  financial
statements and notes thereto included in the Current Report filed on Form 8-K on
July 23, 1998. The  consolidated  financial  statements  include the accounts of
Webster Financial Corporation ("Webster") and its subsidiaries.

NOTE 2 - SECURITIES

     Securities  with fixed  maturities  that are classified as Held to Maturity
are carried at cost,  adjusted for  amortization  of premiums  and  accretion of
discounts over the estimated  terms of the  securities  utilizing a method which
approximates the level yield method.  Securities that management intends to hold
for indefinite periods of time (including  securities that management intends to
use as part of its asset/liability  strategy, or that may be sold in response to
changes in interest  rates,  changes in  prepayment  risk,  the need to increase
regulatory  capital or other  similar  factors) are  classified as Available for
Sale. All Equity  Securities  are  classified as Available for Sale.  Securities
Available  for Sale are carried at fair value with  unrealized  gains and losses
net of taxes  included in Other  Comprehensive  Income (See Note 4).  Securities
classified as Trading Securities are carried at fair value with unrealized gains
and losses included in earnings. Gains and losses on the sales of securities are
recorded using the specific identification method.

     On June 30,  1997,  securities  with a book value of  approximately  $109.3
million  were  transferred  from held to maturity  to  available  for sale.  The
transfer resulted in an unrealized gain of approximately $299,000,  which is net
of income tax expense of approximately  $200,000,  being recorded as an increase
to  shareholders'  equity.  The securities  were  transferred due to a change in
intent  with  respect to holding the  securities  to  maturity  precipitated  by
changes in the balance sheet following Eagle's merger with MidConn.


                                        6

<PAGE>




Webster Financial Corporation and Subsidiaries

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------


NOTE 2 - SECURITIES (Continued)

     A summary of securities follows (in thousands):

<TABLE>
<CAPTION>
                                                       September 30, 1998                                        
                                    ------------------------------------------------------ 
                                      Amortized        Gross     Unrealized     Market     
                                         Cost          Gains       Losses        Value     
                                    --------------   --------    ---------    -----------  
<S>                                 <C>              <C>         <C>          <C>          
TRADING SECURITIES:
Mortgage-Backed Securities          $    97,849(a)   $     --    $      --    $    97,849  
                                    -----------      --------    ---------    -----------  

AVAILABLE FOR SALE PORTFOLIO:
U.S. Treasury Notes                      13,518           172           --         13,690  
U.S. Government Agency                   21,500           379           --         21,879  
Municipal Bonds and Notes                14,687           604           --         15,291  
Corporate Bonds and Notes                 5,327            54         (200)         5,181  
Equity Securities                       286,053         6,512       (6,773)       285,792  
Mortgage-Backed Securities            2,735,348        62,480       (3,667)     2,794,161  
Purchased Interest-Rate Contracts        17,170            --       (2,608)        14,562  
                                    -----------      --------    ---------    -----------  
                                      3,093,603        70,201      (13,248)     3,150,556  
                                    -----------      --------    ---------    -----------  

HELD TO MATURITY PORTFOLIO:
U.S. Treasury Notes                       2,450            20           --          2,470  
U.S. Government Agency                   15,499            19           --         15,518  
Municipal Bonds & Notes                  12,500           617           --         13,117  
Corporate Bonds and Notes               151,546         1,457         (742)       152,261  
Money Market Preferred Stock                 --            --           --             --  
Mortgage-Backed Securities              257,841         4,121         (602)       261,360  
                                    -----------      --------    ---------    -----------  
                                        439,836         6,234       (1,344)       444,726  
                                    -----------      --------    ---------    -----------  

   Total                            $ 3,631,288      $ 76,435    $ (14,592)   $ 3,693,131  
                                    ===========      ========    =========    ===========  
<CAPTION>
                                                       December 31, 1997
                                    ------------------------------------------------------   
                                      Amortized        Gross     Unrealized      Market      
                                         Cost          Gains       Losses         Value      
                                    --------------   --------    ---------    -----------    
                                    <C>              <C>         <C>          <C>            
<S>                                                                                          
TRADING SECURITIES:                 $    84,749(a)   $     --    $      --    $    84,749    
Mortgage-Backed Securities          -----------      --------    ---------    -----------    
                                                                                             
                                                                                             
AVAILABLE FOR SALE PORTFOLIO:            19,522            37           (8)        19,551    
U.S. Treasury Notes                      50,229           220          (24)        50,425    
U.S. Government Agency                   14,685            --         (126)        14,559    
Municipal Bonds and Notes                10,045            33         (227)         9,851    
Corporate Bonds and Notes               210,041        14,983       (1,049)       223,975    
Equity Securities                     2,737,522        36,307       (7,720)     2,766,109    
Mortgage-Backed Securities               15,079            --       (7,262)         7,817    
Purchased Interest-Rate Contracts   -----------      --------    ---------    -----------    
                                      3,057,123        51,580      (16,416)     3,092,287    
                                    -----------      --------    ---------    -----------    
                                                                                             
                                                                                             
HELD TO MATURITY PORTFOLIO:               2,447            28           --          2,475    
U.S. Treasury Notes                      32,274            14          (65)        32,223    
U.S. Government Agency                   12,500            93           (1)        12,592    
Municipal Bonds & Notes                   1,199             3           --          1,202    
Corporate Bonds and Notes                 1,000            --           --          1,000    
Money Market Preferred Stock            362,817         2,533       (2,781)       362,569    
Mortgage-Backed Securities          -----------      --------    ---------    -----------    
                                        412,237         2,671       (2,847)       412,061    
                                    -----------      --------    ---------    -----------    
                                                                                             
                                    $ 3,554,109      $ 54,251    $ (19,263)   $ 3,589,097    
   Total                            ===========      ========    =========    ===========    

</TABLE>

(a)  Stated at fair market value.

NOTE 3 - NET INCOME PER SHARE

     Basic net income per share is calculated  by dividing net income  available
to common shareholders by the weighted-average  number of shares of common stock
outstanding. Diluted net income per share is calculated by dividing adjusted net
income by the  weighted-average  number of diluted common shares,  including the
effect of common  stock  equivalents.  The common stock  equivalents  consist of
common  stock  options and  warrants.  The  weighted-average  shares used in the
calculation  of  net  income  per  share  have  been  adjusted  to  reflect  the
two-for-one  stock split which was  effective for  shareholders  of record as of
April 6, 1998. The weighted-average  number of shares used in the computation of
basic net income per share for the three and nine month periods ended  September
30, 1998 was 38,011,104 and 37,952,903, respectively, and for the three and nine
month  periods  ended   September  30,  1997  was  37,526,042  and   37,443,160,
respectively.  The weighted-average  number of shares used in the computation of
diluted  earnings per share for the three and nine month periods ended September
30, 1998 was 38,663,761 and 38,650,302, respectively, and for the three and nine
months ended September 30, 1997 was 38,844,339 and 37,697,620 respectively.

                                        7

<PAGE>



Webster Financial Corporation and Subsidiaries

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------


NOTE 4 - COMPREHENSIVE INCOME

     The provisions of Statement of Financial  Accounting Standards ("SFAS") No.
130, "Reporting  Comprehensive  Income" were adopted 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  investment  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 and nine
month periods ended September 30, 1998 and 1997 (in thousands):
                                                                               
<TABLE>                                                                        
<CAPTION>                                                                      
                                                                                          Three Months               Nine Months
                                                                                       Ended September 30,       Ended September 30,
                                                                                        1998         1997         1998        1997  
                                                                                      -------      -------      -------      -------
                                                                               
<S>                                                                                   <C>          <C>          <C>          <C>    
Net income                                                                            $20,083      $ 5,375      $49,204      $21,841
Other comprehensive income, net of tax                                         
     Unrealized gains on investments:                                          
         Unrealized holding gains arising during period                        
              (net of income tax  expense of $10,511  and  $14,106 for the three
              and nine months ended September 30, 1998, respectively, and $8,519
              and $9,603 for the three and
              nine months ended September 30, 1997, respectively)                      14,515       13,609       19,480       15,341
         Less reclassification adjustment for gains included in
              net income  (net of income tax  expense of $959 and $5,007 for the
              three and nine months ended September 30, 1998, respectively,  and
              $273 and $449 for the three and
              nine months ended September 30, 1997, respectively)                       1,324          437        6,914          718
                                                                                      -------      -------      -------      -------
     Other comprehensive income                                                        13,191       13,172       12,566       14,623
                                                                                      -------      -------      -------      -------
     Comprehensive income                                                             $33,274      $18,547      $61,770      $36,464
                                                                                      =======      =======      =======      =======
</TABLE>


NOTE 5 - FORECLOSED PROPERTY EXPENSES AND PROVISIONS, NET

     Foreclosed property expenses and provisions,  net are summarized as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                              Three Months                        Nine Months
                                                                           Ended September 30,                Ended September 30,
                                                                         ------------------------          -------------------------
                                                                           1998             1997             1998             1997
                                                                         -------          -------          -------          -------
<S>                                                                      <C>              <C>              <C>              <C>     
Gain on Sale of Foreclosed Property, Net                                 $  (271)         $  (343)         $  (678)         $  (787)
Provision for Losses on Foreclosed Property                                   40            1,050              285            1,328
Rental Income                                                                (40)             (56)            (105)            (142)
Foreclosed Property Expenses                                                 279            1,251            1,065            3,004
                                                                         -------          -------          -------          -------
Foreclosed Property Expenses and Provisions, Net                         $     8          $ 1,902          $   567          $ 3,403
                                                                         =======          =======          =======          =======
</TABLE>


                                        8

<PAGE>



Webster Financial Corporation and Subsidiaries

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 6 - REVERSE REPURCHASE AGREEMENTS

     At September 30, 1998,  Webster had short term  borrowings  through reverse
repurchase  agreements  outstanding.  Information  concerning  borrowings  under
reverse repurchase agreements is summarized below (dollars in thousands):

<TABLE>
<CAPTION>
                                                                WEIGHTED
    BALANCE AT                               WEIGHTED            AVERAGE              BOOK VALUE          MARKET VALUE
SEPTEMBER 30, 1998           TERM          AVERAGE RATE       MATURITY DATE         OF COLLATERAL         OF COLLATERAL
- ------------------           ----          ------------       -------------         -------------         -------------
<S>                    <C>                   <C>           <C>                        <C>                    <C>     
        $860,841        1 to 11 months        5.75%        Less than 2 months         $933,658               $862,727
</TABLE>

     The securities  underlying the reverse  repurchase  agreements are all U.S.
Agency collateral and have been delivered to the  broker-dealers who arrange the
transactions.  Webster uses reverse repurchase  agreements when the cost of such
borrowings  is less than other  funding  sources.  The  average  balance and the
maximum amount of  outstanding  reverse  repurchase  agreements at any month-end
during  the  1998  third  quarter  was  $896.1   million  and  $941.3   million,
respectively.  The  outstanding  balance of  reverse  repurchase  agreements  at
September 30, 1997 was $677.3 million.

NOTE 7 - SHAREHOLDERS' EQUITY

     On April 15, 1998,  Webster  acquired  Eagle  through a merger  transaction
accounted  for as a pooling  of  interests.  Prior to the  acquisition,  Eagle's
fiscal  year  ended  September  30.  In  recording  this  pooling  of  interests
transaction,  Eagle's financial statements as of and for the twelve months ended
September  30,  1997,  1996 and 1995  were  combined  with  Webster's  financial
statements  as of and for the twelve  months ended  December 31, 1997,  1996 and
1995, respectively. Eagle's unaudited results of operations for the three months
ended December 31, 1997 included net interest  income of $15.7  million,  income
before taxes of $8.0 million and net income of $4.9  million.  An  adjustment of
$4.9 million has been made to increase  shareholders' equity as of June 30, 1998
to reflect Eagle's results of operations for the three months ended December 31,
1997.  As a result,  Webster's  financial  statements  for 1998 include  Eagle's
results of operations from January 1, 1998 through the merger date.

NOTE 8 - ACQUISITION RELATED COSTS 

     In connection  with the  acquisition of Eagle,  that was completed on April
15, 1998, Webster recorded approximately $17.4 million of merger-related charges
during the nine month period ended  September  30, 1998.  Additionally,  Webster
recorded an increase of $1.5 million to the provision for loan losses related to
the  acquisition  of Eagle,  which was  recorded in the nine month  period ended
September 30, 1998, for conformity to Webster's credit  policies.  In connection
with the acquisition of Damman on June 1, 1998,  Webster recorded a liability of
$1.0 million for costs that did not impact the  statements of operations as that
transaction  was recorded as a purchase  transaction.  As of September 30, 1998,
approximately $783,000 of the liability remains.


                                        9

<PAGE>




Webster Financial Corporation and Subsidiaries

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 8 - ACQUISITION RELATED COSTS (Continued)

     In  connection  with the  acquisitions  of DS Bancor,  Inc.  ("Derby")  and
People's Savings  Financial Corp.  ("People's"),  that were completed on January
31, 1997 and July 31, 1997,  respectively,  and Eagle's  acquisition  of MidConn
Bank  ("MidConn"),  which  was  completed  on May  31,  1997,  Webster  recorded
approximately  $29.8 million of merger-related  charges in the nine month period
ended  September 30, 1997, of which $9.9 million was recorded in the three month
period ended September 30, 1997.  Additionally,  Webster recorded an increase of
$9.8 million to the provision  for loan losses  related to the  acquisitions  of
Derby,  People's and MidConn in the nine month period ended  September 30, 1997,
of which $4.2 million was recorded in the three month period ended September 30,
1997, for conformity to Webster's credit  policies.  There are no further merger
related  accrued   liabilities  related  to  MidConn.  In  connection  with  the
acquisition  of Sachem Trust  National  Association  on August 1, 1997,  Webster
recorded  a  liability  of $1.1  million  for  costs  that  did not  impact  the
statements  of  operations  as  that  transaction  was  recorded  as a  purchase
transaction.  As of September 30, 1998,  approximately $572,000 of the liability
remains.

         The following  table presents a summary of the  merger-related  accrued
liabilities (in thousands):

<TABLE>
<CAPTION>
                                                                                           Derby           People's           Eagle
                                                                                         --------         --------         --------
<S>                                                                                      <C>              <C>              <C>     
                  Balance of acquisition-related accrued liabilities
                      at December 31, 1996                                               $     --         $     --         $     --
                  Additions:                                                               19,900            7,200               --
                  Payments/Writedowns:
                  Compensation (severance and related costs)                               (6,700)          (1,400)              --
                  Data processing contract termination                                     (1,600)              --               --
                  Write down of fixed assets                                               (1,200)              --               --
                  Transaction costs (including investment bankers,
                      attorneys and accountants)                                           (2,200)          (1,300)              --
                  Merger related and miscellaneous expenses                                (2,800)          (2,100)              -- 
                                                                                         --------         --------         --------
                  Balance of acquisition-related accrued liabilities
                       at December 31, 1997                                                 5,400            2,400               -- 
                                                                                         --------         --------         --------
                  Additions:                                                                   --               --           17,400
                  Payments/Writedowns:
                  Compensation (severance and related costs)                                   --             (100)          (7,800)
                  Data processing contract termination                                       (500)              --
                  Transaction costs (including investment bankers,
                      attorneys and accountants)                                               --               --           (4,100)
                  Merger related and miscellaneous expenses                                  (100)            (400)          (3,600)
                                                                                         --------         --------         --------
                  Balance of acquisition-related accrued liabilities
                       at September 30, 1998                                             $  4,800         $  1,900         $  1,900
                                                                                         ========         ========         ========
</TABLE>

     The remaining  accrued liability of $8.6 million  represents,  for the most
part,  accruals for data processing  contract  termination  costs payable over a
future  period  and the  estimated  loss on sale of excess  fixed  assets due to
consolidation of overlapping branch locations.


                                       10


<PAGE>



Webster Financial Corporation and Subsidiaries

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 9 - ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued 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  the  measurement  approach  for
determining  the  ineffective  aspect  of  the  hedge.  Those  methods  must  be
consistent with the entity's  approach to managing risk.  This statement  amends
SFAS No. 52,  "Foreign  Currency  Translation",  and SFAS No. 107,  "Disclosures
about Fair Value of Financial  Instruments".  This statement supersedes SFAS No.
80, "Accounting for Futures Contracts",  SFAS No. 105,  "Disclosure  Information
about  Financial   Instruments  with   Off-Balance   Sheet  Risk  and  Financial
Instruments with Concentrations of Credit Risk", and SFAS No. 119,  "Disclosures
about Derivative Financial Instruments and Fair Value of Financial Instruments".
SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15, 1999.  Initial  application of this statement should be as of the
beginning of an entity's fiscal  quarter;  on that date,  hedging  relationships
must be  designated  a new and  documented  pursuant to the  provisions  of this
statement.  Early  adoption is permitted,  however,  retroactive  application is
prohibited. The Corporation has not yet determined the impact which the adoption
will have on its financial position or results of operations.

     In February  1998,  the FASB issued SFAS No. 132,  "Employer's  Disclosures
about Pensions and Other  Postretirement  Benefits."  This statement  amends the
disclosure  requirements  of  Statements  No.  87,  "Employer's  Accounting  for
Pensions",  No. 88 "Employer's  Accounting for Settlements  and  Curtailments of
Defined  Benefit  Pension  Plans  and for  Termination  Benefits"  and No.  106,
"Employers'  Accounting for  Postretirement  Benefits Other Than Pensions." This
statement standardizes the disclosure  requirements of Statements No. 87 and No.
106 to the extent  practicable  and recommends a parallel  format for presenting
information  about pensions and other  postretirement  benefits.  This statement
addresses  disclosure  only and does not change any  measurement  or recognition
provisions provided in previous statements.  Disclosure  requirements  affecting
amounts related to a company's results of operations should be provided for each
period an income statement is presented and similarly,  disclosure  requirements
affecting amounts related to a company's  statement of financial position should
be presented  for each period a statement of financial  condition is  presented.
This statement is effective for fiscal years  beginning  after December 15, 1997
and will be  adopted by Webster in  connection  with the 1998  annual  financial
statements.   This  statement  will  require  additional  disclosures  regarding
pensions but it is not expected to have an impact on the Corporation's financial
position or results of operations.

     In June 1997, the 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.  Webster plans to report segment  information along its five
business lines: consumer,  business,  mortgage banking,  insurance and trust and
investment management services. This statement also requires  reconciliations of
total segment  revenues,  total segment profit or loss, total segment assets and
other  amounts   disclosed  for  segments  to   corresponding   amounts  in  the
Consolidated  Financial  Statements.  This  statement is effective for financial
statements for periods beginning after December 15, 1997 and in the initial year
of  application,   comparative   information  for  earlier  years  is  required.
Comparative  interim information is required in the year subsequent to adoption.
This  statement  will be adopted in  connection  with the 1998 annual  financial
statements.   This  statement  will  require  additional  disclosures  regarding
segments but it is not expected to have an impact on the Corporation's financial
position or results of operations.


                                       11

<PAGE>



Webster Financial Corporation and Subsidiaries

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 10 - SUBSEQUENT EVENTS

     On November 4, 1998,  Webster  announced a definitive  agreement to acquire
Maritime Bank & Trust  ("Maritime"),  headquartered  in Essex,  Connecticut  for
$26.67 per share in a  tax-free,  stock-for-stock  exchange.  At the time of the
announcement,  Maritime  had  approximately  $100 million in total  assets,  $90
million in deposits and three branches.

     On November 11, 1998,  Webster announced a definitive  agreement to acquire
Village  Bancorp  ("Village"),  the holding  company  for Village  Bank & Trust,
headquartered  in  Ridgefield,  Connecticut  for $23.57 per share in a tax-free,
stock-for-stock  exchange.  At  the  time  of  the  announcement,  Maritime  had
approximately  $230  million in total  assets,  $152 million in deposits and six
branches.

     Subsequent  to the  acquisitions,  Webster  will  have  approximately  $9.5
billion in total  assets and more than 100  banking  offices,  three  commercial
banking  centers and more than 174 ATMs.  The  definitive  agreements  have been
approved by each  companies'  board of directors and are subject to the approval
of  Maritime's  and  Village's   shareholders  and  the  appropriate  regulatory
agencies. Webster expects both transactions to close during the first quarter of
1999.



                                       12

<PAGE>



Webster Financial Corporation and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

GENERAL

     Webster Financial Corporation ("Webster"),  through its subsidiary, Webster
Bank (the "Bank"),  delivers  financial  services to  individuals,  families and
businesses located throughout Connecticut.  Webster Bank is organized along five
business lines: consumer,  business,  mortgage banking, insurance, and trust and
investment management services, each supported by centralized administration and
operations.  The Corporation has grown significantly in recent years,  primarily
through a series of  acquisitions  which  have  expanded  and  strengthened  its
franchise.


CHANGES IN FINANCIAL CONDITION

     Total assets were $9.2 billion at September  30, 1998, an increase of $67.8
million from $9.1  billion at December  31, 1997.  The change in total assets is
due  primarily to a net increase in  securities of $99.0 million and an increase
in the Cash  Surrender  Value of Bank Owned Life  Insurance  of $126.4  million,
offset by a decrease in loans receivable, net of $63.7 million and a decrease in
interest-bearing deposits of $68.4 million. The increases in assets were funded,
in part, by an increase in borrowings of $104.5  million offset by a decrease in
deposits of $97.7 million.

     In June  1998,  Webster  completed  the  bulk  sale  of  $20.6  million  of
nonaccrual  residential  assets, most of which had been associated with previous
bank  acquisitions.  Also, in May 1998, the Bank sold its credit card portfolio,
totaling $31.7 million,  to First USA Bank with which an agency relationship was
established.

     The Cash Surrender  Value of Bank Owned Life Insurance  increased to $139.1
million at  September  30, 1998 from $12.8  million at December  31,  1997.  The
increase is due to additional  funding of the Bank Owned Life Insurance program.
Total  liabilities  were $8.4 billion at  September  30,  1998,  unchanged  from
December 31, 1997.

     Shareholders'  equity was $565.9  million at September  30, 1998 and $517.3
million at  December  31,  1997.  At  September  30,  1998,  the Bank had Tier 1
leveraged,  Tier 1 risk-based,  and total  risk-based  capital  ratios of 6.41%,
13.03%  and  14.28%,   respectively.   The  Bank  met  the  regulatory   capital
requirements to be categorized as a "well capitalized"  institution at September
30, 1998.

     During the third quarter of 1998,  Webster  repurchased  433,600  shares of
Webster common stock under the repurchase plan announced in June 1998.


ASSET QUALITY

     Webster devotes significant  attention to maintaining asset quality through
conservative  underwriting  standards,  active servicing of loans,  aggressively
managing  nonperforming  assets and  maintaining  adequate  reserve  coverage on
nonaccrual  assets.  At September  30,  1998,  residential  and  consumer  loans
comprised  approximately 86% of the loan portfolio.  All fixed income securities
must have an  investment  rating  in the top two  rating  categories  by a major
rating service at time of purchase.


                                       13

<PAGE>



Webster Financial Corporation and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

     A breakdown of loans  receivable,  net by type as of September 30, 1998 and
December 31, 1997 follows (in thousands):

<TABLE>
<CAPTION>
                                                                         September 30, 1998         December 31, 1997 
                                                                         ------------------         ----------------- 
<S>                                                                          <C>                        <C>        
Residential Mortgage Loans                                                   $3,793,405                 $3,871,438
Commercial Real Estate Loans                                                    386,138                    386,837
Commercial Loans                                                                314,868                    243,302
Consumer Loans (Including Home Equity)                                          494,474                    556,134 
                                                                             ----------                 -----------
     Total Loans                                                              4,988,885                  5,057,711
Allowance for Loan Losses                                                       (57,000)                   (62,141)
                                                                            -----------                 ----------
      Loans Receivable, Net                                                  $4,931,885                 $4,995,570 
                                                                            ===========                ===========
</TABLE>

     Included  above at September 30, 1998 and December 31, 1997 were loans held
for sale of $3.8 million and $3.5 million, respectively.

     The following table details the nonaccrual assets at September 30, 1998 and
December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
                                                                           September 30, 1998         December 31, 1997
                                                                           ------------------         -----------------
<S>                                                                              <C>                        <C>    
Loans Accounted For on a Nonaccrual Basis:
     Residential Real Estate                                                     $11,812                    $26,640
     Commercial                                                                   15,014                     12,229
     Consumer                                                                      2,753                      3,274
                                                                                --------                   --------
        Total Nonaccrual Loans                                                    29,579                     42,143

Foreclosed Properties:
     Residential and Consumer                                                      3,551                      7,711
     Commercial                                                                    2,602                      4,513
                                                                                --------                   --------
         Total Nonaccrual Assets                                                 $35,732                    $54,367
                                                                                 =======                    =======
</TABLE>

     The net decrease in  nonaccrual  assets of $18.6  million at September  30,
1998 as compared to the December  31, 1997 balance is due  primarily to the bulk
sale of $20.6  million of  nonaccrual  residential  assets,  as well as payoffs,
foreclosed property sales and charge-offs.

     At September  30, 1998,  Webster's  allowance  for losses on loans of $57.0
million  represented  192.7% of nonaccrual  loans and its total  allowances  for
losses on nonaccrual  assets of $57.3  million  amounted to 160.0% of nonaccrual
assets. Included in the loan charge-offs for the nine months ended September 30,
1998 were  write-downs  of $5.6 million  related to the bulk sale of  nonaccrual
assets.  A detail  of the  changes  in the  allowances  for  losses on loans and
foreclosed  property  for the nine months ended  September  30, 1998 follows (in
thousands):

<TABLE>
<CAPTION>
                                                               Allowances For Losses On
                                                              ----------------------------
                                                                                Foreclosed             Total
                                                                Loans           Properties       Allowance for Losses
                                                                -----           ----------       --------------------
<S>                                                           <C>                <C>                 <C>     
Balance at December 31, 1997                                  $ 62,141           $  1,222            $ 63,363
Provisions for Losses                                            5,300                285               5,585
Losses Charged to Allowances                                   (12,593)            (1,379)            (13,972)
Recoveries Credited to Allowances                                2,172                120               2,292
Fiscal Year Adjustment                                             (20)                66                  46
                                                              --------           --------            --------
Balance at September 30, 1998                                 $ 57,000           $    314            $ 57,314
                                                              ========           ========            ========
</TABLE>


                                       14

<PAGE>



Webster Financial Corporation and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------


ASSET/LIABILITY MANAGEMENT

     The  goal of  Webster'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. Webster
must provide for sufficient  liquidity for daily  operations  while  maintaining
mandated  regulatory  liquidity  levels. To this end,  Webster's  strategies for
managing  interest-rate  risk are  responsive  to changes  in the  interest-rate
environment  and  market  demands  for  particular  types  of  deposit  and loan
products.  Management  measures  interest-rate  risk  using  duration,  GAP  and
simulation  analysis with  particular  emphasis on measuring  changes in the net
present  value of  equity  and  changes  in net  interest  income  in  different
interest-rate  environments.  The simulation  analyses  incorporate  assumptions
about balance sheet changes such as asset and liability growth, loan and deposit
pricing and changes due to the mix and maturity of such assets and  liabilities.
From  such  simulations,  interest  rate  risk  is  quantified  and  appropriate
strategies are formulated.

     As  part  of its  asset/liability  management  strategy,  Webster  utilizes
various interest rate instruments  including short futures  positions,  interest
rate swaps,  interest  rate caps and interest  rate floors.  Webster holds short
futures  positions to minimize the price  volatility of certain  adjustable rate
assets  held as Trading  Securities.  Changes  in the market  value of the short
futures positions and trading securities are recognized as a gain or loss in the
consolidated  statements  of  operations  in the  period  for which  the  change
occurred.

     Interest  rate  caps,  interest  rate  floors and  interest  rate swaps are
entered into as hedges against future interest rate  fluctuations.  Webster does
not trade in speculative  interest rate contracts.  Those agreements meeting the
criteria  for hedge  accounting  treatment  are  designated  as  hedges  and are
accounted for as such. If a contract is  terminated,  any  unrecognized  gain or
loss is deferred  and  amortized  as an  adjustment  to the yield of the related
asset or liability  over the remainder of the period that was being  hedged.  If
the linked  asset or  liability  is  disposed  of prior to the end of the period
being managed,  the related interest rate contract is marked to fair value, with
any resulting gain or loss  recognized in current period income as an adjustment
to the gain or loss on the disposal of the related asset or liability.  Interest
income or  expense  associated  with  interest  rate  caps,  floors and swaps is
recorded as a component of net interest  income.  Interest rate instruments that
hedge  available  for sale  securities  are  marked to fair value  monthly  with
adjustments to shareholders' equity on a tax-effected basis.


                                       15

<PAGE>



Webster Financial Corporation and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES

     Webster's  main  sources of  liquidity  at the  holding  company  level are
dividends from the Bank and net proceeds from capital  offerings and borrowings,
while the main  outflows are the payment of  dividends  to preferred  and common
stockholders,  repurchases of Webster's common stock and the payment of interest
to holders of Webster's 8 3/4% Senior  Notes,  Webster's  9.36%  Capital Trust I
Capital  Securities and Webster's  Capital Trust II 10.00%  Capital  Securities.
There are  certain  restrictions  on the  payment  of  dividends  by the Bank to
Webster.  The Bank is required to maintain  minimum  levels of liquid  assets as
defined by regulations adopted by the Office of Thrift Supervision ("OTS"). This
requirement,  which may be varied by the OTS, is based upon a percentage  of net
withdrawable deposits and short-term borrowings. The required liquidity ratio as
revised  by the  OTS is  currently  4.00%  and the  Bank's  liquidity  ratio  at
September  30, 1998 exceeded the  requirement.  Webster Bank is also required by
regulation to maintain sufficient liquidity to ensure safe and sound operations.
Adequate  liquidity  as  assessed  by the  OTS  may  vary  from  institution  to
institution   depending   on  such   factors   as  the   institution's   overall
asset/liability structure,  market conditions,  competition and the requirements
of the  institution's  deposit and loan  customers.  The OTS  considers  both an
institution's  adherence to the liquidity ratio  requirement,  as well as safety
and  soundness  issues,  in  assessing  whether an  institution  has  sufficient
liquidity.

     Webster  Bank had  mortgage  commitments  outstanding  of  $137.5  million,
non-mortgage  commitments of $73.6  million,  unused home equity credit lines of
$312.8 million and  commercial  lines and letters of credit of $221.7 million at
September 30, 1998.




                                       16


<PAGE>



Webster Financial Corporation and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

RESULTS OF OPERATIONS

     COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997


GENERAL

     Net income for the three month  period ended  September  30, 1998 was $20.1
million,  or $0.52 per  diluted  share  compared  to $13.8  million  or $.35 per
diluted share, adjusted for acquisition  expenses,  for the same period in 1997.
Net income for the nine month period ended September 30, 1998 was $62.4 million,
or $1.61 per diluted share, adjusted for acquisition expenses, compared to $45.3
million or $1.17 per diluted share, adjusted for acquisition  expenses,  for the
same period in 1997.  Including  the  acquisition  related  after tax charges of
$13.2  million  related  to  Webster's  acquisition  of  Eagle  Financial  Corp.
("Eagle") on April 15,  1998,  Webster  reported net income of $49.2  million or
$1.27 per  diluted  share  for the first  nine  months  of 1998.  Including  the
acquisition  related  after tax charges of $15.0  million  related to  Webster's
acquisition  of DS Bancor,  Inc.  ("Derby")  on January 31,  1997,  $5.0 million
related to Webster's  acquisition of People's Savings  Financial  Corporation on
July 31, 1997 and $3.4 million  related to Eagle's  acquisition  of MidConn Bank
("MidConn")  on May 31,  1997,  Webster  reported  net income of $5.4 million or
$0.14 per diluted  share for the third quarter of 1997 and $21.8 million for the
first  nine  months of 1997.  Diluted  earnings  per share for the 1998 and 1997
periods have been  adjusted to reflect a two-for-one  stock split  effective for
shareholders of record on April 6, 1998.


NET INTEREST INCOME

     Net interest  income for the three and nine month periods  ended  September
30, 1998 amounted to $59.6 million and $182.7 million, respectively, compared to
$65.1  million  and $187.0  million  for the  respective  periods  in 1997.  The
decrease is primarily  attributable  to an increase in average  securities  at a
lower yield and an increased volume of average  borrowings at a higher cost. The
net interest rate spread for the three and nine month  periods  ended  September
30, 1998 was 2.61% and 2.59%, respectively,  compared to 2.98% and 3.05% for the
same periods in 1997.  The decrease in interest  rate spread for the nine months
ended  September 30, 1998,  as compared to the same periods in 1997,  reflects a
higher cost of funds in addition to a decrease in the yield on  interest-earning
assets.


INTEREST INCOME

     Interest  income for the three and nine  months  ended  September  30, 1998
amounted to $152.3 million and $471.1 million, respectively,  compared to $150.5
million and $423.7 million,  respectively,  for the comparable  periods in 1997.
The increases for both periods are due primarily to a higher  balance of average
interest-earning assets, which were $8.6 billion and $8.9 billion, respectively,
for the 1998 periods and $8.1 billion and $7.7  billion,  respectively,  for the
1997 periods.  The increases  resulting  from higher levels of  interest-earning
assets  in the  current  periods  were  partially  offset  by  lower  yields  on
interest-earning  assets. The yield on interest-earning assets for the three and
nine months ended September 30, 1998 was 7.04% and 7.07%, respectively, compared
to 7.39% and 7.36%, respectively, for the same periods the previous year.


INTEREST EXPENSE

     Interest  expense for the three and nine months  ended  September  30, 1998
amounted to $92.6 million and $288.4  million,  respectively,  compared to $85.4
million and $236.6  million,  respectively,  for the same periods in 1997.  This
increase is due primarily to an increase in average borrowings,  which were $2.6
billion and $2.7 billion, respectively, for the 1998 periods as compared to $2.1
billion  and  $1.6  billion,  respectively,  for the 1997  periods.  The cost of
interest-bearing liabilities increased to 4.43% and 4.48%, respectively, for the
1998 periods compared to 4.41% and 4.31%, respectively,  for the same periods in
1997.  Interest  expense  on  borrowings  for the  three and nine  months  ended
September 30, 1998 amounted to $37.2 million and $119.3  million,  respectively,
as  compared  to $29.8  million and $68.5  million,  respectively,  for the same
periods in 1997.


                                       17


<PAGE>



Webster Financial Corporation and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

     The  following  tables  show the major  categories  of  average  assets and
average  liabilities  together with their respective  interest income or expense
and the rates earned and paid by Webster.

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,                                      1998                                   1997
- -------------------------------                         -------------------------------       ---------------------------------
                                                           AVERAGE             AVERAGE        AVERAGE                AVERAGE
(DOLLARS IN THOUSANDS)                                     BALANCE   INTEREST   YIELD         BALANCE      INTEREST   YIELD
                                                        -------------------------------       ---------------------------------
<S>                                                     <C>           <C>        <C>          <C>           <C>       <C>  
ASSETS:
INTEREST EARNING ASSETS:
Loans                                                   $4,982,028    $95,056   7.60%         $4,973,522    $97,957   7.85%
Securities                                               3,651,738     57,227   6.27           3,150,578     52,551   6.67 
                                                        ----------    -------   ----          ----------    -------   ---- 
     TOTAL INTEREST EARNING ASSETS                       8,633,766    152,283   7.04           8,124,100    150,508   7.39
                                                                      -------                               -------
Noninterest Earning Assets                                 483,426                               387,940
                                                       -----------                          ------------
     TOTAL ASSETS                                       $9,117,192                            $8,512,040
                                                        ==========                            ==========

LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST BEARING LIABILITIES:
Deposits                                                $5,719,662     55,465   3.87          $5,714,450     55,614   3.88
Borrowings                                               2,555,550     37,175   5.70           2,069,916     29,830   5.66 
                                                        ----------    -------   ----          ----------    -------   ---- 
     TOTAL INTEREST BEARING LIABILITIES                  8,275,212     92,640   4.43           7,784,366     85,444   4.41
                                                        ----------    -------                 ----------    -------
Noninterest Bearing Liabilities                             95,042                                86,519
                                                        ----------                            ---------- 
     TOTAL LIABILITIES                                   8,370,254                             7,870,885
Capital Securities and Preferred Stock of
  Subsidiary Corporation                                   199,577                               148,970

SHAREHOLDERS' EQUITY                                       547,361                               492,185
                                                        ----------                            ---------- 
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY         $9,117,192                            $8,512,040
                                                        ==========                            ==========
NET INTEREST INCOME                                                   $59,643                               $65,064
                                                                      =======                               =======
INTEREST RATE SPREAD                                                            2.61%                                 2.98%
                                                                                =====                                 =====
NET YIELD ON AVERAGE INTEREST EARNING ASSETS                                    2.79%                                 3.21%
                                                                                =====                                 =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,                                      1998                                  1997 
- -------------------------------                         -------------------------------       ---------------------------------
                                                           AVERAGE             AVERAGE        AVERAGE                AVERAGE
(DOLLARS IN THOUSANDS)                                     BALANCE   INTEREST    YIELD        BALANCE      INTEREST    YIELD
                                                        -------------------------------       ---------------------------------
<S>                                                     <C>          <C>       <C>            <C>          <C>        <C>  
ASSETS:
INTEREST EARNING ASSETS:
Loans                                                   $4,843,275   $287,949   7.92%         $4,937,553   $288,469   7.78%
Securities                                               4,031,668    183,161   6.06           2,724,636    135,201   6.61 
                                                        ----------   --------   ----          ----------   --------   ---- 
     TOTAL INTEREST EARNING ASSETS                       8,874,943    471,110   7.07           7,662,189    423,670   7.36
                                                                     --------                               -------
Noninterest Earning Assets                                 477,399                               358,915
                                                        ----------                            ---------- 
     TOTAL ASSETS                                       $9,352,342                            $8,021,104
                                                        ==========                            ==========

LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST BEARING LIABILITIES:
Deposits                                                $5,770,880    169,158   3.90          $5,749,971    168,148   3.89
Borrowings                                               2,747,636    119,261   5.73           1,592,488     68,479   5.67 
                                                        ----------   --------   ----          ----------   --------   ---- 
     TOTAL INTEREST BEARING LIABILITIES                  8,518,516    288,419   4.48           7,342,459    236,627   4.31
                                                        ----------   --------                 ----------   --------
Noninterest Bearing Liabilities                            122,983                                93,040
                                                        ----------                            ---------- 
     TOTAL LIABILITIES                                   8,641,499                             7,435,499
Capital Securities and Preferred Stock of
  Subsidiary Corporation                                   183,277                               106,067

SHAREHOLDERS' EQUITY                                       527,566                               479,538
                                                        ----------                            ---------- 
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY         $9,352,342                            $8,021,104
                                                        ==========                            ==========
NET INTEREST INCOME                                                  $182,691                              $187,043
                                                                     ========                              ========
INTEREST RATE SPREAD                                                            2.59%                                 3.05%
                                                                                ====                                  =====
NET YIELD ON AVERAGE INTEREST EARNING ASSETS                                    2.76%                                 3.27%
                                                                                ====                                  =====
</TABLE>


                                       18
<PAGE>



Webster Financial Corporation and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL  STATEMENTS
- --------------------------------------------------------------------------------

PROVISION FOR LOAN LOSSES
- -------------------------

     The provision for loan losses amounted to $1.5 million and $5.3 million for
the three  and nine  month  periods  ended  September  30,  1998,  respectively,
compared to $10.8 million and $22.1 million for the respective  periods in 1997.
Included in the provision for the nine month period ended September 30, 1998 was
a $1.5 million  provision  related to loans  acquired in the Eagle  acquisition.
Included in the provision for the nine month period ended September 30, 1997 was
a $5.6 million  provision  related to loans  acquired in the Derby  acquisition.
Included in the provision  for the three and nine month periods ended  September
30, 1997 was a $1.5 million  provision related to loans acquired in the People's
acquisition  and a $2.7  million  provision  related  to loans  acquired  in the
MidConn  acquisition.  At September 30, 1998,  the allowance for loan losses was
$57.0  million and  represented  192.7% of nonaccrual  loans,  compared to $64.8
million and 152.4%, respectively, a year earlier.


NONINTEREST INCOME
- ------------------

     Noninterest income for the three and nine month periods ended September 30,
1998  amounted to $16.4  million and $53.5  million,  respectively,  compared to
$10.9  million and $30.1  million,  respectively,  for the same periods in 1997.
Fees  and  service  charges  increased  to  $12.0  million  and  $31.1  million,
respectively,  for the three and nine months ended  September 30, 1998 from $8.3
million and $23.4 million,  respectively,  for the same periods in 1997.  Damman
Insurance Associates,  which Webster acquired in 1998,  contributed $1.6 million
in fee income during the third quarter of 1998.  Additionally,  deposit  related
fees and  charges  increased  due to expanded  product  offerings  to  Webster's
growing customer base.

     Additionally,  noninterest  income increased in the nine month period ended
September 30, 1998 due to an increase in the net gains on the sale of securities
and loans, in addition to increased  income from fees and service charges in the
1998 periods.  There were $14.1 million of net gains on sales of securities  and
loans for the nine months ended  September 30, 1998 compared to $2.4 million for
the same period in 1997. Included in the 1998 period is the gain of $2.1 million
on the sale of the credit card portfolio.


NONINTEREST EXPENSES
- --------------------

     Noninterest expenses for the three and nine months ended September 30, 1998
amounted to $46.0 million and $154.3  million,  respectively,  compared to $55.4
million and $159.3 million for the same respective periods in 1997.  Included in
noninterest  expenses  for the current  nine month  period are $17.4  million of
acquisition  expenses related to the Eagle acquisition.  Included in noninterest
expenses  for the 1997 nine  month  period  are  $29.8  million  in  acquisition
expenses related to the Derby, People's and MidConn acquisitions,  of which $9.9
million is  included  in the three  month  period  ending  September  30,  1997.
Additionally,  increases  in  salaries  and  employee  benefits,  furniture  and
equipment, intangible amortization,  capital securities expense and dividends on
preferred  stock of the  subsidiary  corporation  were  offset by a decrease  in
foreclosed property expenses for the three and nine month periods.


INCOME TAXES
- ------------

     Total  income  tax  expense  for the three  and nine  month  periods  ended
September  30, 1998  amounted to $8.5 million and $27.4  million,  respectively,
compared to $4.4 million and $13.8 million,  respectively,  for the same periods
in 1997.  During the quarter ended September 30, 1998,  Webster  recorded a $2.5
million  reduction  in income  tax  expense  related  to  benefits  from a prior
acquisition  and was offset by the higher income before taxes as compared to the
year earlier period.  Income taxes for the three and nine months ended September
30,  1998  increased  due  to  higher  levels  of  income  before  taxes  before
acquisition expenses compared to the same periods in 1997.


                                       19

<PAGE>



Webster Financial Corporation and Subsidiaries

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------

     The  following  table  details  the  estimated  market  value of  Webster's
financial  assets  at  September  30,  1998 if  interest  rates  instantaneously
increase or decrease 100 basis points.

<TABLE>
<CAPTION>
                                                       Book                Market             Estimated Market Value Impact
                                                      Value                 Value               -100 BP          +100BP 
                                                   -----------           -----------          -----------      ----------- 
<S>                                                <C>                   <C>                  <C>              <C>         
Interest-Sensitive Assets
     Trading                                       $    97,849           $    97,849          $      (829)     $      (652)
     Non-Trading                                     8,277,561             8,412,805              116,371         (143,047)
Interest-Sensitive Liabilities                       8,492,345             8,508,931             (132,048)         129,457
</TABLE>

     The table above excludes  earning assets that are not directly  impacted by
changes in interest  rates.  These assets  include  equity  securities of $285.8
million (See Note 2 to Consolidated  Financial  Statements) and nonaccrual loans
of $29.6  million  (See "Asset  Quality"  within the MD&A).  Values for mortgage
servicing  rights  have been  included in the table above as changes in interest
rates affect the  valuation  of the  servicing  rights.  Equity  securities  and
nonaccrual  assets not  included  in the above  table are,  however,  subject to
fluctuations in market value based on other risks.

     Based on Webster's  asset/liability mix at September 30, 1998, management's
sensitivity analysis of the effects of changing interest rates estimates that an
instantaneous  100 basis point  increase in interest  rates would  increase  net
interest  income over the next twelve months by about 1.3% and an  instantaneous
100 basis point  decline in interest  rates would  decrease net interest  income
over the next twelve months by about 3.3%. The above estimated market values are
subject  to  factors  that  could  cause  actual  results  to  differ  from such
projections and estimates.


FORWARD LOOKING STATEMENTS

     Statements in the sections captioned "Management's  Discussion and Analysis
of Consolidated Financial Statements,"  Quantitative and Qualitative Disclosures
about Market Risk" and "Year 2000 Impact" are forward-looking  statements within
the meaning of the  Securities  and  Exchange  Act of 1934,  as amended.  Actual
results could differ materially from those management expectations,  projections
and  estimates.  Factors  that could cause  future  results to vary from current
management  expectations  include,  but are not  limited  to,  general  economic
conditions,  legislative and regulatory changes, monetary and fiscal policies of
the  federal  government,  changes in tax  policies,  rates and  regulations  of
federal,  state and local tax  authorities,  changes in interest rates,  deposit
flows,  the cost of  funds,  demand  for loan  products,  demand  for  financial
services,  competition,  changes in the quality or composition of Webster's loan
and  investment  portfolios,  changes  in  accounting  principles,  policies  or
guidelines,  and other economic,  competitive,  governmental  and  technological
factors affecting Webster's operations,  markets,  products services and prices.
Such developments  could have an adverse impact on Webster's  financial position
and results of operations.


                                       20

<PAGE>



Webster Financial Corporation and Subsidiaries

YEAR 2000 IMPACT
- --------------------------------------------------------------------------------

     The "Year  2000"  issue  refers to the  potential  impact of the failure of
computer  programs  and  equipment  to give proper  recognition  of dates beyond
December 31, 1999 and other issues related to the Year 2000 century date change.
The  Corporation  has  completed  its  assessment  of Year 2000  issues  and has
determined  that, if not addressed,  the  consequences of Year 2000 issues would
have  a  material  effect  on  business  operations.  The  following  discussion
addresses  the  Corporation's  Year  2000  preparedness  and will  focus on four
categories of  information:  I. The  Corporation's  state of readiness,  II. The
costs to address the Corporation's Year 2000 issues, III. Year 2000 risks to the
Corporation and IV. The Corporation's contingency plans.

I.   THE CORPORATION'S STATE OF READINESS

     In  accordance   with   guidelines   provided  by  the  Federal   Financial
Institutions  Examination Council (FFIEC),  the Corporation has developed a Year
2000 plan that is broken into phases.  Plan phases are:  Awareness,  Assessment,
Renovation,   Validation,  and  Implementation.   Descriptions  of  each  phase,
including excerpts of the FFIEC phase definitions, are as follows: AWARENESS

     FFIEC  requires  the  Corporation  to 1) define the Year 2000 problem as it
relates to its  particular  circumstances  and gain  executive  support  for the
resources necessary to perform compliance work, 2) establish a Year 2000 program
team and 3) develop an  overall  strategy  that  encompasses  in-house  systems,
service bureaus for systems that are outsourced,  vendors, auditors,  customers,
and suppliers (including correspondents).

     The Corporation has completed  activities  related to the Awareness  phase.
The Corporation has formed a Year 2000 Task Force, headed by a senior technology
officer. The Task Force has developed and implemented a strategy to minimize the
impact  of Year 2000  technology  problems.  The  Corporation's  strategic  plan
incorporates the FFIEC recommended  guidelines and includes regular reporting of
progress to the Corporation's  Board of Directors and Executive  Management.  In
addition  to  addressing  the  Corporation's  technology  issues,  the  strategy
includes a community  awareness  program.  The Corporation has held seminars for
the business  community  and placed  information  on its web site to address the
Corporation's  preparedness and share Year 2000 experiences and will continue to
do so as it approaches the new century.


ASSESSMENT

     FFIEC  requires the  Corporation  to assess the size and  complexity of the
problem and detail the  magnitude  of the effort  necessary to address Year 2000
issues. During this phase, the Corporation must identify all hardware, software,
networks,  automated teller machines,  other various processing  platforms,  and
customer  and vendor  dependencies  affected by the Year 2000 date  change.  The
assessment must go beyond information  systems and include  environment  systems
that are dependent on embedded microchips,  such as security systems, elevators,
and vaults.

     The Corporation has completed  activities  related to the Assessment phase.
The assessment included inventorying all Information  Technology (IT) and non-IT
systems,  including vaults,  security,  and environmental  systems.  Inventoried
items were then  prioritized by their impact on the  Corporation's  business.  A
determination was made as to whether failure to remediate for the Year 2000 date
change would adversely impact  customers,  shareholders,  or employees.  Systems
meeting this criteria were labeled Mission Critical. During this assessment, 25%
of the  Corporation's  IT system  applications  and services were  classified as
Mission  Critical,  requiring  testing  and  validation.  Examination  of non-IT
systems  indicated that no significant  replacements  are required for Year 2000
readiness.  Security  systems  have  already  been  upgraded,  automated  teller
machines  (ATM's) are being upgraded by each  respective  vendor or manufacturer
and are  anticipated to be Year 2000 ready by the first quarter of 1999.  Vaults
do not have date related issues, and therefore no remediation is required.


                                       21

<PAGE>



Webster Financial Corporation and Subsidiaries

YEAR 2000 IMPACT
- --------------------------------------------------------------------------------

RENOVATION

     FFIEC requirements for this phase include code  enhancements,  hardware and
software  upgrades,  system  replacements,   vendor  certification,   and  other
associated  changes.  Work should be prioritized  based on information  gathered
during the assessment  phase. For institutions  relying on outside  servicers or
third-party  software  providers,  ongoing  discussions and monitoring of vendor
progress is necessary.

     The  Corporation  has  significantly  completed  activities  related to the
Renovation phase. The majority of mission critical  applications are expected to
be Year 2000  ready by  December  31,  1998,  with the  remainder  targeted  for
completion by the second quarter of 1999. Most of the Corporation's  systems are
vendor  supplied  and are being  remediated  by the  vendor.  The vendor for the
Corporation's  primary  system of record has  provided us with a Year 2000 ready
release which has been  installed.  This release is currently being validated by
the Year 2000 task force for future date processing accuracy.


VALIDATION

     This phase focuses on the actual testing of the project plan.  FFIEC states
that  "Testing  is a  multifaceted  process  that is  critical  to the Year 2000
project and inherent in each phase of the project  management plan. This process
includes testing of incremental changes to hardware and software components.  In
addition to testing upgraded components,  connections with other systems must be
verified, and all changes should be accepted by internal and external users."

     Vendor supplied updates,  subject to regulatory  review,  are tested by the
vendor prior to their release.  The Corporation's focus is to perform validation
and  testing  for  Year  2000  readiness  of the  release  on its  systems.  The
Corporation has a team of Year 2000 Task Force members,  responsible for testing
the primary systems of record and all mission critical server-based applications
for  Year  2000  readiness.  The  Corporation  has  created  a Test Lab with all
necessary hardware and software that simulates live production. Test scripts are
being  developed  for all  mission  critical  applications.  Primary  functional
transaction types such as: deposits, withdrawals, payments, maturities, interest
postings,  inquiries on deposit and loan  accounts,  and other typical  business
processes,  are being  tested  for key date  validity  and  accuracy.  Key dates
include dates before,  during, and after the century change and the century leap
year. The validation  phase is anticipated to be completed for mission  critical
applications by June 30, 1999. Testing will continue as needed on newly acquired
applications and new vendor upgrades.


IMPLEMENTATION

     In accordance  with FFIEC,  "In this phase,  systems should be certified as
Year 2000  compliant  and be  accepted  by the  business  users.  For any system
failing  certification,  the  business  effect must be assessed  clearly and the
organization's Year 2000 contingency plans should be implemented."

     A significant number of the Corporation's mission critical applications are
supplied by third party vendors.  Remediatation  of the software is performed by
the vendor,  tested by the vendor,  and then  provided to the  Corporation.  The
majority of the remediated,  vendor supplied software has already been installed
and is in production.  The Corporation is currently in the process of validating
the  software  for  Year  2000  readiness  on its  systems.  At this  time,  the
implementation phase has not yet been completed.


                                       22

<PAGE>



Webster Financial Corporation and Subsidiaries

YEAR 2000 IMPACT
- --------------------------------------------------------------------------------

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

     The Corporation began  implementing a four year Year 2000 readiness project
plan in mid 1996.  Estimated total direct costs for Year 2000 remediation during
this four year period are  approximately $1 million.  Estimated outlays for Year
2000 remediation are included in the Information  Technology  department budget.
Approximately  $400,000 of direct costs have been incurred to date.  Included in
these  direct  costs,  are  expenses  related to the  replacement  or upgrade of
hardware  and  software  that  amounted to  approximately  $200,000 and expenses
related to  consulting  services  for Year 2000 project  management  and systems
testing that amounted to approximately $200,000.  During the next 18 months, the
Corporation   anticipates   Year  2000  readiness   direct   expenses  to  total
approximately  $600,000.  A significant portion of these future expenses will be
attributed to consulting fees.


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

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

     Potential worst case scenarios being addressed,  include:  excessive levels
of cash  withdrawals  prior to and  through the century  date  change,  extended
electrical power outage,  extended telephone  communication outage, extended ATM
service outage,  ACH and payroll  deposit file  transmission  difficulties,  and
excessive negative media coverage that could exacerbate public fear.

     The   Corporation   has  implemented  a  plan,  in  accordance  with  FFIEC
guidelines,   to  identify  and  evaluate  potential  Year  2000  risks  to  the
Corporation's commercial loan customers.  Customers borrowing over $250,000 have
been contacted and were provided with a questionnaire. The questionnaire assists
the  Corporation in evaluating  the customer's  state of Year 2000 readiness and
serves to raise customer  awareness.  At this time, all targeted  customers have
been  contacted.  The  Corporation is in the process of evaluating the responses
and  will  follow  up with  customers  to  monitor  progress  toward  Year  2000
readiness.  The Corporation has also implemented an enhanced small business loan
program specific to Year 2000 expenditures.

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


IV.  THE CORPORATION'S CONTINGENCY PLANS

     A  contingency  plan is being  drafted by the  Corporation  to address each
identified  potential  worst case scenario.  Alternative  solutions for business
resumption  and  approaches  to minimize  the impact of each  scenario are being
formulated.   Proposed   approaches  to  address  potential  scenarios  include:
increasing  cash  reserves,  designating  regional  offices as emergency  branch
locations with  alternate  power sources,  identifying  alternate  communication
methods, increasing customer and community awareness, and having staff available
on site over the January 1, 2000 weekend and as needed.


                                       23

<PAGE>



Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------

                           PART II - OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS  - Not Applicable

Item 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS  -  Not Applicable

Item 3.   DEFAULTS UPON SENIOR SECURITIES  -  Not Applicable

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  - Not Applicable

Item 5.   OTHER INFORMATION - Not Applicable

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K 

          (a)  Exhibits

               Exhibit No. 27 Financial Data Tables.

          (b)  Reports on Form 8-K

               Webster filed the following  Current  Report on Form 8-K with the
               Securities  and  Exchange  Commission  (the  ("SEC")  during  the
               quarter ended September 30, 1998:

               Current  Report on Form 8-K filed  with the SEC on July 23,  1998
               (date of report  July 23,  1998)  (attaching  Webster's  Selected
               Financial Data, Management's Discussion and Analysis of Financial
               Condition  and  Results  of  Operations,  Consolidated  Financial
               Statements  and other Annual  Report data restated to reflect the
               April 15, 1998 acquisition by Webster of Eagle Financial Corp.).

                                       24


<PAGE>



Webster Financial Corporation and Subsidiaries

                                   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 FINANCIAL CORPORATION

                                                 Registrant

Date:November 12, 1998                 By:  /s/ John V. Brennan                
     ---------------------------           ------------------------------------
                                           John V. Brennan
                                           Executive Vice President
                                           Chief Financial Officer and Treasurer
                                           Principal Financial Officer
                                           Principal Accounting Officer










                                       25

<PAGE>



Webster Financial Corporation and Subsidiaries
- --------------------------------------------------------------------------------

                                  EXHIBIT INDEX

Exhibit No.         Description
- -----------         -----------

 27                 Financial Data Tables.









                                       26


<TABLE> <S> <C>


<ARTICLE>                                            9
<MULTIPLIER>                                   1000
<CURRENCY>                                     US DOLLARS
       
<S>                             <C>                              <C>    
<PERIOD-TYPE>                   9-MOS                            9-MOS
<FISCAL-YEAR-END>                           DEC-31-1998                     DEC-31-1997
<PERIOD-START>                              JAN-01-1998                     JAN-01-1997
<PERIOD-END>                                SEP-30-1998                     SEP-30-1997
<EXCHANGE-RATE>                                       1                               1
<CASH>                                          127,795                         154,163
<INT-BEARING-DEPOSITS>                            8,728                         132,816
<FED-FUNDS-SOLD>                                      0                               0
<TRADING-ASSETS>                                 97,849                          94,222
<INVESTMENTS-HELD-FOR-SALE>                   3,150,556                       2,801,099
<INVESTMENTS-CARRYING>                          439,836                         444,980
<INVESTMENTS-MARKET>                            444,726                         447,237
<LOANS>                                       4,988,885                       4,971,622
<ALLOWANCE>                                      57,000                          64,763
<TOTAL-ASSETS>                                9,163,686                       8,817,767
<DEPOSITS>                                    5,621,371                       5,650,442
<SHORT-TERM>                                  2,032,573                       2,164,029
<LIABILITIES-OTHER>                             122,696                         107,176
<LONG-TERM>                                     621,553                         258,246
                                 0                               0
                                           0                               0
<COMMON>                                            384                             374
<OTHER-SE>                                      565,532                         493,642
<TOTAL-LIABILITIES-AND-EQUITY>                9,163,686                       8,817,767
<INTEREST-LOAN>                                 287,949                         288,469
<INTEREST-INVEST>                               183,161                         135,201
<INTEREST-OTHER>                                      0                               0
<INTEREST-TOTAL>                                471,110                         423,670
<INTEREST-DEPOSIT>                              169,158                         168,148
<INTEREST-EXPENSE>                              288,419                         236,627
<INTEREST-INCOME-NET>                           182,691                         187,043
<LOAN-LOSSES>                                     5,300                          22,138
<SECURITIES-GAINS>                               11,269                           1,845
<EXPENSE-OTHER>                                 154,291                         159,327
<INCOME-PRETAX>                                  76,630                          35,655
<INCOME-PRE-EXTRAORDINARY>                       76,630                          35,655
<EXTRAORDINARY>                                       0                               0
<CHANGES>                                             0                               0
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<EPS-PRIMARY>                                      1.30                            0.58
<EPS-DILUTED>                                      1.27                            0.56
<YIELD-ACTUAL>                                     2.77                            3.27
<LOANS-NON>                                      29,579                          42,487
<LOANS-PAST>                                          0                               0
<LOANS-TROUBLED>                                      0                               0
<LOANS-PROBLEM>                                       0                               0
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<RECOVERIES>                                      2,172                           5,570
<ALLOWANCE-CLOSE>                                57,000                          64,763
<ALLOWANCE-DOMESTIC>                             57,000                          64,763
<ALLOWANCE-FOREIGN>                                   0                               0
<ALLOWANCE-UNALLOCATED>                               0                               0
        


</TABLE>


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