item 14 independent registered public accounting firm fees services audit nonaudit fees following table presents fees professional audit services rendered kpmg llp audit company’s annual financial statements years ended december 31 2008 2007 fees billed services rendered kpmg llp periods audit fees consist fees professional services rendered audit company’s annual financial statements review interim financial statements included quarterly reports services normally provided connection statutory regulatory filings engagements kpmg llp engaged company render audit nonaudit services engagement approved company’s board directors part iv item 15 item 14 principal accountant fees services audit nonaudit fees following table presents fees professional audit services rendered kpmg llp audit company’s annual financial statements years ended december 31 2003 december 31 2002 fees billed services rendered kpmg llp periods 1 audit fees consist fees billed professional services rendered audit company’s consolidated annual financial statements review interim consolidated financial statements included quarterly reports services normally provided kpmg llp connection statutory regulatory filings engagements part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 following financial statements filed part report statements condition december 31 2001 2000 statements income years ended december 31 2001 2000 1999 statements shareholders equity years ended december 31 2001 2000 1999 statements cash flows years ended december 31 2001 2000 notes financial statements independent auditors report a2 financial statement schedules required filed part form a3 see index exhibits page 33 exhibits filed herewith incorporated reference index exhibits b reports form 8k filed fourth quarter 2001 c financial statements financial statement schedules excluded report required included herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized webster preferred capital corporation registrant ross strickland ross strickland president director date march 14 2002 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 14 2002 ross strickland ross strickland president director principal executive officer gregory madar gregory madar senior vice president treasurer assistant secretary principal financial accounting officer william j healy william j healy director harriet munrett wolfe harriet munrett wolfe director index exhibits exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company incorporated herein reference exhibit 31 companys annual report form 10k fiscal year ended december 31 1997 32 certificate amendment series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 32 companys annual report form 10k fiscal year ended december 31 1997 33 certificate amendment series b 8625 cumulative redeemable preferred stock 33 company incorporated herein reference exhibit 33 companys annual report form 10k fiscal year ended december 31 1997 34 amended restated bylaws company incorporated herein reference exhibit 34 companys annual report form 10k fiscal year ended december 31 1997 41 specimen certificate representing series 7375 cumulative redeemable preferred 41 stock company incorporated herein reference exhibit 41 companys annual report form 10k fiscal year ended december 31 1997 42 specimen certificate representing series b 8625 cumulative redeemable preferred 42 stock company incorporated herein reference exhibit 42 companys annual report form 10k fiscal year ended december 31 1997 101 mortgage assignment agreement made march 17 1997 webster bank 101 company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company 102 incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank 103 company incorporated herein reference exhibit 103 companys annual report form 10k fiscal year ended december 31 1997 21 subsidiaries company incorporated herein reference exhibit 21 companys annual report form 10k fiscal year ended december 31 1997 item 14 exhibits financial statement schedules reports form 8k a1 following financial statements filed part report statements condition december 31 1998 1997 statements income year ended december 31 1998 period march 17 1997 date inception december 31 1997 statements shareholders equity year ended december 31 1998 period march 17 1997 date inception december 31 statements cash flows year ended december 31 1998 period march 17 1997 date inception december 31 1997 notes financial statements independent auditors report a2 financial statement schedules required filed part form a3 see c exhibits filed herewith index exhibits b reports form 8k applicable c exhibits following exhibits either filed part report incorporated herein reference exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company incorporated herein reference exhibit 31 companys annual report form 10k fiscal year ended december 31 1997 32 certificate amendment series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 32 companys annual report form 10k fiscal year ended december 31 1997 33 certificate amendment series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 33 companys annual report form 10k fiscal year ended december 31 1997 34 amended restated bylaws company incorporated herein reference exhibit 34 companys annual report form 10k fiscal year ended december 31 1997 41 specimen certificate representing series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 41 companys annual report form 10k fiscal year ended december 31 1997 42 specimen certificate representing series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 42 companys annual report form 10k fiscal year ended december 31 1997 101 mortgage assignment agreement made march 17 1997 webster bank company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank company incorporated herein reference exhibit 103 companys annual report form 10k fiscal year ended december 31 1997 21 subsidiaries company incorporated herein reference exhibit 21 companys annual report form 10k fiscal year ended december 31 1997 27 financial data schedule financial statements financial statement schedules excluded report required included herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized webster preferred capital corporation registrant john v brennan john v brennan president director date march 30 1999 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 30 1999 john v brennan john v brennan president director principal executive officer peter j swiatek peter j swiatek vice president treasurer principal financial officer principal accounting officer ross strickland ross strickland director harriet munrett wolfe harriet munrett wolfe director index exhibits exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company incorporated herein reference exhibit 31 companys annual report form 10k fiscal year ended december 31 1997 32 certificate amendment series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 32 companys annual report form 10k fiscal year ended december 31 1997 33 certificate amendment series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 33 companys annual report form 10k fiscal year ended december 31 1997 34 amended restated bylaws company incorporated herein reference exhibit 34 companys annual report form 10k fiscal year ended december 31 1997 41 specimen certificate representing series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 41 companys annual report form 10k fiscal year ended december 31 1997 42 specimen certificate representing series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 42 companys annual report form 10k fiscal year ended december 31 1997 101 mortgage assignment agreement made march 17 1997 webster bank company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank company incorporated herein reference exhibit 103 companys annual report form 10k fiscal year ended december 31 1997 21 subsidiaries company incorporated herein reference exhibit 21 companys annual report form 10k fiscal year ended december 31 1997 27 financial data schedule item 14 controls procedures evaluation disclosure controls procedures companys management including principal executive officer principal financial officer evaluated effectiveness design operation companys disclosure controls procedures defined rule 13a14c securities exchange act 1934 amended exchange act date evaluation date within 90 days prior report based upon evaluation companys management including principal executive officer principal financial officer concluded evaluation date companys disclosure controls procedures effective alerting timely manner material information relating company required included companys exchange act filings changes internal controls significant changes made companys internal controls factors could significantly affect internal controls subsequent date evaluation performed companys principal executive officer principal financial officer part iv item 15 item 14 independent registered public accounting firm fees services audit nonaudit fees following table presents fees professional audit services rendered kpmg llp audit company’s annual financial statements years ended december 31 2007 2006 fees billed services rendered kpmg llp periods 1 audit fees consist fees professional services rendered audit company’s annual financial statements review interim financial statements included quarterly reports services normally provided connection statutory regulatory filings engagements kpmg llp engaged company render audit nonaudit services engagement approved company’s board directors part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 following financial statements filed part report statements condition december 31 1999 1998 statements income years ended december 31 1999 1998 period march 17 1997 date inception december 31 1997 statements shareholders equity years ended december 31 1999 1998 period march 17 1997 date inception december 31 1997 statements cash flows years ended december 31 1999 1998 period march 17 1997 date inception december 31 1997 notes financial statements independent auditors report a2 financial statement schedules required filed part form a3 see c exhibits filed herewith index exhibits b reports form 8k applicable c exhibits following exhibits either filed part report incorporated herein reference exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company incorporated herein reference exhibit 31 companys annual report form 10k fiscal year ended december 31 1997 32 certificate amendment series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 32 companys annual report form 10k fiscal year ended december 31 1997 33 certificate amendment series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 33 companys annual report form 10k fiscal year ended december 31 1997 34 amended restated bylaws company incorporated herein reference exhibit 34 companys annual report form 10k fiscal year ended december 31 1997 41 specimen certificate representing series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 41 companys annual report form 10k fiscal year ended december 31 1997 42 specimen certificate representing series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 42 companys annual report form 10k fiscal year ended december 31 1997 101 mortgage assignment agreement made march 17 1997 webster bank company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank company incorporated herein reference exhibit 103 companys annual report form 10k fiscal year ended december 31 1997 21 subsidiaries company incorporated herein reference exhibit 21 companys annual report form 10k fiscal year ended december 31 1997 27 financial data schedule financial statements financial statement schedules excluded report required included herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized webster preferred capital corporation registrant ross strickland president director date march 22 2000 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 22 2000 ross strickland president director principal executive officer peter j swiatek treasurer director principal financial officer principal accounting officer harriet munrett wolfe director index exhibits exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company incorporated herein reference exhibit 31 companys annual report form 10k fiscal year ended december 31 1997 32 certificate amendment series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 32 companys annual report form 10k fiscal year ended december 31 1997 33 certificate amendment series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 33 companys annual report form 10k fiscal year ended december 31 1997 34 amended restated bylaws company incorporated herein reference exhibit 34 companys annual report form 10k fiscal year ended december 31 1997 41 specimen certificate representing series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 41 companys annual report form 10k fiscal year ended december 31 1997 42 specimen certificate representing series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 42 companys annual report form 10k fiscal year ended december 31 1997 101 mortgage assignment agreement made march 17 1997 webster bank company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank company incorporated herein reference exhibit 103 companys annual report form 10k fiscal year ended december 31 1997 21 subsidiaries company incorporated herein reference exhibit 21 companys annual report form 10k fiscal year ended december 31 1997 27 financial data schedule item 14 principal accountant fees services audit nonaudit fees following table presents fees professional audit services rendered kpmg llp audit company’s annual financial statements years ended december 31 2005 2004 fees billed services rendered kpmg llp periods 1 audit fees consist fees billed professional services rendered audit company’s annual financial statements review interim financial statements included quarterly reports services normally provided connection statutory regulatory filings engagements principal accountant engaged company render audit nonaudit services engagement approved company’s board directors part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 following financial statements filed part report statement condition december 31 1997 statement income period march 17 1997 date inception december 31 1997 statement shareholders equity march 17 1997 date inception december 31 1997 statement cash flows period march 17 1997 date inception december 31 1997 notes financial statements independent auditors report a2 financial statement schedules required filed part form a3 see c exhibits filed herewith index exhibits b reports form 8k applicable c exhibits following exhibits either filed part report incorporated herein reference exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company 32 certificate amendment series 7375 cumulative redeemable preferred stock company 33 certificate amendment series b 8625 cumulative redeemable preferred stock company 34 amended restated bylaws company 41 specimen certificate representing series 7375 cumulative redeemable preferred stock company 42 specimen certificate representing series b 8625 cumulative redeemable preferred stock company 101 mortgage assignment agreement made march 17 1997 webster bank company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank company 21 subsidiaries company 27 financial data schedule financial statements financial statement schedules excluded report required included herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized webster preferred capital corporation registrant john v brennan john v brennan president director date march 30 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities noted march 30 1998 john v brennan john v brennan president director principal executive officer peter j swiatek peter j swiatek vice president treasurer principal financial officer principal accounting officer ross strickland ross strickland director harriet munrett wolfe harriet munrett wolfe director index exhibits exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company 32 certificate amendment series 7375 cumulative redeemable preferred stock company 33 certificate amendment series b 8625 cumulative redeemable preferred stock company 34 amended restated bylaws company 41 specimen certificate representing series 7375 cumulative redeemable preferred stock company 42 specimen certificate representing series b 8625 cumulative redeemable preferred stock company 101 mortgage assignment agreement made march 17 1997 webster bank company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank company 21 subsidiaries company 27 financial data schedule item 14 principal accounting fees services audit nonaudit fees march 6 2009 board directors engaged ernst young llp “ey” company’s independent registered public accounting firm fiscal year ended december 31 2009 audit committee board directors corporation recommended actions board directors following table presents fees professional audit services rendered ernst young llp audit company’s annual financial statements year ended december 31 2009 fees billed services rendered either ernst young llp period march 3 2009 board directors webster financial corporation “corporation” determined reappoint kpmg llp “kpmg” corporation’s independent registered public accounting firm fiscal year ended december 31 2009 quarterly periods therein kpmg notified action march 3 2009 following table presents fees professional audit services rendered kpmg llp audit company’s annual financial statements year ended december 31 2008 fees billed services rendered kpmg llp periods audit fees consist fees professional services rendered audit company’s annual financial statements review interim financial statements included quarterly reports services normally provided connection statutory regulatory filings engagements part iv item 15 item 14 principal accountant fees services audit nonaudit fees following table presents fees professional audit services rendered kpmg llp audit company’s annual financial statements years ended december 31 2006 2005 fees billed services rendered kpmg llp periods 1 audit fees consist fees billed professional services rendered audit company’s annual financial statements review interim financial statements included quarterly reports services normally provided connection statutory regulatory filings engagements principal accountant engaged company render audit nonaudit services engagement approved company’s board directors part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 following financial statements filed part report statements condition december 31 2000 1999 statements income years ended december 31 2000 1999 1998 statements shareholders equity years ended december 31 2000 1999 1998 statements cash flows years ended december 31 2000 1999 notes financial statements independent auditors report a2 financial statement schedules required filed part form a3 see c exhibits filed herewith index exhibits b reports form 8k applicable c exhibits following exhibits either filed part report incorporated herein reference exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company incorporated herein reference exhibit 31 companys annual report form 10k fiscal year ended december 31 1997 32 certificate amendment series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 32 companys annual report form 10k fiscal year ended december 31 1997 33 certificate amendment series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 33 companys annual report form 10k fiscal year ended december 31 1997 34 amended restated bylaws company incorporated herein reference exhibit 34 companys annual report form 10k fiscal year ended december 31 1997 41 specimen certificate representing series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 41 companys annual report form 10k fiscal year ended december 31 1997 42 specimen certificate representing series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 42 companys annual report form 10k fiscal year ended december 31 1997 101 mortgage assignment agreement made march 17 1997 webster bank company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank company incorporated herein reference exhibit 103 companys annual report form 10k fiscal year ended december 31 1997 21 subsidiaries company incorporated herein reference exhibit 21 companys annual report form 10k fiscal year ended december 31 1997 financial statements financial statement schedules excluded report required included herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized webster preferred capital corporation registrant ross strickland ross strickland president director date march 2001 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 2001 ross strickland ross strickland president director principal executive officer peter j swiatek peter j swiatek treasurer director principal financial officer principal accounting officer harriet munrett wolfe harriet munrett wolfe director index exhibits exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company incorporated herein reference exhibit 31 companys annual report form 10k fiscal year ended december 31 1997 32 certificate amendment series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 32 companys annual report form 10k fiscal year ended december 31 1997 33 certificate amendment series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 33 companys annual report form 10k fiscal year ended december 31 1997 34 amended restated bylaws company incorporated herein reference exhibit 34 companys annual report form 10k fiscal year ended december 31 1997 41 specimen certificate representing series 7375 cumulative redeemable preferred stock company incorporated herein reference exhibit 41 companys annual report form 10k fiscal year ended december 31 1997 42 specimen certificate representing series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 42 companys annual report form 10k fiscal year ended december 31 1997 101 mortgage assignment agreement made march 17 1997 webster bank company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank company incorporated herein reference exhibit 103 companys annual report form 10k fiscal year ended december 31 1997 21 subsidiaries company incorporated herein reference exhibit 21 companys annual report form 10k fiscal year ended december 31 1997 item 14 principal accountant fees services audit nonaudit fees following table presents fees professional audit services rendered kpmg llp audit company’s annual financial statements years ended december 31 2004 december 31 2003 fees billed services rendered kpmg llp periods 1 audit fees consist fees billed professional services rendered audit company’s consolidated annual financial statements review interim consolidated financial statements included quarterly reports services normally provided kpmg llp connection statutory regulatory filings engagements independent accountant engaged company render audit nonaudit services engagement approved company’s board directors part iv item 15 item 14 principal accounting fees services audit nonaudit fees audit fees services rendered ernst young llp audit company’s annual financial statements years ended december 31 2010 2009 310 thousand 300 thousand respectively audit fees consist fees professional services rendered audit company’s annual financial statements review interim financial statements included quarterly reports services normally provided connection statutory regulatory filings engagements fees services billed years ended december 31 2010 2009 part iv item 15 item 7 management’s discussion analysis financial condition results operations company elected treated reit code generally subject federal connecticut income tax long maintains qualification reit requiring among things currently distribute stockholders least 90 “reit taxable income” including capital gains certain items noncash income following discussion company’s financial condition results operations read conjunction company’s financial statements financial data included elsewhere herein summary wpcc’s net income 2008 138 million decrease 56 million compared 194 million 2007 total interest income decreased 48 million 2008 primarily due reduction 785 million average interest earning assets yield interest earning assets decreased 16 basis points 543 2008 compared 559 2007 primarily due higher rates 2007 short term investments adjustable interest rate loans reset downward 2008 critical accounting policies critical accounting policies defined reflective significant judgments uncertainties could potentially result materially different results different assumptions conditions believe critical accounting policy upon financial condition depends involves complex subjective decisions assessments allowance loan losses arriving appropriate level allowance loan losses involves high degree judgment company’s allowance loan losses provides probable losses based upon evaluations known inherent risks loan portfolio management uses historical information assess adequacy allowance loan losses well prevailing business economic environment affected changing economic conditions various external factors subsequent changes factors may impact portfolio ways currently unforeseen allowance increased provisions loan losses recoveries loans previously chargedoff reduced loans chargedoff financial condition total assets consisting primarily residential mortgage loans short term investments 1972 million december 31 2008 decrease 1307 million compared 3279 million december 31 2007 residential mortgages decreased 846 million result 464 million loans transferred webster bank 383 million principal repayments increase loan provisions 04 million loans acquired webster bank 2008 interest bearing deposits decreased 510 million cash increased 61 million compared december 31 2007 shareholders’ equity decreased 1307 million 1970 million december 31 2008 3277 million december 31 2007 due payment 1300 million return capital distribution webster bank 145 million common preferred dividends offset net income 138 million 2008 summary company’s residential mortgage loans original maturity last five years follows asset quality company maintains asset quality acquiring residential real estate loans conservatively underwritten management nonperforming assets 2008 loans acquired company transferred webster bank loans acquired 464 million loan transfers webster bank 2008 company’s asset quality dependent upon webster bank’s ability maintain adequate underwriting standards december 31 2008 residential real estate loans comprised entire loan portfolio company also invests mortgagebacked securities issued government agencies governmentsponsored enterprises december 31 2008 company hold mortgagebacked securities nonperforming assets delinquencies following table details company’s nonperforming assets last five years nonperforming loans following table sets forth information company’s loans past due 3089 days still accruing december 31 2008 non accruing loans 823000 compared 849000 december 31 2007 decrease 26000 total delinquent loans december 31 2008 56 million increase 38 million december 31 2007 loan deemed delinquent reporting purposes 30 days past due increase delinquencies current period economic uncertainty reflected increased provision year ended december 31 2008 domestic global financial capital markets experienced significant disruption volatility along turmoil mortgage market led significant credit liquidity crisis market conditions attributable variety factors particular fallout associated subprime mortgage loans type lending never actively pursued company disruption exacerbated continued value declines real estate housing markets company immune negative consequences arising overall economic weakness particular sharp downturn housing market locally nationally decreases real estate values could adversely affect value property used collateral loans adverse changes economy may negative effect ability company’s borrowers make timely loan payments would adverse impact company’s earnings increase loan delinquencies would decrease net interest income increase loan losses causing potential increases provision allowance credit losses allowance loan losses december 31 2008 allowance loan losses approximately 22 million compared 18 million december 31 2007 total loans decreased 846 million december 31 2007 allowance loan losses increased 04 million december 31 2008 allowance percentage loans increased 065 december 31 2007 115 december 31 2008 primarily due increase delinquent loans allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based actual results changes information used addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management detail change allowance loan losses periods indicated follows provision loan losses 420000 2008 compared credit loan loss provision 250000 2007 increase provision primarily due increase delinquencies mentioned well overall deterioration economic conditions liquidity capital resources primary sources liquidity company historically principal interest payments residential mortgage loans mortgagebacked securities portfolios primary uses liquidity typically purchases residential mortgage loans mortgagebacked securities payment dividends common preferred stock scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments vary greatly influenced factors general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 08625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year company periodically makes dividend payments common stock accordance company bylaws common stock dividends paid comply reit qualification rules reit qualification rules require least 90 net taxable income year distributed shareholders accelerated prepayments beginning 2002 continuing throughout 2008 resulted increased cash levels company 2007 2008 wpcc declared return capital dividends order return portion available cash company’s common shareholder event principal interest payments mortgage assets insufficient meet operating needs wpcc ability raise additional funds company’s residential mortgage loans underwritten meet secondary market requirements could sold securitized mortgagebacked securities used borrowing collateral assetliability management goal company’s assetliability management policy manage interestrate risk maximize net interest income time changing interest rate environments maintaining acceptable levels risk company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values company’s financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned company’s adjustablerate interestsensitive instruments represent primarily adjustablerate mortgage loans may change due changes quoted interestrate indices adjustablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2008 419 company’s residential mortgage loans adjustablerate loans results operations net income 138 million year ended december 31 2008 compared 194 million 2007 267 million 2006 decrease 56 million 2008 compared 2007 primarily due reduction 785 million interest earning assets decrease net income 2007 compared 2006 primarily due reduction 1588 million interest earning assets decrease interest income 48 million 247 2008 compared 2007 primarily due reduction 785 million interest earning assets yield interest earning assets declined 16 basis points primarily due lower rates shortterm investments lower rates adjustable interest rate loans reset 2008 decrease interest income 82 million 298 2007 compared 2006 primarily due reduction 1588 million interest earning assets net interest income also understood terms impact changing rates changing volumes following table describes extent changes interest rates changes volume interestearning assets impacted interest income periods indicated information provided category respect changes attributable changes volume changes volume multiplied prior rate ii changes attributable changes rates changes rates multiplied prior volume iii net change attributable combined impact volume rate allocated proportionately change due volume change due rate impact inflation changing prices financial statements related data presented herein prepared accordance us generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate investment trust performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure company’s assets critical maintenance acceptable performance levels recent accounting standards december 2007 fasb issued revised sfas 141 business combinations sfas 141r sfas 141r retains fundamental requirements sfas 141 acquisition method accounting formerly purchase method used business combinations acquirer identified business combination intangible assets identified recognized separately goodwill sfas 141r requires acquiring entity business combination recognize assets acquired liabilities assumed noncontrolling interest acquiree acquisition date measured fair values date limited exceptions additionally sfas 141r changes requirements recognizing assets acquired liabilities assumed arising contingencies recognizing measuring contingent consideration sfas 141r also enhances disclosure requirements business combinations sfas 141r applies prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2008 may applied date december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statement amendment arb 51 sfas 160 amends accounting research bulletin 51 consolidated financial statements establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary among things sfas 160 clarifies noncontrolling interest subsidiary ownership interest consolidated entity reported equity consolidated financial statements requires consolidated net income reported amounts include amounts attributable parent noncontrolling interest sfas 160 also amends sfas 128 “earnings per share” earnings per share calculations consolidated financial statements continue based amounts attributable parent sfas 160 effective fiscal years interim periods within fiscal years beginning december 15 2008 applied prospectively beginning fiscal year initially applied except presentation disclosure requirements applied retrospectively periods presented sfas 160 expected material impact wpcc’s financial condition results operations march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment fasb statement 133 sfas 161 sfas 161 requires enhanced disclosures entity uses derivative instruments derivative instruments related items accounted sfas 133 derivative instruments related hedged items affect entity’s financial position financial performance cash flows new standard effective wpcc january 1 2009 wpcc currently evaluating impact adopting sfas 161 interim financial statements forward looking statements annual report contains forwardlooking statements within meaning securities exchange act 1934 amended actual results performance developments may differ materially expressed implied forwardlooking statements result market uncertainties factors important factors could cause actual results differ forwardlooking statements include changes interest rates general economics connecticut market area substantial portion real estate securing company’s loans located legislative regulatory changes tax laws policies changes accounting policies principles guidelines developments combination thereof could adverse impact company’s financial position results operations item 7a item 7 management’s discussion analysis financial condition results operations company elected treated reit code generally subject federal connecticut income tax long maintains qualification reit requiring among things currently distribute stockholders least 90 “reit taxable income” including capital gains certain items noncash income following discussion company’s financial condition results operations read conjunction company’s financial statements financial data included elsewhere herein summary wpcc’s net income 2003 declined 282 million 419 million 2002 due following factors 2003 wpcc purchased 1951 million loans webster bank critical accounting policies critical accounting policies defined reflective significant judgments uncertainties could potentially result materially different results different assumptions conditions believe critical accounting policies upon financial condition depends involve complex subjective decisions assessments follows allowance loan losses arriving appropriate level allowance loan losses involves high degree judgment company’s allowance loan losses provides probable losses based upon evaluations known inherent risks loan portfolio management uses historical information assess adequacy allowance loan losses well prevailing business economic environment affected changing economic conditions various external factors subsequent changes factors may impact portfolio ways currently unforeseen allowance increased provisions loan losses recoveries loans previously chargedoff reduced loans chargedoff financial condition total assets consisting primarily residential mortgage loans mortgagebacked securities 5385 million december 31 2003 decrease 927 million 6312 million december 31 2002 primary factor causing decline total assets return capital dividend 900 million 2003 cash flow mortgage loans mortgagebacked securities primarily due accelerated prepayments throughout 2003 arising low interest rate environment resulted large cash inflows increased cash flow wpcc purchased 1951 million residential loans webster bank returned 900 million shareholder decline accrued interest receivable 841000 due decline earning assets well lower interest rates primarily interestbearing deposits result return capital dividend shareholders’ equity declined 5382 million december 31 2003 6310 million december 31 2002 asset quality company maintains asset quality acquiring residential real estate loans conservatively underwritten aggressively managing nonperforming assets 2003 loan purchases company webster bank company’s asset quality dependent upon webster bank’s ability maintain conservative underwriting standards december 31 2003 residential real estate loans comprised entire loan portfolio company also invests government agency governmentsponsored agency issued mortgagebacked securities nonperforming assets delinquencies following table details company’s nonperforming assets last five years following table sets forth information company’s loans past due 3089 days still accruing allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based actual results changes information used addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management detail change allowance loan losses periods indicated follows liquidity capital resources primary sources liquidity company principal interest payments residential mortgage loans mortgagebacked securities portfolios primary uses liquidity purchases residential mortgage loans mortgagebacked securities payment dividends common preferred stock scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments vary greatly influenced factors general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year company periodically makes dividend payments common stock accordance company bylaws common stock dividends paid comply reit qualification rules reit qualification rules require 90 net taxable income year distributed shareholders june 2003 company declared paid return capital dividend webster bank company’s sole common shareholder 900 million accelerated prepayments 2002 throughout 2003 resulted increased cash levels company dividend returns cash company’s common shareholder unlikely event principal interest payments mortgage assets insufficient meet operating needs wpcc ability raise additional funds wpcc’s mortgagebacked securities total 461 million would supply adequate collateral borrowings repurchase agreements addition residential mortgage loans underwritten meet secondary market requirements could easily sold securitized mortgagebacked securities used borrowing collateral assetliability management goal company’s assetliability management policy manage interestrate risk maximize net interest income time changing interest rate environments maintaining acceptable levels risk company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values company’s financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned company’s variablerate interestsensitive instruments represent primarily variablerate mortgage loans may change due changes quoted interestrate indices variablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2003 356 company’s residential mortgage loans variablerate loans results operations net income declined 282 million 2003 year 419 million previous year 576 million 2001 decline due entirely declines interest income wpcc interestbearing liabilities noninterest income expense minimal decline interest income 140 million 331 2002 2003 due combination decline yield earning assets decline outstanding earning assets due low interest rate environment 2002 2003 mortgage asset prepayments accelerated assets replaced ones earning lower yield decline balances due accelerated prepayments 900 million return capital dividend common shareholder declines 2001 2002 resulted factors low interest rate environment return capital dividend shareholders 3000 million 2002 net interest income also understood terms impact changing rates changing volumes following table describes extent changes interest rates changes volume interestearning assets interestbearing liabilities impacted interest income interest expense periods indicated information provided category respect changes attributable changes volume changes volume multiplied prior rate ii changes attributable changes rates changes rates multiplied prior volume iii net change attributable combined impact volume rate allocated proportionately change due volume change due rate provision loan losses years ended december 31 2003 2002 provision loan losses year ended december 31 2001 amounted 90000 decline provision loan losses reflective decrease total residential mortgage loan portfolio 2001 levels due accelerated prepayments mortgage loans well continued low level nonperforming loans chargeoffs impact inflation changing prices financial statements related data presented herein prepared accordance accounting principles generally accepted united states america require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporation’s performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure company’s assets critical maintenance acceptable performance levels recent financial accounting standards december 2003 fasb issued fasb interpretation “fin” 46 revised “consolidation variable interest entities addresses business enterprise evaluate whether controlling financial interest entity means voting rights accordingly consolidate variable interest entity “vie” fin 46r replaces fin 46 issued january 2003 public company small business issuer defined applicable sec regulations required apply fin 46r variable interests generally march 31 2004 specialpurpose entities december 31 2003 vies must consolidated fin 46r created january 1 2004 assets liabilities noncontrolling interest vie initially would measured carrying amounts difference net amount added balance sheet previously recognized interest would recorded cumulative effect accounting change fin 46r adopted december 31 2003 resulted impact company’s financial statements may 2003 financial accounting standards board “fasb” issued statement financial accounting standards “sfas” “statement” 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards issuer clarifies measures discloses financial statements certain financial instruments characteristics liabilities equity sfas 150 requires issuer classify financial instruments within scope liabilities circumstances financial instruments include financial instruments issued form shares mandatorily redeemable ii financial instruments embody obligation repurchase issuer’s equity shares indexed obligation require issuer settle obligation transferring assets iii financial instruments embody obligation issuer may settle issuing variable number equity shares inception monetary value obligation predominantly based fixed amount variations something fair value issuer’s equity shares variations inversely related changes fair value issuer’s equity shares iv certain freestanding financial instruments sfas 150 effective contracts entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 however effective date statement’s provisions related classification measurement certain manditorily redeemable noncontrolling interests deferred indefinitely fasb pending board action adoption sfas 150 july 1 2003 impact company’s results operations april 2003 fasb issued sfas 149 “accounting derivative instruments hedging activities amendment fasb statement 133” statement amends clarifies financial accounting reporting derivative instruments including certain derivative instruments embedded contracts hedging activities sfas 133 “accounting derivative instruments hedging activities” amendment promote consistency reporting contracts fall scope derivatives hybrids sfas 149 applied prospectively hedging activities contracts revised created september 30 2003 statement impact company’s financial statements item 7a item 7 managements discussion analysis financial condition results operations company elected treated reit code generally subject federal income tax long maintains qualification reit requiring among things currently distribute stockholders least 90 reit taxable income including capital gains certain items noncash income company webster bank also benefit significantly state tax treatment dividends paid company result qualification reit following discussion companys financial condition results operations read conjunction companys financial statements financial data included elsewhere herein financial condition total assets december 31 2001 2000 9287 million 9682 million respectively total assets decreased 395 million primarily due redemption series preferred stock 407 million changes assets 2000 2001 driven 1831 million reduction loans 7718 million 5887 million reduction loans due scheduled payments well prepayments accelerated 2001 due declining interest rate environment cash proceeds loan payments payoff series preferred stock invested mortgagebacked securities interestbearing deposits increased 816 million 700 million respectively increase assets 2000 64 million due mortgage payments collected webster bank companys loan servicer 2001 remitted subsequent year end asset quality company maintains high asset quality acquiring residential real estate loans underwritten certain standards aggressively managing nonperforming assets december 31 2001 residential real estate loans comprised entire loan portfolio company also invests government agency governmentsponsored agency issued mortgagebacked securities nonperforming assets delinquencies following table details companys nonperforming assets last five years december 31 2001 2000 1999 1998 1997 allowance loan losses approximately 21 million 21 million 19 million 16 million 15 million 392 494 166 122 118 respectively nonperforming loans 36 27 23 19 24 respectively total mortgage loans management believes allowance loan losses adequate cover expected losses portfolio following table sets forth information companys loans past due 3089 days still accruing allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors managements judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based changes economic conditions addition various regulatory agencies integral part examination process webster bank periodically may review companys allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management detail change allowance loan losses periods indicated follows liquidity capital resources primary sources liquidity company principal interest payments residential mortgage loans mortgagebacked securities portfolios primary uses liquidity purchases residential mortgage loans mortgagebacked securities payment dividends common preferred stock scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments greatly influenced general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year commencing january 15 1998 series preferred stock redeemed january 16 2001 assetliability management goal companys assetliability management policy manage interestrate risk maximize net interest income time changing interestrate environments maintaining acceptable levels market risk company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values certain companys financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned companys variablerate interestsensitive instruments represent primarily variablerate mortgage loans may change due changes quoted interestrate indices variablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2001 541 companys residential mortgage loans variablerate loans companys management believes residential mortgage loans less likely incur prepayments principal current rate environment results operations years ended december 31 2001 2000 1999 company reported net income 576 million 617 million 602 million respectively 567336 608189 593550 respectively per common share diluted basis total interest income 2001 amounted 581 million net servicing fees decrease 72 million 653 million net servicing fees 2000 total interest income 2000 amounted 653 million net servicing fees increase 11 million 642 million net servicing fees 1999 following table shows major categories average assets together respective interest income rates earned company decline interest income 72 million 111 2000 2001 due decline yield earning assets decline outstanding earning assets due declining interest rate environment 2001 mortgage prepayments accelerated assets replaced ones earning lower yield decline balances due repayment 400 million series preferred stock increase interest income 11 million 17 1999 2000 entirely due increase yield earning assets overall yield increased 14 basis points interest rates increased adjustable rate loans repriced higher new loans securities added higher yields provision loan losses years ended december 31 2001 2000 1999 amounted 90000 190000 480000 respectively provision loan losses reflects decrease total residential mortgage loan portfolio due accelerated prepayments mortgage loans nominal additions portfolio gains sale mortgagebacked securities year ended december 31 2001 gains sale mortgagebacked securities years ended december 31 2000 94000 sales mortgagebacked securities 1999 noninterest expenses years ended december 31 2001 2000 1999 amounted 384000 35 million 35 million respectively included advisory fees dividends series preferred stock amortized startup costs reduction noninterest expenses 2001 due maturity series preferred stock january 16 2001 income tax expense recorded periods impact inflation changing prices financial statements related data presented herein prepared accordance accounting principles generally accepted united states america require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporations performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure companys assets critical maintenance acceptable performance levels recent financial accounting standards october 3 2001 financial accounting standards board fasb issued statement financial accounting standards sfas statement 144 accounting impairment disposal longlived assets statement addresses financial accounting reporting impairment disposal longlived assets statement supersedes sfas 121 accounting impairment longlived assets longlived assets disposed statement also supersedes accounting reporting provisions apb opinion 30 reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions changes statement improve financial reporting requiring one accounting model used longlived assets disposed broadening presentation discontinued operations include disposal transactions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years provisions statement applied prospectively company expect material impact financial statements statement adopted august 16 2001 fasb issued sfas 143 accounting asset retirement obligations statement 143 addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement 143 applies entities statement requires fair value liability asset retirement obligation recognized period incurred reasonable estimate fair value made associated asset retirement costs capitalized part carrying amount longlived asset statement liability discounted accretion expense recognized using creditadjusted riskfree interest rate effect liability initially recognized fasb issued statement provide consistency accounting reporting liabilities associated retirement tangible longlived assets associated asset retirement costs statement effective financial statements issued fiscal years beginning june 15 2002 earlier application permitted company expect material impact financial statements statement adopted july 2001 fasb issued sfas 141 business combinations sfas 142 goodwill intangible assets statement 141 requires purchase method accounting used business combinations initiated june 30 2001 well purchase method business combinations completed june 30 2001 statement 141 also specifies criteria intangible assets acquired purchase method business combination must meet recognized reported apart goodwill statement 142 require goodwill intangible assets indefinite useful lives longer amortized instead tested impairment least annually accordance provisions statement 142 statement 142 also require intangible assets definite useful lives amortized respective estimated useful lives estimated residual values reviewed impairment accordance sfas 121 accounting impairment longlived assets longlived assets disposed company adopted provisions statement 141 effective july 1 2001 without effect adopt provisions statement 142 effective january 1 2002 company expect material impact financial statements statement 142 adopted september 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilities replacement sfas 125 sfas 140 addresses implementation issues identified applying sfas 125 statement revises standards accounting securitizations transfers financial assets collateral requires certain disclosures carries provisions sfas 125 without reconsideration sfas 140 effective transfers servicing financial assets extinguishments liabilities occurring march 31 2001 sfas 140 effective recognition reclassification collateral disclosures relating securitization transactions collateral fiscal years ending december 15 2000 statement applied prospectively certain exceptions implementation sfas 140 material impact companys financial statements item 7a item 7 managements discussion analysis financial condition results operations company subsidiary webster bank incorporated march 1997 provide costeffective means raising funds including capital consolidated basis webster bank march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company november 1997 1998 webster bank contributed approximately 1204 million 1828 million respectively cash company used purchase mortgagebacked securities residential mortgage loans total assets december 31 1998 december 311997 9710 million 7876 million respectively consisting primarily residential mortgage loans mortgagebacked securities company elected treated reit code generally subject federal income tax long maintains qualification reit requiring among things currently distribute stockholders least 95 reit taxable income including capital gains certain items noncash income company webster bank also benefit significantly federal state tax treatment dividends paid company result qualification reit following discussion companys financial condition results operations read conjunction companys financial statements financial data included elsewhere herein public offering december 24 1997 company completed offering 40000 shares series preferred stock liquidation preference 1000 per share 1000000 shares series b preferred stock liquidation preference 10 per share total net proceeds offering amounted 485 million asset quality company maintains high asset quality acquiring residential real estate loans conservatively underwritten aggressively managing nonaccrual assets maintaining adequate reserve coverage december 31 1998 1997 residential real estate loans comprised entire loan portfolio company also invests highly rated mortgagebacked securities nonaccrual assets aggregate amount nonaccrual assets december 31 1998 december 31 1997 approximately 13 million following table details companys nonaccrual assets december 31 1998 december 31 1997 december 31 1998 december 31 1997 allowance loan losses approximately 16 million 15 million 121 118 respectively nonaccrual assets management believes allowance loan losses adequate cover expected losses portfolio liquidity capital resources primary sources liquidity company net cash flows operating activities investing activities financing activities net cash flows operating activities primarily include net income net changes prepaid expenses assets accrued interest receivable adjustments noncash items amortization deferred fees premiums mortgagebacked securities net amortization accretion net cash flows investing activities primarily include purchase repayments residential real estate loans mortgage backed securities classified available sale net cash flows financing activities primarily include net changes capital generally related stock issuances capital contributions webster bank dividend payments scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments greatly influenced general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates market values fixedrate loans mortgagebacked securities sensitive fluctuations market interest rates declining value interest rates rise interest rates decrease market value loans generally tend increase level prepayments also normally increasing dividends series preferred stock payable rate 7375 per annum amount equal 7375 per annum per share dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year commencing january 15 1998 assetliability management goal companys assetliability management policy manage interestrate risk maximize net interest income time changing interestrate environments maintaining acceptable levels risk company must provide sufficient liquidity daily operations company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values certain companys financial assets sensitive fluctuations market interest rates changes interest rates affect value loans interestearning assets december 31 1998 618 companys residential mortgage loans variablerate loans companys management believes residential mortgage loans less likely incur prepayments principal results operations year ended december 31 1998 company reported net income 583 million 573970 per common share diluted basis march 17 1997 date inception december 31 1997 company reported net income 378 million 376770 per common share diluted basis total interest income 1998 amounted 621 million net servicing fees increase 240 million 381 million net servicing fees 1997 average balance total mortgage loans net year ended december 31 1998 period march 17 1997 date inception december 31 1997 7557 million 6245 million respectively yield 695 752 respectively provision loan losses year ended december 31 1998 amounted 300000 provision loan losses period march 17 1997 date inception december 31 1997 provision loan losses reflects increase total residential mortgage loan portfolio noninterest expenses year ended december 31 1998 period march 17 1997 date inception december 31 1997 amounted 38 million 220000 respectively included advisory fees dividends series preferred stock amortization startup costs income tax expense recorded either period impact inflation changing prices financial statements related data presented herein prepared accordance generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporations performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure companys assets critical maintenance acceptable performance levels recent financial accounting standards june 1997 financial accounting standards board fasb issued statement financial accounting standard sfas 131 disclosures segments enterprise related information statement establishes standards method public business enterprises report information operating segments annual financial statements requires enterprises report selected information operating segments interim reports issued shareholders statement requires public business enterprises report quantitative qualitative information reportable segments including profit loss certain specific revenue expense items segment assets sfas apply company since company one reportable operating segment june 1998 financial accounting standards board fasb issued sfas 133 accounting derivative instruments hedging activities statement establishes accounting reporting standards derivative instruments including certain derivative instruments imbedded contracts collectively referred derivatives hedging activities accounting changes fair value derivative depends intended use derivative resulting designation statement entity elects apply hedge accounting required establish inception hedge method use assessing effectiveness hedging derivative measurement approach determining ineffective aspect hedge sfas expected impact company since company engage hedging activities utilize derivative instruments april 1998 aicpa accounting standards executive committee issued statement position 985 reporting cost startup activities sop 985 sop 985 applicable nongovernment entities requires costs startup activities including organization costs expensed incurred sop 985 effective financial statements fiscal years beginning december 15 1998 restatement previously issued financial statements permitted initial application sop 985 beginning fiscal year sop 985 first adopted unamortized portion previously capitalized startup cost written company wrote remaining amount organizational costs 114330 december 1998 due adoption sop 985 year 2000 readiness disclosure statement year 2000 issue refers potential impact failure computer programs equipment give proper recognition dates beyond december 31 1999 issues related year 2000 century date change companys state readiness company assessed issues regarding year 2000 since company depends webster bank advisor servicer agreed upon advisory service agreement master service agreement company reliant webster bank parent company webster ensure proper date recognition company reviewed documentation provided webster determined webster taking appropriate steps become year 2000 compliant ii costs address companys year 2000 issues company currently pays monthly servicing managerial fee webster agreed upon advisory service agreement master service agreement company expected incur costs associated year 2000 issues covered advisory service agreement master service agreement advisory service agreement master service agreement include technical support administrative services webster monitors supervises performance parties contracts perform services company iii risks companys year 2000 issues company process identifying evaluating potential year 2000 related worst case scenarios could result 1 websters failure identify test validate critical date dependent applications embedded microchips affect core business processes 2 failure external forces third party vendors utilities properly remediated systems potential worst case scenarios addressed include extended electrical power outage extended telephone communication outage excessive media speculation community fear company unable estimate lost revenue related year 2000 issues due uncertainties impact effects external forces potential extended disruptions iv companys contingency plans contingency plan drafted company address identified potential worst case scenario alternative solutions business resumption approaches minimize impact scenario formulated proposed approaches address potential scenarios include designating alternate offices emergency locations alternate power sources identifying alternate communication methods availability websters disclosure websters year 2000 readiness disclosure statement available detail december 31 1998 form 10k item 7a item 7 managements discussion analysis financial condition results operations company elected treated reit code generally subject federal connecticut income tax long maintains qualification reit requiring among things currently distribute stockholders least 90 reit taxable income including capital gains certain items noncash income following discussion companys financial condition results operations read conjunction companys financial statements financial data included elsewhere herein critical accounting policies critical accounting policies defined reflective significant judgments uncertainties could potentially result materially different results different assumptions conditions believe critical accounting policies upon financial condition depends involve complex subjective decisions assessments follows allowance loan losses arriving appropriate level allowance loan losses involves high degree judgment companys allowance loan losses provides probable losses based upon evaluations known inherent risks loan portfolio management uses historical information assess adequacy allowance loan losses well prevailing business environment affected changing economic conditions various external factors may impact portfolio ways currently unforeseen allowance increased provisions loan losses recoveries loans previously chargedoff reduced loans chargedoff financial condition total assets consisting primarily residential mortgage loans mortgagebacked securities 6312 million december 31 2002 decrease 2975 million 9287 million december 31 2001 primary factors causing decline total assets decreases net loans 2092 million mortgagebacked securities 485 million interestbearing deposits 570 million funds primarily used 3000 million return capital dividend companys common shareholder 415 million payment common stock dividend result return capital dividend shareholders equity declined 6310 million december 31 2002 9284 million december 31 2001 reductions loans mortgagebacked securities primarily due accelerated prepayments throughout 2002 due low interest rate environment decline accrued interest receivable 24 million due decline earning assets well lower interest rates primarily interestbearing deposits decrease assets 64 million 15 million due reduction balance mortgage payments collected webster bank companys loan servicer remitted subsequent prior year end asset quality company maintains asset quality acquiring residential real estate loans conservatively underwritten aggressively managing nonperforming assets 2002 loan purchases company webster bank companys asset quality dependent upon webster banks ability maintain conservative underwriting standards december 31 2002 residential real estate loans comprised entire loan portfolio company also invests government agency governmentsponsored agency issued mortgagebacked securities nonperforming assets delinquencies following table details companys nonperforming assets last five years following table sets forth information companys loans past due 3089 days still accruing allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors managements judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based actual results changes information used addition various regulatory agencies integral part examination process webster bank periodically may review companys allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management detail change allowance loan losses periods indicated follows liquidity capital resources primary sources liquidity company principal interest payments residential mortgage loans mortgagebacked securities portfolios primary uses liquidity purchases residential mortgage loans mortgagebacked securities payment dividends common preferred stock scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments vary greatly influenced factors general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year commencing january 15 1998 company periodically makes dividend payments common stock accordance company bylaws common stock dividends paid comply reit qualification rules reit qualification rules require 90 net taxable income year distributed shareholders april october 2002 company declared paid return capital dividend webster bank companys sole common shareholder total 3000 million accelerated prepayments second half 2001 throughout 2002 resulted increased cash levels company dividend returns cash companys common shareholder assetliability management goal companys assetliability management policy manage interestrate risk maximize net interest income time changing interestrate environments maintaining acceptable levels risk company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values companys financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned companys variablerate interestsensitive instruments represent primarily variablerate mortgage loans may change due changes quoted interestrate indices variablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2002 475 companys residential mortgage loans variablerate loans results operations years ended december 31 2002 2001 2000 company reported net income 419 million 576 million 617 million respectively 410816 567336 608189 respectively per common share diluted basis total interest income 2002 amounted 423 million net servicing fees decrease 158 million 581 million net servicing fees 2001 total interest income 2001 decreased 72 million 653 million net servicing fees 2000 table shows major categories average assets together respective interest income rates earned company decline interest income 158 million 272 2001 2002 due decline yield earning assets decline outstanding earning assets due declining interest rate environment 2002 mortgage prepayments accelerated assets replaced ones earning lower yield decline balances due accelerated prepayments 3000 million return capital dividend common shareholder decline interest income 72 million 111 2000 2001 due decline yield earning assets decline outstanding earning assets due declining interest rate environment 2001 mortgage prepayments accelerated assets replaced ones earning lower yield decline balances due repayment 400 million series preferred stock net interest income also understood terms impact changing rates changing volumes following table describes extent changes interest rates changes volume interestearning assets interestbearing liabilities impacted interest income interest expense periods indicated information provided category respect changes attributable changes volume changes volume multiplied prior rate ii changes attributable changes rates changes rates multiplied prior volume iii net change attributable combined impact volume rate allocated proportionately change due volume change due rate provision loan losses year ended december 31 2002 provision loan losses years ended december 31 2001 2000 amounted 90000 190000 respectively decline provision loan losses reflective decrease total residential mortgage loan portfolio due accelerated prepayments mortgage loans well continued low level nonperforming loans chargeoffs gains sale mortgagebacked securities years ended december 31 2002 2001 gains sale mortgagebacked securities year ended december 31 2000 94000 noninterest expenses years ended december 31 2002 2001 2000 amounted 310000 384000 35 million respectively included advisory fees dividends series preferred stock amortized startup costs reduction noninterest expenses 2002 2001 due inclusion 2001 123000 series preferred stock dividends partially offset year ended december 31 2002 increases advisory fees 29000 increases nonperforming asset expense 36000 reduction noninterest expense 2001 2000 due repayment 400 million series preferred stock resulting decline 28 million dividend expense income tax expense recorded periods impact inflation changing prices financial statements related data presented herein prepared accordance accounting principles generally accepted united states america require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporations performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure companys assets critical maintenance acceptable performance levels recent financial accounting standards december 2 2002 financial accounting standards board fasb issued statement financial accounting standards sfas statement 148 accounting stockbased compensation transition disclosure amendment fasb statement 123 statement amends sfas 123 accounting stockbased compensation provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation addition statement amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results management expect material impact financial statements statement adopted october 1 2002 fasb issued sfas 147 acquisitions certain financial instruments amendment fasb statement 72 144 fasb interpretation 9 statement removes acquisitions financial institutions scope sfas 72 fin 9 requires transactions accounted accordance sfas nos 141 142 addition statement amends sfas 144 include scope longterm customerrelationship intangible assets financial institutions core deposit intangibles company adopted sfas 147 effective january 1 2002 without material impact financial statements july 30 2002 fasb issued sfas 146 accounting costs associated exit disposal activities statement requires companies recognize costs associated exit disposal activities occur rather date commitment exit disposal plan sfas 146 applied prospectively exit disposal activities initiated december 31 2002 management expect material impact financial statements statement adopted april 2002 fasb issued sfas 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections statement amends fasb statement 13 accounting leases eliminate inconsistency required accounting saleleaseback transactions required accounting certain lease modifications economic effects similar saleleaseback transactions statement also amends existing authoritative pronouncements make various technical corrections clarify meanings describe applicability changed conditions sfas 145 effective fiscal years beginning may 15 2002 early application encouraged management expect material impact financial statements statement adopted october 3 2001 fasb issued sfas 144 accounting impairment disposal longlived assets statement addresses financial accounting reporting impairment disposal longlived assets statement supersedes sfas 121 accounting impairment longlived assets longlived assets disposed statement also supersedes accounting reporting provisions apb opinion 30 reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions changes statement improve financial reporting requiring one accounting model used longlived assets disposed broadening presentation discontinued operations include disposal transactions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years provisions statement applied prospectively company adopted provisions statement effective january 1 2002 without effect financial condition company august 16 2001 fasb issued sfas 143 accounting asset retirement obligations statement 143 addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement 143 applies entities statement requires fair value liability asset retirement obligation recognized period incurred reasonable estimate fair value made associated asset retirement costs capitalized part carrying amount longlived asset statement liability discounted accretion expense recognized using creditadjusted riskfree interest rate effect liability initially recognized fasb issued statement provide consistency accounting reporting liabilities associated retirement tangible longlived assets associated asset retirement costs statement effective financial statements issued fiscal years beginning june 15 2002 earlier application permitted company expect material impact financial statements statement adopted july 2001 fasb issued sfas 141 business combinations sfas 142 goodwill intangible assets statement 141 requires purchase method accounting used business combinations initiated june 30 2001 well purchase method business combinations completed june 30 2001 statement 141 also specifies criteria intangible assets acquired purchase method business combination must meet recognized reported apart goodwill statement 142 require goodwill intangible assets indefinite useful lives longer amortized instead tested impairment least annually accordance provisions statement 142 statement 142 also require intangible assets definite useful lives amortized respective estimated useful lives estimated residual values reviewed impairment accordance sfas 121 accounting impairment longlived assets longlived assets disposed company adopted provisions statement 141 effective july 1 2001 provisions statement 142 effective january 1 2002 without effect financial condition company january 2003 fasb issued fasb interpretation fin 46 consolidation variable interest entities interpretation addresses consolidation business enterprises variable interest entities one following characteristics 1 entity investment sufficient support activities without additional financial support 2 equity investors lack one essential characteristics controlling interest interpretation intended achieve consistent application consolidation policies variable interest entities improve comparability enterprises engaged similar activities even activities conducted variable interest entities company expect material impact financial statements result interpretation november 2002 fasb issued fin 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation elaborates disclosures made guarantor interim annual financial statements also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee recognition liability obligations taken upon issuing guarantee results representationally faithful depiction guarantors assets liabilities material impact companys financial statements result interpretation item 7a item 7 management’s discussion analysis financial condition results operations company elected treated reit code generally subject federal connecticut income tax long maintains qualification reit requiring among things currently distribute stockholders least 90 “reit taxable income” including capital gains certain items noncash income following discussion company’s financial condition results operations read conjunction company’s financial statements financial data included elsewhere herein summary wpcc’s net income 2007 194 million decrease 73 million compared 267 million 2006 total interest income decreased 82 million 2007 primarily due reduction 1588 million average interest earning assets yield interest earning assets rose 13 basis points 559 2007 compared 546 2006 primarily due higher rates short term investments higher rates adjustable interest rates loans reset first three quarters 2007 critical accounting policies critical accounting policies defined reflective significant judgments uncertainties could potentially result materially different results different assumptions conditions believe critical accounting policy upon financial condition depends involves complex subjective decisions assessments allowance loan losses arriving appropriate level allowance loan losses involves high degree judgment company’s allowance loan losses provides probable losses based upon evaluations known inherent risks loan portfolio management uses historical information assess adequacy allowance loan losses well prevailing business economic environment affected changing economic conditions various external factors subsequent changes factors may impact portfolio ways currently unforeseen allowance increased provisions loan losses recoveries loans previously chargedoff reduced loans chargedoff financial condition total assets consisting primarily residential mortgage loans short term investments 3279 million december 31 2007 decrease 1841 million compared 5120 million december 31 2006 residential mortgages decreased 993 million result 904 million loans transferred webster bank 597 million principal repayments partially offset 508 million new loans acquired webster bank interest bearing deposits decreased 290 million cash decreased 538 million compared december 31 2006 resulting net cash primarily used pay 1850 million webster bank return capital distribution shareholders’ equity decreased 1841 million 3277 million december 31 2007 5118 million december 31 2006 due payment 1850 million return capital distribution 184 million common preferred dividends offset net income 194 million 2007 summary company’s residential mortgage loans original maturity last five years follows asset quality company maintains asset quality acquiring residential real estate loans conservatively underwritten management nonperforming assets 2007 loans acquired company transferred webster bank 508 million acquired loans 904 million loan transfers webster bank 2007 company’s asset quality dependent upon webster bank’s ability maintain adequate underwriting standards december 31 2007 residential real estate loans comprised entire loan portfolio company also invests mortgagebacked securities issued government agencies governmentsponsored enterprises nonperforming assets delinquencies following table details company’s nonperforming assets last five years following table sets forth information company’s loans past due 3089 days still accruing december 31 2007 non accruing loans 849000 compared 211000 december 31 2006 increase 638000 increase primarily result six additional loans overdue totaling 715000 allowance loan losses december 31 2007 allowance loan losses approximately 18 million compared 20 million december 31 2006 total loans decreased 993 million december 31 2006 allowance loan losses decreased 03 million december 31 2007 primarily result decreases outstanding loan balances allowance percentage loans increased 054 december 31 2006 065 december 31 2007 primarily result lower loan balances allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based actual results changes information used addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management detail change allowance loan losses periods indicated follows credit loan losses 250000 2007 credits provisions years 2006 2005 credit loan losses 250000 2007 primarily result decrease outstanding loans mentioned partially offset increase non accrual loans delinquencies liquidity capital resources primary sources liquidity company historically principal interest payments residential mortgage loans mortgagebacked securities portfolios primary uses liquidity typically purchases residential mortgage loans mortgagebacked securities payment dividends common preferred stock scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments vary greatly influenced factors general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 08625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year company periodically makes dividend payments common stock accordance company bylaws common stock dividends paid comply reit qualification rules reit qualification rules require least 90 net taxable income year distributed shareholders accelerated prepayments beginning 2002 continuing throughout 2007 resulted increased cash levels company 2003 2005 2007 wpcc declared return capital dividends order return portion available cash company’s common shareholder event principal interest payments mortgage assets insufficient meet operating needs wpcc ability raise additional funds company’s residential mortgage loans underwritten meet secondary market requirements could sold securitized mortgagebacked securities used borrowing collateral assetliability management goal company’s assetliability management policy manage interestrate risk maximize net interest income time changing interest rate environments maintaining acceptable levels risk company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values company’s financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned company’s adjustablerate interestsensitive instruments represent primarily adjustablerate mortgage loans may change due changes quoted interestrate indices adjustablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2007 370 company’s residential mortgage loans adjustablerate loans results operations net income 194 million year ended december 31 2007 compared 267 million 2006 264 million 2005 decrease 73 million 2007 compared 2006 primarily due reduction 1588 million interest earning assets increase net income 2006 compared 2005 primarily due increase interest income interest earning assets partially offset writedown securities available sale fair value loss subsequent sale securities decrease interest income 82 million 298 2007 compared 2006 primarily due reduction 1588 million interest earning assets yield interest earning assets rose 13 basis points primarily due higher rates short term investments higher rates adjustable interest rates loans reset first three quarters 2007 increase interest income 10 million 36 2006 compared 2005 due increases average yields short term investments net interest income also understood terms impact changing rates changing volumes following table describes extent changes interest rates changes volume interestearning assets impacted interest income periods indicated information provided category respect changes attributable changes volume changes volume multiplied prior rate ii changes attributable changes rates changes rates multiplied prior volume iii net change attributable combined impact volume rate allocated proportionately change due volume change due rate impact inflation changing prices financial statements related data presented herein prepared accordance us generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate investment trust performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure company’s assets critical maintenance acceptable performance levels recent accounting standards february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities including amendment fasb 115 permit measurement recognized financial assets liabilities fair value “fair value option” unrealized gains losses items fair value option elected reported earnings subsequent reporting date upfront costs fees related items reported fair value option recognized earnings incurred deferred sfas 159 effective fiscal years beginning november 15 2007 early adoption permitted however company elect early adoption therefore adopted standard january 1 2008 upon adoption company elect fair value option eligible items existed january 1 2008 september 2006 fasb issued sfas 157 fair value measurements effective fiscal years beginning november 15 2007 interim periods within years statement defines fair value establishes framework measuring fair value expands related disclosure requirements expanded disclosures include requirement disclose fair value measurements according hierarchy segregating measurements using 1 quoted prices active markets identical assets liabilities 2 significant observable inputs 3 significant unobservable inputs sfas 157 affect certain company’s fair value disclosures expected material impact financial condition results operations portion company’s assets liabilities fair values based unobservable inputs significant forward looking statements annual report contains forwardlooking statements within meaning securities exchange act 1934 amended actual results performance developments may differ materially expressed implied forwardlooking statements result market uncertainties factors important factors could cause actual results differ forwardlooking statements include changes interest rates general economics connecticut market area substantial portion real estate securing company’s loans located legislative regulatory changes tax laws policies changes accounting policies principles guidelines developments combination thereof could adverse impact company’s financial position results operations item 7a item 7 managements discussion analysis financial condition results operations company subsidiary webster bank incorporated march 1997 provide costeffective means raising funds including capital consolidated basis webster bank march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company november 1997 1998 webster bank contributed approximately 1204 million 1828 million respectively cash company used purchase mortgagebacked securities residential mortgage loans 1999 webster bank made contributions company total assets december 31 1999 december 31 1998 967 million 971 million respectively consisting primarily residential mortgage loans mortgagebacked securities company elected treated reit code generally subject federal income tax long maintains qualification reit requiring among things currently distribute stockholders least 95 reit taxable income including capital gains certain items noncash income taxable years beginning december 31 2000 requirement relaxed company still required distribute 90 reit taxable income company webster bank also benefit significantly federal state tax treatment dividends paid company result qualification reit following discussion companys financial condition results operations read conjunction companys financial statements financial data included elsewhere herein asset quality company maintains high asset quality acquiring residential real estate loans conservatively underwritten aggressively managing nonaccrual assets maintaining adequate reserve coverage december 31 1999 1998 residential real estate loans comprised entire loan portfolio company also invests highly rated mortgagebacked securities nonaccrual assets aggregate amount nonaccrual assets december 31 1999 1998 1997 approximately 11 million 13 million 13 million respectively following table details companys nonaccrual assets december 31 1999 1998 1997 nonaccrual assets december 31 1999 1998 1997 allowances loan losses approximately 19 million 16 million 15 million 166 121 118 respectively nonaccrual assets management believes allowance loan losses adequate cover expected losses portfolio liquidity capital resources primary sources liquidity company net cash flows operating activities investing activities financing activities net cash flows operating activities primarily include net income net changes prepaid expenses assets accrued interest receivable adjustments noncash items amortization deferred fees premiums mortgagebacked securities net amortization accretion net cash flows investing activities primarily include purchase repayments residential real estate loans mortgage backed securities classified available sale net cash flows financing activities primarily include net changes capital generally related stock issuances capital contributions webster bank dividend payments scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments greatly influenced general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates market values fixedrate loans mortgagebacked securities sensitive fluctuations market interest rates declining value interest rates rise interest rates decrease market value loans generally tend increase level prepayments also normally increasing dividends series preferred stock payable rate 7375 per annum amount equal 7375 per annum per share dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year commencing january 15 1998 assetliability management goal companys assetliability management policy manage interestrate risk maximize net interest income time changing interestrate environments maintaining acceptable levels risk company must provide sufficient liquidity daily operations company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values certain companys financial assets sensitive fluctuations market interest rates changes interest rates affect value loans interestearning assets december 31 1999 587 companys residential mortgage loans variablerate loans companys management believes residential mortgage loans less likely incur prepayments principal results operations years ended december 31 1999 1998 company reported net income 602 million 583 million respectively 593550 573970 respectively per common share diluted basis march 17 1997 date inception december 31 1997 company reported net income 378 million 376770 per common share diluted basis total interest income 1999 amounted 642 million net servicing fees increase 21 million 621 million net servicing fees 1998 average balance total mortgage loans net years ended december 31 1999 december 31 1998 8498 million 7557 million respectively yield 672 695 respectively provision loan losses years ended december 31 1999 1998 amounted 480000 300000 respectively provision loan losses period march 17 1997 date inception december 31 1997 provision loan losses reflects increase total residential mortgage loan portfolio noninterest expenses years ended december 31 1999 1998 period march 17 1997 date inception december 31 1997 amounted 35 million 38 million 220000 respectively included advisory fees dividends series preferred stock amortized startup costs income tax expense recorded periods impact inflation changing prices financial statements related data presented herein prepared accordance generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporations performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure companys assets critical maintenance acceptable performance levels recent financial accounting standards june 1998 financial accounting standards board fasb issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities statement establishes accounting reporting standards derivative instruments including certain derivative instruments imbedded contracts collectively referred derivatives hedging activities accounting changes fair value derivative depends intended use derivative resulting designation statement entity elects apply hedge accounting required establish inception hedge method use assessing effectiveness hedging derivative measurement approach determining ineffective aspect hedge methods must consistent entities approach managing risk sfas 133 amended effective fiscal quarters fiscal years beginning june 15 2000 sfas 133 expected impact company since engage hedging activities utilize derivative instruments april 1998 aicpa accounting standards executive committee issued statement position 985 reporting cost startup activities sop 985 sop 985 applicable nongovernment entities requires costs startup activities including organization costs expensed incurred sop 985 effective financial statements fiscal years beginning december 15 1998 restatement previously issued financial statements permitted initial application sop 985 beginning fiscal year sop 985 first adopted unamortized portion previously capitalized startup cost written company wrote remaining amount organizational costs 114330 december 1998 due adoption sop 985 year 2000 readiness disclosure statement disruption companys operations since january 1 2000 disruption expected company continue monitor position item 7a item 7 management’s discussion analysis financial condition results operations company elected treated reit code generally subject federal connecticut income tax long maintains qualification reit requiring among things currently distribute stockholders least 90 “reit taxable income” including capital gains certain items noncash income following discussion company’s financial condition results operations read conjunction company’s financial statements financial data included elsewhere herein summary wpcc’s net income 2005 declined 264 million 266 million 2004 due following principal factors critical accounting policies critical accounting policies defined reflective significant judgments uncertainties could potentially result materially different results different assumptions conditions believe critical accounting policies upon financial condition depends involve complex subjective decisions assessments follows allowance loan losses arriving appropriate level allowance loan losses involves high degree judgment company’s allowance loan losses provides probable losses based upon evaluations known inherent risks loan portfolio management uses historical information assess adequacy allowance loan losses well prevailing business economic environment affected changing economic conditions various external factors subsequent changes factors may impact portfolio ways currently unforeseen allowance increased provisions loan losses recoveries loans previously chargedoff reduced loans chargedoff financial condition total assets consisting primarily residential mortgage loans mortgagebacked securities 5118 million december 31 2005 decrease 255 million 5373 million december 31 2004 cash flow mortgage loans mortgagebacked securities primarily due accelerated prepayments throughout 2005 arising low interest rate environment resulted large cash inflows increased cash flow company purchased short term investments mortgagebacked securities summary company’s residential mortgage loans original maturity last five years follows asset quality company maintains asset quality acquiring residential real estate loans conservatively underwritten aggressively managing nonperforming assets 2004 2003 loan purchases company webster bank purchases 2005 company’s asset quality dependent upon webster bank’s ability maintain conservative underwriting standards december 31 2005 residential real estate loans comprised entire loan portfolio company also invests mortgagebacked securities issued government agencies governmentsponsored enterprises nonperforming assets delinquencies following table details company’s nonperforming assets last five years following table sets forth information company’s loans past due 3089 days still accruing allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based actual results changes information used addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management detail change allowance loan losses periods indicated follows liquidity capital resources primary sources liquidity company principal interest payments residential mortgage loans mortgagebacked securities portfolios primary uses liquidity purchases residential mortgage loans mortgagebacked securities payment dividends common preferred stock scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments vary greatly influenced factors general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year company periodically makes dividend payments common stock accordance company bylaws common stock dividends paid comply reit qualification rules reit qualification rules require least 90 net taxable income year distributed shareholders accelerated prepayments beginning 2002 continuing throughout 2005 resulted increased cash levels company 2002 2003 2005 wpcc declared return capital dividends order return portion available cash company’s common shareholder unlikely event principal interest payments mortgage assets insufficient meet operating needs wpcc ability raise additional funds wpcc’s mortgagebacked securities totaled 413 million december 31 2005 would supply adequate collateral borrowings repurchase agreements addition residential mortgage loans underwritten meet secondary market requirements could easily sold securitized mortgagebacked securities used borrowing collateral assetliability management goal company’s assetliability management policy manage interestrate risk maximize net interest income time changing interest rate environments maintaining acceptable levels risk company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values company’s financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned company’s variablerate interestsensitive instruments represent primarily variablerate mortgage loans may change due changes quoted interestrate indices variablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2005 240 company’s residential mortgage loans variablerate loans results operations net income declined 264 million 2005 year 266 million previous year 282 million 2003 decline 2005 compared 2004 primarily due decline gain sale securities decline 2004 compared 2003 primarily due decline interest income increase interest income 03 million 1 2004 2005 primarily due increase average yields shortterm investments shortterm market rates continued rise throughout 2005 decrease interest income 18 million 64 2003 2004 primarily due lower average balance average yield mortgagebacked securities due lower interest rate environment 2003 2004 2005 mortgage asset prepayments accelerated decline balances threeyear period due accelerated prepayments low interest rate environment return capital dividends shareholders 25 million 2005 90 million 2003 also reduced interest earning assets average balance include unrealized gain loss available sale securities net interest income also understood terms impact changing rates changing volumes following table describes extent changes interest rates changes volume interestearning assets impacted interest income periods indicated information provided category respect changes attributable changes volume changes volume multiplied prior rate ii changes attributable changes rates changes rates multiplied prior volume iii net change attributable combined impact volume rate allocated proportionately change due volume change due rate provision loan losses years ended december 31 2005 2004 2003 absence provision loan losses reflective continued low level nonperforming loans chargeoffs well solid economic performance local area collateral majority loans reside impact inflation changing prices financial statements related data presented herein prepared accordance us generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporation’s performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure company’s assets critical maintenance acceptable performance levels recent accounting standards statement financial accounting standards statement financial accounting standards “sfas” 154 “accounting changes error corrections replacement apb opinion 20 fasb statement 3” establishes unless impracticable retrospective application required method reporting change accounting principle absence explicit transition requirements specific newly adopted accounting principle previously changes accounting principle recognized including cumulative effect changing new accounting principle net income period change sfas 154 retrospective application requires cumulative effect change new accounting principle periods prior presented reflected carrying amounts assets liabilities beginning first period presented ii offsetting adjustment made opening balance retained earnings appropriate components equity period iii financial statements individual prior period presented adjusted reflect direct periodspecific effects applying new accounting principle special retroactive application rules apply situations impracticable determine either periodspecific effects cumulative effect change indirect effects change accounting principle required reported period accounting change made sfas 154 carries forward guidance apb opinion 20 “accounting changes” requiring justification change accounting principle basis preferability sfas 154 also carries forward without change guidance contained apb opinion 20 reporting correction error previously issued financial statements change accounting estimate sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 financial accounting standards board staff positions november 2005 fasb issued staff position nos 1151 1241 “the meaning otherthantemporary impairment application certain investments” “fsp 1151” addresses determination investment considered impaired whether impairment otherthantemporary measure impairment loss fsp 1151 also addresses accounting considerations subsequent recognition otherthantemporary impairment loss debt security requires certain disclosures unrealized losses recognized otherthantemporary impairments fsp 1151 replaces impairment guidance emerging issues task force issue 031 references existing authoritative literature concerning otherthantemporary determinations principally sfas 115 “accounting certain investments debt equity securities” securities exchange commission staff accounting bulletin 59 “accounting noncurrent marketable equity securities” fsp 1151 impairment losses must recognized earnings difference security’s cost fair value financial statement date without considering partial recoveries subsequent date fsp 1151 also requires investor recognize otherthantemporary impairment loss decision sell security made investor expect fair value security fully recover prior expected time sale fsp 1151 effective reporting periods beginning december 15 2005 company expect application fsp 1151 material impact financial statements item 7a item 7 managements discussion analysis financial condition results operations company subsidiary webster bank incorporated march 1997 provide costeffective means raising funds including capital consolidated basis webster bank march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company november 1997 webster contributed approximately 1204 million cash company used purchase mortgagebacked securities total assets december 31 1997 7876 million consisting primarily residential mortgage loans mortgagebacked securities company elected treated reit code generally subject federal income tax extent distributes earnings stockholders maintains qualification reit company webster bank also benefit significantly federal state tax treatment dividends paid company result qualification reit following discussion companys financial condition results operations read conjunction companys financial statements financial data included elsewhere herein public offering december 24 1997 company completed offering 40000 shares series preferred stock liquidation preference 1000 per share 1000000 shares series b preferred stock liquidation preference 10 per share total net proceeds offering amounted 485 million asset quality company maintains asset quality acquiring residential real estate loans conservatively underwritten aggressively managing nonaccrual assets maintaining adequate reserve coverage december 31 1997 residential real estate loans comprised entire loan portfolio company also invests highly rated mortgagebacked securities nonaccrual assets aggregate amount nonaccrual assets 13 million december 31 1997 following table details companys nonaccural assets december 31 1997 nonaccrual assets thousands december 31 1997 loans accounted nonaccrual basis residential fixedrate loans 158 residential variablerate loans 1145 total 1303 december 31 1997 allowance loan losses 15 million 118 nonaccrual assets management believes allowance loan losses adequate cover expected losses portfolio liquidity capital resources primary sources liquidity company net cash flows operating activities investing activities financing activities net cash flows operating activities primarily include net income net changes prepaid expenses assets accrued interest receivable adjustments noncash items amortization deferred fees premiums mortgagebacked securities net amortization accretion net cash flows investing activities primarily include purchase repayments residential real estate loans mortgage backed securities classified available sale net cash flows financing activities primarily include net changes capital generally related stock issuances dividend payments scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments greatly influenced general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates market values fixedrate loans mortgagebacked securities sensitive fluctuations market interest rates declining value interest rates rise interest rates decrease market value loans generally tend increase level prepayments also normally increasing dividends series preferred stock payable rate 7375 per annum amount equal 7375 per annum per share dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year commencing january 15 1998 assetliability management goal companys assetliability management policy manage interestrate risk maximize net interest income time changing interestrate environments maintaining acceptable levels risk company must provide sufficient liquidity daily operations company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values certain companys financial assets sensitive fluctuations market interest rates changes interest rates affect value loans interestearning assets december 31 1997 647 companys residential mortgage loans variablerate loans companys management believes residential mortgage loans less likely incur prepayments principal following table summarizes estimated market value companys interest sensitive assets interestsensitive liabilities december 31 1997 projected change market values interest rates instantaneously increase decrease 100 basis points results operations march 17 1997 date inception december 31 1997 company reported net income 379 million 376770 per common share diluted basis company formed march 1997 comparable results previous periods total interest income period amounted 381 million net servicing fees average balance total mortgage loans net period 6245 million average yield 752 provisions loan losses period noninterest expenses amounted 220000 included advisory fees dividends series stock amortization startup costs income tax expense recorded period impact inflation changing prices financial statements related data presented herein prepared accordance generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporations performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interestrate environment maturity structure companys assets critical maintenance acceptable performance levels recent financial accounting standards june 1997 financial accounting standards board fasb issued statement financial accounting standard sfas 131 disclosures segments enterprise related information statement establishes standards method public business enterprises report information operating segments annual financial statements requires enterprises report selected information operating segments interim reports issued shareholders statement requires public business enterprises report quantitative qualitative information reportable segments including profit loss certain specific revenue expense items segment assets sfas apply company since company one reportable operating segment june 1997 fasb issued sfas 130 reporting comprehensive income statement establishes standards reporting display comprehensive income components full set general purpose financial statements objective statement report measure changes equity enterprise result transactions economic events period transactions owners comprehensive income total net income nonowner changes equity statement effective fiscal years beginning december 15 1997 reclassification financial statements earlier periods comparative purposes required february 1997 fasb issued sfas 129 disclosure information capital structure statement establishes standards disclosing information entitys capital structure statement effective financial statements issued periods ending december 15 1997 february 1997 fasb issued sfas 128 earnings per share statement simplifies standards computing presenting earnings per share previously found apb opinion 15 makes comparable international standards replaces presentation primary earnings per share presentation basic earnings per share requires dual presentation basic diluted earnings per share face income statement entities complex capital structures statement effective financial statements issued periods ending december 15 1997 including interim periods year 2000 impact year 2000 issue refers potential impact failure computer programs equipment give proper recognition dates beyond december 31 1999 issues related year 2000 century date change since company depends webster bank advisor servicer company reliant webster bank parent company webster financial corporation webster ensure proper date recognition webster bank reports completed assessment year 2000 issues developed begun implementing plan modify replace software hardware systems ensure proper date recognition webster bank utilizing internal external resources purpose webster bank initiated formal communications significant vendors determine extent vendors year 2000 compliant webster bank requires compliance condition future business contingency plans vendors failure comply incorporated webster banks year 2000 plan guarantee systems company relies compliance item 7a item 7 management’s discussion analysis financial condition results operations forward looking statements annual report form 10k contains “forwardlooking statements” within meaning private securities litigation reform act 1995 forwardlooking statements identified words “believes” “anticipates” “expects” “intends” “targeted” “continue” “remain” “will” “should” “may” “plans” “estimates” similar references future periods however words exclusive means identifying statements examples forwardlooking statements include limited projections revenues expenses income loss earnings loss per share financial items ii statements plans objectives expectations wpcc management board directors iii statements future economic performance iv statements assumptions underlying statements forwardlooking statements based wpcc’s current expectations assumptions regarding business economy future conditions forwardlooking statements relate future subject inherent uncertainties risks changes circumstances difficult predict wpcc’s actual results may differ materially contemplated forwardlooking statements neither statements historical fact guarantees assurances future performance factors could cause actual results differ discussed forwardlooking statements include limited 1 local regional national international economic conditions 2 government intervention us financial system 3 changes level nonperforming assets chargeoffs 4 inflation interest rate securities market monetary fluctuations management’s estimates projections fluctuations 5 changes management’s estimate adequacy allowance loan losses 6 changes laws regulations policies including tax banking securities insurance laws regulations policies 7 changes applicable accounting policies practice 8 legal regulatory developments including resolution legal proceedings regulatory governmental inquiries results regulatory examinations reviews 9 company’s success managing risks involved foregoing items 10 factors described annual report form 10k heading “risk factors” forwardlooking statement made company annual report form 10k speaks date made factors events could cause company’s actual results differ may emerge time possible company predict company undertakes obligation publicly update forwardlooking statement whether result new information future developments otherwise except may required law company elected treated reit code generally subject federal connecticut state income taxes long maintains qualification reit requiring among things currently distribute shareholders least 90 “reit taxable income” including capital gains certain items noncash income following discussion company’s financial condition results operations read conjunction company’s financial statements financial data summary company’s net income 2009 82 million decrease 56 million compared 138 million 2008 total interest income decreased 58 million 2009 primarily due reduction 976 million average interest earning assets 2692 million december 31 2008 1717 million december 31 2009 yield interest earning assets decreased 32 basis points 511 2009 compared 543 2008 primarily due adjustable interest rate loans reset downward falling interest rates 2009 49 million increase nonperforming loans results operations net income year ended december 31 2009 82 million decrease 56 million compared net income 138 million year ended december 31 2008 decrease 56 million net income 2009 compared 2008 primarily due reduction 976 million average interest earning assets 976 million reduction average interest earning assets primarily due reduction interestbearing deposits held company principal paydowns outstanding residential real estate loans transfer loans webster bank 2008 net income year ended december 31 2008 138 million decrease 56 million compared net income 194 million year ended december 31 2007 decrease 56 million net income 2008 compared 2007 primarily due reduction 785 million average interest earning assets 785 million reduction average interest earning assets primarily due reduction interestbearing deposits principal paydowns outstanding residential real estate loans transfer loans webster bank 2008 offset acquisition loans webster bank 2007 interest income total interest income decreased 2009 compared 2008 2007 due lower average loan balances lower average loan yields following table presents average balances yields company’s interestearning assets periods indicated interest income loans decreased 53 million year ended december 31 2009 88 million compared 141 million year ended december 31 2008 due lower average mortgage loan balances decline average yield 50 basis points decrease average yield reflects effects 400 basis point reductions made federal reserve 2008 2009 adjustable rate residential loans december 31 2009 approximately 415 company’s portfolio comprised adjustable rate loans compared 419 december 31 2008 decline yields also impacted reduction interest earned due increase nonaccruing loans company’s total nonaccruing loans increased 57 million december 31 2009 comparison 08 million december 31 2008 interest income loans decreased 29 million year ended december 31 2008 141 million compared 170 million year ended december 31 2007 due lower average mortgage loan balances increase adjustable rate loans percentage overall portfolio composition december 31 2008 approximately 419 company’s portfolio comprised adjustable rate loans compared 370 december 31 2007 included interest income loans reduction loan servicing fees webster bank retains servicing fees based upon annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points adjustablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans webster bank responsible loan servicing fees 136619 200467 240092 years ended december 31 2009 2008 2007 respectively decrease loan servicing fees 2009 2008 consistent decrease average loan balances outstanding interest income shortterm investments decreased 19 million year ended december 31 2008 05 million compared 24 million year ended december 31 2007 due lower average interestbearing deposit balances decline average yield 236 basis points decrease average balance average yield directly related reduction interest bearing deposits held company 2008 december 31 2009 2008 interest bearing deposits held company compared 510 million held december 31 2007 year ended december 31 2009 interest income interest bearing deposits due reduction interest bearing deposit holdings interest income affected changes volume interest rates volume changes caused increases decreases year level average interestearning assets rate changes result increases decreases yields earned assets following table presents last two years summary changes interest income resulting changes volume average asset balances changes average yields compared preceding year significant change interest income due volume rate prorated volume rate variances based dollar amount variance noninterest expenses company incurs advisory fee expenses payable webster bank pursuant advisory agreement webster bank services webster bank renders company’s behalf advisory fees years ended december 31 2009 2008 2007 216250 205000 respectively 2010 advisory fees expected vary significantly 2009 levels general administrative expenses consisted primarily audit fees exchange listing fees shareholder costs total general administrative expenses 121969 167044 117906 years ended december 31 2009 2008 2007 respectively audit fees approximately 30000 33600 32000 years ended december 31 2009 2008 2007 respectively financial condition company total assets 1579 million 1972 million december 31 2009 2008 respectively decrease total assets 393 million primarily due 368 million decrease balance outstanding residential mortgage loans 1509 million december 31 2009 compared 1877 million december 31 2008 decrease residential mortgage loans outstanding due 364 million repayments 03 million provision loan losses shareholders’ equity decreased 394 million 1576 million december 31 2009 1970 million december 31 2008 due 390 million return capital distribution webster bank 86 million common preferred dividends offset 82 million net income year ended december 31 2009 cash december 31 2009 december 31 2008 cash balances company held deposit accounts webster bank loans summary company’s residential mortgage loans original maturity last five years follows contractual maturities company’s residential mortgage loans category december 31 2009 contractual maturities expected gross receipts borrowers balances contractual maturities reflected table previously presented include 509458 net unamortized premiums 183357 net deferred costs concentration credit risk concentration credit risk generally arises respect loan portfolio number borrowers engage similar business activities geographical region concentration credit risk indicates relative sensitivity company’s performance positive negative developments affecting particular industry balance sheet exposure geographic concentrations directly affects credit risk company’s residential real estate loans majority company’s residential real estate loans concentrated state connecticut adverse conditions affect state connecticut could adversely affect company’s operations asset quality loans held company originated webster bank ordinary course real estate lending activities company’s asset quality dependent upon webster bank’s ability maintain adequate underwriting standards december 31 2009 2008 loan portfolio comprised residential real estate loans acquired company webster bank years ended december 31 2009 2008 year ended december 31 2008 464 million loans transferred company webster bank nonperforming assets including impaired restructured loans loan delinquency credit losses considered key measures asset quality asset quality one key factors determination level allowance loan losses see “allowance loan losses” contained elsewhere within section information nonperforming assets following table details company’s nonperforming assets last five years nonperforming loans company’s policy loans 90 days past due placed nonaccruing status december 31 2009 non accruing loans 57 million compared 08 million december 31 2008 increase 49 million increase directly related slow economic environment impact consumers communities company holds assets loan delinquencies following table sets forth information company’s loans past due 3089 days still accruing loans past due 3089 days decreased 22 million 26 million december 31 2009 compared 48 million december 31 2008 impaired loans company individually reviews loans expected collected accordance original terms contractual agreement impairment based fair value expected cash flows collateral december 31 2009 impaired loans totaled 32 million including loans 16 million impairment allowance 03 million impaired loans december 31 2008 following table summarizes impaired loans december 31 2009 troubled debt restructures loan whose terms modified due financial difficulties borrower reported company troubled debt restructure “tdr” tdrs placed nonaccrual status loan qualifies return accrual status loans qualify return accrual status demonstrated performance restructured terms loan agreement minimum six months tdrs definition impaired loans reported within impaired loan categories preceding table accordance company’s credit risk policy loans portions loans charged allowance loan losses deemed management uncollectible december 31 2009 company tdr’s total 26 million thirteen loans restructured 2009 december 31 2009 nine tdr loans totaling 17 million nonaccrual four tdr loans totaling 09 million current accruing year ended december 31 2009 company recognized 26599 tdr chargeoffs tdrs december 31 2008 2007 allowance loan losses allowance loan losses maintained level estimated management provide probable losses inherent loan portfolio probable losses estimated based upon quarterly review loan portfolio past loss experience specific problem loans economic conditions pertinent factors management’s judgment deserve current recognition estimating loan losses assessing specific risks inherent portfolio management takes consideration risk loss nonaccrual loans criticized loans watch list loans including analysis collateral loans management considers adequacy allowance loan losses critical accounting policy adequacy allowance loan losses subject judgment determination actual loan losses could differ materially management’s estimate actual loss factors conditions differ significantly assumptions utilized factors conditions include general economic conditions within company’s market well trends within real estate values interest rates financial condition individual borrowers management believes allowance loan losses adequate december 31 2009 actual results may prove different differences could significant webster bank’s credit risk management committee role advisor company meets quarterly basis review conclude adequacy allowance results presented reviewed management company december 31 2009 allowance loan losses 22 million 14 total residential mortgage loan portfolio 380 total nonperforming loans compares allowance 22 million 12 total loan portfolio 2653 total nonperforming loans december 31 2008 gross chargeoffs year ended december 31 2009 03 million increase 03 million compared chargeoffs 9000 year ended december 31 2008 increase chargeoff activity reflects focus nonaccrual resolution updated valuations nonperforming loans year ended december 31 2009 fourth quarter 2009 company began experience level stabilization within residential portfolio noted decline loans past due 3089 days due trends detailed review underlying portfolio management concluded provision loan loss equal net chargeoffs would result ending allowance reflective inherent losses portfolio quarter ended december 31 2009 company reduced provision 04 million reach level required reserve detail change allowance loan losses periods indicated follows liquidity capital resources primary sources liquidity company historically principal interest payments residential mortgage loans mortgagebacked securities portfolios primary uses liquidity typically purchases residential mortgage loans mortgagebacked securities payment dividends common preferred stock scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments vary greatly influenced factors general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 08625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year company periodically makes dividend payments common stock accordance company bylaws common stock dividends paid comply reit qualification rules reit qualification rules require least 90 net taxable income year distributed shareholders continued prepayments 2008 2009 resulted increased cash levels company 2008 2009 wpcc declared return capital dividends order return portion available cash company’s common shareholder event principal interest payments mortgage assets insufficient meet operating needs company ability raise additional funds company’s residential mortgage loans underwritten meet secondary market requirements could sold securitized mortgagebacked securities used borrowing collateral assetliability management market risk majority company’s assets sensitive changes interest rates significant form market risk interest rate risk primary goal managing risk maximize net income shortterm risk net economic value longterm risk time changing interest rate environments effective assetliability management process must balance risks rewards short longterm interest rate risks determining management strategy action company’s interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables webster bank role advisor company uses sophisticated mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections webster bank prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist webster bank company unable predict future fluctuations interest rates market values company’s financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned company’s adjustablerate interestsensitive instruments represent primarily adjustablerate mortgage loans may change due changes quoted interestrate indices adjustablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2009 415 company’s residential mortgage loans adjustablerate loans compared 419 december 31 2008 following table summarizes estimated fair values company’s interestsensitive assets december 31 2009 2008 projected change fair values interest rates instantaneously increase decrease 100 basis points loans presented following table gross allowance loan losses exclude premiums deferred costs components interestsensitive assets company interestsensitive liabilities december 31 2009 2008 interestsensitive assets shocked plus 100 basis point rate change results unfavorable 46 million 31 change 2009 compared unfavorable 45 million 23 change 2008 based company’s assetliability mix december 31 2009 management estimates gradual 200 basis point increase interest rates would increase net income next twelve months 27 assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes management’s strategies based upon review work performed webster bank management believes company’s interestrate risk position december 31 2009 represents reasonable level risk impact inflation changing prices financial statements related data presented herein prepared accordance us generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate investment trust’s performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure company’s assets critical maintenance acceptable performance levels critical accounting policies estimates accounting reporting policies followed company conform material respects accounting principles generally accepted united states general practices within financial services industry preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect amounts reported financial statements accompanying notes company bases estimates historical experience current information factors deemed relevant actual results could differ estimates critical accounting estimates necessary application certain accounting policies procedures particularly susceptible significant change critical accounting policies defined reflective significant judgments uncertainties could potentially result materially different results different assumptions conditions following describes accounting policy management believes involves complex subjective decisions assessments allowance loan losses accounting policies related allowance loan losses considered critical policies involve considerable subjective judgment estimation management allowance loan losses reserve established provision loan losses charged expense represents management’s best estimate probable losses incurred within existing company’s portfolio loans balance sheet date allowance judgment management based guidance provided sec staff accounting bulletin 102 “selected loan loss allowance methodology documentation issues” includes amounts calculated accordance accounting standards codification fasb asc topic 310 “receivables” allowance allocation calculated accordance fasb asc topic 450 “contingencies” level allowance reflects management’s continuing evaluation industry concentrations specific credit risks loan loss experience current loan portfolio quality present economic political regulatory conditions unidentified losses inherent current loan portfolio well trends foregoing portions allowance may allocated specific credits however entire allowance available credit management’s judgment charged management utilizes best judgment information available ultimate adequacy allowance dependent upon variety factors beyond company’s control including performance company’s loan portfolio economy changes interest rates view regulatory authorities toward loan classifications item 7a item 7 management’s discussion analysis financial condition results operations company elected treated reit code generally subject federal connecticut income tax long maintains qualification reit requiring among things currently distribute stockholders least 90 “reit taxable income” including capital gains certain items noncash income following discussion company’s financial condition results operations read conjunction company’s financial statements financial data included elsewhere herein summary wpcc’s net income 2006 increased 267 million compared 264 million 2005 total interest income increased 10 million 2006 primarily due increased yield short term investments overall yield earning assets increased 546 2006 compared 497 2005 shortterm market rates continued rise throughout 2006 offset part downward pricing adjustable rate mortgages combined lower replacement yield new mortgage assets additionally 2006 results included 05 million writedown securities available sale fair value 01 million losses subsequent sale securities corresponding losses 2005 results critical accounting policies critical accounting policies defined reflective significant judgments uncertainties could potentially result materially different results different assumptions conditions believe critical accounting policy upon financial condition depends involves complex subjective decisions assessments allowance loan losses arriving appropriate level allowance loan losses involves high degree judgment company’s allowance loan losses provides probable losses based upon evaluations known inherent risks loan portfolio management uses historical information assess adequacy allowance loan losses well prevailing business economic environment affected changing economic conditions various external factors subsequent changes factors may impact portfolio ways currently unforeseen allowance increased provisions loan losses recoveries loans previously chargedoff reduced loans chargedoff financial condition total assets consisting primarily residential mortgage loans mortgagebacked securities 5120 million december 31 2006 increase 02 million compared 5118 million december 31 2005 residential mortgages decreased 148 million result 733 million loans transferred webster bank 600 million principal repayments partially offset 1177 million new loans acquired webster bank october 2006 webster financial corporation announced repositioning available sale securities portfolio management’s decision sell mortgagebacked securities classified available sale company took similar action respect available sale portfolio result company recognized loss writedown available sale mortgagebacked securities fair value 526000 september 30 2006 company’s entire mortgagebacked securities portfolio subsequently sold october 2006 increased cash flow company increased short term investments 30 million compared 2005 cash increased 560 million primarily result loan transfers webster bank 461 million late fourth quarter 2006 summary company’s residential mortgage loans original maturity last five years follows asset quality company maintains asset quality acquiring residential real estate loans conservatively underwritten aggressively managing nonperforming assets 2006 loans acquired company transferred webster bank 1177 million acquired loans 733 million loan transfers webster bank 2006 company’s asset quality dependent upon webster bank’s ability maintain conservative underwriting standards december 31 2006 residential real estate loans comprised entire loan portfolio company also invests mortgagebacked securities issued government agencies governmentsponsored enterprises nonperforming assets delinquencies following table details company’s nonperforming assets last five years following table sets forth information company’s loans past due 3089 days still accruing allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based actual results changes information used addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management detail change allowance loan losses periods indicated follows liquidity capital resources primary sources liquidity company principal interest payments residential mortgage loans mortgagebacked securities portfolios primary uses liquidity purchases residential mortgage loans mortgagebacked securities payment dividends common preferred stock scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments vary greatly influenced factors general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year company periodically makes dividend payments common stock accordance company bylaws common stock dividends paid comply reit qualification rules reit qualification rules require least 90 net taxable income year distributed shareholders accelerated prepayments beginning 2002 continuing throughout 2006 resulted increased cash levels company 2002 2003 2005 wpcc declared return capital dividends order return portion available cash company’s common shareholder event principal interest payments mortgage assets insufficient meet operating needs wpcc ability raise additional funds company’s residential mortgage loans underwritten meet secondary market requirements could sold securitized mortgagebacked securities used borrowing collateral assetliability management goal company’s assetliability management policy manage interestrate risk maximize net interest income time changing interest rate environments maintaining acceptable levels risk company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values company’s financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned company’s variablerate interestsensitive instruments represent primarily variablerate mortgage loans may change due changes quoted interestrate indices variablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2006 364 company’s residential mortgage loans variablerate loans results operations net income 267 million year ended december 31 2006 compared 264 million 2005 266 million 2004 increase 03 million 2006 compared 2005 primarily due increase interest income interest earning assets partially offset writedown securities available sale fair value loss subsequent sale securities decline net income 2005 compared 2004 primarily due decline gain sale securities increase interest income 10 million 36 2006 compared 2005 due increases average yields short term investments increase interest income 03 million 1 2005 compared 2004 primarily due increase average yields shortterm investments shortterm market rates continued rise throughout 2006 due lower interest rate environment 2004 2005 mortgage asset prepayments accelerated decline balances threeyear period due accelerated prepayments low interest rate environment net interest income also understood terms impact changing rates changing volumes following table describes extent changes interest rates changes volume interestearning assets impacted interest income periods indicated information provided category respect changes attributable changes volume changes volume multiplied prior rate ii changes attributable changes rates changes rates multiplied prior volume iii net change attributable combined impact volume rate allocated proportionately change due volume change due rate provision loan losses years ended december 31 2006 2005 2004 absence provision loan losses reflective continued low level nonperforming loans chargeoffs well solid economic performance local area collateral majority loans reside impact inflation changing prices financial statements related data presented herein prepared accordance us generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporation’s performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure company’s assets critical maintenance acceptable performance levels recent accounting standards september 2006 financial accounting standards board “fasb” issued sfas 157 “fair value measurements” “sfas 157” effective fiscal years beginning november 15 2007 interim periods within years statement defines fair value establishes framework measuring fair value expands related disclosure requirements adoption sfas 157 expected material effect company’s consolidated financial position results operations cash flows june 2006 fasb issued fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements prescribing recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return fin 48 also provides guidance derecognition classification interest penalties accounting interim periods disclosure transition provisions fin 48 effective fiscal years beginning december 15 2006 applied tax positions upon initial adoption standard tax positions must meet morelikelythannot recognition threshold adoption date order related tax benefits recognized continue recognized adoption fin 48 expected effect company’s consolidated financial position results operations cash flows march 2006 fasb issued sfas 156 “accounting servicing financial assets amendment fasb statement 140” “sfas 156” effective fiscal years beginning september 15 2006 statement issued simplify accounting servicing rights reduce volatility results using different measurement attributes adoption sfas 156 expected effect company’s consolidated financial position results operations cash flows february 2006 fasb issued sfas 155 “accounting certain hybrid financial instruments” “sfas 155” eliminates exemption applying sfas 133 interests securitized financial assets similar instruments accounted similarly regardless form instruments sfas 155 also allows election fair value measurement acquisition issuance previously recognized financial instrument subject remeasurement event adoption effective financial instruments acquired issued beginning first fiscal year begins september 15 2006 adoption sfas 155 expected effect company’s consolidated financial position results operations cash flows forward looking statements annual report contains forwardlooking statements within meaning securities exchange act 1934 amended actual results performance developments may differ materially expressed implied forwardlooking statements result market uncertainties factors important factors could cause actual results differ forwardlooking statements include changes interest rates general economics connecticut market area substantial portion real estate securing company’s loans located legislative regulatory changes tax laws policies changes accounting policies principles guidelines developments combination thereof could adverse impact company’s financial position results operations item 7a item 7 managements discussion analysis financial condition results operations company subsidiary webster bank incorporated march 1997 provide costeffective means raising funds including capital consolidated basis webster bank march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company november 1997 1998 webster bank contributed approximately 1204 million 1828 million respectively cash company used purchase mortgagebacked securities residential mortgage loans 2000 1999 webster bank made contributions company total assets december 31 2000 december 31 1999 9682 million 9672 million respectively consisting primarily residential mortgage loans interestbearing deposits mortgagebacked securities interestbearing deposits 975 million 2000 result planning maturity series preferred stock cash flow needs anticipated january 2001 deposits funded principal payments mortgagebacked securities residential mortgage loans total assets increased 10 million primarily due increase fair market value mortgagebacked securities evidenced 18 increase comprehensive income company elected treated reit code generally subject federal income tax long maintains qualification reit requiring among things currently distribute stockholders least 95 reit taxable income including capital gains certain items noncash income company webster bank also benefit significantly state tax treatment dividends paid company result qualification reit following discussion companys financial condition results operations read conjunction companys financial statements financial data included elsewhere herein asset quality company maintains high asset quality acquiring residential real estate loans conservatively underwritten aggressively managing nonaccrual assets maintaining adequate reserve coverage december 31 2000 1999 residential real estate loans comprised entire loan portfolio company also invests highly rated mortgagebacked securities nonaccrual assets aggregate amount nonaccrual assets december 31 2000 1999 1998 approximately 705000 12 million 13 million respectively following table details companys nonaccrual assets december 31 2000 1999 1998 december 31 2000 1999 1998 allowances loan losses approximately 21 million 19 million 16 million 292 158 121 respectively nonaccrual assets management believes allowance loan losses adequate cover expected losses portfolio liquidity capital resources primary sources liquidity company net cash flows operating activities investing activities financing activities net cash flows operating activities primarily include net income net changes prepaid expenses assets accrued interest receivable adjustments noncash items amortization deferred fees premiums mortgagebacked securities net amortization accretion net cash flows investing activities primarily include purchase repayments residential real estate loans mortgage backed securities classified available sale net cash flows financing activities primarily include net changes capital generally related stock issuances capital contributions webster bank dividend payments scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments greatly influenced general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates market values fixedrate loans mortgagebacked securities sensitive fluctuations market interest rates declining value interest rates rise interest rates decrease market value loans generally tend increase level prepayments also normally increasing dividends series preferred stock payable rate 7375 per annum amount equal 7375 per annum per share dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year commencing january 15 1998 series preferred stock redeemed january 16 2001 company expects sufficient cash flow loan payment streams replenish cash assetliability management goal companys assetliability management policy manage interestrate risk maximize net interest income time changing interestrate environments maintaining acceptable levels risk company must provide sufficient liquidity daily operations company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values certain companys financial assets sensitive fluctuations market interest rates changes interest rates affect value loans interestearning assets december 31 2000 567 companys residential mortgage loans variablerate loans companys management believes residential mortgage loans less likely incur prepayments principal results operations years ended december 31 2000 1999 1998 company reported net income 617 million 602 million 583 million respectively 608189 593550 573970 respectively per common share diluted basis total interest income 2000 amounted 653 million net servicing fees increase 11 million 642 million net servicing fees 1999 total interest income 1999 increased 21 million 1998 amount 621 million following table shows major categories average assets together respective interest income rates earned company provision loan losses years ended december 31 2000 1999 1998 amounted 190000 480000 300000 respectively provision loan losses reflects change total residential mortgage loan portfolio gains sale mortgagebacked securities years ended december 31 2000 1998 94000 261000 respectively sales mortgagebacked securities 1999 noninterest expenses years ended december 31 2000 1999 1998 amounted 35 million 35 million 38 million respectively included advisory fees dividends series preferred stock amortized startup costs income tax expense recorded periods impact inflation changing prices financial statements related data presented herein prepared accordance generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporations performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure companys assets critical maintenance acceptable performance levels recent financial accounting standards september 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilities replacement sfas 125 sfas 140 addresses implementation issues identified applying sfas 125 statement revises standards accounting securitizations transfers financial assets collateral requires certain disclosures carries provisions sfas 125 without reconsideration sfas 140 effective transfers servicing financial assets extinguishments liabilities occurring march 31 2001 sfas 140 effective recognition reclassification collateral disclosures relating securitization transactions collateral fiscal years ending december 15 2000 statement applied prospectively certain exceptions earlier retroactive application permitted june 1998 financial accounting standards board fasb issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities statement establishes accounting reporting standards derivative instruments including certain derivative instruments imbedded contracts collectively referred derivatives hedging activities accounting changes fair value derivative depends intended use derivative resulting designation statement entity elects apply hedge accounting required establish inception hedge method use assessing effectiveness hedging derivative measurement approach determining ineffective aspect hedge methods must consistent entities approach managing risk sfas 133 amended effective fiscal quarters fiscal years beginning june 15 2000 sfas 133 expected impact company since engage hedging activities utilize derivative instruments april 1998 aicpa accounting standards executive committee issued statement position 985 reporting cost startup activities sop 985 sop 985 applicable nongovernment entities requires costs startup activities including organization costs expensed incurred sop 985 effective financial statements fiscal years beginning december 15 1998 restatement previously issued financial statements permitted initial application sop 985 beginning fiscal year sop 985 first adopted unamortized portion previously capitalized startup cost written company wrote remaining amount organizational costs 114330 december 1998 due adoption sop 985 item 7a item 7 management’s discussion analysis financial condition results operations company elected treated reit code generally subject federal connecticut income tax long maintains qualification reit requiring among things currently distribute stockholders least 90 “reit taxable income” including capital gains certain items noncash income following discussion company’s financial condition results operations read conjunction company’s financial statements financial data included elsewhere herein summary wpcc’s net income 2004 declined 266 million 282 million 2003 due following factors 2004 wpcc purchased 1459 million residential loans webster bank critical accounting policies critical accounting policies defined reflective significant judgments uncertainties could potentially result materially different results different assumptions conditions believe critical accounting policies upon financial condition depends involve complex subjective decisions assessments follows allowance loan losses arriving appropriate level allowance loan losses involves high degree judgment company’s allowance loan losses provides probable losses based upon evaluations known inherent risks loan portfolio management uses historical information assess adequacy allowance loan losses well prevailing business economic environment affected changing economic conditions various external factors subsequent changes factors may impact portfolio ways currently unforeseen allowance increased provisions loan losses recoveries loans previously chargedoff reduced loans chargedoff financial condition total assets consisting primarily residential mortgage loans mortgagebacked securities 5373 million december 31 2004 decrease 12 million 5385 million december 31 2003 cash flow mortgage loans mortgagebacked securities primarily due accelerated prepayments throughout 2004 arising low interest rate environment resulted large cash inflows increased cash flow wpcc purchased 1459 million residential loans webster bank summary company’s residential mortgage loans original maturity last five years follows asset quality company maintains asset quality acquiring residential real estate loans conservatively underwritten aggressively managing nonperforming assets 2003 2004 loan purchases company webster bank company’s asset quality dependent upon webster bank’s ability maintain conservative underwriting standards december 31 2004 residential real estate loans comprised entire loan portfolio company also invests government agency governmentsponsored agency issued mortgagebacked securities nonperforming assets delinquencies following table details company’s nonperforming assets last five years following table sets forth information company’s loans past due 3089 days still accruing allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based actual results changes information used addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management detail change allowance loan losses periods indicated follows liquidity capital resources primary sources liquidity company principal interest payments residential mortgage loans mortgagebacked securities portfolios primary uses liquidity purchases residential mortgage loans mortgagebacked securities payment dividends common preferred stock scheduled loan amortization maturing securities shortterm investments securities repayments predictable sources funds loan mortgagebacked security prepayments vary greatly influenced factors general interest rates economic conditions competition one inherent risks investing loans mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 8625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year company periodically makes dividend payments common stock accordance company bylaws common stock dividends paid comply reit qualification rules reit qualification rules require 90 net taxable income year distributed shareholders accelerated prepayments beginning 2002 continuing throughout 2004 resulted increased cash levels company 2002 2003 wpcc declared return capital dividends order return cash company’s common shareholder unlikely event principal interest payments mortgage assets insufficient meet operating needs wpcc ability raise additional funds wpcc’s mortgagebacked securities totaled 207 million december 31 2004 would supply adequate collateral borrowings repurchase agreements addition residential mortgage loans underwritten meet secondary market requirements could easily sold securitized mortgagebacked securities used borrowing collateral assetliability management goal company’s assetliability management policy manage interestrate risk maximize net interest income time changing interest rate environments maintaining acceptable levels risk company prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist company unable predict future fluctuations interest rates market values company’s financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned company’s variablerate interestsensitive instruments represent primarily variablerate mortgage loans may change due changes quoted interestrate indices variablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2004 265 company’s residential mortgage loans variablerate loans results operations net income declined 266 million 2004 year 282 million previous year 419 million 2002 decline due entirely declines interest income wpcc interestbearing liabilities noninterest income expense minimal decline interest income 18 million 64 2003 2004 due combination decline yield earning assets decline outstanding earning assets due low interest rate environment 2003 2004 mortgage asset prepayments accelerated assets replaced ones earning lower yield decline balances due accelerated prepayments declines 2002 2003 resulted factors low interest rate environment return capital dividend shareholders 900 million 2003 average balance include unrealized gain loss available sale securities net interest income also understood terms impact changing rates changing volumes following table describes extent changes interest rates changes volume interestearning assets interestbearing liabilities impacted interest income interest expense periods indicated information provided category respect changes attributable changes volume changes volume multiplied prior rate ii changes attributable changes rates changes rates multiplied prior volume iii net change attributable combined impact volume rate allocated proportionately change due volume change due rate provision loan losses years ended december 31 2004 2003 2002 absence provision loan losses reflective continued low level nonperforming loans chargeoffs well solid economic performance local area collateral majority loans reside impact inflation changing prices financial statements related data presented herein prepared accordance us generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate corporation’s performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure company’s assets critical maintenance acceptable performance levels recent accounting standards december 2004 fasb issued sfas 123 r “share based payment” requires compensation cost relating sharebased payment transactions recognized financial statements based upon fair value instruments issued sfas 123 r covers wide range sharebased compensation arrangements including share options restricted stock plans performancebased awards share appreciation rights employee purchase plans statement effective public entities first interim annual period begins june 15 2005 sfas 123 r replaces sfas 123 established preferable fair value based method accounting sharebased compensation employees permitted option continuing apply guidance apb 25 long footnotes financial statements disclosed effects preferable fair value method adoption sfas 123 r impact wpcc’s financial statements march 2004 securities exchange commission “sec” issued staff accounting bulletin 105 application accounting principles loan commitments “sab 105” provides guidance measurement loan commitments required accounted derivative instruments recognized fair value statement financial accounting standards 133 accounting derivative instruments hedging activities sab 105 also requires companies disclose accounting policy loan commitments including methods assumptions used estimate fair value associated hedging strategies sab 105 effective loan commitments accounted derivatives entered june 30 2004 may 2004 fasb issued fasb staff position “fsp” 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 “act” fsp 1062 supersedes fsp 1061 provides guidance accounting effects act employers sponsor postretirement health care plans provide prescription drug benefits fsp 1062 also requires employers provide certain disclosures regarding effect federal subsidy provided act fsp 1062 immaterial impact wpcc’s financial statements 2003 emerging issues task force “eitf” fasb issued eitf 0301 eitf reach consensus criteria used determine investment considered impaired whether impairment otherthantemporary measurement impairment loss criteria applied investments accounted sfas 115 accounting certain investments debt equity securities eitf 0301 also included accounting considerations subsequent recognition otherthantemporary impairments additionally eitf 0301 includes new disclosure requirements investments deemed temporarily impaired september 2004 fasb delayed accounting provisions eitf 0301 however disclosure requirements remain effective annual reports ending june 15 2004 wpcc evaluate impact eitf 0301 final guidance issued item 7a item 7 management’s discussion analysis financial condition results operations company subsidiary webster bank elected treated real estate investment trust “reit” internal revenue code 1986 amended “code” company generally subject federal connecticut state income taxes long maintains qualification reit requiring among organizational operational issues currently distributes shareholders least 90 “reit taxable income” including capital gains certain items noncash income following discussion company’s financial condition results operations read conjunction company’s financial statements notes thereto financial data included elsewhere report forward looking statements annual report form 10k contains “forwardlooking statements” within meaning private securities litigation reform act 1995 “act” forwardlooking statements identified words “believes” “anticipates” “expects” “intends” “targeted” “continue” “remain” “will” “should” “may” “plans” “estimates” similar references future periods however words exclusive means identifying statements examples forwardlooking statements include limited projections revenues expenses income loss earnings loss per share financial items ii statements plans objectives expectations company management board directors iii statements future economic performance iv statements assumptions underlying statements forwardlooking statements based company’s current expectations assumptions regarding business economy future conditions forwardlooking statements relate future subject inherent uncertainties risks changes circumstances difficult predict company’s actual results may differ materially contemplated forwardlooking statements neither statements historical fact guarantees assurances future performance factors could cause actual results differ discussed forwardlooking statements include limited 1 local regional national international economic conditions impact may us customers assessment impact 2 volatility disruption national international financial markets 3 government intervention us financial system 4 changes level nonperforming assets chargeoffs 5 changes estimates future reserve requirements based upon periodic review thereof relevant regulatory accounting requirements 6 inflation interest rate securities market monetary fluctuations 7 changes consumer spending borrowings savings habits 8 changes competitive environment among banks financial holding companies financial service providers 9 effect changes laws regulations including laws regulations concerning taxes banking securities insurance company must comply including recently enacted doddfrank wall street reform consumer protection act basel iii update basel accords development 10 effect changes accounting policies practices may adopted regulatory agencies well public company accounting oversight board financial accounting standards board accounting standard setters 11 costs effects legal regulatory developments including resolution legal proceedings regulatory governmental inquiries results regulatory examinations reviews 12 company’s success managing risks involved foregoing items forwardlooking statement made company annual report form 10k speaks date made factors events could cause company’s actual results differ may emerge time possible company predict company undertakes obligation publicly update forwardlooking statement whether result new information future developments otherwise except may required law summary company’s net income 2010 61 million decrease 21 million compared 82 million 2009 total interest income decreased 23 million 2010 approximately sixtyfive percent decrease due lower average loan balances approximately thirtyfive percent due interest rates variable loans average interest earning assets declined 309 million 1717 million december 31 2009 1408 million december 31 2010 yield interest earning assets decreased 50 basis points 461 2010 compared 511 2009 due adjustable interest rate loans reset downward line lower interest rate environment 2010 results operations net income year ended december 31 2010 61 million decrease 21 million compared net income 82 million year ended december 31 2009 decrease 21 million net income 2010 compared 2009 primarily due reduction 309 million average interest earning assets lower average yields 309 million reduction average interest earning assets primarily due principal paydowns outstanding residential real estate loans lower yields net income year ended december 31 2009 82 million decrease 56 million compared net income 138 million year ended december 31 2008 decrease 56 million net income 2009 compared 2008 primarily due reduction 976 million average interest earning assets lower average yields 976 million reduction average interest earning assets primarily due principal paydowns outstanding residential real estate loans lower yields interest income total interest income net servicing fees decreased 2010 compared 2009 2008 due lower average loan balances lower average loan yields following table presents average balances yields company’s interestearning assets periods indicated interest income loans decreased 23 million year ended december 31 2010 65 million compared 88 million year ended december 31 2009 due lower average mortgage loan balances decline average yield 50 basis points december 31 2010 approximately 402 company’s portfolio comprised adjustable rate loans compared 415 december 31 2009 company’s total nonaccruing loans 56 million december 31 2010 comparison 57 million december 31 2009 fixedrate nonaccruing loans decreased 12 million adjustablerate nonaccruing loans increased 11 million interest income loans decreased 53 million year ended december 31 2009 88 million compared 141 million year ended december 31 2008 due lower average mortgage loan balances decline average yield 50 basis points decrease average yield reflects effects 400 basis point reductions made federal reserve 2008 2009 adjustable rate residential loans december 31 2009 approximately 415 company’s portfolio comprised adjustable rate loans compared 419 december 31 2008 decline yields also impacted reduction interest earned due increase nonaccruing loans company’s total nonaccruing loans increased 55 million december 31 2009 comparison 08 million december 31 2008 included interest income loans reduction loan servicing fees webster bank retains servicing fees based upon annual rate 958 basis points fixedrate loan servicing collection ii 958 basis points adjustablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans webster bank responsible loan servicing fees 01 million 01 million 02 million years ended december 31 2010 2009 2008 respectively level loan servicing fees 2010 2009 2008 consistent decreasing average loan balances outstanding interest bearing deposits held company eliminated 2008 result interest income interest bearing deposits years ended december 31 2010 2009 compared 05 million year ended december 31 2008 interest income affected changes volume interest rates volume changes caused increases decreases year level average interestearning assets interest rate changes result increases decreases yields earned assets significant change interest income due volume rate prorated volume rate variances based dollar amount variance following table presents last two years summary changes interest income resulting changes volume average asset balances changes average yields compared preceding year noninterest expense company incurs advisory fee expenses payable webster bank pursuant advisory agreement webster bank services webster bank renders company’s behalf advisory fees years ended december 31 2010 2009 2008 02 million 2011 advisory fees expected vary significantly 2010 levels general administrative expenses consisted primarily audit fees exchange listing fees shareholder costs total general administrative expenses 02 million 01 million 02 million years ended december 31 2010 2009 2008 respectively audit fees approximately 410 thousand 300 thousand 336 thousand years ended december 31 2010 2009 2008 respectively financial condition company total assets 1316 million 1579 million december 31 2010 2009 respectively decrease total assets 263 million primarily due 267 million decrease balance outstanding residential mortgage loans 1242 million december 31 2010 primarily compared 1509 million december 31 2009 decrease residential mortgage loans outstanding due 260 million repayments reclass 06 million real estate owned “oreo” shareholder’s equity decreased 270 million 1306 million december 31 2010 1576 million december 31 2009 due 270 million return capital distribution webster bank 61 million common preferred dividends offset 61 million net income year ended december 31 2010 cash december 31 2010 2009 cash balances company held deposit accounts webster bank loans summary company’s residential mortgage loans original maturity december 31 last five years follows contractual maturities company’s residential mortgage loans category december 31 2010 contractual maturities expected gross receipts borrowers balances contractual maturities reflected table presented include 05 million net unamortized premiums 01 million net deferred costs concentration credit risk concentration credit risk generally arises respect loan portfolio number borrowers engage similar business activities geographical region concentration credit risk indicates relative sensitivity company’s performance positive negative developments affecting particular industry balance sheet exposure geographic concentrations directly affects credit risk company’s residential real estate loans majority company’s residential real estate loans concentrated state connecticut adverse conditions affect state connecticut could adversely affect company’s operations asset quality loans held company originated webster bank ordinary course real estate lending activities company’s asset quality dependent upon webster bank’s ability maintain adequate underwriting standards manage nonperforming assets loans acquired company webster bank years ended december 31 2010 2009 december 31 2010 2009 loan portfolio comprised solely residential real estate loans nonperforming assets including impaired modified loans delinquent loans loan losses considered key measures asset quality asset quality one key factors determination level allowance loan losses see “allowance loan losses” contained elsewhere within section information allowance nonperforming assets following table summarizes company’s nonperforming assets related asset quality information last five years company’s policy loans 90 days past due placed nonaccruing status residential loans placed nonaccrual status accrual interest discontinued unpaid accrued interest reversed charged interest income december 31 2010 nonperforming loans 56 million representing 45 gross loans compared 55 million december 31 2009 representing 36 gross loans interest nonaccrual loans would recorded additional interest income years ended december 31 2010 2009 2008 loans current accordance original terms approximated 1208 thousand 1607 thousand 190 thousand respectively level loans placed nonaccruing status december 31 2010 2009 directly related economic environment impact consumers communities company holds assets delinquent loans following table sets forth information company’s delinquent loans past due 3089 days still accruing last five years loans past due 3089 days still accruing decreased 17 million 09 million december 31 2010 compared 26 million december 31 2009 impaired loans company servicing agreement webster bank individually reviews loans expected collected accordance original terms contractual agreement impairment loan deemed impaired contractual amounts principal interest expected collected accordance contractual provisions amount impairment calculated using fair value expected cash flows collateral accordance likely means recovery specific valuation allowance established equal calculated amount impairment december 31 2010 impaired loans totaled 60 million including loans 57 million specific reserves 06 million compared impaired loans totaling 35 million including loans 16 million specific reserves 03 million december 31 2009 60 million impaired loans december 31 2010 57 million measured using present value expected cash flows 03 million measured using fair value associated collateral 35 million impaired loans december 31 2009 28 million measured using present value expected cash flows 07 million measured using fair value associated collateral increase impaired loans result increase troubled debt restructurings “tdrs” majority tdrs remain impaired population remaining life loan impaired loan specific valuation allowance necessary december 31 2010 result either sufficient cash flow sufficient collateral coverage previous charge amounts reduced book value loan amount equal fair value collateral extent recovery loan balance collateral dependent company obtains independent appraisal appraised value reduced selling costs additional discounts historical experience foreclosed real estate repossessed asset sales necessary determine estimated fair value collateral fair value compared loan balance shortfall fair value charged allowance loan losses month related appraisal received since fair value collateral considers selling costs adjustments historical experience foreclosed real estate repossessed asset sales charge offs may incurred reduce loan balance appraised value accordingly amounts charged bring loan balance fair value partial excess charge offs occur loan remains nonperforming status subsequent recording charge nonperforming loans modified may qualify return performing status unpaid interest less 90 days past due potential future loss outstanding principal generally loan modified payment must received new terms period less six months returning performing status updated appraisals obtained collateral dependent loan upon borrower credit event ie renewal modification part foreclosure proceedings new appraisals may ordered recent appraisal obtained past twelve months loan amount 2500 thousand financial institutions reform recovery enforcement act “firrea” acceptable real estate evaluations permitted twelve month timeframe reflects company’s desire obtain appraisal close foreclosure date possible ensure compliance court’s guidelines generally require appraisals 3090 days old appraisals performed independent licensed appraisers requested appraisal department licensed inhouse appraisal officer qualified reviewer reviews appraisals significant decline property value foreclosed properties loans greater 180 days past due loans threshold 04 million webster’s appraisal officer reviews appraisal compliance firrea uniform standards professional appraisal practice ordinary course monitoring loans information may come company’s attention indicates collateral value declined value established recent appraisal information may include prices recent comparable property sales internet based property valuation estimates cases information deemed reliable impact reduction collateral value would result loss company increase allowance loan losses recorded reflect additional estimated collateral shortfall period identified chargeoff recorded shortfall subsequently verified appraisal following table summarizes impaired loans follows troubled debt restructurings modified loan considered tdr two conditions met 1 borrower experiencing documented financial difficulty 2 concessions made company would otherwise considered borrower similar credit common types modifications include market rate reductions maturity extensions company employ modification programs temporary trial periods instead modified terms dependent upon financial position needs individual borrower modifications permanent modified loan revert back original terms even modified loan agreement violated modification agreement violated loan handled webster’s restructuring recovery group resolution may result foreclosure company’s policy place tdrs nonaccrual status minimum period six months tdrs initially reported impaired classification may removed borrower demonstrates compliance modified terms restructuring agreement specifies interest rate equal would provided borrower similar credit time restructuring majority tdrs retain classification remaining life loan december 31 2010 2009 allowance loan losses included specific reserves related tdrs 06 million 03 million respectively years ended december 31 2010 2009 company charged 1652 thousand 266 thousand portion tdrs deemed uncollectible december 31 2010 2009 commitments lend additional funds debtors tdr status following table summarizes tdr loans last five years increase tdrs reflect impact company webster’s expansion mortgage assistance programs keep borrowers homes regard modifications loans borrowers required occupy home collateralizing loan principal residence act good faith evidence intent stay current loan provide evidence sufficient income support modified mortgage payments december 31 2010 484 tdrs accrual status compares 356 december 31 2009 improved ratio reflects ongoing success company’s loan modification efforts see note 2 residential mortgage loans net notes financial statements discussion amount modified loans modified loan characteristics management’s evaluation success modification efforts allowance loan losses allowance loan losses judgment management necessary provide estimated loan losses inherent loan portfolio allowance loan losses includes allowance allocations calculated accordance fasb asc topic 310 “receivables” allowance allocations calculated accordance fasb asc topic 450 “contingencies” level allowance reflects management’s continuing evaluation industry concentrations specific credit risks loan loss experience current loan portfolio quality present economic political regulatory conditions unidentified losses inherent current loan portfolio well trends foregoing portions allowance may allocated specific credits however entire allowance available credit management’s judgment charged provision loan losses reflects loan quality trends including levels trends related nonaccrual loans past due loans potential problem loans criticized loans net chargeoffs recoveries among factors management utilizes best judgment information available ultimate adequacy allowance dependent upon variety factors beyond company’s control including performance company’s loan portfolio economy changes interest rates view regulatory authorities toward loan classifications management considers adequacy allowance loan losses critical accounting policy adequacy allowance loan losses subject judgment determination actual loan losses could differ materially management’s estimate actual loss factors conditions differ significantly assumptions utilized factors conditions include general economic conditions within company’s market well trends within real estate values interest rate financial condition individual borrowers webster bank’s credit risk management committee role advisor company meets quarterly basis review conclude adequacy allowance results presented reviewed management company management believes allowance loan losses adequate december 31 2010 actual results may prove different differences could significant december 31 2010 allowance loan losses 17 million 14 total residential mortgage loan portfolio 306 total nonperforming loans compares allowance 22 million 14 total residential loan portfolio 380 total nonperforming loans december 31 2009 gross chargeoffs year ended december 31 2010 05 million increase 02 million compared chargeoffs 03 million year ended december 31 2009 increase chargeoff activity reflects focus nonaccrual resolution updated valuations nonperforming loans decrease allowance loan losses year line company’s focus nonaccrual resolution decline total residential mortgage loan portfolio allowance loan losses activity follows liquidity capital resources primary sources liquidity company principal interest payments residential mortgage loans primary uses liquidity typically purchases residential mortgage loans payment dividends common preferred stock scheduled loan amortization interestbearing deposits predictable sources funds loan prepayments vary greatly influenced factors general interest rates economic conditions competition one inherent risks investing loans ability instruments incur prepayments principal prior maturity prepayment rates different estimated time purchase generally occurs changes market interest rates dividends series b preferred stock payable rate 8625 per annum amount equal 08625 per annum per share cases declared board directors company dividends preferred shares cumulative declared payable january 15 april 15 july 15 october 15 year company periodically makes dividend payments common stock accordance company bylaws common stock dividends paid comply reit qualification rules reit qualification rules require least 90 net taxable income year distributed shareholders continued prepayments 2010 2009 resulted increased cash levels company 2010 2009 wpcc declared return capital dividends order return portion available cash common shareholder event principal interest payments mortgage assets insufficient meet operating needs company ability raise additional funds company’s residential mortgage loans underwritten meet secondary market requirements could sold securitized mortgagebacked securities used borrowing collateral assetliability management market risk majority company’s assets sensitive changes interest rates significant form market risk interest rate risk primary goal managing risk maximize net income shortterm risk net economic value longterm risk time changing interest rate environments effective assetliability management process must balance risks rewards short longterm interest rate risks determining management strategy action company’s interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables webster bank role advisor company uses mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections webster bank prepares estimates level prepayments effect prepayments level future earnings due reinvestment funds rates different currently exist webster bank company unable predict future fluctuations interest rates market values company’s financial assets sensitive fluctuations market interest rates market values fixedrate loans mortgagebacked securities tend decline value interest rates rise interest rates decrease market value loans mortgagebacked securities generally tend increase level prepayments also normally increasing interest income earned company’s adjustablerate interestsensitive instruments represent primarily adjustablerate mortgage loans may change due changes quoted interestrate indices adjustablerate mortgage loans generally reprice based stated margin us treasury securities indices varying maturities terms established time loan closed december 31 2010 402 company’s residential mortgage loans adjustablerate loans compared 415 december 31 2009 following table summarizes estimated fair values company’s interestsensitive assets december 31 2010 2009 projected change fair values interest rates instantaneously increase decrease 100 basis points company interestsensitive liabilities december 31 2010 2009 loans presented following table gross allowance loan losses exclude premiums deferred costs components interestsensitive assets interestsensitive assets shocked plus 100 basis point rate change results unfavorable 29 million 23 change 2010 compared unfavorable 46 million 31 change 2009 federal funds rate 025 december 31 2010 100 basis point scenario excluded based company’s assetliability mix december 31 2010 management estimates gradual 200 basis point increase interest rates would increase net income next twelve months 26 assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes management’s strategies based upon review work performed webster bank management believes company’s interestrate risk position december 31 2010 represents reasonable level risk impact inflation changing prices financial statements related data presented herein prepared accordance us generally accepted accounting principles require measurement financial position operating results terms historical dollars without considering changes relative purchasing power money time due inflation unlike industrial companies virtually assets liabilities real estate investment trust monetary nature result interest rates significant impact real estate investment trust’s performance effects general levels inflation interest rates necessarily move direction magnitude price goods services current interest rate environment maturity structure company’s assets critical maintenance acceptable performance levels critical accounting policies estimates accounting reporting policies followed company conform material respects accounting principles generally accepted united states general practices within financial services industry preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect amounts reported financial statements accompanying notes company bases estimates historical experience current information factors deemed relevant actual results could differ estimates critical accounting estimates necessary application certain accounting policies procedures particularly susceptible significant change critical accounting policies defined reflective significant judgments uncertainties could potentially result materially different results different assumptions conditions following describes accounting policy management believes involves complex subjective decisions assessments allowance loan losses accounting policies related allowance loan losses considered critical policies involve considerable subjective judgment estimation management allowance loan losses reserve established provision loan losses charged expense represents management’s best estimate probable losses incurred within existing company’s portfolio loans balance sheet date allowance judgment management based guidance provided sec staff accounting bulletin 102 “selected loan loss allowance methodology documentation issues” includes amounts calculated accordance accounting standards codification fasb asc topic 310 “receivables” allowance allocation calculated accordance fasb asc topic 450 “contingencies” level allowance reflects management’s continuing evaluation industry concentrations specific credit risks loan loss experience current loan portfolio quality present economic political regulatory conditions unidentified losses inherent current loan portfolio well trends foregoing portions allowance may allocated specific credits however entire allowance available credit management’s judgment charged management utilizes best judgment information available ultimate adequacy allowance dependent upon variety factors beyond company’s control including performance company’s loan portfolio economy changes interest rates view regulatory authorities toward loan classifications item 7a item 7a quantitative qualitative disclosures market risk majority company’s assets sensitive changes interest rates significant form market risk interest rate risk effective assetliability management process must balance risks rewards short longterm interest rate risks determining management strategy action primary goal managing risk maximize net income shortterm risk net economic value longterm risk time changing interest rate environments following table summarizes estimated fair values company’s interestsensitive assets december 31 2008 2007 projected change fair values interest rates instantaneously increase decrease 100 basis points company interestsensitive liabilities december 31 2008 2007 interestsensitive assets shocked plus 100 basis point rate change results unfavorable 45 million 23 change 2008 compared unfavorable 86 million 31 change 2007 based company’s assetliability mix december 31 2008 management estimates gradual 200 basis point increase interest rates would increase net income next twelve months 41 company’s interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables company uses sophisticated mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes management’s strategies management believes company’s interestrate risk position december 31 2008 represents reasonable level risk item 8 item 7a quantitative qualitative disclosures market risk following table summarizes estimated market values company’s interestsensitive assets december 31 2003 2002 projected change market values interest rates instantaneously increase decrease 100 basis points company interestsensitive liabilities december 31 2003 2002 interestsensitive assets impacted minus 100 basis point rate change results favorable 104 million change market values 2003 compared favorable 47 million market value change 2002 changes represent 215 interestsensitive assets 2003 092 2002 plus 100 basis point rate change results unfavorable 149 million 309 change 2003 compared unfavorable 103 million 202 change 2002 based company’s assetliability mix december 31 2003 management estimates instantaneous 100 basis point increase interest rates would increase net income next twelve months 45 instantaneous 100 basis point decline interest rates would decrease net income 58 estimates assume management takes action mitigate negative effects changing interest rates particular company’s interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables company uses sophisticated mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes management’s strategies management believes webster’s interestrate risk position december 31 2003 represents reasonable level risk item 8 item 7a quantitative qualitative disclosures market risk following table summarizes estimated market value companys interestsensitive assets interestsensitive liabilities december 31 2001 2000 projected change market values interest rates instantaneously increase decrease 100 basis points interestsensitive assets net interestsensitive liabilities impacted minus 100 basis point rate change result favorable 209 million change net market values 2001 compared favorable 118 million net market value change 2000 changes represent 278 interestsensitive assets 2001 14 2000 plus 100 basis point rate change results unfavorable 263 million 348 change 2001 compared unfavorable 197 million 23 change 2000 based companys assetliability mix december 31 2001 management estimates instantaneous 100 basis point increase interest rates would increase net interest income next twelve months 41 instantaneous 100 basis point decline interest rates would decrease net interest income 41 estimates assume management takes action mitigate negative effects changing interest rates particular companys interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables company uses sophisticated mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net interest income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes managements strategies management believes websters interestrate risk position december 31 2001 represents reasonable level risk forward looking statements annual report contains forwardlooking statements within meaning securities exchange act 1934 amended actual results performance developments may differ materially expressed implied forwardlooking statements result market uncertainties factors important factors could cause actual results differ forwardlooking statements include changes interest rates general economics connecticut market area substantial portion real estate securing companys loans located legislative regulatory changes tax laws policies changes accounting policies principals guidelines developments could adverse impact companys financial position results operations example forwardlooking statement annual report quantitative qualitative disclosures market risk section contained managements discussion analysis item 8 item 7a quantitative qualitative disclosures market risk following table summarizes estimated market value companys interestsensitive assets interestsensitive liabilities december 31 1998 december 31 1997 projected change market values interest rates instantaneously increase decrease 100 basis points forward looking statements managements discussion analysis section captioned year 2000 readiness disclosure statement quantitative qualitative disclosures market risk forwardlooking statements within meaning securities exchange act 1934 amended actual results performance developments may differ materially expressed implied forwardlooking statements result market uncertainties factors important factors would cause actual results differ forwardlooking statements include changes interest rates general economics connecticut market area substantial portion real estate securing companys loans located developments could adverse impact companys financial position results operations item 8 item 7a quantitative qualitative disclosures market risk following table summarizes estimated market value companys interestsensitive assets december 31 2002 2001 projected change market values interest rates instantaneously increase decrease 100 basis points company interestsensitive liabilities december 31 2002 2001 interestsensitive assets impacted minus 100 basis point rate change result favorable 47 million change net market values 2002 compared favorable 209 million net market value change 2001 changes represent 092 interestsensitive assets 2002 278 2001 plus 100 basis point rate change results unfavorable 103 million 202 change 2002 compared unfavorable 263 million 348 change 2001 based companys assetliability mix december 31 2002 management estimates instantaneous 100 basis point increase interest rates would increase net income next twelve months 86 instantaneous 100 basis point decline interest rates would decrease net income 100 estimates assume management takes action mitigate negative effects changing interest rates particular companys interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables company uses sophisticated mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes managements strategies management believes websters interestrate risk position december 31 2002 represents reasonable level risk item 8 item 7a quantitative qualitative disclosures market risk majority assets sensitive changes interest rates significant form market risk interest rate risk effective assetliability management process must balance risks rewards short longterm interest rate risks determining management strategy action primary goal managing risk maximize net income shortterm risk net economic value longterm risk time changing interest rate environments following table summarizes estimated market values company’s interestsensitive assets december 31 2007 2006 projected change market values interest rates instantaneously increase decrease 100 basis points company interestsensitive liabilities december 31 2007 2006 interestsensitive assets shocked minus 100 basis point rate change results favorable 64 million change market values 2007 compared favorable 82 million market value change 2006 changes represent 23 interestsensitive assets 2007 24 2006 plus 100 basis point rate change results unfavorable 86 million 31 change 2007 compared unfavorable 123 million 31 change 2006 based company’s assetliability mix december 31 2007 management estimates gradual 200 basis point increase interest rates would increase net income next twelve months 48 gradual 200 basis point decline interest rates projected decrease net income 50 company’s interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables company uses sophisticated mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes management’s strategies management believes company’s interestrate risk position december 31 2007 represents reasonable level risk item 8 item 7a quantitative qualitative disclosures market risk following table summarizes estimated market value companys interestsensitive assets interestsensitive liabilities december 31 1999 1998 projected change market values interest rates instantaneously increase decrease 100 basis points forward looking statements managements discussion analysis section captioned year 2000 readiness disclosure statement quantitative qualitative disclosures market risk forwardlooking statements within meaning securities exchange act 1934 amended actual results performance developments may differ materially expressed implied forwardlooking statements result market uncertainties factors important factors would cause actual results differ forwardlooking statements include changes interest rates general economics connecticut market area substantial portion real estate securing companys loans located developments could adverse impact companys financial position results operations item 8 item 7a quantitative qualitative disclosures market risk majority assets sensitive changes interest rates significant form market risk interest rate risk effective assetliability management process must balance risks rewards short longterm interest rate risks determining management strategy action primary goal managing risk maximize net income shortterm risk net economic value longterm risk time changing interest rate environments following table summarizes estimated market values company’s interestsensitive assets december 31 2005 2004 projected change market values interest rates instantaneously increase decrease 100 basis points company interestsensitive liabilities december 31 2005 2004 interestsensitive assets shocked minus 100 basis point rate change results favorable 106 million change market values 2005 compared favorable 91 million market value change 2004 changes represent 25 interestsensitive assets 2005 18 2004 plus 100 basis point rate change results unfavorable 142 million 33 change 2005 compared unfavorable 151 million 30 change 2004 based company’s assetliability mix december 31 2005 management estimates gradual 200 basis point increase interest rates would increase net income next twelve months 54 gradual 200 basis point decline interest rates projected decrease net income 59 company’s interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables company uses sophisticated mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes management’s strategies management believes company’s interestrate risk position december 31 2005 represents reasonable level risk item 8 item 7a quantitative qualitative disclosures market risk applicable item 8 item 7a quantitative qualitative disclosures market risk information regarding quantitative qualitative disclosures market risk appears item 7 “management’s discussion analysis financial condition results operations” caption “assetliability management market risk” item 8 item 7a quantitative qualitative disclosures market risk majority assets sensitive changes interest rates significant form market risk interest rate risk effective assetliability management process must balance risks rewards short longterm interest rate risks determining management strategy action primary goal managing risk maximize net income shortterm risk net economic value longterm risk time changing interest rate environments following table summarizes estimated market values company’s interestsensitive assets december 31 2006 2005 projected change market values interest rates instantaneously increase decrease 100 basis points company interestsensitive liabilities december 31 2006 2005 interestsensitive assets shocked minus 100 basis point rate change results favorable 82 million change market values 2006 compared favorable 106 million market value change 2005 changes represent 24 interestsensitive assets 2006 25 2005 plus 100 basis point rate change results unfavorable 123 million 31 change 2006 compared unfavorable 142 million 33 change 2005 based company’s assetliability mix december 31 2006 management estimates gradual 200 basis point increase interest rates would increase net income next twelve months 45 gradual 200 basis point decline interest rates projected decrease net income 50 company’s interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables company uses sophisticated mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes management’s strategies management believes company’s interestrate risk position december 31 2006 represents reasonable level risk item 8 item 7a quantitative qualitative disclosures market risk following table summarizes estimated market value companys interestsensitive assets interestsensitive liabilities december 31 2000 1999 projected change market values interest rates instantaneously increase decrease 100 basis points interestsensitive assets net interestsensitive liabilities impacted minus 100 basis point rate change result favorable 118 million change net market values 2000 compared favorable 221 million net market value change 1999 changes represent 14 interestsensitive assets 2000 24 1999 plus 100 basis point rate change results unfavorable 197 million 23 change 2000 compared unfavorable 269 million 29 change 1999 based companys assetliability mix december 31 2000 management estimates instantaneous 100 basis point increase interest rates would increase net interest income next twelve months 19 instantaneous 100 basis point decline interest rates would decrease net interest income 19 estimates assume management takes action mitigate negative effects changing interest rates market values net interest income estimates subject factors could cause actual results differ management believes websters interestrate risk position december 31 2000 represents reasonable level risk forward looking statements managements discussion analysis section captioned quantitative qualitative disclosures market risk forwardlooking statements within meaning securities exchange act 1934 amended actual results performance developments may differ materially expressed implied forwardlooking statements result market uncertainties factors important factors would cause actual results differ forwardlooking statements include changes interest rates general economics connecticut market area substantial portion real estate securing companys loans located developments could adverse impact companys financial position results operations item 8 item 7a quantitative qualitative disclosures market risk majority assets sensitive changes interest rates significant form market risk interest rate risk effective assetliability management process must balance risks rewards short longterm interest rate risks determining management strategy action primary goal managing risk maximize net income shortterm risk net economic value longterm risk time changing interest rate environments following table summarizes estimated market values company’s interestsensitive assets december 31 2004 2003 projected change market values interest rates instantaneously increase decrease 100 basis points company interestsensitive liabilities december 31 2004 2003 interestsensitive assets impacted minus 100 basis point rate change results favorable 91 million change market values 2004 compared favorable 104 million market value change 2003 changes represent 18 interestsensitive assets 2004 21 2003 plus 100 basis point rate change results unfavorable 151 million 30 change 2004 compared unfavorable 149 million 31 change 2003 based company’s assetliability mix december 31 2004 management estimates gradual 200 basis point increase interest rates would increase net income next twelve months 30 gradual 100 basis point decline interest rates projected decrease net income 36 estimates assume management takes action mitigate negative effects changing interest rates particular company’s interest rate sensitive assets subject prepayment risk prepayment risk inherently difficult estimate dependent upon number economic financial behavioral variables company uses sophisticated mortgage prepayment modeling system estimate prepayments corresponding impact market value net interest income model uses information includes instrument type coupon spread loan age factors projections assumptions inherently uncertain result simulation analyses cannot precisely estimate impact higher lower rate environments net income actual results differ simulated results due timing magnitude frequency interest rate changes cash flow patterns market conditions well changes management’s strategies management believes webster’s interestrate risk position december 31 2004 represents reasonable level risk item 8 item 7a quantitative qualitative disclosures market risk information regarding quantitative qualitative disclosures market risk appears item 7 “management’s discussion analysis financial condition results operations” caption “assetliability management market risk” item 8 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders webster preferred capital corporation audited accompanying balance sheets webster preferred capital corporation subsidiary webster bank na december 31 2008 2007 related statements income comprehensive income shareholders’ equity cash flows years threeyear period ended december 31 2008 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2008 2007 results operations cash flows years threeyear period ended december 31 2008 conformity us generally accepted accounting principles kpmg llp hartford connecticut march 10 2009 webster preferred capital corporation consolidated balance sheets see accompanying notes financial statements webster preferred capital corporation statements income statements comprehensive income see accompanying notes financial statements webster preferred capital corporation statements shareholders’ equity see accompanying notes financial statements webster preferred capital corporation statements cash flows see accompanying notes financial statements 2008 382000 loans transferred residential mortgage loans foreclosed properties webster preferred capital corporation notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation “company” connecticut corporation incorporated march 1997 subsidiary webster bank national association “webster bank” whollyowned subsidiary webster financial corporation “webster” company acquires holds manages real estate related mortgage assets company elected treated real estate investment trust “reit” internal revenue code 1986 amended “code” generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares company’s common stock par value 001 per share owned webster bank federallychartered federallyinsured commercial bank webster bank indicated company long company’s preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company basis financial statement presentation financial statements prepared conformity us generally accepted accounting principles “gaap” preparing financial statements management required make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates example material estimate susceptible nearterm changes allowance loan losses residential mortgage loans represent assets company acquires webster bank carrying value transfers represent legal sales webster bank webster bank may record transfers sales gaap accounting purposes 100 direct ownership interest company accordingly company’s assets represent non recourse receivables webster bank fully collateralized underlying loans underlying loans whole loans secured first mortgages deeds trust single family onetofour unit residential real estate properties located primarily connecticut assets continue classified residential loans company’s financial statements returns recoverability nonrecourse receivables entirely dependent performance underlying residential loans stated principal amounts outstanding adjusted deferred loan costs allowance loan losses interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received deferred loan feescosts loans acquired recognized interest income lives loans using method approximating interest method servicing fees paid servicer charged interest income company’s residential mortgage loans within scope statement financial accounting standards “sfas” 114 “accounting creditors impairment loan” amended sfas 118 since homogenous loans relatively small balances collectively evaluated impairment allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize probable losses loans future additions allowance may necessary based upon actual results changes mentioned factors addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management mortgagebacked securities mortgagebacked securities issued us government agencies governmentsponsored enterprises classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders’ equity adjustment shareholders’ equity taxeffected company generally subject federal state income tax realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value judged temporary december 31 2008 2007 company hold mortgagebacked securities net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share apply since company issued options instruments representing potential common shares weightedaverage number shares used computation basic earnings per common share years ended december 31 2008 2007 2006 100 comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized income statement net unrealized gains losses securities available sale statement cash flows purposes statement cash flows company defines cash banks cash equivalents note 2 residential mortgage loans net summary residential mortgage loans net type original maturity follows loans acquired company webster bank 2008 508 million 2007 1177 million 2006 loans transferred company webster bank totaled 464 million 2008 904 million 2007 733 million 2006 december 31 2008 581 company’s residential mortgage loans fixed rate loans 419 adjustablerate loans 2008 domestic global financial capital markets experienced significant disruption volatility along turmoil mortgage market led significant credit liquidity crisis market conditions attributable variety factors particular fallout associated subprime mortgage loans type lending never actively pursued company disruption exacerbated continued value declines real estate housing markets company immune negative consequences arising overall economic weakness particular sharp downturn housing market locally nationally decreases real estate values could adversely affect value property used collateral loans adverse changes economy may negative effect ability company’s borrowers make timely loan payments would adverse impact company’s earnings increase loan delinquencies would decrease net interest income increase loan losses causing potential increases provision allowance credit losses detail change allowance loan losses follows total nonaccrual loans december 31 2008 08 million increase 01 million december 31 2007 interest nonaccrual loans would recorded additional interest income years ended december 31 2008 2007 2006 loans current accordance original terms totaled 19000 23000 4000 respectively 2008 382000 mortgage loans transferred real estate owned december 31 2008 loans held real estate owned sold remaining balance 2008 company recorded foreclosure expenses 62000 2008 note 3 redeemable preferred stock december 1997 1000000 shares series b 8625 cumulative redeemable preferred stock issued 10 per share raising 100 million net issuance costs series b preferred stock redeemable solely option company current plans redeem preferred stock redemption price 10 per share note 4 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred “servicer” servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points adjustablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans servicer responsible services provided company webster bank level subservicing agreement company estimates fees paid webster bank servicing approximates fees would paid company operated unaffiliated entity servicing fees paid years 2008 2007 2006 205000 240000 313000 respectively servicing fees netted interest income statements income considered reduction yield company servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection residential mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 5 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality mortgage assets advise respect acquisition management financing disposition mortgage related assets provide necessary executive administration human resources accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank received annual fee advisory services provided company 205000 2008 compared 205000 2007 202500 2006 company estimates fees paid webster bank advisory services approximate fees would paid services company unaffiliated entity operating expenses outside scope advisory agreement paid directly company expenses include limited fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 6 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal connecticut income taxes net income capital gains distributes holders common preferred stock therefore company’s net income distributed stockholders provision federal connecticut income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distribute stockholders least 90 “reit taxable income” including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates company adopted provisions financial accounting standards board fasb interpretation 48 fin 48 accounting uncertainty income taxes january 1 2007 addressed determination tax benefits claimed expected claimed tax return recorded financial statements fin 48 company must recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position measured based largest benefit greater 50 likelihood realized upon ultimate resolution fin 48 material impact results operations financial condition liquidity company recognizes interest penalties related unrecognized tax benefits applicable income tax expense interest penalties recognized statements income 2008 2007 statement condition december 31 2008 company’s federal connecticut income tax returns remain open examination calendar tax years subsequent 2004 note 7 fair value measurements effective january 1 2008 company adopted provisions statement financial accounting standards “sfas” 157 “fair value measurements” financial assets financial liabilities accordance financial accounting standards board staff position fsp 1572 “effective date fasb statement 157” webster delay application sfas 157 nonfinancial assets nonfinancial liabilities january 1 2009 sfas 157 defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements sfas 157 defines fair value price would received sell asset paid transfer liability orderly transaction market participants fair value measurement assumes transaction sell asset transfer liability occurs principal market asset liability absence principal market advantageous market asset liability price principal advantageous market used measure fair value asset liability shall adjusted transaction costs orderly transaction assumes exposure market period prior measurement date allow marketing activities usual customary transactions involving assets liabilities forced transaction market participants buyers sellers principal market independent ii knowledgeable iii able transact iv willing transact sfas 157 requires use valuation techniques consistent market approach income approach andor cost approach market approach uses prices relevant information generated market transactions involving identical comparable assets liabilities income approach uses valuation techniques convert future amounts cash flows earnings single present amount discounted basis cost approach based amount currently would required replace service capacity asset replacement cost valuation techniques consistently applied inputs valuation techniques refer assumptions market participants would use pricing asset liability inputs may observable meaning reflect assumptions market participants would use pricing asset liability developed based market data obtained independent sources unobservable meaning reflect reporting entity’s assumptions market participants would use pricing asset liability developed based best information available circumstances regard sfas 157 establishes fair value hierarchy valuation inputs gives highest priority quoted prices active markets identical assets liabilities lowest priority unobservable inputs fair value hierarchy follows • level 1 inputs unadjusted quoted prices active markets identical assets liabilities reporting entity ability access measurement date • level 2 inputs quoted prices included level 1 observable asset liability either directly indirectly might include quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active inputs quoted prices observable asset liability interest rates volatilities prepayment speeds credit risks etc inputs derived principally corroborated market data correlation means • level 3 inputs unobservable inputs determining fair values assets liabilities reflect entity’s assumptions market participants would use pricing assets liabilities financial assets financial liabilities measured fair value recurring nonrecurring basis december 31 2008 effective january 1 2008 company adopted provisions sfas 159 “the fair value option financial assets financial liabilitiesincluding amendment fasb statement 115” sfas 159 permits company choose measure eligible items fair value specified election dates fair value option may applied instrument certain exceptions thus company may record identical financial assets liabilities fair value another measurement basis permitted generally accepted accounting principals ii irrevocable unless new election date occurs iii applied entire instruments portions instruments adoption sfas 159 january 1 2008 significant impact company’s financial statements company elect report additional financial assets financial liabilities fair value summary estimated fair values significant financial instruments consisted following december 31 beginning year ended december 31 2008 fair value estimates determined accordance sfas 157 carrying amounts cash interestbearing deposits approximate fair value webster utilized independent third party valuation firm determine fair value loans net december 31 2008 light current market conditions illiquidity secondary market loan sales fair value loans estimated based discounted expected cash flows cash flows include assumptions prepayment estimates loan’s remaining life considerations current interest rate environment compared weighted average rate portfolio credit risk component based historical expected performance portfolio liquidity adjustment related current market environment note 8 selected quarterly financial data unaudited item 9 item 8 financial statements supplementary data independent auditors’ report board directors shareholders webster preferred capital corporation audited accompanying statements condition webster preferred capital corporation subsidiary webster bank december 31 2003 2002 related statements income comprehensive income shareholders’ equity cash flows years threeyear period ended december 31 2003 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2003 2002 results operations cash flows years threeyear period ended december 31 2003 conformity accounting principles generally accepted united states america kpmg llp hartford connecticut march 5 2004 webster preferred capital corporation statements condition see accompanying notes financial statements webster preferred capital corporation statements income statements comprehensive income see accompanying notes financial statements webster preferred capital corporation statements shareholders’ equity see accompanying notes financial statements webster preferred capital corporation statements cash flows see accompanying notes financial statements webster preferred capital corporation notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation “company” connecticut corporation incorporated march 1997 subsidiary webster bank whollyowned subsidiary webster financial corporation “webster” company acquires holds manages real estate mortgage assets “mortgage assets” december 31 2003 mortgage assets owned company consisted whole loans secured first mortgages deeds trusts single family onetofour unit residential real estate properties “residential mortgage loans” located primarily connecticut mortgagebacked securities secured type loans located throughout country company elected treated real estate investment trust “reit” internal revenue code 1986 amended “code” generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares company’s common stock par value 001 per share owned webster bank federallychartered federallyinsured savings bank webster bank indicated company long company’s preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity accounting principles generally accepted united states america preparing financial statements management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates example material estimate susceptible nearterm changes allowance loan losses c loans stated principal amounts outstanding net deferred loan fees andor costs allowance loan losses interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received loan origination fees net certain direct origination costs premiums discounts loans purchased recognized interest income lives loans using method approximating interest method servicing fees paid servicer charged loan interest income company’s residential mortgage loans exempt disclosure provisions statement financial accounting standard “sfas” 114 “accounting creditors impairment loan” amended sfas 118 since company’s loans comprised large groups smaller balance loans collectively evaluated impairment allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize probable losses loans future additions allowance may necessary based upon actual results changes mentioned factors addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management e mortgagebacked securities mortgagebacked securities us government agency government sponsored agency issued securities classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders’ equity adjustment shareholders’ equity taxeffected company generally subject federal state income tax management intends hold securities indefinite periods time part assetliability strategy may sell securities response changes interest rates changes prepayment risk factors one risks inherent investing mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayments weightedaverage yield securities may also change could affect earnings realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value judged temporary f real estate owned real estate owned consists properties acquired foreclosure proceedings acceptance deed lieu foreclosure real estate owned reported lower fair value less estimated selling expenses carrying value loan time foreclosure operating expenses charged current period earnings gains losses upon disposition reflected statement income realized g net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share calculated dividing net income available common shareholders weightedaverage diluted common shares company dilutive items weightedaverage number shares used computation basic diluted earnings per common share years ended december 31 2003 2002 2001 100 h comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized income statement net unrealized gains losses securities available sale statement cash flows purposes statement cash flows company defines cash hand banks cash equivalents j reclassification certain 2002 financial statement balances previously reported reclassified conform 2003 financial statement presentation note 2 mortgagebacked securities available sale following table sets forth certain information regarding mortgagebacked securities 2003 one fixed mortgagebacked security sold 92 million producing net gain 268000 sales mortgagebacked securities year ending december 31 2002 2001 note 3 residential mortgage loans net summary residential mortgage loans net type original maturity follows detail change allowance loan losses periods indicated follows loans considered impaired either december 31 2003 2002 nonaccrual loans totaled 358000 456000 december 31 2003 2002 respectively note 4 redeemable preferred stock december 1997 company raised 500 million less expenses public offering 40000 shares series 7375 cumulative redeemable preferred stock liquidation preference 1000 per share 10 million shares series b 8625 cumulative redeemable preferred stock liquidation preference 10 per share company required redeem outstanding series preferred shares january 15 2001 redemption price 1000 per share plus accrued unpaid dividends redemption took place january 16 2001 due legal holiday january 15 2001 series b preferred stock redeemable prior january 15 2003 except upon occurrence specified tax event redemption option company current plans redeem series b preferred stock note 5 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred “servicer” servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points variablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans servicer responsible services provided company webster bank level subservicing agreement company estimates fees paid webster bank servicing approximates fees would paid company operated unaffiliated entity servicing fees paid years 2003 2002 2001 326000 387000 556000 respectively servicing fees included interest income statement income classified reduction yield company servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 6 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality real estate mortgage assets advise respect acquisition management financing disposition real estate mortgage assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank received annual fee 195000 respect advisory services provided company 2003 increase 186000 2002 157500 2001 company estimates fees paid webster bank advisory services approximate fees would paid services company unaffiliated entity operating expenses outside scope advisory agreement paid directly company expenses include limited following fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 7 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 90 “reit taxable income” including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates note 8 summary estimated fair values financial instruments summary estimated fair values financial instruments consist following company uses webster’s assetliability simulation model estimate fair value residential mortgage loans fair value estimated discounting average expected cash flows multiple interest rate paths arbitragefree trinomial lattice term structure model generates interest rate paths monthend liborswap yield curve swap option volatilities used input deriving forward rates future months cash flows instruments created rate path using product specific behavioral models account specific system data discount rates matched time period expected cash flow assetliability simulation software enhanced mortgage prepayment model collateralized mortgage obligation database provided two leading financial software companies instruments explicit options ie caps floors puts calls implicit options ie prepayment early withdrawal ability require rate cash flow modeling approach accurately quantify value spread added discount rates reflect credit option risks embedded instrument spreads prices calibrated observable market instruments available estimates based industry standards carrying amounts interestbearing deposits time deposits approximate fair value since mature 90 days less present unanticipated credit concerns fair value mortgagebacked securities see note 2 estimated based prices quotations received third parties pricing services fair value estimates made specific point time based relevant market information financial instrument estimates reflect premium discount could result offering sale one time company’s entire holdings part particular financial instrument fair value estimates based judgments regarding future expected loss experience current economic conditions risk characteristics various financial instruments factors subjective nature involve uncertainties matters significant judgment therefore cannot determined precision changes assumptions could significantly affect estimates note 9 selected quarterly financial data unaudited copy webster preferred capital corporation’s 2003 annual report provided shareholders upon request item 9 item 8 financial statements supplementary data independent auditors report board directors shareholders webster preferred capital corporation audited accompanying statements condition webster preferred capital corporation subsidiary webster bank december 31 2001 2000 related statements income shareholders equity cash flows years threeyear period ended december 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2001 2000 results operations cash flows years threeyear period ended december 31 2001 conformity accounting principles generally accepted united states america kpmg llp hartford connecticut january 22 2002 webster preferred capital corporation statements condition dollars thousands except share data see accompanying notes financial statements webster preferred capital corporation statements income dollars thousands except share data see accompanying notes financial statements webster preferred capital corporation statements shareholders equity dollars thousands except per share data see accompanying notes financial statements webster preferred capital corporation statements cash flows dollars thousands see accompanying notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation company connecticut corporation incorporated march 1997 subsidiary webster bank whollyowned subsidiary webster financial corporation webster company organized provide costeffective means raising funds including equity capital consolidated basis webster bank company acquires holds manages real estate mortgage assets mortgage assets december 31 2001 mortgage assets owned company consisted whole loans secured first mortgages deeds trusts single family one four unit residential real estate properties residential mortgage loans located primarily connecticut mortgagebacked securities secured type loans located throughout country company elected treated real estate investment trust reit internal revenue code 1986 amended code generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares companys common stock par value 001 per share owned webster bank federallychartered federallyinsured savings bank webster bank indicated company long companys preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity accounting principles generally accepted united states america preparing financial statements management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates example material estimate susceptible nearterm changes allowance loan losses c allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors managements judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize probable losses loans future additions allowance may necessary based changes economic conditions addition various regulatory agencies integral part examination process webster bank periodically may review companys allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management real estate owned real estate owned consists properties acquired foreclosure proceedings acceptance deed lieu foreclosure real estate owned reported lower fair value less estimated selling expenses carrying value loan time foreclosure operating expenses charged current period earnings gains losses upon disposition reflected statement income realized e loans stated principal amounts outstanding net deferred loan fees andor cost allowance loan losses interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received loan origination fees premiums discounts loans purchased recognized interest income lives loans using method approximating interest method servicing fees paid servicer credited loan interest income companys residential mortgage loans exempt disclosure provisions statement financial accounting standard sfas no114 accounting creditors impairment loan amended sfas no118 since companys loans comprised large groups smaller balance loans collectively evaluated impairment f mortgagebacked securities mortgagebacked securities us government agency government sponsored agency issued securities classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders equity adjustment shareholders equity taxeffected company generally subject federal state income tax management intends hold securities indefinite periods time part assetliability strategy may sell securities response changes interest rates changes prepayment risk factors one risks inherent investing mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayments weightedaverage yield securities may also change could affect earnings realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value mortgagebacked security judged temporary g net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share calculated dividing net income available common shareholders weightedaverage diluted common shares company dilutive items weightedaverage number shares used computation basic diluted earnings per common share years ended december 31 2001 2000 1999 100 h statement cash flows purposes statement cash flows company defines cash hand banks cash equivalents comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized income statement net unrealized gains losses securities available sale company reported comprehensive income components 2001 2000 1999 statements shareholders equity j reclassification certain financial statement balances previously reported reclassified conform 2001 financial statement presentation note 2 mortgagebacked securities available sale following table sets forth certain information regarding mortgagebacked securities sale unaffiliated third party 474 million mortgagebacked securities year ending december 31 2000 resulting net gain 94000 sales mortgagebacked securities years ending december 31 2001 1999 note 3 residential mortgage loans net summary residential mortgage loans net follows december 31 2001 approximately 459 companys residential mortgage loans fixedrate loans approximately 541 adjustablerate loans detail change allowance loan losses periods indicated follows note 4 mandatorily redeemable preferred stock december 24 1997 company raised 400 million less expenses public offering 40000 shares series 7375 cumulative redeemable preferred stock liquidation preference 1000 per share company required redeem outstanding series preferred shares january 15 2001 redemption price 1000 per share plus accrued unpaid dividends redemption took place january 16 2001 due legal holiday january 15 2001 note 5 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points variablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances companys loans servicer responsible company estimates fees paid webster bank servicing approximate fees would paid company operated unaffiliated entity servicing fees paid year 2001 556000 servicing fees included interest income statement operations classified reduction yield company servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 6 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality real estate mortgage assets advise respect acquisition management financing disposition real estate mortgage assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank received annual fee 157500 respect advisory services provided company 2001 company agreed annual fee 186000 year 2002 company estimates fees paid webster bank advisory services approximate fees would paid services company unaffiliated entity operating expenses outside scope advisory agreement paid directly company expenses include limited following fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 7 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common stock preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 90 reit taxable income including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates note 8 comprehensive income following table summarizes reclassification adjustments comprehensive income years ended december 31 2001 2000 1999 netoftax thousands amount unrealized net gain available sale securities unrealized net holding gain arising period 858 less reclassification adjustment gains realized period comprehensive income december 31 2001 858 unrealized net gain available sale securities unrealized net holding gain arising period 1887 less reclassification adjustment gains realized period 94 comprehensive income december 31 2000 1793 unrealized net loss available sale securities unrealized holding losses arising period 2555 less reclassification adjustment gains realized period comprehensive loss december 31 1999 2555 note 9 summary estimated fair values summary estimated fair values consist following company uses websters assetliability simulation model estimate fair value residential mortgage loans fair value estimated discounting average expected cash flows multiple interest rate paths arbitragefree trinomial lattice term structure model generates interest rate paths monthend liborswap yield curve swap option volatilities used input deriving forward rates future months cash flows instruments created rate path using product specific behavioral models account specific system data discount rates matched time period expected cash flow assetliability simulation software enhanced mortgage prepayment model collateralized mortgage obligation database provided two leading financial software companies instruments explicit options ie caps floors puts calls implicit options ie prepayment early withdrawal ability require rate cash flow modeling approach accurately quantify value spread added discount rates reflect credit option risks embedded instrument spreads prices calibrated observable market instruments available estimates based industry standards carrying amounts interestbearing deposits time deposits approximate fair value since mature 90 days less present unanticipated credit concerns fair value securities see note 2 estimated based prices quotations received third parties pricing services carrying amount series preferred stock 2000 approximates fair value since maturity date less 30 days fair value estimates made specific point time based relevant market information financial instrument estimates reflect premium discount could result offering sale one time companys entire holdings part particular financial instrument active market exists significant portion companys financial instruments fair value estimates based judgements regarding future expected loss experience current economic conditions risk characteristics various financial instruments factors subjective nature involve uncertainties matters significant judgement therefore cannot determined precision changes assumptions could significantly affect estimates note 10 selected quarterly financial data unaudited copy webster preferred capital corporations 2001 annual report provided shareholders upon request item 9 item 8 financial statements supplementary data independent auditors report board directors shareholders webster preferred capital corporation waterbury connecticut audited accompanying statements condition webster preferred capital corporation subsidiary webster bank december 31 1998 1997 related statements income shareholders equity cash flows year ended december 31 1998 period march 17 1997 date inception december 31 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 1998 1997 results operations cash flows year ended december 31 1998 period march 17 1997 date inception december 31 1997 conformity generally accepted accounting principles kpmg llp hartford connecticut january 21 1999 webster preferred capital corporation statements condition dollars thousands except share data see accompanying notes financial statements webster preferred capital corporation statements income dollars thousands except share data see accompanying notes financial statements webster preferred capital corporation statements shareholders equity dollars thousands except share data see accompanying notes financial statements webster preferred capital corporation statements cash flows dollars thousands see accompanying notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation company connecticut corporation incorporated march 1997 subsidiary webster bank whollyowned subsidiary webster financial corporation company organized provide costeffective means raising funds including equity capital consolidated basis webster bank company acquires holds manages real estate mortgage assets mortgage assets march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company december 31 1998 mortgage assets owned company consisted whole loans secured first mortgages deeds trusts single family one four unit residential real estate properties residential mortgage loans located primarily connecticut mortgagebacked securities company elected treated real estate investment trust reit internal revenue code 1986 amended code generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares companys common stock par value 001 per share owned webster bank federallychartered federallyinsured savings bank webster bank indicated company long companys preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity generally accepted accounting principles preparing financial statements management required make estimates assumptions affect reported amount assets liabilities date balance sheets revenues expenses periods presented actual results company could differ estimates material estimate susceptible nearterm changes includes allowance loan losses c allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors managements judgment deserve current recognition estimating loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based changes economic conditions addition various regulatory agencies integral part examination process webster bank periodically may review companys allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management foreclosed properties foreclosed properties consist properties acquired foreclosure proceedings acceptance deed lieu foreclosure foreclosed properties reported lower fair value less estimated selling expenses cost allowance losses provide declines value operating expenses charged current period earnings gains losses upon disposition reflected statement income realized december 31 1998 1997 foreclosed property owned company e loans stated principal amounts outstanding interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received loan origination fees premiums discounts loans purchased recognized interest income lives loans using method approximating interest method companys residential mortgage loans exempt disclosure provisions statement financial accounting standard sfas no114 accounting creditors impairment loan amended sfas no118 since companys loans comprised large groups smaller balance loans collectively evaluated impairment f mortgagebacked securities mortgagebacked securities us government agency securities classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders equity adjustment shareholders equity taxeffected company generally subject federal state income tax management intends hold securities indefinite periods time part assetliability strategy may sell securities response changes interest rates changes prepayment risk similar factors one risks inherent investing mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayments weightedaverage yield securities may also change could affect earnings gains losses sales securities recorded using specific identification method g net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share calculated dividing adjusted net income weightedaverage diluted common shares company dilutive items weightedaverage number shares used computation basic diluted earnings per common share years ended december 31 1998 1997 100 h statement cash flows purposes statement cash flows company considers cash hand banks cash equivalents fair value financial instruments fair value securities note 2 estimated based prices published financial newspapers quotations received securities dealers pricing services estimating fair value residential mortgage loans note 3 portfolio classified two categories fixedrate mortgage loans variablerate mortgage loans categories segmented 15 20 25 30 year contractual maturities fair value category calculated discounting scheduled cash flows estimated maturity using market discount rates calculation fair value estimates financial instruments dependent upon certain subjective assumptions involves significant uncertainties resulting variability estimates changes assumptions potential taxes expenses would incurred actual sale settlement reflected amounts disclosed fair value estimates intended reflect liquidation value financial instruments j comprehensive income company adopted provisions statement financial accounting standard sfas 130 reporting comprehensive income january 1 1998 sfas 130 establishes standards reporting display comprehensive income components changes net unrealized securities gains losses comprehensive income includes net income changes equity nonowner sources bypass income statement purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners applications sfas 130 impact amounts previously reported net income affect comparability previously issued financial statements k reclassification certain financial statement balances previously reported reclassified conform 1998 financial statement presentation note 2 mortgagebacked securities available sale november 1997 march 1998 webster bank contributed 1204 million 518 million respectively cash company used purchase government national mortgage association gnma mortgagebacked securities following table sets forth certain information regarding mortgagebacked securities 1998 company sold 488 million mortgagebacked securities resulted gain 261431 sales mortgagebacked securities period ended december 31 1997 mortgagebacked securities contractual maturity 10 years weighted average yield december 31 1998 675 although stated final maturity obligations longterm weighted average life much shorter due scheduled repayments prepayments note 3 residential mortgage loans net summary carrying amount fair market value residential mortgage loans net follows march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company 6170 million consisted 2158 million fixedrate loans 4013 million variablerate loans net premiums deferred fees loans allowance loan losses 1998 webster bank contributed 1828 million cash company 1310 million used purchase additional residential loans december 31 1998 approximately 382 companys residential mortgage loans fixedrate loans approximately 618 adjustablerate loans detail change allowance loan losses periods indicated follows note 4 mandatorily redeemable preferred stock december 24 1997 company raised 400 million less expenses public offering 40000 shares series 7375 cumulative redeemable preferred stock liquidation preference 1000 per share company required redeem outstanding series preferred shares january 15 2001 redemption price 1000 per share plus accrued unpaid dividends series preferred shares redeemable prior january 15 1999 except upon occurrence tax event tax event occur change existing laws regulations results substantial risk dividends paid company longer fully deductible federal income tax purposes dividends paid company webster bank longer fully deductible state income tax purposes upon occurrence tax event period beginning january 15 1999 january 14 2001 series preferred shares may redeemed option company note 5 shareholders equity march 17 1997 companys date inception webster bank contributed 6170 million mortgage assets net exchange 100 shares 01 par value common stock 2000 shares 01 par value 1000 stated value 10 cumulative nonconvertible preferred stock november 24 1997 webster bank contributed approximately 1204 million cash company used company purchase gnma mortgagebacked securities note 2 december 15 1997 webster bank redeemed 2000 shares 01 par value 1000 stated value 10 cumulative nonconvertible preferred stock concurrently contributed proceeds company additional paidin capital december 24 1997 company raised 10 million less expenses public offering 1000000 shares series b 8625 cumulative redeemable preferred stock liquidation preference 10 per share series b preferred shares may redeemed option company january 15 2003 1998 webster bank contributed 1828 million cash company used purchase additional mortgagebacked securities residential mortgage loans note 6 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points variablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances companys loans servicer responsible servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance impound funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 7 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality real estate mortgage assets advise respect acquisition management financing disposition real estate mortgage assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank entitled receive annual fee 150000 respect advisory services provided company operating expenses outside scope advisory agreement paid directly company expenses include limited following fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 8 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common stock preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 95 reit taxable income including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates note 9 comprehensive income following table summarizes reclassification adjustments comprehensive income related tax effects years ended december 31 1998 1997 note 10 selected quarterly financial data unaudited first quarter information period march 17 1997 date inception march 31 1997 item 9 item 8 financial statements supplementary data independent auditors report board directors shareholders webster preferred capital corporation audited accompanying statements condition webster preferred capital corporation subsidiary webster bank december 31 2002 2001 related statements income comprehensive income shareholders equity cash flows years threeyear period ended december 31 2002 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2002 2001 results operations cash flows years threeyear period ended december 31 2002 conformity accounting principles generally accepted united states america kpmg llp hartford connecticut january 22 2003 webster preferred capital corporation statements condition see accompanying notes financial statements webster preferred capital corporation statements income statements comprehensive income see accompanying notes financial statements webster preferred capital corporation statements shareholders equity see accompanying notes financial statements webster preferred capital corporation statements cash flows see accompanying notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation company connecticut corporation incorporated march 1997 subsidiary webster bank whollyowned subsidiary webster financial corporation webster company acquires holds manages real estate mortgage assets mortgage assets december 31 2002 mortgage assets owned company consisted whole loans secured first mortgages deeds trusts single family onetofour unit residential real estate properties residential mortgage loans located primarily connecticut mortgagebacked securities secured type loans located throughout country company elected treated real estate investment trust reit internal revenue code 1986 amended code generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares companys common stock par value 001 per share owned webster bank federallychartered federallyinsured savings bank webster bank indicated company long companys preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity accounting principles generally accepted united states america preparing financial statements management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates example material estimate susceptible nearterm changes allowance loan losses c allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors managements judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize probable losses loans future additions allowance may necessary based upon actual results changes mentioned factors addition various regulatory agencies integral part examination process webster bank periodically may review companys allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management real estate owned real estate owned consists properties acquired foreclosure proceedings acceptance deed lieu foreclosure real estate owned reported lower fair value less estimated selling expenses carrying value loan time foreclosure operating expenses charged current period earnings gains losses upon disposition reflected statement income realized e loans stated principal amounts outstanding net deferred loan fees andor cost allowance loan losses interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received loan origination fees premiums discounts loans purchased recognized interest income lives loans using method approximating interest method servicing fees paid servicer credited loan interest income companys residential mortgage loans exempt disclosure provisions statement financial accounting standard sfas no114 accounting creditors impairment loan amended sfas no118 since companys loans comprised large groups smaller balance loans collectively evaluated impairment f mortgagebacked securities mortgagebacked securities us government agency government sponsored agency issued securities classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders equity adjustment shareholders equity taxeffected company generally subject federal state income tax management intends hold securities indefinite periods time part assetliability strategy may sell securities response changes interest rates changes prepayment risk factors one risks inherent investing mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayments weightedaverage yield securities may also change could affect earnings realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value mortgagebacked security judged temporary g net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share calculated dividing net income available common shareholders weightedaverage diluted common shares company dilutive items weightedaverage number shares used computation basic diluted earnings per common share years ended december 31 2002 2001 2000 100 h statement cash flows purposes statement cash flows company defines cash hand banks cash equivalents comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized income statement net unrealized gains losses securities available sale company reported comprehensive income components 2002 2001 2000 statements shareholders equity j reclassification certain financial statement balances previously reported reclassified conform 2002 financial statement presentation note 2 mortgagebacked securities available sale following table sets forth certain information regarding mortgagebacked securities sale unaffiliated third party 474 million mortgagebacked securities year ended december 31 2000 resulting net gain 94000 sales mortgagebacked securities years ending december 31 2002 2001 note 3 residential mortgage loans net summary residential mortgage loans net type original maturity follows december 31 thousands 2002 2001 fixedrate loans 15 yr loans 55956 81566 20 yr loans 3132 4693 25 yr loans 2542 2598 30 yr loans 138008 191049 total fixedrate loans 199638 279906 variablerate loans 15 yr loans 1605 3015 20 yr loans 3127 5368 25 yr loans 2680 4581 30 yr loans 173482 295835 total variablerate loans 180894 308799 380532 588705 total residential mortgage loans premiums deferred fees loans net 1164 2181 less allowance loan losses 2106 2139 residential mortgage loans net 379590 588747 december 31 2002 approximately 525 companys residential mortgage loans fixedrate loans approximately 475 adjustablerate loans detail change allowance loan losses periods indicated follows year ended december 31 thousands 2002 2001 2000 balance beginning year 2139 2059 1912 provision charged operations 90 190 chargeoffs 33 10 43 recoveries balance end year 2106 2139 2059 note 4 redeemable preferred stock december 1997 company raised 500 million less expenses public offering 40000 shares series 7375 cumulative redeemable preferred stock liquidation preference 1000 per share 10 million shares series b 8625 cumulative redeemable preferred stock liquidation preference 10 per share company required redeem outstanding series preferred shares january 15 2001 redemption price 1000 per share plus accrued unpaid dividends redemption took place january 16 2001 due legal holiday january 15 2001 series b preferred stock redeemable prior january 15 2003 except upon occurrence specified tax event redemption option company current plans redeem series b preferred stock note 5 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points variablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances companys loans servicer responsible services provided company webster bank level subservicing agreement company estimates fees paid webster bank servicing approximates fees would paid company operated unaffiliated entity servicing fees paid years 2002 2001 2000 387000 556000 652000 respectively servicing fees included interest income statement operations classified reduction yield company servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 6 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality real estate mortgage assets advise respect acquisition management financing disposition real estate mortgage assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank received annual fee 186000 respect advisory services provided company 2002 increase 157500 2001 2000 company estimates fees paid webster bank advisory services approximate fees would paid services company unaffiliated entity operating expenses outside scope advisory agreement paid directly company expenses include limited following fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 7 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common stock preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 90 reit taxable income including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates note 8 summary estimated fair values financial instruments summary estimated fair values financial instruments consist following company uses websters assetliability simulation model estimate fair value residential mortgage loans fair value estimated discounting average expected cash flows multiple interest rate paths arbitragefree trinomial lattice term structure model generates interest rate paths monthend liborswap yield curve swap option volatilities used input deriving forward rates future months cash flows instruments created rate path using product specific behavioral models account specific system data discount rates matched time period expected cash flow assetliability simulation software enhanced mortgage prepayment model collateralized mortgage obligation database provided two leading financial software companies instruments explicit options ie caps floors puts calls implicit options ie prepayment early withdrawal ability require rate cash flow modeling approach accurately quantify value spread added discount rates reflect credit option risks embedded instrument spreads prices calibrated observable market instruments available estimates based industry standards carrying amounts interestbearing deposits time deposits approximate fair value since mature 90 days less present unanticipated credit concerns fair value mortgagebacked securities see note 2 estimated based prices quotations received third parties pricing services fair value estimates made specific point time based relevant market information financial instrument estimates reflect premium discount could result offering sale one time companys entire holdings part particular financial instrument fair value estimates based judgements regarding future expected loss experience current economic conditions risk characteristics various financial instruments factors subjective nature involve uncertainties matters significant judgement therefore cannot determined precision changes assumptions could significantly affect estimates note 9 selected quarterly financial data unaudited copy webster preferred capital corporations 2002 annual report provided shareholders upon request item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders webster preferred capital corporation audited accompanying statements condition webster preferred capital corporation subsidiary webster bank na december 31 2007 2006 related statements income comprehensive income shareholders’ equity cash flows years threeyear period ended december 31 2007 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2007 2006 results operations cash flows years threeyear period ended december 31 2007 conformity us generally accepted accounting principles kpmg llp hartford connecticut march 14 2008 webster preferred capital corporation statements condition see accompanying notes financial statements webster preferred capital corporation statements income statements comprehensive income see accompanying notes financial statements webster preferred capital corporation statements shareholders’ equity see accompanying notes financial statements webster preferred capital corporation statements cash flows see accompanying notes financial statements webster preferred capital corporation notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation “company” connecticut corporation incorporated march 1997 subsidiary webster bank national association “webster bank” whollyowned subsidiary webster financial corporation “webster” company acquires holds manages real estate related mortgage assets company elected treated real estate investment trust “reit” internal revenue code 1986 amended “code” generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares company’s common stock par value 001 per share owned webster bank federallychartered federallyinsured commercial bank webster bank indicated company long company’s preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity us generally accepted accounting principles “gaap preparing financial statements management required make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates example material estimate susceptible nearterm changes allowance loan losses c residential mortgage loans represent assets company acquires webster bank carrying value transfers represent legal sales webster bank webster bank may record transfers sales gaap accounting purposes 100 direct ownership interest company accordingly company’s assets represent nonrecourse receivables webster bank fully collateralized underlying loans underlying loans whole loans secured first mortgages deeds trust single family onetofour unit residential real estate properties located primarily connecticut assets continue classified residential loans company’s financial statements returns recoverability nonrecourse receivables entirely dependent performance underlying residential loans stated principal amounts outstanding adjusted deferred loan costs allowance loan losses interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received deferred loan feescosts loans acquired recognized interest income lives loans using method approximating interest method servicing fees paid servicer charged interest income company’s residential mortgage loans within scope statement financial accounting standards “sfas” 114 “accounting creditors impairment loan” amended sfas 118 since homogenous loans relatively small balances collectively evaluated impairment allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize probable losses loans future additions allowance may necessary based upon actual results changes mentioned factors addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management e mortgagebacked securities mortgagebacked securities issued us government agencies governmentsponsored enterprises classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders’ equity adjustment shareholders’ equity taxeffected company generally subject federal state income tax realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value judged temporary december 31 2007 2006 company hold mortgagebacked securities f net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share apply since company issued options instruments representing potential common shares weightedaverage number shares used computation basic earnings per common share years ended december 31 2007 2006 2005 100 g comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized income statement net unrealized gains losses securities available sale h statement cash flows purposes statement cash flows company defines cash banks cash equivalents note 2 mortgagebacked securities available sale mortgagebacked securities december 31 2007 mortgagebacked securities written fair value september 2006 resulting loss 526000 entire portfolio 362 million sold october 2006 generating loss sale 117000 note 3 residential mortgage loans net summary residential mortgage loans net type original maturity follows loans acquired company webster bank totaled 508 million 2007 1177 million 2006 none 2005 loans transferred company webster bank totaled 904 million 2007 733 million 2006 none 2005 detail change allowance loan losses follows credit loan losses 250000 2007 none 2006 loans considered impaired either december 31 2007 2006 nonaccrual loans totaled 849000 211000 december 31 2007 2006 respectively significant disruption volatility financial capital markets second half 2007 turmoil mortgage market adversely impacted domestic global markets led significant credit liquidity crisis market conditions attributable variety factors particular fallout associated subprime mortgage loans type lending never actively pursued disruption exacerbated continued value declines real estate housing market company immune negative consequences arising overall economic weakness particular sharp downturn housing market locally nationally decreases real estate values could adversely affect value property used collateral loans adverse changes economy may negative effect ability borrowers make timely loan payments would adverse impact earnings increase loan delinquencies would decrease net interest income adversely impact loan loss experience causing potential increases provision allowance loan losses note 4 redeemable preferred stock december 1997 1000000 shares series b 8625 cumulative redeemable preferred stock issued 10 per share raising 100 million net issuance costs series b preferred stock redeemable solely option company current plans redeem preferred stock redemption price 10 per share note 5 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred “servicer” servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points adjustablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans servicer responsible services provided company webster bank level subservicing agreement company estimates fees paid webster bank servicing approximates fees would paid company operated unaffiliated entity servicing fees paid years 2007 2006 2005 240000 313000 345000 respectively servicing fees netted interest income statements income considered reduction yield company servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection residential mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 6 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality mortgage assets advise respect acquisition management financing disposition mortgage related assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank received annual fee advisory services provided company 205000 2007 compared 202500 2006 195000 2005 company estimates fees paid webster bank advisory services approximate fees would paid services company unaffiliated entity operating expenses outside scope advisory agreement paid directly company expenses include limited fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 7 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal connecticut income taxes net income capital gains distributes holders common preferred stock therefore company’s net income distributed stockholders provision federal connecticut income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distribute stockholders least 90 “reit taxable income” including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates january 1 2007 company adopted provisions financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance fasb statement 109 accounting income taxes fin 48 also prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return addition fin 48 provides guidance derecognition classification interest penalties accounting interim periods disclosure transition provisions fin 48 applied tax positions upon initial adoption tax positions must met morelikelythannot recognition threshold effective date order related tax benefits recognized continue recognized impact company’s financial statements result adopting fin 48 company recognizes interest penalties related unrecognized tax benefits applicable income tax expense interest penalties recognized statement income 2007 statement condition december 31 2007 company’s federal connecticut income tax returns remain open examination calendar tax years subsequent 2003 note 8 summary estimated fair values financial instruments summary estimated fair values financial instruments follows company uses webster’s assetliability simulation model estimate fair value residential mortgage loans fair value estimated discounting average expected cash flows multiple interest rate paths arbitragefree trinomial lattice term structure model generates interest rate paths monthend liborswap yield curve swap option volatilities used input deriving forward rates future months cash flows instruments created rate path using product specific behavioral models account specific system data discount rates matched time period expected cash flow assetliability simulation software enhanced mortgage prepayment model collateralized mortgage obligation database provided two leading financial software companies instruments explicit options ie caps floors puts calls implicit options ie prepayment early withdrawal ability require rate cash flow modeling approach accurately quantify value spread added discount rates reflect credit option risks embedded instrument spreads prices calibrated observable market instruments available estimates based industry standards carrying amounts interestbearing deposits approximate fair value since mature 90 days less present unanticipated credit concerns fair value estimates made specific point time based relevant market information financial instrument estimates reflect premium discount could result offering sale one time company’s entire holdings part particular financial instrument fair value estimates based judgments regarding future expected loss experience current economic conditions risk characteristics various financial instruments factors subjective nature involve uncertainties matters significant judgment therefore cannot determined precision changes assumptions could significantly affect estimates note 9 selected quarterly financial data unaudited item 9 item 8 financial statements supplementary data independent auditors report board directors shareholders webster preferred capital corporation waterbury connecticut audited accompanying statements condition webster preferred capital corporation subsidiary webster bank december 31 1999 1998 related statements income shareholders equity cash flows years twoyear period ended december 31 1999 period march 17 1997 date inception december 31 1997 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 1999 1998 results operations cash flows years twoyear period ended december 31 1999 period march 17 1997 date inception december 31 1997 conformity generally accepted accounting principles kpmg llp hartford connecticut january 28 2000 webster preferred capital corporation statements condition dollars thousands except share data see accompanying notes financial statements webster preferred capital corporation statements income dollars thousands except share data see accompanying notes financial statements webster preferred capital corporation statements shareholders equity dollars thousands except per share data see accompanying notes financial statements webster preferred capital corporation statements cash flows dollars thousands see accompanying notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation company connecticut corporation incorporated march 1997 subsidiary webster bank whollyowned subsidiary webster financial corporation company organized provide costeffective means raising funds including equity capital consolidated basis webster bank company acquires holds manages real estate mortgage assets mortgage assets march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company december 31 1999 mortgage assets owned company consisted whole loans secured first mortgages deeds trusts single family one four unit residential real estate properties residential mortgage loans located primarily connecticut mortgagebacked securities company elected treated real estate investment trust reit internal revenue code 1986 amended code generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares companys common stock par value 001 per share owned webster bank federallychartered federallyinsured savings bank webster bank indicated company long companys preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity generally accepted accounting principles preparing financial statements management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates material estimate susceptible nearterm changes includes allowance loan losses c allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors managements judgment deserve current recognition estimating loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based changes economic conditions addition various regulatory agencies integral part examination process webster bank periodically may review companys allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management real estate owned real estate owned consists properties acquired foreclosure proceedings acceptance deed lieu foreclosure real estate owned reported lower fair value less estimated selling expenses cost allowance losses provide declines value operating expenses charged current period earnings gains losses upon disposition reflected statement income realized december 31 1999 59857 real estate owned company december 31 1998 real estate owned company e loans stated principal amounts outstanding interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received loan origination fees premiums discounts loans purchased recognized interest income lives loans using method approximating interest method companys residential mortgage loans exempt disclosure provisions statement financial accounting standard sfas no114 accounting creditors impairment loan amended sfas no118 since companys loans comprised large groups smaller balance loans collectively evaluated impairment f mortgagebacked securities mortgagebacked securities us government agency securities classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders equity adjustment shareholders equity taxeffected company generally subject federal state income tax management intends hold securities indefinite periods time part assetliability strategy may sell securities response changes interest rates changes prepayment risk factors one risks inherent investing mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayments weightedaverage yield securities may also change could affect earnings realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value mortgage backed security judged temporary g net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share calculated dividing adjusted net income weightedaverage diluted common shares company dilutive items weightedaverage number shares used computation basic diluted earnings per common share years ended december 31 1999 1998 1997 100 h statement cash flows purposes statement cash flows company considers cash hand banks cash equivalents fair value financial instruments fair value securities note 2 estimated based prices published financial newspapers quotations received securities dealers pricing services estimating fair value residential mortgage loans note 3 portfolio classified two categories fixedrate mortgage loans variablerate mortgage loans categories segmented 15 20 25 30 year contractual maturities fair value category calculated discounting scheduled cash flows estimated maturity using market discount rates calculation fair value estimates financial instruments dependent upon certain subjective assumptions involves significant uncertainties resulting variability estimates changes assumptions potential taxes expenses would incurred actual sale settlement reflected amounts disclosed fair value estimates intended reflect liquidation value financial instruments j comprehensive income company adopted provisions sfas 130 reporting comprehensive income january 1 1998 sfas 130 establishes standards reporting display comprehensive income components changes net unrealized securities gains losses comprehensive income includes net income changes equity nonowner sources bypass income statement purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners applications sfas 130 impact amounts previously reported net income affect comparability previously issued financial statements k reclassification certain financial statement balances previously reported reclassified conform 1999 financial statement presentation note 2 mortgagebacked securities available sale march 1998 webster bank contributed 518 million cash company used purchase government national mortgage association gnma mortgagebacked securities 1999 webster bank make contributions company following table sets forth certain information regarding mortgagebacked securities sales mortgagebacked securities year ending december 31 1999 1998 company sold 488 million mortgagebacked securities resulted gain 261431 mortgagebacked securities contractual maturity 10 years weighted average yield december 31 1999 679 although stated final maturity obligations longterm weighted average life much shorter due scheduled repayments prepayments note 3 residential mortgage loans net summary carrying amount fair market value residential mortgage loans net follows march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company 6170 million consisted 2158 million fixedrate loans 4013 million variablerate loans net premiums deferred fees loans allowance loan losses 1998 webster bank contributed 1828 million cash company 1310 million used purchase additional residential loans december 31 1999 approximately 413 companys residential mortgage loans fixedrate loans approximately 587 adjustablerate loans detail change allowance loan losses periods indicated follows note 4 mandatorily redeemable preferred stock december 24 1997 company raised 400 million less expenses public offering 40000 shares series 7375 cumulative redeemable preferred stock liquidation preference 1000 per share company required redeem outstanding series preferred shares january 15 2001 redemption price 1000 per share plus accrued unpaid dividends series preferred shares redeemable prior january 15 1999 except upon occurrence tax event tax event occur change existing laws regulations results substantial risk dividends paid company longer fully deductible federal income tax purposes dividends paid company webster bank longer fully deductible state income tax purposes upon occurrence tax event period beginning january 15 1999 january 14 2001 series preferred shares may redeemed option company note 5 shareholders equity march 17 1997 companys date inception webster bank contributed 6170 million mortgage assets net exchange 100 shares 01 par value common stock 2000 shares 01 par value 1000 stated value 10 cumulative nonconvertible preferred stock november 24 1997 webster bank contributed approximately 1204 million cash company used company purchase gnma mortgagebacked securities note 2 december 15 1997 webster bank redeemed 2000 shares 01 par value 1000 stated value 10 cumulative nonconvertible preferred stock concurrently contributed proceeds company additional paidin capital december 24 1997 company raised 10 million less expenses public offering 1000000 shares series b 8625 cumulative redeemable preferred stock liquidation preference 10 per share series b preferred shares may redeemed option company january 15 2003 1998 webster bank contributed 1828 million cash company used purchase additional mortgagebacked securities residential mortgage loans 1999 additional contributions cash webster bank company note 6 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points variablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances companys loans servicer responsible servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance impound funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 7 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality real estate mortgage assets advise respect acquisition management financing disposition real estate mortgage assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank entitled receive annual fee 150000 respect advisory services provided company operating expenses outside scope advisory agreement paid directly company expenses include limited following fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 8 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common stock preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 95 reit taxable income including capital gains certain items noncash income taxable years beginning december 31 2000 requirement relaxed company still required distribute 90 reit taxable income company fails qualify reit taxable year subject federal income tax regular corporate rates note 9 comprehensive income following table summarizes reclassification adjustments comprehensive income related tax effects years ended december 31 1999 1998 1997 note 10 selected quarterly financial data unaudited item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders webster preferred capital corporation audited accompanying statements condition webster preferred capital corporation subsidiary webster bank na december 31 2005 2004 related statements income comprehensive income shareholders’ equity cash flows years threeyear period ended december 31 2005 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2005 2004 results operations cash flows years threeyear period ended december 31 2005 conformity us generally accepted accounting principles kpmg llp hartford connecticut march 24 2006 webster preferred capital corporation statements condition see accompanying notes financial statements webster preferred capital corporation statements income statements comprehensive income see accompanying notes financial statements webster preferred capital corporation statements shareholders’ equity see accompanying notes financial statements webster preferred capital corporation statements cash flows see accompanying notes financial statements webster preferred capital corporation notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation “company” connecticut corporation incorporated march 1997 subsidiary webster bank national association “webster bank” whollyowned subsidiary webster financial corporation “webster” company acquires holds manages real estate mortgage assets “mortgage assets” december 31 2005 mortgage assets owned company consisted whole loans secured first mortgages deeds trusts single family onetofour unit residential real estate properties “residential mortgage loans” located primarily connecticut mortgagebacked securities secured type loans located throughout country company elected treated real estate investment trust “reit” internal revenue code 1986 amended “code” generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares company’s common stock par value 001 per share owned webster bank federallychartered federallyinsured commercial bank webster bank indicated company long company’s preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity us generally accepted accounting principles preparing financial statements management required make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates example material estimate susceptible nearterm changes allowance loan losses c loans stated principal amounts outstanding adjusted purchase premiums discounts deferred loan fees andor costs allowance loan losses interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received loan origination fees net certain direct origination costs premiums discounts loans purchased recognized interest income lives loans using method approximating interest method servicing fees paid servicer charged interest income company’s residential mortgage loans within scope statement financial accounting standards “sfas” 114 “accounting creditors impairment loan” amended sfas 118 since homogenous loans relatively small balances collectively evaluated impairment allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize probable losses loans future additions allowance may necessary based upon actual results changes mentioned factors addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management e mortgagebacked securities mortgagebacked securities issued us government agencies governmentsponsored enterprises classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders’ equity adjustment shareholders’ equity taxeffected company generally subject federal state income tax management intends hold securities indefinite periods time part assetliability strategy may sell securities response changes interest rates changes prepayment risk factors one risks inherent investing mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayments weightedaverage yield securities may also change could affect earnings realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value judged temporary f net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share apply since company issued options instruments representing potential common shares weightedaverage number shares used computation basic earnings per common share years ended december 31 2005 2004 2003 100 g comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized income statement net unrealized gains losses securities available sale h statement cash flows purposes statement cash flows company defines cash banks cash equivalents note 2 mortgagebacked securities available sale following table sets forth certain information regarding mortgagebacked securities 2005 sales mortgagebacked securities mortgagebacked securities sold proceeds 156 million generated gain 536000 2004 one fixedrate mortgagebacked security sold proceeds 92 million 2003 generating gain 268000 securities unrealized losses december 31 2005 2 securities continuous unrealized loss position less twelve months unrealized losses caused increases market yields subsequent purchase securities past due securities company currently believes probable collect amounts due according contractual terms security company intent ability hold securities unrealized losses market price recovery may maturity company consider securities otherthantemporarily impaired december 31 2005 unrealized losses fixed income securities result cost basis securities greater current market value generally due increase interest rates since time purchase structural change investment deterioration credit quality issuer management continue evaluate impairments whether caused adverse interest rate credit movements determine otherthantemporary accordance applicable accounting literature company must demonstrate ability intent hold impaired security full recovery cost basis management uses internal external information sources arrive informed decision quantitative qualitative assessment begins review general market conditions changes market conditions credit investment performance structure since prior review period ability hold impaired security involve number factors including forecasted recovery period based security’s average life whether return provides satisfactory carry relative funding sources company’s capital earnings cash flow positions among things company ability intent hold temporarily impaired securities full recovery may maturity note 3 residential mortgage loans net summary residential mortgage loans net type original maturity follows detail change allowance loan losses follows loans considered impaired either december 31 2005 2004 nonaccrual loans totaled 97000 179000 december 31 2005 2004 respectively note 4 redeemable preferred stock december 1997 1000000 shares series b 8625 cumulative redeemable preferred stock issued 10 per share raising 100 million less issuance costs series b preferred stock redeemable prior january 15 2003 except upon occurrence specified tax event redemption solely option company current plans redeem preferred stock redemption price 10 per share note 5 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred “servicer” servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points variablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans servicer responsible services provided company webster bank level subservicing agreement company estimates fees paid webster bank servicing approximates fees would paid company operated unaffiliated entity servicing fees paid years 2005 2004 2003 345000 355000 326000 respectively servicing fees netted interest income statements income considered reduction yield company servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 6 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality mortgage assets advise respect acquisition management financing disposition mortgage assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank received annual fee advisory services provided company 195000 2005 2004 2003 company estimates fees paid webster bank advisory services approximate fees would paid services company unaffiliated entity operating expenses outside scope advisory agreement paid directly company expenses include limited fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 7 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 90 “reit taxable income” including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates note 8 summary estimated fair values financial instruments summary estimated fair values financial instruments follows company uses webster’s assetliability simulation model estimate fair value residential mortgage loans fair value estimated discounting average expected cash flows multiple interest rate paths arbitragefree trinomial lattice term structure model generates interest rate paths monthend liborswap yield curve swap option volatilities used input deriving forward rates future months cash flows instruments created rate path using product specific behavioral models account specific system data discount rates matched time period expected cash flow assetliability simulation software enhanced mortgage prepayment model collateralized mortgage obligation database provided two leading financial software companies instruments explicit options ie caps floors puts calls implicit options ie prepayment early withdrawal ability require rate cash flow modeling approach accurately quantify value spread added discount rates reflect credit option risks embedded instrument spreads prices calibrated observable market instruments available estimates based industry standards carrying amounts interestbearing deposits approximate fair value since mature 90 days less present unanticipated credit concerns fair value mortgagebacked securities see note 2 estimated based prices quotations received third parties pricing services fair value estimates made specific point time based relevant market information financial instrument estimates reflect premium discount could result offering sale one time company’s entire holdings part particular financial instrument fair value estimates based judgments regarding future expected loss experience current economic conditions risk characteristics various financial instruments factors subjective nature involve uncertainties matters significant judgment therefore cannot determined precision changes assumptions could significantly affect estimates note 9 selected quarterly financial data unaudited item 9 item 8 financial statements supplementary data independent auditors report board directors shareholders webster preferred capital corporation waterbury connecticut audited accompanying statement condition webster preferred capital corporation subsidiary webster bank december 31 1997 related statements income shareholders equity cash flows period march 17 1997 date inception december 31 1997 financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 1997 results operations cash flows period march 17 1997 date inception december 31 1997 conformity generally accepted accounting principles kpmg peat marwick llp january 20 1998 hartford connecticut webster preferred capital corporation statement condition see accompanying notes financial statements webster preferred capital corporation statement income thousands except share data period march 17 1997 date inception december 311997 interest income loans note 6 37177 securities 888 total interest income 38065 provision loan losses interest income provision loan losses 38065 noninterest expenses advisory fee expense paid parent note 7 127 dividends mandatorily redeemable preferred stock 66 amortization startup costs 17 noninterest expenses 10 total noninterest expenses 220 income taxes 37845 income taxes note 8 net income 37845 preferred stock dividends 168 net income available common shareholder 37677 net income per common share basic 376770 diluted 376770 see accompanying notes financial statements webster preferred capital corporation statement shareholders equity thousands except share data webster preferred capital corporation statement cash flows thousands see accompanying notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation company connecticut corporation incorporated march 1997 subsidiary webster bank whollyowned subsidiary webster financial corporation company organized provide costeffective means raising funds including equity capital consolidated basis webster bank company acquires holds manages real estate mortgage assets mortgage assets march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company december 31 1997 mortgage assets owned company consisted whole loans secured first mortgages deeds trusts single family one four unit residential real estate properties residential mortgage loans located primarily connecticut mortgagebacked securities although company may acquire hold variety mortgage assets present intention acquire residential mortgage loans certain mortgagebacked securities company elected treated real estate investment trust reit internal revenue code 1986 amended code generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares companys common stock par value 001 per share owned webster bank federallychartered federallyinsured savings bank webster bank indicated company long companys preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity generally accepted accounting principles preparing financial statements management required make estimates assumptions affect reported amount assets liabilities date balance sheets revenues expenses periods presented actual results company could differ estimates material estimate susceptible nearterm changes includes determination allowance loan losses c allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans current anticipated economic conditions pertinent factors managements judgment deserve current recognition estimating loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based changes economic conditions addition various regulatory agencies integral part examination process webster bank periodically may review companys allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management foreclosed properties foreclosed properties consist properties acquired foreclosure proceedings acceptance deed lieu foreclosure foreclosed properties reported lower fair value less estimated selling expenses cost allowance losses provide declines value operating expenses charged current period earnings gains losses upon disposition reflected statement income realized e loans stated principal amounts outstanding interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received loan origination fees premiums discounts loans purchased recognized interest income lives loans using method approximating interest method companys residential mortgage loans exempt disclosure provisions statement financial accounting standard sfas no114 accounting creditors impairment loan amended sfas no118 since companys loans comprised large groups smaller balance loans collectively evaluated impairment f mortgagebacked securities mortgagebacked securities us government agency securities classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders equity adjustment shareholders equity tax effected company generally subject federal state income tax management intends hold securities indefinite periods time part assetliability strategy may sell securities response changes interest rates changes prepayment risk similar factors one risks inherent investing mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayments weightedaverage yield securities may also change could affect earnings g prepaid expenses prepaid expenses primarily organization costs incurred formation company expenses amortized periods either 3 5 years h statement cash flows purposes statement cash flows company considers cash hand banks cash equivalents fair value financial instruments fair value securities note 2 estimated based prices published financial newspapers quotations received securities dealers pricing services estimating fair value residential mortgage loans note 3 portfolio classified two categories fixedrate mortgage loans variablerate mortgage loans categories segmented 15 20 25 30 year contractual maturities fair value category calculated discounting scheduled cash flows estimated maturity using market discount rates calculation fair value estimates financial instruments dependent upon certain subjective assumptions involves significant uncertainties resulting variability estimates changes assumptions potential taxes expenses would incurred actual sale settlement reflected amounts disclosed fair value estimates intended reflect liquidation value financial instruments note 2 mortgagebacked securities available sale november 1997 webster bank contributed 1204 million cash company used purchase government national mortgage association gnma mortgagebacked securities following table sets forth certain information regarding mortgagebacked securities december 31 1997 mortgagebacked securities contractual maturity 10 years weighted average yield december 31 1997 693 average remaining life less 11 years although stated final maturity obligations longterm weighted average life generally much shorter due prepayments sales mortgagebacked securities march 17 1997 date inception period ended december 31 1997 note 3 residential mortgage loans summary companys carrying amount fair market value residential mortgage loans december 31 1997 follows carrying fair market thousands amount value fixedrate loans fixedrate 15 yr loans 59631 60794 fixedrate 20 yr loans 1636 1679 fixedrate 25 yr loans 813 830 fixedrate 30 yr loans 161884 165847 total fixedrate loans 223964 229150 variablerate loans variablerate 15 yr loans 4896 5011 variablerate 20 yr loans 4004 4102 variablerate 25 yr loans 8553 8750 variablerate 30 yr loans 393924 405277 total variablerate loans 411377 423140 total residential mortgage loans 635341 652290 premiums deferred fees loans net 1831 less allowance loan losses 1538 residential mortgage loans net 635634 march 1997 webster bank contributed approximately 6170 million mortgage assets net part formation company 6170 million consisted 2158 million fixed rate loans 4013 million variable rate loans net premiums deferred fees loans allowance loan losses december 31 1997 approximately 353 companys residential mortgage loans fixedrate loans approximately 647 adjustablerate loans following table sets forth certain information regarding companys loans accounted nonaccrual basis december 31 1997 thousands december 31 1997 residential mortgage loans accounted nonaccrual basis 1303 real estate acquired foreclosure total 1303 detail change allowance loan losses period ending december 31 1997 follows period march 17 1997 date inception thousands december 31 1997 balance beginning period allowance loan losses acquired loans 1544 provisions charged operations chargeoffs 6 recoveries balance end period 1538 note 4 mandatorily redeemable preferred stock december 24 1997 company raised 40 million less expenses public offering 40000 shares series 7375 cumulative redeemable preferred stock liquidation preference 1000 per share company required redeem outstanding series preferred shares january 15 2001 redemption price 1000 per share plus accrued unpaid dividends series preferred shares redeemable prior january 15 1999 except upon occurrence tax event tax event occur change existing laws regulations results substantial risk dividends paid company longer fully deductible federal income tax purposes dividends paid company webster bank longer fully deductible state income tax purposes upon occurrence tax event period january 15 1999 january 14 2001 series preferred shares may redeemed option company note 5 shareholders equity march 17 1997 companys date inception webster bank contributed 6170 million mortgage assets net exchange 100 shares 01 par value common stock 2000 shares 01 par value 1000 stated value 10 cumulative nonconvertible preferred stock november 24 1997 webster bank contributed approximately 1204 million cash company used company purchase gnma mortgagebacked securities note 2 december 15 1997 webster bank redeemed 2000 shares 01 par value 1000 stated value 10 cumulative nonconvertible preferred stock concurrently contributed proceeds company additional paidin capital december 24 1997 company raised 10 million less expenses public offering 1000000 shares series b 8625 cumulative redeemable preferred stock liquidation preference 10 per share note 6 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred servicer receive fees annual rate 8 basis points fixed rate loan servicing collection ii 8 basis points variable rate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances companys loans servicer responsible servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance impound funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 7 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality real estate mortgage assets advise respect acquisition management financing disposition real estate mortgage assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank entitled receive annual fee 150000 respect advisory services provided company operating expenses outside scope agreement paid directly company expenses include limited following fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 8 income taxes company elected treated reit sections 856 860 code commencing taxable year ending december 31 1997 believes organization proposed method operation enable meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common stock preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 95 reit taxable income including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates note 9 selected quarterly financial data unaudited first quarter information period march 17 1997 date inception march 31 1997 item 9 item 8 financial statements supplementary data page report independent registered public accounting firm balance sheets statements income statements shareholders’ equity statements cash flows notes financial statements report independent registered public accounting firm board directors shareholders webster preferred capital corporation audited accompanying balance sheet webster preferred capital corporation subsidiary webster bank na december 31 2009 related statements income shareholders’ equity cash flows year ended financial statements responsibility company’s management responsibility express opinion financial statements based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement engaged perform audit company’s internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2009 results operations cash flows year ended conformity us generally accepted accounting principles ernst young llp boston massachusetts march 15 2010 report independent registered public accounting firm board directors shareholders webster preferred capital corporation audited accompanying balance sheets webster preferred capital corporation subsidiary webster bank na december 31 2008 related statements income shareholders’ equity cash flows years twoyear period ended december 31 2008 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2008 results operations cash flows years twoyear period ended december 31 2008 conformity us generally accepted accounting principles kpmg llp hartford connecticut march 10 2009 webster preferred capital corporation balance sheets see accompanying notes financial statements webster preferred capital corporation statements income see accompanying notes financial statements webster preferred capital corporation statements shareholders’ equity see accompanying notes financial statements webster preferred capital corporation statements cash flows see accompanying notes financial statements webster preferred capital corporation notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation “company” connecticut corporation incorporated march 1997 subsidiary webster bank national association “webster bank” wholly owned subsidiary webster financial corporation “webster” company acquires holds manages real estate related mortgage assets company elected treated real estate investment trust “reit” internal revenue code 1986 amended “code” generally subject federal income tax extent distributes earnings shareholders maintains qualification reit shares company’s common stock par value 001 per share owned webster bank federally chartered federally insured commercial bank webster bank indicated company long company’s preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company basis financial statement presentation financial statements prepared conformity us generally accepted accounting principles “gaap” preparing financial statements management required make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates example material estimate susceptible nearterm changes allowance loan losses accounting standards codification financial accounting standards board’s “fasb” accounting standards codification “asc” became effective july 1 2009 date asc became fasb’s officially recognized source authoritative gaap applicable public nonpublic nongovernmental entities superseding existing fasb american institute certified public accountants “aicpa” emerging issues task force “eitf” related literature rules interpretive releases sec authority federal securities laws also sources authoritative gaap sec registrants accounting literature considered nonauthoritative switch asc affects way companies refer gaap financial statements accounting policies citing particular content asc involves specifying unique numeric path content topic subtopic section paragraph structure use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements actual results could differ estimates allowance loan losses particularly subject change statements cash flows purposes statements cash flows company defines cash amounts held deposit accounts webster bank residential mortgage loans represent assets company acquires webster bank acquisition cost represents aggregate outstanding gross principal balance net premiums discounts deferred loan costs andor fees transfers represent legal sales webster bank webster bank may record transfers sales gaap accounting purposes 100 direct ownership interest company accordingly company’s assets represent nonrecourse receivables webster bank fully collateralized underlying loans underlying loans whole loans secured first mortgages deeds trust single family onetofour unit residential real estate properties located primarily connecticut assets continue classified residential loans company’s financial statements returns recoverability nonrecourse receivables entirely dependent performance underlying residential loans stated principal amounts outstanding net unamortized premiums discounts net deferred loan fees andor costs recognized yield adjustment using interest method yield adjustments amortized contractual life related loans adjusted estimated prepayments applicable interest loans credited interest income earned based interest rate applied principal amounts outstanding loans placed nonaccrual status timely collection principal interest accordance contractual terms doubtful loans transferred nonaccrual basis generally principal interest payments become 90 days delinquent unless loan well secured process collection sooner management concludes circumstances indicate borrowers may unable meet contractual principal interest payments accrual interest discontinued loan placed nonaccrual status loans placed nonaccrual status 90 days past due loan transferred nonaccrual status unpaid accrued interest reversed charged interest income ultimate repayment nonaccrual loan expected payments received applied accordance loan’s contractual terms ultimate repayment expected management judges prudent payment received nonaccrual loan applied principal unpaid balance fully recovered excess credited interest income received loans removed nonaccrual status become current principal interest demonstrate period performance contractual terms opinion management fully collectible principal interest loans considered impaired based current information events probable company unable collect amounts due accordance original contractual terms loan agreement including scheduled principal interest payments impairment evaluated total smallerbalance loans similar nature individual loan basis loans loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value less cost sell collateral repayment expected solely collateral interest payments impaired loans typically applied principal unless collectability principal amount reasonably assured case interest recognized cash basis impaired loans portions thereof charged deemed uncollectible allowance loan losses allowance loan losses reserve established provision loan losses charged expense represents management’s best estimate probable losses incurred within existing portfolio loans balance sheet date allowance judgment management necessary reserve estimated loan losses inherent loan portfolio allowance loan losses includes allowance allocations calculated accordance fasb asc topic 310 “receivables” allowance allocations calculated accordance fasb asc topic 450 “contingencies” level allowance reflects management’s continuing evaluation specific credit risks loan loss experience current loan portfolio quality present economic political regulatory conditions unidentified losses inherent current loan portfolio well trends foregoing portions allowance may allocated specific credits however entire allowance available credit management’s judgment charged management utilizes best judgment information available ultimate adequacy allowance dependent upon variety factors beyond company’s control including performance company’s loan portfolio economy changes interest rates view regulatory authorities toward loan classifications company’s allowance loan losses consists three elements specific valuation allowances established probable losses specific loans ii historical valuation allowances calculated based historical loan loss experience similar loans similar characteristics trends adjusted necessary reflect impact current conditions iii unallocated general valuation allowances determined based general economic conditions qualitative risk factors internal external company net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share apply since company issued options instruments representing potential common shares weightedaverage number shares used computation basic earnings per common share years ended december 31 2009 2008 2007 100 comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized statements income net unrealized gains losses securities available sale years ended december 31 2009 2008 2007 component comprehensive income company net income recent accounting standards fasb asc topic 820 “fair value measurements disclosures” fasb asc topic 820 “fair value measurements disclosures” defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements provisions fasb asc topic 820 became effective company january 1 2008 financial assets financial liabilities january 1 2009 nonfinancial assets nonfinancial liabilities additional new authoritative accounting guidance fasb asc topic 820 affirms objective fair value market asset active price would received sell asset orderly transaction clarifies includes additional factors determining whether significant decrease market activity asset market asset active fasb asc topic 820 requires entity base conclusion whether transaction orderly weight evidence new accounting guidance amended prior guidance expand certain disclosure requirements company adopted new authoritative accounting guidance fasb asc topic 820 second quarter 2009 adoption new guidance significantly impact company’s financial statements note 2 residential mortgage loans net summary residential mortgage loans net type original maturity follows residential mortgage loans held company december 31 2009 2008 acquired webster bank loans acquired company webster bank years ended december 31 2009 2008 company acquired 508 million loans webster bank 2007 loans transferred company webster bank totaled 464 million 905 million years ended december 31 2008 2007 respectively loans transferred company webster bank year ended december 31 2009 december 31 2009 2008 585 581 respectively company’s residential mortgage loans fixed rate loans 415 419 respectively adjustablerate loans nonperformingpast due loans accrual interest discontinued loan placed nonaccrual status residential mortgage loans placed nonaccrual status 90 days past due loan transferred nonaccrual status unpaid accrued interest reversed charged interest income nonaccrual loans totaled 57 million 08 million december 31 2009 2008 respectively represented 375 043 gross loans december 31 2009 2008 respectively interest nonaccrual loans would recorded additional interest income years ended december 31 2009 2008 2007 loans current accordance original terms approximated 161000 19000 23000 respectively impaired loans company individually reviews loans expected collected accordance original terms contractual agreement impairment based fair value expected cash flows collateral december 31 2009 impaired loans totaled 32 million including loans 16 million impairment allowance 03 million impaired loans december 31 2008 following table summarizes impaired loans december 31 2009 troubled debt restructures loan whose terms modified due financial difficulties borrower reported company troubled debt restructure “tdr” tdrs placed nonaccrual status loan qualifies return accrual status loans qualify return accrual status demonstrated performance restructured terms loan agreement minimum six months tdrs definition impaired loans reported within impaired loan categories preceding table accordance company’s credit risk policy loans portions loans charged allowance loan losses deemed management uncollectible december 31 2009 company tdr’s total 26 million thirteen loans restructured 2009 december 31 2009 nine tdr loans totaling 17 million nonaccrual four tdr loans totaling 09 million current accruing year ended december 31 2009 company recognized 26599 tdr chargeoffs tdrs december 31 2008 2007 mortgage loans transferred real estate owned 2009 year ended december 31 2008 company foreclosed property collateralizing 382000 mortgage loans transferred balance real estate owned company subsequently sold property 2008 recognized 56000 loss sale december 31 2009 2008 company hold amounts real estate owned company recorded foreclosure expenses 6000 year ended december 31 2008 foreclosure expenses incurred years ended december 31 2009 2007 allowance loan losses following table provides detail activity company’s allowance loan losses years ended december 31 note 3 redeemable preferred stock december 1997 1000000 shares series b 8625 cumulative redeemable preferred stock issued 10 per share raising 100 million net issuance costs series b preferred stock redeemable solely option company current plans redeem preferred stock redemption price 10 per share note 4 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points adjustablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans webster bank responsible services provided company webster bank level subservicing agreement company estimates fees paid webster bank servicing approximates fees would paid company operated unaffiliated entity servicing fees paid years 2009 2008 2007 136619 200467 240092 respectively servicing fees netted interest income statements income considered reduction yield company webster bank entitled retain late payment charges prepayment fees penalties assumption fees collected connection residential mortgage loans serviced webster bank also receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans serviced end calendar month webster bank required invoice company fees charges due note 5 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality mortgage assets advise respect acquisition management financing disposition mortgage related assets provide necessary executive administration human resources accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank received annual fee advisory services provided company 216250 2009 compared 205000 2008 2007 company estimates fees paid webster bank advisory services approximate fees would paid services company unaffiliated entity operating expenses outside scope advisory agreement paid directly company expenses include limited fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 6 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal connecticut income taxes net income capital gains distributes holders common preferred stock therefore company’s net income distributed shareholder provision federal connecticut income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distribute shareholders least 90 “reit taxable income” including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates company recognizes interest penalties related unrecognized tax benefits applicable income tax expense interest penalties recognized statements income 2009 2008 2007 accrued within balance sheets december 31 2009 2008 company’s federal connecticut income tax returns remain open examination calendar tax years subsequent 2005 note 7 fair value financial instruments company uses fair value record adjustments certain assets liabilities prepare required disclosures fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date fair value best determined using market quotes however many instances quoted market prices available instances fair values determined using various valuation techniques various assumptions observable inputs must relied upon applying techniques accordingly fair value estimates may realized immediate transfer respective asset liability description valuation methodologies used company presented cash carrying value cash approximates fair value loans receivable company employs independent third party provide fair value estimates portfolio loans estimates calculated using discounted cash flow analysis using market interest rates comparable loans associated cash flows adjusted credit potential losses fair value impaired loans estimated using net present value expected cash flows fair value underlying collateral repayment collateral dependent summary estimated fair values significant financial instruments consisted following december 31 note 8 selected quarterly financial data unaudited item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders webster preferred capital corporation audited accompanying statements condition webster preferred capital corporation subsidiary webster bank na december 31 2006 2005 related statements income comprehensive income shareholders’ equity cash flows years threeyear period ended december 31 2006 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2006 2005 results operations cash flows years threeyear period ended december 31 2006 conformity us generally accepted accounting principles kpmg llp hartford connecticut march 29 2007 webster preferred capital corporation statements condition see accompanying notes financial statements webster preferred capital corporation statements income statements comprehensive income see accompanying notes financial statements webster preferred capital corporation statements shareholders’ equity see accompanying notes financial statements webster preferred capital corporation statements cash flows see accompanying notes financial statements webster preferred capital corporation notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation “company” connecticut corporation incorporated march 1997 subsidiary webster bank national association “webster bank” whollyowned subsidiary webster financial corporation “webster” company acquires holds manages real estate related mortgage assets company elected treated real estate investment trust “reit” internal revenue code 1986 amended “code” generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares company’s common stock par value 001 per share owned webster bank federallychartered federallyinsured commercial bank webster bank indicated company long company’s preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity us generally accepted accounting principles “gaap preparing financial statements management required make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates example material estimate susceptible nearterm changes allowance loan losses c residential mortgage loans represent assets company acquires webster bank carrying value transfers represent legal sales webster bank webster bank may record transfers sales gaap accounting purposes 100 direct ownership interest company accordingly company’s assets represent nonrecourse receivables webster bank fully collateralized underlying loans underlying loans whole loans secured first mortgages deeds trust single family onetofour unit residential real estate properties located primarily connecticut assets continue classified residential loans company’s financial statements returns recoverability nonrecourse receivables entirely dependent performance underlying residential loans stated principal amounts outstanding adjusted deferred loan costs allowance loan losses interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received deferred loan feescosts loans acquired recognized interest income lives loans using method approximating interest method servicing fees paid servicer charged interest income company’s residential mortgage loans within scope statement financial accounting standards “sfas” 114 “accounting creditors impairment loan” amended sfas 118 since homogenous loans relatively small balances collectively evaluated impairment allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize probable losses loans future additions allowance may necessary based upon actual results changes mentioned factors addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management e mortgagebacked securities mortgagebacked securities issued us government agencies governmentsponsored enterprises classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders’ equity adjustment shareholders’ equity taxeffected company generally subject federal state income tax realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value judged temporary f net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share apply since company issued options instruments representing potential common shares weightedaverage number shares used computation basic earnings per common share years ended december 31 2006 2005 2004 100 g comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized income statement net unrealized gains losses securities available sale h statement cash flows purposes statement cash flows company defines cash banks cash equivalents reclassifications certain financial statement balances previously reported reclassified conform 2006 consolidated financial statements presentation note 2 mortgagebacked securities available sale following table sets forth certain information regarding mortgagebacked securities december 31 2005 mortgagebacked securities written fair value september 2006 resulting loss 526000 entire portfolio 362 million sold october 2006 generating loss sale 117000 2005 sales mortgagebacked securities mortgagebacked securities sold proceeds 156 million generated gain 536000 2004 note 3 residential mortgage loans net summary residential mortgage loans net type original maturity follows loans transferred company webster bank totaled 1177 million 2006 1495 million 2004 none 2005 loans transferred company webster bank totaled 733 million 2006 none 2005 2004 detail change allowance loan losses follows loans considered impaired either december 31 2006 2005 nonaccrual loans totaled 211000 97000 december 31 2006 2005 respectively note 4 redeemable preferred stock december 1997 1000000 shares series b 8625 cumulative redeemable preferred stock issued 10 per share raising 100 million less issuance costs series b preferred stock redeemable solely option company current plans redeem preferred stock redemption price 10 per share note 5 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred “servicer” servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points variablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans servicer responsible services provided company webster bank level subservicing agreement company estimates fees paid webster bank servicing approximates fees would paid company operated unaffiliated entity servicing fees paid years 2006 2005 2004 313000 345000 355000 respectively servicing fees netted interest income statements income considered reduction yield company servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection residential mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 6 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality mortgage assets advise respect acquisition management financing disposition mortgage related assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank received annual fee advisory services provided company 202500 2006 compared 195000 2005 2004 company estimates fees paid webster bank advisory services approximate fees would paid services company unaffiliated entity operating expenses outside scope advisory agreement paid directly company expenses include limited fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 7 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 90 “reit taxable income” including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates note 8 summary estimated fair values financial instruments summary estimated fair values financial instruments follows company uses webster’s assetliability simulation model estimate fair value residential mortgage loans fair value estimated discounting average expected cash flows multiple interest rate paths arbitragefree trinomial lattice term structure model generates interest rate paths monthend liborswap yield curve swap option volatilities used input deriving forward rates future months cash flows instruments created rate path using product specific behavioral models account specific system data discount rates matched time period expected cash flow assetliability simulation software enhanced mortgage prepayment model collateralized mortgage obligation database provided two leading financial software companies instruments explicit options ie caps floors puts calls implicit options ie prepayment early withdrawal ability require rate cash flow modeling approach accurately quantify value spread added discount rates reflect credit option risks embedded instrument spreads prices calibrated observable market instruments available estimates based industry standards carrying amounts interestbearing deposits approximate fair value since mature 90 days less present unanticipated credit concerns fair value mortgagebacked securities see note 2 estimated based prices quotations received third parties pricing services fair value estimates made specific point time based relevant market information financial instrument estimates reflect premium discount could result offering sale one time company’s entire holdings part particular financial instrument fair value estimates based judgments regarding future expected loss experience current economic conditions risk characteristics various financial instruments factors subjective nature involve uncertainties matters significant judgment therefore cannot determined precision changes assumptions could significantly affect estimates note 9 selected quarterly financial data unaudited item 9 item 8 financial statements supplementary data independent auditors report board directors shareholders webster preferred capital corporation audited accompanying statements condition webster preferred capital corporation subsidiary webster bank december 31 2000 related statements income shareholders equity cash flows years threeyear period ended december 31 2000 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2000 1999 results operations cash flows years threeyear period ended december 31 2000 1999 1998 conformity accounting principles generally accepted united states america kpmg llp hartford connecticut january 23 2001 see accompanying notes financial statements webster preferred capital corporation statements income dollars thousands except share data see accompanying notes financial statements webster preferred capital corporation statements shareholders equity dollars thousands except per share data see accompanying notes financial statements webster preferred capital corporation statements cash flows dollars thousands see accompanying notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation company connecticut corporation incorporated march 1997 subsidiary webster bank whollyowned subsidiary webster financial corporation company organized provide costeffective means raising funds including equity capital consolidated basis webster bank company acquires holds manages real estate mortgage assets mortgage assets december 31 2000 mortgage assets owned company consisted whole loans secured first mortgages deeds trusts single family one four unit residential real estate properties residential mortgage loans located primarily connecticut mortgagebacked securities company elected treated real estate investment trust reit internal revenue code 1986 amended code generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares companys common stock par value 001 per share owned webster bank federallychartered federallyinsured savings bank webster bank indicated company long companys preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity accounting principles generally accepted united states america preparing financial statements management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates material estimate susceptible nearterm changes includes allowance loan losses c allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors managements judgment deserve current recognition estimating loan losses management believes allowance loan losses adequate management believes uses best available information recognize losses loans future additions allowance may necessary based changes economic conditions addition various regulatory agencies integral part examination process webster bank periodically may review companys allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management real estate owned real estate owned consists properties acquired foreclosure proceedings acceptance deed lieu foreclosure real estate owned reported lower fair value less estimated selling expenses cost allowance losses provide declines value operating expenses charged current period earnings gains losses upon disposition reflected statement income realized december 31 2000 1999 288000 60000 respectively real estate owned company e loans stated principal amounts outstanding interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received loan origination fees premiums discounts loans purchased recognized interest income lives loans using method approximating interest method companys residential mortgage loans exempt disclosure provisions statement financial accounting standard sfas no114 accounting creditors impairment loan amended sfas no118 since companys loans comprised large groups smaller balance loans collectively evaluated impairment f mortgagebacked securities mortgagebacked securities us government agency securities classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders equity adjustment shareholders equity taxeffected company generally subject federal state income tax management intends hold securities indefinite periods time part assetliability strategy may sell securities response changes interest rates changes prepayment risk factors one risks inherent investing mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayments weightedaverage yield securities may also change could affect earnings realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value mortgage backed security judged temporary g net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share calculated dividing adjusted net income weightedaverage diluted common shares company dilutive items weightedaverage number shares used computation basic diluted earnings per common share years ended december 31 2000 1999 1998 100 h statement cash flows purposes statement cash flows company defines cash hand banks cash equivalents fair value financial instruments fair value securities note 2 estimated based prices published financial newspapers quotations received securities dealers pricing services estimating fair value residential mortgage loans note 3 portfolio classified two categories fixedrate mortgage loans variablerate mortgage loans categories segmented 15 20 25 30 year contractual maturities fair value category calculated discounting scheduled cash flows estimated maturity using market discount rates calculation fair value estimates financial instruments dependent upon certain subjective assumptions involves significant uncertainties resulting variability estimates changes assumptions potential taxes expenses would incurred actual sale settlement reflected amounts disclosed fair value estimates intended reflect liquidation value financial instruments j comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized income statement net unrealized gains losses securities available sale company reported comprehensive income components 2000 1999 1998 statements shareholders equity k reclassification certain financial statement balances previously reported reclassified conform 2000 financial statement presentation note 2 mortgagebacked securities available sale following table sets forth certain information regarding mortgagebacked securities sales 474 million mortgagebacked securities year ending december 31 2000 resulting net gain 94000 sales mortgagebacked securities year ending december 31 1999 mortgagebacked securities contractual maturity 10 years weighted average yield december 31 2000 674 although stated final maturities obligations longterm weighted average life much shorter due scheduled repayments prepayments gains losses sales securities recorded using specific identification method note 3 residential mortgage loans net summary carrying amount fair market value residential mortgage loans net follows december 31 2000 approximately 433 companys residential mortgage loans fixedrate loans approximately 567 adjustablerate loans detail change allowance loan losses periods indicated follows note 4 mandatorily redeemable preferred stock december 24 1997 company raised 400 million less expenses public offering 40000 shares series 7375 cumulative redeemable preferred stock liquidation preference 1000 per share company required redeem outstanding series preferred shares january 15 2001 redemption price 1000 per share plus accrued unpaid dividends redemption took place january 16 2001 due legal holiday january 15 2001 note 5 shareholders equity march 17 1997 companys date inception webster bank contributed 6170 million mortgage assets net exchange 100 shares 01 par value common stock 2000 shares 01 par value 1000 stated value 10 cumulative nonconvertible preferred stock november 24 1997 webster bank contributed approximately 1204 million cash company used company purchase gnma mortgagebacked securities note 2 december 15 1997 webster bank redeemed 2000 shares 01 par value 1000 stated value 10 cumulative nonconvertible preferred stock concurrently contributed proceeds company additional paidin capital december 24 1997 company raised 10 million less expenses public offering 1000000 shares series b 8625 cumulative redeemable preferred stock liquidation preference 10 per share series b preferred shares may redeemed option company january 15 2003 1998 webster bank contributed 1828 million cash company used purchase additional mortgagebacked securities residential mortgage loans 2000 1999 additional contributions cash webster bank company note 6 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points variablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances companys loans servicer responsible servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance impound funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 7 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality real estate mortgage assets advise respect acquisition management financing disposition real estate mortgage assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank entitled receive annual fee 157500 respect advisory services provided company operating expenses outside scope advisory agreement paid directly company expenses include limited following fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 8 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common stock preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 90 reit taxable income including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates note 9 comprehensive income following table summarizes reclassification adjustments comprehensive income years ended december 31 2000 1999 1998 related tax effect netoftax thousands amount unrealized net gain available sale securities unrealized net holding gain arising period 1887 less reclassification adjustment gains realized period 94 comprehensive income december 31 2000 1793 unrealized net loss available sale securities unrealized holding losses arising period 2555 less reclassification adjustment gains realized period comprehensive loss december 31 1999 2555 unrealized net gain available sale securities unrealized holding gains arising period 1313 less reclassification adjustment gains realized period 261 comprehensive income december 31 1998 1052 note 10 selected quarterly financial data unaudited item 9 item 8 financial statements supplementary data report independent registered accounting firm board directors shareholders webster preferred capital corporation audited accompanying statements condition webster preferred capital corporation subsidiary webster bank na december 31 2004 2003 related statements income comprehensive income shareholders’ equity cash flows years threeyear period ended december 31 2004 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2004 2003 results operations cash flows years threeyear period ended december 31 2004 conformity us generally accepted accounting principles kpmg llp hartford connecticut march 10 2005 webster preferred capital corporation statements condition see accompanying notes financial statements webster preferred capital corporation statements income statements comprehensive income see accompanying notes financial statements webster preferred capital corporation statements shareholders’ equity see accompanying notes financial statements webster preferred capital corporation statements cash flows see accompanying notes financial statements webster preferred capital corporation notes financial statements note 1 summary significant accounting policies business webster preferred capital corporation “company” connecticut corporation incorporated march 1997 subsidiary webster bank na whollyowned subsidiary webster financial corporation “webster” company acquires holds manages real estate mortgage assets “mortgage assets” december 31 2004 mortgage assets owned company consisted whole loans secured first mortgages deeds trusts single family onetofour unit residential real estate properties “residential mortgage loans” located primarily connecticut mortgagebacked securities secured type loans located throughout country company elected treated real estate investment trust “reit” internal revenue code 1986 amended “code” generally subject federal income tax extent distributes earnings stockholders maintains qualification reit shares company’s common stock par value 001 per share owned webster bank federallychartered federallyinsured commercial bank webster bank indicated company long company’s preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company b basis financial statement presentation financial statements prepared conformity us generally accepted accounting principles preparing financial statements management required make estimates assumptions affect reported amount assets liabilities disclosure contingent assets liabilities date financial statements revenues expenses periods presented actual results company could differ estimates example material estimate susceptible nearterm changes allowance loan losses c loans stated principal amounts outstanding net deferred loan fees andor costs allowance loan losses interest loans credited income earned based rate applied principal amounts outstanding interest 90 days past due accrued interest ultimately collected credited income period received loan origination fees net certain direct origination costs premiums discounts loans purchased recognized interest income lives loans using method approximating interest method servicing fees paid servicer charged interest income company’s residential mortgage loans exempt disclosure provisions statement financial accounting standard “sfas” 114 “accounting creditors impairment loan” amended sfas 118 since company’s loans comprised large groups smaller balance loans collectively evaluated impairment allowance loan losses allowance loan losses established based upon review loan portfolio loss experience specific problem loans economic conditions pertinent factors management’s judgment deserve current recognition estimating probable loan losses management believes allowance loan losses adequate management believes uses best available information recognize probable losses loans future additions allowance may necessary based upon actual results changes mentioned factors addition various regulatory agencies integral part examination process webster bank periodically may review company’s allowance loan losses agencies may require company recognize additions allowance loan losses based judgments different management e mortgagebacked securities mortgagebacked securities us government agency government sponsored agency issued securities classified available sale available sale securities carried fair value unrealized gains losses recorded adjustments shareholders’ equity adjustment shareholders’ equity taxeffected company generally subject federal state income tax management intends hold securities indefinite periods time part assetliability strategy may sell securities response changes interest rates changes prepayment risk factors one risks inherent investing mortgagebacked securities ability instruments incur prepayments principal prior maturity prepayments weightedaverage yield securities may also change could affect earnings realized gains losses sales securities recorded using specific identification method unrealized losses securities charged earnings decline fair value judged temporary f real estate owned real estate owned consists properties acquired foreclosure proceedings acceptance deed lieu foreclosure real estate owned reported lower fair value less estimated selling expenses carrying value loan time foreclosure operating expenses charged current period earnings gains losses upon disposition reflected statement income realized g net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share calculated dividing net income available common shareholders weightedaverage diluted common shares company dilutive items weightedaverage number shares used computation basic diluted earnings per common share years ended december 31 2004 2003 2002 100 h comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized income statement net unrealized gains losses securities available sale statement cash flows purposes statement cash flows company defines cash hand banks cash equivalents j reclassification certain 2003 financial statement balances previously reported reclassified conform 2004 financial statement presentation note 2 mortgagebacked securities available sale following table sets forth certain information regarding mortgagebacked securities 2004 mortgagebacked securities sold 156 million producing net gain 536000 one fixed mortgagebacked security sold 92 million generating net gain 268000 2003 sales mortgagebacked securities year ending december 31 2002 note 3 residential mortgage loans net summary residential mortgage loans net type original maturity follows detail change allowance loan losses follows loans considered impaired either december 31 2004 2003 nonaccrual loans totaled 179000 358000 december 31 2004 2003 respectively note 4 redeemable preferred stock december 1997 1 million shares series b 8625 cumulative redeemable preferred stock sold raising 100 million less expenses series b preferred stock redeemable prior january 15 2003 except upon occurrence specified tax event redemption option company current plans redeem preferred stock note 5 servicing mortgage loans owned company serviced webster bank pursuant terms servicing agreement webster bank role servicer terms servicing agreement herein referred “servicer” servicer receives fees annual rate 8 basis points fixedrate loan servicing collection ii 8 basis points variablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans servicer responsible services provided company webster bank level subservicing agreement company estimates fees paid webster bank servicing approximates fees would paid company operated unaffiliated entity servicing fees paid years 2004 2003 2002 355000 326000 387000 respectively servicing fees included interest income statement income classified reduction yield company servicer entitled retain late payment charges prepayment fees penalties assumption fees collected connection mortgage loans serviced servicer receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans serviced end calendar month servicer required invoice company fees charges due servicer note 6 advisory services advisory services provided pursuant agreement webster bank provide company following types services administer daytoday operations monitor credit quality mortgage assets advise respect acquisition management financing disposition mortgage assets provide necessary executive administration human resource accounting control technical support record keeping copying telephone mailing distribution investment funds management services webster bank received annual fee advisory services provided company 195000 2004 2003 186000 2002 company estimates fees paid webster bank advisory services approximate fees would paid services company unaffiliated entity operating expenses outside scope advisory agreement paid directly company expenses include limited following fees third party consultants attorneys external auditors expenses incurred directly related advisory agreement note 7 income taxes company elected treated reit sections 856 860 code believes organization method operation meet requirements qualification reit company generally subject federal income tax net income capital gains distributes holders common preferred stock therefore provision federal income taxes included accompanying financial statements maintain reit status entity must meet number organizational operational requirements including requirement currently distributes stockholders least 90 “reit taxable income” including capital gains certain items noncash income company fails qualify reit taxable year subject federal income tax regular corporate rates note 8 summary estimated fair values financial instruments summary estimated fair values financial instruments consist following company uses webster’s assetliability simulation model estimate fair value residential mortgage loans fair value estimated discounting average expected cash flows multiple interest rate paths arbitragefree trinomial lattice term structure model generates interest rate paths monthend liborswap yield curve swap option volatilities used input deriving forward rates future months cash flows instruments created rate path using product specific behavioral models account specific system data discount rates matched time period expected cash flow assetliability simulation software enhanced mortgage prepayment model collateralized mortgage obligation database provided two leading financial software companies instruments explicit options ie caps floors puts calls implicit options ie prepayment early withdrawal ability require rate cash flow modeling approach accurately quantify value spread added discount rates reflect credit option risks embedded instrument spreads prices calibrated observable market instruments available estimates based industry standards carrying amounts interestbearing deposits time deposits approximate fair value since mature 90 days less present unanticipated credit concerns fair value mortgagebacked securities see note 2 estimated based prices quotations received third parties pricing services fair value estimates made specific point time based relevant market information financial instrument estimates reflect premium discount could result offering sale one time company’s entire holdings part particular financial instrument fair value estimates based judgments regarding future expected loss experience current economic conditions risk characteristics various financial instruments factors subjective nature involve uncertainties matters significant judgment therefore cannot determined precision changes assumptions could significantly affect estimates note 9 selected quarterly financial data unaudited copy webster preferred capital corporation’s 2004 annual report provided shareholders upon request item 9 item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders webster preferred capital corporation audited accompanying balance sheets webster preferred capital corporation subsidiary webster bank na december 31 2010 2009 related statements income shareholders’ equity cash flows years ended financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement engaged perform audit company’s internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position webster preferred capital corporation december 31 2010 2009 results operations cash flows years ended conformity us generally accepted accounting principles ernst young llp boston massachusetts february 25 2011 report independent registered public accounting firm board directors shareholders webster preferred capital corporation audited statements income shareholder’s equity cash flows webster preferred capital corporation subsidiary webster bank na “company” year ended december 31 2008 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects results operations cash flows webster preferred capital corporation year ended december 31 2008 conformity us generally accepted accounting principles kpmg llp hartford connecticut march 10 2009 webster preferred capital corporation balance sheets see accompanying notes financial statements webster preferred capital corporation statements income see accompanying notes financial statements webster preferred capital corporation statements shareholders’ equity see accompanying notes financial statements webster preferred capital corporation statements cash flows see accompanying notes financial statements webster preferred capital corporation notes financial statements note 1 summary significant accounting policies nature operations webster preferred capital corporation “company” connecticut corporation incorporated march 1997 subsidiary webster bank national association “webster bank” wholly owned subsidiary webster financial corporation “webster” company acquires holds manages real estate related mortgage assets company elected treated real estate investment trust “reit” internal revenue code 1986 amended “code” company generally subject federal connecticut state income taxes long maintains qualification reit requiring among organizational operational issues currently distributes shareholders least 90 “reit taxable income” including capital gains certain items noncash income shares company’s common stock par value 001 per share owned webster bank federally chartered federally insured commercial bank webster bank indicated company long company’s preferred shares outstanding webster bank intends maintain direct ownership 100 outstanding common stock company basis presentation financial statements prepared conformity accounting principles generally accepted united states “gaap” general practices within financial services industry certain prior period amounts reclassified conform current year’s presentation use estimates preparation financial statements conformity gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements actual results could differ estimates allowance loan losses particularly subject change cash equivalents purposes statements cash flows company defines cash amounts held deposit accounts webster bank residential mortgage loans represent assets company acquires webster bank acquisition cost represents aggregate outstanding gross principal balance net premiums discounts deferred loan costs andor fees transfers represent legal sales webster bank webster bank may record transfers sales gaap accounting purposes 100 direct ownership interest company accordingly company’s assets represent nonrecourse receivables webster bank fully collateralized underlying loans underlying loans whole loans secured first mortgages deeds trust single family onetofour unit residential real estate properties located primarily connecticut assets continue classified residential loans company’s financial statements returns recoverability nonrecourse receivables entirely dependent performance underlying residential loans stated principal amounts outstanding net unamortized premiums discounts net deferred loan fees andor costs recognized yield adjustment using interest method yield adjustments amortized contractual life related loans adjusted estimated prepayments applicable interest loans credited interest income earned based interest rate applied principal amounts outstanding loans placed nonaccrual status timely collection principal interest accordance contractual terms doubtful loans transferred nonaccrual basis generally principal interest payments become 90 days delinquent unless loan well secured process collection sooner management concludes circumstances indicate borrowers may unable meet contractual principal interest payments accrual interest discontinued loan placed nonaccrual status loans placed nonaccrual status 90 days past due chargeoff recorded 180 days loan balance exceeds fair value collateral less costs sell loan transferred nonaccrual status unpaid accrued interest reversed charged interest income ultimate repayment nonaccrual loan expected payments received applied accordance loan’s contractual terms company determines current valuation analysis loan principal repaid interest payments may taken income received cash basis loans removed nonaccrual status become current principal interest demonstrate period performance contractual terms opinion management fully collectible principal interest allowance loan losses allowance loan losses reserve established provision loan losses charged expense represents management’s best estimate probable losses incurred within existing portfolio loans balance sheet date allowance judgment management necessary reserve estimated loan losses inherent loan portfolio allowance loan losses includes allowance allocations calculated accordance fasb asc topic 310 “receivables” allowance allocations calculated accordance fasb asc topic 450 “contingencies” level allowance reflects management’s continuing evaluation specific credit risks loan loss experience current loan portfolio quality present economic political regulatory conditions unidentified losses inherent current loan portfolio well trends foregoing portions allowance may allocated specific credits however entire allowance available credit management’s judgment charged management utilizes best judgment information available ultimate adequacy allowance dependent upon variety factors beyond company’s control including performance company’s loan portfolio economy changes interest rates view regulatory authorities toward loan classifications company’s allowance loan losses consists three elements specific valuation allowances established probable losses specific loans ii historical valuation allowances calculated based historical loan loss experience similar loans similar characteristics trends adjusted necessary reflect impact current conditions iii general economic conditions qualitative risk factors internal external company loans considered impaired based current information events probable company unable collect amounts due accordance original contractual terms loan agreement including scheduled principal interest payments impairment evaluated total smallerbalance loans similar nature individual loan basis loans loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value less cost sell collateral repayment expected solely collateral interest payments impaired loans typically applied principal unless collectability principal amount reasonably assured case interest recognized cash basis impaired loans portions thereof charged deemed uncollectible factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due foreclosed repossessed assets real estate owned consists real estate assets acquired repossession carried lower cost fair value less estimated costs sell independent appraisals obtained substantiate fair value may subject adjustment based upon historical experience specific geographic trends impacting property time loan referred foreclosure excess loan balance fair value less cost sell charged allowance loan loss subsequent writedowns value maintenance expenses losses upon sale charged noninterest expense fair value measurements fasb asc topic 820 “fair value measurements disclosures” defines fair value establishes framework measuring fair value accordance generally accepted accounting principles requires certain disclosures fair value measurements general fair values financial instruments based upon quoted market prices available quoted market prices available fair value based upon internally developed models primarily use inputs observable marketbased parameters valuation adjustments may made ensure financial statements recorded fair value net income per common share basic net income per common share calculated dividing net income available common shareholders weightedaverage number shares common stock outstanding diluted net income per common share apply since company issued options instruments representing potential common shares weightedaverage number shares used computation basic earnings per common share years ended december 31 2010 2009 2008 100 comprehensive income purpose reporting comprehensive income report measure changes equity enterprise result recognized transactions economic events period transactions owners capacity owners comprehensive income includes net income certain changes equity nonowner sources recognized statements income net unrealized gains losses securities available sale years ended december 31 2010 2009 2008 component comprehensive income company net income recent accounting standards asu 201006 “fair value measurements disclosures topic 820 improving disclosures fair value measurements” asu 201006 requires expanded disclosures related fair value measurements including amounts significant transfers assets liabilities levels 1 2 fair value hierarchy reasons transfers ii reasons transfers assets liabilities level 3 fair value hierarchy significant transfers disclosed separately iii policy determining transfers levels fair value hierarchy recognized iv recurring fair value measurements assets liabilities level 3 fair value hierarchy gross presentation information purchases sales issuances settlements asu 201006 clarifies fair value measurement disclosures provided class assets liabilities rather major category would generally subset assets liabilities within line item statement financial position ii companies provide disclosures valuation techniques inputs used measure fair value recurring nonrecurring fair value measurements class assets liabilities included levels 2 3 fair value hierarchy disclosures related gross presentation purchases sales issuances settlements assets liabilities included level 3 fair value hierarchy required company beginning january 1 2011 remaining disclosure requirements clarifications made asu 201006 became effective company january 1 2010 see note 7 fair value measurements asu 201020 “disclosures credit quality financing receivables allowance credit losses” july 21 2010 fasb issued asu 201020 requires significant new disclosures allowance credit losses credit quality financing receivables requirements intended enhance transparency regarding credit losses credit quality loan lease receivables disclosing evaluation nature credit risk inherent entity’s portfolio financing receivables ii risk analyzed assessed arriving allowance credit losses iii changes reasons changes allowance credit losses statement allowance credit losses fair value disclosed portfolio segment credit quality information impaired financing receivables nonaccrual status presented class financing receivable disclosure nature extent financial impact segment information troubled debt restructurings “tdrs” also required disclosures presented level disaggregation management uses assessing monitoring portfolio’s risk performance asu 201020 became effective company’s consolidated financial statements december 31 2010 see note 2 residential mortgage loans net note 2 residential mortgage loans net summary residential mortgage loans net type original maturity follows majority company’s residential real estate loans concentrated state connecticut residential mortgage loans held company december 2010 2009 acquired webster bank loans acquired company webster bank years ended december 31 2010 2009 additionally loans transferred company webster bank years ended december 31 2010 2009 december 31 2010 2009 598 585 respectively company’s residential mortgage loans fixed rate loans 402 415 respectively adjustablerate loans total interest income recognized december 31 2010 2009 118 thousand 13 thousand interest income recognized cash basis method accounting summary residential mortgage loans portfolio aging analysis follows nonperformingdelinquent loans company’s policy loans 90 days past due placed nonaccruing status residential loans placed nonaccrual status accrual interest discontinued unpaid accrued interest reversed charged interest income december 31 2010 nonaccrual loans 56 million representing 45 gross loans compared 55 million december 31 2009 representing 36 gross loans interest nonaccrual loans would recorded additional interest income years ended december 31 2010 2009 2008 loans current accordance original terms approximated 1208 thousand 1607 thousand 190 thousand respectively level nonaccruing loans december 31 2010 2009 directly related economic environment impact consumers communities company holds assets impaired loans company serving agreement webster bank individually reviews loans expected collected accordance original terms contractual agreement impairment loan deemed impaired contractual amounts principal interest expected collected accordance contractual provisions amount impairment calculated using fair value expected cash flows collateral accordance likely means recovery specific valuation allowance established equal calculated amount impairment analysis performed modified loans deemed tdr specific reserves established appropriate tdrs recovery cash flow dependent original contractual interest rate loan used discount rate fixed rate loans current rate used discount rate interest rate floats specified index change terms payments would included asc 3101035 impairment calculation december 31 2010 impaired loans totaled 60 million including loans 57 million specific reserves 06 million compared impaired loans totaling 35 million including loans 16 million specific reserves 03 million december 31 2009 60 million impaired loans december 31 2010 57 million measured using present value expected cash flows 03 million measured using fair value associated collateral 35 million impaired loans december 31 2009 28 million measured using present value expected cash flows 07 million measured using fair value associated collateral increase impaired loans result increase tdrs majority tdrs remain impaired population remaining life loan following table summarizes impaired loans follows troubled debt restructurings modified loan considered tdr two conditions met 1 borrower experiencing documented financial difficulty 2 concessions made company would otherwise considered borrower similar credit common types modifications include market rate reductions maturity extensions company employ modification programs temporary trial periods instead modified terms dependent upon financial position needs individual borrower modifications permanent modified loan revert back original terms even modified loan agreement violated modification agreement violated loan handled webster’s restructuring recovery group resolution may result foreclosure company’s policy place tdrs nonaccrual status minimum period six months tdrs initially reported impaired classification may removed borrower demonstrates compliance modified terms restructuring agreement specifies interest rate equal would provided borrower similar credit time restructuring majority tdrs retain classification remaining life loan december 31 2010 2009 allowance loan losses included specific reserves related tdrs 06 million 03 million respectively years ended december 31 2010 2009 company charged 1652 thousand 266 thousand portion tdrs deemed uncollectible december 31 2010 2009 commitments lend additional funds debtors tdr status following table summarizes tdr loans follows increase tdrs reflect impact company webster’s expansion mortgage assistance programs keep borrowers homes regard modifications loans borrowers required occupy home collateralizing loan principal residence act good faith evidence intent stay current loan provide evidence sufficient income support modified mortgage payments webster bank servicer evaluates success company’s modification efforts monitoring redefault rates borrowers december 31 2010 one tdr loan balance 984 thousand subsequently defaulted subsequent defaults december 31 2009 real estate owned 2010 company foreclosed properties collateralizing 648 thousand mortgage loans transferring balance real estate owned subsequently property sold company recognized 14 thousand loss sale addition recorded foreclosure expenses 2 thousand year ended december 31 2010 company hold real estate owned 2009 2008 company foreclosed property collateralizing 382 thousand mortgage loans transferring balance real estate owned subsequently sold property company recognized 56 thousand loss sale addition recorded foreclosure expenses 6 thousand year ended december 31 2008 allowance loan losses detailed activity company’s allowance loan losses recorded investment loans follows note 3 redeemable preferred stock december 1997 company issued 1000000 shares series b 8625 cumulative redeemable preferred stock 10 per share preferred stock redeemable january 15 2003 option company redemption price 10 per share december 31 2010 redemptions preferred shares listed nasdaq symbol “wbstp” exchangeable common stock securities carry participation rights dividends paid preferred stock totaled 09 million per year years ended december 31 2010 2009 2008 reflected preferred stock dividends accompanying statements income note 4 servicing mortgage loans owned company serviced webster bank pursuant terms amended restated service agreement “service agreement” webster bank role servicer receives fees annual rate 958 basis points fixedrate loan servicing collection ii 958 basis points adjustablerate loan servicing collection iii 5 basis points services provided needed case based daily outstanding balances company’s loans webster bank responsible services provided company webster bank level subservicing agreement servicing fees netted interest income statements income considered reduction yield company servicing fees paid company follows webster bank entitled retain late payment charges prepayment fees penalties assumption fees collected connection residential mortgage loans serviced webster bank also receives benefit derived interest earned collected principal interest payments date collection date remittance company interest earned tax insurance escrow funds respect mortgage loans services end calendar month webster bank required invoice company fees charges due note 5 advisory services advisory services provided pursuant advisory agreement webster bank provide company following types services administer daytoday operations monitor credit quality mortgage assets advise respect acquisition management financing disposition mortgage related assets provide necessary executive administration human resources accounting control technical support record keeping copying telephone mailing distribution investment funds management services advisory services fees paid company follows operating expenses outside scope advisory agreement paid directly company expenses include limited fees third party consultants attorneys external auditors note 6 income taxes company elected treated real estate investment trust “reit” sections 856 860 internal revenue code 1986 amended believes organization operations meet requirements qualification reit company generally subject federal connecticut state income taxes long maintains qualification reit requiring among organizational operational issues currently distribute shareholders least 90 “reit taxable income” including capital gains certain items noncash income therefore company’s net income currently distributed common preferred shareholders provision federal connecticut income taxes included accompanying financial statements company recognizes interest penalties related unrecognized tax benefits applicable income tax expense interest penalties recognized statements income 2010 2009 2008 accrued within balance sheets december 31 2010 2009 company fails qualify reit taxable year subject federal connecticut income tax regular corporate rates company’s federal connecticut income tax returns remain open examination calendar tax years subsequent 2006 note 7 fair value measurements company uses fair value record adjustments certain assets prepare required disclosures fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date fair value best determined using market quotes however many instances quoted market prices available instances fair values determined using various valuation techniques various assumptions observable inputs must relied upon applying techniques accordingly fair value estimates may realized immediate transfer respective asset liability certain circumstances company may make adjustments fair value assets although measured fair value ongoing basis include assets measured lower cost market recognized fair value ie cost end period well assets measured fair value ongoing basis subject fair value adjustments certain circumstances eg evidence impairment categorization within valuation hierarchy based upon lowest level input significant fair value measurement description valuation methodologies used company presented cash carrying value cash approximates fair value loans receivable company employs independent third party provide fair value estimates residential mortgage portfolio loans estimates calculated using discounted cash flow analysis using market interest rates comparable loans associated cash flows adjusted credit potential losses fair value impaired loans estimated using net present value expected cash flows fair value underlying collateral repayment collateral dependent real estate owned real estate owned consists real estate assets acquired repossession carried lower cost fair value less estimated costs sell independent appraisals obtained substantiate fair value may subject adjustment based upon historical experience specific geographic trends impacting property time loan referred foreclosure excess loan balance fair value less cost sell charged allowance loan loss subsequent writedowns value maintenance expenses losses upon sale charged noninterest expense fair value measurements may based upon appraisals thirdparty price opinions accordingly measurements classified fair value hierarchy level 2 fasb asc topic 820 fair value measurements 2010 2009 2008 loans carrying value 648 thousand none 382 thousand respectively transferred oreo subsequent transfers properties sold resulting oreo balance 241 thousand december 31 2010 company hold oreo december 31 2009 2008 summary estimated fair values significant financial instruments consisted following december 31 note 8 selected quarterly financial data unaudited item 9 item 15 exhibits financial statement schedules a1 financial statements registrant included item 8 part ii report a2 schedules provision made applicable accounting regulations securities exchange commission required related instructions inapplicable therefore omitted a3 list exhibits form 10k set forth exhibit index immediately preceding exhibits incorporated herein reference b exhibits form 10k attached incorporated herein reference stated c applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 10 2009 james c smith james c smith president director principal executive officer douglas hart douglas hart senior vice president chief financial officer principal financial officer gerald p plush gerald p plush director harriet munrett wolfe harriet munrett wolfe director item 15 exhibits financial statement schedules reports form 8k b reports form 8k filed fourth quarter 2003 c see 3 list exhibits filed herewith incorporated reference index exhibits financial statements financial statement schedules excluded report required included herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 11 2004 ross strickland ross strickland president director principal executive officer gregory madar gregory madar senior vice president treasurer assistant secretary principal financial accounting officer william j healy william j healy director harriet wolfe harriet munrett wolfe director item 15 exhibits financial statement schedules reports form 8k a1 following financial statements filed part report statements condition december 31 2002 2001 statements income years ended december 31 2002 2001 2000 statements shareholders equity years ended december 31 2002 2001 2000 statements cash flows years ended december 31 2002 2001 notes financial statements independent auditors report a2 financial statement schedules required filed part form a3 see exhibits filed herewith incorporated reference index exhibits exhibit number description 31 amended restated certificate incorporation webster preferred capital corporation company incorporated herein reference exhibit 31 companys annual report form 10k fiscal year ended december 31 1997 33 certificate amendment series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 33 companys annual report form 10k fiscal year ended december 31 1997 34 amended restated bylaws company incorporated herein reference exhibit 34 companys annual report form 10k fiscal year ended december 31 1997 42 specimen certificate representing series b 8625 cumulative redeemable preferred stock company incorporated herein reference exhibit 42 companys annual report form 10k fiscal year ended december 31 1997 101 mortgage assignment agreement made march 17 1997 webster bank company incorporated herein reference exhibit 101 companys registration statement form s11 file 33338685 filed securities exchange commission sec october 24 1997 102 master service agreement dated march 17 1997 webster bank company incorporated herein reference exhibit 102 companys registration statement form s11 file 33338685 filed sec october 24 1997 103 advisory service agreement made october 20 1997 webster bank company incorporated herein reference exhibit 103 companys annual report form 10k fiscal year ended december 31 1997 991 written statement pursuant section 906 sarbanesoxley act 2002 signed companys principal executive officer 992 written statement pursuant section 906 sarbanesoxley act 2002 signed companys principal financial officer b reports form 8k filed fourth quarter 2002 c financial statements financial statement schedules excluded report required included herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized webster preferred capital corporation registrant ross strickland ross strickland president director date march 20 2003 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 20 2003 ross strickland ross strickland president director principal executive officer gregory madar gregory madar senior vice president treasurer assistant secretary principal financial accounting officer william j healy william j healy director harriet wolfe harriet munrett wolfe director certification ross strickland certify 1 reviewed annual report form 10k webster preferred capital corporation 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operations internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 20 2003 ross strickland president principal executive officer certification gregory madar certify 1 reviewed annual report form 10k webster preferred capital corporation 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operations internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 20 2003 gregory madar svp treasurer assistant secretary principal financial accounting officer item 15 exhibits financial statement schedules a1 financial statements registrant included item 8 part ii report a2 schedules provision made applicable accounting regulations securities exchange commission required related instructions inapplicable therefore omitted a3 list exhibits form 10k set forth exhibit index immediately preceding exhibits incorporated herein reference b exhibits form 10k attached incorporated herein reference stated c applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized webster preferred capital corporation registrant william bromage william bromage president director date march 14 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 14 2008 william bromage william bromage president director principal executive officer gregory madar gregory madar senior vice president chief accounting officer assistant secretary principal financial accounting officer gerald p plush gerald p plush director harriet munrett wolfe harriet munrett wolfe director item 15 exhibits financial statement schedules a1 financial statements registrant included item 8 part ii report a2 financial statement schedules required filed part form a3 exhibits listed either filed part report incorporated reference b see 3 list exhibits filed herewith incorporated reference c financial statements financial statement schedules excluded report required included herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 28 2006 william bromage william bromage president director principal executive officer gregory madar gregory madar senior vice president treasurer assistant secretary principal financial accounting officer william j healy william j healy director harriet wolfe harriet munrett wolfe director item 15 exhibits financial statement schedules a1 financial statements registrant included item 8 part ii report a2 schedules provision made applicable accounting regulations securities exchange commission required related instructions inapplicable therefore omitted a3 list exhibits form 10k set forth exhibit index immediately preceding exhibits incorporated herein reference b exhibits form 10k attached incorporated herein reference stated c applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 15 2010 james c smith james c smith president director principal executive officer douglas hart douglas hart senior vice president chief financial officer principal financial officer gerald p plush gerald p plush director harriet munrett wolfe harriet munrett wolfe director item 15 exhibits financial statement schedules a1 financial statements registrant included item 8 part ii report a2 schedules provision made applicable accounting regulations securities exchange commission required related instructions inapplicable therefore omitted a3 list exhibits form 10k set forth exhibit index immediately preceding exhibits incorporated herein reference b exhibits form 10k attached incorporated herein reference stated c applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized webster preferred capital corporation registrant william bromage william bromage president director date march 29 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 29 2007 william bromage william bromage president director principal executive officer gregory madar gregory madar senior vice president treasurer assistant secretary principal financial accounting officer gerald p plush gerald p plush director harriet wolfe harriet munrett wolfe director item 15 exhibits financial statement schedules a1 financial statements registrant included item 8 part ii report a2 financial statement schedules required filed part form a3 exhibits listed either filed part report incorporated reference b see 3 list exhibits filed herewith incorporated reference c financial statements financial statement schedules excluded report required included herein signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 10 2005 william bromage william bromage president director principal executive officer gregory madar gregory madar senior vice president treasurer assistant secretary principal financial accounting officer william j healy william j healy director harriet wolfe harriet munrett wolfe director item 15 exhibits financial statement schedules a1 financial statements registrant included item 8 part ii report a2 schedules provision made applicable accounting regulations securities exchange commission required related instructions inapplicable therefore omitted a3 list exhibits form 10k set forth exhibit index immediately preceding exhibits incorporated herein reference b exhibits form 10k attached incorporated herein reference stated c applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 25 2011 james c smith james c smith president director principal executive officer theresa messina theresa messina senior vice president chief financial officer principal financial officer gerald p plush gerald p plush director harriet munrett wolfe harriet munrett wolfe director