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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

OR

WEBSTER FINANCIAL CORPORATION

Registrant’s telephone number, including area code: (203) 578-2476

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

Securities registered pursuant to Section 12(g) of the Act - Not Applicable

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

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

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

     The aggregate market value of voting and non-voting common equity held by non-affiliates of Webster Financial Corporation as of June 30, 2003 was $1,669,888,105.

     The number of shares of common stock outstanding, as of February 27, 2004: 46,282,601.

DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 22, 2004.

Table of Contents

WEBSTER FINANCIAL CORPORATION
2003 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

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Forward Looking Statements

This Annual Report contains forward-looking statements within the meaning of the Securities and Exchange Act of 1934, as amended. Actual results could differ materially from management expectations, projections and estimates. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of Webster’s loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting Webster’s operations, markets, products services and prices. Such developments, or any combination thereof, could have an adverse impact on Webster’s financial position and results of operations.

PART I

ITEM 1. Business

General

Webster Financial Corporation (“Webster” or the “Company”), through its subsidiaries, Webster Bank, Webster Insurance, Inc. (“Webster Insurance”), Webster D&P Holdings, Inc. (“Duff & Phelps”), and Fleming, Perry & Cox (“Fleming”), delivers financial services to individuals, families and businesses primarily in Connecticut and equipment financing, asset-based lending, mortgage origination and financial advisory services to public and private companies throughout the United States. Webster Bank provides business and consumer banking, mortgage origination and lending, trust and investment services and insurance services through 119 banking and other offices, 233 ATM’s and its Internet website (www.websteronline.com). Webster Bank was founded in 1935 and converted from a federal mutual to a federal stock institution in 1986. Since October 17, 2002, Webster’s common stock has traded on the New York Stock Exchange under the symbol of “WBS”. Prior to that date, the common stock was traded on the NASDAQ under the symbol of “WBST”.

Webster announced in September 2003 that its principal subsidiary, Webster Bank, was filing an application with the Office of the Comptroller of the Currency (“OCC”) to convert to a national bank charter. In February 2004, the OCC approved the application, subject to customary conditions. As part of the conversion, Webster has filed notice with the Board of Governors of the Federal Reserve System to become a bank holding company and a declaration to be a financial holding company. Webster expects to complete the conversions during the second quarter of 2004.

Webster, on a consolidated basis, at December 31, 2003 and 2002 had total assets of $14.6 billion and $13.5 billion, total securities of $4.3 billion and $4.1 billion and net loans receivable of $9.1 billion and $7.8 billion, respectively. At December 31, 2003 and 2002, total deposits were $8.4 billion and $7.6 billion, respectively. At December 31, 2003 and 2002, shareholders’ equity was $1.2 billion and $1.0 billion, respectively. During 2003, Webster repurchased 331,722 common shares at a total cost of $12.4 million.

At December 31, 2003, the assets of Webster, on an unconsolidated basis (“Parent Company”), consisted primarily of its investments in subsidiaries of $1.3 billion, investment securities of $111.8 million, cash and short-term investments of $58.4 million, other direct investments of $13.2 million and loans receivable of $6.5 million. Primary sources of income to Webster, on an unconsolidated basis, are dividend payments received from Webster Bank, investment securities interest and gains on the sale of investment securities. Primary expenses are interest expense on borrowings and capital securities and allocated operating expenses. See Notes 14 and 20 of Notes to Consolidated Financial Statements included elsewhere within this report for additional information.

Deposits in Webster Bank are federally insured by the Federal Deposit Insurance Corporation (“FDIC”). It is a Bank Insurance Fund (“BIF”) member institution and, at December 31, 2003, approximately 80% of the deposits were subject to BIF assessment rates and 20% were subject to Savings Association Insurance Fund (“SAIF”) assessment rates. See the “Supervision and Regulation” section under this Item for additional information.

Webster, as a holding company, and Webster Bank are subject to comprehensive regulation, examination and supervision by the Office of Thrift Supervision (“OTS”), as its primary federal regulator. Webster Bank is also subject to regulation, examination and supervision by the FDIC as to certain matters. Webster’s executive offices are located at Webster Plaza, Waterbury, Connecticut 06702. The telephone number is (203) 578-2476.

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Acquisitions

The following acquisitions were completed during 2003 and their results of operations are included in the Consolidated Financial Statements for periods subsequent to the date of acquisition.

North American Bank and Trust

On November 7, 2003, Webster acquired North American Bank and Trust Company (“NABT”) in a combination cash and stock transaction valued at approximately $30 million, or $11.25 per common share of NABT stock. NABT was a state-chartered, commercial bank with $195 million in assets and 8 offices in the Greater Waterbury region. Goodwill of $16.7 million and identified intangible assets of $3.0 million were recorded in this transaction.

LJF Insurance Services

On July 23, 2003, Webster Insurance announced the acquisition of LJF Insurance Services (“LJF”), a full service insurance agency with offices in Southport and Norwalk, Connecticut. LJF has served the Fairfield County area for over 100 years. Webster Insurance merged both offices into its Wesport location. Goodwill of $1.4 million and identified intangible assets of $1.2 million were recorded in this transaction.

Budget Installment Corporation

On January 24, 2003, Webster Bank acquired Budget Installment Corporation (“BIC”). BIC is an insurance premium financing company based in Rockville Centre, New York. It finances commercial property and casualty premiums so businesses can pay their premiums on an installment basis. A majority of its borrowers are located in the Long Island, New York City and Northern New Jersey areas. Goodwill of $3.2 million and identified intangible assets of $1.7 million were recorded in this transaction.

The Mathog and Moniello Holding Company, Inc.

On January 6, 2003, Webster announced that it acquired The Mathog and Moniello Holding Co., Inc. (“Mathog”). Mathog is a commercial property and casualty insurance agency that specializes in providing risk management products and services to self-insured businesses and groups. It is based in East Haven, Connecticut with offices in West Hartford, Connecticut and Harrison, New York. Goodwill of $16.2 million and identified intangible assets of $5.9 million were recorded in this transaction.

Pending Transactions

Phoenix National Trust Company

On December 18, 2003, Webster announced a definitive agreement to acquire Phoenix National Trust Company, (“Phoenix”), a wholly-owned subsidiary of the Phoenix Companies, Inc. The transaction’s closing is subject to receipt of regulatory approval and other customary closing conditions and is expected to close in the second quarter of 2004. Upon completion of the transaction, Phoenix will become part of Webster Financial Advisors, the investment and trust division of Webster Bank. Phoenix offers trust, custody and other financial services.

FIRSTFED AMERICA BANCORP, INC.

On October 7, 2003, Webster announced a definitive agreement to acquire FIRSTFED AMERICA BANCORP, INC. (“FIRSTFED”), headquartered in Swansea, Massachusetts, the holding company of First Federal Savings Bank of America. The agreement is a combination of cash and stock transaction valued at approximately $465 million, or $24.50 per common share of FIRSTFED stock, payable 60% in Webster stock and 40% in cash. FIRSTFED is a federally chartered thrift with $2.6 billion in assets as of December 31, 2003 with 26 branches; 19 in Massachusetts and 7 in Rhode Island. The merger is subject to customary closing conditions, including approval by regulatory authorities and FIRSTFED shareholders, and is expected to close in the second quarter of 2004.

Lending Activities

General

Webster Bank originates various types of residential, commercial and consumer loans. Total loans receivable were $9.2 billion and $7.9 billion at December 31, 2003 and 2002, respectively. It offers commercial and residential permanent and construction mortgage loans, commercial loans, equipment financing, insurance premium financing, asset-based loans and various types of consumer loans including home equity lines of credit, home equity loans and other types of small business and consumer loans.

Residential Mortgage Loans and Mortgage Banking Activity

Webster Bank is dedicated to providing a full compliment of residential mortgage loan products that meet the financial needs of its customers. While its primary lending markets are Connecticut and the northeastern United States, its markets also include all states except Alaska and Hawaii. It offers its customers a full range of products including conventional conforming and jumbo fixed rate loans, conforming and jumbo adjustable rate loans, Federal Housing Authority (“FHA”), Veterans Administration (“VA”) and state agency mortgage loans through Connecticut Housing Finance Authority (“CHFA”). Various programs are offered to support the Community Reinvestment Act goals at the state level. Types of properties consist of one-to-four family residences, owner and non-

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owner occupied, second homes, construction, permanent and improved single family building lots. Additionally, Webster Bank provides certain customers with an option to modify their existing loan in order to enhance portfolio retention strategies. During 2003 and 2002, it originated total residential mortgage loans of $3.9 billion and $2.6 billion, respectively. Distribution channels for these loans include its network of branches, referrals, loan officers, and its call center, as well as third party licensed mortgage brokers in targeted areas of the United States through its National Wholesale Lending Group. Established in 2001, National Wholesale Lending enhances the level of mortgage banking activity through the development of third party originations throughout the United States. In 2003, it originated $2.7 billion in total residential mortgages compared to $1.7 billion in 2002.

Both fixed rate and adjustable rate residential mortgage loans are originated. At December 31, 2003, approximately $982.8 million, or 26%, of total residential mortgage loans held in portfolio were adjustable rate loans. Adjustable rate mortgage loans are generally offered at initial interest rates discounted from the fully-indexed rate. Loans originated during 2003 and 2002, when fully-indexed, will generally be 2.75% above the constant maturity one-year U.S. Treasury yield index. At December 31, 2003, approximately $2.8 billion, or 74% of total residential mortgage loans had a fixed rate. Approximately 92% of the residential mortgage portfolio is secured by properties located in Connecticut. At December 31, 2003 and 2002, residential loans represented 41% and 43% of the loan portfolio, respectively.

At December 31, 2003, $4.3 million of mortgage servicing rights, net, included in other assets, had a market value of approximately $8.5 million. These servicing rights are carried at the lower of cost or market determined on an individual pool basis. The pools are tested for impairment quarterly with any adjustment to the valuation allowance included in noninterest income. Webster services approximately $584.6 million of residential mortgage loans for others. See Note 10 of Notes to Consolidated Financial Statements included elsewhere within this report for additional information.

National Wholesale Lending

The National Wholesale Lending platform continued to post strong results in 2003 with total originations exceeding $2.7 billion of one-to-four family residential loans. This loan production represents a full range of products primarily consisting of fixed rate conventional loans, fixed rate jumbo loans, conforming and jumbo adjustable rate loans, FHA/VA loans as well as consumer loans.

The wholesale loan production is originated by approved licensed mortgage brokers located throughout the United States and is underwritten, closed and funded by Webster Bank. Additionally, the majority of this production is sold into the secondary market as mortgage-backed securities. The National Wholesale channel is headquartered in Cheshire, Connecticut and has four regional offices located in Chicago, Illinois; Atlanta, Georgia; Phoenix, Arizona; and Seattle, Washington. Through this distribution network, National Wholesale Lending has developed client relationships designed to originate and submit new loan applications through this business channel.

The strong production results in 2003 were attributed to the continued growth of the business channel combined with another year of a favorable interest rate environment. Production was generated from 43 different states with the top five producing states by origination volume being Connecticut, Illinois, Arizona, Massachusetts and Washington.

Commercial Lending

The commercial loan portfolio grew 13.5% to $2.0 billion at December 31, 2003 from $1.8 billion a year earlier. Within the various lending units, loan officers are responsible for following underwriting guidelines and managing customer relationships in accordance with policy. When a lending opportunity arises, the loan officer is responsible for determining the desirability of engaging in business with the borrower and in general, the underwriting process should reveal the credit worthiness of the borrower and protect Webster Bank’s best interest. Credit underwriting requests are reviewed by lending unit management with appropriate lending authority and are then presented to Credit Administration for final approval.

While every loan request entails different informational requirements, minimum requirements have been established in order to provide consistency to the underwriting and renewal process. Consistency is also enhanced through a standard underwriting format and approval process, which requires higher approval authority as exposure or risks increase. Appropriate analysis is performed for each credit action including, but not limited to, analysis of financial performance (past and projected), the borrower’s ability to service debt at current and proposed levels, industry evaluation, evaluation of guarantor financial condition (as applicable) and analysis of collateral valuation. Credit analysis is enhanced by the use of a scoring model on loans up to $250,000, which is used predominately in the Small Business Lending Division.

Loan officers are held fully responsible for monitoring their loan portfolios. These responsibilities include initial and continual risk rating of loans, adherence to covenants, completeness and existence of documentation, maintenance of the loan system, maintaining customer contact and updating the credit file with substantive credit analysis. A quarterly review of the portfolio is conducted by each officer to assign a risk rating grade to the loans and identify potential impaired or nonaccrual loans. The assigned grades are reviewed by both internal loan review and by the divisional credit policy officer. In addition, the loan officer is responsible for reviewing the loan annually to ensure that it continues to meet the quality standards of Webster Bank.

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Middle Market

The Middle Market Division provides a full array of financial services to a diversified group of companies with revenues greater than $10 million, primarily privately held and located within the State of Connecticut and nearby regions. Total loans administered by the Division increased to $701.1 million at December 31, 2003 from $538.9 million outstanding at the prior year end. Included in the loans administered were $516.9 million and $371.8 million of commercial loans and $184.2 million and $167.1 million of commercial real estate loans at December 31, 2003 and 2002, respectively. Typical loan facilities include lines of credit for working capital, term loans to finance purchases of equipment and commercial real estate loans for owner-occupied buildings. Unit and relationship managers within the Middle Market Division average over 20 years of experience in the Connecticut market.

In an effort to offer the broadest range of banking products to our customer base, the Middle Market Division facilitates access to other specialists within Webster Bank. These specialists include Webster Financial Advisors, Center Capital Corporation, Webster Insurance and a team of cash management professionals offering customized solutions and competitive products. Investment banking services may be provided in close collaboration with Duff & Phelps. During 2003, the Division funded loans of $226.5 million against commitments of $373.6 million, compared to funding of $112.4 million and commitments of $232.8 million a year earlier.

Asset-Based Lending

Webster Business Credit Corporation (“WBCC”) is Webster Bank’s asset-based lending division with offices in New York, New York; Braintree, Massachusetts; Chicago, Illinois and Atlanta, Georgia. WBCC was previously named Whitehall Business Credit Corporation and changed its name effective January 5, 2004. Asset-based loans are generally secured by accounts receivable and inventories of the borrower and, in some cases, also include additional collateral such as property and equipment. At December 31, 2003 and 2002, total asset-based loans were $526.9 million and $465.4 million, respectively. The loan portfolio is diversified both geographically, as the loans are located throughout the United States with some concentration in the Northeast, and by industry, at levels consistent with the average of the asset-based lending industry.

WBCC originates as agent, loans for its portfolio and sells participations to other financial institutions. In addition, it purchases participations from other banks and financial entities. In its capacity as agent, it generally establishes depository relationships with the borrower in the form of cash management accounts. At December 31, 2003, the total of these deposits was $26.4 million. Asset-based loans funded in 2003 were $200.0 million with commitments of $421.1 million.

Specialized Lending

Webster Bank participates in the syndicated loan market through a diversified portfolio of loans, which represent transactions with large national borrowers whose businesses command significant market share and help to diversify the overall portfolio. These loans generally consist of participations in revolving lines of credit and term loans with maturities up to 7 years. Corporate utilization of the syndicated market has grown dramatically in the last 10 years as a means of providing large credit facilities to companies through consortiums of banks and other financial service companies. Webster Bank entered this market as a means of providing geographic and industry diversification to its commercial loan portfolio. It has staffed the function with highly knowledgeable individuals with extensive experience in credit and leveraged lending at major banks and insurance companies.

The underwriting criteria identified above in the Commercial Lending section is followed for each borrower in the portfolio. In addition, exposure to individual borrowers generally will not exceed $10 million. The Chief Credit Policy Officer and the Head of Commercial Lending must approve exceptions to these limits. All loans are evaluated in accordance with the Risk Assessment Policy, with external ratings (S&P and Moody’s) used as additional guides. Loans in the portfolio primarily represent borrowings of public companies and are actively monitored through quarterly reviews that include analysis of current financial statements, comparison of results to other companies in the same industry and monitoring of market trading levels.

During 2003, the quality of the portfolio strengthened significantly through repayments at par and upgrades of previously lower-rated loans, especially in the telecommunications sector. The portfolio declined in accordance with Webster’s strategic plan.

At December 31, 2003 and 2002, the Specialized loan portfolio had $173.3 million and $299.8 million of funded loans against commitments of $324.9 million and $500.5 million, respectively.

Additionally, the portfolio contained $84.6 million and $84.9 million of funded Collateralized Loan Obligations against commitments of $91.7 million at December 31, 2003 and 2002, respectively. All of these loans carry an investment grade rating by at least one of the independent rating agencies.

Small Business Banking

Small Business Banking (“SBB”) provides a full array of commercial loan and deposit products to small businesses located throughout Connecticut. The SBB market consists of businesses with annual revenue of up to $10 million in order to provide commercial loan products with relationship exposures of up to $2 million and the portfolio of business deposit products. This market segment represents a significant percentage of commercial businesses located within the boundaries of Connecticut. SBB, through a dedicated group of business bankers as well as through the branch network, provides a full range of financial products and services to its existing customer base as well as potential new customers. It also plays a major role in supporting the Community Reinvestment Act goals by providing

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credit facilities to a wide range of small businesses, including many local not-for-profit organizations. A Fair Isaac-based credit scoring model is utilized, in whole or in part, in loan approvals of up to $250,000, and SBB offers a $100,000 same-day decision unsecured line of credit product. It also provides a comprehensive set of commercial loan products including lines of credit, letters of credit, term loans, and commercial mortgage loans. Throughout 2003, an automated “early warning” system was utilized to aid in the identification of potential portfolio or customer-level credit quality issues. During the fourth quarter of 2003 a risk management tool was implemented in the on-going efforts to monitor and anticipate portfolio performance. Through recent expansion efforts and focused training, SBB serves as a referral source for other products including cash management, insurance, international products and investments. Webster Bank also offers Small Business Administration (“SBA”) guaranteed loans under its Preferred Lender Program status. As of September 30, 2003 (the fiscal year end for the SBA), Webster Bank ranked third in Connecticut among SBA lenders with 113 loans totaling $12.1 million, a 29% increase over 2002. Customers may also take advantage of several loan programs provided through the Connecticut Development Authority.

SBB administered a portfolio of approximately $382.9 million at December 31, 2003, a 17% increase from $326.3 million the prior year end. As part of the acquisition of NABT, the portfolio increased by $32.0 million in late November 2003. Included in SBB’s portfolio are $171.5 million of commercial loans and $211.4 million of loans secured by commercial real estate. Webster Bank is a leader among Connecticut banks for providing loans of $1 million and under to small businesses in the state.

An objective of SBB’s strategic plan is to also focus on deposit growth as part of the overall customer relationship. It has developed a variety of innovative small business deposit products that are designed to meet depositors’ needs and attract both short-term and long-term deposits. Beginning in March of 2003, it introduced the market’s first Totally Free Checking product for small businesses. At December 31, 2003, small business deposit balances totaled $984.0 million up 14% from $864.0 million a year earlier.

Equipment Financing

Center Capital Corporation (“Center Capital”), an equipment financing subsidiary of Webster Bank, transacts business with end-users of equipment, either by soliciting this business on a direct basis or through referrals from various equipment manufacturers, dealers and distributors with whom it has relationships. Center Capital has grown its portfolio to $506.3 million at December 31, 2003 from $420.0 million at December 31, 2002, an increase of 21%. For 2003, it originated $268.3 million in equipment financing transactions.

Center Capital markets its products nationally through a network of dedicated equipment financing sales executives who are grouped by customer type or collateral-specific business. During 2003, financing initiatives encompassed five distinct industry/equipment niches, each operating as a division; Construction and Transportation Equipment Financing, Environmental Equipment Financing, Machine Tool Equipment Financing, Professional Practices Equipment Financing, and Aviation Equipment Financing.

Within each division, Center Capital seeks to finance equipment that retains good value throughout the term of the underlying transaction. Little, if any, residual value risk is taken and, in many instances, financing terms cover only half of the financed equipment’s useful life. As such, and in the exceptional instances where it is forced to repossess its collateral, that equipment may have value equal to or in excess of the defaulted contract’s remaining balance. All credit underwriting, contract preparation and closing as well as servicing (including collections) are performed centrally at Center Capital’s headquarters in Farmington, Connecticut.

Insurance Premium Financing

On January 24, 2003, Webster Bank acquired BIC, an insurance premium financing company based in Rockville Centre, New York. BIC finances commercial property and casualty premiums for businesses that pay their insurance premiums on an installment basis. The majority of its borrowers are located in the Long Island, New York City and Northern New Jersey areas. At December 31, 2003, total loans outstanding were $61.4 million. Originations during 2003 totaled $135.5 million. Generally, these loans are originated with a term of nine to twelve months.

Commercial Real Estate Lending

The Commercial Real Estate Division provides variable rate and fixed rate financing alternatives for the purpose of acquiring, developing, constructing, improving or refinancing commercial real estate where the property is the primary collateral securing the loan and the income generated from the property is the primary repayment source. Typically it lends on investment quality real estate, including apartments, anchored retail, industrial and office properties. Loan types include construction, construction mini-perm and permanent loans, and loan amounts range from $2 million to $15 million and are diversified by property type and geographic location. The lending group consists of a team of professionals with a high level of expertise and experience. The majority of the lenders have more than 15 years of national lending experience in both construction and permanent lending with major banks and insurance companies.

Commercial Real Estate (“CRE”) loans increased 24% to $1.3 billion at December 31, 2003 from $1.0 billion a year earlier. Included in the $1.3 billion of outstanding CRE loans were $184.2 million administered by the Middle Market Division and $211.4 million by the SBB. They are primarily owner-occupied commercial real estate loans to commercial customers. The remaining $885.9 million of loans were administered by the CRE division. During 2003, the division funded loans of $233.0 million against commitments of $393.0 million, compared to fundings of $231.0 million and commitments of $365.0 million the previous year.

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Over the last several years, the Division has cultivated relationships with highly qualified regional and national developers in order to diversify the portfolio geographically as well as to seek repetitive business and cross sell opportunities. It controls risk by utilizing personnel familiar with the demographics of the area during the credit review process. As a result, it is able to obtain its desired geographical diversification, while maintaining knowledge of the specific areas when making its credit decisions.

Included in the total CRE portfolio were commercial construction loans of $220.7 million and $116.3 million at December 31, 2003 and 2002, respectively. The Division also makes acquisition, development and construction loans to residential builders. The collateral securing these loans is improved land, contract homes and a limited number of speculative homes in subdivision. At December 31, 2003, there were $95.2 million of such loans in the portfolio.

A breakdown of the CRE loan portfolio by property type is as follows:

Consumer Lending

Webster Bank is dedicated to providing a convenient and competitive selection of consumer loan products to its customers. It concentrates on providing its customers a range of products including home equity loans and equity lines of credit as well as second mortgages and direct installment lending programs. There are no credit card loans in the consumer loan portfolio. The loan distribution channels consist of the branch network, loan officers, call center, as well as third party licensed mortgage brokers. National Wholesale offers home equity loans, through its broker network in five regional offices located in Cheshire, Connecticut; Phoenix, Arizona; Atlanta, Georgia; Chicago, Illinois and Seattle, Washington. Additionally, consumer loan products may be offered periodically through direct mail programs. It also provides the convenience of the Internet for equity loan applications that are available in most states. Consumer loan products are underwritten in accordance with accepted industry guidelines including, but not limited to, the evaluation of the credit worthiness of the borrower(s) and collateral. Independent credit reporting agencies and the Fair Isaac scoring model and the analysis of personal financial information are utilized to determine the credit worthiness of potential borrowers. Also, it obtains and evaluates an independent appraisal of collateral value to determine the adequacy of the collateral.

Loan volume continued to increase significantly again in 2003 and, at December 31, consumer loans totaled $2.1 billion and represented 23.3% of the total loan portfolio, compared to $1.7 billion, or 21.5%, a year earlier. This growth is attributable to the popularity of home equity products in this low interest rate environment and the expansion of lending through a network of brokers in the regional offices and in contiguous states.

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The following table sets forth the composition of Webster’s loan portfolio in amounts and percentages at December 31.

[Additional columns below]

[Continued from above table, first column(s) repeated]

				2000								1999
(Dollars in thousands)				Amount				%				Amount				%
Residential mortgage loans:
	1-4 family units			$	3,760,792				55.3	%		$	3,537,038				58.8	%
	Construction				302,776				4.4				302,310				5.0
	Multi-family units				65,482				1.0				52,573				0.9
		Total			4,129,050				60.7				3,891,921				64.7
Commercial loans:
	Commercial non-mortgage				1,097,267				16.2				848,963				14.1
	Asset-based lending				110,131				1.6				66,072				1.1
	Equipment financing				—				—				—				—
		Total			1,207,398				17.8				915,035				15.2
Commercial real estate:
	Commercial real estate				784,817				11.5				695,520				11.5
	Commercial construction				72,216				1.1				45,648				0.8
		Total			857,033				12.6				741,168				12.3
Consumer loans
	Home equity credit loans				609,293				8.9				492,684				8.2
	Other consumer				89,514				1.3				47,064				0.8
		Total			698,807				10.2				539,748				9.0
		Total loans (a)			6,892,288				101.3				6,087,872				101.2
Less: allowance for loan losses					(90,809	)			(1.3	)			(72,658	)			(1.2	)
		Loans, net		$	6,801,479				100.0	%		$	6,015,214				100.0	%

(a)

Net of premiums, discounts and deferred costs.

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Selected Loan Maturity Schedule

The following table sets forth the contractual maturity and interest-rate sensitivity of residential and commercial construction mortgage loans and commercial loans at December 31, 2003. The contractual maturities below are expected gross receipts from borrowers and do not reflect premiums, discounts and deferred costs.

Credit Risk Management

Webster Bank manages and controls risk in the loan portfolio through adherence to consistent standards. Written credit policies establish underwriting standards, place limits on exposure and set other limits or standards as deemed necessary and prudent. Exceptions to the underwriting policies arise periodically and to insure proper identification and disclosure, additional approval requirements and a tracking requirement for all qualified exceptions have been established. In addition, regular reports are made to senior management and the Board of Directors regarding the credit quality of the loan portfolio.

Credit Administration, which is independent of the loan production areas, oversees the loan approval process, ensures adherence to credit policies and monitors efforts to reduce nonperforming and classified assets.

The Loan Review Department, which is independent of the loan production areas and Credit Administration, performs ongoing independent reviews of the risk management process, adequacy of loan documentation and assigned loan risk ratings. The results of its reviews are reported directly to the Audit Committee of the Board of Directors.

The Internal Audit Department reviews the business units to ensure compliance with corporate policies. The results of these audits are reported directly to the Audit Committee of the Board of Directors.

Insurance

Webster Insurance offers a full range of insurance products to both businesses and individuals. A regional insurance brokerage agency, Webster Insurance has four business divisions: business and professional insurance, financial services, individual and family insurance, and risk management services. Insurance products and services include: commercial and personal property and casualty insurance; life, health, disability and long-term care insurance for individuals and businesses; annuities and investment products; risk management services and pension and 401(k) plan administration. It is the largest insurance agency based in Connecticut and is headquartered in Wallingford with offices in several other Connecticut communities, including Westport, Waterford, Vernon, West Hartford, East Haven, as well as an office in Harrison, New York. Revenues for the year 2003 were $40.0 million, an increase of $12.9 million, or 48% over the prior year.

In January 2003, Webster acquired Mathog and Moniello, an East Haven, Connecticut-based property and casualty agency and one of the largest workers compensation agencies in New England. It specialized in providing risk management products and services to self-insured businesses and groups.

In July 2003, Webster Insurance acquired LJF, a full service insurance agency with offices in Southport and Norwalk, Connecticut. LJF has served the Fairfield County of Connecticut for more than 100 years. This acquisition will serve to further expand Webster’s insurance services to the lower Fairfield County area.

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Wealth and Investment Services

Webster Bank serves high net worth clients, not-for-profit organizations and business clients with investment management, trust, credit and deposit products and financial planning services through Webster Financial Advisors (“WFA”). WFA is comprised of two subsidiaries, Webster Trust Company, N.A. (“Webster Trust”) and Fleming, Perry & Cox, as well as a lending and deposit product function that complements the private banking suite of products. WFA provides several different levels of financial plans. Brokerage and investment products are offered through Webster Investment Services, Inc. (“WIS”). For the year ended December 31, 2003, revenue for the combined business units was $18.3 million, compared to $15.9 million in the previous year. This increase was due to improved market conditions and stronger business development activities during 2003.

Webster Trust provides investment management and a comprehensive range of trust, custody, estate and administrative services to high net worth individuals, small to medium size companies and not-for-profit organizations (endowments and foundations). At December 31, 2003 and 2002, there were approximately $1.3 billion and $1.1 billion of trust assets under custody, of which $904.0 million and $797.0 million were under management, respectively. These assets are not included in the Consolidated Financial Statements.

WIS offers securities services, including brokerage and investment advice, and is a registered investment advisor. It has over 100 registered representatives offering customers an expansive array of investment products including stocks and bonds, mutual funds, managed accounts and annuities. In 2003 and 2002, approximately $273 million and $260 million of such products were sold, respectively.

Financial Advisory Services

Duff & Phelps provides expertise in middle-market mergers and acquisitions, private placements, fairness opinions, valuations, ESOP and ERISA advisory services and special financial advisory services to public and private companies located throughout the United States. Total financial advisory services revenues for the years 2003 and 2002 were $22.8 million and $19.3 million, respectively. Subsequent to year end, Webster sold its interest in Duff & Phelphs, LLC.

Investment Activities

Webster, either directly or through Webster Bank, maintains an investment portfolio that is primarily structured to provide a source of liquidity for operating needs, to generate interest income and to provide a means to balance interest-rate sensitivity. The investment portfolio may be classified into three major categories; available for sale, held to maturity and trading. On November 30, 2003, as permitted by the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, municipal securities with a fair market value of $156.0 million were reclassified from available for sale to held to maturity. At December 31, 2003, the combined investment portfolios of Webster and Webster Bank totaled $4.3 billion. At December 31, 2003, Webster Bank’s portfolio consisted primarily of mortgage-backed securities and Webster’s portfolio consisted primarily of equity and corporate trust preferred securities. See Note 4 of Notes to Consolidated Financial Statements contained elsewhere within this report for additional information.

Webster Bank may acquire, hold and transact various types of investment securities in accordance with applicable federal regulations, state statutes and within the guidelines of its internal investment policy. The type of investments that it may invest in include: interest-bearing deposits of federally insured banks, federal funds, U.S. government treasury and agency securities, including mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”), private issue MBSs and CMOs, municipal securities, corporate debt, commercial paper, banker’s acceptances, trust preferred securities, mutual funds and equity securities subject to restrictions applicable to federally charted institutions. Asset and liability management objectives also influence investment activities. While there may be no statutory limit on certain categories of investments, the OTS may establish an individual limit on such investments, if the concentration in such investments presents a safety and soundness concern.

Webster Bank has the ability to use the investment portfolio as well as interest-rate financial instruments, within internal policy guidelines, to hedge and manage interest-rate risk as part of its assets/liability strategy. See Note 16 of Notes to Consolidated Financial Statements contained elsewhere within this report.

The securities portfolios are managed by the Treasury Group in accordance with regulatory guidelines and established internal corporate investment policies. These policies and guidelines include limitations on aspects such as investment grade, concentrations and investment type to help manage risk associated with investing in securities.

Sources of Funds

Cash flows from deposits, loan and mortgage-backed securities repayments, securities sales proceeds and maturities, borrowings and earnings are the primary sources of Webster Bank’s funds available for use in its lending and investment activities and in meeting its operational needs. While scheduled loan and securities repayments are a relatively stable source of funds, deposit flows and loan and

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investment security prepayments are influenced by prevailing interest rates and local economic conditions and are inherently uncertain. The borrowings primarily include Federal Home Loan Bank (“FHLB”) advances and repurchase agreement borrowings. See Notes 12, 13 and 14 of Notes to Consolidated Financial Statements contained elsewhere within this report for further borrowing information.

Webster Bank attempts to control the flow of funds in its deposit accounts according to its need for funds and the cost of alternative sources of funding. A Retail Pricing Committee meets regularly to determine pricing and marketing initiatives. It influences the flow of funds primarily by the pricing of deposits, which is affected to a large extent by competitive factors in its market area and asset/liability management strategies.

The main sources of liquidity at the Parent Company are dividends from Webster Bank, interest and dividends on securities and net proceeds from borrowings and capital offerings. The main outflows of funds are dividend payments to common shareholders and interest expense on capital securities, senior notes and other borrowings.

Deposit Activities

Webster Bank continues to develop a variety of deposit programs designed to meet customer’s financial needs. A key strategic goal is to retain existing core deposit balances while attracting new customers to profitably grow both short and long term deposits. The key customer acquisition strategy is the High Performance Checking account program that offers consumers and small businesses a full line of accounts with varying features including both “free checking” without interest as well as several interest-bearing accounts. Savings accounts include both statement and passbook accounts as well as money market account and premium rate money market accounts. In addition, a variety of certificate of deposits that include both short and long-term maturity as well as options such as six month deferred interest payments and “bump-up” rate options are offered to consumers. It continues to offer special IRA products, which include savings accounts, certificate of deposits and rollover for individuals who receive lump sum distributions. Checking and savings products offer a variety of features including ATM and check card use, direct deposit, ACH payments, combined statements, automated telephone banking services, Internet-based banking, bank by mail as well as overdraft protection via a line of credit or transfer from another deposit account.

Webster Bank receives retail and commercial deposits through its main office and 117 other banking offices throughout Connecticut and one banking office in New York. Deposit customers can access their accounts in a variety of ways including branch banking, ATMs, web banking or telephone banking. Effective advertising, direct mail, good service and competitive pricing policies are strategies that attract and retain deposits. In addition, it also receives commercial deposits in the same manner and offers a variety of commercial accounts including a Totally Free Checking Product to meet small business customers’ financial needs.

Although not an integral part of its deposit strategies, from time to time, brokered deposits are used as a means of funds generation. As with any other funding source, Webster Bank considers its needs, relative cost and availability in determining the suitability of brokered deposits. At December 31, 2003 and 2002, outstanding brokered deposits totaled $114.9 million and $12.9 million, respectively.

Customer services also include 233 ATM facilities with membership in NYCE and PLUS networks and provide 24-hour access to linked accounts. The Internet banking service allows, among other things, customers the ability to open an account, transfer money between accounts, review statements, check balances and pay bills through the use of a personal computer. The telephone banking service provides automated customer access to account information 24 hours per day, seven days per week and to service representatives at certain established hours. Customers can transfer account balances, process stop payments and address changes, place check reorders, open deposit accounts, inquire about account transactions and request general information about products and services. These services provide for automatic loan payment features from its accounts as well as for direct deposit of Social Security, payroll, and other retirement benefits. See Note 11 of Notes to Consolidated Financial Statements contained elsewhere within this report for additional deposit information.

Borrowings

Webster Bank is a member of the Federal Home Loan Bank system which functions in a reserve credit capacity for regulated, federally insured depository institutions and certain other home financing institutions. Members of the system are required to own capital stock in the FHLB and are authorized to apply for advances on the security of their FHLB stock and certain home mortgages and other assets (principally securities, which are obligations of, or guaranteed by, the United States Government or its agencies) provided certain creditworthiness standards have been met. Under its current credit policies, the FHLB limits advances based on a member’s assets, total borrowings and net worth. Long-term and short-term FHLB advances are utilized as a source of funding to meet liquidity and planning needs when the cost of these funds are favorable as compared to alternate funding sources. At December 31, 2003 and 2002, FHLB advances totaled $2.5 billion and $2.2 billion and represented 51% and 48%, respectively, of total outstanding borrowed funds.

Additional funding sources are available through securities sold under agreement to repurchase, purchased federal funds, lines of credit with correspondent banks and other borrowings. Outstanding borrowings through securities sold under agreement to repurchase totaled $1.4 billion and $1.5 billion at December 31, 2003 and 2002, respectively, and represented 28% and 33% of total borrowed funds, respectively. Other borrowings were $1.0 billion and $839.0 million at December 31, 2003 and 2002 and represented 21% and 19%,

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respectively, of total borrowed funds. See Notes 12, 13 and 14 of Notes to Consolidated Financial Statements contained elsewhere within this report for further borrowing information.

In January 2003, Webster Bank completed an offering of $200.0 million of subordinated notes. The notes have an interest rate of 5.875% and mature on January 15, 2013. The offering enables Webster Bank to increase its total risk-based capital ratio and fund strategic growth initiatives. In September 2003, it completed an offering of $75.0 million of floating rate subordinated debt securities due in 2033. The interest rate on subordinated debt securities will change quarterly to 3-month LIBOR plus 2.95%. In addition, during December 2003, $25.2 million of the principal amount of outstanding senior notes were repaid as required. See Note 14 of Notes to Consolidated Financial Statements contained elsewhere within this report for further information regarding subordinated debentures.

Subsidiaries

Below is a brief description of certain other subsidiaries of Webster and Webster Bank.

Webster Bank’s investment in Webster Mortgage Investment Corporation (“WMIC”), a passive investment subsidiary, totaled $4.9 billion and $3.8 billion at December 31, 2003 and 2002, respectively. The primary function of this subsidiary is to provide servicing on passive investments, which include loans secured by real estate. During 2003, $2.2 billion of residential, commercial real estate and home equity loans were sold or transferred to WMIC from Webster Bank. This passive investment company derives state income tax benefits.

Webster Bank’s investment in Webster Preferred Capital Corporation, a real estate investment trust (“REIT”), totaled $528.7 million and $621.4 million at December 31, 2003 and 2002, respectively. It owns 100% of the REIT’s common stock, while the preferred stock is held by third-party investors. The REIT’s strategy is to acquire, hold and manage real estate mortgage assets. There were $195.1 million of loans sold or transferred to the REIT by Webster Bank during 2003.

Retail Banking

Retail banking services are chiefly provided by Webster Bank and Webster Insurance. Webster Insurance offers a full range of insurance products to both businesses and individuals through its four operating divisions: business and professional insurance, individual and family insurance and risk management services. Webster Bank or its subsidiaries provide business and consumer banking, asset-based lending, mortgage lending, trust, investment and insurance services through 119 banking offices and investment offices, 233 ATMs and the Internet.

Commercial Lending

Webster Bank provides additional commercial lending capabilities through its subsidiaries, Center Capital, WBCC and BIC. Center Capital is an equipment financing concern that provides funding to end users of equipment in five distinct industry niches. WBCC is an asset-based lender whose loans are generally secured by accounts receivable and inventories of the borrower. BIC finances the premiums of commercial property and casualty insurance for companies that pay on an installment basis.

Trust and Investment Services

Webster Bank provides comprehensive wealth management services for individuals and institutions through Fleming, Perry and Cox, Webster Trust and WIS.

Employees

At December 31, 2003, Webster had 2,719 full-time equivalent employees consisting of 2,589 full-time and 295 part-time and other employees. None of the employees were represented by a collective bargaining group. Webster maintains a comprehensive employee benefit program providing, among other benefits, group medical and dental insurance, life insurance, disability insurance, a pension plan, an employee 401(k) investment plan and an employee stock purchase plan. Management considers relations with its employees to be good. See Note 18 of Notes to Consolidated Financial Statements contained elsewhere within this report for additional information on certain benefit programs.

Market Area and Competition

At December 31, 2003, Webster Bank had 119 branch offices, which includes: 34 banking offices, including its main office, in New Haven County; 48 banking offices in Hartford County; 19 banking offices in Fairfield County; 9 banking offices in Litchfield County; 5 banking offices in Middlesex County; 2 banking offices in Tolland County and 1 banking office in New London County. It also maintains one banking office in New York State. The market area has a diversified economy with the workforce employed primarily in manufacturing, financial services, healthcare, and industrial and technology companies.

Webster Bank faces substantial competition for deposits and loans throughout its market areas. The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations, automated

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services and office hours. Competition for deposits comes primarily from other savings institutions, commercial banks, credit unions, mutual funds and other investment alternatives. The primary factors in competing for loans are interest rates, loan origination fees, the quality and range of lending services and personalized service. Competition for origination of first mortgage loans comes primarily from other savings institutions, mortgage banking firms, mortgage brokers, commercial banks and insurance companies. It faces competition for deposits and loans, both retail and commercial, throughout its market area not only from local institutions but also from out-of-state financial institutions which have opened loan production offices or which solicit each business in its market area.

Webster Financial Advisors has offices in Hartford, New Haven, Stamford and is headquartered in Waterbury, Connecticut. Webster Investment Service’s administrative, operations and compliance departments are headquartered in Bristol, Connecticut with sales offices located throughout the branch network. Webster Insurance is headquartered in Wallingford, Connecticut with offices in Harrison, New York; East Haven, Vernon, Westport, West Hartford and Waterford, Connecticut. Duff & Phelps is headquartered in Chicago, Illinois with offices in Los Angeles, California; New York, New York and Seattle, Washington. Center Capital is headquartered in Farmington, Connecticut with offices in Blue Bell, Pennsylvania; Schaumburg, Illinois; Westboro, Massachusetts; Bedford, Texas and Brookfield, Connecticut. WBCC is headquartered in New York, New York with offices in Braintree, Massachusetts; Atlanta, Georgia; Chicago, Illinois and Hartford, Connecticut. The National Wholesale Lending Group is headquartered in Cheshire, Connecticut and maintains offices in Atlanta, Georgia; Chicago, Illinois; Phoenix, Arizona and Seattle, Washington. BIC is headquartered in Rockville Centre, New York.

Supervision and Regulation

Webster is a savings and loan holding company and is subject to regulation and supervision by the OTS under the Home Owners’ Loan Act (“HOLA”). In connection with the expected conversion of Webster Bank to a national banking association, Webster will become a bank holding company and will be subject to extensive regulation, supervision, and examination by the Board of Governors of the Federal Reserve System (“Federal Reserve”) under the Bank Holding Company Act (“BHCA”). Webster will be subject to capital adequacy guidelines of the Federal Reserve, which are applied on a consolidated basis. As of December 31, 2003, Webster and Webster Bank would have been well capitalized under the capital adequacy guidelines. The Federal Reserve also may set higher minimum capital requirements for a bank holding company whose circumstances warrant it, such as a bank holding company anticipating significant growth. The Federal Reserve has not advised Webster that it will be subject to any special capital requirement. If Webster does not meet the minimum capital adequacy guidelines applicable to it, it will be considered to be undercapitalized and will be required to submit an acceptable plan to the Federal Reserve to achieve capital adequacy. The Federal Reserve considers a bank holding company’s capital ratios and other indicators of capital strength when evaluating proposals to expand banking or nonbanking activities, and it may restrict the ability of an undercapitalized bank holding company to pay dividends to its shareholders. In addition, under Federal Reserve policy, a bank holding company is expected to serve as a source of financial strength for, and to commit financial resources to support its subsidiary banks.

Simultaneously with its becoming a bank holding company, Webster expects to declare and certify its status as a financial holding company under the Gramm-Leach-Bliley Act (“GLBA”). As a financial holding company, it will be authorized to continue to engage in certain financial activities in which it is now engaged, and to engage in additional financial activities, that a bank holding company may not engage in. If a financial holding company fails to remain well capitalized and well managed, the company and its affiliates my not commence any new activity that is authorized particularly for financial holding companies. If a financial holding company remains out of compliance for 180 days or such longer period as the Federal Reserve permits, the Federal Reserve may require the financial holding company to divest either its insured depository institutions or all its nonbanking subsidiaries engaged in activities not permissible for a bank holding company. If a financial holding company fails to maintain a “satisfactory” or better record of performance under the Community Reinvestment Act, it may not commence any new activity authorized particularly for financial holding companies, but may continue to make merchant banking and insurance company investment in the ordinary course of business.

Webster Bank is a federally chartered savings bank and is subject to regulation, supervision, and examination by the OTS as its primary federal regulator. It also is subject to regulation, supervision, and examination by the FDIC and, as to certain matters, regulation by the Federal Reserve. There are substantial regulatory restrictions on its ability to pay dividends to Webster. Under OTS capital distribution regulations, Webster Bank may pay dividends to Webster without prior regulatory approval so long as it meets its applicable regulatory capital requirements before and after payment of the dividends and its total dividends do not exceed its net income to date over the calendar year plus retained net income over the preceding two years. The OTS has discretion to prohibit any otherwise permissible capital distributions on general safety and soundness grounds, and Webster Bank must give the OTS 30 days advance notice of all capital distributions, during which time the OTS may object to any proposed distribution. At December 31, 2003, Webster Bank was in compliance with all applicable minimum capital requirements and had the ability to pay dividends to Webster of $206.7 million without the prior approval of the OTS. Its deposits are insured up to regulatory limits by the FDIC and are subject to corresponding deposit insurance assessments to maintain the FDIC insurance funds.

As a result of Webster Bank’s expected conversion to a national banking association charter, it will become subject to regulation, supervision, and examination by the Office of the Comptroller of the Currency (“OCC”) as its primary federal regulator and, as to certain matters, regulation by the FDIC and the Federal Reserve. It will be subject to capital requirements and minimum capital guidelines of the OCC that are similar to those of the Federal Reserve applicable to bank holding companies. It also will remain

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subject to deposit insurance assessments by the FDIC. Webster Bank’s ability to pay unrestricted dividends to Webster will also be substantially similar to its current ability to pay dividends under HOLA. However, after the conversion, Webster Bank will not be subject to restrictions under HOLA on its asset mix and its ability to make commercial loans that are intended to maintain the business strategy of savings and loan associations to be focused on home mortgage lending.

Webster Trust, as a national bank engaged in trust activities, is subject to regulation, supervision and examination by the OCC. In connection with the conversion of Webster Bank, Webster Trust is expected to merge into the national banking association that will result from the conversion. Webster Bank will acquire from the OCC the authority to engage in trust activities and will continue the current trust activities of Webster Trust. Webster Investment Services, Inc. (“WIS”) is registered as a broker-dealer and investment advisor and is subject to extensive regulation, supervision, and examination by the Securities and Exchange Commission (“SEC”). Duff & Phelps Securities, LLC (“D&P Securities”) also is registered as a broker-dealer with the SEC and is subject to extensive regulation, supervision, and examination by the SEC. Fleming, Perry and Cox (“Fleming”) is registered as an investment advisor and is a member of the NASD and is subject to extensive regulation, supervision and examination by the SEC. WIS, D&P Securities, and Fleming are members of the National Association of Securities Dealers, Inc. (“NASD”) and are subject to its regulation. WIS is authorized to engage as a broker-dealer and Webster Bank is authorized to engage as an underwriter of municipal securities, and as such they are subject to regulation by the Municipal Securities Rulemaking Board. Webster Insurance is a licensed insurance agency with offices in the state of Connecticut and New York and is subject to registration and supervision by the State of Connecticut Department of Insurance. With the exception of Webster Trust, each of the subsidiaries of Webster and Webster Bank described above will remain subject to substantially identical regulation, supervision, and examination by its functional regulator following the conversion of Webster Bank.

Transactions between Webster Bank and its affiliates, including Webster, are governed by sections 23A and 23B of the Federal Reserve Act. Generally, sections 23A and 23B are intended to protect insured depository institutions from suffering losses arising from transactions with non-insured affiliates, by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and by requiring that such transactions be on terms that are consistent with safe and sound banking practices. Webster Bank will remain subject to these requirements and restrictions following its charter conversion. Effective April 1, 2003, the Federal Reserve adopted Regulation W, which comprehensively implements sections 23A and 23B. The regulation unifies and updates staff interpretations issued over the years, incorporates several new interpretative proposals, and addresses new issues arising from the expanded range of nonbanking activities engaged in by banks and bank holding companies in recent years and as a result of the expanded authority granted under GLBA.

Under GLBA, all financial institutions, including Webster, Webster Bank, Webster Trust, and several of their affiliates and subsidiaries, are required to establish policies and procedures to restrict the sharing of nonpublic customer data with nonaffiliated parties at the customer’s request and to protect customer data from unauthorized access. Webster has developed such policies and procedures for itself and its subsidiaries, including Webster Bank and Webster Trust, and believes it is in compliance with all privacy provisions of GLBA. On December 4, 2003, the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”) was signed into law. The FACT Act includes many provisions concerning national credit reporting standards, and permits consumers, including customers of Webster, to opt out of information sharing among affiliated companies for marketing purposes. The FACT Act also requires banks and other financial institutions to notify their customers if they report negative information about them to a credit bureau or if they are granted credit on terms less favorable than those generally available. The Federal Reserve and the Federal Trade Commission are granted extensive rulemaking authority under the FACT Act, and Webster Bank and its affiliates will be subject to these provisions after they are adopted.

Under Title III of the USA PATRIOT Act, all financial institutions, including Webster, Webster Bank, Webster Trust, and several of their affiliates and subsidiaries, are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions and report suspicious activity to U.S. law enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking regulatory authorities and law enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption granted to complying financial institutions from the privacy provisions of GLBA and other privacy laws. Financial institutions that hold correspondent accounts for foreign banks or provide private banking services to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns, and are prohibited from dealing with foreign “shell banks” and persons from jurisdictions of particular concern. The primary federal banking regulators and the Secretary of the Treasury have adopted regulations to implement several of these provisions. All financial institutions also are required to establish internal anti-money laundering programs. The effectiveness of a financial institution, such as Webster or Webster Bank, in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act and the BHCA. Webster, Webster Bank, and Webster Trust have in place a Bank Secrecy Act and USA PATRIOT Act compliance program, and they engage in very few transactions of any kind with foreign financial institutions or foreign persons.

The Sarbanes-Oxley Act (“SOA”), signed into law on July 30, 2002, was intended to increase corporate responsibility, enhance penalties for accounting and auditing improprieties at publicly traded companies, and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. SOA is the most far-reaching U.S. securities legislation enacted in several years. It applies generally to all companies that file or are required to file periodic reports with the SEC under the Securities

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Exchange Act of 1934 (“Exchange Act”), including Webster. The Act includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules, and mandates further studies of certain issues by the SEC and the Comptroller General. The Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees. Certain provisions of SOA became effective upon enactment, and other provisions became effective between 30 days and one year from enactment. The SEC has been delegated the task of enacting rules to implement various provisions with respect to, among other matters, disclosure in periodic filings pursuant to the Exchange Act. In addition, the federal banking regulators have adopted generally similar requirements concerning the certification of financial statements by bank officials.

Available Information

Webster makes available free of charge on its website (www.wbst.com or www.websteronline.com) its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as practicable after its electronically files such material with, or furnish it to the Securities and Exchange Commission. Information on Webster’s website is not incorporated by reference into this report.

ITEM 2. Properties

At December 31, 2003, Webster Bank had 119 branch offices, which includes: 34 banking offices, including its main office, in New Haven County; 48 banking offices in Hartford County; 19 banking offices in Fairfield County; 9 banking offices in Litchfield County; 5 banking offices in Middlesex County; 2 banking offices in Tolland County and 1 banking office in New London County. It also has one office in Scarsdale, New York. Of these, 56 offices are owned and 63 offices are leased. Lease expiration dates range from 1 to 84 years with renewal options of 3 to 35 years. Additionally, it maintains four trust offices: one in Fairfield County, one in Hartford County and two in New Haven County.

Subsidiaries maintain the following offices: Webster Insurance has offices in Harrison, New York; East Haven, Vernon, Wallingford, Waterford, Westport and West Hartford, Connecticut. Webster Financial Advisors has offices in Hartford, New Haven, Stamford and is headquartered in Waterbury, Connecticut. Webster Investment is headquartered in Bristol, Connecticut with sales offices located throughout Webster’s branch network. Duff & Phelps has offices in Chicago, Illinois; Los Angeles, California; New York, New York and Seattle, Washington. Center Capital has offices in Blue Bell, Pennsylvania; Schaumburg, Illinois; Westboro, Massachusetts; Bedford, Texas; Brookfield, Connecticut and is headquartered in Farmington, Connecticut. WBCC is headquartered in New York, New York with offices in Atlanta, Georgia; Braintree, Massachusetts; Chicago, Illinois and Hartford, Connecticut. National Wholesale Lending Group is headquartered in Cheshire, Connecticut and maintains offices in Atlanta, Georgia; Chicago, Illinois; Phoenix, Arizona and Seattle, Washington. BIC is headquartered in Rockville Centre, New York

The total net book value of properties and furniture and fixtures owned at December 31, 2003 was $95.6 million. See Note 7 of Notes to Consolidated Financial Statements elsewhere in this report for additional information.

ITEM 3. Legal Proceedings

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

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

During the fourth quarter of 2003, no matters were submitted to a vote of our security holders.

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PART II

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

Market Information

On October 17, 2002, the common shares of Webster began trading on the New York Stock Exchange under the symbol “WBS”. Prior to this date, the shares traded on the Nasdaq National Market System under the symbol “WBST”.

The following table sets forth the quarterly high, low and dividends declared per share of common stock for the years ended December 31, 2003 and 2002. On February 27, 2004, the closing market price of Webster common stock was $50.35. Webster increased its quarterly dividend to $.21 per share in the second quarter of 2003.

Common Stock (per share)

Holders

Webster had approximately 12,000 shareholders of common stock at February 27, 2004. The number of shareholders of record was determined by American Stock Transfer and Trust Company.

Dividends

Payment of dividends is subject to various restrictions, none of which is expected to limit any dividend policy that the Board of Directors may in the future decide to adopt. Payment of dividends from Webster Bank to Webster is subject to certain regulatory and other restrictions. Under Delaware law, dividends may be paid out of its surplus or, in the event there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If the capital of the Corporation has diminished by depreciation in the value of its property or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, no dividends may be paid out of net profits until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets has been repaired. See “Supervision and Regulation” section contained elsewhere within this report for additional information on dividends.

Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2003).

*

This table does not include 166,786 options assumed in mergers and acquisitions transactions on an aggregated basis.

Other Events

The annual meeting of shareholders will be held on Thursday, April 22, 2004.

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ITEM 6. Selected Financial Data