Free Response to Motion - District Court of Federal Claims - federal

Case 1:92-cv-00550-MCW

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TAB 2 PLAINTIFF'S RESPONSE TO DEFENDANT'S MOTION TO DEISGNATE DEPOSITION TESTIMONY OF MESSRS. BRENNER, FISCHBECK, AND O'KEEFE

Case 1:92-cv-00550-MCW

Document 147-3

Filed 11/01/2006

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In The Matter Of:
NORTHEAST SAWNGS, EA. v. UNITED STATES OFAMERICA

KEVIN JAMES 0'KEEFE Februaly 1 3 , 2 0 0 3

BETA REPORTING C VIDEOGRAPHYSERVICES 91 0 SEVENTEENTH STREET, h w S U I m 200 WASHINGTON DC USA 20006 (202) 638-2400 FAX: (202) 833-3030
Original F i k AAOKEEFE.lXT, 113 Pages Min-UScript@ F i k 1D:3 157416040

Word Index included with this Min-U-Scripta

NORTHEAST SAVINGS. F A v. UNITED STATES OF AMERICA

Case 1:92-cv-00550-MCW

Document 147-3

Filed 11/01/2006

Page 3JAMES O'KEEPE KEVIN of 12
February 13,2003

include 1171residential subdivisions, w ically ranging rial small lotsfromfive I-& in a subdivision 1191to maybe 30.35 lots. I ~a: Okay. I 1211 A: We would solicit them to b o m w 1221 money frumus to complete projew that they

131emect - the emectedrate of return is 141about 3 or4 htgherthana 151 residential loan.] mean give or take. I61 A: ObVi0USly. SUre. m a: The reason the bank demands and 181 receives a higher rate of return is because 191 there is a higher degree of , risk associated llal with the loan? Page 17 1111A: Correct. [I] had approved and were ready to construct. 121 So that was the con- 1121 9: How about the risk of credit loss? 1131 there a greaterrisk of credit loss 1141 IS struction component. for assuming the bank retains both, 131 On the other hand, there may be 141 the 1151 residential loans and the corn opportunities to tinance an office buildi n g , suchas the one thatwe're in here, mercial loans 1161 in its portfolio - is ~~ and the 161 developer would apply for there a greater risk 1171 of credit loss that and we would m underwrite the associated with commercial 1181 loans creditto findout ifwewere siinterested- - than residential loans? .~ -~ ~-~~ ~ in Dursuina that loan. we would 191then 1 1191 A: Yes . . o&te the loan and book it. I ~0:Couldyou explainthe basis for 1211 I 1101 0: How would the rate of return On that or the reason for that? llli these loans compare with the rate of have statistics for you, return 1121 on the just single-family 1221A: I residential 1131mortgages? PBOB 20 . -- - -1141A: Commercial is typically well, III You know, I 1151it's always higher.The risk is greater; 121 a: I understand. I'm not questioning 1161 therefore, the pricing is higher.

replaced by George 1151 Rutland. 1161 0: HOW did Mr. Rutland's coming into 1171 the business coming into his position at 1181 Northeast affect the commerciallendingin 1191 Northeast,ifat au? ImlA:WeU, when George Rutland showed 1211up, he had I don't know how t h i i were 1221prior to that.

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a: I see.Whenyou say the risk is 1181

131 YOU. 141 A:

greater, could you just explain what you 1191mean in your own words? [ m A: S m . On a residential loan 1211 ~ typically what's done is you can originate 1221 it at a bank and s d it on the secondary
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market. So in essence what you're really 121 doing is you're just collecting fees. 131 a: I see. 141 A: The interest income, you maintain 151 a portion of it or it will be going to some 161 other investor that purchased that PI particular pool of residential loans. 181On the commercial side, especially 191 at this time andIthinkit3salsotrue 1101 today you don't have a secondary market 1111 for commercial loans. That means the bank 1121 is going to have to maintainthat inits [lslportfolio.Itwould have to keep that risk 1161 of that loan goingbadandnot able topass 1151italong to anybody else. 1161 a: I see. 1171 A: Therefore, the pricing would 1181 reflect that risk. 1191 So, whereas, a residential loan [ m i would bebookedfor,say,ifthemarket is 6 rzll percent, you know, typically a commercial 1221deal will run anywhere from 9 to I0 percent,
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Understood. I'm just prefacing my 151remarks.I'mno expenonthat subject. 161 Being I'm in the indusvy and this is whatlmdoI81 9: SUE. 191 A:The default rates among corn mercial [lo] loans, because of the risks that are rnl associated with them when you're building 1121 homes, you may be building them on spec, 1131meaning that people are not going to be 1141 living in ihem right a w a i ~ o u ' r c g o i n ~(~rlhive to to build themand sellthem to somebody 1161eke, as opposed to someone living in a 1171 house, that's their homestead. So they're 1181 going to protect that asset with some vigor. 1191 But beyond that, I don't have rml actual numbers for you or indusvy standards 1211 to suppon that statement. 12210:That's fine. Now, who was the

You know, just because I don't 131 have hisrory with that institution there. 141They were just another competitor. 151 I doknow that there were a couple 161 of other commercial real estate lenders, and rrl during this deposition I'll try and recall 181 their names, but there was Susan Larkin 191 was one of the lenders there,and I can't 1101remember who her boss was, but there was 1111 somebody else there as well. So I don't [121 know what they did, you know. 1131 a: Okay. 1141A: I do know that once I did get 1151 hired by Northeast, I inherited their 1161 portfolio and managed many of the assets 1171that they had booked. 1181a: Okay. 1191A:ButIfhinkthatbythattime-Iim~ don't know whether it was Kent Dixon or 1211George that decided that a change was 1221needeaand George brought in a . new team of
121 A:

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111 commercial real

estate lenders.

rzl 0: Okay.
131 A: 141

Okay.

cm

Page 21 III of Northeast when you first came in in

of '88? a1 A: I want to say it was Jeff Colman, 141
121 October

but hc may have been the ireasurer.I'm not 151s u e . He was either the CFO or the

... 171

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a: D~~~ the name o f ~ r , ~ i xringa on
bell at

name rings a bell, but he was the bank when I arrived. I 1111a:I see. Page 19 1121A: He was already replaced - Kent and d ~ w n . 1131 Dixon.1 believe.wasthe chairmanof 111 as rates change and go 121 a: 1see. So on commercial loans you I the 1141 b a r d at 'one time and 4 s

191A: The 1101not at

was Mr. Rutland's management IN philosophy and what suategic direction did 161 he set out for the company, as you recall? 171 A: You know, we never sat down and IBI talked about this. PI a: Okay. IIOI A: But from reading the newspapers ~~~~anddealinnwithhimonadailvbasisyou 1121 k n o w 3 wasn't a daily bisis, but on 1131certain specific assets that I was managing, 1141commercial assets, it was clearlymy 1151understandingthat hewas trying to 1161 reestablish the bank as a residential 1171 originator for mortgages and pass those 1181 mortgages through various conduits,you 1191know,originate and then move it into the lml secondary market. 1211Soifyouwould,itwas,youknow,12~1 a return to a uaditional savings and loan
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a:What

r11philosophythathepromotedpublicly
and 121 professionally at the bank.

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131Q: Letme make sure Iundersrandthat
1161A:

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philosophy. The philosophy is the bank 151 should make residential loans, originate 161 them and then sell those loans on the I-II secondary market? 1 8A Yes. Take deposits, obviously, 191 : and then originate loans, mostly on the 1101 residential side. 1 1 a: okay. 11 1121A: The growh inthat institutionwas 1131 cerIainly going to be fueled by all of t i 1141residential originating activity. hs 1151Q:Again, the benefits of, after 1161 originating the loan, selling it in the 1tn secondary market would be what exam? (181A: The benefit? 1191Q: Yes, to the bank. 1201 A: You get origination fees for all 1211 of this. 1221 Q: Okay
141

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111A: Youalso maintainveryoftenthe 121 setvicingof the portfolio,^^ there is a 131 continuous fee. 141Q:Who wouldbear the risk of loss on 151 the loan? 1 1 A: The investor,whoever bought the 6 m loan. I1 Q: I see.AUright.So let me 191 agains I'maoinatodothisnepbystep~~o~ to just malie &re I got it ind yo& 1111 testimony correm. If I say it wrong, 1121 please correct me, because 1131 A: Okay. 1141 Q: I want it right. Mr. Rutland's 1151 phi1osophy.a~ gathered it fromyour you 1161 daily contacts with him and from your 1171knowledge of the business and just working 1181at the bank and all the other sources of 1191data that you have, was the bank should be 1ml in the business of gathering retail deposits 1211 and then using these funds to generate 1221 residential mortgages?

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Correct. 121 Q: He also had an afhnity to sell 131 these mongages on the secondary market 141 because selling the monraaes on the 151 secondarymarket wouldreht in the hank 161aenina fees and the risk of n credit loss 1 woGd be tiansferred to other folks? 1 1A Yes. 8 : 191 Q: Okay. 1101 A: Fees and origination fees and 1111 servicing fees. 1121 Q: You had earlier mentioned 1131 competition or competitors.Who were 1141 Northeast's competitors during the time that 1151you were there?

111A:

some 131 experience that I had with the bank when 141 this litigation aas - at National 1181Bank. hs Northeast when 151 t i litigation was 6 (191 The latter two that I mentioned 1x11 first commenced, 1 1 1 believe that there there were subsequently purchased by was some reregulationof I-II the banking indusuy in the late eighties 181 and early Fleet. nineties. I211 a : Okay. 191There was a regulation known as 1101 1221 A: Okay. FIRREA.One of the provisionsof FIRRE.4 was 1111 that goodwill was to be e h Page 27 inated as pan 1121 of the calculation for 1 1Q: How significant was the 121 cont 1 determining capital. petition during your time there? 1131Capital is important to any bank, 1141 131 A: Well, it's competitive. It was 141 because if you fall under certain ratios, always a competitive marketplace. 1151 you will have to cease and desist 151A lot of the commercial banks, the 161 lending 1161 and you may, in fact,have to larger commercial banks, were moving close your 1171doors to the public. away 171 from the commercial and inthe 181 commercial and in- 11slBY MR. SAWI: dustrial dusuial side of things and 191getting into 1191Q: Okay. real estate, because the real 1101 estate 1201 A: The goodwill, I believe, that was market at that time was hot, you 1111 1211at questionwith Northeastwas there know,very active, so they were looking were a 1221 number of institutions that to 1121 make money. Northeast had 1131(Interruption) Page 30 1141THE WITNESS: Can I take that? [ I ] acquired duringthe eightiesthatwere 1151MR. SAWI: Sure. 1161 THE VIDEOGRAPHER: The time 1171 121 troubled,meaningthatthey were not in 131 compliance with certain ratios. is 9:48.We're off the record. 141Northeast acquired those with the (51 1181 (Recess) understandim that that acauisition 1191THE VIDEOGRAPHER: Back on the would 161create on the balance iheet for (201 record.Time is 953. son the bank 171some of -and I'mnot an 1211BY MR. SAWI: accountant,lslbut it wouldbe calculated - because they 191 purchased those 1221Q: Now,what familiaritydoyou have institutions,theywould get 1101a portion Page 28 of that purchase price calculated1111into 111withthe Liability side of the bank,their their balance sheet and known as 1121 goodwill. Okay. 121 funding side, deposit gathering or borrowing 131 or reverse repurchase 1131Whenthegoodwillwasremoveddue agreements or 141 bornwing from the 1141 to the reregulation and FIRRBq I Federal Home Loan Bank, 1 5 FHLB, all believe 1151Northeast Savings fell below its regulatory 1161requirements for mricaps? ous tiers of capital. 1171I couldn't tell you 161A: None. specifically which ones 1181 they were, nl Q: Good. That will reduce a big 181 but I think that thatwas the 1191gist of it. chunk of the deposition. 1201 Northeast Savings felt that this 1211 I91 A: Good. was - or management at Northeast ht [lo) Q: Are youfamiliarwithwhatthis 1111 Savings 1221 felt t a this was an unfair lawsuit is about? situation and 1121 A: Yeahyes. Page 31 1131 Q: Please tell me your under111 it wasn't the original intent of the 121 mding. parties. Those institutions that were w 1141A: My understanding of it? acquired to generate that goodwill would 141 nwer have been acquired if 11519 Yes, sir. : management knew 151 that this rereg1161MR.TODD: Instructthewitnessto 1171 ulation was going to occur. answer the question only to the extent that 1181it does not rweal conversations 161Q: Okay. that you 1191 and I have had, my re- m A: Okay. presentation of you in 1201 this lawsuit. 181Q:Anything else? 1211 MR. SAW1:Verygood. 191A: I don't t i k so. hn 1221THE WITNESS: My understanding, 1101 Q: Fair enough. Fair enough. I I I I A: Sorry. Page 29 r~~whichIthinkisprettymuchdrivenby1121 Q: I just didn't want to interrupt 1131 121 newspaper articles, is that - and you while you were thinking.

People's Bank; Hartford Savings;

11n to some extent CBT; Connecticut

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NORTHEAST 1:92-cv-00550-MCW . Case SAVINGS, FA. v UNITED STATES OF AMERICA
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Document 147-3

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KWm JAMES Page 5 of 12 OXEEFE

February 13,2003
don't know for certain. 151 a: What impact did the phasingout of 1 1 goodwill have on Northeast? 6 ni A: I'd probably be able to answer 181 that question if - what impact did it have 191on my function at the bank,the department 1101 that I worked for,which was commercial real 1111 estate. 1121 a: Okay. 1151 Aaain.m~viewwasvervmOre I A: 114, donp;want to say tunnel&ion,but it more focused. 1161 a: Okay. 1171A: It wasn't a globalnew of the 1 8 11
"SU'UUun'

1141 A: No.1thinkthat'sit.That's115lwhat I know of the litigation. 1161 a: These institutions in the early 1171 eiahties. do w u know whether they w;re 11s; or unpmfitable dGingthe time 1191 Northeast hadthem? that 1m1 Meaning theinstitutionsthatwere A: 1211 acquired to create the good will^ r r a: C o m a . u
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1161 maybe before FIRRGA beerr acted, the rln focus of the department that I worked in llal changed more towards portfolio management. 1191We had ceased lending activities on a I ~ I commercial basis because the requirements, I 1211 believe, for commercial loans are higher in 1zz1terms of reserves and things like that that

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111we wouldhave to

I believe when 181management saw that goodwill was at risk at (91being pulled out of the capital base, they rlol became proactive before the regulation was 1111 a w y Page 35 effected.They pretrymuch just 1121told 111originate loans,call on customers and us to start to manage the existing 1131 try 121andconvincethem,you know,that portfolio and, in fact, uied to decrease this was 131 the right bank to borrow i141 our exposure in the commercial from,okay,to 141generate fees and to get portfolio by 1151doingavariefyofthings. a long-term 151 interest yield, because, again,we're 16rkeepingtheseloans inthe i161 One A s to a p p m a i o t h e r i71 portfolio, not selling them ~o institutions that didn't have this 1181 particular goodwill issue to contend that was my function, with 1191and have them purchase all or 1 1a: The loans you're talking about are 8 some of the im] assets that were in the 191commercial loanslike residentialand - commercial 1211 portfolio. 1101 A:Yeah.Well,whenyou say - if1111 lula: Okay. they're residential, they would be 1121 construction projects. Page 38 page 33 111 A: Anotheravenue thatwe werenow 111 held themfromwhenever they held 1131a : Okay. them 121 until 121 pursuing was to - let me rephrase. 1141A: On the commercial side they Instead a] of reneming loans when they 0 A: That's - I can't answer that 141 would 1151 either be office buildings, 1 matured, we 141 would demand that the question, because, you know, they get industrial 1161 buildings. bormwer repay us in 151 full. Again, this rolled 151into one bank now. 1171a : How about multifamily building? was a way to shrink the 161 commercial 161a: I see. 1181 Multifamilies, yes, sir. A: mrtfolio dollar site. PI A: They're not held as separate a] 1191a: So we're t a l k i i about office I ~ I 171 M understanding was that would 181 y subsidiaries. You know, I couldn't tell buildings, indusuial buildings improve our capital base you 191whether - how one performed 191a : I see. versus another 1101because they're all 1211 A: Multifamily buildings. 1221a : And multifamily buildhs. [lor A: In the eventthat eoodwill became mrt of one orpanization 1111 . . now. law.Okay. 1121 Q: Youcouldn'ttellmewhetherthey Page 36 1121 a : Okay. 1131 were profitable or unprofitable? I I I A: Yes. Multifamilies are typically 121 1131 That was essentially the two 1141 A: 1141 A: NO. known as five units or above. t c i s that we used. atc 1151a: Now, what committees did you 131We didn't do much of that kind of 141 serve 1161 on while you were at Nor- business. We would do something with 1151a: Let meseeifIunderstandwhatr161 YOU told me corre&.AzainifIreahrase theast? . 151 maybe 20 or 50 units or even a [InA: I didn't serve on any committees. hundred 161 units.You know, that was h71 anything that is in any way &ccurate, stop risr me and let me know and rlsl 0:Did you ever attend board of 1191 more the market nl we were after. correct me. directors meetings? la1 a : Okay. 1191A: NO problem [mi A: I did not. 191A: So that was my role, was to 1101 solicit business really from developers 1201 0 : In response tothe phasr-outof 1211 1211 a: Do you knowif Northeast had 1221 goodwill and men to the anticipated lur raised capital during let's say anytime and 1111 folks that would be qualified to phase-out of goodwill, the bank either borrow on in1 these and have the expenise to run these 1131 types of Paae 34 " Page 39 projects. 111fromI989untilitwassoldin'95?Byn1 111 ceased or reduced its loan originaraise capital I mean issue stock. 1141a: I see. tions in 121 office building, industrial 131 A: I don't believe they did, but I (41 1151A: When FIRREA was well, even building and 131multifamily buildings? before the reregulation or FIRREA went into hzl effect,rnyfunctionwasto go out and

111A: I believe they - I don't believe 121 they were profitable. 131a : What do you base that on? 141A: HowdoIwantto~ut this?Mody 151 reading newspapers h d knowing ;he earninas 161 that they were, you know, postini.~ounlknow,~it's~t&callyvy to stay in 181touch with mycompetitors. PI a: I see. IIOI A: These were smaller banks, of 1111 course. and they were also out-of-state 1121 banks, but from time to time when I'm1131 WallStreetJoumalor whatever 1141 else, you see who is in trouble and who is 1151 not.Some of these institutions 1161having some problems. 1 n 0: I was not asking about their 1181 1 performance prior to the acquisition by 1191 Northeast. I'm a s k i i about their 1201 performanceafterNonheasthadaquir. ed 1211them ml During the time that Northeast

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1191 0: Okay.

Iml A:At the time that I was hired, 1211

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bigger. 121IfIoriginateda SIOmillionloan 131and I have to put a 2 percent automatic 141 on that, going to eat up 151 capltal. Okay.
110 1 0k.v 6
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nl A: When management

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KEVIN JAMES O'KEEFE Case 1:92-cv-00550-MCW February 13,2003
Page 54 Rutland did he ever complain about not 121being able to lend or invest in area 131 other thanwhat you desuibed before, MI the commercial Lending area? 151A: No. Our contact was pretty much 161limited to my specific fimction in the W, m which was on the assets I managed on the 181commercial side. He did complain about 191those. llol a: okay. 1111 A: Quite ofien. 1121 Q: What were the nature of the 1131 complaints about the assets on the 1141 commercial lending side? 1151A: Well, he wanted them off the books 1161 sooner rather than later. So, you know, he 1171made it clear that, you know, get it done. I181 (1: He wanted themoff the books 1191 because they take up too much capital! IWI A: Based upon my understanding of what the ~z~~situatioaves.thatwashisw a s r z i l driving his decision,
(11 Mr.

Document 147-3

NORTHEAST SAVINGS, FA. . Filed 11/01/2006 Page 6 of 12 v UNITED STATES OF AMERICA
la11 the value of the loans declined 30 to 40 1221percent range - and you may not have said

mercial 1101real estate indusuy. A lot of
1111 Q: Okay. 1121 A: I remember values, reading mrious I tell you

Page
IIIQ: Okay.

14A: He had hired us, I belime, the intention of having ur originate
lnsn~

1 1Q: I see. 4 151A: Therefore, when he's now telling 161me toget ridofthem,Ikindofputtwo and m two together and figured, you know. 1 1Q: Whatkindofcontacts didyou have 8 191with Mr.Walters? (101A: Similar to that of George Rutland. [ I I I Q: Woulditbefairtosayalsowith 1121 respect to Mr. Walters' contacts with you, 1131his daily contacts with you,that he never 1141 complained about the impact of the loss of 1151goodwill other its impactOn the lending side of the bank? 11nA: That would be correct. 1181Q: Would it be fair to say also in 1191 your daily contacts with Mr. Walters, he rml never expressed any concern about any 1211 deposit outflow from the bank? 1221A: Not to me. Page 56 me about the economic 121 environment that the bank was operating 131 under, let's say, from '89 on to '95. 141I know the economic environment 151 changed during that period, but des cribe it 161 for me year by year. m A: Sure. Year by year - I 181imagine '89 through '92, I think, was pretty 191 much the darkest period for the corn
111Q: Tell

which ones, 1141 but, you know, that Northeast experienced 1151maybe 30 to 131A: Sure. 40 percent decline in values. 141Q: Could you just describe what that I161b: wow. 151 means to me - what does it mean, 1171A: Yeah, it was prettybad.Alot of 1181 what's the 161 economic significance of empty buildings andbadloans.Ifthere's it? 1191 nobody in the building, nobody is payingthe 1201 rent,mortgage doesn't get 171A: let's say that we put a million 181 dollarmongage on the officebuilding 191 paid. across the street. 1211 Starting in '92 and '93 things 1221 started to pick up a little bit, stabilited. 1101 Q: Okay. 1111A: You're going to - let's use 30 rlzl . -n- -. percent drop. I I I It hadbottomedout andhadgradually 1131 a: Okay. 121 improved. 1141A: You're going to see this thing 1151 131Q: When did it become what you drop by $300,aMinvalue,meaningthat would 141 say good? 151A: Robust? I don't think it's ever 161 even 1161 though they bought it for a millionandthe 1171bank has,presumably, really returned to those levels. an 80 percent mortgage 1181 it,you9re on m Q: It never returned to the levels it 181 goingto seethevalueofthat 1191 building was prior to '89? drop to let's call it $700,000. 1 1A: Correct. But it stabilized and it 1101 9 did improve, and then there were poc- 1201 Q: Okay. kets,I 1111believe.You know, Boston has 1211 A: That $700,000 figure now that it's done very 1121well. New York has done 1221worth,ifthey turnaroundandsold it, the very well. 1131Q: Now,the bankdidsomelendingin Page 60 1141 California.Areyou aware of that? 111bank has going to have to fake a loss. 1151 A: I'maware thatthevhada lot of 1161 to The ~z~bankwouldhave fake a bsson reaidentia~ori~ination akvity out the& that. 1171and there were a number of different 131 When, let's say, leases are 141renewed ~ I Soffices,and~believefrom I reading the foroccupyingthatbuilding,when(sl you 1191 balance sheet - you know, our originally underwrote that loan that 161 quarterly IWI statements, that that was made it worth a million dollars,it was m one of the driving 1211forces behind the basedupon,say,$30a square footin rent. -~ revenue of the bank. 1 1 Okay. 8 1221 Q: I see. 191 Now, because of the value 1101 decPage 58 reases in the glut thatwas onthe market 1111 because there was more space than 111 A: Yes. there was 1121demand, you have to now charge $15 a square 1131 foot 121 Q: Did the bank have any commercial 131 lending in California? 1141 Q: I see. I41 A: NO. .. 1151A: TO maintain those tenants, if you 1161were even able to keep them. 1 1 0 :Okay. 5 [In Q: Okay. 161 A: Well, I shouldn't say that.There nl were a couple of assets,I remember.1 a] 1181A: Therefore, the cash, the income didn't work on them Somebodv else in 1191stream that's comingfromthat buildthe 191shop did.~ut there were i couple ing is 1201 signiticantly less. The income of~~oiolultifamilvassets.vou know.30.40 stream rill ultimately through a number .~ . unit rill projeck.~hat a s it. d of different 1221calculations,whenyou're ~~~~Butitwasverysmall,and- don't underwriting a Ills] evenknowhowthey came about getting Page 61 1141originated, but they did. [I] Ioan,willdete&e whatthevalueof 1151Q: I see. Now, the multifamily 1161 lending that you did in this area you said the 14building is. 131Q: I see. 1171tended to be in the range ofthe 5@to 1181 lOOunit range? a 141 A: You're getting less money, less 151 1191A: Yes, sir. value. 1201Q: Now, when you said earlier that 161Q : Okay.

Page 59 my best 121 recollection of what you said.
111 itinthose words.That'sjust

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131A :

Kaw JAMEs Page 7 of 12 O'KEEPE

February 13,2003

m A: What happens is you get to a point [a1 where now the income sueam is at $15 a 191foot,thc bank u n d e m t e it at $30a foot,[lolloandbehold,thereisnot enough money to 1111 make your monthly payment, Piggers a 1121payment & ault,or it could be covenant 1131 defaults that yoube just fallen below 1141certain ratios that we try to monitor you 1151 with. 1161 I see. M right. Now, I lln una: I derstand how the drop i n d u e and the 11s) drop in income sueam is a problem for the 1191auv who owns the propern. . lml A: Uh-hum. 1211 a : Describe to me in as much detail 1221 as YOU can how that problem to the guy who
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111 owns the property becomes the bank's problem 121 or your problem 131 Imean you don't care whether the 141 guy is making a lot of money or not making 151so much money, do you? 161A: Well, I like to see him making rn money. But at the end of the day my major la1 concern is that they're able to come in and 191 make the mortgage payment. 1101a: I see. 1111 A: So that's my concern.Where it 1121 triggers the default and my concern 1131 heightensis whenthey're going to come into 1141 your office and they're going to say,you 1151know. 'Iknow the mortgage paymentthis ~~slmonthis $80,000.WeU, I onty have 40." [in a: I see. Did that happen? llal A: Oh.Yes, it did. Frequently. 1191 a: 1see.Intheyears '89to '92,lmlthe ones that you described as the darkest 1211 y-s, how extensive was this problem to the In1 commercial lending portfolio of the bank as

increase. 11a1Itwouldn't have been huge. was nevergoing to be a You know, it 1191 main product of the rml tank's. 1211a:Withinthat S500millionportfolio 1221 that you were invoked with, how extenske
Page 64
111were the oroblems? .. 121 A: This is based on memory now. 131 a: okay. 141 A: I think we must have been - I s l would have to measure in by d e b quency 161rates. a: Okay. 1 1A: You know, the best way to go. 8 191Q: Okay. IIOI A: I think that we were about 6 1111 percent at the worst. 1121 a : Uh-huh. 1131 A: You know, I think. 1141 a : Okay. 1151 N r , A: o* you know, you should be 1161 running somewhere below ceminly below 2 lln percent is where you want to be. ,lei a: okay, 1191A: These days, I thhk we're wen lml less than 1 percent for mom banks. 1211 a: I see. I you eqlained 1221the commercial lending we

Still are. 141Q:Are sfill impmving. But they 151 have wen to this date, being 161 February 13.2003,they are not as good as PIthey were backinthe '84 to '88time

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frame? 1 1A: That's my opinion, yes. 8
(91a : Now, why was there

such a sharp

1101change. to '88beingtheverybest of 1111years and then '89 to '92 beingthe very r121 worst of years?

'84

1131 ISmy description comct.'84 1141 to '88? 1151A: Yeah.That's fine. 1161 a : okay. I 1171 : I'm not an economist. I t h i i I lial A was more or less reacting to the market 1191 conditions. I 1201 a: okay. [zil A: But I think the reasons - the [nl reason for the good market,you kn~w,in
Page 67
111general termswas that,youknow.yo& had 121priortothat,youknow,theCmer

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Page 65

63
III a whole?

121 A: We had a small portfolio, so to 1 1 3 the bank as a whole it wasn't that 141 meaningful. I don't believe it had an 151 impact. 161a: Slut. PI A: But you got to remember we were , la1 an $&billion institution when I first : ' was 191 hired at Northeast, thereabouts. The 1101 portfoliowasmaybe500 million. I111 a: Okay. it was a very small percentage 1121A: 1131of the total assew and remainedyou know, 1141 Pretty much that M Y throughout. Page 66 1151 You know. we were hired to 1161 increase that number,but don't think it 111they stabilizedin the early part and 1x1 [in would have ever been a subsfantive started to improve subsequently?

stop, 121THE WITNESS: Can we? 131M SAWI:Sure. A 141 (Recess) 151THEV,DEOGRAPHER: Backonthe 161 record,Time is 171 BY MR. SAW: 1 1a:All right, sir. We were talking 191 8 about the commercial real estate market,and llolwhenwouldyou saywasthewere the good 1111times for the corn mercial real estate market? 1111 Would it have been - well, you 1131 tell me. 1141A: It was between '84 and '88. 1151 Q:The worst times,I believe you 1161 said,were '89 to '92? 1171A: yes, (181Q: Okay. 1191A: In that time frame. 1201 Then in '93 things stabi1ize@ 1211 A: Yes, and started to improve. 1221 a Started to improve. So in '93 :

131 adminimation that was here. Oil prices 141 were high. 151You know, when Reagan came in, 161 there was this leveh-off oeriod and m business started to eGandand because of 181that oomrtunities started to develop A d 191dimand was there for office buildings. As 1101 office buildings and businesses did well, 1111 subdivisions subsequently grew. 1121 You know, I think you had a 1131 recovering - o v e d general recovery to 1141 the economy,youknow,anditwas expanding. I151 a: Okay. 1161A Sobecauseofthat wewere able to : 1171leverage off of it as bankers and get 1181 involved in the growth on a real estate 1191basis. mm~What causedthebubbleto burstis 1211 that it just got too big. There was more 1221 supply than there W S demand.You L had a n
Page 68

condition where there were more nr officebuildingsthan there don't think that goes for should be. 1131 aparvnentsas 141much.Tbatprettymuch was okay on the 151apanment side. 161 But on office buildings, 171 indusuial buildings, you know, they really 181 did not do too well and there was too many 191ofthem.Wekebeenenstruggling,Ithink 1101 here inConnecticut,to absorb that to this 1111 day. If you rake a look in downtown 1121 Hartford,you'U find a lot of empty space. 1131 a: I see. 1141 A: I do think that even in the worst

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[ 151of times there is always opportunity us 141forthe upcoming changes in capital 1131A: I remember his, you know, reactand 1161places where the bank caafocus ratios. ion 1141was,youknow,we'renot- we're and carve 11n out a niche to where you 151The otherinstitutions andthe 161other not 1151 capable of doing those right now can still make 1181money, though. bankers I think weren't as upto-date m and don't 1161buck the trend. 1191 I mean while I'm describinn this IZOI as George and KiIIK were with this issue, 11710: Okay. issueasbeingsomewhat dire,therewere I so~a~theypursuedustobuythesethings. 1181A: Inotherwords,gobackanddo1191 1211bankSandinstitutionsatthistimethatBy the 191 time - you know, these that portfolio maintenance. 1221 w e 4 originating loans that were transactions take a 1101lorn time. You good and know,theytakeanywhere~ ~ ~ f r o m t h r e1201 0 : Okay. e to six months from beginning to 1121end. 1211 A: Get some of those loans paid off. Page 69 1221 0 : How successful were you in gett1131 0: Okay. 111 they paid and they made money. ine 1141 A: By that time they also were up 1151 121 0: So not everybody got out of the 131 realizing that nally we can't be buying Page 74 commercial real estate market or ceased 1161commercial portfolios anymore. So I I41 commercial real estate in '89 to '92? I 11the portfolio paid off or reducing the think 1171that's the reason. l think that's size 121 of the portfolio? 151 A: NO. the [la1 reason. 181A: We were vevsuccessful.Imean HI 161 Q: In fact, some of your colleagues n~ 1191They certainly didn't tellme that r l m in the sense of, you know, they were at Northeast you saidleft Northeast to go at the time whentheywithdrewtheirla]withthese otherinstitutionsthatwere we 1211hada couple bf commitmentsfor tough 151 circumstances.but there were also 191 continuing their originations of deals and 1221thenthey just walkedaway losses 161 involved in some of those where certain nl loans went bankrupt commercial 1101 lending? from the and now the shift was to 181 minimize 1111 A: Correct. Page 72 loss. 1121 0: I take it you were able to sell 1131 111 commitments. But that was my s w 1910: I see. some of your commercial real estate 1141 picion. properties to other institutions? 1101 A: So I mean, you were going to lose 121 0 : okay. 11 11 money, you know, but it was an issue 1151 A: Yeah - well we vied. of how 1121 much. 131A: They got smart, .11610 : Well, how successful were you? 11310 : You were goingto lose money 1141 141 0:Judging by what happened to the [In A: Not vev, you know, not on a 118) 151 economy, that is, the bubble bursting simply because of the economic times, big apool sale basis.When1say pools, and 161 real estate values falling 90 to 40 the 1151 worst times for this particular 1191you know, anywhere from 30 to 40 rn & the '89 to '92 &riod, in market? assets 1201 could have been in what I would classify as 1211 a pool or a uans hindsight does 181it seem like it was a 1161 A: Yeah.Yes. actionand then you would 1221 sellit.We good thing that the 191 bank ceased [ I ~0 : But YOU were able, in spite of 1181 I originationswhen it did, tried that on a number of that, to reduce the overall size of the 1191 1101A: Not in my opinion. commercial lending portfolio? Page 70 1111 a Why is that? : 1201 A: Yes. I think it's important to 1211 111 occasions,but, you know, there were 1121 A: As I mentioneda little earlier,I 1131 note that the loansthatwe wereworking no 121 takers. think that the even in dire cir- out 1221 and losina money on were 131Q: ~ uyou did sell some assets? t I cumstances 1141 there are opportunities I pred;cissor selectively. 1151 Without question, you 141 A: We didyes. Page 75 151 a Well,whyweren7t : there any takers have to be far more 1161 selective. But I believe that there were 1171 oppor- 111institution 1oans.They weren't loans 161 to the assets you vied to sell and tunities that the bank could have taken that 121 we booked. weren't m able to? 1 8 advantage of without incurring the 11 1310: Okay. 181A: I don't know that they had 191 losses 1191 that could be that other aoodwill issues. these other institutions. institutions 1201 were incurring. Smarter HI A: SO- for the most part. %,you 151 know, it was - can you -I suppose 1 6 11 11olThatIcan't tellyou.~never really 1111 lending. wanted to make that statement. lookedat theirbalance sheets.ButIthink 12110: Did you ever come across one of 1121 they were feeling the pinch at this 1710 : That's h e . time. 1131This would be the time frame 1221 these opportunities and bring it to la] A: If you couldaskmethe question 191 being 1989 1141 through, Sly, '91. Page 73 you just asked,becauseIdon't think11101 1151 Q: Okay. &&?red it with that statement. 111 Mr. Rutland's attention where you would Sly 121 something along - 0 b 1161 A: Okay - when we were ~ y h g 1111 0 : But do feel free to make the 1121 viously not in those el words, but, "Yes, 1171 attempting to do this, pool vans comalete. . the -.we are in dire 141economic times, 1131A: Yes. Understood. actions. 1181 B U ~I don't - but they were 1191 but this is a particularly 151 good o p 1141 Q: Idon'twant- Idon'twantthe 1151 saviw banks,and~ think that theywere ponunity for this or that reason"? record to leave important things unsaid. rzoi aGo feelingthe difficulties due to 1211 1 161A: Uh-hum 1161 A: Okay. reregulation as well, and they were IT Q: -1 think we should make that 1 1 8 m e 1221 they still - George and 1171 That's perfectly h e with me. 0: panicular loan." Did that ever happen? were ahead of (la] A: Okay. 191A: It did.It happenedonanumber 1101 of occasions where we brought in loans (191 MR. SAWI:~owIfor~,otthe ~zoiquestpage 71 rllthecurve,~think,onthisissue.T~y that rl11we thought were the exception ion. 121 the 1211 m e reporter read the record as 1221 clearly saw that they should be moving el assetsoutofthebank totryandsituate 1121 Q: Okay. requested.)

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real estate loans adjustable rates or fixed I [IOIrates? 1111A: The majority, they should always 1121 be -they shouldalways be - they should 1131be adjustable. 1141Q: Were they in fact - the majority 1151 of the 500 million portfolio, were they in (161fact adjustable? 1171 A: You know, I don't know that.11181 don't know whether it was the majority. 1191 0:okay. rml A: I know the ones that we booked 1211 were, a l of them. l 1221 Q : Okay.
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1211A: Okay. [=I Q: The folks who were most intimately

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111 A: I'm sure I knew that then, but I 121 just don't remember now. 131 Q: I understand. I understand. We I41 are taJking about things that happened 15 151 years ago. 161 A: Yeah, it's been a while. m Q: I don't expect you to remember all [a] the numbers. PI A: Okay. 1101 Q:Now,ifIwas ifIwanted to 1111 talk to the personinthebankwho knew the 1121 most about the impact of the phase-out of [I,] goodwill in particular and FIRRBA in general 1141on Northeasr globaUy,who would that person 1151be? 1161A: I would think it wouldbe Kitk 1171 Wakers 1181Q: Okay. 1191A: George Rutland, and Craig Smith. 1201 Q: Craig Smith. Who is Mr. Craig 1211 Smith? 1221A: He was corporate counsel, inhouse

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counsel for Northeast. 121 Q: Other than Mr. Walters well, 131 Mr.Rutland isno longerwithus.So the I41 people who are reasonably available, you 151 mentioned Mr. Walters and Mr. Craig Smith. 161Is there anyone else? r A: I don't know n it's a shot. She 181 &o worked in the legal department, so I

111 corporate

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191don'tknowhowinvolvedshewas.but

she may 1101 have been involvcd. I don't know.would be 1 1 1 1BelindaWelti.We1-t. i.~heksalsoin;i2~ thelegaldepartment at Northeast. 1131 Q: Okay. rial A: She worked for Craig Smith. 1151 Q: Well, let's leave the legal folks 1161 out of it for now. 1171 A: Okay. llal Q : I appreciate that. [I91 A: SW. I ~ QI : I want that

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involved with the of the business 121 itself, either on the lending side or the ol borrowing side or the savings and loan side. 141 A: I see.1misunderstood.1 (51thought you meant Like specifically to the 161 regulations and what was going on. pi a:No. 181 A: Okay. 191 Q: But the impact of the regulations 1101 on the financial aspect or the 6nancia11111 performance of the bank. 1121 A: ThatwouldbeDanSteinmetz.11131 Page as mentioned him earlier. He was the executive 1141 vice president that I re- 111 Q : I see. ported to. I think 1151 Dan was very 121 A: It's more corporate type loans, 131 knowledgeable about those 1161things. what we call middle market or global size (41 loans, and they're. you know, 1171 Q: You mentioned Mr. Walters and companies that 151 generate revenues 1181Mr. SteinmetZAnyone else? anywhere from 20 million 161 to, you 1191 A: On the impact on the business [ m ~ know, a billion dollars a year in PI rid,=? -..-. revenue. 1211Q : By business, I mean the entire 1221 181 Q : I see. They would borrow money bank globally. 191 from you to conduct their business? Page 87 1101 A: Fleet.They would borrow money 1 I 11 from Fleet Bank. (11 A: You might - Patrick Macomber. I rzi don't knowhow to spellhis last name. 1121 Q: No. I understand. 131 Q: Who was he? 1131A: I'm a little short on millions 1141 these &F. But, yes, they would borrow 141 A: He ran the residential side. I 151 think he was an EVP for residential 161 1151 money fromFleet Bank for working capital [161purposes mostly,to keep their originations. business 1171functioning. m Q: Okay. 1181Q: Howis the commerciallending 181 A: I would think that these 191 re1191 how does the commercial gulationshadasignificantjmpactonhim at Fleet 1201differ from the portfolio 1101 as well. portfolio at 1211 Northeast? I know it's 1111 Q: How often would you have conlarger. tacts 1121 with Mr.Walters?Was it daily as 1221 A: It's not just larger,but it's a well? Page 80 1131A: Well, we saw each other every day. 1141We were onthe same floor inthe 111 completely different product. Corn bank. More 1151 weekly updates. You mercial 121 real estate loans is really a know, it depends. r 161 SonIetimeSdaily.It different area 131 of experrise for lenders depends on,you know, 1171 what accoun- than commercial and 141 industrial or ts you were working on and how -1181 middle market loans are. what kind of problems they were gene- 151Q: I see, rating 1191 that week. 161 A: It's completely different PI p m 1201 You could go a week without seeing ducts. It would be Like if you're an 181 1211 him, and then again, you know, you c0uld-w 1221 four times a day seeinghim. attorney,you know, you practice M y law 191 as opposed to practicing, you But it was know, patent 1101 law. It's different. Page 85 . 1111 Q : Got you. Did Fleet Bank ever 1121 issue stock during the time you were 111 regular. there? 121 Q : Would it be fair to say on the 131 1131 A: I've been there 1141 since 1995 average about once a week? 1996,the beginning of '96. 141 A: Oh. veah. at least. ., . 1'51 Q : Okay. 151 Q : OtherthanMr.Walters,whowould 1161A: I think we m y have split.But I 1171 161 know most about the day-to-day don't think so. I don't think so. operatiom at 171 the bank?
111

181 A: I don't know. I think I don't 191 have another name to surface up. Not that 1101 they're not there, but ce&y nothingis [ I I Icoming tomindright now. [12l Q : Fair enough. Does Fleetwood Bank 1131 have a large commercial real estate 1141MR.TODD: Fleet Bank? 1151MR. SAWI:ISmsorry. Did I say 1161 flee mod^ My apologies. Fleet Bank. 1171 THE WITNESS: A large 1181BY MR. SAWI: 1191 Q Commercial lendinn ~ r t f o l i o . . . . Iml A: Commercial,yes. But commercial 1211 real eRate.1 don'rthinkso.They don't lzz, focus on commercial realestate loans.

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rlsl a: So they've never raised capital in IIYI the open markets? 1m1A: Not since I've been there that I 1211 remember. 1 2 s a: At Fleet Bank do you have any

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otherm aka inthe business ofNortheast that you 181are knowledgeable about? 1 1 A: No. 9 - 1101 a: Was there a time during your stay Page 91 1111 there where Mr.Rutland8ave up the reins to 1121 Mr. Walters or 1mean --was 111 problem generating more loans or making 121 more loans because of any Mr. Rutland the 1131CEO the entire time Page 96 you were there or did 1141 Mr. Walters capital shortages 131 or any ever take 111 They were - theywere very,very 121 141 A: Not that I'm aware. knowledgeable about the product that I 1151A: Not the entire time. I believe 1161 I51 a: okay. when Shawmut announced they were was 131promoting 161 A: But I am really out of that loop. going to 1171acquire Northeast andabout 141 a : I see. n] a: But you I mean you're not in la1 sixmonthsafterllalthatannouncement- 151A: - and on the work outside as I$] the same situation you were in at Nor- as I recollect it took 1191about a vear for well. They fully understood, you kno whereyoucan'tmakeanymore that deal to close i d - i t 1201 ul&tely theast~~~ the 171 upside and the downside of th loans because 1101of closed with Fleet, as I mentioned 1211 various la] methods of collection. before. I 1111 A: Wee4 I personally - I know this IYI a: I see. 1121 bank is making loam.They have loan 1221 a : Okay. r1ol A:Whetherit be a bankruptcyor 1111 1131 originators that are on the loanas we Page 94 whether it be just some son of forspeak 1141 throughout the counuy and 1121agreement,youknod+you9throughout the 1151 world. This is a 111A: Six months, I'm going to guess, 121 bearanceto give 1131the bomwer'some re going completely Merent type 1161 of i n prior to the Fleet acquisitionandclosing time to work the problem 1141 out. ' stitution,andIknowthatthey are 1171still 131 of the deal, George had retired from I his 141 position or had resigned his I151 MR. SAWI:Off the record. lending actively. position as CFO a]and Kirk Walters was 1161THE VIDEOGRAPHER: Itas11:18.1n] 1181My function at the bank is really 1191 We're off the record. now to only handle those assets that promoted to that 161'position. m a : Do youknowthe reasomforthe 181 I181 (Recess) have 1201 been identified as problems. resignation or retirement? IIYITHE VIDEOGRAPHER: Back on the 1211a : I see. rr A: I don't, no. s 1201 record.Time is 11:19. lzz] A: So I have no contact with, you 1101a : Isthereany nunorsoranythhg 1111 1211 BY MR. SAWI: Page 92 that oeook saidinthebankto bethe 1121 1221 a: NOW describe ~ rnutland to me, . reasons ?or the tesignation or tetirem 111 know, the origination world other Paae 97 than them 121 calling me somewhat ent? " distressed that they 131 need to send a 1131A: Not that I heard. I think it was 1141 111just the same exercise we did with 121 loan over to me. generally assumed - or at least I did r l Mr. Walters. a assume that, you know, the bank was 131A: I think the same. You know, 141 141 a: I see. I see. sold and 1161now it was time for - you George had a lot of experience in the el 151A: I'm the emergency room now. for know, it was time 1171 him to kind of lending side and I - including on the 161 (61a: I see. How is dealing with 171 retire. I think. commercial teal estate side. at least he problem loans for Fleet Bank different from 181 dealing with problem loans at 1181Q: Is there any difference,asyou 1191 was m very knowledgeable about all the Northeast?I thinkyou you did both at both can t e a between the direction that IZOI accounts 181that I worked with him on. Mr. Walters wanted the bank to have 191He impressed me greatly because 1101 institutions. versus 1211the direction that Mr. Rutland I've ncver seen a chairman of the board rlol A: Yes.Yes. I did. wanted the 1221 bank to have? aauallyget soinvolvedwith ora I I IICEO 1111 Q: How is the work any different? the 1121ofiicerson theirdeals.He wanted rage Y> to know so i what was going on and what 1121 A: Well,the loansaremuchbiggerir31 your smtew 1141 aas. here.Thevtendto bemore cornolicated. 111 A: None that I could perceke. 1141The &ctionsare,youknow, justa 121 Q: What kind of supervisor and what ,151 He had-a great ability - and I I161 more 1151 sophisricated son of Vans 131kind of a banker was Mr.Walters? thinkKidrdid,too to notinterfete too action. 1171 much, but, you know, be involved in 141 A: What kind of a banker? it, and 1181you wanted to make sure that 1161Youknow,commercialrealestate,1i71 a: Yes. Describe him to me, 151 they knewwhat IIYI kindof suategyyou while it has its own specialties invoked bWt,very,very PI were going with. in 1181 the training is - requires, you . 161 A: HeSsvery,very it, know, ,191 less time and attention than ' hardw0rking.A great banker.He is an 181 12o1My functionwas prettymuchina 1211 these loans 1201that I'mnowwotkingon. accountant by background and driven recommending role. I would go and say: I don't know if 11211 described that very by the 191 numbers, which is very often 1221This is what I think we should do.It well, but it's different ~ 2 1 levels of different than, 1101YOU know, a lender. was Whilewehave numbers 1111 that need to sophistication. be, you know, followed, I mean 1121 Page 98 Page 93 they're not -it's not the same type of - I I I his callas towhetherwedoitthatway accountants tend to want to takeless or 121 not.He was very good.He wanted a : ~~~~~~h wouldyou knowabout 1131 121 lending in ~ ~ r tfrorn ~ risk. ~ lenders Wre to take mote risk. h ~ 1141t to know 131 about the deals. He was '88 131 to '957 1151Q: I see. handson. 141 A: Very little. 1161A: My job was to convince him that 141 a : In the commercial lending 151pot-

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151 Otherthan the area of commercial I61 lending we talked about. is there any

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he should be taking mote risk on cenain loans. llal a : I see. 1191 A: But, no, hewasvery,verygood.lzn~ He had aareat business sense.Ithii.He 1211 undemood the uansactiom and the deals1221 when thev were otesenred.and so did George. '

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or 1161 just as a commercial portfolio without 1171 putting that real estate at the end of it. (181Q: I see. Did the bank ever 1191 consideslet's say,after '93 and whenthe rznl economywas improvingand everything else 1211 was going betrer than itused to be, going 1221 back into commercial real estate lending?
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rzl A: Imean I really prettymuchwas a 131 lieutenant or a sergeant in this shop. 141 Q: Okay. 151 A: Iwas carrvinnthe missionout for 161 , &nior management, as I continue to b ; n todav.Youknow.that's notwrole.I'm l te&nic,. 1&& on my deals and try to 191 accomplish the goals that are pretty much 1101given to me. (111Q: Now, I've asked you this before, I I ~ but I want to make sure I 1131MR. SAWI:Do we have enough tape? 1141 Let's change it. 1151THE VIDEOGRAPHER: Time is 11:32.1161 We're off the record. 1171(Tlecess) 1181 THE VIDEOGRAPHER: Tape 2. Back 1191on the record.Time is 11:35. Iml BY MR. SAWI: 1211 Q: S",I justwanted to make sure I 2 1 12 have - 1 have this correctly and

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to its heyday in the '84 1181 '88period, to correct? 1191A: That's my opinion, yes. POI Q: Your understanding from your daily 1211 contact with both Mr. Walters and [zzl Mr. Rutland is that on the residential side,
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111 what

In '95, just before the Shawmut 121 acquisition was announced, there was some 131discussion nothing was done about it, but 141 there was some dis cussion of, you know, 151maybe entering that market again. 1 161 don't - that discussion was I think pretty 171 much betweenme and Dan Steinmetz,and not [el with George and Kirk. 191 Q: I see. 1101A: So I think we were getting the 1111 sense,you know, that maybe now is the time 1121 to position yourself for some lending. 1131 Q: Why did you think that '95 was a 1141 good time to do that? 1151A: Well, you know, we were just 1161 starting to see things improve in the 1171 marketplace,youknow,things started to 1181recover, and there seemed to be 1191 oaoortunities out there: whereas. in the [&;late eightiesyou would be lookingat deals 1211where mu were underwriting spec&&e 1221deals where there wasno tenants in the

111 A:

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now all of a sudden,you know, 121 buildings started to get occupied again. 131Q: I see. 141A: You know, there was not to any 151 robust sense, but it was impmving. I61 Q: okay. 171 A: But it was never - it was never 181 mandatedorwenevergot theokayto hit the 191market to go do that. [lo] Q: I see. 1 1 A: Then, of course, the Shawmut 1121 11 announcement was made and then it becamea 113; moot issue.It tookalmost a year to close 1141that,= Imean we were pretty much on the 1151holding pmern again maintaining the 1161portfolio. 1171Q: Did there come a time when you Ila felt Northeastwasno longer capitally 1191 constrained, that it had enough capital to IZOI expand in different areas of business, if 1211 there were economic opportunities to do so? 1221A: That wasn't my c l . al

111 building and

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111 Q:

I see.

the bank wanted to do is to originate 121 residential loans and first the bank BI wanted to gather retail deposits and use the 141deposits to make residential loans and then 151 sell those residential loans on the 161 secondary market? I PI A: That's correct. 1 1 Q: The reasonthebankwmtedto sell 8 191the residentialloans onthe secondary 1101market is because the bank canthen get fees and retain ser. vicing rights I I ~and servicing fe& and I shiffthe credit risk 1131that isinheknt in p--. a,. k these loans to whoever 1141 the buyer L I I I accuntely.1think I do, but Iwmt you going to be? I to 121 set me straight if Imissed anything. 1151 A: That's undemanding, yes. 131As faras youknow,the impact of 141the phaseaut of goodwill and the 151 anti- 1161 Q:What I described with residential of cipation of the phase~ut goodwill 161 1171 lending was the philosophy and the affectedthe bankby causingthe bankto preferred 1181operating strategy of both 171cease commercial real estate lending Mr.Walters and 1191 Rutland? Mr. 181in 1989;is that correct? 1201 A: Could you repeat that, please? 191 A: Correct. 1211Q: Sure. What I described about l z z ~ 1101 Q: As far as you know, the only 1111 residential lending, as far as you know, impact on the bank from this p h a s e ~ u t was of 1121 supervisory goodwill or the antiPage 112 cipated 1131 p h a s e ~ u tof supervisory goodwillis to 1141 require - is to get the 111 the philosophy and preferred oDerbank to cease lrrl corkercidreaiestate ating 121 strategy of bo& Mr. wa~teis as lending and to rcduce 1161the size of its well as 131Mr. Rutland? commircial real estate 1171portfolio? 141 A: Yes. 1181 The onlyadditionalstatementI1191 ol Q: A far as you know,from 1989161to A: s wouldaddtothatwouldbe thatIbelieve 1995the banknever raisedcapital for 171 it 1201 had an impact on the residential any reason? lending 1211 side as well, but I have no 181A: A far as I know. s intimate 1221knowledge of that. 191Q: Asfarasyouknow,frorn19891101 to Page110 1995 the bank never went to its 1111 111 ( : Okzv 1 shareholders and asked for additional -. --,. 1121 capital infusions from the share121 A: Okay. holders in 1131 order to pursue any 131 Q: But as far as you know, the 141 economic suategy or any 1141 statement that I made is correct? suatew? -. 151A: Yes. 1151 I have no knowledge of that. A: 161Q:~ithcommercialrealestate~the 171 1161 MR. SAWI:Sir,that3s have 1171for best of times,the highwatermark of the you.~our counsel may have a couple of 181 business, was the years '84 to '88; is 1181 questions,but I am done. t a 191correct? ht 1191MR.TODD:Just a couple of 1201 ques 1101 A: That's correct. tions to YOU. 1111 Q:Theworstoftimes,thedarkest1121 BY COUNSEL FOR times, were the years '89 to '92? 1131A: Yes. 1221 BY MR. TODD: I141 Q: The real estate market began to Page 113 1151 stabilize and improve in '93, and it kept on 1161improving but eveito this 111 Q: Mr.O'Kede,didyouevcrdjscuss1~~ day, 2003,it has 1171never returned back the bank's overall strategy with 131 .Mr.

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BETA REPORTING (202) 638-2400

Minin-U-Scripts

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Case 1:92-cv-00550-MCW KnW JAMES O'KEEPE February 13,2003
Rutland, I41 A: NO. 151 Q: Did you ever discuss the bank's 161 werall strategy with Mr.Walters? m A: No. 181Q: Did you ever discuss the bank's 191 strategy in response to the implementation (101 of FIRRBAwith Mr. Rutland, 1111 A: No. 11s Q: The same question as to 1131 Mr. Waltcrs? ( 1 4 A: No. 1151MR.TODD: Nothing further. 1161MR. SAWI:That9s It. 1171THE VIDEOGRAPHER: Time is 1I:&. 1181We're off the record. 1191Whereupon, at 11:& a n , the 1201 depositionofKBVINJAMBS tall O'KEBPB was adjourned)

Document 147-3

Filed 11/01/2006 Page 12 ofFA. V NORTHEAST SAYINGS, 12 . UNITED STATES OF AMERICA

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