1. Webster Financial Corporation Commercial Real Estate “The End of Extend and Pretend” March 2012

2. 2 How Did We Get Here? Déjà Vu All Over Again Too much capital – debt and equity Aggressive deal terms – free options Overpriced values

3. 3 Industry Dynamics Tax code change (1986) Overbuilding Aggressive underwriting (S&Ls) Recession – unemployment peaks at 8.2% Office overbuilt Cap rate paradigm shift Too much capital / leverage Aggressive underwriting (CMBS) Severe recession – unemployment at 9+% Consumer impact on retail supply 1990s2008+

4. 4 Regulator’s / Lender’s Approach Hands were tied Aggressive Regulatory environment; came in with biased mindset from experiences in Texas Regulators dictating values; performing / non- performing More adversarial with Borrowers More flexibility Regulators applying lessons learned from 1990s; will not dictate values Tightening underwriting standards Increasing pricing; risk premium back in Refinancing maturing loans; no alternative source of capital More collegial with Borrowers 1990s2008+

5. 5 Portfolio Realities Falling market values Stressed cash flows with near term lease rollovers and declining rents Increasing covenant defaults Near term maturities Increasing payment defaults, sponsor liquidity issues Negative risk rating migration and capital issues

6. 6 Portfolio Strategies Early identification and resolution of the problems Timely risk rating changes and aggressive action is critical to avoid regulatory scrutiny Favorable regulatory guidance, work with sponsors wherever possible Negotiate permanent solutions, do not “kick the can”

7. 7 Loan Decision Tree Loan Work with Sponsor A / B Structure Note Sale to 3 rd Party Renewal / Mod / Extension Don’t Work with Sponsor Discounted Payoff Foreclosure REO Retain loan Higher LTV Control economics Increased income from higher rate Retain B note or equity kicker for future upside Put A note back as performing loan Removal of substandard / non-accrual loans Fix / lock in charges Bankruptcy

8. 8 Renewal / Modification Loan:$10 million Maturity:11/01/11 Occupancy:85% LTV:90% DSCR:1.10X $500,000 pay down Term: 3 year extension Cash flow sweep to fund T/I escrow reserve $125,000 interest reserve (add’l collateral) LTV: 85% DSCR: 1.20X TDR Status LTV @ Maturity ProblemSolution:

9. 9 A/B Note Structure Loan:$10 million Occupancy:70% LTV:above 130% DSCR:Below 1.0X “A” Note - $7.5 million LTV approx 100% DSCR – 1.10X Cash flow sweep Performing status TDR Status “B” Note - $2.5 million $2.5 million charge off (not forgiven) Accruing at 1% rate ProblemSolution:

10. 10 Conundrum Are TDRs a true measure of a bank’s future defaults? TDR problems and implications: - Classification inconsistency across the industry - Went from simple accounting classification to 1.) a metric used by Wall Street to access future defaults and 2.) incremental FDIC requirements given classified status Due to capital and valuation implications with TDR labels, workout structures may change to include: - Larger charge offs on A/B structures - No perceived concessions – need for “market” transaction

11. 11 Scorecard Regulatory / lender approach definitely a plus Banks able to resolve liquidity issues Banks raised or shored up their capital positions Minimized charge offs and costs Pressure today for banks to clean up their balance sheets Myth vs. reality – are TDRs the next shoe to drop?