Item 7.
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Managements Discussion and Analysis of Financial Condition and Results of Operations
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Forward-Looking Statements
Periodic and other filings made by Peoples United Financial with the SEC pursuant to the Exchange Act may, from time to time,
contain information and statements that are forward-looking in nature. Such filings include the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and may include other forms such as proxy statements.
Other written or oral statements made by Peoples United Financial or its representatives from time to time may also contain forward-looking statements.
In general, forward-looking statements usually use words such as expect, anticipate, believe, should, and similar expressions, and include all statements
about Peoples United Financials operating results or financial position for future periods. Forward-looking statements represent managements beliefs, based upon information available at the time the statements are made, with regard
to the matters addressed; they are not guarantees of future performance.
All forward-looking statements are subject to risks
and uncertainties that could cause Peoples United Financials actual results or financial condition to differ materially from those expressed in or implied by such statements. Factors of particular importance to Peoples United
Financial include, but are not limited to: (1) changes in general, international, national or regional economic conditions; (2) changes in interest rates; (3) changes in loan default and charge-off rates; (4) changes in deposit
levels; (5) changes in levels of income and expense in non-interest income and expense related activities; (6) residential mortgage and secondary market activity; (7) changes in accounting and regulatory guidance applicable to banks;
(8) price levels and conditions in the public securities markets generally; (9) competition and its effect on pricing, spending, third-party relationships and revenues; (10) the successful integration of acquisitions; and
(11) changes in regulation resulting from or relating to financial reform legislation.
All forward-looking statements
can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Peoples United Financial does not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.
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Recent Market Developments
FDIC Insurance Coverage / Assessments
The FDIC insures deposits at FDIC insured financial institutions up to certain limits (up to $250,000 per depositor
through December 31, 2013), charging premiums to maintain the DIF at specified levels. Such premiums vary based on the risk profile of the insured institution.
In 2009, in response to adverse economic conditions that resulted in an increased number of bank failures and, consequently, greater use of DIF resources, the FDIC authorized higher premium assessments
pursuant to a restoration plan designed to increase the DIF reserve ratio to required levels. Also in 2009, the FDIC adopted a final rule that amended the assessment regulations to require insured financial institutions to prepay their estimated
deposit insurance premiums for 2010, 2011 and 2012 on December 30, 2009. On December 30, 2009, Peoples United Bank prepaid its estimated deposit insurance premiums totaling $69 million in accordance with FDIC regulations. The prepaid
deposit insurance assessment at December 31, 2012 was $1 million.
In February 2011, the FDIC approved a final rule that:
(i) changed the assessment base from adjusted domestic deposits to a banks average consolidated total assets minus average tangible equity (defined as Tier 1 capital); (ii) adopted a new large-bank pricing assessment scheme; and
(iii) set a target size for the DIF at 2% of insured deposits. The rule, which was effective beginning with the quarterly assessment period ended June 30, 2011, also (i) implemented a lower assessment rate schedule when the DIF
reaches 1.15 percent and, in lieu of dividends, provides for a lower rate schedule when the reserve ratio reaches 2 percent and 2.5 percent and (ii) created a scorecard-based assessment system for financial institutions with more than
$10 billion in assets, including Peoples United Bank.
One of the financial ratios used in the scorecard-based
assessment system for financial institutions with more than $10 billion in assets is the ratio of higher-risk assets to Tier 1 capital and reserves. In October 2012, the FDIC adopted a final rule that revises the definitions of
higher-risk commercial and industrial loans, securities and consumer loans and clarifies when an asset must be classified as higher risk. This rule is generally effective on April 1, 2013.
The actual amount of future assessments will be dependent on several factors, including: (i) Peoples United Banks
average total assets and average tangible equity; (ii) Peoples United Banks risk profile; and (iii) whether additional special assessments are imposed in future periods and the manner in which such assessments are
determined.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
The DFA, which was signed into law on July 21, 2010, imposes significant changes in the financial regulatory landscape and will
continue to impact all financial institutions and their holding companies, including Peoples United Bank and Peoples United Financial. The DFA transferred all supervisory functions, including ongoing supervision, examination and
regulation, for savings and loan holding companies and their non-depository subsidiaries to the FRB, effective July 21, 2011, and on the same day, the OCC assumed responsibility for the supervision, examination and regulation of all
federally-chartered savings banks. In October 2011, Peoples United Bank filed an application with the OCC to convert to a national bank charter. In connection with this conversion, Peoples United Financial intends to submit an
application to the FRB-NY to convert to a bank holding company.
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The DFA created a new federal consumer protection agency, the CFPB, which is empowered to
promulgate new consumer protection regulations and revise existing regulations in many areas of consumer protection. The CFPB has exclusive authority to issue regulations, orders and guidance to administer and implement the objectives of federal
consumer protection laws. The CFPB also has supervision over our consumer compliance examinations. Moreover, the DFA permits states to adopt stricter consumer protection laws and authorizes state attorneys general to enforce consumer protection
rules issued by the CFPB. The DFA restricts the authority of the federal banking regulators to preempt state consumer protection laws applicable to banks and limits the preemption of state laws as they affect subsidiaries and agents of
federally-chartered banks.
The DFA limits the amount of interchange fee that an issuer of debit cards may charge or receive
to an amount that is reasonable and proportional to the cost of the transaction. The DFA further provides that a debit card issuer may not restrict the number of payment card networks on which a debit card transaction may be processed to
a single network or limit the ability of a merchant to direct the routing of debit card payments for processing. The interchange fee provisions became effective in the fourth quarter of 2011 (see Non-Interest Income).
All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the
DFA. As of December 31, 2012, Peoples United Banks non-interest-bearing deposits totaled $5.1 billion, or 23% of total deposits. The Companys interest expense may increase and its net interest margin may decrease if we begin
to offer higher rates of interest than we currently offer on demand deposits.
The DFA also imposes stringent capital
requirements on bank holding companies by, among other things, imposing leverage ratios on holding companies and prohibiting new trust preferred issuances from counting as Tier 1 capital. The DFA also increases regulation of derivatives and hedging
transactions, which could limit the ability of Peoples United Financial to enter into, or increase the costs associated with, interest rate and other hedging transactions.
In January 2013, the CFPB issued a series of final rules to implement provisions in the DFA related to mortgage origination and mortgage
servicing. These rules, which are scheduled to go into effect in January 2014, may increase the cost of originating and servicing residential mortgage loans.
It is anticipated that the DFA will significantly increase the Companys regulatory compliance burden and costs and may restrict the financial products and services Peoples United Financial
offers to its customers.
General
Peoples United Financial is
a savings and loan holding company incorporated under the state laws of Delaware and the holding company for Peoples United Bank. The principal business of Peoples United Financial is to provide, through Peoples United Bank and its
subsidiaries, commercial banking, retail and business banking, and wealth management services to individual, corporate and municipal customers.
Peoples United Bank is a federally-chartered stock savings bank headquartered in Bridgeport, Connecticut with $30.1 billion in total assets as of December 31, 2012. Peoples United Bank
was organized in 1842 as a mutual savings bank, converted to stock form in 1988, and in 2006 converted from a Connecticut-chartered stock savings bank to a federally-chartered stock savings bank. Its deposit accounts are insured up to applicable
limits by the FDIC under the DIF. Until July 2011, Peoples United Bank was subject to regulation, examination, supervision and reporting requirements by the OTS as its chartering agency, and by the FDIC as the deposit insurer. On July 21,
2011, primary supervisory responsibility for Peoples United Bank was transferred from the OTS to the OCC.
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Peoples United Financials results of operations are largely dependent upon
revenues generated through net interest income and fee-based revenues and, to a much lesser extent, other forms of non-interest income such as gains on asset sales. Sources for these revenues are diversified across Peoples United
Financials three primary operating segments that represent its core businesses: Commercial Banking; Retail and Business Banking; and Wealth Management. Peoples United Financials results of operations are also significantly affected
by the provision for loan losses and the level of non-interest expense. In addition, Peoples United Financials results of operations may also be affected by general and local economic conditions, changes in market interest rates,
government policies and actions of regulatory authorities.
Acquisitions
On June 22, 2012,
Peoples United Bank acquired 57 branches from Citizens and assumed approximately $324 million in deposits associated with these branches. Fifty-three of the branches are situated in Stop & Shop supermarkets and four are
traditional branches. All of the branches are located in the state of New York, with 30 on Long Island, eight in Westchester County and six in the boroughs of New York City. Peoples United Bank paid a 1% premium on the assumed deposits of
approximately $3.24 million. See Note 2 to the Consolidated Financial Statements.
After the close of business on
June 30, 2011, Peoples United Financial acquired Danvers based in Danvers, Massachusetts. The transaction was effective July 1, 2011. See Note 2 to the Consolidated Financial Statements.
On November 30, 2010, Peoples United Financial completed its acquisitions of Smithtown based in Hauppauge, New York and LSB
based in North Andover, Massachusetts. On April 16, 2010, Peoples United Bank entered into a definitive purchase and assumption agreement with the FDIC pursuant to which Peoples United Bank assumed all of the deposits, certain
assets and the banking operations of Butler Bank, located in Lowell, Massachusetts. On February 19, 2010, Peoples United Financial completed its acquisition of Financial Federal, a financial services company providing collateralized
lending, financing and leasing services nationwide to small and medium sized businesses. See Note 2 to the Consolidated Financial Statements. On January 1, 2008, Peoples United Financial completed its acquisition of Chittenden, a
multi-bank holding company headquartered in Burlington, Vermont. Peoples United Financials results of operations include the results of the acquired entities beginning with their respective closing dates.
Critical Accounting Policies
In preparing the Consolidated Financial Statements, Peoples United Financial is required to make significant estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from Peoples United Financials current estimates, as a result of changing conditions and future events. The current
economic environment has increased the degree of uncertainty inherent in these significant estimates.
Several accounting
estimates are particularly critical and are susceptible to significant near-term change, including the allowance for loan losses and asset impairment judgments, such as the recoverability of goodwill and other intangible assets, and
other-than-temporary declines in the value of securities.
The judgments used by Peoples United Financial in applying
these critical accounting policies may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. For example, subsequent evaluations of the loan portfolio, in light of
the factors then prevailing, may result in significant changes in the allowance for loan losses in future periods, and the inability to collect outstanding principal may result in increased loan losses. Peoples United Financials
significant accounting policies and critical estimates are summarized in Note 1 to the Consolidated Financial Statements.
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Allowance for Loan Losses
The allowance for loan losses is established through provisions for loan losses charged to income. Losses on loans, including impaired loans, are charged to the allowance for loan losses when all or a
portion of a loan is deemed to be uncollectible. Recoveries of loans previously charged off are credited to the allowance for loan losses when realized.
Peoples United Financial maintains the allowance for loan losses at a level that is deemed to be appropriate to absorb probable losses inherent in the respective loan portfolios, based on a
quarterly evaluation of a variety of factors. These factors include, but are not limited to: (i) Peoples United Financials historical loan loss experience and recent trends in that experience; (ii) risk ratings assigned by
lending personnel to commercial real estate loans, commercial and industrial loans, and equipment financing loans, and the results of ongoing reviews of those ratings by Peoples United Financials independent loan review function;
(iii) an evaluation of delinquent and non-performing loans and related collateral values; (iv) the probability of loss in view of geographic and industry concentrations and other portfolio risk characteristics; (v) the present
financial condition of borrowers; and (vi) current economic conditions.
The Companys allowance for loan losses
consists of three elements: (i) an allowance for larger-balance, non-homogeneous loans that are evaluated on an individual (loan-by-loan) basis; (ii) an allowance for smaller-balance homogeneous loans that are evaluated on a collective
basis; and (iii) a specific allowance for individual loans deemed to be impaired, including originated loans classified as troubled debt restructurings (TDRs).
Larger-balance, Non-homogeneous Loans
. The Company establishes a loan loss allowance for its larger-balance,
non-homogeneous loans using a methodology that incorporates (i) the probability of default for a given loan risk rating and (ii) historical default data over a multi-year period. In accordance with the Companys loan risk rating
system, each loan, with the exception of those included in large groups of smaller-balance homogeneous loans, is assigned a risk rating (using a nine-grade scale) by the originating loan officer, credit management, internal loan review or loan
committee. Loans rated One represent those loans least likely to default while loans rated Nine represent a loss. The probability of loans defaulting for each risk rating, referred to as default factors, is estimated based on
the frequency with which loans migrate from one risk rating to another and to default status over time. Estimated loan default factors are multiplied by loan balances within each risk-rating category and again multiplied by an historical
loss-given-default estimate for each loan type to determine an appropriate level of allowance by loan type. The historical loss-given-default estimates are updated annually (or more frequently, if necessary) based on actual charge-off experience.
This approach is applied to the commercial, commercial real estate and equipment financing components of the loan portfolio.
In developing the allowance for loan losses for larger-balance, non-homogeneous loans, the Company also gives consideration to certain
qualitative factors, including the macroeconomic environment and any potential imprecision inherent in its loan loss model that may result from having limited historical loan loss data which, in turn, may result in inaccurate probability of default
and loss-given-default factors. In consideration of these factors, the Company may adjust the allowance for loan losses upward or downward based on current economic conditions and portfolio trends. In determining the extent of any such adjustment,
the Company considers both economic and portfolio-specific data that correlates with loan losses. The Company annually reviews this data to determine that such a correlation continues to exist. Additionally, at interim dates between annual reviews,
these factors are evaluated in order to conclude that they continue to be adequate based on current economic conditions.
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Smaller-balance, Homogeneous Loans
. Pools of smaller-balance, homogeneous
loans with similar risk and loss characteristics are also assessed for probable losses. These loan pools include residential mortgage, home equity and other consumer loans that are not assigned individual loan risk ratings. Rather, the assessment of
these portfolios is based upon a consideration of recent historical loss experience, delinquency trends and portfolio specific risk characteristics, the combination of which determines whether a loan is classified as High risk,
Moderate risk or Low risk.
The allowance for loan losses for these smaller-balance, homogeneous
portfolios is developed using a build-up approach that includes components attributable to: (i) historical portfolio loss experience; (ii) portfolio-specific risk elements; and (iii) other qualitative factors.
The risk characteristics considered include: (i) collateral values/loan-to-value (LTV) ratios (above and below 70%);
(ii) borrower credit scores under the FICO scoring system (above and below a score of 680); and (iii) other relevant portfolio risk elements such as income verification at the time of underwriting (stated income vs. non-stated income) and
the propertys intended use (owner-occupied, non-owner occupied, second home, etc.). In classifying a loan as either High, Moderate or Low risk, the combination of each of the aforementioned risk
characteristics is considered for that loan, resulting, effectively, in a matrix approach to its risk classification. These risk classifications are reviewed periodically to ensure that they continue to be appropriate in light of changes
within the portfolio and/or economic indicators as well as other industry developments.
In establishing the allowance for
loan losses for residential mortgage loans, the Company principally considers historical portfolio loss experience of the most recent 1- and 3-year periods, as management believes this provides a reasonable basis for estimating the inherent probable
losses within the residential mortgage portfolio. In establishing the allowance for loan losses for home equity loans, the Company principally considers historical portfolio loss experience of the most recent 12-month period.
With respect to portfolio stratification based on the aforementioned portfolio-specific risk characteristics, each risk category is
currently assigned an applicable reserve factor. For residential mortgage loans, the Moderate (or baseline) reserve factor represents the portfolios net charge-off rate for the preceding fiscal year. For home equity loans, the
Moderate (or baseline) reserve factor represents an average of the portfolios monthly net charge-off rates for the preceding three months. This component of the allowance employs a shorter look-back period as it is intended to
identify emerging portfolio trends in credit quality as determined by reference to a loans initial underwriting as well as subsequent changes in property values and borrower credit scores. Accordingly, the shorter look-back period is deemed to
provide a better basis on which to analyze such trends.
Within each respective portfolio, the loan population deemed to be
High risk is subject to a reserve factor equal to two times that of the applicable baseline factor, while the loan population deemed to be Low risk is subject to a reserve factor equal to one-third of the applicable baseline
factor. These adjustments around the baseline factor are intended to reflect the higher or lower probability of loss inherent in the corresponding portfolio stratification. The reserve factor multiples for the High and Low
risk categories were determined by reference to actual historical portfolio loss experience and are generally reflective of the range of losses incurred over each portfolios respective look-back period. As such, management believes that these
multiples, which are reassessed annually (or more frequently, if necessary), provide a reasonable basis for estimating the inherent probable losses within each risk classification category.
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In addition to the portfolio-specific quantitative measures described above, the Company
considers a variety of qualitative factors in establishing its allowance for loan losses that, generally, are based on managements assessment of economic, market and industry conditions. Such qualitative factors include, but are not limited
to: (i) present and forecasted economic conditions, including unemployment rates, new jobs creation and consumer confidence levels; (ii) changes in industry trends, including the impact of new regulations, the origination market, the U.S.
homeownership rate and potential homebuyer levels; and (iii) trends in property values, including housing market indicators, foreclosure activity, housing inventory and distressed sale levels, and median sales prices/average market time.
In completing the build-up approach to the allowance for loan losses for smaller-balance, homogeneous loans, the
amount reflecting the Companys consideration of these various qualitative factors is added to the amounts attributable to historical portfolio loss experience and portfolio-specific risk elements. In this manner, historical charge-off data
(whether periods or amounts) is not adjusted and the allowance for loan losses always includes a component attributable to qualitative factors, the degree of which may change from period to period as such qualitative factors indicate improving or
worsening trends. There were no significant changes in the qualitative factor component of the related allowance for loan losses during 2012.
Individually Impaired Loans
. The allowance for loan losses also includes specific allowances for individually impaired loans. Generally, the Companys impaired loans consist of
(i) classified commercial loans in excess of $750,000 that have been placed on non-accrual status and (ii) originated loans classified as TDRs. Individually impaired loans are measured based upon observable market prices; the present value
of expected future cash flows discounted at the loans original effective interest rate; or, in the case of collateral dependent loans, fair value of the collateral (based on appraisals and other market information) less cost to sell. If the
recorded investment in a loan exceeds the amount measured as described in the preceding sentence, a specific allowance for loan losses would be established as a component of the overall allowance for loan losses or, in the case of a collateral
dependent loan, a charge-off would be recorded for the difference between the loans recorded investment and managements estimate of the fair value of the collateral (less cost to sell). It would be rare for the Company to identify a loan
that meets the criteria stated above and requires a specific allowance or a charge-off and not deem it impaired solely as a result of the existence of a guarantee.
Peoples United Financial performs an analysis of its impaired loans, including collateral dependent impaired loans, on a quarterly basis. Individually impaired collateral dependent loans are
measured based upon the appraised value of the underlying collateral and other market information. Generally, the Companys policy is to obtain updated appraisals for commercial collateral dependent loans when the loan is downgraded to a risk
rating of substandard or doubtful, and the most recent appraisal is more than 12 months old or a determination has been made that the property has experienced a significant decline in value. Appraisals are prepared by
independent, licensed third-party appraisers and are subject to review by the Companys internal commercial appraisal department or external appraisers contracted by the commercial appraisal department. The conclusions of the external appraisal
review are reviewed by the Companys Chief Commercial Appraiser prior to acceptance. The Companys policy with respect to impaired residential mortgage loans is to receive updated appraisals upon the loan being classified as non-performing
(typically upon becoming 90 days past due).
In determining the allowance for loan losses, Peoples United Financial
gives appropriate consideration to the age of appraisals through its regular evaluation of other relevant qualitative and quantitative information. Specifically, between scheduled appraisals, property values are monitored within the commercial
portfolio by reference to current originations of collateral dependent loans and the related appraisals obtained during underwriting as well as by reference to recent trends in commercial property sales as published by leading industry sources.
Property values are monitored within the residential mortgage portfolio by reference to available market indicators, including real estate price indices within the Companys primary lending areas.
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In most situations where a guarantee exists, the guarantee arrangement is not a specific
factor in the assessment of the related allowance for loan losses. However, the assessment of a guarantors credit strength is reflected in the Companys internal loan risk ratings which, in turn, are an important factor in its allowance
for loan loss methodology for loans within the commercial and commercial real estate portfolios.
Peoples United
Financial did not change its methodologies with respect to determining the allowance for loan losses during 2012. While Peoples United Financial seeks to use the best available information to make these determinations, future adjustments to
the allowance for loan losses may be necessary based on changes in economic conditions, results of regulatory examinations, further information obtained regarding known problem loans, the identification of additional problem loans and other factors.
Asset Impairment Judgments
Goodwill and Other Intangible Assets.
Goodwill and indefinite-lived intangible assets are required to be reviewed for impairment at least annually, with impairment losses charged to expense
when they occur. Acquisition-related intangible assets other than goodwill and indefinite-lived intangible assets are amortized to expense over their estimated useful lives and are periodically reviewed by management to assess recoverability.
Impairment losses on other acquisition-related intangibles are recognized as a charge to expense if carrying amounts exceed fair values.
Goodwill is evaluated for impairment at the reporting unit level. The impairment evaluation is performed as of an annual date or more frequently if a triggering event indicates that impairment may have
occurred.
The Financial Accounting Standards Board amended its standards to provide an option to first assess qualitative
factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of such events
or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity is not required to perform the two-step impairment test described below. Peoples
United Financial elected to perform this optional qualitative assessment in its evaluation of goodwill impairment and concluded that performance of the two-step test was not required.
When performed, the goodwill impairment analysis is a two-step test. The first step (Step 1) is used to identify potential
impairment, and involves comparing each reporting units estimated fair value to its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill is not deemed to be impaired. Should
the carrying amount of the reporting unit exceed its estimated fair value, an indicator of potential impairment is deemed to exist and a second step is performed to measure the amount of such impairment, if any. None of the Companys identified
reporting units are at risk of failing the Step 1 goodwill impairment test at this time.
The second step (Step 2)
involves calculating the implied fair value of goodwill for each reporting unit for which impairment was indicated in Step 1. The implied fair value of goodwill is determined in a manner similar to how the amount of goodwill is determined in a
business combination (i.e. by measuring the excess of the estimated fair value of the reporting unit, as determined in Step 1, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable intangibles applicable to
that reporting unit as of the impairment testing date). If the implied fair value of goodwill exceeds the carrying amount of goodwill assigned to the reporting unit, no impairment exists. If the carrying amount of goodwill assigned to a reporting
unit exceeds the implied fair value of the goodwill, an impairment loss is recorded in an amount equal to such excess. An impairment loss cannot exceed the carrying amount of goodwill assigned to a reporting unit, and the loss (write-down)
establishes a new carrying amount for the goodwill. Subsequent reversals of goodwill impairment losses are not permitted.
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The Company estimates the fair value of its reporting units based on an appropriate
weighting of values based on (i) a present-value measurement technique (discounted cash flow analysis based on internal forecasts) and (ii) market-based trading and transaction multiples. The discounted cash flow analysis is based on
significant assumptions and judgments including future growth rates and discount rates reflecting managements assessment of market participant views of the risks associated with the projected cash flows of the reporting units. The market-based
trading and transaction multiples are derived from the market prices of stocks of companies that are actively traded and engaged in the same or similar businesses as the Company and the respective reporting unit. The derived multiples are then
applied to the reporting units financial metrics to produce an indication of value. Differences in the identification of reporting units or in the selection of valuation techniques and related assumptions could result in materially different
evaluations of goodwill impairment.
Securities.
Marketable equity and debt securities (other than those
reported as short-term investments) are classified as either trading account securities, held to maturity securities (applicable only to debt securities) or available for sale securities. Management determines the classification of a security at the
time of its purchase.
Securities purchased for sale in the near term as well as those held by PSI (in accordance with the
requirements for a broker-dealer) are classified as trading account securities and reported at fair value with unrealized gains and losses reported in non-interest income.
Debt securities for which Peoples United Financial has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. All other
securities are classified as available for sale and reported at fair value with unrealized gains and losses reported on an after-tax basis in stockholders equity as accumulated other comprehensive income or loss. Premiums are amortized and
discounts are accreted to interest income for debt securities, using the interest method over the remaining period to contractual maturity, adjusted for the effect of actual prepayments in the case of mortgage-backed securities, collateralized
mortgage obligations (CMOs) and other asset-backed securities.
Management conducts a periodic review and
evaluation of the securities portfolio to determine if the decline in fair value of any security is deemed to be other-than-temporary. Other-than-temporary impairment losses are recognized on debt securities when: (i) Peoples United
Financial has an intention to sell the security; (ii) it is more likely than not that Peoples United Financial will be required to sell the security prior to recovery; or (iii) Peoples United Financial does not expect to
recover the entire amortized cost basis of the security. Other-than-temporary losses on debt securities are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to
other factors is recognized in other comprehensive income. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time Peoples United Financial expects to receive full value for
the securities.
FHLB stock is a non-marketable equity security and is, therefore, reported at cost, which equals par value
(the amount at which shares have been redeemed in the past). The investment is periodically evaluated for impairment based on, among other things, the capital adequacy of the applicable FHLB and its overall financial condition.
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Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating
Peoples United Financials results of operations in accordance with U.S. generally accepted accounting principles (GAAP), management routinely supplements their evaluation with an analysis of certain non-GAAP financial
measures, such as the efficiency and tangible equity ratios, tangible book value per share and operating earnings metrics. Management believes these non-GAAP financial measures provide information useful to investors in understanding Peoples
United Financials underlying operating performance and trends, and facilitates comparisons with the performance of other banks and thrifts. Further, the efficiency ratio and operating earnings metrics are used by management in its assessment
of financial performance, including non-interest expense control, while the tangible equity ratio and tangible book value per share are used to analyze the relative strength of Peoples United Financials capital position.
The efficiency ratio, which represents an approximate measure of the cost required by Peoples United Financial to generate a dollar
of revenue, is the ratio of (i) total non-interest expense (excluding goodwill impairment charges, amortization of other acquisition-related intangible assets, losses on real estate assets and non-recurring expenses) (the numerator) to
(ii) net interest income on a fully taxable equivalent (FTE) basis plus total non-interest income (including the FTE adjustment on bank-owned life insurance (BOLI) income, and excluding gains and losses on sales of
assets other than residential mortgage loans, and non-recurring income) (the denominator). Peoples United Financial generally considers an item of income or expense to be non-recurring if it is not similar to an item of income or expense of a
type incurred within the last two years and is not similar to an item of income or expense of a type reasonably expected to be incurred within the following two years.
Operating earnings exclude from net income those items that management considers to be of such a non-recurring or infrequent nature that, by excluding such items (net of income taxes), Peoples
United Financials results can be measured and assessed on a more consistent basis from period to period. Items excluded from operating earnings, which include, but are not limited to: (i) merger-related expenses, including acquisition
integration costs; (ii) charges related to executive-level management separation costs; (iii) severance-related costs; and (iv) writedowns of banking house assets, are generally also excluded when calculating the efficiency ratio.
Operating earnings per share is derived by determining the per share impact of the respective adjustments to arrive at operating earnings and adding (subtracting) such amounts to (from) GAAP earnings per share. Operating return on average assets is
calculated by dividing operating earnings (annualized) by average assets. Operating return on average tangible stockholders equity is calculated by dividing operating earnings (annualized) by average tangible stockholders equity. The
operating dividend payout ratio is calculated by dividing dividends paid by operating earnings for the respective period.
Operating net interest margin excludes from the net interest margin those items that management considers to be of such a discrete nature
that, by excluding such items, Peoples United Financials net interest margin can be measured and assessed on a more consistent basis from period to period. Items excluded from operating net interest margin include cost recovery income on
acquired loans and changes in the accretable yield on acquired loans stemming from periodic cash flow reassessments. Operating net interest margin is calculated by dividing operating net interest income (annualized) by average earning assets.
The tangible equity ratio is the ratio of (i) tangible stockholders equity (total stockholders equity less
goodwill and other acquisition-related intangible assets) (the numerator) to (ii) tangible assets (total assets less goodwill and other acquisition-related intangible assets) (the denominator). Tangible book value per share is calculated by
dividing tangible stockholders equity by common shares (total common shares issued, less common shares classified as treasury shares and unallocated Employee Stock Ownership Plan (ESOP) common shares).
In light of diversity in presentation among financial institutions, the methodologies used by Peoples United Financial for
determining the non-GAAP financial measures discussed above may differ from those used by other financial institutions.
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The following table summarizes Peoples United Financials operating non-interest
expense and efficiency ratio, as derived from amounts reported in the Consolidated Statements of Income:
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Years ended December 31 (dollars in millions)
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2012
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2011
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2010
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2009
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2008
|
|
Total non-interest expense
|
|
$
|
830.6
|
|
|
$
|
871.9
|
|
|
$
|
782.0
|
|
|
$
|
659.8
|
|
|
$
|
685.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive at operating non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance-related costs
|
|
|
(7.3
|
)
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition integration costs
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger-related expenses
|
|
|
|
|
|
|
(42.9
|
)
|
|
|
(23.3
|
)
|
|
|
(2.0
|
)
|
|
|
(36.5
|
)
|
Writedowns of banking house assets
|
|
|
|
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive-level separation agreement
|
|
|
|
|
|
|
(3.8
|
)
|
|
|
(15.3
|
)
|
|
|
|
|
|
|
|
|
Other one-time charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(12.7
|
)
|
|
|
(56.8
|
)
|
|
|
(38.6
|
)
|
|
|
(2.0
|
)
|
|
|
(51.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating non-interest expense
|
|
|
817.9
|
|
|
|
815.1
|
|
|
|
743.4
|
|
|
|
657.8
|
|
|
|
633.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other acquisition-related
intangible assets
|
|
|
(26.8
|
)
|
|
|
(25.8
|
)
|
|
|
(21.7
|
)
|
|
|
(20.6
|
)
|
|
|
(21.3
|
)
|
FDIC special assessment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.4
|
)
|
|
|
|
|
Other (1)
|
|
|
(7.8
|
)
|
|
|
(10.3
|
)
|
|
|
(9.4
|
)
|
|
|
(6.5
|
)
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
783.3
|
|
|
$
|
779.0
|
|
|
$
|
712.3
|
|
|
$
|
622.3
|
|
|
$
|
609.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (FTE basis)
|
|
$
|
940.4
|
|
|
$
|
921.2
|
|
|
$
|
697.3
|
|
|
$
|
580.2
|
|
|
$
|
640.3
|
|
Total non-interest income
|
|
|
313.8
|
|
|
|
307.6
|
|
|
|
270.0
|
|
|
|
284.3
|
|
|
|
279.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,254.2
|
|
|
|
1,228.8
|
|
|
|
967.3
|
|
|
|
864.5
|
|
|
|
919.9
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BOLI FTE adjustment
|
|
|
2.8
|
|
|
|
3.1
|
|
|
|
3.6
|
|
|
|
4.5
|
|
|
|
4.5
|
|
Net security (gains) losses
|
|
|
|
|
|
|
(8.8
|
)
|
|
|
1.0
|
|
|
|
(22.0
|
)
|
|
|
(8.3
|
)
|
Gains on sales of acquired loans
|
|
|
(1.0
|
)
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (2)
|
|
|
(0.7
|
)
|
|
|
2.2
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,255.3
|
|
|
$
|
1,217.8
|
|
|
$
|
971.9
|
|
|
$
|
845.1
|
|
|
$
|
911.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio
|
|
|
62.4
|
%
|
|
|
64.0
|
%
|
|
|
73.3
|
%
|
|
|
73.6
|
%
|
|
|
66.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Items classified as other and deducted from non-interest expense for purposes of calculating the efficiency ratio include, as applicable, certain franchise
taxes, REO expenses, contract termination costs and non-recurring expenses.
|
(2)
|
Items classified as other and added to (deducted from) total revenues for purposes of calculating the efficiency ratio include, as applicable, asset
write-offs, gains associated with the sale of branch locations and mortgage servicing rights, and interest on an income tax refund.
|
34
The following tables summarize Peoples United Financials operating earnings,
operating earnings per share, operating return on average assets and operating net interest margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (dollars in millions, except per share data)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as reported
|
|
$
|
245.3
|
|
|
$
|
192.4
|
|
|
$
|
82.5
|
|
|
$
|
101.2
|
|
|
$
|
137.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive at operating earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance-related costs
|
|
|
7.3
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition integration costs
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger-related expenses
|
|
|
|
|
|
|
42.9
|
|
|
|
23.3
|
|
|
|
2.0
|
|
|
|
36.5
|
|
Writedowns of banking house assets
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive-level separation costs
|
|
|
|
|
|
|
3.8
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
Core system conversion costs
|
|
|
|
|
|
|
|
|
|
|
20.3
|
|
|
|
2.5
|
|
|
|
|
|
Other one-time charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.8
|
|
Other gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax adjustments
|
|
|
12.7
|
|
|
|
56.8
|
|
|
|
58.9
|
|
|
|
4.5
|
|
|
|
48.9
|
|
Tax effect
|
|
|
(4.1
|
)
|
|
|
(18.5
|
)
|
|
|
(19.2
|
)
|
|
|
(1.4
|
)
|
|
|
(15.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments, net of tax
|
|
|
8.6
|
|
|
|
38.3
|
|
|
|
39.7
|
|
|
|
3.1
|
|
|
|
33.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
253.9
|
|
|
$
|
230.7
|
|
|
$
|
122.2
|
|
|
$
|
104.3
|
|
|
$
|
171.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, as reported
|
|
$
|
0.72
|
|
|
$
|
0.55
|
|
|
$
|
0.23
|
|
|
$
|
0.30
|
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to arrive at operating earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance-related costs
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition integration costs
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger-related expenses
|
|
|
|
|
|
|
0.08
|
|
|
|
0.04
|
|
|
|
|
|
|
|
0.07
|
|
Writedowns of banking house assets
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive-level separation costs
|
|
|
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
Core system conversion costs
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
0.01
|
|
|
|
|
|
Other one-time charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
Other gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments per share
|
|
|
0.03
|
|
|
|
0.11
|
|
|
|
0.11
|
|
|
|
0.01
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings per share
|
|
$
|
0.75
|
|
|
$
|
0.66
|
|
|
$
|
0.34
|
|
|
$
|
0.31
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Return on Average Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
|
|
$
|
28,113
|
|
|
$
|
26,028
|
|
|
$
|
22,016
|
|
|
$
|
20,757
|
|
|
$
|
20,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating return on average assets
|
|
|
0.90
|
%
|
|
|
0.89
|
%
|
|
|
0.55
|
%
|
|
|
0.50
|
%
|
|
|
0.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Operating Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (dollars in millions, except per share data)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net interest income (FTE basis)
|
|
$
|
940.4
|
|
|
$
|
921.2
|
|
|
$
|
697.3
|
|
|
$
|
580.2
|
|
|
$
|
640.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive at operating net interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost recovery income
|
|
|
(8.8
|
)
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in accretable yield
|
|
|
|
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(8.8
|
)
|
|
|
(16.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net interest income
|
|
$
|
931.6
|
|
|
$
|
905.0
|
|
|
$
|
697.3
|
|
|
$
|
580.2
|
|
|
$
|
640.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin, as reported
|
|
|
3.86
|
%
|
|
|
4.10
|
%
|
|
|
3.67
|
%
|
|
|
3.20
|
%
|
|
|
3.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive at operating net interest margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost recovery income
|
|
|
(0.04
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in accretable yield
|
|
|
|
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(0.04
|
)
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net interest margin
|
|
|
3.82
|
%
|
|
|
4.03
|
%
|
|
|
3.67
|
%
|
|
|
3.20
|
%
|
|
|
3.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total earning assets
|
|
$
|
24,366
|
|
|
$
|
22,497
|
|
|
$
|
18,989
|
|
|
$
|
18,157
|
|
|
$
|
17,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize Peoples United Financials operating return on average tangible
stockholders equity and operating dividend payout ratio:
Operating Return on Average Tangible Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (dollars in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Operating earnings
|
|
$
|
253.9
|
|
|
$
|
230.7
|
|
|
$
|
122.2
|
|
|
$
|
104.3
|
|
|
$
|
171.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average stockholders equity
|
|
$
|
5,168
|
|
|
$
|
5,271
|
|
|
$
|
5,368
|
|
|
$
|
5,141
|
|
|
$
|
5,213
|
|
Less: Average goodwill and average other acquisition-related intangible assets
|
|
|
2,165
|
|
|
|
2,053
|
|
|
|
1,753
|
|
|
|
1,526
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average tangible stockholders equity
|
|
$
|
3,003
|
|
|
$
|
3,218
|
|
|
$
|
3,615
|
|
|
$
|
3,615
|
|
|
$
|
3,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating return on average tangible stockholders equity
|
|
|
8.5
|
%
|
|
|
7.2
|
%
|
|
|
3.4
|
%
|
|
|
2.9
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Dividend Payout Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (dollars in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Dividends paid
|
|
$
|
217.9
|
|
|
$
|
220.9
|
|
|
$
|
218.1
|
|
|
$
|
203.6
|
|
|
$
|
194.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
$
|
253.9
|
|
|
$
|
230.7
|
|
|
$
|
122.2
|
|
|
$
|
104.3
|
|
|
$
|
171.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating dividend payout ratio
|
|
|
85.8
|
%
|
|
|
95.8
|
%
|
|
|
178.6
|
%
|
|
|
195.2
|
%
|
|
|
113.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
The following tables summarize Peoples United Financials tangible equity ratio
and tangible book value per share derived from amounts reported in the Consolidated Statements of Condition:
Tangible Equity Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31 (dollars in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Total stockholders equity
|
|
$
|
5,039
|
|
|
$
|
5,215
|
|
|
$
|
5,216
|
|
|
$
|
5,101
|
|
|
$
|
5,174
|
|
Less: Goodwill and other acquisition-related intangible assets
|
|
|
2,154
|
|
|
|
2,174
|
|
|
|
1,962
|
|
|
|
1,515
|
|
|
|
1,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible stockholders equity
|
|
$
|
2,885
|
|
|
$
|
3,041
|
|
|
$
|
3,254
|
|
|
$
|
3,586
|
|
|
$
|
3,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
30,324
|
|
|
$
|
27,558
|
|
|
$
|
25,034
|
|
|
$
|
21,257
|
|
|
$
|
20,168
|
|
Less: Goodwill and other acquisition-related intangible assets
|
|
|
2,154
|
|
|
|
2,174
|
|
|
|
1,962
|
|
|
|
1,515
|
|
|
|
1,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible assets
|
|
$
|
28,170
|
|
|
$
|
25,384
|
|
|
$
|
23,072
|
|
|
$
|
19,742
|
|
|
$
|
18,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity ratio
|
|
|
10.2
|
%
|
|
|
12.0
|
%
|
|
|
14.1
|
%
|
|
|
18.2
|
%
|
|
|
19.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible Book Value Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31 (in millions, except per share data)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Tangible stockholders equity
|
|
$
|
2,885
|
|
|
$
|
3,041
|
|
|
$
|
3,254
|
|
|
$
|
3,586
|
|
|
$
|
3,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued
|
|
|
395.81
|
|
|
|
395.42
|
|
|
|
376.62
|
|
|
|
348.25
|
|
|
|
347.93
|
|
Less: Common shares classified as treasury shares
|
|
|
56.18
|
|
|
|
38.03
|
|
|
|
17.49
|
|
|
|
3.21
|
|
|
|
3.17
|
|
Unallocated ESOP common shares
|
|
|
8.36
|
|
|
|
8.71
|
|
|
|
9.06
|
|
|
|
9.41
|
|
|
|
9.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
331.27
|
|
|
|
348.68
|
|
|
|
350.07
|
|
|
|
335.63
|
|
|
|
335.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per share
|
|
$
|
8.71
|
|
|
$
|
8.72
|
|
|
$
|
9.30
|
|
|
$
|
10.68
|
|
|
$
|
10.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Economic Environment
Peoples United
Financials results are subject to fluctuations based on economic conditions. In response to the significant disruptions in the capital markets brought about by the sub-prime mortgage crisis and its after-effects, turmoil in the financial
sector, and the contracting U.S. economy, the Federal Reserve Board has maintained its targeted range for the federal funds rate of 0 to 0.25 percent since December 16, 2008. Throughout 2012, the United States economy continued a slow
expansion. Real gross domestic product decreased at an annual rate of 0.1% in the fourth quarter of 2012, after increasing 3.1% in the third quarter. The national unemployment rate was 7.8% as of December 31, 2012, down from 8.5% at the end of
2011.
Although economic growth in 2012 was modest, a number of developments during the year are likely to provide a basis for
more robust future growth. These developments include: (1) an improvement in the housing market; (2) an increase in the rate of household formation; (3) an improvement in household balance sheets; (4) an increase in auto
purchases; (5) a reduction in the drag posed by state and local government spending reductions; (6) an improvement in bank credit conditions; and (7) reductions in energy costs due to increased domestic energy production. In addition
to these 2012 trends, the economy may benefit from the elimination of tax policy uncertainty, increased corporate investment and the multiplier effect of recent job gains. Offset against these forces is the expected drag due to the recent tax
increases and uncertainties associated with federal spending policy, the implementation of the Patient Protection and Affordable Care Act, and the shortfall in pension funding in many states and municipalities.
The New England region and southeastern New York comprise Peoples United Financials primary market area, with Connecticut,
Massachusetts, Vermont and New York having the largest concentration of Peoples United Financials loans, deposits and branches. Connecticut is one of the most attractive banking markets in the United States. With a total population of
approximately 3.6 million and a median household income of $65,386, Connecticut ranks third in the United States, well above the U.S. median household income of $50,227, according to the 2010 Census and SNL Financial. Fairfield County, where
Peoples United Financial is headquartered, has the highest median household income in Connecticut of $80,531 according to the 2010 Census and SNL Financial. The states unemployment rate increased to 7.8% as of December 31, 2012
compared to 7.6% at the end of 2011, which is equivalent to the national rate.
The Connecticut economy experienced a moderate
decrease in jobs in 2012, with total seasonally adjusted employment decreasing by approximately 50,100 jobs, or (2.8)%, from December 31, 2011 to December 31, 2012, compared to an increase of approximately 22,075 jobs, or 1.3%, from
December 31, 2010 to December 31, 2011.
The median household income in Massachusetts was $62,098, according to the
2010 Census and SNL Financial, and the states unemployment rate was 6.6% at December 31, 2012, up from 6.5% at the end of 2011. The median household income in Vermont was $50,558 according to the 2010 Census and SNL Financial, and the
states unemployment rate was 4.7% at December 31, 2012, down from 4.9% at the end of 2011. The median household income in New York was $54,080 according to the 2010 Census and SNL Financial, and the states unemployment rate was 8.2%
at December 31, 2012, up from 8.0% at the end of 2011.
The New England and New York economies experienced less severe
contractions in the recent recession than the United States as a whole and have also enjoyed stronger recoveries. As a consequence, real GDP for 2011 (the most recent period for which regional data is available) was 1.9% higher in New England and
2.9% higher in New York compared to 2008, whereas U.S. GDP was only 0.7% higher. The overall outlook for the economies of New England and southeastern New York in 2013 is improving, with the expectation that these regions may experience a stronger
recovery than the rest of the United States as a whole.
38
Financial Overview
Peoples United Financial
completed its acquisition of Danvers on June 30, 2011, effective July 1, 2011. Peoples United Financial acquired Smithtown and LSB on November 30, 2010, Butler Bank on April 16, 2010 and Financial Federal on
February 19, 2010. The results of operations for these acquired companies have been included beginning as of their respective closing dates. Financial data for prior periods has not been restated to include Danvers, Smithtown, LSB, Butler Bank
and Financial Federal and therefore, are not directly comparable to subsequent periods. Previously reported results for 2011 and 2010 have been revised to reflect a reduction in interest income on certain acquired loans relating to an unintentional
overstatement of interest income. See Note 1 to the Consolidated Financial Statements.
Comparison of Financial
Condition at December 31, 2012 and 2011.
Total assets at December 31, 2012 were $30.3 billion, a $2.7 billion increase from December 31, 2011, reflecting increases of $1.7 billion in total securities and $1.3 billion in total
loans, partially offset by a $280 million decrease in short-term investments.
The increase in total loans from
December 31, 2011 to December 31, 2012 reflects increases of $1.2 billion in commercial banking loans and $258 million in residential mortgage loans. Originated loans increased $2.7 billion from December 31, 2011 to $19.5 billion
(commercial banking loans increased $2.4 billion and retail loans increased $361 million) and acquired loans decreased $1.4 billion. At December 31, 2012, the carrying amount of the acquired loan portfolio totaled $2.2 billion. The increase in
total securities primarily reflects purchases of agency-issued CMOs backed by collateral that is expected to exhibit lower prepayment risk.
Non-performing assets (excluding acquired non-performing loans) totaled $289.6 million at December 31, 2012, a $47.1 million decrease from year-end 2011, primarily reflecting a $42.4 million
decrease in non-performing commercial banking loans. The allowance for loan losses on originated loans was $177.5 million at December 31, 2012, reflecting a $2.0 million increase from December 31, 2011 in response to growth in the
commercial and residential mortgage loan portfolios. The allowance for loan losses on acquired loans was $10.5 million at December 31, 2012 ($7.4 million at December 31, 2011). At December 31, 2012, the originated allowance for loan
losses as a percent of originated loans was 0.91% and as a percent of originated non-performing loans was 70.3%, compared to 1.05% and 59.7%, respectively, at December 31, 2011.
At December 31, 2012, liabilities totaled $25.3 billion, a $3.0 billion increase from December 31, 2011, reflecting increases
of $1.5 billion in total borrowings, $935 million in total deposits and $499 million in notes and debentures. The increase in total borrowings primarily reflects the partial funding used to support loan growth and securities purchases. The increase
in deposits reflects, in part, the assumption of approximately $324 million in deposits associated with Peoples United Banks acquisition of 57 branches in June 2012. The increase in notes and debentures reflects the Companys
issuance of $500 million of senior notes in December 2012.
Peoples United Financials total
stockholders equity was $5.0 billion at December 31, 2012, a $177 million decrease from December 31, 2011. This decrease primarily reflects open market repurchases of 18.2 million shares of common stock at a total cost of
$220.0 million and dividends paid of $217.9 million, partially offset by net income of $245.3 million.
As a percentage of
total assets, stockholders equity was 16.6% at December 31, 2012 compared to 18.9% at December 31, 2011. Tangible stockholders equity as a percentage of tangible assets was 10.2% at December 31, 2012 compared to 12.0%
at December 31, 2011.
Peoples United Financials (consolidated) tier 1 common, and tier 1 and total
risk-based capital ratios were 12.7%, 13.2% and 14.7%, respectively, at December 31, 2012, compared to 14.3%, 14.8% and 16.2%, respectively, at December 31, 2011. Peoples United Banks leverage (core) capital ratio, and tier 1
and total risk-based capital ratios were 9.8%, 12.2% and 13.1%, respectively, at December 31, 2012, compared to 11.1%, 13.1% and 14.0%, respectively, at December 31, 2011.
39
Comparison of Results of Operations for the Years Ended December 31, 2012 and
2011.
Peoples United Financial reported net income of $245.3 million, or $0.72 per share, for the year ended December 31, 2012, compared to $192.4 million, or $0.55 per share, for the year-ago period. Operating earnings were
$253.9 million, or $0.75 per share, for 2012, compared to $230.7 million, or $0.66 per share, for 2011. Included in the 2012 and 2011 results are $8.6 million and $38.3 million (after-tax), respectively, of merger-related expenses, core system
conversion costs and one-time charges. Earnings in 2012 continue to reflect loan and deposit growth, continued positive results in fee-related businesses and ongoing expense control. Peoples United Financials operating return on average
assets was 0.90% for 2012 compared to 0.89% for 2011. Operating return on average tangible stockholders equity was 8.5% for 2012 compared to 7.2% for the year-ago period.
FTE net interest income increased $19.2 million from the year-ago period while the net interest margin declined 24 basis points to 3.86%.
The lower net interest margin primarily reflects the effects of new loan volume at lower rates and lower interest income on acquired loans, partially offset by lower deposit rates. Compared to 2011, average earning assets increased $1.9 billion,
reflecting increases of $1.9 billion in average loans and $367 million in average securities, partially offset by a $438 million decrease in average short-term investments and securities purchased under agreements to resell. Average funding
liabilities increased $2.1 billion in 2012, primarily reflecting a $2.0 billion increase in average total deposits.
Total non-interest income increased $6.2 million and total non-interest expense decreased $41.3 million compared to the year-ago period.
The efficiency ratio was 62.4% for 2012 compared to 64.0% for the year-ago period. The provision for loan losses in 2012 totaled $49.2 million compared to $63.7 million in the year-ago period. The provision for loan losses in 2012 reflected net loan
charge-offs of $44.1 million and increases of $2.0 million in the originated allowance for loan losses and $3.1 million in the acquired allowance for loan losses. The provision for loan losses in 2011 reflected net loan charge-offs of $53.3
million and increases of $3.0 million in the originated allowance for loan losses and $7.4 million in the acquired allowance for loan losses. Net loan charge-offs as a percentage of average total loans were 0.21% in 2012 compared to 0.28% in 2011.
Comparison of Financial Condition at December 31, 2011 and 2010.
Total assets at December 31, 2011
were $27.6 billion, a $2.5 billion increase from December 31, 2010, reflecting increases of $3.1 billion in total loans and $228 million in goodwill, partially offset by decreases of $709 million in short-term investments and securities
purchased under agreements to resell and $102 million in total securities.
The increase in total loans from December 31,
2010 to December 31, 2011 reflects increases of $2.0 billion in commercial banking loans and $981 million in residential mortgage loans. Originated loans increased $2.3 billion from December 31, 2010 to $16.8 billion (commercial
banking loans increased $1.5 billion and retail loans increased $833 million) and acquired loans increased $724 million. At the acquisition date, the fair value of Danvers loans totaled $1.9 billion. At December 31, 2011, the carrying
amount of the acquired loan portfolio totaled $3.6 billion. The decrease in total securities reflects the sale of 15-year mortgage-backed securities with an amortized cost of $507 million that were sold to reduce book value at risk due to an
expected increase in prepayments, partially offset by purchases of short-duration agency-issued CMOs backed by collateral that is expected to exhibit lower prepayment risk.
Non-performing assets (excluding acquired non-performing loans) totaled $336.7 million at December 31, 2011, a $33.6 million increase from year-end 2010, primarily reflecting a $52.1 million
increase in non-performing commercial banking loans partially offset by a $13.0 million decrease in real estate owned (REO). The allowance for loan losses on originated loans was $175.5 million at December 31, 2011, reflecting a
$3.0 million increase from December 31, 2010 in response to growth in the commercial and residential mortgage loan portfolios. The allowance for loan losses on acquired loans was $7.4 million at December 31, 2011 (none at
December 31, 2010). At December 31, 2011, the originated allowance for loan losses as a percent of originated loans was 1.05% and as a percent of originated non-performing loans was 59.7%, compared to 1.19% and 70.3%, respectively, at
December 31, 2010.
40
At December 31, 2011, liabilities totaled $22.3 billion, a $2.5 billion increase from
December 31, 2010, reflecting a $2.9 billion increase in total deposits, partially offset by decreases of $181 million in other liabilities and $154 million in total borrowings. At the acquisition date, the fair value of Danvers deposits
totaled $2.1 billion. The decrease in total borrowings primarily reflects the repayment of callable FHLB advances assumed in recent acquisitions and the decrease in other liabilities primarily reflects the settlement of securities purchased at
the end of 2010.
Peoples United Financials total stockholders equity was $5.2 billion at December 31,
2011, a $1 million decrease from December 31, 2010. This decrease primarily reflects the issuance of 18.5 million shares of common stock with a fair value of approximately $248 million in connection with the Danvers acquisition and net
income of $192.4 million, essentially offset by open market repurchases of 20.4 million shares of common stock at a total cost of $247.2 million and dividends paid of $220.9 million.
As a percentage of total assets, stockholders equity was 18.9% at December 31, 2011 compared to 20.8% at December 31,
2010. Tangible stockholders equity as a percentage of tangible assets was 12.0% at December 31, 2011 compared to 14.1% at December 31, 2010.
Peoples United Financials (consolidated) tier 1 common, and tier 1 and total risk-based capital ratios were 14.3%, 14.8% and 16.2%, respectively, at December 31, 2011, compared to 17.0%,
17.5% and 19.3%, respectively, at December 31, 2010. Peoples United Banks leverage (core) capital ratio, and tier 1 and total risk-based capital ratios were 11.1%, 13.1% and 14.0%, respectively, at December 31, 2011, compared
to 11.4%, 13.6% and 14.5%, respectively, at December 31, 2010.
Comparison of Results of Operations for the Years
Ended December 31, 2011 and 2010.
Peoples United Financial reported net income of $192.4 million, or $0.55 per share, for the year ended December 31, 2011, compared to $82.5 million, or $0.23 per share, for the year-ago
period. Operating earnings were $230.7 million, or $0.66 per share, for 2011, compared to $122.2 million, or $0.34 per share, for 2010. Included in the 2011 and 2010 results are $38.3 million and $39.7 million (after-tax), respectively, of
merger-related expenses, core system conversion costs and one-time charges. Earnings in 2011 continue to reflect organic loan and deposit growth, improvement in net interest income, continued positive results in fee-related businesses and tighter
expense control. Peoples United Financials operating return on average assets was 0.89% for 2011 compared to 0.55% for 2010. Operating return on average tangible stockholders equity was 7.2% for 2011 compared to 3.4% for the
year-ago period.
FTE net interest income increased $223.8 million from the year-ago period while the net interest margin
improved 43 basis points to 4.10%. The higher net interest margin primarily reflects the benefits from recent acquisitions, a 15 basis point reduction in the cost of deposits and the deployment of a portion of the Companys excess capital that
was previously invested in relatively low-yielding short-term investments and securities purchased under agreements to resell, partially offset by the effect of the historically low interest rate environment.
Compared to 2010, average earning assets increased $3.5 billion, reflecting increases of $3.6 billion in average loans and $1.4 billion
in average securities, partially offset by a $1.4 billion decrease in average short-term investments and securities purchased under agreements to resell. Average funding liabilities increased $4.2 billion, primarily reflecting increases of $3.5
billion in average total deposits and $709 million in average total borrowings.
Total non-interest income increased $37.6
million and total non-interest expense increased $89.9 million compared to the year-ago period. The efficiency ratio was 64.0% for 2011 compared to 73.3% for the year-ago period.
41
The provision for loan losses in 2011 totaled $63.7 million compared to $60.0 million in the
year-ago period. The provision for loan losses in 2011 reflected net loan charge-offs of $53.3 million, a $3.0 million increase in the originated allowance for loan losses and a $7.4 million increase in the acquired allowance for loan losses. The
provision for loan losses in 2010 reflected net loan charge-offs of $60.0 million. Net loan charge-offs as a percentage of average total loans were 0.28% in 2011 compared to 0.40% in 2010.
Segment Results
Peoples United Financials operations are divided into three primary operating segments that represent its core businesses: Commercial Banking; Retail and Business Banking; and Wealth
Management. In addition, the Treasury area manages Peoples United Financials securities portfolio, short-term investments, wholesale borrowings and the funding center.
The Companys operating segments have been aggregated into two reportable segments: Commercial Banking; and Retail and Business
Banking. These reportable segments have been identified and organized based on the nature of the underlying products and services applicable to each segment, the type of customers to whom those products and services are offered and the distribution
channel through which those products and services are made available. With respect to Wealth Management, this presentation results in the Companys insurance business and certain trust activities being allocated to the Commercial Banking
segment, while the Companys brokerage business and certain other trust activities are allocated to the Retail and Business Banking segment. Segment results for 2011 and 2010, which previously included Wealth Management as a separate reportable
segment, have been revised to reflect the aforementioned two reportable segment approach.
Segment Performance Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
Years ended December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Commercial Banking
|
|
$
|
210.0
|
|
|
$
|
182.1
|
|
|
$
|
92.3
|
|
Retail and Business Banking
|
|
|
82.0
|
|
|
|
57.3
|
|
|
|
52.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reportable segments
|
|
|
292.0
|
|
|
|
239.4
|
|
|
|
144.5
|
|
Treasury
|
|
|
(36.7
|
)
|
|
|
(4.2
|
)
|
|
|
(33.3
|
)
|
Other
|
|
|
(10.0
|
)
|
|
|
(42.8
|
)
|
|
|
(28.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
$
|
245.3
|
|
|
$
|
192.4
|
|
|
$
|
82.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples United Financial uses an internal profitability reporting system to generate information by
operating segment, which is based on a series of management estimates and allocations regarding funds transfer pricing (FTP), the provision for loan losses, non-interest expense and income taxes. These estimates and allocations, some of
which can be subjective in nature, are continually being reviewed and refined. Any changes in estimates and allocations that may affect the reported results of any segment will not affect the consolidated financial position or results of operations
of Peoples United Financial as a whole.
FTP is used in the calculation of each operating segments net interest
income, and measures the value of funds used in and provided by an operating segment. The difference between the interest income on earning assets and the interest expense on funding liabilities, and the corresponding FTP charge for interest income
or credit for interest expense, results in net spread income (see Treasury).
Beginning in the third quarter of 2011, the
Company modified its FTP methodology relating to certain deposit products, which resulted in the allocation of a larger credit to net interest income within Commercial Banking and Retail and Business Banking, with the offset allocated to Treasury.
Prior period segment results continue to reflect the previous FTP methodology.
42
A five-year rolling average net charge-off rate is used as the basis for the provision for
loan losses for the respective operating segment in order to present a level of portfolio credit cost that is representative of the Companys historical experience, without presenting the potential volatility from year-to-year changes in credit
conditions. While this method of allocation allows management to more effectively assess the longer-term profitability of a segment, it may result in a measure of segment provision for loan losses that does not reflect actual incurred losses for the
periods presented.
Peoples United Financial allocates a majority of non-interest expenses to each operating segment
using a full-absorption costing process (i.e. all expenses are fully-allocated to the segments). Direct and indirect costs are analyzed and pooled by process and assigned to the appropriate operating segment and corporate overhead costs are
allocated to the operating segments. Income tax expense is allocated to each operating segment using a constant rate, based on an estimate of the consolidated effective income tax rate for the year. Total average assets and total average liabilities
are presented for each reportable segment due to managements reliance, in part, on such average balances for purposes of assessing segment performance.
For a more detailed description of the estimates and allocations used to measure segment performance, see Note 22 to the Consolidated Financial Statements.
Commercial Banking
consists principally of commercial real estate lending, commercial and industrial lending, and commercial
deposit gathering activities. This segment also includes the equipment financing operations of PCLC and PUEFC, as well as cash management, correspondent banking and municipal banking. In addition, Commercial Banking consists of institutional trust
services, corporate trust, insurance services provided through PUIA and private banking.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Net interest income
|
|
$
|
469.7
|
|
|
$
|
442.4
|
|
|
$
|
301.4
|
|
Provision for loan losses
|
|
|
43.1
|
|
|
|
38.3
|
|
|
|
26.3
|
|
Total non-interest income
|
|
|
120.7
|
|
|
|
113.2
|
|
|
|
91.1
|
|
Total non-interest expense
|
|
|
236.9
|
|
|
|
245.5
|
|
|
|
229.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
310.4
|
|
|
|
271.8
|
|
|
|
136.8
|
|
Income tax expense
|
|
|
100.4
|
|
|
|
89.7
|
|
|
|
44.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210.0
|
|
|
$
|
182.1
|
|
|
$
|
92.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets
|
|
$
|
15,069.1
|
|
|
$
|
13,713.4
|
|
|
$
|
11,134.8
|
|
Total average liabilities
|
|
|
3,016.4
|
|
|
|
2,694.0
|
|
|
|
2,325.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking net income increased $27.9 million in 2012 compared to 2011. The $27.3 million
increase in net interest income reflects continued loan growth, improved spreads on commercial loans and certain commercial deposits, and the benefit from the change in FTP methodology discussed previously, partially offset by the continued negative
impact of the low interest rate environment. The $7.5 million increase in non-interest income in 2012 reflects increases in commercial banking fees and operating lease income resulting from a higher level of equipment leased to PCLC customers.
Included in non-interest income in 2012 and 2011 are net gains on sales of acquired loans totaling $1.0 million and $7.5 million, respectively. The decrease in non-interest expense reflects a lower level of allocated expenses in 2012 compared to
2011, partially offset by an increase in direct expenses.
Average assets increased $1.4 billion and average liabilities
increased $322 million in 2012 compared to 2011, reflecting loan and deposit growth as well as loans acquired and deposits assumed in the Danvers acquisition (effective July 1, 2011).
43
The increase in Commercial Banking net income in 2011 compared to 2010 primarily reflects
the benefits from recent acquisitions as well as loan growth. The $141.0 million increase in net interest income reflects an increase in average earning assets, improved spreads on commercial loans due to loan mix and the benefit from the change in
FTP methodology discussed previously, partially offset by narrowing spreads on commercial deposits. Non-interest income reflects increases in operating lease income resulting from a higher level of equipment leased to PCLC customers, commercial
banking fees and a $7.5 million net gain on sale of acquired loans in 2011. The $16.1 million increase in non-interest expense compared to 2010 reflects additional non-interest expenses resulting from recent acquisitions and an increase in
amortization expense on leased equipment. Average assets increased $2.6 billion and average liabilities increased $322 million in 2011 compared to 2010, reflecting loan growth and recent acquisitions.
Retail and Business Banking
includes, as its principal business lines, business lending, consumer and business deposit gathering
activities, consumer lending (including residential mortgage and home equity lending) and merchant services. In addition, Retail and Business Banking consists of brokerage, financial advisory services, investment management services and life
insurance provided by PSI and non-institutional trust services.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Net interest income
|
|
$
|
507.6
|
|
|
$
|
469.7
|
|
|
$
|
384.3
|
|
Provision for loan losses
|
|
|
14.0
|
|
|
|
10.9
|
|
|
|
7.0
|
|
Total non-interest income
|
|
|
179.4
|
|
|
|
184.4
|
|
|
|
175.0
|
|
Total non-interest expense
|
|
|
551.6
|
|
|
|
558.1
|
|
|
|
474.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
121.4
|
|
|
|
85.1
|
|
|
|
77.5
|
|
Income tax expense
|
|
|
39.4
|
|
|
|
27.8
|
|
|
|
25.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
82.0
|
|
|
$
|
57.3
|
|
|
$
|
52.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets
|
|
$
|
8,297.1
|
|
|
$
|
7,245.3
|
|
|
$
|
5,954.0
|
|
Total average liabilities
|
|
|
18,677.3
|
|
|
|
17,281.6
|
|
|
|
13,899.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail and Business Banking net income increased $24.7 million in 2012 compared to 2011. The
$37.9 million increase in net interest income primarily reflects deposit growth and the benefit from the change in FTP methodology previously discussed, partially offset by narrower spreads on certain deposit products resulting from the
continued negative impact of a reduced interest rate environment. The decrease in non-interest income primarily reflects lower retail bank service charges (reflecting the impact of certain provisions of the DFA relating to interchange fees that
became effective October 1, 2011), partially offset by an increase in gains on sales of residential mortgages. The decrease in non-interest expense reflects primarily reflects a lower level of allocated expenses in 2012 compared to 2011.
Average assets increased $1.1 billion and average liabilities increased $1.4 billion in 2012 compared to 2011, reflecting
loan and deposit growth, the assumption of approximately $324 million in deposits in connection with the acquisition of 57 branches late in the second quarter of 2012, and loans acquired and deposits assumed in the Danvers acquisition (effective
July 1, 2011).
Retail and Business Banking net income increased $5.1 million in 2011 compared to 2010. The
$85.4 million increase in net interest income primarily reflects growth in deposit balances, an increase in the spread on residential mortgages and consumer loans and the benefit from the change in FTP methodology discussed previously,
partially offset by narrower spreads on deposit products resulting from the continued negative impact of a reduced interest rate environment initiated by the Federal Reserve Board in 2008. The increase in non-interest income compared to 2010
primarily reflects an increase in retail bank service charges, partially offset by a decrease in net gains on sales of residential mortgage loans resulting from the lower level of residential mortgage loan sales in 2011. The $83.3 million increase
in non-interest expense compared to 2010 reflects increases in direct and allocated expenses associated with expanding the retail deposit franchise through acquisitions as well as growth. Average assets increased $1.3 billion and average liabilities
increased $3.4 billion in 2011 compared to 2010, reflecting loan and deposit growth, and recent acquisitions.
44
Treasury
encompasses the securities portfolio, short-term investments, wholesale
borrowings, and the funding center, which includes the impact of derivative financial instruments used for risk management purposes.
The income or loss for the funding center represents the interest rate risk component of Peoples United Financials net interest income as calculated by its FTP model in deriving each operating
segments net interest income. Under this process, the funding center buys funds from liability-generating business lines, such as consumer deposits, and sells funds to asset-generating business lines, such as commercial lending. The price at
which funds are bought and sold on any given day is set by Peoples United Financials Treasury group and is based on the wholesale cost to Peoples United Financial of assets and liabilities with similar maturities.
Liability-generating businesses sell newly-originated liabilities to the funding center and recognize a funding credit, while asset-generating businesses buy funding for newly-originated assets from the funding center and recognize a funding charge.
Once funding for an asset is purchased from or a liability is sold to the funding center, the price that is set by the Treasury group will remain with that asset or liability until it matures or reprices, which effectively transfers responsibility
for managing interest rate risk to the Treasury group.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Net interest loss
|
|
$
|
(71.7
|
)
|
|
$
|
(21.1
|
)
|
|
$
|
(53.4
|
)
|
Total non-interest income
|
|
|
10.6
|
|
|
|
14.0
|
|
|
|
15.4
|
|
Total non-interest expense
|
|
|
(6.9
|
)
|
|
|
(1.3
|
)
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(54.2
|
)
|
|
|
(5.8
|
)
|
|
|
(49.3
|
)
|
Income tax benefit
|
|
|
(17.5
|
)
|
|
|
(1.6
|
)
|
|
|
(16.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(36.7
|
)
|
|
$
|
(4.2
|
)
|
|
$
|
(33.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets
|
|
$
|
4,127.3
|
|
|
$
|
3,870.3
|
|
|
$
|
3,924.7
|
|
Total average liabilities
|
|
|
903.7
|
|
|
|
699.0
|
|
|
|
126.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in Treasurys net loss in 2012 compared to 2011 reflects an increase in net interest
loss due to the change in FTP methodology discussed previously. Total average assets increased $257 million in 2012 compared to 2011, reflecting an increase in average securities partially offset by a decline in average short-term investments. The
increase in total average liabilities primarily reflects an increase in average total borrowings.
Treasurys net loss
improved in 2011 compared to 2010, primarily reflecting a decrease in net interest loss and an increase in non-interest income. The improvement in net interest loss reflects an increase in the funding centers net interest spread, primarily
resulting from the benefit of an increase in investment income in 2011, partially offset by the impact of the change in FTP methodology discussed previously. Included in total non-interest income in 2011 are $9.1 million of gross security gains
resulting from the sale of mortgage-backed securities with a book value of $507 million. Total average assets decreased $54 million in 2011 compared to the year-ago period, reflecting a $1.4 billion increase in average securities offset by a $1.4
billion decrease in average short-term investments and average securities purchased under agreements to resell. The increase in total average liabilities primarily reflects increases in average total borrowings and average notes and debentures
assumed in connection with recent acquisitions.
45
Other
includes the residual financial impact from the allocation of revenues and
expenses (including the provision for loan losses) and certain revenues and expenses not attributable to a particular segment; reversal of the FTE adjustment since net interest income for each segment is presented on an FTE basis; and the FTP impact
from excess capital. The Other category also includes certain non-recurring items, such as merger-related expenses, core system conversion costs and one-time charges totaling $12.7 million, $56.8 million and $58.9 million for the
years ended December 31, 2012, 2011 and 2010, respectively (included in total non-interest expense). Included in Other are assets such as cash, premises and equipment, and other assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Net interest income
|
|
$
|
23.1
|
|
|
$
|
22.4
|
|
|
$
|
61.7
|
|
Provision for loan losses
|
|
|
(7.9
|
)
|
|
|
14.5
|
|
|
|
26.7
|
|
Total non-interest income
|
|
|
3.1
|
|
|
|
(4.0
|
)
|
|
|
(11.5
|
)
|
Total non-interest expense
|
|
|
49.0
|
|
|
|
69.6
|
|
|
|
66.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(14.9
|
)
|
|
|
(65.7
|
)
|
|
|
(43.0
|
)
|
Income tax benefit
|
|
|
(4.9
|
)
|
|
|
(22.9
|
)
|
|
|
(14.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10.0
|
)
|
|
$
|
(42.8
|
)
|
|
$
|
(28.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets
|
|
$
|
619.4
|
|
|
$
|
1,199.2
|
|
|
$
|
1,002.7
|
|
Total average liabilities
|
|
|
347.6
|
|
|
|
82.3
|
|
|
|
297.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
Net interest income and net
interest margin are affected by many factors, including changes in average balances; interest rate fluctuations and the slope of the yield curve; sales of loans and securities; residential mortgage loan and mortgage-backed security prepayment rates;
product pricing; competitive forces; the relative mix, repricing characteristics and maturity of earning assets and interest-bearing liabilities; non-interest-bearing sources of funds; hedging activities; and asset quality.
Net Interest Margin
Years ended December 31 (percent)
Net Interest Income - FTE
Years ended December 31 (dollars in millions)
46
Since December 2008, the Federal Reserve Board has not changed its targeted range for the
federal funds rate of 0 to 0.25 percent. The net interest margin was 3.86% in 2012 compared to 4.10% in 2011 and the operating net interest margin was 3.82% in 2012 compared to 4.03% in the year-ago period. The decline in the operating net interest
margin in 2012 reflects continued repricing pressure within the loan portfolio, including the pay-off of higher yielding loans and new loan originations at lower yields, lower interest income on acquired loans, and the run-off of fair value
amortization on acquired deposits, partially offset by lower funding costs. The net interest margin continues to be impacted by the historically low interest rate environment where loan repricings are outpacing the Companys ability to lower
deposit costs as well as the continued investment of a portion of the Companys excess capital in low-yielding short-term investments.
2012 Compared to 2011
FTE net interest income in 2012 increased $19.2 million compared to 2011, reflecting a $22.3 million decrease in total interest expense
partially offset by a $3.1 million decrease in total interest and dividend income, and the net interest margin decreased 24 basis points to 3.86%. Net interest income in 2012 included $8.8 million of cost recovery income on acquired loans
(representing cash receipts in excess of carrying amount), while net interest income in 2011 included $11.2 million of interest related to changes in the accretable yield on acquired loans stemming from periodic cash flow reassessments and $5.0
million of cost recovery income on acquired loans. Excluding these items, the operating net interest margin in 2012 was 3.82% compared to 4.03% in 2011.
Average earning assets totaled $24.4 billion in 2012, a $1.9 billion increase from 2011, reflecting increases of $1.9 billion in average loans and $367 million in average securities, partially offset by a
$438 million decrease in average short-term investments and securities purchased under agreements to resell. Average loans, average securities, and average short-term investments and securities purchased under agreements to resell comprised 85%, 14%
and 1%, respectively, of average earning assets in 2012 compared to 84%, 13% and 3%, respectively, in 2011. In 2012, the yield earned on the total loan portfolio was 4.65% and the yield earned on securities, short-term investments and securities
purchased under agreements to resell was 2.27%, compared to 5.12% and 2.35%, respectively, in the year-ago period. Excluding adjustable-rate residential mortgage loans, which are mostly of the hybrid variety, approximately 47% of the loan portfolio
had floating interest rates at December 31, 2012 compared to approximately 48% at December 31, 2011.
The average
total commercial banking and residential mortgage loan portfolios increased $1.3 billion and $697 million, respectively, compared to 2011, reflecting growth. Average consumer loans decreased $15 million compared to 2011, reflecting a $57 million
decline in average indirect auto loans partially offset by a $41 million increase in average home equity loans.
Average
funding liabilities totaled $22.6 billion in 2012, a $2.1 billion increase compared to 2011, including increases of $2.0 billion in average total deposits and $147 million in average borrowings. The increase in average total deposits reflects
deposit growth and deposits assumed in recent acquisitions. Average savings and money market deposits and average non-interest-bearing deposits increased $1.6 billion and $624 million, respectively, while average time deposits decreased $248
million. Average total deposits comprised 94% of average funding liabilities in both 2012 and 2011.
The 16 basis point
decrease to 0.47% from 0.63% in the rate paid on average funding liabilities in 2012 compared to 2011 primarily reflects the decrease in market interest rates and the shift in deposit mix as well as continued repricing of higher-yielding deposits
assumed in acquisitions. The rate paid on average deposits decreased 13 basis points in 2012, reflecting decreases of 18 basis points in savings and money market deposits and 3 basis points in time deposits. Average savings and money market deposits
and average time deposits comprised 54% and 24%, respectively, of average total deposits in 2012 compared to 52% and 27%, respectively, in 2011.
47
2011 Compared to 2010
The net interest margin increased 43 basis points to 4.10% compared to 2010. The higher net interest margin primarily reflects the benefits from recent acquisitions, an increase in investment income and
lower deposit costs. FTE net interest income increased $223.9 million, reflecting a $222.6 million increase in total interest and dividend income and a $1.3 million decrease in total interest expense. Net interest income in 2011 included
(i) $11.2 million of interest related to changes in the accretable yield on acquired loans stemming from periodic cash flow reassessments and (ii) $5.0 million of cost recovery income on acquired loans. Excluding these two items, the
operating net interest margin in 2011 was 4.03%.
Average earning assets totaled $22.5 billion in 2011, a $3.5 billion
increase from 2010, reflecting increases of $3.6 billion in average loans and $1.4 billion in average securities, partially offset by a $1.4 billion decrease in average short-term investments and securities purchased under agreements to resell.
Average loans, average securities, and average short-term investments and securities purchased under agreements to resell comprised 84%, 13% and 3%, respectively, of average earning assets in 2011 compared to 80%, 8% and 12%, respectively, in 2010.
In 2011, the yield earned on the total loan portfolio was 5.12% and the yield earned on securities, short-term investments and securities purchased under agreements to resell was 2.35%, compared to 5.11% and 1.30%, respectively, in the year-ago
period. Excluding adjustable-rate residential mortgage loans, which are mostly of the hybrid variety, approximately 48% of the loan portfolio had floating interest rates at December 31, 2011 compared to approximately 45% at December 31,
2010.
The average total commercial banking loan portfolio increased $2.9 billion compared to 2010, reflecting loans acquired
through recent acquisitions as well as organic growth. Average residential mortgage loans increased $698 million compared to the year-ago period, reflecting recent acquisitions and Peoples United Financials decision in May 2010 to begin
retaining newly-originated residential mortgage loans. Average consumer loans decreased $9 million compared to 2010, reflecting a $40 million decline in average indirect auto loans partially offset by a $35 million increase in average home equity
loans.
Average funding liabilities totaled $20.4 billion in 2011, a $4.2 billion increase compared to 2010, including
increases of $3.5 billion in average total deposits and $709 million in average borrowings, reflecting acquisitions and growth. Average savings and money market deposits, average time deposits and average non-interest-bearing deposits increased $2.1
billion, $743 million and $607 million, respectively. Average total deposits comprised 94% and 97% of average funding liabilities in 2011 and 2010, respectively.
The 17 basis point decrease to 0.63% from 0.80% in the rate paid on average funding liabilities in 2011 compared to 2010 primarily reflects the decrease in market interest rates and the shift in deposit
mix. The rate paid on average deposits decreased 15 basis points in 2011, reflecting decreases of 37 basis points in time deposits and 9 basis points in savings and money market deposits. Average savings and money market deposits and average time
deposits comprised 52% and 27%, respectively, of average total deposits in 2011 compared to 50% and 29%, respectively, in 2010.
Average
Balance Sheet, Interest and Yield/Rate Analysis
The table on the following page presents average balance sheets, FTE-basis
interest income, interest expense and the corresponding average yields earned and rates paid for the years ended December 31, 2012, 2011 and 2010. The average balances are principally daily averages and, for loans, include both performing and
non-performing balances. Interest income on loans includes the effect of deferred loan fees and costs accounted for as yield adjustments, but does not include interest on loans for which Peoples United Financial has ceased to accrue interest.
Premium amortization and discount accretion (including amounts attributable to purchase accounting adjustments) are also included in the respective interest income and interest expense amounts. The impact of Peoples United Financials use
of derivative instruments in managing interest rate risk is also reflected in the table, classified according to the instrument hedged and the related risk management objective.
48
Average Balance Sheet, Interest and Yield/Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011 (1)
|
|
|
2010 (1)
|
|
Years ended December 31
(dollars in millions)
|
|
Average
Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
332.0
|
|
|
$
|
0.8
|
|
|
|
0.24
|
%
|
|
$
|
743.1
|
|
|
$
|
2.0
|
|
|
|
0.28
|
%
|
|
$
|
1,725.0
|
|
|
$
|
4.6
|
|
|
|
0.27
|
%
|
Securities purchased under agreements to resell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.3
|
|
|
|
0.1
|
|
|
|
0.17
|
|
|
|
456.2
|
|
|
|
0.9
|
|
|
|
0.20
|
|
Securities (2)
|
|
|
3,299.8
|
|
|
|
81.5
|
|
|
|
2.47
|
|
|
|
2,933.3
|
|
|
|
85.1
|
|
|
|
2.90
|
|
|
|
1,579.5
|
|
|
|
43.5
|
|
|
|
2.76
|
|
Loans held for sale
|
|
|
31.1
|
|
|
|
1.8
|
|
|
|
5.91
|
|
|
|
38.8
|
|
|
|
2.1
|
|
|
|
5.42
|
|
|
|
43.4
|
|
|
|
2.4
|
|
|
|
5.59
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial (3)
|
|
|
7,672.8
|
|
|
|
373.4
|
|
|
|
4.87
|
|
|
|
6,465.4
|
|
|
|
354.7
|
|
|
|
5.49
|
|
|
|
4,961.9
|
|
|
|
264.6
|
|
|
|
5.33
|
|
Commercial real estate (4)
|
|
|
7,031.5
|
|
|
|
365.4
|
|
|
|
5.20
|
|
|
|
6,971.8
|
|
|
|
392.4
|
|
|
|
5.63
|
|
|
|
5,594.8
|
|
|
|
312.1
|
|
|
|
5.58
|
|
Residential mortgage
|
|
|
3,823.6
|
|
|
|
143.7
|
|
|
|
3.75
|
|
|
|
3,126.8
|
|
|
|
129.1
|
|
|
|
4.13
|
|
|
|
2,428.6
|
|
|
|
109.4
|
|
|
|
4.51
|
|
Consumer
|
|
|
2,174.9
|
|
|
|
80.0
|
|
|
|
3.68
|
|
|
|
2,190.1
|
|
|
|
84.2
|
|
|
|
3.85
|
|
|
|
2,199.2
|
|
|
|
89.6
|
|
|
|
4.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
20,702.8
|
|
|
|
962.5
|
|
|
|
4.65
|
|
|
|
18,754.1
|
|
|
|
960.4
|
|
|
|
5.12
|
|
|
|
15,184.5
|
|
|
|
775.7
|
|
|
|
5.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
24,365.7
|
|
|
$
|
1,046.6
|
|
|
|
4.30
|
%
|
|
|
22,496.6
|
|
|
$
|
1,049.7
|
|
|
|
4.67
|
%
|
|
|
18,988.6
|
|
|
$
|
827.1
|
|
|
|
4.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
3,747.2
|
|
|
|
|
|
|
|
|
|
|
|
3,531.6
|
|
|
|
|
|
|
|
|
|
|
|
3,027.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
28,112.9
|
|
|
|
|
|
|
|
|
|
|
$
|
26,028.2
|
|
|
|
|
|
|
|
|
|
|
$
|
22,016.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
|
|
$
|
4,656.8
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
4,032.8
|
|
|
$
|
|
|
|
|
|
%
|
|
$
|
3,426.0
|
|
|
$
|
|
|
|
|
|
%
|
Savings, interest-bearing checking and money market
|
|
|
11,556.8
|
|
|
|
38.7
|
|
|
|
0.33
|
|
|
|
9,970.1
|
|
|
|
51.0
|
|
|
|
0.51
|
|
|
|
7,853.6
|
|
|
|
47.4
|
|
|
|
0.60
|
|
Time
|
|
|
5,028.2
|
|
|
|
52.1
|
|
|
|
1.04
|
|
|
|
5,276.6
|
|
|
|
56.4
|
|
|
|
1.07
|
|
|
|
4,533.5
|
|
|
|
65.4
|
|
|
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
21,241.8
|
|
|
|
90.8
|
|
|
|
0.43
|
|
|
|
19,279.5
|
|
|
|
107.4
|
|
|
|
0.56
|
|
|
|
15,813.1
|
|
|
|
112.8
|
|
|
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail repurchase agreements
|
|
|
494.7
|
|
|
|
1.3
|
|
|
|
0.26
|
|
|
|
486.6
|
|
|
|
2.0
|
|
|
|
0.41
|
|
|
|
209.2
|
|
|
|
1.0
|
|
|
|
0.48
|
|
FHLB advances
|
|
|
419.5
|
|
|
|
5.1
|
|
|
|
1.23
|
|
|
|
456.1
|
|
|
|
6.7
|
|
|
|
1.48
|
|
|
|
52.3
|
|
|
|
1.1
|
|
|
|
2.22
|
|
Federal funds purchased
|
|
|
195.3
|
|
|
|
0.5
|
|
|
|
0.24
|
|
|
|
8.6
|
|
|
|
|
|
|
|
0.13
|
|
|
|
1.5
|
|
|
|
|
|
|
|
0.30
|
|
Other borrowings
|
|
|
16.4
|
|
|
|
0.1
|
|
|
|
1.00
|
|
|
|
28.0
|
|
|
|
0.3
|
|
|
|
0.94
|
|
|
|
7.5
|
|
|
|
0.2
|
|
|
|
2.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
|
1,125.9
|
|
|
|
7.0
|
|
|
|
0.63
|
|
|
|
979.3
|
|
|
|
9.0
|
|
|
|
0.92
|
|
|
|
270.5
|
|
|
|
2.3
|
|
|
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and debentures
|
|
|
195.5
|
|
|
|
8.4
|
|
|
|
4.28
|
|
|
|
170.4
|
|
|
|
12.1
|
|
|
|
7.08
|
|
|
|
179.6
|
|
|
|
14.7
|
|
|
|
8.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funding liabilities
|
|
|
22,563.2
|
|
|
$
|
106.2
|
|
|
|
0.47
|
%
|
|
|
20,429.2
|
|
|
$
|
128.5
|
|
|
|
0.63
|
%
|
|
|
16,263.2
|
|
|
$
|
129.8
|
|
|
|
0.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
381.8
|
|
|
|
|
|
|
|
|
|
|
|
327.7
|
|
|
|
|
|
|
|
|
|
|
|
384.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
22,945.0
|
|
|
|
|
|
|
|
|
|
|
|
20,756.9
|
|
|
|
|
|
|
|
|
|
|
|
16,647.9
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
5,167.9
|
|
|
|
|
|
|
|
|
|
|
|
5,271.3
|
|
|
|
|
|
|
|
|
|
|
|
5,368.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
28,112.9
|
|
|
|
|
|
|
|
|
|
|
$
|
26,028.2
|
|
|
|
|
|
|
|
|
|
|
$
|
22,016.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/spread (5)
|
|
|
|
|
|
$
|
940.4
|
|
|
|
3.83
|
%
|
|
|
|
|
|
$
|
921.2
|
|
|
|
4.04
|
%
|
|
|
|
|
|
$
|
697.3
|
|
|
|
3.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.86
|
%
|
|
|
|
|
|
|
|
|
|
|
4.10
|
%
|
|
|
|
|
|
|
|
|
|
|
3.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating net interest margin (6)
|
|
|
|
|
|
|
|
|
|
|
3.82
|
%
|
|
|
|
|
|
|
|
|
|
|
4.03
|
%
|
|
|
|
|
|
|
|
|
|
|
3.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Previously reported amounts have been revised to reflect a reduction in both commercial loan interest income and net interest income by $10.2 million and $5.0 million
for the years ended December 31, 2011 and 2010, respectively. As a result, the yield on commercial loans and the net interest margin were reduced by 15 basis points and 4 basis points, respectively, for the year ended December 31, 2011 and
by 10 basis points and 3 basis points, respectively, for the year ended December 31, 2010.
|
(2)
|
Average balances and yields for securities available for sale are based on amortized cost.
|
(3)
|
Includes commercial and industrial loans and equipment financing loans.
|
(4)
|
Interest income for the year ended December 31, 2012 includes $8.0 million of cost recovery income; yield of 5.08% without cost recovery income.
|
(5)
|
The FTE adjustment was $11.7 million, $7.8 million and $3.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.
|
(6)
|
See Non-GAAP financial measures and reconciliation to GAAP.
|
49
Volume and Rate Analysis
The following table shows the
extent to which changes in interest rates and changes in the volume of average earning assets and average interest-bearing liabilities have affected Peoples United Financials net interest income. For each category of earning assets and
interest-bearing liabilities, information is provided relating to: changes in volume (changes in average balances multiplied by the prior years average interest rates); changes in rates (changes in average interest rates multiplied by the
prior years average balances); and the total change. Changes attributable to both volume and rate have been allocated proportionately.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 Compared to 2011
Increase (Decrease)
|
|
|
2011 Compared to 2010
Increase (Decrease)
|
|
(in millions)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
(1.0
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
(2.7
|
)
|
|
$
|
0.1
|
|
|
$
|
(2.6
|
)
|
Securities purchased under agreements to resell
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)
|
|
|
(0.8
|
)
|
Securities
|
|
|
9.9
|
|
|
|
(13.5
|
)
|
|
|
(3.6
|
)
|
|
|
39.2
|
|
|
|
2.4
|
|
|
|
41.6
|
|
Loans held for sale
|
|
|
(0.4
|
)
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
61.6
|
|
|
|
(42.9
|
)
|
|
|
18.7
|
|
|
|
82.3
|
|
|
|
7.8
|
|
|
|
90.1
|
|
Commercial real estate
|
|
|
3.3
|
|
|
|
(30.3
|
)
|
|
|
(27.0
|
)
|
|
|
77.5
|
|
|
|
2.8
|
|
|
|
80.3
|
|
Residential mortgage
|
|
|
26.9
|
|
|
|
(12.3
|
)
|
|
|
14.6
|
|
|
|
29.4
|
|
|
|
(9.7
|
)
|
|
|
19.7
|
|
Consumer
|
|
|
(0.6
|
)
|
|
|
(3.6
|
)
|
|
|
(4.2
|
)
|
|
|
(0.4
|
)
|
|
|
(5.0
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
91.2
|
|
|
|
(89.1
|
)
|
|
|
2.1
|
|
|
|
188.8
|
|
|
|
(4.1
|
)
|
|
|
184.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in interest and dividend income
|
|
|
99.6
|
|
|
|
(102.7
|
)
|
|
|
(3.1
|
)
|
|
|
224.3
|
|
|
|
(1.7
|
)
|
|
|
222.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, interest-bearing checking
and money market
|
|
|
7.2
|
|
|
|
(19.5
|
)
|
|
|
(12.3
|
)
|
|
|
11.5
|
|
|
|
(7.9
|
)
|
|
|
3.6
|
|
Time
|
|
|
(2.6
|
)
|
|
|
(1.7
|
)
|
|
|
(4.3
|
)
|
|
|
9.6
|
|
|
|
(18.6
|
)
|
|
|
(9.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
4.6
|
|
|
|
(21.2
|
)
|
|
|
(16.6
|
)
|
|
|
21.1
|
|
|
|
(26.5
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail repurchase agreements
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
|
1.1
|
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
FHLB advances
|
|
|
(0.5
|
)
|
|
|
(1.1
|
)
|
|
|
(1.6
|
)
|
|
|
6.1
|
|
|
|
(0.5
|
)
|
|
|
5.6
|
|
Federal funds purchased
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
|
(0.2
|
)
|
|
|
(1.8
|
)
|
|
|
(2.0
|
)
|
|
|
7.5
|
|
|
|
(0.8
|
)
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and debentures
|
|
|
1.6
|
|
|
|
(5.3
|
)
|
|
|
(3.7
|
)
|
|
|
(0.7
|
)
|
|
|
(1.9
|
)
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in interest expense
|
|
|
6.0
|
|
|
|
(28.3
|
)
|
|
|
(22.3
|
)
|
|
|
27.9
|
|
|
|
(29.2
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
93.6
|
|
|
$
|
(74.4
|
)
|
|
$
|
19.2
|
|
|
$
|
196.4
|
|
|
$
|
27.5
|
|
|
$
|
223.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
The following table provides the weighted average yields earned and rates paid for each
major category of earning assets and funding liabilities as of December 31, 2012.
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
Balance
|
|
|
Yield/Rate
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
131.4
|
|
|
|
0.19
|
%
|
Securities
|
|
|
4,668.7
|
|
|
|
2.01
|
|
Loans held for sale
|
|
|
77.0
|
|
|
|
2.43
|
|
Loans
|
|
|
21,736.6
|
|
|
|
4.22
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
$
|
26,613.7
|
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
|
|
Funding liabilities:
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
$
|
5,084.3
|
|
|
|
|
%
|
Savings, interest-bearing checking and money market deposits
|
|
|
11,959.8
|
|
|
|
0.23
|
|
Time deposits
|
|
|
4,706.4
|
|
|
|
1.16
|
|
Borrowings
|
|
|
2,386.5
|
|
|
|
0.54
|
|
Notes and debentures
|
|
|
659.0
|
|
|
|
3.41
|
|
|
|
|
|
|
|
|
|
|
Total funding liabilities
|
|
$
|
24,796.0
|
|
|
|
0.47
|
%
|
|
|
|
|
|
|
|
|
|
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
Increase (Decrease)
|
|
Years ended December 31 (dollars in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2012/2011
|
|
|
2011/2010
|
|
Bank service charges
|
|
$
|
127.2
|
|
|
$
|
131.3
|
|
|
$
|
126.3
|
|
|
|
(3.1
|
)%
|
|
|
4.0
|
%
|
Investment management fees
|
|
|
34.9
|
|
|
|
33.2
|
|
|
|
32.0
|
|
|
|
5.1
|
|
|
|
3.8
|
|
Insurance revenue
|
|
|
31.8
|
|
|
|
30.7
|
|
|
|
28.8
|
|
|
|
3.6
|
|
|
|
6.6
|
|
Brokerage commissions
|
|
|
12.2
|
|
|
|
11.9
|
|
|
|
11.3
|
|
|
|
2.5
|
|
|
|
5.3
|
|
Operating lease income
|
|
|
31.2
|
|
|
|
25.0
|
|
|
|
19.4
|
|
|
|
24.8
|
|
|
|
28.9
|
|
Net gains on sales of residential mortgage loans
|
|
|
16.1
|
|
|
|
7.6
|
|
|
|
12.1
|
|
|
|
111.8
|
|
|
|
(37.2
|
)
|
Net gains on sales of acquired loans
|
|
|
1.0
|
|
|
|
7.5
|
|
|
|
|
|
|
|
(86.7
|
)
|
|
|
100.0
|
|
Net security gains (losses)
|
|
|
|
|
|
|
8.8
|
|
|
|
(1.0
|
)
|
|
|
(100.0
|
)
|
|
|
n/m
|
|
Other non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial banking fees
|
|
|
33.3
|
|
|
|
26.6
|
|
|
|
15.1
|
|
|
|
25.2
|
|
|
|
76.2
|
|
BOLI
|
|
|
5.4
|
|
|
|
6.3
|
|
|
|
6.7
|
|
|
|
(14.3
|
)
|
|
|
(6.0
|
)
|
Merchant services income, net
|
|
|
4.9
|
|
|
|
4.3
|
|
|
|
4.3
|
|
|
|
14.0
|
|
|
|
|
|
Other
|
|
|
15.8
|
|
|
|
14.4
|
|
|
|
15.0
|
|
|
|
9.7
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-interest income
|
|
|
59.4
|
|
|
|
51.6
|
|
|
|
41.1
|
|
|
|
15.1
|
|
|
|
25.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
313.8
|
|
|
$
|
307.6
|
|
|
$
|
270.0
|
|
|
|
2.0
|
%
|
|
|
13.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/m not meaningful
Total non-interest income increased $6.2 million in 2012 compared to 2011 ($15.0 million excluding net security gains) and increased $37.6 million in 2011 compared to 2010 ($27.8 million excluding net
security gains (losses)). The improvement in total non-interest income in 2012 compared to 2011 primarily reflects an increase in the level of gains on sales of residential mortgage loans and higher commercial banking fees and operating lease income
in 2012. The improvement in total non-interest income in 2011 compared to 2010 primarily reflects the benefits from acquisitions completed in 2011 and 2010, net security gains in 2011 and higher commercial banking fees and operating lease income in
2011.
51
The decrease in bank service charges in 2012 compared to 2011 primarily reflects the impact
of certain provisions of the DFA, as increases in commercial and retail fees were more than offset by the decline in interchange fees (see Recent Market Developments). The increase in bank service charges in 2011 compared to 2010 primarily reflects
improvements in commercial and retail fees, partially offset by a $5.0 million decline in interchange fees resulting from certain provisions of the DFA, which took effect in October 2011.
The level of investment management fees and brokerage commissions in recent years primarily reflects the uncertainty in the equity
markets and broader economic weakness experienced throughout the past few years, while the level of insurance revenue primarily reflects the continued soft insurance market.
In 2011, Peoples United Financial sold mortgage-backed securities with an amortized cost of $507 million, in order to reduce book value at risk resulting from higher prepayment speeds, and recorded
$9.1 million of gross security gains. Security losses in 2010 resulted from the sale of securities acquired in the Smithtown and LSB acquisitions as a result of changes in market interest rates occurring subsequent to the acquisition date (November
30, 2010).
The increase in net gains on sales of residential mortgage loans in 2012 compared to 2011 reflects the higher
level of residential mortgage loan sales (a 50% increase in volume from 2011) due to the higher level of refinancing activity during 2012. Net gains on sales of residential mortgage loans in 2012 continue to reflect improved pricing on
residential mortgage loans sold. Loans held for sale at December 31, 2012 consisted of newly-originated residential mortgage loans with a carrying amount of $77.0 million. The decline in net gains on sales of residential mortgage loans in 2011
compared to 2010 reflects a lower level of residential mortgage loan sales in 2011 (a 30% decline in volume from 2010) due to the lower level of refinancing activity in 2011 as well as the Companys decision in May 2010 to portfolio residential
mortgage loans.
Net gains on sales of acquired loans in 2012 and 2011 reflect sales of acquired loans with contractual
balances of approximately $14 million and $152 million, respectively (carrying amounts of approximately $12 million and $105 million, respectively).
BOLI income totaled $5.4 million ($8.2 million on a taxable-equivalent basis) in 2012 compared to $6.3 million ($9.4 million on a taxable-equivalent basis) in 2011 and $6.7 million ($10.3 million on
a taxable-equivalent basis) in 2010. The decrease in BOLI income in 2012 and 2011 primarily reflects a lower crediting rate in both years.
The fluctuation in payment processing volume is the primary driver for the variances in merchant services income. The increase in operating lease income in both 2012 and 2011 reflects higher levels of
equipment leased to PCLC customers while the increase in commercial banking fees in both years primarily reflects higher prepayment fees.
Assets under administration and those under full discretionary management, neither of which are reported as assets of Peoples United Financial, totaled $11.4 billion and $4.5 billion, respectively,
at December 31, 2012 compared to $12.5 billion and $4.3 billion, respectively, at December 31, 2011.
In June
2005, a group of U.S. merchants filed a class action lawsuit against VISA and MasterCard claiming that the way VISA and MasterCard set interchange rates was a violation of anti-trust laws. In July 2012, the parties signed a memorandum of
understanding to enter into a settlement to the lawsuit in which VISA and MasterCard proposed to pay $7.25 billion to the merchants ($6.05 billion in cash and $1.2 billion from an eight month reduction in credit card interchange). The proposed
settlement is not expected to have a significant impact on the Companys financial results.
52
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
Increase (Decrease)
|
|
Years ended December 31 (dollars in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2012/2011
|
|
|
2011/2010
|
|
Compensation and benefits
|
|
$
|
418.9
|
|
|
$
|
429.0
|
|
|
$
|
380.4
|
|
|
|
(2.4
|
)%
|
|
|
12.8
|
%
|
Occupancy and equipment
|
|
|
141.9
|
|
|
|
133.3
|
|
|
|
114.4
|
|
|
|
6.5
|
|
|
|
16.5
|
|
Professional and outside service fees
|
|
|
65.4
|
|
|
|
70.6
|
|
|
|
72.7
|
|
|
|
(7.4
|
)
|
|
|
(2.9
|
)
|
Amortization of other acquisition-related intangibles
|
|
|
26.8
|
|
|
|
25.8
|
|
|
|
21.7
|
|
|
|
3.9
|
|
|
|
18.9
|
|
Amortization of leased equipment
|
|
|
26.3
|
|
|
|
20.8
|
|
|
|
16.1
|
|
|
|
26.4
|
|
|
|
29.2
|
|
Other non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
|
|
|
30.8
|
|
|
|
30.1
|
|
|
|
27.7
|
|
|
|
2.3
|
|
|
|
8.7
|
|
Stationery, printing, postage and telephone
|
|
|
22.5
|
|
|
|
21.6
|
|
|
|
20.5
|
|
|
|
4.2
|
|
|
|
5.4
|
|
Advertising and promotion
|
|
|
17.7
|
|
|
|
17.2
|
|
|
|
17.3
|
|
|
|
2.9
|
|
|
|
(0.6
|
)
|
Executive-level separation costs
|
|
|
|
|
|
|
3.8
|
|
|
|
15.3
|
|
|
|
(100.0
|
)
|
|
|
(75.2
|
)
|
Other
|
|
|
80.3
|
|
|
|
76.8
|
|
|
|
72.6
|
|
|
|
4.6
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-interest expense
|
|
|
151.3
|
|
|
|
149.5
|
|
|
|
153.4
|
|
|
|
1.2
|
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
830.6
|
|
|
|
829.0
|
|
|
|
758.7
|
|
|
|
0.2
|
|
|
|
9.3
|
|
Merger-related expenses
|
|
|
|
|
|
|
42.9
|
|
|
|
23.3
|
|
|
|
(100.0
|
)
|
|
|
84.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
830.6
|
|
|
$
|
871.9
|
|
|
$
|
782.0
|
|
|
|
(4.7
|
)%
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio
|
|
|
62.4
|
%
|
|
|
64.0
|
%
|
|
|
73.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/m not meaningful
Excluding the effect of merger-related expenses, total non-interest expense increased $1.6 million in 2012 compared to 2011 and $70.3 million in 2011 compared to 2010. Merger-related expenses consist of:
(i) fees for investment advisory, legal, accounting and valuation services; (ii) debt prepayment costs; (iii) compensatory charges; and (iv) regulatory filings. In addition to merger-related expenses, total non-interest expense
includes $12.7 million, $13.9 million and $15.3 million of non-operating expenses in 2012, 2011 and 2010, respectively. Also included in total non-interest expenses in 2010 are $20.3 million of core system conversion costs.
The lower efficiency ratio in 2012 compared to 2011 reflects a 3% increase in operating revenue partially offset by a 1% increase in
operating expenses (see Non-GAAP Financial Measures and Reconciliation to GAAP).
The decrease in compensation and benefits in
2012 compared to 2011 reflects lower incentive costs, including the benefit associated with the final vesting of stock awards granted in 2007 in connection with the Companys second step conversion, as well as the benefit from cost-savings
initiatives, partially offset by additional compensation and benefit costs resulting from the acquisitions completed in 2012 and 2011 and normal merit increases. The increase in compensation and benefits in 2011 compared to 2010 reflects additional
compensation and benefit costs resulting from the acquisitions completed in 2011 and 2010, normal merit increases and higher benefit-related costs.
In July 2011, Peoples United Bank amended its defined benefit pension plan (the Plan) to freeze, effective December 31, 2011, the accrual of pension benefits for Plan
participants. As such, Plan participants will not earn any additional benefits after that date. Instead, effective January 1, 2012, Peoples United Bank will make a contribution on behalf of these participants to a qualified defined
contribution plan in an annual amount equal to 3% of the employees eligible compensation. Also in July 2011, other cost-saving initiatives were announced, including the elimination of selected positions primarily within corporate functions,
non-core lending businesses and the former Bank of Smithtown. The annual cost savings expected to be realized as a result of these initiatives is approximately $20 million beginning in 2012.
53
The increase in occupancy and equipment expense in 2012 and 2011 primarily reflects the
incremental costs associated with the continued geographic expansion of Peoples United Financials franchise as well as the acquisitions completed during the past three years. Costs recorded in 2010 related to the core system conversion
and computer system servicing costs is the principal reason for the decrease in professional and outside services fees in 2012 and 2011. The increase in amortization expense of leased equipment in 2012 and 2011 relates to the higher level of
equipment leased to PCLC customers.
In connection with Peoples United Financials acquisition of Chittenden in
January 2008, a trade name intangible asset with a fair value of $122.7 million was established and assigned an indefinite useful life based on managements intentions at that time. In June 2010, Peoples United Financial announced a plan
to re-brand, as Peoples United Bank, the former Chittenden banks in connection with the scheduled completion of its core system conversion in July 2010. Management believes the name change better leverages the Peoples
United brand and the full range of services available to its customers.
As a result of the decision to
re-brand the Chittenden banks, the useful life of the trade name intangible asset was no longer deemed to be indefinite and management was required to perform a final impairment test prior to amortizing the asset over its estimated
remaining useful life beginning July 1, 2010. Peoples United Financial performed its final trade name impairment test as of June 30, 2010 and determined that the fair value of the trade name intangible exceeded its carrying amount.
As a result, no impairment loss was recognized. The trade name intangible is being amortized on an accelerated basis over a period of approximately 20 years, reflecting the manner in which the related benefit is realized.
Scheduled amortization expense attributable to other acquisition-related intangible assets for each of the next five years is as follows:
$26.2 million in 2013; $24.8 million in 2014; $23.8 million in 2015; $22.7 million in 2016; and $21.6 million in 2017.
In
February 2011, the FDIC approved a final rule (which was effective June 30, 2011) that: changed the assessment base from adjusted domestic deposits to a banks average consolidated total assets minus average tangible equity (defined as
Tier 1 capital); adopted a new large-bank pricing assessment scheme; and set a target size for the DIF at 2% of insured deposits. The rule also (i) implemented a lower assessment rate schedule when the DIF reaches 1.15 percent and, in lieu of
dividends, provides for a lower rate schedule when the reserve ratio reaches 2 percent and 2.5 percent and (ii) created a scorecard-based assessment system for financial institutions with more than $10 billion in assets, including Peoples
United Bank. One of the financial ratios used in the scorecard-based assessment system is the ratio of higher-risk assets to Tier 1 capital and reserves. In October 2012, the FDIC adopted a final rule that revises the definition of
higher-risk assets and clarifies when an asset must be classified as higher risk. This rule is generally effective on April 1, 2013. Regulatory assessment expense may continue to increase in 2013 and beyond.
The increase in other non-interest expense in 2012 compared to 2011 reflects increases in collateral protection costs and operational
charge-offs. The increase in other non-interest expense in 2011 compared to 2010 reflects (i) a $4.8 million charge in 2011 associated with the planned consolidation of approximately 15 branches and other office space during 2012, which is
expected to result in approximately $5 million of annualized operating expense savings and (ii) a higher level of expenses in 2011 related to foreclosed properties.
Income Taxes
Income tax expense totaled $117.4 million, $93.0 million and $39.5 million for the years ended December 31, 2012, 2011 and 2010, respectively. Peoples United Financials effective income
tax rate was 32.4%, 32.6% and 32.4% for the years ended December 31, 2012, 2011 and 2010, respectively. Peoples United Financials effective income tax rate in 2013 is expected to approximate the rate in 2012.
The difference between Peoples United Financials effective income tax rate for the year ended December 31, 2012 and the
U.S. federal statutory rate of 35% is primarily attributable to: (i) federal income tax credits associated with the Companys investment in affordable housing limited partnerships; (ii) tax-exempt interest earned on certain
investments; (iii) tax-exempt income from bank-owned life insurance; and (iv) state income taxes.
54
Peoples United Financial maintains an ownership interest in several limited
partnership investments to develop and operate affordable housing units for lower income tenants throughout its franchise area. These investments have historically played a significant role in enabling Peoples United Bank to meet its Community
Reinvestment Act requirements while, at the same time, providing federal income tax credits. The cost of these investments is amortized on a straight-line basis over the period during which the related federal income tax credits are realized
(generally ten years). These credits totaled $8.5 million, $6.6 million and $4.6 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Income tax expense for all three years reflects the state tax benefit resulting from the formation of Peoples Mortgage Investment Company, a wholly owned subsidiary of Peoples United Bank. The
formation of this subsidiary was a result of Connecticut tax legislation, which became effective on January 1, 1999, that allows for the transfer of mortgage loans to a passive investment subsidiary. The related earnings of the subsidiary, and
any dividends it pays to the parent, are not subject to Connecticut income tax. See Note 12 to the Consolidated Financial Statements for additional information concerning income tax expense.
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
As of December 31 (in millions)
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
55.0
|
|
|
$
|
59.7
|
|
|
$
|
55.0
|
|
|
$
|
61.1
|
|
|
$
|
55.0
|
|
|
$
|
55.0
|
|
Other
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
56.2
|
|
|
$
|
60.9
|
|
|
$
|
56.4
|
|
|
$
|
62.5
|
|
|
$
|
55.1
|
|
|
$
|
55.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency
|
|
$
|
30.1
|
|
|
$
|
30.7
|
|
|
$
|
80.5
|
|
|
$
|
81.0
|
|
|
$
|
476.2
|
|
|
$
|
476.3
|
|
GSE residential mortgage-backed securities and CMOs
|
|
|
3,830.9
|
|
|
|
3,899.0
|
|
|
|
2,388.9
|
|
|
|
2,447.8
|
|
|
|
2,289.0
|
|
|
|
2,290.6
|
|
State and municipal
|
|
|
527.4
|
|
|
|
539.6
|
|
|
|
127.8
|
|
|
|
137.7
|
|
|
|
57.6
|
|
|
|
58.2
|
|
Corporate
|
|
|
57.9
|
|
|
|
59.9
|
|
|
|
57.4
|
|
|
|
56.5
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2.6
|
|
|
|
2.9
|
|
|
|
2.6
|
|
|
|
2.3
|
|
|
|
4.5
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
4,448.9
|
|
|
|
4,532.1
|
|
|
|
2,657.2
|
|
|
|
2,725.3
|
|
|
|
2,827.3
|
|
|
|
2,829.6
|
|
Equity securities
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
4,449.1
|
|
|
$
|
4,532.3
|
|
|
$
|
2,657.4
|
|
|
$
|
2,725.5
|
|
|
$
|
2,828.8
|
|
|
$
|
2,831.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples United Financial strives to maintain an appropriate balance between loan portfolio growth
and deposit funding. Peoples United Financials management believes that, other than for transitional deployment of excess deposits or excess equity, a large securities portfolio funded with wholesale borrowings provides limited economic
value.
Peoples United Financial has historically utilized the securities portfolio for earnings generation (in the form
of interest and dividend income), liquidity, interest rate risk management, asset diversification and tax planning. Securities available for sale are used as part of Peoples United Financials asset/liability management strategy and may
be sold in response to, or in anticipation of, factors such as changes in market conditions and interest rates, changes in security prepayment rates, liquidity considerations and regulatory capital requirements.
55
Peoples United Financial invests in debt securities rated in the highest categories
assigned by a nationally recognized statistical ratings organization (NRSRO) and all credit risk undergoes an internal creditworthiness assessment separate from the NRSRO rating. Management has internal guidelines for the credit quality
and duration of Peoples United Financials debt securities portfolio and monitors these on a regular basis.
At
December 31, 2012, Peoples United Financials securities available for sale portfolio totaled $4.5 billion, or 15% of total assets, compared to $2.7 billion, or 10% of total assets, at December 31, 2011 and
$2.8 billion, or 11% of total assets, at December 31, 2010.
The increase in debt securities available for sale in
2012 compared to 2011 reflects managements decision in the second half of 2012 to invest in government-sponsored enterprise (GSE) residential mortgage-backed securities and CMOs, as well as investment grade state and municipal
securities, to provide the optimal balance of credit risk, yield and duration.
In 2011, the Company sold 15-year
mortgage-backed securities with an amortized cost of $507 million to reduce book value at risk due to an expected increase in prepayments and recorded gross realized gains totaling $9.1 million. Subsequently, the Company purchased short-duration
agency-issued CMOs backed by collateral that is expected to exhibit lower prepayment risk.
At December 31, 2012, 2011
and 2010, the fair value exceeded the amortized cost of the securities available for sale portfolio by $83.2 million, $68.1 million and $2.3 million, respectively.
All unrealized gains and those unrealized losses representing temporary declines in value due to factors other than credit are recorded in stockholders equity, net of income taxes. As a result,
management anticipates continued fluctuations in stockholders equity due to changes in the fair value of these securities, albeit on a relatively small scale due to the duration of the portfolio. The duration of the debt securities portfolio
was approximately 3.3 years, 2.8 years and 3.4 years at December 31, 2012, 2011 and 2010, respectively.
Lending Activities
Peoples
United Financial conducts its lending activities principally through its Commercial Banking and Retail and Business Banking operating segments. Peoples United Financials lending activities consist of originating loans secured by
commercial and residential properties, and extending secured and unsecured loans to commercial and consumer customers.
Total
loans increased $1.35 billion in 2012 compared to 2011 and increased $3.07 billion in 2011 compared to 2010. Peoples United Financial acquired loans with fair values of $1.87 billion in 2011 and $3.49 billion in 2010. Loans acquired in
connection with business combinations beginning in 2010 are referred to as acquired loans as a result of the manner in which they are accounted for (see further discussion under Acquired Loans in Note 1 to the Consolidated
Financial Statements). All other loans are referred to as originated loans. At December 31, 2012, and 2011, the carrying amount of the acquired loan portfolio totaled $2.24 billion and $3.60 billion, respectively.
56
The following table summarizes the loan portfolio before deducting the allowance for loan
losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate (1)
|
|
$
|
7,294.2
|
|
|
$
|
7,172.2
|
|
|
$
|
7,306.3
|
|
|
$
|
5,399.4
|
|
|
$
|
4,967.3
|
|
Commercial and industrial (1)
|
|
|
6,047.7
|
|
|
|
5,352.6
|
|
|
|
3,095.6
|
|
|
|
2,805.7
|
|
|
|
2,999.5
|
|
Equipment financing
|
|
|
2,352.3
|
|
|
|
2,014.2
|
|
|
|
2,095.4
|
|
|
|
1,236.8
|
|
|
|
1,226.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking
|
|
|
15,694.2
|
|
|
|
14,539.0
|
|
|
|
12,497.3
|
|
|
|
9,441.9
|
|
|
|
9,193.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate
|
|
|
3,335.2
|
|
|
|
2,947.7
|
|
|
|
2,117.9
|
|
|
|
2,230.2
|
|
|
|
2,850.3
|
|
Fixed-rate
|
|
|
550.9
|
|
|
|
680.7
|
|
|
|
529.6
|
|
|
|
182.4
|
|
|
|
275.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage
|
|
|
3,886.1
|
|
|
|
3,628.4
|
|
|
|
2,647.5
|
|
|
|
2,412.6
|
|
|
|
3,125.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
2,051.5
|
|
|
|
2,057.7
|
|
|
|
1,976.8
|
|
|
|
1,986.3
|
|
|
|
1,945.5
|
|
Other consumer
|
|
|
104.8
|
|
|
|
159.7
|
|
|
|
201.1
|
|
|
|
258.7
|
|
|
|
281.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
2,156.3
|
|
|
|
2,217.4
|
|
|
|
2,177.9
|
|
|
|
2,245.0
|
|
|
|
2,227.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail
|
|
|
6,042.4
|
|
|
|
5,845.8
|
|
|
|
4,825.4
|
|
|
|
4,657.6
|
|
|
|
5,353.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
21,736.6
|
|
|
$
|
20,384.8
|
|
|
$
|
17,322.7
|
|
|
$
|
14,099.5
|
|
|
$
|
14,547.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Following the Companys 2010 acquisitions and core system conversion, the Company undertook a portfolio review to ensure consistent classification of commercial
loans in an effort to align policy across the Companys expanded franchise and better conform to industry practice for such loans. As a result, approximately $875 million of loans secured, in part, by owner-occupied commercial properties were
reclassified from commercial real estate loans to commercial and industrial loans as of March 31, 2011. The primary collateral for these loans generally consists of the borrowers general business assets (i.e. non-real estate collateral)
and the loans were underwritten principally on the basis of the adequacy of business cash flows. This reclassification is being applied prospectively as it was deemed impracticable to do so for prior periods due to the fact that the underlying loan
information is no longer available as it previously resided on legacy loan systems that are no longer utilized or supported following the Companys core system conversion.
|
Peoples United Financials loan portfolio is primarily concentrated within New England with approximately 68% and 71% of the
total loan portfolio representing loans to customers located within the New England states at December 31, 2012 and 2011, respectively, and approximately 13% and 12% represents loans to customers located in New York state at those dates.
57
Total Loans
As of December 31 (dollars in millions)
The following table presents the contractual maturity of total loans as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Commercial
Banking
|
|
|
Retail
|
|
|
Total
|
|
Amounts due:
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
2,064.0
|
|
|
$
|
58.2
|
|
|
$
|
2,122.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
One to five years
|
|
|
6,733.0
|
|
|
|
216.9
|
|
|
|
6,949.9
|
|
Over five years
|
|
|
6,897.2
|
|
|
|
5,767.3
|
|
|
|
12,664.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total due after one year
|
|
|
13,630.2
|
|
|
|
5,984.2
|
|
|
|
19,614.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,694.2
|
|
|
$
|
6,042.4
|
|
|
$
|
21,736.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents, as of December 31, 2012, loan amounts due after December 31,
2013, and whether these loans have adjustable or fixed interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
Total
|
|
(in millions)
|
|
Adjustable
|
|
|
Fixed
|
|
|
Commercial Banking
|
|
$
|
6,625.4
|
|
|
$
|
7,004.8
|
|
|
$
|
13,630.2
|
|
Retail
|
|
|
5,029.4
|
|
|
|
954.8
|
|
|
|
5,984.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans due after one year
|
|
$
|
11,654.8
|
|
|
$
|
7,959.6
|
|
|
$
|
19,614.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
Commercial Banking
The Commercial Banking lending businesses include commercial real estate, commercial and industrial lending, and equipment financing.
Commercial Real Estate
Peoples United Financial manages the
commercial real estate portfolio by limiting the concentration in any particular loan type, term, industry, or to any individual borrower. Peoples United Financials highest loan concentration in the commercial real estate loan portfolio
is in the office building sector, which represented 30% of this loan portfolio at both December 31, 2012 and 2011.
|
|
|
|
|
|
|
|
|
As of December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
Property Type:
|
|
|
|
|
|
|
|
|
Office buildings
|
|
$
|
2,208.8
|
|
|
$
|
2,130.1
|
|
Retail
|
|
|
1,873.0
|
|
|
|
1,730.2
|
|
Residential (multi-family)
|
|
|
1,762.7
|
|
|
|
1,796.7
|
|
Industrial/manufacturing
|
|
|
543.9
|
|
|
|
499.8
|
|
Hospitality and entertainment
|
|
|
342.8
|
|
|
|
404.9
|
|
Mixed/special use
|
|
|
210.0
|
|
|
|
237.9
|
|
Land
|
|
|
109.4
|
|
|
|
139.3
|
|
Self storage
|
|
|
107.8
|
|
|
|
129.2
|
|
Health care
|
|
|
84.2
|
|
|
|
40.0
|
|
Other properties
|
|
|
51.6
|
|
|
|
64.1
|
|
|
|
|
|
|
|
|
|
|
Total commercial real estate
|
|
$
|
7,294.2
|
|
|
$
|
7,172.2
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Portfolio
As of December 31 (dollars in millions)
The commercial real estate portfolio increased $122 million in 2012 compared to 2011, reflecting loan
growth of $771 million, or 11% of the commercial real estate portfolio, partially offset by a decrease in the acquired portfolio. The commercial real estate portfolio decreased $134 million in 2011 compared to 2010, reflecting the reclassification
of approximately $875 million of loans secured, in part, by owner-occupied commercial properties from commercial real estate loans to commercial and industrial loans in 2011 and a decrease in acquired commercial real estate loans, partially offset
by the addition of loans acquired in connection with the Danvers acquisition completed in 2011, as well as loan growth of $756 million, or 10% of the commercial real estate portfolio.
Included in the commercial real estate portfolio are construction loans totaling $552 million and $653 million at December 31,
2012 and 2011, respectively, net of the unadvanced portion of such loan totaling $392 million and $281 million, respectively. In 2012 and 2011, the Company sold acquired loans with outstanding principal balances of $14 million and $152 million,
respectively (carrying amount of $12 million and $105 million, respectively) and recognized net gains on sales totaling $1.0 million and $7.5 million, respectively.
59
At both December 31, 2012 and 2011, approximately 26% of Peoples United
Financials commercial real estate portfolio was secured by properties located in Connecticut, and approximately 24% and 23%, respectively, was secured by properties located in New York. In addition, approximately 32% of the commercial real
estate portfolio was secured by properties located in Massachusetts, Vermont and New Hampshire at December 31, 2012 compared to approximately 33% at December 31, 2011. No other state exposure was greater than 6% at December 31,
2012.
Commercial real estate is dependent on the successful operation of the related income-producing real estate.
Accordingly, the income streams generated by this portfolio can be impacted by changes in the real estate market and, to a large extent, the New England and southeastern New York economies. Peoples United Financial continues to focus on
maintaining strong asset quality standards in a competitive market generally characterized by aggressive pricing and less attractive underwriting terms. The growth and performance of this portfolio is largely dependent on the economic environment
and may be adversely impacted if the economy weakens in 2013.
Commercial Real Estate Diversification
As of December 31, 2012 (percent)
Commercial and Industrial
Peoples United Financial provides diversified products and services to its commercial customers, including short-term working capital credit facilities, term financing, asset-based loans, letters of
credit, cash management services and commercial deposit accounts.
|
|
|
|
|
|
|
|
|
As of December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
Industry:
|
|
|
|
|
|
|
|
|
Finance, insurance and real estate
|
|
$
|
1,730.9
|
|
|
$
|
1,300.0
|
|
Service
|
|
|
1,111.5
|
|
|
|
1,087.6
|
|
Manufacturing
|
|
|
816.5
|
|
|
|
765.2
|
|
Health services
|
|
|
592.2
|
|
|
|
448.1
|
|
Wholesale distribution
|
|
|
561.9
|
|
|
|
522.6
|
|
Retail sales
|
|
|
531.7
|
|
|
|
527.4
|
|
Construction
|
|
|
184.9
|
|
|
|
209.3
|
|
Arts/entertainment/recreation
|
|
|
156.4
|
|
|
|
147.1
|
|
Transportation/utility
|
|
|
144.7
|
|
|
|
112.8
|
|
Public administration
|
|
|
69.4
|
|
|
|
86.0
|
|
Agriculture
|
|
|
21.9
|
|
|
|
24.4
|
|
Other
|
|
|
125.7
|
|
|
|
122.1
|
|
|
|
|
|
|
|
|
|
|
Total commercial and industrial
|
|
$
|
6,047.7
|
|
|
$
|
5,352.6
|
|
|
|
|
|
|
|
|
|
|
60
Commercial products are generally packaged together to create a financing solution
specifically tailored to the needs of the customer. Taking a total relationship-focused approach with commercial customers to meet their financing needs has resulted in substantial growth in non-interest-bearing deposits over time, as well as in
opportunities to provide other banking services to principals and employees of these commercial customers.
The
borrowers ability to repay a commercial loan is closely tied to the ongoing profitability and cash flow of the borrowers business. Consequently, a commercial loan tends to be more directly impacted by changes in economic cycles that
affect businesses generally and the borrowers business specifically. The availability of adequate collateral is a factor in commercial loan decisions and loans are generally collateralized and/or guaranteed by third parties.
In 2012, the commercial and industrial portfolio increased $695 million compared to 2011, reflecting loan growth of $1.1 billion, or
20% of the commercial and industrial portfolio, partially offset by a decrease in the acquired portfolio. In 2011, the commercial and industrial portfolio increased $2.3 billion compared to 2010, reflecting the reclassification of approximately
$875 million of loans secured, in part, by owner-occupied commercial properties from commercial real estate loans to commercial and industrial loans in 2011, the addition of loans acquired in connection with the Danvers acquisition, as well as loan
growth of $461 million, or 15% of the commercial and industrial portfolio, partially offset by a decrease in acquired commercial and industrial loans.
At December 31, 2012 and 2011, the commercial and industrial portfolio included $301 million and $274 million, respectively, of asset-based lending loans, of which approximately 83% were to
customers located within the Companys geographic footprint at December 31, 2012. The commercial and industrial portfolio also includes $710 million of mortgage warehouse loans at December 31, 2012, compared to $344 million at
December 31, 2011. Such loans represent lines of credit extended to a loan originator to fund a mortgage that a borrower initially used to purchase a property. The extension of credit generally lasts from the loans point of origination to
the point when the mortgage is sold into the secondary market. At December 31, 2012, approximately 24% of the mortgage warehouse loans were to customers located within the Companys footprint.
At December 31, 2012, approximately 24% of the commercial and industrial loan portfolio consisted of loans to Connecticut-based
businesses, compared to approximately 25% at December 31, 2011. Commercial and industrial loan exposure in the states of Vermont, Massachusetts and New Hampshire totaled approximately 45% and 50% at December 31, 2012 and 2011,
respectively. No other state exposure was greater than 10%. While Peoples United Financial continues to focus on asset quality, the performance of the commercial lending and industrial portfolio may be adversely impacted if the economy weakens
in 2013.
Commercial and Industrial Diversification
As of December 31, 2012 (percent)
61
Commercial and Industrial Portfolio
As of December 31 (dollars in millions)
Equipment Financing
PCLC and PUEFC provide equipment financing for customers in all 50 states, specializing in financing for the transportation/utility, construction, printing and general manufacturing industries. PCLC will
buy or sell portions of financing transactions in the secondary market to manage the concentration risk of its overall portfolio. In addition, PCLC provides customers with the option to lease equipment. Substantially all of the equipment financing
portfolio (approximately 97% at both December 31, 2012 and 2011) was to customers located outside of New England. At December 31, 2012, approximately 32% of the equipment financing portfolio consisted of loans to customers located in
Texas, California and New York and no other state exposure was greater than 6%.
|
|
|
|
|
|
|
|
|
As of December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
Industry:
|
|
|
|
|
|
|
|
|
Transportation/utility
|
|
$
|
758.9
|
|
|
$
|
599.5
|
|
Construction
|
|
|
427.7
|
|
|
|
412.2
|
|
Printing
|
|
|
281.9
|
|
|
|
331.7
|
|
General manufacturing
|
|
|
181.8
|
|
|
|
134.0
|
|
Retail sales
|
|
|
173.9
|
|
|
|
114.3
|
|
Waste
|
|
|
167.4
|
|
|
|
136.6
|
|
Packaging
|
|
|
118.6
|
|
|
|
92.1
|
|
Wholesale distribution
|
|
|
65.7
|
|
|
|
49.3
|
|
Service
|
|
|
59.8
|
|
|
|
47.9
|
|
Health services
|
|
|
54.0
|
|
|
|
41.6
|
|
Food services
|
|
|
29.6
|
|
|
|
32.3
|
|
Other
|
|
|
33.0
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
Total equipment financing
|
|
$
|
2,352.3
|
|
|
$
|
2,014.2
|
|
|
|
|
|
|
|
|
|
|
The equipment financing portfolio increased $338 million in 2012 compared to 2011, reflecting loan growth
of $498 million, or 25% of the equipment and financing portfolio, partially offset by a decrease in the PUEFC acquired loan portfolio. Operating on a national scale, equipment financing represented 15% of the Commercial Banking loan portfolio at
December 31, 2012 compared to 14% at December 31, 2011. While Peoples United Financial continues to focus on asset quality, the performance of the equipment financing portfolio may be adversely impacted if the national economy
weakens in 2013.
62
Equipment Financing Diversification
As of December 31, 2012 (percent)
Equipment Financing Portfolio
As of December 31 (dollars in millions)
The following tables set forth the contractual maturity (based on final payment date) and interest
rate sensitivity (based on next repricing date) of Peoples United Financials commercial and industrial loans and construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012 (in millions)
|
|
One Year
or Less
|
|
|
After One
Year Through
Five Years
|
|
|
After Five
Years
|
|
|
Total
|
|
Contractual maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial loans
|
|
$
|
1,267.3
|
|
|
$
|
2,487.3
|
|
|
$
|
2,293.1
|
|
|
$
|
6,047.7
|
|
Construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
278.6
|
|
|
|
156.6
|
|
|
|
116.5
|
|
|
|
551.7
|
|
Residential mortgage
|
|
|
12.0
|
|
|
|
54.7
|
|
|
|
|
|
|
|
66.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,557.9
|
|
|
$
|
2,698.6
|
|
|
$
|
2,409.6
|
|
|
$
|
6,666.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012 (in millions)
|
|
One Year
or Less
|
|
|
After One
Year Through
Five Years
|
|
|
After Five
Years
|
|
|
Total
|
|
Interest rate sensitivity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rates
|
|
$
|
3,763.0
|
|
|
$
|
428.9
|
|
|
$
|
151.6
|
|
|
$
|
4,343.5
|
|
Predetermined rates
|
|
|
432.3
|
|
|
|
730.1
|
|
|
|
1,160.2
|
|
|
|
2,322.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,195.3
|
|
|
$
|
1,159.0
|
|
|
$
|
1,311.8
|
|
|
$
|
6,666.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
Residential Mortgage Lending
Peoples United Financial offers its customers a wide range of residential mortgage loan products. These include conventional fixed-rate loans, jumbo fixed-rate loans (loans with principal balances
greater than established Freddie Mac and Fannie Mae limits), adjustable-rate loans, sometimes referred to as ARM loans, interest-only loans (loans where payments made by the borrower consist of only interest for a set period of time, before the
payments change to principal and interest), as well as Federal Housing Administration insured loans and various state housing finance authority loans. Peoples United Financial originates these loans through its network of retail branches and
calling officers, as well as correspondent lenders and mortgage brokers.
At December 31, 2012 and 2011, approximately
91% and 92%, respectively, of the residential mortgage loan portfolio was secured by properties located in New England. At December 31, 2012, the residential mortgage loan portfolio included $727 million of interest-only loans, of which $11
million are stated income loans, compared to $547 million and $24 million, respectively, at December 31, 2011. See Asset Quality for further discussion of interest-only and stated income loans. Also included in residential mortgage loans at
December 31, 2012 and 2011 are construction loans totaling $67 million and $55 million, respectively.
Peoples
United Financials residential mortgage originations totaled $1.1 billion in 2012 and $1.2 billion in both 2011 and 2010. The mix and volume of residential mortgage loan originations vary in response to changes in market interest rates and
customer preferences. Adjustable-rate residential mortgage loans accounted for 55% of total residential mortgage originations in 2012, compared to 61% in 2011 and 20% in 2010.
In 2012, adjustable-rate residential mortgage loans increased $388 million compared to 2011, reflecting loan growth of $427 million, or 16% of adjustable-rate residential mortgage loans, partially offset
by a decrease in the acquired portfolio. In 2011, adjustable-rate residential mortgage loans increased $830 million compared to 2010, reflecting the addition of loans acquired in connection with the Danvers acquisition, as well as loan growth of
$777 million, or 37% of adjustable-rate residential mortgage loans. Fixed-rate residential mortgage loans decreased $130 million in 2012 compared to 2011, reflecting deceases in both the originated and acquired portfolios. Fixed-rate residential
mortgage loans increased $151 million in 2011 compared to 2010, reflecting the addition of the acquisitions completed in 2011 and 2010, as well as loan growth of $82 million, or 15% of fixed-rate residential mortgage loans, in 2011.
Historically, Peoples United Financial held virtually all of the adjustable-rate residential mortgage loans that it originated on
its balance sheet and sold into the secondary market virtually all of the fixed-rate residential mortgage loans that it originated. In 2006, Peoples United Financial completed a reassessment of its pricing with respect to adjustable-rate
residential mortgage loans in light of the prevailing interest rate environment at that time. As a result, Peoples United Financial made the decision in the fourth quarter of 2006 to sell essentially all of its newly-originated residential
mortgage loans. Peoples United Financial continued to actively offer residential mortgage loans of all types through its extensive distribution system and, in May 2010, Peoples United Financial made the decision to retain in its
portfolio most of its originated adjustable-rate and fixed-rate residential mortgage loans. The Company currently retains in its portfolio most of its originated adjustable-rate and 10-year fixed-rate residential mortgage loans.
Peoples United Financials loan loss experience within the residential mortgage portfolio continues to be primarily
attributable to a small number of loans. The continued performance of the residential mortgage loan portfolio in 2013 may be adversely impacted by the level and direction of interest rates, consumer preferences and the regional economy.
64
Residential Mortgage Originations
Years ended December 31 (dollars in millions)
Residential Mortgage Originations by Product
Year ended December 31, 2012 (percent)
Consumer Lending
Peoples United Financial offers home equity lines of credit and home equity loans, and to a lesser extent, other forms of installment and revolving credit loans. Future growth of Peoples
United Financials consumer loan portfolio is highly dependent upon economic conditions, the interest rate environment and competitors strategies.
|
|
|
|
|
|
|
|
|
As of December 31 (in millions)
|
|
2012
|
|
|
2011
|
|
Home equity lines of credit
|
|
$
|
1,865.6
|
|
|
$
|
1,862.3
|
|
Home equity loans
|
|
|
185.9
|
|
|
|
195.4
|
|
Indirect auto
|
|
|
58.5
|
|
|
|
117.0
|
|
Other loans
|
|
|
46.3
|
|
|
|
42.7
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
$
|
2,156.3
|
|
|
$
|
2,217.4
|
|
|
|
|
|
|
|
|
|
|
The consumer loan portfolio decreased $61 million in 2012 compared to 2011, reflecting loan growth of $35
million in the originated home equity portfolios, which was more than offset by decreases in indirect auto loans and the acquired portfolio. At December 31, 2012, approximately 95% of the consumer loan portfolio was to customers located within
the New England states.
65
Asset Quality
Recent Trends
The past several years have been marked by significant volatility in the financial and capital markets initially brought about by the
fallout associated with the subprime mortgage market. This disruption led to significant credit and liquidity concerns, which resulted in government intervention within the banking sector and a substantial decline in activity within the secondary
mortgage market. All of these issues were further exacerbated by an accelerated softening of the real estate market, a worsening recessionary economic environment and, in turn, weakness within the commercial sector.
While Peoples United Financial continues to adhere to prudent underwriting standards, the loan portfolio is not immune to potential
negative consequences arising as a result of general economic weakness and, in particular, a prolonged downturn in the housing market on a national scale. Decreases in real estate values could adversely affect the value of property used as
collateral for loans. In addition, adverse changes in the economy could have a negative effect on the ability of borrowers to make scheduled loan payments, which would likely have an adverse impact on earnings. Further, an increase in loan
delinquencies may serve to decrease net interest income and adversely impact loan loss experience, resulting in an increased provision and allowance for loan losses.
Peoples United Financial actively manages asset quality through its underwriting practices and collection operations. Underwriting practices tend to focus on optimizing the return of a given risk
classification while collection operations focus on minimizing losses once an account becomes delinquent. Peoples United Financial attempts to minimize losses associated with commercial banking loans by requiring borrowers to pledge adequate
collateral and/or provide for third-party guarantees. Loss mitigation within the residential mortgage loan portfolio is highly dependent on the value of the underlying real estate.
During the recent credit cycle, Peoples United Financial has experienced an increase in the number of loan modification requests.
Certain originated loans whose terms have been modified are considered troubled debt restructurings (TDRs). Acquired loans that are modified are not considered for TDR classification provided they are evaluated for impairment on a pool
basis. Originated loans are considered TDRs if the borrower is experiencing financial difficulty and is afforded a concession by Peoples United Financial, such as, but not limited to: (i) payment deferral; (ii) a reduction of the
stated interest rate for the remaining contractual life of the loan; (iii) an extension of the loans original contractual term at a stated interest rate lower than the current market rate for a new loan with similar risk;
(iv) capitalization of interest; or (v) forgiveness of principal or interest.
In June 2012, the OCC issued
clarifying regulatory guidance requiring loans subject to a borrowers discharge from personal liability following a Chapter 7 bankruptcy to be treated as TDRs, included in non-performing loans and written down to the estimated collateral
value, regardless of delinquency status. Application of this clarifying guidance resulted in an increase of $26.1 million in the Companys reported TDRs as of December 31, 2012. Of this amount, $15.6 million, or 60%, were less than 90
days past due on their payments as of December 31, 2012.
Generally, TDRs are placed on non-accrual status (and reported as
non-performing loans) until the loan qualifies for return to accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months. Loans may
continue to be reported as TDRs after they are returned to accrual status.
66
During the year ended December 31, 2012, we performed 56 loan modifications that were
not classified as TDRs. In each case, we concluded that the modification did not result in the granting of a concession based on one or more of the following considerations: (i) the receipt of additional collateral (the nature and amount of
which was deemed to serve as adequate compensation for other terms of the restructuring) and/or guarantees; (ii) the borrower having access to funds at a market rate for debt with similar risk characteristics as the restructured debt; and
(iii) the restructuring resulting in a delay in payment that is insignificant in relation to the other terms of the obligation. See Note 5 to the Consolidated Financial Statements for additional disclosures relating to TDRs.
Portfolio Risk Elements Residential Mortgage Lending
Peoples United Financial does not actively engage in subprime mortgage lending, which has been the riskiest sector of the residential housing market. Peoples United Financial has virtually no
exposure to subprime loans, or to similarly high-risk Alt-A loans and structured investment vehicles. While no standard definition of subprime currently exists within the industry, the Company has generally defined subprime as borrowers
with credit scores of 660 or less, either at or subsequent to origination.
At December 31, 2012, the loan portfolio
included $727 million of of interest-only residential mortgage loans, of which $11 million are stated income loans. Peoples United Financial began originating interest-only residential mortgage loans in March 2003. The underwriting
guidelines and requirements for such loans are generally more restrictive than those applied to other types of residential mortgage loans. In general, Peoples United Financials underwriting guidelines for residential mortgage loans
require the following: (i) properties must be single-family and owner-occupied primary residences; (ii) lower loan-to-value (LTV) ratios (less than 60% on average); (iii) higher credit scores (greater than 700 on average);
and (iv) sufficient post closing reserves. Peoples United Financial has not originated interest-only residential mortgage loans that permit negative amortization or optional payment amounts. Amortization of an interest-only residential
mortgage loan begins after the initial interest rate changes (e.g. after 5 years for a 5/1 adjustable-rate mortgage).
Stated income loans, which Peoples United Financial has not offered since mid-2007, represent a form of reduced documentation loan
that requires a potential borrower to complete a standard mortgage application with full verification of the borrowers asset information as contained in the loan application, but no verification of the provided income information. As with
interest-only loans, underwriting guidelines for stated income loans require properties to be single-family and owner-occupied primary residences with lower LTV ratios and higher credit scores. In addition, stated income loans require the receipt of
an appraisal for the real estate used as collateral and a credit report on the prospective borrower.
Updated property values
are obtained from an independent third-party for residential mortgage loans 90 days past due. At December 31, 2012, non-performing residential mortgage loans totaling $6.0 million had current LTV ratios of more than 100%. At
December 31, 2012, the weighted average LTV ratio and FICO score for the residential mortgage loan portfolio were approximately 62% and 740, respectively.
The Company continues to review its foreclosure policies and procedures and has found no systemic concerns or instances of robo-signing (signing foreclosure affidavits without an appropriate
review) with respect to its loan servicing activities. We believe that our established procedures for reviewing foreclosure affidavits and validating information contained in related loan documentation are sound and consistently applied, and that
our foreclosure affidavits are accurate. As a result, Peoples United Bank has not found it necessary to interrupt or suspend foreclosure proceedings. We have also considered the effect of representations and warranties that we made to
third-party investors in connection with whole loan sales, and believe our representations and warranties were true and correct and do not expose Peoples United Bank to any material loss.
67
During 2012, the Company repurchased from GSEs and other parties a total of 13 residential
mortgage loans that we had previously sold to the GSEs and other parties. The balances of the loans at the time of the respective repurchases totaled $2.1 million and related fees and expenses incurred totaled $0.1 million. During that
same time period, the Company issued 11 investor refunds, totaling $0.2 million, under contractual obligations as a result of early payoffs, make whole payments, and sales and settlement differences. Based on the limited number of repurchase
requests the Company has historically received, the immaterial cost associated with such repurchase requests and managements view that this past experience is consistent with our current and near-term estimate of such exposure, the Company has
established a reserve for such repurchase requests, which totaled $0.5 million as of December 31, 2012.
The
aforementioned foreclosure issues and the potential for additional legal and regulatory action could impact future foreclosure activities, including lengthening the time required for residential mortgage lenders, including Peoples United Bank,
to initiate and complete the foreclosure process. In recent years, foreclosure timelines have increased as a result of, among other reasons: (i) delays associated with the significant increase in the number of foreclosure cases as a result of
the economic crisis; (ii) additional consumer protection initiatives related to the foreclosure process; and (iii) voluntary and/or mandatory programs intended to permit or require lenders to consider loan modifications or other
alternatives to foreclosure. Further increases in the foreclosure timeline may have an adverse effect on collateral values and our ability to minimize losses.
Portfolio Risk Elements Home Equity Lending
The majority of our
home equity lines of credit (HELOCs) have an initial draw period of 9 1/2 years followed by a 20-year repayment phase. During the initial draw period, interest-only payments are required, after which the disbursed balance is fully
amortized over a 20-year repayment term. HELOCs carry variable rates indexed to the Prime Rate with a lifetime interest rate ceiling and floor, and are secured by first or second liens on the borrowers primary residence. The rate used to
qualify borrowers is the Prime Rate plus 5.00%, even though the initial rate may be substantially lower. The maximum LTV ratio is 80% on a single-family property, 70% on a two-family property and 65% on a condominium. Lower LTV ratios are required
on larger line amounts. The minimum FICO credit score is 680. The borrower has the ability to convert the entire balance or a portion of the balance to a fixed-rate term loan during the draw period. There is a limit of three term loans that must be
fully amortized over a term not to exceed the original HELOC maturity date.
A smaller portion of our HELOC portfolio has an
initial draw period of 10 years with a variable-rate interest-only payment, after which there is a 5-year amortization period. An additional small portion of our HELOC portfolio has a 5-year draw period which, at our discretion, may be renewed for
an additional 5-year interest-only draw period.
The following table sets forth, as of December 31, 2012, the amount of
HELOCs scheduled to have the draw period end during the years shown:
|
|
|
|
|
December 31,
(in millions)
|
|
Credit
Lines
|
|
2013
|
|
$
|
205.5
|
|
2014
|
|
|
298.7
|
|
2015
|
|
|
333.0
|
|
2016
|
|
|
339.7
|
|
2017
|
|
|
444.8
|
|
Later years
|
|
|
1,979.6
|
|
|
|
|
|
|
Total
|
|
$
|
3,601.3
|
|
|
|
|
|
|
68
Essentially all of our HELOCs (97%) are presently in their draw period. Although
converted amortizing payment loans represent only a small portion of the portfolio, our default and delinquency statistics indicate a higher level of occurrence for such loans when compared to HELOCs that are still in the draw period.
Delinquency statistics for the HELOC portfolio at December 31, 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Balance
|
|
|
Delinquencies
|
|
(dollars in millions)
|
|
|
Amount
|
|
|
Percent
|
|
HELOC status:
|
|
|
|
|
|
|
|
|
|
|
|
|
Still in draw period
|
|
$
|
1,810.2
|
|
|
$
|
30.9
|
|
|
|
1.71
|
%
|
Amortizing payment
|
|
|
55.4
|
|
|
|
3.1
|
|
|
|
5.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, 2012, approximately 34% of our borrowers with balances
outstanding under HELOCs paid only the minimum amount due.
The majority of the home equity loan (HEL) portfolio
fully amortizes over terms ranging from 5 to 20 years. HELs are limited to first or second liens on a borrowers primary residence. The maximum LTV ratio is 80% on a single-family property, 70% on a two-family property and 65% on a condominium.
Lower LTV ratios are required on larger line amounts.
We are not able, at this time, to develop statistics for the entire
home equity portfolio (both HELOCs and HELs) with respect to first liens serviced by third parties that have priority over our junior liens, as lien position data has not historically been captured on our loan servicing systems. As of
December 31, 2012, full and complete first lien position data was not readily available for approximately 74% of the home equity portfolio. Effective January 2011, we began tracking lien position data for all new originations and our
collections department continues to add lien position data once a loan reaches 75 days past due in connection with our updated assessment of combined loan-to-value (CLTV) exposure, which takes place for loans 90 days past due. In
addition, when we are notified that the holder of a superior lien has commenced a foreclosure action, our home equity account is identified in the collections system for ongoing monitoring of the legal action. As of December 31, 2012, the
portion of the home equity portfolio greater than 90 days past due with a CLTV greater than 80% was $7.8 million.
As of
December 31, 2012, full and complete first lien position data was readily available for approximately 26%, or $533 million, of the home equity portfolio. Of that total, approximately 38%, or $204 million, are in a junior lien
position. We estimate that of those junior liens, 40%, or $82 million, are held or serviced by others.
When the first
lien is held by a third party, we can, in some cases, obtain an indication that a first lien is in default through information reported to credit bureaus. However, because more than one mortgage may be reported in a borrowers credit report and
there may not be a corresponding property address associated with reported mortgages, we are often unable to associate a specific first lien with our junior lien. As of December 31, 2012, there were 51 loans totaling $5.0 million for
which we have received notification that the holder of a superior lien has commenced foreclosure action. For 30 of the loans (totaling $1.9 million), our second lien position was performing at the time such foreclosure action was commenced. The
total estimated loss related to those 30 loans was $0.7 million as of December 31, 2012. It is important to note that the percentage of new home equity originations for which we hold the first lien has increased steadily from approximately
40% in 2009 to approximately 60% as of December 31, 2012.
69
We believe there are several factors that serve to mitigate the potential risk associated
with the limitations on available first lien data. Most importantly, our underwriting guidelines for home equity loans, which have been, and continue to be, consistently applied, generally require the following: (i) properties located within
our geographic footprint; (ii) lower LTV ratios; and (iii) higher credit scores. Notwithstanding the maximum LTV ratios and minimum FICO scores discussed previously, actual LTV ratios at origination were less than 60% on average and
current FICO scores of our borrowers are greater than 750 on average. In addition, as of December 31, 2012, approximately 77% of the portfolio balance relates to originations that occurred since 2005, which is generally recognized as the peak
of the recent housing bubble. We believe these factors are a primary reason for the portfolios relatively low level of non-performing loans and net loan charge-offs, both in terms of absolute dollars and as a percentage of average loans.
Each month, all home equity and second mortgage loans greater than 180 days past due (regardless of our lien position) are
analyzed in order to determine the amount by which the balance outstanding (including any amount subject to a first lien) exceeds the underlying collateral value. To the extent a shortfall exists, a charge-off is recognized. This charge-off activity
is reflected in our established allowance for loan losses for home equity and second mortgage loans as part of the component attributable to historical portfolio loss experience, which considers losses incurred over the most recent 12-month period.
While the limitations on available first lien data could impact the accuracy of our loan loss estimates, we believe that our methodology results in an allowance for loan losses that appropriately estimates the inherent probable losses within the
portfolio, including those loans originated prior to January 2011 for which certain lien position data is not available.
At December 31, 2012, the weighted average CLTV ratio and FICO score for the home equity portfolio were approximately 55% and 753,
respectively.
Portfolio Risk Elements Commercial Real Estate Lending
In general, construction loans originated by Peoples United Financial are used to finance improvements to commercial, industrial or
residential property. Repayment is typically derived from the sale of the property as a whole, the sale of smaller individual units, or by a take-out from a permanent mortgage. The term of the construction period generally does not exceed two years.
Loan commitments are based on established construction budgets which represent an estimate of total costs to complete the proposed project, including both hard (direct) costs (building materials, labor, etc.) and soft (indirect) costs (legal and
architectural fees, etc.). In addition, project costs may include an appropriate level of interest reserve to carry the project through to completion. If established, such interest reserves are determined based on: (i) a percentage of the
committed loan amount; (ii) the loan term; and (iii) the applicable interest rate. Regardless of whether a loan contains an interest reserve, the total project cost statement serves as the basis for underwriting and determining which items
will be funded by the loan and which items will be funded through borrower equity.
Construction loans are funded, at the
request of the borrower, not more than once per month, based on the extent of work completed, and are monitored, throughout the life of the project, by an independent professional construction engineer and the Companys commercial real estate
lending department. Interest is advanced to the borrower upon request, based upon the progress of the project toward completion. The amount of interest advanced is added to the total outstanding principal under the loan commitment. Should the
project not progress as scheduled, the adequacy of the interest reserve necessary to carry the project through to completion is subject to close monitoring by management. Should the interest reserve be deemed to be inadequate, the borrower is
required to fund the deficiency. Similarly, once a loan is fully funded, the borrower is required to fund all interest payments.
70
Peoples United Financials construction loan portfolio totaled $552 million
(approximately 3% of total loans) at December 31, 2012. The total committed amount at that date, including both the outstanding balance and the unadvanced portion of such loans, totaled $943 million. In some cases, a portion of the total
committed amount includes an accompanying interest reserve. At December 31, 2012, construction loans totaling $187 million had remaining available interest reserves totaling $44 million. At that date, the Company had construction
loans with interest reserves totaling $0.9 million that were on non-accrual status and included in non-performing loans.
The recent economic downturn has resulted in an increase in the number of extension requests for commercial real estate and construction
loans, some of which have related repayment guarantees. Modifications of originated commercial real estate loans involving maturity extensions are evaluated according to the Companys normal underwriting standards and are classified as TDRs if
the borrower is experiencing financial difficulty and is afforded a concession by Peoples United Financial similar to those discussed previously. Peoples United Financial had approximately $13 million of restructured construction
loans as of December 31, 2012.
An extension may be granted to allow for the completion of the project, marketing or
sales of completed units, or to provide for permanent financing, and is based on a re-underwriting of the loan and managements assessment of the borrowers ability to perform according to the agreed-upon terms. Typically, at the time of
an extension, borrowers are performing in accordance with contractual loan terms. Extension terms generally do not exceed 12 to 18 months and typically require that the borrower provide additional economic support in the form of partial repayment,
additional collateral or guarantees. In cases where the fair value of the collateral or the financial resources of the borrower are deemed insufficient to repay the loan, reliance may be placed on the support of a guarantee, if applicable. However,
such guarantees are never considered the sole source of repayment.
Peoples United Financial evaluates the financial
condition of guarantors based on the most current financial information available. Most often, such information takes the form of (i) personal financial statements of net worth, cash flow statements and tax returns (for individual guarantors)
and (ii) financial and operating statements, tax returns and financial projections (for legal entity guarantors). The Companys evaluation is primarily focused on various key financial metrics, including net worth, leverage ratios and
liquidity. It is the Companys policy to update such information annually, or more frequently as warranted, over the life of the loan.
While Peoples United Financial does not specifically track the frequency with which it has pursued guarantor performance under a guarantee, the Companys underwriting process, both at
origination and upon extension, as applicable, includes an assessment of the guarantors reputation, creditworthiness and willingness to perform. Historically, when the Company has found it necessary to seek performance under a guarantee, it
has been able to effectively mitigate its losses.
In considering the impairment status of such loans, an evaluation is made
of the collateral and future cash flow of the borrower as well as the anticipated support of any repayment guarantor. In the event that the guarantor is unwilling or unable to perform, a legal remedy is pursued. When performance under the loan terms
is deemed to be uncertain, including performance of the guarantor, all or a portion of the loan may be charged-off, typically based on the fair value of the collateral securing the loan.
Allowance and Provision for Loan Losses
The allowance for loan losses is
established through provisions for loan losses charged to income. Losses on loans, including impaired loans, are charged to the allowance for loan losses when all or a portion of a loan is deemed to be uncollectible. Recoveries of loans previously
charged off are credited to the allowance for loan losses when realized.
71
Peoples United Financial maintains the allowance for loan losses at a level that is
deemed to be appropriate to absorb probable losses inherent in the respective loan portfolios, based on a quarterly evaluation of a variety of factors. These factors include, but are not limited to: (i) Peoples United Financials
historical loan loss experience and recent trends in that experience; (ii) risk ratings assigned by lending personnel to commercial real estate loans, commercial and industrial loans, and equipment financing loans, and the results of ongoing
reviews of those ratings by Peoples United Financials independent loan review function; (iii) an evaluation of delinquent and non-performing loans and related collateral values; (iv) the probability of loss in view of
geographic and industry concentrations and other portfolio risk characteristics; (v) the present financial condition of borrowers; and (vi) current economic conditions.
For a more detailed discussion of the Companys allowance for loan losses methodology and related policies, see Critical Accounting
Policies.
Acquired loans that have evidence of deterioration in credit quality since origination and for which it is
probable, at acquisition, that all contractually required payments will not be collected are initially recorded at fair value without recording an allowance for loan losses. Fair value of the loans is determined using market participant assumptions
in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows. Acquired
loans are generally accounted for on a pool basis, with pools formed based on the loans common risk characteristics, such as loan collateral type and accrual status. Each pool is accounted for as a single asset with a single composite interest
rate and an aggregate expectation of cash flows.
Under the accounting model for acquired loans, the excess of cash flows
expected to be collected over the carrying amount of the loans, referred to as the accretable yield, is accreted into interest income over the life of the loans in each pool using the effective yield method. Accordingly, acquired loans
are not subject to classification as non-accrual in the same manner as originated loans. Rather, acquired loans are considered to be accruing loans because their interest income relates to the accretable yield recognized at the pool level and not to
contractual interest payments at the loan level. The difference between contractually required principal and interest payments and the cash flows expected to be collected, referred to as the nonaccretable difference, includes estimates
of both the impact of prepayments and future credit losses expected to be incurred over the life of the loans in each pool. As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to any allowance for loan
losses recognized subsequent to acquisition.
A decrease in expected cash flows in subsequent periods may indicate that the
loan pool is impaired which would require the establishment of an allowance for loan losses by a charge to the provision for loan losses. An increase in expected cash flows in subsequent periods serves, first, to reduce any previously established
allowance for loan losses by the increase in the present value of cash flows expected to be collected, At December 31, 2012 and 2011, the allowance for loan losses on acquired loans was $10.5 million and $7.4 million, respectively.
Selected asset quality metrics presented below distinguish between the originated portfolio and the
acquired portfolio. All loans acquired in connection with acquisitions beginning in 2010 comprise the acquired loan portfolio; all other loans of the Company comprise the originated portfolio, including originations subsequent to the
respective acquisition dates.
72
Provision and Allowance for Loan Losses
The following table presents the activity in the allowance for loan losses and ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 (dollars in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Allowance for loan losses on originated loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
175.5
|
|
|
$
|
172.5
|
|
|
$
|
172.5
|
|
|
$
|
157.5
|
|
|
$
|
72.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
(15.8
|
)
|
|
|
(21.7
|
)
|
|
|
(27.5
|
)
|
|
|
(10.9
|
)
|
|
|
(3.4
|
)
|
Commercial and industrial
|
|
|
(11.2
|
)
|
|
|
(12.6
|
)
|
|
|
(14.3
|
)
|
|
|
(9.8
|
)
|
|
|
(5.6
|
)
|
Equipment financing
|
|
|
(4.6
|
)
|
|
|
(9.0
|
)
|
|
|
(9.5
|
)
|
|
|
(8.8
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(31.6
|
)
|
|
|
(43.3
|
)
|
|
|
(51.3
|
)
|
|
|
(29.5
|
)
|
|
|
(10.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
(7.2
|
)
|
|
|
(7.4
|
)
|
|
|
(4.3
|
)
|
|
|
(5.4
|
)
|
|
|
(1.5
|
)
|
Home equity
|
|
|
(6.4
|
)
|
|
|
(3.8
|
)
|
|
|
(3.8
|
)
|
|
|
(3.5
|
)
|
|
|
(1.0
|
)
|
Other consumer
|
|
|
(2.7
|
)
|
|
|
(3.6
|
)
|
|
|
(5.3
|
)
|
|
|
(7.1
|
)
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(16.3
|
)
|
|
|
(14.8
|
)
|
|
|
(13.4
|
)
|
|
|
(16.0
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(47.9
|
)
|
|
|
(58.1
|
)
|
|
|
(64.7
|
)
|
|
|
(45.5
|
)
|
|
|
(19.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
0.2
|
|
Commercial and industrial
|
|
|
1.2
|
|
|
|
1.0
|
|
|
|
1.0
|
|
|
|
1.0
|
|
|
|
1.3
|
|
Equipment financing
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.2
|
|
|
|
1.7
|
|
|
|
2.1
|
|
|
|
1.5
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
0.8
|
|
|
|
1.0
|
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
0.4
|
|
Home equity
|
|
|
1.0
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
0.1
|
|
Other consumer
|
|
|
1.5
|
|
|
|
1.7
|
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.3
|
|
|
|
3.1
|
|
|
|
2.6
|
|
|
|
2.0
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
6.5
|
|
|
|
4.8
|
|
|
|
4.7
|
|
|
|
3.5
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
|
(41.4
|
)
|
|
|
(53.3
|
)
|
|
|
(60.0
|
)
|
|
|
(42.0
|
)
|
|
|
(14.9
|
)
|
Provision for loan losses
|
|
|
43.4
|
|
|
|
56.3
|
|
|
|
60.0
|
|
|
|
57.0
|
|
|
|
26.2
|
|
Allowance recorded in the Chittenden acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
177.5
|
|
|
$
|
175.5
|
|
|
$
|
172.5
|
|
|
$
|
172.5
|
|
|
$
|
157.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses on acquired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
7.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Charge-offs
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
5.8
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
10.5
|
|
|
$
|
7.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses on originated loans as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans
|
|
|
0.91
|
%
|
|
|
1.05
|
%
|
|
|
1.19
|
%
|
|
|
1.22
|
%
|
|
|
1.08
|
%
|
Originated non-performing loans
|
|
|
70.3
|
|
|
|
59.7
|
|
|
|
70.3
|
|
|
|
102.2
|
|
|
|
186.8
|
|
Commercial banking allowance for loan losses as
a percentage of originated commercial banking loans
|
|
|
1.13
|
|
|
|
1.39
|
|
|
|
1.62
|
|
|
|
1.72
|
|
|
|
1.61
|
|
Retail allowance for loan losses as a percentage of
originated retail loans
|
|
|
0.36
|
|
|
|
0.29
|
|
|
|
0.25
|
|
|
|
0.14
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
The provision for loan losses in 2012 totaled $49.2 million, reflecting
$44.1 million in net loan charge-offs (including $22.3 million against previously-established specific reserves), a $2.0 million increase in the originated allowance for loan losses due to loan growth in both the commercial and
residential mortgage loan portfolios, and a $3.1 million increase in the acquired allowance for loan losses due to impairment on certain acquired loans. The provision for loan losses on originated loans in 2011 totaled $56.3 million,
reflecting $53.3 million in net loan charge-offs (including $19.6 million against previously established specific reserves) and an increase in the originated allowance for loan losses in response to loan growth in the commercial and
residential mortgage loan portfolios. The provision for loan losses on acquired loans in 2011 reflects loan impairment attributable to certain acquired loans. The allowance for loan losses as a percentage of originated loans was 0.91% at
December 31, 2012 and 1.05% at December 31, 2011.
Loan Charge-Offs
The Companys charge-off policies, which comply with standards established by banking regulators, are consistently applied from
period to period. Charge-offs are recorded on a monthly basis. Partially charged-off loans continue to be evaluated on a monthly basis and additional charge-offs or loan loss provisions may be recorded on the remaining loan balance based on the same
criteria.
For unsecured consumer loans, charge-offs are generally recorded when the loan is deemed to be uncollectible or 120
days past due, whichever occurs first. For consumer loans secured by real estate, including residential mortgage loans, charge-offs are generally recorded when the loan is deemed to be uncollectible or 180 days past due, whichever occurs first,
unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Factors that demonstrate an ability to repay may include: (i) a loan that is secured by adequate collateral and is in the process of
collection; (ii) a loan supported by a valid guarantee or insurance; or (iii) a loan supported by a valid claim against a solvent estate.
For commercial banking loans, a charge-off is recorded when the Company determines that it will not collect all amounts contractually due based on the fair value of the collateral less cost to sell, or
the present value of expected future cash flows.
The decision whether to charge-off all or a portion of a loan rather than to
record a specific or general loss allowance is based on an assessment of all available information which aids in determining the loans net realizable value. Typically this involves consideration of both (i) the fair value of any
collateral securing the loan, including whether the estimate of fair value has been derived from an appraisal or other market information, and (ii) other factors affecting the likelihood of repayment, including the existence of guarantees and
insurance. If the amount by which the Companys recorded investment in the loan exceeds its net realizable value is deemed to be a confirmed loss, a charge-off is recorded. Otherwise, a specific or general reserve is established, as applicable.
Net loan charge-offs as a percentage of average total loans equaled 0.21% in 2012, 0.28% in 2011 and 0.40% in 2010. The
comparatively low level of net loan charge-offs in recent years, in terms of absolute dollars and as a percentage of average loans, may not be sustainable in the future.
74
Net Loan Charge-Offs (Recoveries) as a Percentage of Average Total Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
0.24
|
%
|
|
|
0.30
|
%
|
|
|
0.48
|
%
|
|
|
0.20
|
%
|
|
|
0.07
|
%
|
Commercial and industrial
|
|
|
0.18
|
|
|
|
0.26
|
|
|
|
0.47
|
|
|
|
0.31
|
|
|
|
0.15
|
|
Equipment financing
|
|
|
0.19
|
|
|
|
0.44
|
|
|
|
0.44
|
|
|
|
0.70
|
|
|
|
0.12
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
0.17
|
|
|
|
0.21
|
|
|
|
0.15
|
|
|
|
0.19
|
|
|
|
0.03
|
|
Home equity
|
|
|
0.26
|
|
|
|
0.17
|
|
|
|
0.17
|
|
|
|
0.17
|
|
|
|
0.05
|
|
Other consumer
|
|
|
0.93
|
|
|
|
0.93
|
|
|
|
1.57
|
|
|
|
1.90
|
|
|
|
1.44
|
|
Total portfolio
|
|
|
0.21
|
%
|
|
|
0.28
|
%
|
|
|
0.40
|
%
|
|
|
0.29
|
%
|
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents, by class of loan, the allocation of the allowance for loan losses on
originated loans and the percentage of loans in each class to total loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
As of December 31
(dollars in millions)
|
|
Amount
|
|
|
Percent
of Loan
Portfolio
|
|
|
Amount
|
|
|
Percent
of Loan
Portfolio
|
|
|
Amount
|
|
|
Percent
of Loan
Portfolio
|
|
|
Amount
|
|
|
Percent
of Loan
Portfolio
|
|
|
Amount
|
|
|
Percent
of Loan
Portfolio
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
60.0
|
|
|
|
33.6
|
%
|
|
$
|
70.5
|
|
|
|
35.2
|
%
|
|
$
|
82.0
|
|
|
|
42.2
|
%
|
|
$
|
91.0
|
|
|
|
38.3
|
%
|
|
$
|
84.7
|
|
|
|
34.2
|
%
|
Commercial and industrial
|
|
|
75.5
|
|
|
|
27.8
|
|
|
|
69.4
|
|
|
|
26.2
|
|
|
|
53.2
|
|
|
|
17.9
|
|
|
|
52.8
|
|
|
|
19.9
|
|
|
|
54.0
|
|
|
|
20.6
|
|
Equipment financing
|
|
|
22.0
|
|
|
|
10.8
|
|
|
|
20.5
|
|
|
|
9.9
|
|
|
|
26.3
|
|
|
|
12.1
|
|
|
|
21.8
|
|
|
|
8.8
|
|
|
|
12.7
|
|
|
|
8.4
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
12.0
|
|
|
|
17.9
|
|
|
|
8.8
|
|
|
|
17.8
|
|
|
|
5.8
|
|
|
|
15.3
|
|
|
|
4.0
|
|
|
|
17.1
|
|
|
|
2.8
|
|
|
|
21.5
|
|
Home equity
|
|
|
6.7
|
|
|
|
9.4
|
|
|
|
4.3
|
|
|
|
10.1
|
|
|
|
2.7
|
|
|
|
11.4
|
|
|
|
1.8
|
|
|
|
14.1
|
|
|
|
1.7
|
|
|
|
13.4
|
|
Other consumer
|
|
|
1.3
|
|
|
|
0.5
|
|
|
|
2.0
|
|
|
|
0.8
|
|
|
|
2.5
|
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
1.8
|
|
|
|
1.6
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated allowance for loan losses
|
|
$
|
177.5
|
|
|
|
100.0
|
%
|
|
$
|
175.5
|
|
|
|
100.0
|
%
|
|
$
|
172.5
|
|
|
|
100.0
|
%
|
|
$
|
172.5
|
|
|
|
100.0
|
%
|
|
$
|
157.5
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allocation of the allowance for loan losses on originated loans at December 31, 2012 reflects
managements assessment of credit risk and probable loss within each portfolio. This assessment is based on a variety of internal and external factors including, but not limited to, the likelihood and severity of loss, portfolio growth and
related risk characteristics, and current economic conditions. With respect to the originated portfolio, an allocation of a portion of the allowance to one loan segment does not preclude its availability to absorb losses in another loan segment.
Management believes that the level of the allowance for loan losses at December 31, 2012 is appropriate to cover probable losses.
Non-Performing Assets
A
loan is generally considered non-performing when it is placed on non-accrual status. A loan is generally placed on non-accrual status when it becomes 90 days past due as to interest or principal payments. Past due status is based on the
contractual payment terms of the loan. A loan may be placed on non-accrual status before it reaches 90 days past due if such loan has been identified as presenting uncertainty with respect to the collectability of interest and principal. A loan past
due 90 days or more may remain on accruing status if such loan is both well secured and in the process of collection.
75
All previously accrued but unpaid interest on non-accrual loans is reversed from interest
income in the period in which the accrual of interest is discontinued. Interest payments received on non-accrual loans (including impaired loans) are generally applied as a reduction of principal if future collections are doubtful, although such
interest payments may be recognized as income. A loan remains on non-accrual status until the factors that indicated doubtful collectibility no longer exist or until a loan is determined to be uncollectible and is charged off against the allowance
for loan losses. There were no loans past due 90 days or more and still accruing interest at December 31, 2012 or 2011 ($1.2 million at December 31, 2010).
Non-Performing Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31 (dollars in millions)
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Originated non-performing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
84.4
|
|
|
$
|
106.7
|
|
|
$
|
82.5
|
|
|
$
|
72.4
|
|
|
$
|
29.8
|
|
Commercial and industrial
|
|
|
54.8
|
|
|
|
59.2
|
|
|
|
38.2
|
|
|
|
17.4
|
|
|
|
21.1
|
|
Equipment financing
|
|
|
27.2
|
|
|
|
42.9
|
|
|
|
36.0
|
|
|
|
20.6
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
166.4
|
|
|
|
208.8
|
|
|
|
156.7
|
|
|
|
110.4
|
|
|
|
56.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
65.0
|
|
|
|
68.9
|
|
|
|
78.8
|
|
|
|
52.7
|
|
|
|
24.2
|
|
Home equity
|
|
|
21.0
|
|
|
|
15.8
|
|
|
|
9.1
|
|
|
|
5.3
|
|
|
|
2.8
|
|
Other consumer
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
86.3
|
|
|
|
85.0
|
|
|
|
88.5
|
|
|
|
58.4
|
|
|
|
27.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated non-performing loans (1)
|
|
|
252.7
|
|
|
|
293.8
|
|
|
|
245.2
|
|
|
|
168.8
|
|
|
|
84.3
|
|
REO
|
|
|
28.6
|
|
|
|
26.8
|
|
|
|
39.8
|
|
|
|
23.9
|
|
|
|
7.0
|
|
Repossessed assets
|
|
|
8.3
|
|
|
|
16.1
|
|
|
|
18.1
|
|
|
|
12.9
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
289.6
|
|
|
$
|
336.7
|
|
|
$
|
303.1
|
|
|
$
|
205.6
|
|
|
$
|
93.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated non-performing loans as a percentage of
originated loans
|
|
|
1.30
|
%
|
|
|
1.75
|
%
|
|
|
1.70
|
%
|
|
|
1.20
|
%
|
|
|
0.58
|
%
|
Non-performing assets as a percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans, REO and repossessed assets
|
|
|
1.48
|
|
|
|
2.00
|
|
|
|
2.10
|
|
|
|
1.45
|
|
|
|
0.64
|
|
Tangible stockholders equity and
originated allowance for loan losses
|
|
|
9.45
|
|
|
|
10.47
|
|
|
|
8.85
|
|
|
|
5.47
|
|
|
|
2.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reported net of government guarantees totaling $9.7 million, $12.1 million, $9.4 million, $8.3 million and $6.5 million at December 31,
2012, 2011, 2010, 2009 and 2008, respectively. These government guarantees relate, almost entirely, to guarantees provided by the Small Business Administration as well as selected other federal agencies and represent the carrying value of the loans
that are covered by such guarantees, the extent of which (i.e. full or partial) varies by loan. At December 31, 2012, the principal loan classes to which these government guarantees relate are commercial and industrial loans (approximately 90%)
and commercial real estate loans (approximately 10%).
|
The preceding table excludes acquired loans that are
(i) accounted for as purchased credit impaired loans or (ii) covered by an FDIC loss-share agreement totaling $174 million and $8 million, respectively, at December 31, 2012; $235 million and $14 million,
respectively, at December 31, 2011; and $342 million and $18 million, respectively, at December 31, 2010. Such loans otherwise meet Peoples United Financials definition of a non-performing loan but are excluded
because the loans are included in loan pools that are considered performing and/or credit losses are covered by an FDIC loss-share agreement. The discounts arising from recording these loans at fair value were due, in part, to credit quality. The
acquired loans are generally accounted for on a pool basis and the accretable yield on the pools is being recognized as interest income over the life of the loans based on expected cash flows at the pool level.
76
Total non-performing assets increased $33.6 million from December 31, 2010 and
equaled 2.00% of originated loans, REO and repossessed assets at December 31, 2011. The increase in total non-performing assets from December 31, 2010 reflects increases in non-performing commercial real estate loans of $24.2 million,
non-performing commercial and industrial loans of $21.0 million, non-performing equipment financing loans of $6.9 million and non-performing consumer loans of $6.4 million, essentially offset by decreases in non-performing residential
mortgage loans of $9.9 million, REO of $13.0 million and repossessed assets of $2.0 million. Included in non-performing commercial real estate loans at December 31, 2011 is a previously disclosed loan with a remaining balance of
$23 million that was placed on non-accrual status during the second quarter of 2011.
All loans and REO acquired in the
Butler Bank acquisition are subject to an FDIC loss-share agreement. The loss-share agreement provides for coverage by the FDIC, up to certain limits, on all such covered assets. The FDIC is obligated to reimburse the Company for 80% of
any future losses on covered assets up to $34.0 million. The Company will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Company 80% reimbursement under the loss-sharing coverage.
In addition to the originated non-performing loans discussed above, Peoples United Financial has also identified approximately
$526 million in originated potential problem loans at December 31, 2012. Originated potential problem loans represent loans that are currently performing, but for which known information about possible credit deterioration on the part of
the related borrowers causes management to have concerns as to the ability of such borrowers to comply with contractual loan repayment terms and which may result in the disclosure of such loans as non-performing at some time in the future. The
originated potential problem loans are generally loans that, although performing, have been classified as substandard in accordance with Peoples United Financials loan rating system, which is consistent with guidelines
established by banking regulators.
At December 31, 2012, originated potential problem loans consisted of
$282 million of commercial and industrial loans, $143 million of commercial real estate loans and $101 million of equipment financing loans. Such loans are closely monitored by management and have remained in performing status for a
variety of reasons including, but not limited to, delinquency status, borrower payment history and fair value of the underlying collateral. Management cannot predict the extent to which economic conditions may worsen or whether other factors may
adversely impact the ability of these borrowers to make payments. Accordingly, there can be no assurance that originated potential problem loans will not become 90 days or more past due, be placed on non-accrual status, be restructured, or require
additional provisions for loan losses.
The levels of non-performing assets and potential problem loans are expected to
fluctuate in response to changing economic and market conditions, and the relative sizes of the respective loan portfolios, along with managements degree of success in resolving problem assets. Management takes a proactive approach with
respect to the identification and resolution of problem loans. However, given the current state of the U.S. economy and, more specifically, the real estate market, the level of non-performing assets may increase in 2013.
Off-Balance-Sheet Arrangements
Detailed discussions pertaining
to Peoples United Financials off-balance-sheet arrangements are included in the following sections: Funding, Liquidity, Stockholders Equity and Dividends, and Market Risk Management.
77
Funding
At the current time,
Peoples United Financials primary funding sources are deposits and stockholders equity, which represent 88% of total assets at December 31, 2012. Borrowings and notes and debentures also are available sources of funding. Based
on Peoples United Banks membership in the FHLB of Boston and the level of qualifying collateral available at December 31, 2012, Peoples United Bank had up to $4.7 billion of borrowing capacity in the form of advances from the
FHLB of Boston and FRB-NY, and repurchase agreements. Peoples United Bank also had unsecured borrowing capacity of $0.9 billion at December 31, 2012.
Deposits
Peoples United Financials strategy is to focus on
increasing deposits by providing a wide range of convenient services to commercial, retail, business and wealth management customers. Peoples United Financial provides customers access to their deposits through 419 branches, including 140
full-service Stop & Shop supermarket branches, 636 ATMs, telephone banking and an Internet banking site.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
As of December 31 (dollars in millions)
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
Non-interest-bearing
|
|
$
|
5,084.3
|
|
|
|
|
%
|
|
$
|
4,506.2
|
|
|
|
|
%
|
|
$
|
3,872.6
|
|
|
|
|
%
|
Savings, interest-bearing checking and money market
|
|
|
11,959.8
|
|
|
|
0.23
|
|
|
|
10,970.4
|
|
|
|
0.37
|
|
|
|
8,897.8
|
|
|
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,044.1
|
|
|
|
0.16
|
|
|
|
15,476.6
|
|
|
|
0.26
|
|
|
|
12,770.4
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits maturing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 3 months
|
|
|
973.0
|
|
|
|
0.69
|
|
|
|
1,397.2
|
|
|
|
0.99
|
|
|
|
1,437.2
|
|
|
|
1.10
|
|
After 3 but within 6 months
|
|
|
749.2
|
|
|
|
0.79
|
|
|
|
929.5
|
|
|
|
0.94
|
|
|
|
920.7
|
|
|
|
1.20
|
|
After 6 months but within 1 year
|
|
|
1,285.2
|
|
|
|
0.87
|
|
|
|
1,281.9
|
|
|
|
1.04
|
|
|
|
1,485.2
|
|
|
|
1.29
|
|
After 1 but within 2 years
|
|
|
703.5
|
|
|
|
1.29
|
|
|
|
757.3
|
|
|
|
1.66
|
|
|
|
840.0
|
|
|
|
1.69
|
|
After 2 but within 3 years
|
|
|
379.2
|
|
|
|
2.08
|
|
|
|
308.0
|
|
|
|
2.09
|
|
|
|
195.7
|
|
|
|
2.66
|
|
After 3 years
|
|
|
616.3
|
|
|
|
2.23
|
|
|
|
665.3
|
|
|
|
2.53
|
|
|
|
283.9
|
|
|
|
2.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,706.4
|
|
|
|
1.16
|
|
|
|
5,339.2
|
|
|
|
1.35
|
|
|
|
5,162.7
|
|
|
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
21,750.5
|
|
|
|
0.38
|
%
|
|
$
|
20,815.8
|
|
|
|
0.54
|
%
|
|
$
|
17,933.1
|
|
|
|
0.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits equaled 72% and 76% of total assets at December 31, 2012 and 2011, respectively.
Peoples United Financial assumed deposits with fair values of $325 million in connection with the acquisition of 57 branches late in the second quarter of 2012, and $2.1 billion and $2.5 billion in connection with the acquisitions
completed in 2011 and 2010, respectively. Deposits and stockholders equity constituted 90% and 96% of Peoples United Financials funding base at December 31, 2012 and 2011, respectively.
The expansion of Peoples United Financials branch network and its commitment to developing full-service relationships with
its customers are integral components of Peoples United Financials strategy to leverage the success of its supermarket banking initiative, expand market share and continue growing deposits. At December 31, 2012, Peoples United
Financials network of Stop & Shop branches held $3.0 billion in total deposits and deposits in supermarket branches open for more than one year averaged $31 million per store.
Non-interest-bearing deposits are an important source of low-cost funding and fee income for Peoples United Financial. In addition,
Peoples United Financial believes that checking accounts represent one of the core relationships between a financial institution and its customers, and it is from these relationships that cross-selling of other financial services can be
achieved. Non-interest-bearing deposits equaled 23% and 22% of total deposits at December 31, 2012 and 2011, respectively.
78
Time deposits of $100,000 or more totaled $1.9 billion at December 31, 2012, of which
$402 million mature within three months, $264 million mature after three months but within six months, $489 million mature after six months but within one year and $794 million mature after one year.
Total Deposits
As of December 31
(dollars in millions)
The following table presents Peoples United Financials time deposits by rate category:
|
|
|
|
|
As of December 31 (in millions)
|
|
2012
|
|
0.50% or less
|
|
$
|
1,836.0
|
|
0.51% to 1.00%
|
|
|
948.7
|
|
1.01% to 1.50%
|
|
|
556.8
|
|
1.51% to 2.00%
|
|
|
374.3
|
|
2.01% to 2.50%
|
|
|
406.8
|
|
2.51% to 3.00%
|
|
|
430.7
|
|
3.01% and greater
|
|
|
153.1
|
|
|
|
|
|
|
Total
|
|
$
|
4,706.4
|
|
|
|
|
|
|
The following table presents, by rate category, the remaining period to maturity of time deposits
outstanding as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period to Maturity from December 31, 2012
|
|
(in millions)
|
|
Within
three
months
|
|
|
Over three
to
six months
|
|
|
Over six
months to
one year
|
|
|
Over
one to
two years
|
|
|
Over
two to
three years
|
|
|
Over
three
years
|
|
|
Total
|
|
0.50% or less
|
|
$
|
560.8
|
|
|
$
|
417.6
|
|
|
$
|
698.0
|
|
|
$
|
159.0
|
|
|
$
|
0.5
|
|
|
$
|
0.1
|
|
|
$
|
1,836.0
|
|
0.51% to 1.00%
|
|
|
229.9
|
|
|
|
163.7
|
|
|
|
282.8
|
|
|
|
208.9
|
|
|
|
56.1
|
|
|
|
7.3
|
|
|
|
948.7
|
|
1.01% to 1.50%
|
|
|
95.3
|
|
|
|
84.7
|
|
|
|
152.8
|
|
|
|
88.2
|
|
|
|
73.9
|
|
|
|
61.9
|
|
|
|
556.8
|
|
1.51% to 2.00%
|
|
|
38.1
|
|
|
|
13.6
|
|
|
|
42.7
|
|
|
|
103.8
|
|
|
|
41.2
|
|
|
|
134.9
|
|
|
|
374.3
|
|
2.01% to 2.50%
|
|
|
22.4
|
|
|
|
37.5
|
|
|
|
36.3
|
|
|
|
68.3
|
|
|
|
47.0
|
|
|
|
195.3
|
|
|
|
406.8
|
|
2.51% to 3.00%
|
|
|
7.4
|
|
|
|
11.2
|
|
|
|
29.0
|
|
|
|
43.4
|
|
|
|
132.9
|
|
|
|
206.8
|
|
|
|
430.7
|
|
3.01% and greater
|
|
|
19.1
|
|
|
|
20.9
|
|
|
|
43.6
|
|
|
|
31.9
|
|
|
|
27.6
|
|
|
|
10.0
|
|
|
|
153.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
973.0
|
|
|
$
|
749.2
|
|
|
$
|
1,285.2
|
|
|
$
|
703.5
|
|
|
$
|
379.2
|
|
|
$
|
616.3
|
|
|
$
|
4,706.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
Borrowings
Peoples United Financials primary source for borrowings were federal funds purchased, which are typically unsecured overnight loans among banks, in addition to advances from the FHLB of
Boston, which provides credit for member institutions within its assigned region.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
As of December 31 (dollars in millions)
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
Fixed rate FHLB advances maturing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 month
|
|
$
|
50.0
|
|
|
|
0.31
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
Within 1 year
|
|
|
855.4
|
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
27.8
|
|
|
|
3.27
|
|
After 1 but within 2 years
|
|
|
|
|
|
|
|
|
|
|
56.4
|
|
|
|
2.55
|
|
|
|
15.4
|
|
|
|
5.17
|
|
After 2 but within 3 years
|
|
|
0.9
|
|
|
|
4.37
|
|
|
|
|
|
|
|
|
|
|
|
65.9
|
|
|
|
2.65
|
|
After 3 but within 4 years
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
4.37
|
|
|
|
16.8
|
|
|
|
4.50
|
|
After 4 but within 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
4.37
|
|
After 5 years
|
|
|
272.0
|
|
|
|
2.68
|
|
|
|
274.8
|
|
|
|
2.68
|
|
|
|
380.9
|
|
|
|
3.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FHLB advances
|
|
|
1,178.3
|
|
|
|
0.88
|
|
|
|
332.4
|
|
|
|
2.82
|
|
|
|
508.3
|
|
|
|
3.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased maturing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 month
|
|
|
619.0
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total federal funds purchased
|
|
|
619.0
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail repurchase agreements maturing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 month
|
|
|
588.2
|
|
|
|
0.22
|
|
|
|
496.2
|
|
|
|
0.32
|
|
|
|
472.2
|
|
|
|
0.43
|
|
Within 1 year
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
0.35
|
|
|
|
1.0
|
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail repurchase agreements
|
|
|
588.2
|
|
|
|
0.22
|
|
|
|
497.2
|
|
|
|
0.32
|
|
|
|
473.2
|
|
|
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings maturing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
|
|
|
|
|
|
|
|
26.1
|
|
|
|
4.78
|
|
|
|
|
|
|
|
|
|
After 1 but within 2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.1
|
|
|
|
4.78
|
|
After 2 but within 3 years
|
|
|
1.0
|
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 3 but within 4 years
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
After 4 but within 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other borrowings
|
|
|
1.0
|
|
|
|
1.75
|
|
|
|
27.1
|
|
|
|
4.66
|
|
|
|
29.1
|
|
|
|
4.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
$
|
2,386.5
|
|
|
|
0.54
|
%
|
|
$
|
856.7
|
|
|
|
1.43
|
%
|
|
$
|
1,010.6
|
|
|
|
1.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012, total borrowings equaled 8% of total assets compared to 3% at
December 31, 2011 and 4% at December 31, 2010. In 2011, Peoples United Financial repaid a total of $284 million of callable FHLB advances, including $155 million assumed in the Danvers acquisition and $129 million
assumed in acquisitions completed in 2010.
FHLB advances, federal funds purchased and retail repurchase agreements
represented 4%, 2% and 2% of total assets at December 31, 2012, respectively. Retail repurchase agreements primarily consist of transactions with commercial and municipal customers.
80
Notes and Debentures
Notes and debentures totaled $659 million and $160 million at December 31, 2012 and 2011, respectively. In December 2012, Peoples United Financial issued $500 million of 3.65%
senior notes due 2022. Peoples United Financial and Peoples United Bank assumed subordinated notes and debentures with total fair values of $36 million and $29 million, respectively, in connection with the acquisitions
completed in 2010 and Peoples United Financial assumed subordinated notes with a fair value of $115 million in connection with the Chittenden acquisition in 2008. In 2011, Peoples United Financial and Peoples United Bank
repaid $17 million and $6 million, respectively, of subordinated notes. See Note 11 to the Consolidated Financial Statements for additional information concerning notes and debentures.
Contractual Cash Obligations
The following table is a summary of Peoples United Financials contractual cash obligations, other than deposit liabilities. Additional information concerning the Companys contractual
cash obligations is included in Notes 9, 10, 11 and 20 to the Consolidated Financial Statements. Purchase obligations included in the table below represent those agreements to purchase goods or services that are enforceable and legally binding and
that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions. A substantial majority of Peoples United Financials
purchase obligations are renewable on a year-to-year basis. As such, the purchase obligations included in this table only reflect the contractual commitment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
As of December 31, 2012 (in millions)
|
|
Total
|
|
|
Less Than
1 Year
|
|
|
1-3
Years
|
|
|
4-5
Years
|
|
|
After 5
Years
|
|
Borrowings
|
|
$
|
2,386.5
|
|
|
$
|
2,112.6
|
|
|
$
|
1.9
|
|
|
$
|
|
|
|
$
|
272.0
|
|
Notes and debentures
|
|
|
659.0
|
|
|
|
|
|
|
|
|
|
|
|
120.0
|
|
|
|
539.0
|
|
Interest payments on fixed rate borrowings
and notes and debentures (1)
|
|
|
241.3
|
|
|
|
30.5
|
|
|
|
55.4
|
|
|
|
55.3
|
|
|
|
100.1
|
|
Operating leases
|
|
|
465.6
|
|
|
|
55.2
|
|
|
|
103.7
|
|
|
|
90.9
|
|
|
|
215.8
|
|
Purchase obligations
|
|
|
215.6
|
|
|
|
83.9
|
|
|
|
102.8
|
|
|
|
23.1
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,968.0
|
|
|
$
|
2,282.2
|
|
|
$
|
263.8
|
|
|
$
|
289.3
|
|
|
$
|
1,132.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Interest payments on floating rate borrowings and notes and debentures are not included in the table above as the timing and amount of such payments is uncertain. See
Notes 10 and 11 to the Consolidated Financial Statements.
|
Income tax liabilities totaling $2.9 million,
including related interest and penalties, are not included in the table above as the timing of their resolution cannot be estimated. Similarly, obligations totaling $25.9 million related to limited partnership affordable housing investments are not
included in the above table as the timing of the related capital calls cannot be estimated. See Note 12 to the Consolidated Financial Statements.
Also not included in the table above are expected future payments related to the Companys pension and other postretirement benefits plans that are due as follows: $20.2 million in less than one
year; $39.1 million in one to three years; $45.3 million in four to five years; and $129.1 million after five years. See Note 17 to the Consolidated Financial Statements.
81
Liquidity
Liquidity is defined as the
ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs. Liquidity management addresses Peoples United Financials and Peoples United Banks ability to fund new loans
and investments as opportunities arise, to meet customer deposit withdrawals, and to repay borrowings and subordinated notes as they mature. Peoples United Financials, as well as Peoples United Banks, liquidity positions are
monitored daily by management. The Asset and Liability Management Committee (ALCO) of Peoples United Bank has been authorized by the Board of Directors of Peoples United Financial to set guidelines to ensure maintenance of
prudent levels of liquidity for Peoples United Financial as well as for Peoples United Bank. ALCO reports to the Treasury and Finance Committee of the Board of Directors of Peoples United Financial.
Asset liquidity is provided by: cash; short-term investments and securities purchased under agreements to resell; proceeds from security
sales, maturities and principal repayments; and proceeds from scheduled principal collections, prepayments and sales of loans. In addition, certain securities may be used to collateralize borrowings under repurchase agreements. The Consolidated
Statements of Cash Flows presents data on cash provided by and used in Peoples United Financials operating, investing and financing activities. At December 31, 2012, Peoples United Financial (parent company) liquid assets
included $3 million in debt securities available for sale. Peoples United Banks liquid assets included $601 million in cash and cash equivalents, $4.5 billion in debt securities available for sale and $7 million in trading account
securities. Securities available for sale with a fair value of $1.50 billion at December 31, 2012 were pledged as collateral for public deposits and for other purposes.
Liability liquidity is measured by Peoples United Financials and Peoples United Banks ability to obtain deposits and borrowings at cost-effective rates that are diversified with
respect to markets and maturities. Deposits, which are considered the most stable source of liability liquidity, totaled $21.8 billion at December 31, 2012 and represented 73% of total funding (the sum of total deposits, total borrowings,
notes and debentures, and stockholders equity). Borrowings are used to diversify Peoples United Financials funding mix and to support asset growth. Borrowings and notes and debentures totaled $2.4 billion and $659 million,
respectively, at December 31, 2012, representing 8% and 2%, respectively, of total funding at that date.
Peoples
United Banks current sources of borrowings include: federal funds purchased, advances from the FHLB of Boston and the FRB-NY, and repurchase agreements. At December 31, 2012, Peoples United Banks total borrowing limit from the
FHLB of Boston and the FRB-NY for advances, and repurchase agreements, was $4.7 billion, based on the level of qualifying collateral available for these borrowings. In addition, Peoples United Bank had unsecured borrowing capacity of $0.9
billion at that date.
|
|
|
Earning Asset Mix
$26.6 billion as of December 31, 2012 (percent)
|
|
Funding Base
$29.8 billion as of December 31, 2012 (percent)
|
82
At December 31, 2012, Peoples United Bank had outstanding commitments to
originate loans totaling $1.1 billion and approved, but unused, lines of credit extended to customers totaling $4.9 billion (including $1.9 billion of home equity lines of credit).
The sources of liquidity discussed above are deemed by management to be sufficient to fund outstanding loan commitments and to meet
Peoples United Financials and Peoples United Banks other obligations.
Stockholders Equity and Dividends
Peoples
United Financials total stockholders equity was $5.04 billion at December 31, 2012, a $177 million decrease from December 31, 2011. This decrease primarily reflects open market repurchases of 18.2 million shares of
common stock at a total cost of $220.0 million and dividends paid of $217.9 million, partially offset by net income of $245.3 million.
Stockholders equity equaled 16.6% of total assets at December 31, 2012 and 18.9% at December 31, 2011. Tangible stockholders equity equaled 10.2% of tangible assets at
December 31, 2012 compared to 12.0% at December 31, 2011.
In April 2008, Peoples United Financials
Board of Directors authorized the repurchase of up to 5% of the Companys then-outstanding common stock, or 17.3 million shares. In January 2011, Peoples United Financials Board of Directors authorized an additional repurchase
of common stock for up to 5% of the Companys then-outstanding common stock, or 17.5 million shares. Under both authorizations, such shares may be repurchased either directly or through agents, in the open market at prices and terms
satisfactory to management. During 2010, the Company repurchased 14.3 million shares of Peoples United Financial common stock at a total cost of $191.2 million. During 2011, the Company completed the repurchase of the maximum number of
shares of common stock authorized in April 2008 and January 2011, by repurchasing 20.4 million shares of Peoples United Financial common stock at a total cost of $247.2 million.
In October 2011, Peoples United Financials Board of Directors authorized an additional repurchase of common stock. Under the
new repurchase authorization, up to 5% of the Companys common stock outstanding, or 18.0 million shares, may be repurchased, either directly or through agents, in the open market at prices and terms satisfactory to management. During
2012, the Company completed the repurchase of the maximum number of shares of common stock authorized, by repurchasing 18.0 million shares of Peoples United Financial common stock at a total cost of $217.4 million.
In November 2012, Peoples United Financials Board of Directors authorized an additional repurchase of common stock. Under the
new repurchase authorization, up to 10% of the Companys common stock outstanding, or 33.6 million shares, may be repurchased, either directly or through agents, in the open market at prices and terms satisfactory to management. During
2012, the Company repurchased 0.2 million shares of Peoples United Financial common stock under this authorization at a total cost of $2.6 million. Through February 27, 2013, an additional 6.1 million shares of Peoples
United Financials common stock had been repurchased under this authorization at a total cost of $77 million.
Peoples United Financials total stockholders equity was $5.22 billion at December 31, 2011, a $1 million decrease
from December 31, 2010. This decrease primarily reflects open market repurchases of 20.4 million shares of common stock at a total cost of $247.2 million and dividends paid of $220.9 million, essentially offset by the issuances of
18.5 million shares of common stock with a fair value of approximately $248 million in connection with the Danvers acquisition and net income of $192.4 million.
83
Dividends declared and paid per common share totaled $0.6375, $0.6275 and $0.6175 for the
years ended December 31, 2012, 2011 and 2010, respectively. Peoples United Financials dividend payout ratio (dividends paid as a percentage of net income) for the years ended December 31, 2012, 2011 and 2010 was 88.8%, 114.9%
and 264.4%, respectively. Peoples United Financials operating dividend payout ratio for the year ended December 31, 2012 was 85.8%. The Companys Board of Directors declared a quarterly dividend on its common stock of $0.16 per
share in January 2013. The dividend was paid on February 15, 2013 to shareholders of record on February 1, 2013.
Peoples United Bank paid cash dividends totaling $315 million and $160 million to Peoples United Financial in 2012 and 2011,
respectively, and expects to pay a cash dividend of $60 million in March 2013.
Regulatory Capital Requirements
OCC regulations require
federally-chartered savings banks, such as Peoples United Bank, to meet three minimum capital ratios:
Tangible
Capital Ratio
A 1.5% tangible capital ratio, calculated as tangible capital to adjusted total assets.
Leverage
(Core) Capital Ratio
A 4% leverage (core) capital ratio, calculated as core capital to adjusted total assets. The minimum leverage (core) capital ratio is reduced to 3% if the savings bank received the highest rating on its most recent
safety and soundness examination.
Risk-Based Capital Ratio
An 8% total risk-based capital ratio, calculated as
total risk-based capital to total risk-weighted assets. For purposes of this calculation, total risk-based capital equals the sum of core and supplementary capital, provided that supplementary capital may not exceed 100% of core capital.
In assessing an institutions capital adequacy, the OCC takes into consideration not only these numeric factors but also qualitative
factors as well, and has the authority to establish higher capital requirements for individual institutions where necessary. Peoples United Bank, as a matter of prudent management, targets as its goal the maintenance of capital ratios that
exceed these minimum requirements and that are consistent with Peoples United Banks risk profile.
Peoples
United Banks tangible capital ratio, leverage (core) capital ratio and total risk-based capital ratios were 9.8%, 9.8% and 13.1%, respectively, at December 31, 2012, compared to 11.1%, 11.1% and 14.0%, respectively, at December 31,
2011.
Generally, a bank is considered well capitalized if it has a leverage (core) capital ratio of at least
5.0%, a tier 1 risk-based capital ratio of at least 6.0% (calculated as tier 1 capital to total risk-weighted assets) and a total risk-based capital ratio of at least 10.0%. Peoples United Banks regulatory capital ratios at
December 31, 2012 exceeded the OCC numeric criteria for classification as well capitalized. See Note 14 to the Consolidated Financial Statements for additional information concerning Peoples United Banks regulatory
capital amounts and ratios.
84
The following summary compares Peoples United Banks regulatory capital amounts
and ratios as of December 31, 2012 to the OCC minimum requirements. At December 31, 2012, Peoples United Banks adjusted total assets, as defined, totaled $28.2 billion and its total risk-weighted assets, as defined, totaled
$22.7 billion. At December 31, 2012, Peoples United Bank exceeded each of its regulatory capital requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
Peoples United Bank
|
|
|
OCC Minimum
Requirements
|
|
(dollars in millions)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Tangible capital
|
|
$
|
2,769.4
|
(1)
|
|
|
9.8
|
%
|
|
$
|
423.4
|
|
|
|
1.5
|
%
|
Leverage (core) capital
|
|
|
2,769.4
|
(1)
|
|
|
9.8
|
|
|
|
1,129.9
|
|
|
|
4.0
|
|
Risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1
|
|
|
2,769.4
|
(1)
|
|
|
12.2
|
|
|
|
910.0
|
|
|
|
4.0
|
|
Total
|
|
|
2,979.4
|
(2)
|
|
|
13.1
|
|
|
|
1,820.0
|
|
|
|
8.0
|
|
(1)
|
Represents Peoples United Banks total equity, excluding: (i) after-tax net unrealized gains and losses on certain securities classified as available
for sale; (ii) after-tax unrealized gains and losses on derivatives accounted for as cash flow hedges; (iii) certain assets not recognized for regulatory capital purposes (principally goodwill and other acquisition-related intangible
assets); and (iv) the amount recorded in accumulated other comprehensive income (loss) relating to pension and other postretirement benefits.
|
(2)
|
Represents Tier 1 capital plus qualifying subordinated notes and debentures, up to certain limits, and the allowance for loan losses up to 1.25% of total risk-weighted
assets.
|
Peoples United Bank Capital Ratios
Compared to Regulatory Requirements
As of December 31, 2012 (percent)
85
The following table summarizes Peoples United Financials capital ratios on a
consolidated basis:
|
|
|
|
|
|
|
|
|
As of December 31
|
|
2012
|
|
|
2011
|
|
Tangible equity to tangible assets
|
|
|
10.2
|
%
|
|
|
12.0
|
%
|
Leverage (Tier 1 capital to adjusted total assets)
|
|
|
10.6
|
|
|
|
12.5
|
|
Tier 1 common equity to total risk-weighted assets (1)
|
|
|
12.7
|
|
|
|
14.3
|
|
Tier 1 risk-based capital to total risk-weighted assets
|
|
|
13.2
|
|
|
|
14.8
|
|
Total risk-based capital to total risk-weighted assets
|
|
|
14.7
|
|
|
|
16.2
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Tier 1 common equity represents total stockholders equity, excluding goodwill and other acquisition-related intangible assets.
|
In December 2010, the Basel Committee on Banking Supervision released its final framework for capital requirements. In June 2012, the
U.S. banking agencies issued proposed rules to address implementation of the Basel III framework for U.S. financial institutions which, when implemented and fully phased-in, will (i) set forth changes in the calculation of risk-weighted assets and
(ii) require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. The implementation of the Basel III final framework was scheduled to commence on January 1, 2013,
however final rules have not been issued by U.S. banking agencies and, therefore, Basel III is not yet applicable to the Company or Peoples United Bank.
The Basel III final capital framework, among other things: (i) introduces as a new capital measure Common Equity Tier 1 (CET1); (ii) specifies that Tier 1 capital
consists of CET1 and Additional Tier 1 Capital instruments meeting specified requirements; (iii) defines CET1 narrowly by requiring that most adjustments to regulatory capital measures be made to CET1 and not to the other components
of capital; and (iv) expands the scope of the adjustments as compared to existing regulations.
When fully phased in on
January 1, 2019, Basel III requires financial institutions to maintain: (i) as a newly adopted international standard, a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer
(which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0%); (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%,
plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation); (iii) a minimum ratio of Total
(that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio
of 10.5% upon full implementation); and (iv) as a newly adopted international standard, a minimum leverage ratio of 3.0%, calculated as the ratio of Tier 1 capital balance sheet exposures plus certain off-balance sheet exposures (computed as
the average for each quarter of the month-end ratios for the quarter).
While the regulations ultimately applicable to U.S.
financial institutions may be substantially different from the Basel III final framework as published in December 2010 and the proposed rules issued in June 2012, management currently estimates that the Companys and the Banks risk-based
capital ratios could be negatively impacted by as much as 50-100 basis points on an as proposed and fully phased-in basis. Management will continue to monitor these and future proposed regulations.
86