UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
Commission File Number 001-33326
PEOPLES UNITED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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20-8447891 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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850 Main Street, Bridgeport, Connecticut |
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06604 |
(Address of principal executive offices) |
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(Zip Code) |
(203) 338-7171
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer |
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x |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
As of April 30, 2015, there were 309,109,375 shares of the registrants common stock outstanding.
Peoples United Financial Inc.
Form 10-Q
Table of Contents
Item 1 - Financial Statements
Peoples United Financial, Inc.
Consolidated Statements of Condition - (Unaudited)
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(in millions) |
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March 31, 2015 |
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December 31, 2014 |
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Assets |
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|
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Cash and due from banks |
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$ |
306.8 |
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|
$ |
345.1 |
|
Short-term investments (note 2) |
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250.0 |
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668.6 |
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Total cash and cash equivalents |
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556.8 |
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1,013.7 |
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Securities purchased under agreements to resell (note 2) |
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100.0 |
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Securities (note 2): |
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Trading account securities, at fair value |
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8.3 |
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8.3 |
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Securities available for sale, at fair value |
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4,356.8 |
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3,993.7 |
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Securities held to maturity, at amortized cost (fair value of $943.9 million and $881.6 million) |
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897.4 |
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834.3 |
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Federal Home Loan Bank and Federal Reserve Bank stock, at cost |
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314.2 |
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175.7 |
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Total securities |
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5,576.7 |
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5,012.0 |
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Loans held for sale |
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49.7 |
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34.2 |
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Loans (note 3): |
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Commercial |
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10,226.8 |
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10,055.1 |
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Commercial real estate |
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9,470.4 |
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9,404.3 |
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Residential mortgage |
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5,050.6 |
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4,932.0 |
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Consumer |
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2,181.5 |
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2,200.6 |
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Total loans |
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26,929.3 |
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26,592.0 |
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Less allowance for loan losses |
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(200.9 |
) |
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(198.3 |
) |
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Total loans, net |
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26,728.4 |
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26,393.7 |
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Goodwill (note 6) |
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1,954.5 |
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1,954.5 |
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Bank-owned life insurance |
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344.4 |
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343.3 |
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Premises and equipment, net |
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268.4 |
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277.8 |
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Other acquisition-related intangible assets (note 6) |
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142.1 |
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148.0 |
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Other assets (notes 1, 3 and 11) |
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786.3 |
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719.9 |
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Total assets |
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$ |
36,407.3 |
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$ |
35,997.1 |
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Liabilities |
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Deposits: |
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Non-interest-bearing |
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$ |
5,761.9 |
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$ |
5,655.1 |
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Savings, interest-bearing checking and money market |
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16,086.4 |
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15,252.4 |
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Time |
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5,301.6 |
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5,230.7 |
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Total deposits |
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27,149.9 |
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26,138.2 |
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Borrowings: |
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Federal Home Loan Bank advances |
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2,165.9 |
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2,291.7 |
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Federal funds purchased |
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496.0 |
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913.0 |
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Customer repurchase agreements |
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480.0 |
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486.0 |
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Other borrowings |
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1.0 |
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1.0 |
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Total borrowings |
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3,142.9 |
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3,691.7 |
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Notes and debentures |
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1,042.3 |
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1,033.5 |
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Other liabilities (note 11) |
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390.3 |
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500.6 |
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Total liabilities |
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31,725.4 |
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31,364.0 |
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Commitments and contingencies (notes 1 and 8) |
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Stockholders Equity |
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Common stock ($0.01 par value; 1.95 billion shares authorized; 397.8 million shares and 396.8 million shares
issued) |
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3.9 |
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3.9 |
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Additional paid-in capital |
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5,304.2 |
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5,291.2 |
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Retained earnings |
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833.2 |
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826.7 |
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Accumulated other comprehensive loss (note 4) |
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(140.6 |
) |
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(168.2 |
) |
Unallocated common stock of Employee Stock Ownership Plan, at cost (7.6 million shares and 7.7 million shares) (note 7) |
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(157.2 |
) |
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(159.0 |
) |
Treasury stock, at cost (89.0 million shares at both dates) (note 4) |
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(1,161.6 |
) |
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(1,161.5 |
) |
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Total stockholders equity |
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4,681.9 |
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4,633.1 |
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Total liabilities and stockholders equity |
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$ |
36,407.3 |
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$ |
35,997.1 |
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See accompanying notes to consolidated financial statements.
1
Peoples United Financial, Inc.
Consolidated Statements of Income - (Unaudited)
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Three Months Ended March 31, |
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(in millions, except per share data) |
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2015 |
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2014 |
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Interest and dividend income: |
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Commercial |
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$ |
88.9 |
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$ |
85.3 |
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Commercial real estate |
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85.3 |
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88.7 |
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Residential mortgage |
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40.2 |
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37.8 |
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Consumer |
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18.1 |
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18.3 |
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Total interest on loans |
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232.5 |
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230.1 |
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Securities |
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27.5 |
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25.1 |
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Loans held for sale |
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0.2 |
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0.1 |
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Short-term investments |
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0.1 |
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0.1 |
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Total interest and dividend income |
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260.3 |
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255.4 |
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Interest expense: |
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Deposits |
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22.2 |
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19.3 |
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Borrowings |
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2.6 |
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3.1 |
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Notes and debentures |
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7.4 |
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5.9 |
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Total interest expense |
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32.2 |
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28.3 |
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Net interest income |
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228.1 |
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227.1 |
|
Provision for loan losses (note 3) |
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9.8 |
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9.5 |
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Net interest income after provision for loan losses |
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218.3 |
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217.6 |
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Non-interest income: |
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Bank service charges |
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30.1 |
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30.5 |
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Commercial banking lending fees |
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12.3 |
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8.8 |
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Investment management fees |
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10.8 |
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9.8 |
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Operating lease income |
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10.8 |
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11.3 |
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Insurance revenue |
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7.6 |
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7.7 |
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Brokerage commissions |
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3.2 |
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3.2 |
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Net gains on sales of acquired loans |
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1.9 |
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Net gains on sales of residential mortgage loans |
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0.7 |
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|
0.8 |
|
Other non-interest income |
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11.6 |
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7.8 |
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Total non-interest income |
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89.0 |
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79.9 |
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Non-interest expense: |
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Compensation and benefits |
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114.8 |
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110.4 |
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Occupancy and equipment |
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38.7 |
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38.0 |
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Professional and outside services |
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15.8 |
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15.3 |
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Regulatory assessments |
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9.3 |
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8.7 |
|
Operating lease expense |
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9.3 |
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11.1 |
|
Amortization of other acquisition-related intangible assets (note 6) |
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5.9 |
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6.2 |
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Other non-interest expense |
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23.8 |
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27.0 |
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Total non-interest expense |
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217.6 |
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216.7 |
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Income before income tax expense |
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89.7 |
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|
80.8 |
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Income tax expense |
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30.5 |
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27.7 |
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Net income |
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$ |
59.2 |
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|
$ |
53.1 |
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Earnings per common share (note 5): |
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Basic |
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$ |
0.20 |
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$ |
0.18 |
|
Diluted |
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|
0.20 |
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|
0.18 |
|
See accompanying notes to consolidated financial statements.
2
Peoples United Financial, Inc.
Consolidated Statements of Comprehensive Income - (Unaudited)
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Three Months Ended March 31, |
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(in millions) |
|
2015 |
|
|
2014 |
|
Net income |
|
$ |
59.2 |
|
|
$ |
53.1 |
|
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|
|
|
|
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Other comprehensive income, net of tax: |
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Net actuarial loss and prior service credit related to pension and other postretirement benefit plans |
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1.1 |
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|
0.6 |
|
Net unrealized gains and losses on securities available for sale |
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|
26.2 |
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|
16.5 |
|
Amortization of unrealized losses on securities transferred to held to maturity |
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0.5 |
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|
0.4 |
|
Net unrealized gains and losses on derivatives accounted for as cash flow hedges |
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(0.2 |
) |
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|
0.1 |
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Total other comprehensive income, net of tax (note 4) |
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27.6 |
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|
17.6 |
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|
Total comprehensive income |
|
$ |
86.8 |
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$ |
70.7 |
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|
|
|
|
|
|
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|
See accompanying notes to consolidated financial statements.
3
Peoples United Financial, Inc.
Consolidated Statements of Changes in Stockholders Equity - (Unaudited)
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|
Three months ended March 31, 2015
(in millions, except per share data) |
|
Common Stock |
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|
Additional Paid-In Capital |
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|
Retained Earnings |
|
|
Accumulated Other Comprehensive Loss |
|
|
Unallocated ESOP Common Stock |
|
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Treasury Stock |
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|
Total Stockholders Equity |
|
Balance at December 31, 2014 |
|
$ |
3.9 |
|
|
$ |
5,291.2 |
|
|
$ |
826.7 |
|
|
$ |
(168.2 |
) |
|
$ |
(159.0 |
) |
|
$ |
(1,161.5 |
) |
|
$ |
4,633.1 |
|
Net income |
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|
|
|
|
|
|
|
|
|
59.2 |
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|
59.2 |
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Total other comprehensive income, net of tax (note 4) |
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|
27.6 |
|
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|
27.6 |
|
Cash dividends on common stock ($0.165 per share) |
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|
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|
(49.5 |
) |
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|
(49.5 |
) |
Restricted stock awards |
|
|
|
|
|
|
3.5 |
|
|
|
|
|
|
|
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|
|
|
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|
|
|
(0.1 |
) |
|
|
3.4 |
|
Employee Stock Ownership Plan common stock committed to be released (note 7) |
|
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|
|
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|
|
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|
(0.5 |
) |
|
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|
1.8 |
|
|
|
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|
|
1.3 |
|
Common stock repurchased and retired upon vesting of restricted stock awards |
|
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|
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|
(2.7 |
) |
|
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|
|
|
|
|
|
(2.7 |
) |
Stock options and related tax benefits |
|
|
|
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5 |
|
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|
|
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|
|
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|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2015 |
|
$ |
3.9 |
|
|
$ |
5,304.2 |
|
|
$ |
833.2 |
|
|
$ |
(140.6 |
) |
|
$ |
(157.2 |
) |
|
$ |
(1,161.6 |
) |
|
$ |
4,681.9 |
|
|
|
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|
Three months ended March 31, 2014
(in millions, except per share data) |
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Loss |
|
|
Unallocated ESOP Common Stock |
|
|
Treasury Stock |
|
|
Total Stockholders Equity |
|
Balance at December 31, 2013 |
|
$ |
3.9 |
|
|
$ |
5,277.0 |
|
|
$ |
779.0 |
|
|
$ |
(155.1 |
) |
|
$ |
(166.2 |
) |
|
$ |
(1,170.2 |
) |
|
$ |
4,568.4 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
53.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53.1 |
|
Total other comprehensive income, net of tax (note 4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
|
17.6 |
|
Cash dividends on common stock ($0.1625 per share) |
|
|
|
|
|
|
|
|
|
|
(48.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48.6 |
) |
Restricted stock awards |
|
|
|
|
|
|
(4.5 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
9.4 |
|
|
|
2.7 |
|
Employee Stock Ownership Plan common stock committed to be released (note 7) |
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
1.3 |
|
Common stock repurchased and retired upon vesting of restricted stock awards |
|
|
|
|
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.6 |
) |
Stock options and related tax benefits |
|
|
|
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2014 |
|
$ |
3.9 |
|
|
$ |
5,276.4 |
|
|
$ |
778.2 |
|
|
$ |
(137.5 |
) |
|
$ |
(164.4 |
) |
|
$ |
(1,160.8 |
) |
|
$ |
4,595.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
Peoples United Financial, Inc.
Consolidated Statements of Cash Flows - (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
59.2 |
|
|
$ |
53.1 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
9.8 |
|
|
|
9.5 |
|
Depreciation and amortization of premises and equipment |
|
|
9.7 |
|
|
|
10.0 |
|
Expense related to operating leases |
|
|
9.3 |
|
|
|
11.1 |
|
Amortization of other acquisition-related intangible assets |
|
|
5.9 |
|
|
|
6.2 |
|
Net security gains |
|
|
|
|
|
|
(0.1 |
) |
Net gains on sales of residential mortgage loans |
|
|
(0.7 |
) |
|
|
(0.8 |
) |
Net gains on sales of acquired loans |
|
|
(1.9 |
) |
|
|
|
|
Employee Stock Ownership Plan common stock committed to be released |
|
|
1.3 |
|
|
|
1.3 |
|
Expense related to share-based awards |
|
|
5.0 |
|
|
|
4.0 |
|
Originations of loans held-for-sale |
|
|
(91.3 |
) |
|
|
(51.0 |
) |
Proceeds from sales of loans held-for-sale |
|
|
76.5 |
|
|
|
57.7 |
|
Net changes in other assets and liabilities |
|
|
(86.9 |
) |
|
|
(6.9 |
) |
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(4.1 |
) |
|
|
94.1 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Net decrease in securities purchased under agreements to resell |
|
|
100.0 |
|
|
|
|
|
Proceeds from principal repayments and maturities of securities available for sale |
|
|
191.5 |
|
|
|
161.5 |
|
Proceeds from sales of securities available for sale |
|
|
|
|
|
|
180.8 |
|
Proceeds from principal repayments and maturities of securities held to maturity |
|
|
1.5 |
|
|
|
2.1 |
|
Purchases of securities available for sale |
|
|
(597.7 |
) |
|
|
(38.6 |
) |
Purchases of securities held to maturity |
|
|
(70.9 |
) |
|
|
(12.9 |
) |
Purchases of Federal Reserve Bank stock |
|
|
(138.5 |
) |
|
|
|
|
Proceeds from sales of loans |
|
|
20.8 |
|
|
|
0.4 |
|
Loan disbursements, net of principal collections |
|
|
(367.5 |
) |
|
|
(252.1 |
) |
Purchases of premises and equipment |
|
|
(5.6 |
) |
|
|
(2.8 |
) |
Purchases of leased equipment |
|
|
(9.7 |
) |
|
|
|
|
Proceeds from sales of real estate owned |
|
|
3.8 |
|
|
|
2.6 |
|
Return of premiums on bank-owned life insurance, net |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(872.3 |
) |
|
|
41.3 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
1,011.7 |
|
|
|
1,108.2 |
|
Net decrease in borrowings with terms of three months or less |
|
|
(548.0 |
) |
|
|
(1,168.9 |
) |
Repayments of borrowings with terms of more than three months |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Cash dividends paid on common stock |
|
|
(49.5 |
) |
|
|
(48.6 |
) |
Common stock repurchases |
|
|
(2.7 |
) |
|
|
(2.6 |
) |
Proceeds from stock options exercised, including excess income tax benefits |
|
|
8.1 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
419.5 |
|
|
|
(109.4 |
) |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(456.9 |
) |
|
|
26.0 |
|
Cash and cash equivalents at beginning of period |
|
|
1,013.7 |
|
|
|
474.4 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
556.8 |
|
|
$ |
500.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information: |
|
|
|
|
|
|
|
|
Interest payments |
|
$ |
32.1 |
|
|
$ |
23.9 |
|
Unsettled purchases of securities |
|
|
1.1 |
|
|
|
26.3 |
|
Income tax payments |
|
|
4.9 |
|
|
|
4.3 |
|
Real estate properties acquired by foreclosure |
|
|
6.7 |
|
|
|
9.8 |
|
See accompanying notes to consolidated financial statements.
5
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1. GENERAL
In the opinion
of management, the accompanying unaudited consolidated financial statements of Peoples United Financial, Inc. (Peoples United or the Company) have been prepared to reflect all adjustments necessary to present
fairly the financial position and results of operations as of the dates and for the periods shown. All significant intercompany transactions and balances are eliminated in consolidation. Certain reclassifications have been made to prior period
amounts to conform to the current period presentation.
In preparing the consolidated financial statements, management is required to make
significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from managements current estimates, as a result of changing conditions and future events.
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 fair
value of securities. These significant accounting policies and critical estimates are reviewed with the Audit Committee of the Board of Directors.
The judgments used by management in applying these critical accounting policies may be affected by economic conditions, 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.
Note 1 to Peoples Uniteds audited consolidated financial
statements included in the Annual Report on Form 10-K for the year ended December 31, 2014, as supplemented by this Quarterly Report for the period ended March 31, 2015, provides disclosure of Peoples Uniteds significant
accounting policies.
Peoples United holds ownership interests in limited partnerships formed to develop and operate affordable
housing units for lower income tenants throughout its franchise area. The underlying partnerships, which are considered variable interest entities, are not consolidated into the Companys Consolidated Financial Statements. These investments
have historically played a role in enabling Peoples United Bank, N.A. (the Bank) to meet its Community Reinvestment Act requirements while, at the same time, providing federal income tax credits.
The balance of the Companys affordable housing investments reflected in the Consolidated Statement of Condition at March 31, 2015
totaled $71.6 million (included in other assets). Future contingent commitments (capital calls) related to such investments, the timing of which cannot be reasonably estimated, totaled $36.1 million at that date. The cost of the Companys
investments is amortized on a straight-line basis over the period during which the related federal income tax credits are realized (generally ten years). Amortization expense, which is included as a component of income tax expense, totaled $2.8
million and $2.3 million for the three months ended March 31, 2015 and 2014, respectively.
Certain information and footnote
disclosures normally included in consolidated financial statements prepared in conformity with U.S. generally accepted accounting principles (GAAP) have been omitted or condensed. As a result, the accompanying consolidated financial
statements should be read in conjunction with Peoples Uniteds Annual Report on Form 10-K for the year ended December 31, 2014. The results of operations for the three months ended March 31, 2015 are not necessarily indicative
of the results of operations that may be expected for the entire year or any other interim period.
6
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
NOTE 2. SECURITIES AND SHORT-TERM INVESTMENTS
The amortized
cost, gross unrealized gains and losses, and fair value of Peoples Uniteds securities available for sale and securities held to maturity are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 (in millions) |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency |
|
$ |
299.7 |
|
|
$ |
1.4 |
|
|
$ |
|
|
|
$ |
301.1 |
|
GSE (1) residential mortgage-backed securities and CMOs (2) |
|
|
4,022.5 |
|
|
|
52.7 |
|
|
|
(19.7 |
) |
|
|
4,055.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
4,322.2 |
|
|
|
54.1 |
|
|
|
(19.7 |
) |
|
|
4,356.6 |
|
Equity securities |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
4,322.4 |
|
|
$ |
54.1 |
|
|
$ |
(19.7 |
) |
|
$ |
4,356.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal |
|
$ |
895.9 |
|
|
$ |
47.7 |
|
|
$ |
(1.2 |
) |
|
$ |
942.4 |
|
Other |
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
897.4 |
|
|
$ |
47.7 |
|
|
$ |
(1.2 |
) |
|
$ |
943.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Government sponsored enterprise |
|
(2) |
Collateralized mortgage obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014 (in millions) |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency |
|
$ |
56.5 |
|
|
$ |
0.3 |
|
|
$ |
|
|
|
$ |
56.8 |
|
GSE residential mortgage-backed securities and CMOs |
|
|
3,943.4 |
|
|
|
39.7 |
|
|
|
(46.4 |
) |
|
|
3,936.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
3,999.9 |
|
|
|
40.0 |
|
|
|
(46.4 |
) |
|
|
3,993.5 |
|
Equity securities |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
4,000.1 |
|
|
$ |
40.0 |
|
|
$ |
(46.4 |
) |
|
$ |
3,993.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal |
|
$ |
832.8 |
|
|
$ |
47.4 |
|
|
$ |
(0.1 |
) |
|
$ |
880.1 |
|
Other |
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity |
|
$ |
834.3 |
|
|
$ |
47.4 |
|
|
$ |
(0.1 |
) |
|
$ |
881.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale with a fair value of $1.47 billion and $1.43 billion at March 31, 2015 and
December 31, 2014, respectively, were pledged as collateral for public deposits and for other purposes.
7
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following table is a summary of the amortized cost and fair value of debt securities as
of March 31, 2015, based on remaining period to contractual maturity. Information for GSE residential mortgage-backed securities and CMOs is based on the final contractual maturity dates without considering repayments and prepayments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
Held to Maturity |
|
(in millions) |
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
U.S. Treasury and agency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
$ |
10.9 |
|
|
$ |
10.9 |
|
|
$ |
|
|
|
$ |
|
|
After 1 but within 5 years |
|
|
288.8 |
|
|
|
290.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
299.7 |
|
|
|
301.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE residential mortgage-backed securities and CMOs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 but within 5 years |
|
|
18.8 |
|
|
|
18.9 |
|
|
|
|
|
|
|
|
|
After 5 but within 10 years |
|
|
792.3 |
|
|
|
805.7 |
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
3,211.4 |
|
|
|
3,230.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,022.5 |
|
|
|
4,055.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
3.2 |
|
After 1 but within 5 years |
|
|
|
|
|
|
|
|
|
|
20.7 |
|
|
|
21.0 |
|
After 5 but within 10 years |
|
|
|
|
|
|
|
|
|
|
287.3 |
|
|
|
305.2 |
|
After 10 years |
|
|
|
|
|
|
|
|
|
|
584.7 |
|
|
|
613.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
895.9 |
|
|
|
942.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 but within 5 years |
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
10.9 |
|
|
|
10.9 |
|
|
|
3.2 |
|
|
|
3.2 |
|
After 1 but within 5 years |
|
|
307.6 |
|
|
|
309.1 |
|
|
|
22.2 |
|
|
|
22.5 |
|
After 5 but within 10 years |
|
|
792.3 |
|
|
|
805.7 |
|
|
|
287.3 |
|
|
|
305.2 |
|
After 10 years |
|
|
3,211.4 |
|
|
|
3,230.9 |
|
|
|
584.7 |
|
|
|
613.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,322.2 |
|
|
$ |
4,356.6 |
|
|
$ |
897.4 |
|
|
$ |
943.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 has an intention to sell the security; (ii) it is more likely than
not that Peoples United will be required to sell the security prior to recovery; or (iii) Peoples United does not expect to recover the entire amortized cost basis of the security.
Other-than-temporary impairment 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 expects to receive full value for the securities.
8
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following tables summarize debt securities with unrealized losses, segregated by the
length of time the securities have been in a continuous unrealized loss position at the respective dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuous Unrealized Loss Position |
|
|
|
|
|
|
|
|
|
Less Than 12 Months |
|
|
12 Months Or Longer |
|
|
Total |
|
As of March 31, 2015 (in millions) |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE residential mortgage-backed securities and CMOs |
|
$ |
353.2 |
|
|
$ |
(1.0 |
) |
|
$ |
1,094.5 |
|
|
$ |
(18.7 |
) |
|
$ |
1,447.7 |
|
|
$ |
(19.7 |
) |
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal |
|
|
109.1 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
109.1 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
462.3 |
|
|
$ |
(2.2 |
) |
|
$ |
1,094.5 |
|
|
$ |
(18.7 |
) |
|
$ |
1,556.8 |
|
|
$ |
(20.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuous Unrealized Loss Position |
|
|
|
|
|
|
|
|
|
Less Than 12 Months |
|
|
12 Months Or Longer |
|
|
Total |
|
As of December 31, 2014 (in millions) |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE residential mortgage-backed securities and CMOs |
|
$ |
111.9 |
|
|
$ |
(0.1 |
) |
|
$ |
1,744.2 |
|
|
$ |
(46.3 |
) |
|
$ |
1,856.1 |
|
|
$ |
(46.4 |
) |
Securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal |
|
|
31.8 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
31.8 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
143.7 |
|
|
$ |
(0.2 |
) |
|
$ |
1,744.2 |
|
|
$ |
(46.3 |
) |
|
$ |
1,887.9 |
|
|
$ |
(46.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2015, 10% of the 1,207 securities owned by the Company, consisting of 35 securities
classified as available for sale and 84 securities classified as held to maturity, had gross unrealized losses totaling $19.7 million and $1.2 million, respectively. All of the GSE residential mortgage-backed securities and CMOs had AAA credit
ratings and an average maturity of 12 years. The state and municipal securities had an average credit rating of AA and an average maturity of 16 years. The cause of the temporary impairment with respect to all of these securities is directly related
to changes in interest rates. Management believes that all gross unrealized losses within the securities portfolio at March 31, 2015 and December 31, 2014 are temporary impairments. Management does not intend to sell such securities nor is
it more likely than not that management will be required to sell such securities prior to recovery. No other-than-temporary impairment losses were recognized in the Consolidated Statements of Income for the three months ended March 31, 2015 and
2014.
Security transactions are recorded on the trade date. Realized gains and losses are determined using the specific identification
method and reported in non-interest income.
The Bank, as a member of the Federal Home Loan Bank (FHLB) of Boston, is
currently required to purchase and hold shares of FHLB capital stock (total cost of $164.4 million at both March 31, 2015 and December 31, 2014) in an amount equal to its membership base investment plus an activity based investment
determined according to the Banks level of outstanding FHLB advances. As a result of the Smithtown Bancorp, Inc. (Smithtown) acquisition completed in 2010, Peoples United acquired shares of capital stock in the FHLB of New
York (total cost of $11.3 million at both March 31, 2015 and December 31, 2014). Based on the current capital adequacy and liquidity position of both the FHLB of Boston and the FHLB of New York, management believes there is no impairment
in the Companys investment at March 31, 2015 and the cost of the investment approximates fair value. The Bank, as a member of the Federal Reserve Bank (FRB) system, is currently required to purchase and hold shares of FRB of
New York capital stock in an amount equal to six percent of its capital and surplus. In the first quarter of 2015, the Bank purchased FRB capital stock at a total cost of $138.5 million. Based on the current capital adequacy and liquidity position
of the FRB of New York, management believes there is no impairment in the Companys investment at March 31, 2015 and the cost of the investment approximates fair value.
Included in short-term investments are interest-bearing deposits at the FRB of New York totaling $180.1 million at
March 31, 2015 and $626.5 million at December 31, 2014. These deposits represent an alternative to overnight federal funds sold and had a yield of 0.25% at both dates.
9
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Peoples United accounts for securities purchased under agreements to resell as secured
lending transactions. In connection with such agreements, Peoples United takes delivery of collateral from all counterparties. The fair value of the collateral securing the agreements outstanding at December 31, 2014 was $100.4 million
(no agreements were outstanding at March 31, 2015).
NOTE 3. LOANS
For purposes of
disclosures related to the credit quality of financing receivables and the allowance for loan losses, Peoples United has identified two loan portfolio segments, Commercial and Retail, which are comprised of the following loan classes:
|
|
|
Commercial Portfolio: commercial real estate; commercial and industrial; and equipment financing. |
|
|
|
Retail Portfolio: residential mortgage; home equity; and other consumer. |
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). All other loans
are referred to as originated loans. Accordingly, selected credit quality disclosures that follow are presented separately for the originated loan portfolio and the acquired loan portfolio.
Peoples United maintains several significant accounting policies with respect to loans, including:
|
|
|
Establishment of the allowance for loan losses (including the identification of impaired loans and related impairment measurement considerations); |
|
|
|
Income recognition (including the classification of a loan as non-accrual and the treatment of loan origination costs); and |
|
|
|
Recognition of loan charge-offs. |
The Company did not change its policies with respect to
loans or its methodology for determining the allowance for loan losses during the three months ended March 31, 2015.
The following
table summarizes Peoples Uniteds loans by loan portfolio segment and class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
(in millions) |
|
Originated |
|
|
Acquired |
|
|
Total |
|
|
Originated |
|
|
Acquired |
|
|
Total |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
9,077.8 |
|
|
$ |
392.6 |
|
|
$ |
9,470.4 |
|
|
$ |
8,960.3 |
|
|
$ |
444.0 |
|
|
$ |
9,404.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
7,131.3 |
|
|
|
274.2 |
|
|
|
7,405.5 |
|
|
|
6,891.1 |
|
|
|
298.5 |
|
|
|
7,189.6 |
|
Equipment financing |
|
|
2,797.8 |
|
|
|
23.5 |
|
|
|
2,821.3 |
|
|
|
2,839.0 |
|
|
|
26.5 |
|
|
|
2,865.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
9,929.1 |
|
|
|
297.7 |
|
|
|
10,226.8 |
|
|
|
9,730.1 |
|
|
|
325.0 |
|
|
|
10,055.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Portfolio |
|
|
19,006.9 |
|
|
|
690.3 |
|
|
|
19,697.2 |
|
|
|
18,690.4 |
|
|
|
769.0 |
|
|
|
19,459.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate |
|
|
4,366.3 |
|
|
|
135.5 |
|
|
|
4,501.8 |
|
|
|
4,254.7 |
|
|
|
139.1 |
|
|
|
4,393.8 |
|
Fixed-rate |
|
|
464.4 |
|
|
|
84.4 |
|
|
|
548.8 |
|
|
|
446.8 |
|
|
|
91.4 |
|
|
|
538.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage |
|
|
4,830.7 |
|
|
|
219.9 |
|
|
|
5,050.6 |
|
|
|
4,701.5 |
|
|
|
230.5 |
|
|
|
4,932.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity |
|
|
2,082.7 |
|
|
|
46.7 |
|
|
|
2,129.4 |
|
|
|
2,092.9 |
|
|
|
50.2 |
|
|
|
2,143.1 |
|
Other consumer |
|
|
51.0 |
|
|
|
1.1 |
|
|
|
52.1 |
|
|
|
56.3 |
|
|
|
1.2 |
|
|
|
57.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
2,133.7 |
|
|
|
47.8 |
|
|
|
2,181.5 |
|
|
|
2,149.2 |
|
|
|
51.4 |
|
|
|
2,200.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail Portfolio |
|
|
6,964.4 |
|
|
|
267.7 |
|
|
|
7,232.1 |
|
|
|
6,850.7 |
|
|
|
281.9 |
|
|
|
7,132.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
25,971.3 |
|
|
$ |
958.0 |
|
|
$ |
26,929.3 |
|
|
$ |
25,541.1 |
|
|
$ |
1,050.9 |
|
|
$ |
26,592.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred loan costs, which are included in total loans and accounted for as interest yield adjustments,
totaled $55.3 million at March 31, 2015 and $54.8 million at December 31, 2014.
10
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following table presents a summary, by loan portfolio segment, of activity in the
allowance for loan losses. With respect to the originated portfolio, an allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in another segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
Retail |
|
|
|
|
Three Months Ended March 31, 2015 (in millions) |
|
Originated |
|
|
Acquired |
|
|
Total |
|
|
Originated |
|
|
Acquired |
|
|
Total |
|
|
Total |
|
Balance at beginning of period |
|
$ |
169.6 |
|
|
$ |
9.8 |
|
|
$ |
179.4 |
|
|
$ |
18.5 |
|
|
$ |
0.4 |
|
|
$ |
18.9 |
|
|
$ |
198.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(6.6 |
) |
|
|
|
|
|
|
(6.6 |
) |
|
|
(1.5 |
) |
|
|
|
|
|
|
(1.5 |
) |
|
|
(8.1 |
) |
Recoveries |
|
|
0.6 |
|
|
|
|
|
|
|
0.6 |
|
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs |
|
|
(6.0 |
) |
|
|
|
|
|
|
(6.0 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
|
(1.2 |
) |
|
|
(7.2 |
) |
Provision for loan losses |
|
|
9.5 |
|
|
|
(0.4 |
) |
|
|
9.1 |
|
|
|
0.7 |
|
|
|
|
|
|
|
0.7 |
|
|
|
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
173.1 |
|
|
$ |
9.4 |
|
|
$ |
182.5 |
|
|
$ |
18.0 |
|
|
$ |
0.4 |
|
|
$ |
18.4 |
|
|
$ |
200.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
Retail |
|
|
|
|
Three Months Ended March 31, 2014 (in millions) |
|
Originated |
|
|
Acquired |
|
|
Total |
|
|
Originated |
|
|
Acquired |
|
|
Total |
|
|
Total |
|
Balance at beginning of period |
|
$ |
158.5 |
|
|
$ |
9.8 |
|
|
$ |
168.3 |
|
|
$ |
19.0 |
|
|
$ |
0.5 |
|
|
$ |
19.5 |
|
|
$ |
187.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
|
|
(3.1 |
) |
|
|
(1.4 |
) |
|
|
(4.5 |
) |
|
|
(3.3 |
) |
|
|
(0.1 |
) |
|
|
(3.4 |
) |
|
|
(7.9 |
) |
Recoveries |
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs |
|
|
(2.6 |
) |
|
|
(1.4 |
) |
|
|
(4.0 |
) |
|
|
(2.9 |
) |
|
|
(0.1 |
) |
|
|
(3.0 |
) |
|
|
(7.0 |
) |
Provision for loan losses |
|
|
4.1 |
|
|
|
1.4 |
|
|
|
5.5 |
|
|
|
3.9 |
|
|
|
0.1 |
|
|
|
4.0 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
160.0 |
|
|
$ |
9.8 |
|
|
$ |
169.8 |
|
|
$ |
20.0 |
|
|
$ |
0.5 |
|
|
$ |
20.5 |
|
|
$ |
190.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary, by loan portfolio segment and impairment methodology, of the allowance for loan
losses and related portfolio balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans Individually Evaluated for Impairment |
|
|
Originated Loans Collectively Evaluated for Impairment |
|
|
Acquired Loans (Discounts Related to Credit Quality) |
|
|
Total |
|
As of March 31, 2015 (in millions) |
|
Portfolio |
|
|
Allowance |
|
|
Portfolio |
|
|
Allowance |
|
|
Portfolio |
|
|
Allowance |
|
|
Portfolio |
|
|
Allowance |
|
Commercial |
|
$ |
169.5 |
|
|
$ |
6.6 |
|
|
$ |
18,837.4 |
|
|
$ |
166.5 |
|
|
$ |
690.3 |
|
|
$ |
9.4 |
|
|
$ |
19,697.2 |
|
|
$ |
182.5 |
|
Retail |
|
|
97.9 |
|
|
|
3.9 |
|
|
|
6,866.5 |
|
|
|
14.1 |
|
|
|
267.7 |
|
|
|
0.4 |
|
|
|
7,232.1 |
|
|
|
18.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
267.4 |
|
|
$ |
10.5 |
|
|
$ |
25,703.9 |
|
|
$ |
180.6 |
|
|
$ |
958.0 |
|
|
$ |
9.8 |
|
|
$ |
26,929.3 |
|
|
$ |
200.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated Loans Individually Evaluated for Impairment |
|
|
Originated Loans Collectively Evaluated for Impairment |
|
|
Acquired Loans (Discounts Related to Credit Quality) |
|
|
Total |
|
As of December 31, 2014 (in millions) |
|
Portfolio |
|
|
Allowance |
|
|
Portfolio |
|
|
Allowance |
|
|
Portfolio |
|
|
Allowance |
|
|
Portfolio |
|
|
Allowance |
|
Commercial |
|
$ |
174.5 |
|
|
$ |
7.6 |
|
|
$ |
18,515.9 |
|
|
$ |
162.0 |
|
|
$ |
769.0 |
|
|
$ |
9.8 |
|
|
$ |
19,459.4 |
|
|
$ |
179.4 |
|
Retail |
|
|
95.0 |
|
|
|
3.9 |
|
|
|
6,755.7 |
|
|
|
14.6 |
|
|
|
281.9 |
|
|
|
0.4 |
|
|
|
7,132.6 |
|
|
|
18.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
269.5 |
|
|
$ |
11.5 |
|
|
$ |
25,271.6 |
|
|
$ |
176.6 |
|
|
$ |
1,050.9 |
|
|
$ |
10.2 |
|
|
$ |
26,592.0 |
|
|
$ |
198.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The recorded investments, by class of loan, of originated non-performing loans are summarized
as follows:
|
|
|
|
|
|
|
|
|
(in millions) |
|
March 31, 2015 |
|
|
December 31, 2014 |
|
Commercial: |
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
43.3 |
|
|
$ |
60.2 |
|
Commercial and industrial |
|
|
42.6 |
|
|
|
55.8 |
|
Equipment financing |
|
|
34.9 |
|
|
|
25.4 |
|
|
|
|
|
|
|
|
|
|
Total (1) |
|
|
120.8 |
|
|
|
141.4 |
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
37.5 |
|
|
|
37.6 |
|
Home equity |
|
|
19.4 |
|
|
|
17.9 |
|
Other consumer |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Total (2) |
|
|
57.0 |
|
|
|
55.6 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
177.8 |
|
|
$ |
197.0 |
|
|
|
|
|
|
|
|
|
|
(1) |
Reported net of government guarantees totaling $17.5 million and $17.6 million at March 31, 2015 and December 31, 2014, 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 March 31, 2015, the
principal loan classes to which these government guarantees relate are commercial and industrial loans (99%) and commercial real estate loans (1%). |
(2) |
Includes $15.2 million and $18.9 million of loans in the process of foreclosure at March 31, 2015 and December 31, 2014, respectively. |
The preceding table excludes acquired loans that are (i) accounted for as purchased credit impaired loans or (ii) covered by an
Federal Deposit Insurance Corporation (FDIC) loss-share agreement (LSA) totaling $72.2 million and $2.6 million, respectively, at March 31, 2015 and $100.6 million and $3.0 million, respectively, at December 31,
2014. Such loans otherwise meet Peoples Uniteds 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 LSA. 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.
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. There were no loans past due 90 days or more and still accruing interest at March 31, 2015 or December 31, 2014.
12
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
A loan is considered impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impaired loans also include certain originated loans whose terms
have been modified in such a way that they are considered troubled debt restructurings (TDRs). Originated loans are considered TDRs if the borrower is experiencing financial difficulty and is afforded a concession by Peoples
United, 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. 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 in the case
of a commercial loan or, in the case of a retail loan, when the loan is less than 90 days past due. Loans may continue to be reported as TDRs after they are returned to accrual status. In accordance with regulatory guidance, residential mortgage and
home equity loans restructured in connection with the borrowers bankruptcy and meeting certain criteria are also required to be classified as TDRs, included in non-performing loans and written down to the estimated collateral value, regardless
of delinquency status. Acquired loans that are modified are not considered for TDR classification provided they are evaluated for impairment on a pool basis.
Peoples Uniteds recorded investment in originated loans classified as TDRs totaled $192.5 million and $181.6 million at
March 31, 2015 and December 31, 2014, respectively. The related allowance for loan losses at March 31, 2015 and December 31, 2014 was $6.7 million and $7.1 million, respectively. Interest income recognized on TDRs totaled
$1.1 million and $0.9 million for the three months ended March 31, 2015 and 2014, respectively. Fundings under commitments to lend additional amounts to borrowers with loans classified as TDRs were immaterial for the three months ended
March 31, 2015 and 2014. Originated loans that were modified and classified as TDRs during the three months ended March 31, 2015 and 2014 principally involve reduced payment and/or payment deferral, extension of term (generally no more
than two years for commercial loans and eight years for retail loans) and/or a temporary reduction of interest rate (generally less than 200 basis points).
13
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following tables summarize, by class of loan, the recorded investments in loans modified
as TDRs during the three months ended March 31, 2015 and 2014. For purposes of this disclosure, recorded investments represent amounts immediately prior to and subsequent to the restructuring.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015 |
|
(dollars in millions) |
|
Number of Contracts |
|
|
Pre-Modification Outstanding Recorded Investment |
|
|
Post-Modification Outstanding Recorded Investment |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate (1) |
|
|
8 |
|
|
$ |
4.9 |
|
|
$ |
4.9 |
|
Commercial and industrial (2) |
|
|
8 |
|
|
|
10.1 |
|
|
|
10.1 |
|
Equipment financing (3) |
|
|
5 |
|
|
|
7.6 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
21 |
|
|
|
22.6 |
|
|
|
22.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage (4) |
|
|
20 |
|
|
|
5.7 |
|
|
|
5.7 |
|
Home equity (5) |
|
|
33 |
|
|
|
2.0 |
|
|
|
2.0 |
|
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
53 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
74 |
|
|
$ |
30.3 |
|
|
$ |
30.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents the following concessions: extension of term (8 contracts; recorded investment of $4.9 million). |
(2) |
Represents the following concessions: extension of term (4 contracts; recorded investment of $8.7 million); reduced payment and/or payment deferral (3 contracts; recorded investment of $0.6 million); or a combination of
concessions (1 contract; recorded investment of $0.8 million). |
(3) |
Represents the following concessions: reduced payment and/or payment deferral (3 contracts; recorded investment of $5.7 million); or a combination of concessions (2 contracts; recorded investment of
$1.9 million). |
(4) |
Represents the following concessions: loans restructured through bankruptcy (6 contracts; recorded investment of $2.4 million); reduced payment and/or payment deferral (4 contracts; recorded investment of
$1.5 million); temporary rate reduction (1 contract; recorded investment of $0.2 million); or a combination of concessions (9 contracts; recorded investment of $1.6 million). |
(5) |
Represents the following concessions: loans restructured through bankruptcy (25 contracts; recorded investment of $1.0 million); reduced payment and/or payment deferral (2 contracts; recorded investment of
$0.2 million); or a combination of concessions (6 contracts; recorded investment of $0.8 million). |
14
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2014 |
|
(dollars in millions) |
|
Number of Contracts |
|
|
Pre-Modification Outstanding Recorded Investment |
|
|
Post-Modification Outstanding Recorded Investment |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate (1) |
|
|
6 |
|
|
$ |
5.0 |
|
|
$ |
5.0 |
|
Commercial and industrial (2) |
|
|
7 |
|
|
|
3.4 |
|
|
|
3.4 |
|
Equipment financing (3) |
|
|
5 |
|
|
|
2.9 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18 |
|
|
|
11.3 |
|
|
|
11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage (4) |
|
|
48 |
|
|
|
16.8 |
|
|
|
16.8 |
|
Home equity (5) |
|
|
40 |
|
|
|
3.8 |
|
|
|
3.8 |
|
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
88 |
|
|
|
20.6 |
|
|
|
20.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
106 |
|
|
$ |
31.9 |
|
|
$ |
31.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents the following concessions: extension of term (4 contracts; recorded investment of $4.1 million); or a combination of concessions (2 contracts; recorded investment of $0.9 million). |
(2) |
Represents the following concessions: extension of term (3 contracts; recorded investment of $1.0 million); reduced payment and/or payment deferral (1 contract; recorded investment of $0.7 million); or a combination of
concessions (3 contracts; recorded investment of $1.7 million). |
(3) |
Represents the following concessions: combination of concessions (5 contracts; recorded investment of $2.9 million). |
(4) |
Represents the following concessions: loans restructured through bankruptcy (9 contracts; recorded investment of $3.1 million); extension of term (1 contract; recorded investment of $0.5 million); reduced payment and/or
payment deferral (12 contracts; recorded investment of $4.3 million); or a combination of concessions (26 contracts; recorded investment of $8.9 million). |
(5) |
Represents the following concessions: loans restructured through bankruptcy (17 contracts; recorded investment of $2.1 million); reduced payment and/or payment deferral (3 contracts; recorded investment of $0.1
million); temporary rate reduction (1 contract; recorded investment of $0.1 million); or a combination of concessions (19 contracts; recorded investment of $1.5 million). |
The following is a summary, by class of loan, of information related to TDRs of originated loans completed within the previous 12 months that
subsequently defaulted during the three months ended March 31, 2015 and 2014. For purposes of this disclosure, the previous 12 months is measured from April 1 of the respective prior year and a default represents a previously-modified loan
that became past due 30 days or more during the three months ended March 31, 2015 or 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
(dollars in millions) |
|
Number of Contracts |
|
|
Recorded Investment as of Period End |
|
|
Number of Contracts |
|
|
Recorded Investment as of Period End |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Commercial and industrial |
|
|
2 |
|
|
|
0.1 |
|
|
|
1 |
|
|
|
1.5 |
|
Equipment financing |
|
|
4 |
|
|
|
1.3 |
|
|
|
9 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6 |
|
|
|
1.4 |
|
|
|
10 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
17 |
|
|
|
7.4 |
|
|
|
24 |
|
|
|
10.9 |
|
Home equity |
|
|
11 |
|
|
|
1.2 |
|
|
|
8 |
|
|
|
0.9 |
|
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
28 |
|
|
|
8.6 |
|
|
|
32 |
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
34 |
|
|
$ |
10.0 |
|
|
|
42 |
|
|
$ |
14.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Peoples Uniteds impaired loans consist of certain originated loans, including all
TDRs. The following table summarizes, by class of loan, information related to individually-evaluated impaired loans within the originated portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 |
|
|
As of December 31, 2014 |
|
(in millions) |
|
Unpaid Principal Balance |
|
|
Recorded Investment |
|
|
Related Allowance for Loan Losses |
|
|
Unpaid Principal Balance |
|
|
Recorded Investment |
|
|
Related Allowance for Loan Losses |
|
Without a related allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
54.9 |
|
|
$ |
53.7 |
|
|
$ |
|
|
|
$ |
57.1 |
|
|
$ |
55.8 |
|
|
$ |
|
|
Commercial and industrial |
|
|
60.2 |
|
|
|
56.9 |
|
|
|
|
|
|
|
51.7 |
|
|
|
48.6 |
|
|
|
|
|
Equipment financing |
|
|
34.5 |
|
|
|
24.5 |
|
|
|
|
|
|
|
30.2 |
|
|
|
21.4 |
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
66.6 |
|
|
|
60.0 |
|
|
|
|
|
|
|
65.4 |
|
|
|
58.9 |
|
|
|
|
|
Home equity |
|
|
22.8 |
|
|
|
19.4 |
|
|
|
|
|
|
|
21.3 |
|
|
|
18.3 |
|
|
|
|
|
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
239.0 |
|
|
$ |
214.5 |
|
|
$ |
|
|
|
$ |
225.7 |
|
|
$ |
203.0 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With a related allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
23.1 |
|
|
$ |
16.2 |
|
|
$ |
1.7 |
|
|
$ |
52.1 |
|
|
$ |
27.8 |
|
|
$ |
4.0 |
|
Commercial and industrial |
|
|
8.3 |
|
|
|
6.4 |
|
|
|
2.9 |
|
|
|
21.4 |
|
|
|
17.4 |
|
|
|
3.5 |
|
Equipment financing |
|
|
11.9 |
|
|
|
11.8 |
|
|
|
2.0 |
|
|
|
3.6 |
|
|
|
3.5 |
|
|
|
0.1 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
16.5 |
|
|
|
16.4 |
|
|
|
2.7 |
|
|
|
15.6 |
|
|
|
15.3 |
|
|
|
2.6 |
|
Home equity |
|
|
2.2 |
|
|
|
2.1 |
|
|
|
1.2 |
|
|
|
2.6 |
|
|
|
2.5 |
|
|
|
1.3 |
|
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
62.0 |
|
|
$ |
52.9 |
|
|
$ |
10.5 |
|
|
$ |
95.3 |
|
|
$ |
66.5 |
|
|
$ |
11.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
78.0 |
|
|
$ |
69.9 |
|
|
$ |
1.7 |
|
|
$ |
109.2 |
|
|
$ |
83.6 |
|
|
$ |
4.0 |
|
Commercial and industrial |
|
|
68.5 |
|
|
|
63.3 |
|
|
|
2.9 |
|
|
|
73.1 |
|
|
|
66.0 |
|
|
|
3.5 |
|
Equipment financing |
|
|
46.4 |
|
|
|
36.3 |
|
|
|
2.0 |
|
|
|
33.8 |
|
|
|
24.9 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
192.9 |
|
|
|
169.5 |
|
|
|
6.6 |
|
|
|
216.1 |
|
|
|
174.5 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
83.1 |
|
|
|
76.4 |
|
|
|
2.7 |
|
|
|
81.0 |
|
|
|
74.2 |
|
|
|
2.6 |
|
Home equity |
|
|
25.0 |
|
|
|
21.5 |
|
|
|
1.2 |
|
|
|
23.9 |
|
|
|
20.8 |
|
|
|
1.3 |
|
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
108.1 |
|
|
|
97.9 |
|
|
|
3.9 |
|
|
|
104.9 |
|
|
|
95.0 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
301.0 |
|
|
$ |
267.4 |
|
|
$ |
10.5 |
|
|
$ |
321.0 |
|
|
$ |
269.5 |
|
|
$ |
11.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following table summarizes, by class of loan, the average recorded investment and
interest income recognized on impaired loans for the periods indicated. The average recorded investment amounts are based on month-end balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
(in millions) |
|
Average Recorded Investment |
|
|
Interest Income Recognized |
|
|
Average Recorded Investment |
|
|
Interest Income Recognized |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
78.0 |
|
|
$ |
0.3 |
|
|
$ |
74.1 |
|
|
$ |
0.2 |
|
Commercial and industrial |
|
|
59.5 |
|
|
|
0.4 |
|
|
|
37.0 |
|
|
|
0.2 |
|
Equipment financing |
|
|
26.8 |
|
|
|
0.1 |
|
|
|
28.3 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
164.3 |
|
|
|
0.8 |
|
|
|
139.4 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
75.6 |
|
|
|
0.4 |
|
|
|
69.3 |
|
|
|
0.3 |
|
Home equity |
|
|
21.5 |
|
|
|
0.1 |
|
|
|
16.4 |
|
|
|
0.1 |
|
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
97.1 |
|
|
|
0.5 |
|
|
|
85.7 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
261.4 |
|
|
$ |
1.3 |
|
|
$ |
225.1 |
|
|
$ |
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize, by class of loan, aging information for originated loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due |
|
|
|
|
As of March 31, 2015 (in millions) |
|
Current |
|
|
30-89 Days |
|
|
90 Days or More |
|
|
Total |
|
|
Total Originated |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
9,044.5 |
|
|
$ |
11.3 |
|
|
$ |
22.0 |
|
|
$ |
33.3 |
|
|
$ |
9,077.8 |
|
Commercial and industrial |
|
|
7,069.7 |
|
|
|
20.9 |
|
|
|
40.7 |
|
|
|
61.6 |
|
|
|
7,131.3 |
|
Equipment financing |
|
|
2,729.7 |
|
|
|
64.1 |
|
|
|
4.0 |
|
|
|
68.1 |
|
|
|
2,797.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,843.9 |
|
|
|
96.3 |
|
|
|
66.7 |
|
|
|
163.0 |
|
|
|
19,006.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
4,781.0 |
|
|
|
24.9 |
|
|
|
24.8 |
|
|
|
49.7 |
|
|
|
4,830.7 |
|
Home equity |
|
|
2,067.5 |
|
|
|
5.8 |
|
|
|
9.4 |
|
|
|
15.2 |
|
|
|
2,082.7 |
|
Other consumer |
|
|
50.6 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
51.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,899.1 |
|
|
|
31.0 |
|
|
|
34.3 |
|
|
|
65.3 |
|
|
|
6,964.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans |
|
$ |
25,743.0 |
|
|
$ |
127.3 |
|
|
$ |
101.0 |
|
|
$ |
228.3 |
|
|
$ |
25,971.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the Current and 30-89 Days categories above are early non-performing
commercial real estate loans, commercial and industrial loans, and equipment financing loans totaling $21.4 million, $19.3 million and $30.9 million, respectively, and $22.7 million of retail loans in the process of foreclosure or bankruptcy. These
loans are less than 90 days past due but have been placed on non-accrual status as a result of having been identified as presenting uncertainty with respect to the collectability of interest and principal.
17
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due |
|
|
|
|
As of December 31, 2014 (in millions) |
|
Current |
|
|
30-89 Days |
|
|
90 Days or More |
|
|
Total |
|
|
Total Originated |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
8,908.0 |
|
|
$ |
17.6 |
|
|
$ |
34.7 |
|
|
$ |
52.3 |
|
|
$ |
8,960.3 |
|
Commercial and industrial |
|
|
6,814.9 |
|
|
|
32.4 |
|
|
|
43.8 |
|
|
|
76.2 |
|
|
|
6,891.1 |
|
Equipment financing |
|
|
2,793.3 |
|
|
|
41.0 |
|
|
|
4.7 |
|
|
|
45.7 |
|
|
|
2,839.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,516.2 |
|
|
|
91.0 |
|
|
|
83.2 |
|
|
|
174.2 |
|
|
|
18,690.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
4,647.3 |
|
|
|
29.1 |
|
|
|
25.1 |
|
|
|
54.2 |
|
|
|
4,701.5 |
|
Home equity |
|
|
2,079.3 |
|
|
|
5.0 |
|
|
|
8.6 |
|
|
|
13.6 |
|
|
|
2,092.9 |
|
Other consumer |
|
|
55.8 |
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.5 |
|
|
|
56.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,782.4 |
|
|
|
34.5 |
|
|
|
33.8 |
|
|
|
68.3 |
|
|
|
6,850.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans |
|
$ |
25,298.6 |
|
|
$ |
125.5 |
|
|
$ |
117.0 |
|
|
$ |
242.5 |
|
|
$ |
25,541.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the Current and 30-89 Days categories above are early non-performing
commercial real estate loans, commercial and industrial loans, and equipment financing loans totaling $25.6 million, $29.5 million and $20.7 million, respectively, and $21.8 million of retail loans in the process of foreclosure or bankruptcy. These
loans are less than 90 days past due but have been placed on non-accrual status as a result of having been identified as presenting uncertainty with respect to the collectability of interest and principal.
Commercial Banking Credit Quality Indicators
The Company utilizes an internal loan risk rating system as a means of monitoring portfolio credit quality and identifying both problem and
potential problem loans. Under the Companys risk rating system, loans not meeting the criteria for problem and potential problem loans as specified below are considered to be Pass-rated loans. Problem and potential problem loans
are classified as either Special Mention, Substandard or Doubtful. Loans that do not currently expose the Company to sufficient enough risk of loss to warrant classification as either Substandard or Doubtful, but
possess weaknesses that deserve managements close attention, are classified as Special Mention. Substandard loans represent those credits characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are
not corrected. Loans classified as Doubtful possess all the weaknesses inherent in those classified Substandard with the added characteristic that collection or liquidation in full, on the basis of existing facts, conditions and values, is highly
questionable and/or improbable.
Risk ratings on commercial loans are subject to ongoing monitoring by lending and credit personnel with
such ratings updated annually or more frequently, if warranted. The Companys internal Loan Review function is responsible for independently evaluating the appropriateness of those credit risk ratings in connection with its cyclical reviews,
the approach to which is risk-based and determined by reference to underlying portfolio credit quality and the results of prior reviews. Differences in risk ratings noted in conjunction with such periodic portfolio loan reviews, if any, are reported
to management each month.
Retail Credit Quality Indicators
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, broader portfolio
indicators, including trends in delinquencies, non-performing loans and portfolio concentrations, and portfolio-specific risk characteristics, the combination of which determines whether a loan is classified as High, Moderate
or Low risk.
18
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The portfolio-specific 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.
For example, to the extent LTV ratios exceed 70% (reflecting a weaker collateral position for the Company) or borrower FICO scores are less
than 680 (reflecting weaker financial standing and/or credit history of the customer), the loans are considered to have an increased level of inherent loss. As a result, a loan with a combination of these characteristics would generally be
classified as High risk. Conversely, as LTV ratios decline (reflecting a stronger collateral position for the Company) or borrower FICO scores exceed 680 (reflecting stronger financial standing and/or credit history of the customer), the
loans are considered to have a decreased level of inherent loss. A loan with a combination of these characteristics would generally be classified as Low risk. This analysis also considers (i) the extent of underwriting that occurred
at the time of origination (direct income verification provides further support for credit decisions) and (ii) the propertys intended use (owner-occupied properties are less likely to default compared to investment-type
non-owner occupied properties, second homes, etc.). Loans not otherwise deemed to be High or Low risk are classified as Moderate risk.
LTV ratios and FICO scores are determined at origination and updated periodically throughout the life of the loan. LTV ratios are updated for
loans 90 days past due and FICO scores are updated for the entire portfolio quarterly. The portfolio stratification (High, Moderate and Low risk) and identification of the corresponding credit quality indicators
also occurs quarterly.
Commercial and Retail loans are also evaluated to determine whether they are impaired loans, which are included in
the tabular disclosures of credit quality indicators that follow.
Acquired Loans Credit Quality Indicators
Upon acquiring a loan portfolio, the Companys internal Loan Review function undertakes the process of assigning risk ratings to all
commercial loans in accordance with the Companys established policy, which may differ in certain respects from the risk rating policy of the predecessor company. The length of time necessary to complete this process varies based on the size of
the acquired portfolio, the quality of the documentation maintained in the underlying loan files and the extent to which the predecessor company followed a risk rating approach comparable to Peoples Uniteds. As a result, while acquired
loans are risk rated, there are occasions when such ratings may be deemed preliminary until the Companys re-rating process has been completed.
Acquired loans are initially recorded at fair value, determined based upon an estimate of the amount and timing of both principal and interest
cash flows expected to be collected and discounted using a market interest rate. The difference between contractually required principal and interest payments at the acquisition date and the undiscounted cash flows expected to be collected at the
acquisition date is referred to as the nonaccretable difference, which includes an estimate of future credit losses expected to be incurred over the life of the portfolio. A decrease in the expected cash flows in subsequent periods
requires the establishment of an allowance for loan losses at that time. At March 31, 2015 and December 31, 2014, the allowance for loan losses on acquired loans was $9.8 million and $10.2 million, respectively.
19
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following is a summary, by class of loan, of credit quality indicators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 (in millions) |
|
Commercial Real Estate |
|
|
Commercial and Industrial |
|
|
Equipment Financing |
|
|
Total |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
8,864.9 |
|
|
$ |
6,672.7 |
|
|
$ |
2,423.3 |
|
|
$ |
17,960.9 |
|
Special mention |
|
|
86.0 |
|
|
|
142.1 |
|
|
|
101.8 |
|
|
|
329.9 |
|
Substandard |
|
|
126.9 |
|
|
|
314.7 |
|
|
|
272.7 |
|
|
|
714.3 |
|
Doubtful |
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans |
|
|
9,077.8 |
|
|
|
7,131.3 |
|
|
|
2,797.8 |
|
|
|
19,006.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
288.1 |
|
|
|
178.2 |
|
|
|
6.7 |
|
|
|
473.0 |
|
Special mention |
|
|
25.4 |
|
|
|
20.5 |
|
|
|
0.6 |
|
|
|
46.5 |
|
Substandard |
|
|
72.7 |
|
|
|
59.9 |
|
|
|
16.2 |
|
|
|
148.8 |
|
Doubtful |
|
|
6.4 |
|
|
|
15.6 |
|
|
|
|
|
|
|
22.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired loans |
|
|
392.6 |
|
|
|
274.2 |
|
|
|
23.5 |
|
|
|
690.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,470.4 |
|
|
$ |
7,405.5 |
|
|
$ |
2,821.3 |
|
|
$ |
19,697.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 (in millions) |
|
Residential Mortgage |
|
|
Home Equity |
|
|
Other Consumer |
|
|
Total |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low risk |
|
$ |
2,379.1 |
|
|
$ |
927.2 |
|
|
$ |
27.0 |
|
|
$ |
3,333.3 |
|
Moderate risk |
|
|
1,943.5 |
|
|
|
612.4 |
|
|
|
7.1 |
|
|
|
2,563.0 |
|
High risk |
|
|
508.1 |
|
|
|
543.1 |
|
|
|
16.9 |
|
|
|
1,068.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans |
|
|
4,830.7 |
|
|
|
2,082.7 |
|
|
|
51.0 |
|
|
|
6,964.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low risk |
|
|
107.2 |
|
|
|
|
|
|
|
|
|
|
|
107.2 |
|
Moderate risk |
|
|
47.7 |
|
|
|
|
|
|
|
|
|
|
|
47.7 |
|
High risk |
|
|
65.0 |
|
|
|
46.7 |
|
|
|
1.1 |
|
|
|
112.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired loans |
|
|
219.9 |
|
|
|
46.7 |
|
|
|
1.1 |
|
|
|
267.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,050.6 |
|
|
$ |
2,129.4 |
|
|
$ |
52.1 |
|
|
$ |
7,232.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014 (in millions) |
|
Commercial Real Estate |
|
|
Commercial and Industrial |
|
|
Equipment Financing |
|
|
Total |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
$ |
8,730.9 |
|
|
$ |
6,477.4 |
|
|
$ |
2,481.2 |
|
|
$ |
17,689.5 |
|
Special mention |
|
|
82.4 |
|
|
|
114.2 |
|
|
|
110.6 |
|
|
|
307.2 |
|
Substandard |
|
|
135.3 |
|
|
|
297.3 |
|
|
|
247.2 |
|
|
|
679.8 |
|
Doubtful |
|
|
11.7 |
|
|
|
2.2 |
|
|
|
|
|
|
|
13.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans |
|
|
8,960.3 |
|
|
|
6,891.1 |
|
|
|
2,839.0 |
|
|
|
18,690.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
302.5 |
|
|
|
174.5 |
|
|
|
7.6 |
|
|
|
484.6 |
|
Special mention |
|
|
20.9 |
|
|
|
52.8 |
|
|
|
0.7 |
|
|
|
74.4 |
|
Substandard |
|
|
113.5 |
|
|
|
55.0 |
|
|
|
18.2 |
|
|
|
186.7 |
|
Doubtful |
|
|
7.1 |
|
|
|
16.2 |
|
|
|
|
|
|
|
23.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired loans |
|
|
444.0 |
|
|
|
298.5 |
|
|
|
26.5 |
|
|
|
769.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,404.3 |
|
|
$ |
7,189.6 |
|
|
$ |
2,865.5 |
|
|
$ |
19,459.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014 (in millions) |
|
Residential Mortgage |
|
|
Home Equity |
|
|
Other Consumer |
|
|
Total |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low risk |
|
$ |
2,280.6 |
|
|
$ |
931.5 |
|
|
$ |
29.5 |
|
|
$ |
3,241.6 |
|
Moderate risk |
|
|
1,921.6 |
|
|
|
597.1 |
|
|
|
8.3 |
|
|
|
2,527.0 |
|
High risk |
|
|
499.3 |
|
|
|
564.3 |
|
|
|
18.5 |
|
|
|
1,082.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans |
|
|
4,701.5 |
|
|
|
2,092.9 |
|
|
|
56.3 |
|
|
|
6,850.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low risk |
|
|
107.0 |
|
|
|
|
|
|
|
|
|
|
|
107.0 |
|
Moderate risk |
|
|
50.5 |
|
|
|
|
|
|
|
|
|
|
|
50.5 |
|
High risk |
|
|
73.0 |
|
|
|
50.2 |
|
|
|
1.2 |
|
|
|
124.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired loans |
|
|
230.5 |
|
|
|
50.2 |
|
|
|
1.2 |
|
|
|
281.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,932.0 |
|
|
$ |
2,143.1 |
|
|
$ |
57.5 |
|
|
$ |
7,132.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Loans
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.
21
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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.
Subsequent to acquisition, actual cash collections are monitored relative to managements
expectations and revised cash flow forecasts are prepared, as warranted. These revised forecasts involve updates, as necessary, of the key assumptions and estimates used in the initial estimate of fair value. Generally speaking, expected cash flows
are affected by:
|
|
|
Changes in the expected principal and interest payments over the estimated life Updates to changes in expected cash flows are driven by the credit outlook and actions taken with borrowers. Changes in
expected future cash flows resulting from loan modifications are included in the assessment of expected cash flows; |
|
|
|
Changes in prepayment assumptions Prepayments affect the estimated life of the loans which may change the amount of interest income, and possibly principal, expected to be collected; and |
|
|
|
Changes in interest rate indices for variable rate loans Expected future cash flows are based, as applicable, on the variable rates in effect at the time of the assessment of expected cash flows.
|
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, and results in a recalculation of the amount of accretable yield for the loan pool. The adjustment of accretable yield due to an increase in expected cash flows is accounted for as a change
in estimate. The additional cash flows expected to be collected are reclassified from the nonaccretable difference to the accretable yield, and the amount of periodic accretion is adjusted accordingly over the remaining life of the loans in the
pool.
An acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to
a third party or foreclosure of the collateral. In the event of a sale of the loan, a gain or loss on sale is recognized and reported within non-interest income based on the difference between the sales proceeds and the carrying amount of the loan.
In other cases, individual loans are removed from the pool based on comparing the amount received from its resolution (fair value of the underlying collateral less costs to sell in the case of a foreclosure) with its outstanding balance. Any
difference between these amounts is absorbed by the nonaccretable difference established for the entire pool. For loans resolved by payment in full, there is no adjustment of the nonaccretable difference since there is no difference between the
amount received at resolution and the outstanding balance of the loan. In these cases, the remaining accretable yield balance is unaffected and any material change in remaining effective yield caused by the removal of the loan from the pool is
addressed in connection with the subsequent cash flow re-assessment for the pool. Acquired loans subject to modification are not removed from the pool even if those loans would otherwise be deemed TDRs as the pool, and not the individual loan,
represents the unit of account.
At the respective acquisition dates in 2011 and 2010, on an aggregate basis, the acquired loan portfolio
had contractually required principal and interest payments receivable of $7.57 billion; expected cash flows of $7.02 billion; and a fair value (initial carrying amount) of $5.36 billion. The difference between the contractually required principal
and interest payments receivable and the expected cash flows ($550.9 million) represented the initial nonaccretable difference. The difference between the expected cash flows and fair value ($1.66 billion) represented the initial accretable yield.
Both the contractually required principal and interest payments receivable and the expected cash flows reflect anticipated prepayments, determined based on historical portfolio experience. At March 31, 2015, the outstanding principal balance
and carrying amount of the acquired loan portfolio were $1.09 billion and $958.0 million, respectively ($1.18 billion and $1.05 billion, respectively, at December 31, 2014). At March 31, 2015, the aggregate remaining nonaccretable
difference applicable to acquired loans totaled $89.1 million.
22
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following table summarizes activity in the accretable yield for the acquired loan
portfolio:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Balance at beginning of period |
|
$ |
396.3 |
|
|
$ |
639.7 |
|
Accretion |
|
|
(15.3 |
) |
|
|
(23.3 |
) |
Reclassification from nonaccretable difference for loans with improved cash flows (1) |
|
|
0.3 |
|
|
|
5.8 |
|
Other changes in expected cash flows (2) |
|
|
(19.7 |
) |
|
|
(97.8 |
) |
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
361.6 |
|
|
$ |
524.4 |
|
|
|
|
|
|
|
|
|
|
(1) |
Results in increased interest accretion as a prospective yield adjustment over the remaining life of the corresponding pool of loans. |
(2) |
Represents changes in cash flows expected to be collected due to factors other than credit (e.g. changes in prepayment assumptions and/or changes in interest rates on variable rate loans), as well as loan sales,
modifications and payoffs. |
Other Real Estate Owned and Repossessed Assets (included in Other Assets)
Other real estate owned (REO) was comprised of residential and commercial properties totaling $16.5 million and $10.2 million,
respectively, at March 31, 2015, and $13.6 million and $11.0 million, respectively, at December 31, 2014. Repossessed assets totaled $4.3 million and $2.5 million at March 31, 2015 and December 31, 2014, respectively.
NOTE 4. STOCKHOLDERS EQUITY
Treasury Stock
Treasury stock includes (i) common stock repurchased by Peoples United, either directly or through agents, in the open
market at prices and terms satisfactory to management in connection with stock repurchases authorized by its Board of Directors and (ii) common stock purchased in the open market by a trustee with funds provided by Peoples United and
originally intended for awards under the Peoples United Financial, Inc. 2007 Recognition and Retention Plan (the RRP). Following shareholder approval of the Peoples United Financial, Inc. 2014 Long-Term Incentive Plan in the
second quarter of 2014, no new awards may be granted under the RRP.
Comprehensive Income
Comprehensive income represents the sum of net income and items of other comprehensive income or loss, including (on an after-tax
basis): (i) net actuarial gains and losses, prior service credits and costs, and transition assets and obligations related to Peoples Uniteds pension and other postretirement benefit plans; (ii) net unrealized gains and losses
on securities available for sale; (iii) net unrealized gains and losses on securities transferred to held to maturity; and (iv) net unrealized gains and losses on derivatives accounted for as cash flow hedges. Peoples Uniteds
total comprehensive income for the three months ended March 31, 2015 and 2014 is reported in the Consolidated Statements of Comprehensive Income.
23
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following is a summary of the changes in the components of accumulated other
comprehensive loss (AOCL), which are included in Peoples Uniteds stockholders equity on an after-tax basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Pension and Other Postretirement Benefits |
|
|
Net Unrealized Gains (Losses) on Securities Available for Sale |
|
|
Net Unrealized Gains (Losses) on Securities Transferred to Held to Maturity |
|
|
Net Unrealized Gains (Losses) on Derivatives Accounted for as Cash Flow Hedges |
|
|
Total Accumulated Other Comprehensive Loss |
|
Balance at December 31, 2014 |
|
$ |
(142.9 |
) |
|
$ |
(3.7 |
) |
|
$ |
(21.5 |
) |
|
$ |
(0.1 |
) |
|
$ |
(168.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
|
26.2 |
|
|
|
|
|
|
|
(0.4 |
) |
|
|
25.8 |
|
Amounts reclassified from AOCL (1) |
|
|
1.1 |
|
|
|
|
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period other comprehensive income (loss) |
|
|
1.1 |
|
|
|
26.2 |
|
|
|
0.5 |
|
|
|
(0.2 |
) |
|
|
27.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2015 |
|
$ |
(141.8 |
) |
|
$ |
22.5 |
|
|
$ |
(21.0 |
) |
|
$ |
(0.3 |
) |
|
$ |
(140.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Pension and Other Postretirement Benefits |
|
|
Net Unrealized Gains (Losses) on Securities Available for Sale |
|
|
Net Unrealized Gains (Losses) on Securities Transferred to Held to Maturity |
|
|
Net Unrealized Gains (Losses) on Derivatives Accounted for as Cash Flow Hedges |
|
|
Total Accumulated Other Comprehensive Loss |
|
Balance at December 31, 2013 |
|
$ |
(85.0 |
) |
|
$ |
(46.5 |
) |
|
$ |
(23.3 |
) |
|
$ |
(0.3 |
) |
|
$ |
(155.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
|
16.6 |
|
|
|
|
|
|
|
(0.1 |
) |
|
|
16.5 |
|
Amounts reclassified from AOCL (1) |
|
|
0.6 |
|
|
|
(0.1 |
) |
|
|
0.4 |
|
|
|
0.2 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period other comprehensive income (loss) |
|
|
0.6 |
|
|
|
16.5 |
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2014 |
|
$ |
(84.4) |
|
|
$ |
(30.0 |
) |
|
$ |
(22.9 |
) |
|
$ |
(0.2 |
) |
|
$ |
(137.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
See the following table for details about these reclassifications. |
24
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following is a summary of the amounts reclassified from AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified from AOCL |
|
|
Affected Line Item |
|
|
Three Months Ended March 31, |
|
|
in the Statement Where |
(in millions) |
|
2015 |
|
|
2014 |
|
|
Net Income is Presented |
Details about components of AOCL: |
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other postretirement benefits items: |
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
$ |
(2.0 |
) |
|
$ |
(1.3 |
) |
|
(1) |
Prior service credit |
|
|
0.3 |
|
|
|
0.3 |
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.7 |
) |
|
|
(1.0 |
) |
|
Income before income tax expense |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1 |
) |
|
|
(0.6 |
) |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net realized gains on securities available for sale |
|
|
|
|
|
|
0.1 |
|
|
Income before income tax expense (2) |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized losses on securities transferred to held to maturity |
|
|
(0.8 |
) |
|
|
(0.7 |
) |
|
Income before income tax expense (3) |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
(0.4 |
) |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized gains and losses on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
(5) |
Interest rate locks (4) |
|
|
|
|
|
|
|
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
Income before income tax expense |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period |
|
$ |
(1.8 |
) |
|
$ |
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included in the computation of net periodic pension cost reflected in compensation and benefits expense (see Note 7 for additional details). |
(2) |
Included in other non-interest income. |
(3) |
Included in interest and dividend income - securities. |
(4) |
Amount reclassified from AOCL totaled less than $0.1 million at both dates. |
(5) |
Included in interest expense - notes and debentures. |
25
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
NOTE 5. EARNINGS PER COMMON SHARE
The following is
an analysis of Peoples Uniteds basic and diluted earnings per share (EPS), reflecting the application of the two-class method, as described below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in millions, except per share data) |
|
2015 |
|
|
2014 |
|
Net income |
|
$ |
59.2 |
|
|
$ |
53.1 |
|
Dividends and undistributed earnings allocated to participating securities |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
Income attributable to common shareholders |
|
$ |
58.9 |
|
|
$ |
52.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding for basic EPS |
|
|
299.1 |
|
|
|
297.7 |
|
Effect of dilutive equity-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common and common-equivalent shares for diluted EPS |
|
|
299.1 |
|
|
|
297.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
0.20 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
0.20 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
Unvested share-based payment awards, which include the right to receive non-forfeitable dividends or dividend
equivalents, are considered to participate with common stock in undistributed earnings for purposes of computing EPS. Companies that have such participating securities, including Peoples United, are required to calculate basic and diluted EPS
using the two-class method. Restricted stock awards granted by Peoples United are considered participating securities. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on
participating securities and any undistributed earnings considered to be attributable to participating securities and (ii) exclude from the denominator the dilutive impact of the participating securities.
All unallocated Employee Stock Ownership Plan (ESOP) common shares and all common shares accounted for as treasury shares have
been excluded from the calculation of basic and diluted EPS. Anti-dilutive equity-based awards totaling 21.6 million shares and 18.0 million shares for the three months ended March 31, 2015 and 2014 have been excluded from the
calculation of diluted EPS.
NOTE 6. GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLE ASSETS
Peoples
Uniteds goodwill totaled $1.95 billion at both March 31, 2015 and December 31, 2014. At both dates, goodwill was allocated to Peoples Uniteds operating segments as follows: Commercial Banking ($1.22 billion); Retail
Banking ($681.9 million); and Wealth Management ($49.8 million).
Acquisitions have been undertaken with the objective of expanding the
Companys business, both geographically and through product offerings, as well as realizing synergies and economies of scale by combining with the acquired entities. For these reasons, a market-based premium was generally paid for the acquired
entities which, in turn, resulted in the recognition of goodwill, representing the excess of the respective purchase prices over the estimated fair value of the net assets acquired.
All of Peoples Uniteds tax deductible goodwill was created in transactions in which the Company purchased the assets of the target
(as opposed to purchasing the issued and outstanding stock of the target). At March 31, 2015 and December 31, 2014, tax deductible goodwill totaled $12.8 million and $13.0 million, respectively, and related, almost entirely, to the Butler
Bank acquisition completed in 2010.
26
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Peoples Uniteds other acquisition-related intangible assets totaled $142.1
million and $148.0 million at March 31, 2015 and December 31, 2014, respectively. At March 31, 2015, the carrying amounts of other acquisition-related intangible assets were as follows: trade name intangible ($85.8 million); core
deposit intangible ($33.3 million); trust relationship intangible ($22.1 million); and insurance relationship intangible ($0.9 million).
Amortization expense of other acquisition-related intangible assets totaled $5.9 million and $6.2 million for the three months ended
March 31, 2015 and 2014, respectively. Scheduled amortization expense attributable to other acquisition-related intangible assets for the full-year of 2015 and each of the next five years is as follows: $23.8 million in 2015; $22.7 million in
2016; $21.6 million in 2017; $10.2 million in 2018; $9.4 million in 2019; and $9.0 million in 2020. There were no impairment losses relating to goodwill or other acquisition-related intangible assets recorded during the three months ended
March 31, 2015 and 2014.
NOTE 7. EMPLOYEE BENEFIT PLANS
Peoples United
Employee Pension and Other Postretirement Benefit Plans
Peoples United maintains a qualified noncontributory defined benefit
pension plan (the Qualified Plan) that covers substantially all full-time and part-time employees who (i) meet certain age and length of service requirements and (ii) were employed by the Bank prior to August 14, 2006.
Benefits are based upon the employees years of credited service and either the average compensation for the last five years or the average compensation for the five consecutive years of the last ten years that produce the highest average.
New employees of the Bank starting on or after August 14, 2006 are not eligible to participate in the Qualified Plan. Instead, the Bank
makes contributions on behalf of these employees to a qualified defined contribution plan in an annual amount equal to 3% of the employees eligible compensation. Employee participation in this plan is restricted to employees who (i) are
at least 18 years of age and (ii) worked at least 1,000 hours in a year. Both full-time and part-time employees are eligible to participate as long as they meet these requirements.
In July 2011, the Bank amended the Qualified Plan to freeze, effective December 31, 2011, the accrual of pension benefits for
Qualified Plan participants. As such, participants will not earn any additional benefits after that date. Instead, effective January 1, 2012, the Bank began making contributions on behalf of these participants to a qualified defined
contribution plan in an annual amount equal to 3% of the employees eligible compensation.
Peoples Uniteds funding
policy is to contribute the amounts required by applicable regulations, although additional amounts may be contributed from time to time. In the first quarter of 2015, the Company made a voluntary employer contribution of $40.0 million to the
Qualified Plan as a consequence of lower discount rates and the adoption of updated mortality tables.
Peoples United also maintains
(i) unfunded, nonqualified supplemental plans to provide retirement benefits to certain senior officers and (ii) an unfunded plan that provides retirees with optional medical, dental and life insurance benefits (the other
postretirement benefits plan). Peoples United accrues the cost of these postretirement benefits over the employees years of service to the date of their eligibility for such benefit.
27
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Components of the net periodic benefit (income) expense and other amounts recognized in other
comprehensive income for the plans described above are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
Three Months Ended March 31 (in millions) |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Net periodic benefit (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.1 |
|
|
$ |
|
|
Interest cost |
|
|
4.8 |
|
|
|
4.8 |
|
|
|
0.1 |
|
|
|
0.2 |
|
Expected return on plan assets |
|
|
(7.2 |
) |
|
|
(7.1 |
) |
|
|
|
|
|
|
|
|
Recognized net actuarial loss |
|
|
1.5 |
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
|
|
Recognized prior service credit |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Settlements |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) expense |
|
|
(0.8 |
) |
|
|
(1.2 |
) |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
|
|
(1.5 |
) |
|
|
(1.0 |
) |
|
|
(0.1 |
) |
|
|
|
|
Prior service credit |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax changes recognized in other comprehensive income |
|
|
(1.5 |
) |
|
|
(1.0 |
) |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit (income) expense and other comprehensive income |
|
$ |
(2.3 |
) |
|
$ |
(2.2 |
) |
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chittenden Pension Plan
In addition to the benefit plans described above, Peoples United continues to maintain a qualified defined benefit pension plan that
covers former Chittenden Corporation employees who meet certain eligibility requirements (the Chittenden Plan). Effective December 31, 2005, accrued benefits were frozen based on participants then-current service and pay
levels. During April 2010, participants who were in payment status as of April 1, 2010, or whose accrued benefit as of that date was scheduled to be paid in the form of an annuity commencing May 1, 2010, based upon elections made by
April 15, 2010, were transferred into the Qualified Plan. Net periodic benefit income for the Chittenden Plan totaled $0.1 million for both the three months ended March 31, 2015 and 2014. In the first quarter of 2015, the Company made a
voluntary employer contribution of $10.0 million to the Chittenden Plan as a consequence of lower discount rates and the adoption of updated mortality tables.
Employee Stock Ownership Plan
In
April 2007, Peoples United established an ESOP. At that time, Peoples United loaned the ESOP $216.8 million to purchase 10,453,575 shares of Peoples United common stock in the open market. In order for the ESOP to repay the loan,
Peoples United expects to make annual cash contributions of approximately $18.8 million until 2036. Such cash contributions may be reduced by the cash dividends paid on unallocated ESOP shares, which totaled $1.3 million for the three months
ended March 31, 2015. At March 31, 2015, the loan balance totaled $192.1 million.
Employee participation in this plan is
restricted to those employees who (i) are at least 18 years of age and (ii) worked at least 1,000 hours within 12 months of their hire date or any plan year (January 1 to December 31) after their date of hire. Employees meeting the
aforementioned eligibility criteria during the plan year must continue to be employed as of the last day of the plan year in order to receive an allocation of shares for that plan year.
Shares of Peoples United common stock are held by the ESOP and allocated to eligible participants annually based upon a percentage of
each participants eligible compensation. Since the ESOP was established, a total of 2,874,734 shares of Peoples United common stock have been allocated or committed to be released to participants accounts. At March 31, 2015,
7,578,841 shares of Peoples United common stock, with a fair value of $115.2 million at that date, have not been allocated or committed to be released.
28
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Compensation expense related to the ESOP is recognized at an amount equal to the number of
common shares committed to be released by the ESOP for allocation to participants accounts multiplied by the average fair value of Peoples Uniteds common stock during the reporting period. The difference between the fair value of
the shares of Peoples Uniteds common stock committed to be released and the cost of those common shares is recorded as a credit to additional paid-in capital (if fair value exceeds cost) or, to the extent that no such credits remain in
additional paid-in capital, as a charge to retained earnings (if fair value is less than cost). Expense recognized for the ESOP totaled $1.3 million for both the three months ended March 31, 2015 and 2014.
NOTE 8. LEGAL PROCEEDINGS
In the normal
course of business, Peoples United is subject to various legal proceedings. Management has discussed with legal counsel the nature of the pending actions described below, as well as other legal proceedings. Based on the information currently
available, advice of counsel, available insurance coverage and the recorded liability for probable legal settlements and costs, Peoples United believes that the eventual outcome of these matters will not (individually or in the aggregate) have
a material adverse effect on its financial condition, results of operations or liquidity.
Litigation Relating to the Smithtown Transaction
On February 25, 2010 and March 29, 2010, Smithtown and several of its officers and directors were named in lawsuits
commenced in United States District Court, Eastern District of New York (Waterford Township Police & Fire Retirement v. Smithtown Bancorp, Inc., et al. and Yourgal v. Smithtown Bancorp, Inc. et al., respectively) on behalf of
a putative class of all persons and entities who purchased Smithtowns common stock between March 13, 2008 and February 1, 2010, alleging claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934.
The plaintiffs allege, among other things, that Smithtowns loan loss reserve, fair value of its assets, recognition of impaired assets and its internal and disclosure controls were materially false, misleading or incomplete. As a result of the
merger of Smithtown with and into Peoples United on November 30, 2010, Peoples United has become the successor party to Smithtown in this matter.
Following extensive preliminary filings with the Court by both parties, an agreement in principle to settle this matter was reached on
October 23, 2014, subject to completion of appropriate documentation and Court approval. On January 12, 2015, the plaintiffs filed a Motion for Preliminary Approval of the settlement with the Court. On April 17, 2015, the U.S.
Magistrate Judge recommended that the Court overseeing the case preliminarily approve of the settlement. The scheduling of a final hearing on the settlement is subject to further approval by the Court. The amount of the agreed-upon settlement has
been adequately reserved.
Other
The Bank has been named as a defendant in a lawsuit (Marta Farb, on behalf of herself and all others similarly situated v. Peoples
United Bank) arising from its assessment and collection of overdraft fees on its checking account customers. The Complaint was filed in the Superior Court of Connecticut, Judicial District of Waterbury, on April 22, 2011 and alleges that
the Bank engaged in certain unfair practices in the posting of electronic debit card transactions from highest to lowest dollar amount. The Complaint also alleges that such practices were inadequately disclosed to customers and were unfairly used by
the Bank for the purpose of generating revenue by maximizing the number of overdrafts a customer is assessed. The Complaint seeks certification of a class of checking account holders residing in Connecticut and who have incurred at least one
overdraft fee, injunctive relief, compensatory, punitive and treble damages, disgorgement and restitution of overdraft fees paid, and attorneys fees.
29
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
On June 16, 2011, the Bank filed a Motion to Dismiss the Complaint, and on
December 7, 2011, that motion was denied by the Court. On April 11, 2012, the plaintiff filed an Amended Complaint, and on May 15, 2012, the Bank filed a Motion to Strike the Amended Complaint. On April 10, 2013, the Bank renewed
its Motion to Dismiss the Complaint. On June 6, 2013, the Court denied the Banks Motion to Strike and its renewed Motion to Dismiss. On September 23, 2013, the Bank filed its Revised Answer, Special Defenses and Counterclaim to
Plaintiffs Amended Class Action Complaint. A Court hearing on plaintiffs Motion to Strike certain of the Banks Defenses and a Counterclaim was held on January 30, 2014. The Court postponed consideration of that Motion and, on
April 28, 2014, held a hearing to consider whether it has jurisdiction to hear the case. On July 28, 2014, the Court dismissed the case in its entirety for lack of subject matter jurisdiction because all of the claims are preempted by
federal law. On August 15, 2014, the plaintiff filed a Notice of Appeal. On April 30, 2015, the parties executed a settlement agreement that resolves all claims, counterclaims and appeals in the case, thus concluding this matter. The amount of
the agreed-upon settlement has been adequately reserved.
NOTE 9. SEGMENT INFORMATION
See
Segment Results included in Item 2 for segment information for the three months ended March 31, 2015 and 2014.
NOTE 10. FAIR VALUE MEASUREMENTS
Accounting
standards related to fair value measurements define fair value, provide a framework for measuring fair value and establish related disclosure requirements. Broadly, fair value is defined as the exchange price that would be received for an asset or
paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accordingly, an exit price approach is required in
determining fair value. In support of this principle, a fair value hierarchy has been established that prioritizes the inputs used to measure fair value, requiring entities to maximize the use of market or observable inputs (as more reliable
measures) and minimize the use of unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs generally require significant management judgment.
The three levels within the fair value hierarchy are as follows:
|
|
|
Level 1 Unadjusted quoted market prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date (such as active exchange-traded equity securities or
mutual funds and certain U.S. and government agency debt securities). |
|
|
|
Level 2 Observable inputs other than quoted prices included in Level 1, such as: |
|
|
|
quoted prices for similar assets or liabilities in active markets (such as U.S. agency and GSE issued mortgage-backed securities and CMOs); |
|
|
|
quoted prices for identical or similar assets or liabilities in less active markets (such as certain U.S. and government agency debt securities, and corporate and municipal debt securities that trade infrequently); and
|
|
|
|
other inputs that (i) are observable for substantially the full term of the asset or liability (e.g. interest rates, yield curves, prepayment speeds, default rates, etc.) or (ii) can be corroborated by
observable market data (such as interest rate and currency derivatives and certain other securities). |
|
|
|
Level 3 Valuation techniques that require unobservable inputs that are supported by little or no market activity and are significant to the fair value measurement of the asset or liability (such as pricing
models, discounted cash flow methodologies and similar techniques that typically reflect managements own estimates of the assumptions a market participant would use in pricing the asset or liability). |
30
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Peoples United maintains policies and procedures to value assets and liabilities using
the most relevant data available. Described below are the valuation methodologies used by Peoples United and the resulting fair values for those financial instruments measured at fair value on both a recurring and a non-recurring basis, as
well as for those financial assets and financial liabilities not measured at fair value but for which fair value is disclosed.
Recurring Fair Value
Measurements
Trading Account Securities and Securities Available For Sale
When available, Peoples United uses quoted market prices for identical securities received from an independent, nationally-recognized, third-party pricing service (as discussed further below) to determine the fair value of investment securities such as U.S. Treasury and agency securities that are included in Level 1.
When quoted market prices for identical securities are unavailable, Peoples United uses prices provided by the independent pricing service based on recent trading activity and other observable information including, but not limited to, market
interest rate curves, referenced credit spreads and estimated prepayment rates where applicable. These investments include certain U.S. and government agency debt securities, corporate and municipal debt securities, and GSE residential
mortgage-backed securities and CMOs, all of which are included in Level 2.
Substantially all of the Companys available-for-sale
securities represent GSE residential mortgage-backed securities and CMOs. The fair values of these securities are based on prices obtained from the independent pricing service. The pricing service uses various techniques to determine pricing for the
Companys mortgage-backed securities, including option pricing and discounted cash flow analysis. The inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, reference data,
monthly payment information and collateral performance. At both March 31, 2015 and December 31, 2014, the entire available-for-sale residential mortgage-backed securities portfolio was comprised of 10- and 15-year GSE securities. An active
market exists for securities that are similar to the Companys GSE residential mortgage-backed securities and CMOs, making observable inputs readily available.
Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market
conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15-year securities. As a further point of validation, the Company generates its own month-end fair value estimate for all mortgage-backed securities, agency-issued CMOs (also backed by 15-year mortgage-backed securities), and state and municipal securities. While the Company has not adjusted the prices obtained from the independent
pricing service, any notable differences between those prices and the Companys estimates are subject to further analysis. This additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review
of average life changes using Bloomberg analytics and a review of historical pricing for the particular security. Based on managements review of the prices provided by the pricing service, the fair values incorporate observable market inputs
used by market participants at the measurement date and, as such, are classified as Level 2 securities.
Other Assets
As discussed in Note 7, certain unfunded, nonqualified supplemental benefit plans have been established to provide retirement benefits to
certain senior officers. Peoples United has funded two trusts to provide benefit payments to the extent such benefits are not paid directly by Peoples United, the assets of which are included in other assets in the Consolidated
Statements of Condition. When available, Peoples United determines the fair value of the trust assets using quoted market prices for identical securities received from a third-party nationally recognized pricing service.
Derivatives
Peoples United values
its derivatives using internal models that are based on market or observable inputs including interest rate curves and forward/spot prices for selected currencies. Derivative assets and liabilities included in Level 2 represent interest rate swaps,
foreign exchange contracts, risk participation agreements, forward commitments to sell residential mortgage loans and interest rate-lock commitments on residential mortgage loans.
31
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following tables summarize Peoples Uniteds financial instruments that are
measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
As of March 31, 2015 (in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
8.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8.3 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency |
|
|
301.1 |
|
|
|
|
|
|
|
|
|
|
|
301.1 |
|
GSE residential mortgage-backed securities and CMOs |
|
|
|
|
|
|
4,055.5 |
|
|
|
|
|
|
|
4,055.5 |
|
Equity securities |
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded funds |
|
|
30.7 |
|
|
|
|
|
|
|
|
|
|
|
30.7 |
|
Fixed income securities |
|
|
|
|
|
|
5.8 |
|
|
|
|
|
|
|
5.8 |
|
Mutual funds |
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
1.4 |
|
Interest rate swaps |
|
|
|
|
|
|
176.1 |
|
|
|
|
|
|
|
176.1 |
|
Foreign exchange contracts |
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
Forward commitments to sell residential mortgage loans |
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
341.5 |
|
|
$ |
4,239.5 |
|
|
$ |
|
|
|
$ |
4,581.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
128.5 |
|
|
$ |
|
|
|
$ |
128.5 |
|
Foreign exchange contracts |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
Interest rate-lock commitments on residential mortgage loans |
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
130.3 |
|
|
$ |
|
|
|
$ |
130.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
As of December 31, 2014 (in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
8.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8.3 |
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency |
|
|
56.8 |
|
|
|
|
|
|
|
|
|
|
|
56.8 |
|
GSE residential mortgage-backed securities and CMOs |
|
|
|
|
|
|
3,936.7 |
|
|
|
|
|
|
|
3,936.7 |
|
Equity securities |
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded funds |
|
|
30.3 |
|
|
|
|
|
|
|
|
|
|
|
30.3 |
|
Fixed income securities |
|
|
|
|
|
|
6.0 |
|
|
|
|
|
|
|
6.0 |
|
Mutual funds |
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
Interest rate swaps |
|
|
|
|
|
|
131.1 |
|
|
|
|
|
|
|
131.1 |
|
Foreign exchange contracts |
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
0.8 |
|
Forward commitments to sell residential mortgage loans |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
96.2 |
|
|
$ |
4,075.3 |
|
|
$ |
|
|
|
$ |
4,171.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
95.8 |
|
|
$ |
|
|
|
$ |
95.8 |
|
Foreign exchange contracts |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
Interest rate-lock commitments on residential mortgage loans |
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
97.0 |
|
|
$ |
|
|
|
$ |
97.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 and December 31, 2014, the fair value of risk participation agreements totaled
less than $0.1 million (see Note 11).
There were no transfers into or out of the Level 1 or Level 2 categories during the three months
ended March 31, 2015 and 2014.
Non-Recurring Fair Value Measurements
Loans Held for Sale
Residential mortgage
loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. When available, Peoples United uses observable secondary market data, including pricing on recent closed
market transactions for loans with similar characteristics. Accordingly, such loans are classified as Level 2 measurements. When observable data is unavailable, valuation methodologies using current market interest rate data adjusted for inherent
credit risk are used, and such loans are included in Level 3.
Impaired Loans
Loan impairment is deemed to exist when full repayment of principal and interest according to the contractual terms of the loan is no longer
probable. Impaired loans are reported based on one of three measures: the present value of expected future cash flows discounted at the loans original effective interest rate; the loans observable market price; or the fair value of the
collateral (less estimated cost to sell) if the loan is collateral dependent. Accordingly, certain impaired loans may be subject to measurement at fair value on a non-recurring basis. Peoples United has estimated the fair values of these
assets using Level 3 inputs, such as discounted cash flows based on inputs that are largely unobservable and, instead, reflect managements own estimates of the assumptions a market participant would use in pricing such loans and/or the fair
value of collateral based on independent third-party appraisals for collateral-dependent loans. Such appraisals are based on the market and/or income approach to value and are subject to a discount (to reflect estimated cost to sell) that generally
approximates 10%.
33
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
REO and Repossessed Assets
REO and repossessed assets are recorded at the lower of cost or fair value, less estimated selling costs, and are therefore measured at fair
value on a non-recurring basis. Peoples United has estimated the fair values of these assets using Level 3 inputs, such as independent third-party appraisals and price opinions. Such appraisals are based on the market and/or income approach to
value and are subject to a discount (to reflect estimated cost to sell) that generally approximates 10%. Assets that are acquired through loan default are recorded as held for sale initially at the lower of the recorded investment in the loan or
fair value (less estimated selling costs) upon the date of foreclosure/repossession. Subsequent to foreclosure/repossession, valuations are updated periodically and the carrying amounts of these assets may be reduced further.
The following tables summarize Peoples Uniteds assets that are measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
As of March 31, 2015 (in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Loans held for sale (1) |
|
$ |
|
|
|
$ |
49.7 |
|
|
$ |
|
|
|
$ |
49.7 |
|
Impaired loans (2) |
|
|
|
|
|
|
|
|
|
|
52.9 |
|
|
|
52.9 |
|
REO and repossessed assets (3) |
|
|
|
|
|
|
|
|
|
|
31.0 |
|
|
|
31.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
49.7 |
|
|
$ |
83.9 |
|
|
$ |
133.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
As of December 31, 2014 (in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Loans held for sale (1) |
|
$ |
|
|
|
$ |
34.2 |
|
|
$ |
|
|
|
$ |
34.2 |
|
Impaired loans (2) |
|
|
|
|
|
|
|
|
|
|
66.5 |
|
|
|
66.5 |
|
REO and repossessed assets (3) |
|
|
|
|
|
|
|
|
|
|
27.1 |
|
|
|
27.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
34.2 |
|
|
$ |
93.6 |
|
|
$ |
127.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Consists of residential mortgage loans; no fair value adjustments were recorded for the three months ended March 31, 2015 and 2014. |
(2) |
Represents the recorded investment in originated impaired loans with a related allowance for loan losses measured in accordance with applicable accounting guidance. The total consists of $34.4 million of Commercial
loans and $18.5 million of Retail loans at March 31, 2015. The provision for loan losses on impaired loans totaled $2.2 million and $4.0 million for the three months ended March 31, 2015 and 2014, respectively. |
(3) |
Represents: (i) $16.5 million of residential REO; (ii) $10.2 million of commercial REO; and (iii) $4.3 million of repossessed assets at March 31, 2015. Charge-offs to the allowance for loan losses
related to loans that were transferred to REO or repossessed assets totaled $0.6 million and $0.7 million for the three months ended March 31, 2015 and 2014, respectively. Write downs and net loss on sale of foreclosed/repossessed assets
charged to non-interest expense totaled $0.4 million for both periods. |
34
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Financial Assets and Financial Liabilities Not Measured At Fair Value
As discussed previously, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date (an exit price approach to fair value).
Acceptable valuation techniques (when quoted market prices are not available) that might be used to estimate the fair value of financial
instruments include discounted cash flow analyses and comparison to similar instruments. Such estimates are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows and the selection of
discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material impact on the fair value estimates. In addition, since these estimates are made as of a specific point in time, they are susceptible
to material near-term changes. Fair values estimated in this manner do not reflect any premium or discount that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or
estimated transaction costs.
The following is a description of the principal valuation methods used by Peoples United for those
financial instruments that are not measured at fair value either on a recurring or non-recurring basis:
Cash, Short-Term Investments and Securities
Purchased Under Agreements to Resell
Cash and due from banks are classified as Level 1. Short-term investments and securities
purchased under agreements to resell have fair values that approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities, and present relatively low credit risk and interest rate risk
(IRR). As such, these fair values are classified as Level 2.
Securities Held to Maturity
When available, the fair values of investment securities held to maturity are measured based on quoted market prices for identical securities
in active markets and, accordingly, are classified as Level 1 assets. When quoted market prices for identical securities are not available, fair values are estimated based on quoted prices for similar assets in active markets or through the use of
pricing models containing observable inputs (i.e. market interest rates, financial information and credit ratings of the issuer, etc.). These fair values are included in Level 2. In cases where there may be limited information available and/or
little or no market activity for the underlying security, fair value is estimated using pricing models containing unobservable inputs and classified as Level 3.
FHLB and FRB Stock
Both FHLB and FRB
stock are non-marketable equity securities classified as Level 2 and reported at cost, which equals par value (the amount at which shares have been redeemed in the past in the case of FHLB stock). No significant observable market data is available
for either of these securities.
Loans
For valuation purposes, the loan portfolio is segregated into its significant categories, which are commercial real estate, commercial and
industrial, equipment financing, residential mortgage, home equity and other consumer. These categories are further segregated, where appropriate, into components based on significant financial characteristics such as type of interest rate (fixed or
adjustable) and payment status (performing or non-performing). Fair values are estimated for each component using a valuation method selected by management.
35
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The fair values of performing loans were estimated by discounting the anticipated cash flows
from the respective portfolios, assuming future prepayments and using market interest rates for new loans with comparable credit risk. As a result, the valuation method for performing loans, which is consistent with certain guidance provided in
accounting standards, does not fully incorporate the exit price approach to fair value. The fair values of non-performing loans were based on recent collateral appraisals or managements analysis of estimated cash flows discounted
at rates commensurate with the credit risk involved. The estimated fair values of residential mortgage loans are classified as Level 2 as a result of the observable market inputs (i.e. market interest rates, prepayment assumptions, etc.) available
for this loan type. The fair values of all other loan types are classified as Level 3 as the inputs contained within the respective discounted cash flow models are largely unobservable and, instead, reflect managements own estimates of the
assumptions a market participant would use in pricing such loans. The fair value of home equity lines of credit was based on the outstanding loan balances, and therefore does not reflect the value associated with earnings from future loans to
existing customers.
Deposit Liabilities
The fair values of time deposits represent contractual cash flows discounted at current rates determined by reference to observable inputs
including a LIBOR/swap curve over the remaining period to maturity. As such, these fair values are classified as Level 2. The fair values of other deposit liabilities (those with no stated maturity, such as checking and savings accounts) are equal
to the carrying amounts payable on demand. Deposit fair values do not include the intangible value of core deposit relationships that comprise a significant portion of Peoples Uniteds deposit base. Management believes that Peoples
Uniteds core deposit relationships provide a relatively stable, low-cost funding source that has a substantial intangible value separate from the deposit balances.
Borrowings and Notes and Debentures
The
fair values of federal funds purchased and repurchase agreements are equal to the carrying amounts due to the short maturities (generally overnight). The fair values of FHLB advances and other borrowings represent contractual repayments discounted
using interest rates currently available on borrowings with similar characteristics and remaining maturities and are classified as Level 2. The fair values of notes and debentures were based on dealer quotes and are classified as Level 2.
Lending-Related Financial Instruments
The estimated fair values of Peoples Uniteds lending-related financial instruments approximate the respective carrying amounts.
Such instruments include commitments to extend credit, unadvanced lines of credit and letters of credit, for which fair values were estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions,
considering the remaining terms of the instruments and the creditworthiness of the potential borrowers.
36
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following tables summarize the carrying amounts, estimated fair values and placement in
the fair value hierarchy of Peoples Uniteds financial instruments that are not measured at fair value either on a recurring or non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value |
|
|
|
|
|
|
Carrying |
|
|
Measurements Using |
|
|
|
|
As of March 31, 2015 (in millions) |
|
Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
306.8 |
|
|
$ |
306.8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
306.8 |
|
Short-term investments |
|
|
250.0 |
|
|
|
|
|
|
|
250.0 |
|
|
|
|
|
|
|
250.0 |
|
Securities held to maturity |
|
|
897.4 |
|
|
|
|
|
|
|
942.4 |
|
|
|
1.5 |
|
|
|
943.9 |
|
FHLB and FRB stock |
|
|
314.2 |
|
|
|
|
|
|
|
314.2 |
|
|
|
|
|
|
|
314.2 |
|
Total loans, net (1) |
|
|
26,675.5 |
|
|
|
|
|
|
|
4,951.0 |
|
|
|
21,837.9 |
|
|
|
26,788.9 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
|
5,301.6 |
|
|
|
|
|
|
|
5,336.6 |
|
|
|
|
|
|
|
5,336.6 |
|
Other deposits |
|
|
21,848.3 |
|
|
|
|
|
|
|
21,848.3 |
|
|
|
|
|
|
|
21,848.3 |
|
FHLB advances |
|
|
2,165.9 |
|
|
|
|
|
|
|
2,173.4 |
|
|
|
|
|
|
|
2,173.4 |
|
Federal funds purchased |
|
|
496.0 |
|
|
|
|
|
|
|
496.0 |
|
|
|
|
|
|
|
496.0 |
|
Customer repurchase agreements |
|
|
480.0 |
|
|
|
|
|
|
|
480.0 |
|
|
|
|
|
|
|
480.0 |
|
Repurchase agreements (2) |
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
Notes and debentures |
|
|
1,042.3 |
|
|
|
|
|
|
|
1,043.8 |
|
|
|
|
|
|
|
1,043.8 |
|
(1) |
Excludes impaired loans totaling $52.9 million measured at fair value on a non-recurring basis. |
(2) |
Included in other borrowings in the Consolidated Statements of Condition. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value |
|
|
|
|
|
|
Carrying |
|
|
Measurements Using |
|
|
|
|
As of December 31, 2014 (in millions) |
|
Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
345.1 |
|
|
$ |
345.1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
345.1 |
|
Short-term investments |
|
|
668.6 |
|
|
|
|
|
|
|
668.6 |
|
|
|
|
|
|
|
668.6 |
|
Securities purchased under agreements to resell |
|
|
100.0 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
100.0 |
|
Securities held to maturity |
|
|
834.3 |
|
|
|
|
|
|
|
880.1 |
|
|
|
1.5 |
|
|
|
881.6 |
|
FHLB stock |
|
|
175.7 |
|
|
|
|
|
|
|
175.7 |
|
|
|
|
|
|
|
175.7 |
|
Total loans, net (1) |
|
|
26,327.2 |
|
|
|
|
|
|
|
4,798.5 |
|
|
|
21,508.8 |
|
|
|
26,307.3 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
|
5,230.7 |
|
|
|
|
|
|
|
5,262.6 |
|
|
|
|
|
|
|
5,262.6 |
|
Other deposits |
|
|
20,907.5 |
|
|
|
|
|
|
|
20,907.5 |
|
|
|
|
|
|
|
20,907.5 |
|
FHLB advances |
|
|
2,291.7 |
|
|
|
|
|
|
|
2,298.5 |
|
|
|
|
|
|
|
2,298.5 |
|
Federal funds purchased |
|
|
913.0 |
|
|
|
|
|
|
|
913.0 |
|
|
|
|
|
|
|
913.0 |
|
Customer repurchase agreements |
|
|
486.0 |
|
|
|
|
|
|
|
486.0 |
|
|
|
|
|
|
|
486.0 |
|
Repurchase agreements (2) |
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
Notes and debentures |
|
|
1,033.5 |
|
|
|
|
|
|
|
1,040.8 |
|
|
|
|
|
|
|
1,040.8 |
|
(1) |
Excludes impaired loans totaling $66.5 million measured at fair value on a non-recurring basis. |
(2) |
Included in other borrowings in the Consolidated Statements of Condition. |
37
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Peoples
United uses derivative financial instruments as components of its market risk management (principally to manage IRR). Certain other derivatives are entered into in connection with transactions with commercial customers. Derivatives are not used for
speculative purposes.
All derivatives are recognized as either assets or liabilities in the Consolidated Statements of Condition,
reported at fair value and presented on a gross basis. Until a derivative is settled, a favorable change in fair value results in an unrealized gain that is recognized as an asset, while an unfavorable change in fair value results in an unrealized
loss that is recognized as a liability.
The Company generally applies hedge accounting to its derivatives used for market risk management
purposes. Hedge accounting is permitted only if specific criteria are met, including a requirement that a highly effective relationship exist between the derivative instrument and the hedged item, both at inception of the hedge and on an ongoing
basis. The hedge accounting method depends upon whether the derivative instrument is classified as a fair value hedge (i.e. hedging an exposure related to a recognized asset or liability, or a firm commitment) or a cash flow hedge (i.e. hedging an
exposure related to the variability of future cash flows associated with a recognized asset or liability, or a forecasted transaction). Changes in the fair value of effective fair value hedges are recognized in current earnings (with the change in
fair value of the hedged asset or liability also recorded in earnings). Changes in the fair value of effective cash flow hedges are recognized in other comprehensive income (loss) until earnings are affected by the variability in cash flows of the
designated hedged item. Ineffective portions of hedge results are recognized in current earnings. Changes in the fair value of derivatives for which hedge accounting is not applied are recognized in current earnings.
Peoples United formally documents at inception all relationships between the derivative instruments and the hedged items, as well as its
risk management objectives and strategies for undertaking the hedge transactions. This process includes linking all derivatives that are designated as hedges to specific assets and liabilities, or to specific firm commitments or forecasted
transactions. Peoples United also formally assesses, both at inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair values or cash
flows of the hedged items. If it is determined that a derivative is not highly effective or has ceased to be a highly effective hedge, Peoples United would discontinue hedge accounting prospectively. Gains or losses resulting from the
termination of a derivative accounted for as a cash flow hedge remain in accumulated other comprehensive income (loss) and are amortized to earnings over the remaining period of the former hedging relationship, provided the hedged item continues to
be outstanding or it is probable the forecasted transaction will occur.
Peoples United uses the dollar offset method, regression
analysis and scenario analysis to assess hedge effectiveness at inception and on an ongoing basis. Such methods are chosen based on the nature of the hedge strategy and are used consistently throughout the life of the hedging relationship.
Certain derivative financial instruments are offered to commercial customers to assist them in meeting their financing and investing
objectives and for their risk management purposes. These derivative financial instruments consist primarily of interest rate swaps, but also include foreign exchange contracts. The IRR associated with customer interest rate swaps is mitigated by
entering into similar derivatives having essentially offsetting terms with institutional counterparties.
Interest rate-lock commitments
extended to borrowers relate to the origination of residential mortgage loans. To mitigate the IRR inherent in these commitments, Peoples United enters into mandatory delivery and best efforts contracts to sell adjustable-rate and fixed-rate
residential mortgage loans (servicing released). Forward commitments to sell and interest rate-lock commitments on residential mortgage loans are considered derivatives and their respective estimated fair values are adjusted based on changes in
interest rates.
Changes in the fair value of derivatives for which hedge accounting is not applied are recognized in current earnings,
including customer derivatives, interest-rate lock commitments and forward sale commitments.
38
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
By using derivatives, Peoples United is exposed to credit risk to the extent that
counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Companys counterparty credit risk is equal to the amount reported as a derivative asset
in the Consolidated Statements of Condition. In accordance with the Companys balance sheet offsetting policy (see Note 12), amounts reported as derivative assets represent derivative contracts in a gain position, without consideration for
derivative contracts in a loss position with the same counterparty (to the extent subject to master netting arrangements) and posted collateral. Peoples United seeks to minimize counterparty credit risk through credit approvals, limits,
monitoring procedures, execution of master netting arrangements and obtaining collateral, where appropriate. Counterparties to Peoples Uniteds derivatives include major financial institutions and exchanges that undergo comprehensive and
periodic internal credit analysis as well as maintain investment grade credit ratings from the major credit rating agencies. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote
and losses, if any, would be immaterial.
Certain of Peoples Uniteds derivative contracts contain provisions establishing
collateral requirements (subject to minimum collateral posting thresholds) based on the Companys external credit rating. If the Companys senior unsecured debt rating were to fall below the level generally recognized as investment grade,
the counterparties to such derivative contracts could require additional collateral on those derivative transactions in a net liability position (after considering the effect of master netting arrangements and posted collateral). The aggregate fair
value of derivative instruments with such credit-related contingent features that were in a net liability position at March 31, 2015 was $10.6 million, for which Peoples United had posted collateral of $10.1 million in the normal course
of business. If the Companys senior unsecured debt rating had fallen below investment grade as of that date, $0.5 million in additional collateral would have been required.
The following sections further discuss each class of derivative financial instrument used by Peoples United, including managements
principal objectives and risk management strategies.
Interest Rate Swaps
Peoples United may, from time to time, enter into interest rate swaps that are used to manage IRR associated with certain
interest-earning assets and interest-bearing liabilities.
Peoples United has entered into a pay fixed/receive floating interest
rate swap to hedge the LIBOR-based floating rate payments on the Companys $125 million subordinated notes (such payments began in February 2012). These notes had a fixed interest rate of 5.80% until February 2012, at which time the interest
rate converted to the three-month LIBOR plus 68.5 basis points. Peoples United has agreed with the swap counterparty to exchange, at specified intervals, the difference between fixed-rate (1.99%) and floating-rate interest amounts
calculated based on a notional amount of $125 million. The floating-rate interest amounts received under the swap are calculated using the same floating-rate paid on these notes. The swap effectively converts the
variable-rate subordinated notes to a fixed-rate liability and consequently reduces Peoples Uniteds exposure to increases in interest rates. This swap is accounted for as a cash flow hedge.
The Bank has entered into a pay floating/receive fixed interest rate swap to hedge the change in fair value of the Banks
$400 million subordinated notes due to changes in interest rates. The Bank has agreed with the swap counterparty to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated based on a
notional amount of $375 million. The fixed-rate interest payments received on the swap will essentially offset the fixed-rate interest payments made on these notes, notwithstanding the notional difference between these notes and the swap. The
floating-rate interest amounts paid under the swap are calculated based on three-month LIBOR plus 126.5 basis points. The swap effectively converts the fixed-rate subordinated notes to a floating-rate liability. This swap is accounted for as a fair
value hedge.
39
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Interest Rate Locks
In connection with its planned issuance of senior notes in the fourth quarter of 2012, Peoples United entered into U.S. Treasury forward
interest rate locks (T-Locks) to hedge the risk that the 10-year U.S. Treasury yield component of the underlying coupon of the fixed rate senior notes would rise prior to establishing the fixed interest rate on the senior notes. Upon
pricing the senior notes, the T-Locks were terminated and the unrealized gain of $0.9 million was included (on a net-of-tax basis) as a component of AOCL. The gain is being recognized as a reduction of interest expense over the ten-year period
during which the hedged item ($500 million senior note issuance) affects earnings.
Foreign Exchange Contracts
Foreign exchange contracts are commitments to buy or sell foreign currency on a future date at a contractual price. Peoples United uses
these instruments on a limited basis to (i) eliminate its exposure to fluctuations in currency exchange rates on certain of its commercial loans that are denominated in foreign currencies and (ii) provide foreign exchange contracts on
behalf of commercial customers within credit exposure limits. Gains and losses on foreign exchange contracts substantially offset the translation gains and losses on the related loans.
Risk Participation Agreements
Peoples United enters into risk participation agreements under which it may either assume or sell credit risk associated with a
borrowers performance under certain interest rate derivative contracts. In those instances in which Peoples United has assumed credit risk, it is not a party to the derivative contract and has entered into the risk participation
agreement because it is also a party to the related loan agreement with the borrower. In those instances in which Peoples United has sold credit risk, it is a party to the derivative contract and has entered into the risk participation
agreement because it sold a portion of the related loan. Peoples United manages its credit risk under risk participation agreements by monitoring the creditworthiness of the borrower, based on its normal credit review process. The notional
amounts of the risk participation agreements reflect Peoples Uniteds pro-rata share of the derivative contracts, consistent with its share of the related loans.
Customer Derivatives
Peoples
United enters into interest rate swaps with certain of its commercial customers. In order to minimize its risk, these customer derivatives (pay floating/receive fixed swaps) have been offset with essentially matching interest rate swaps with
Peoples Uniteds institutional counterparties (pay fixed/receive floating swaps). Hedge accounting has not been applied for these derivatives. Accordingly, changes in the fair value of all such swaps are recognized in current earnings.
Forward Commitments to Sell Residential Mortgage Loans and Related Interest Rate-Lock Commitments
Peoples United enters into forward commitments to sell adjustable-rate and fixed-rate residential mortgage loans (all to be sold
servicing released) in order to reduce the market risk associated with originating loans for sale in the secondary market. In order to fulfill a forward commitment, Peoples United delivers originated loans at prices or yields specified by the
contract. The risks associated with such contracts arise from the possible inability of counterparties to meet the contract terms or Peoples Uniteds inability to originate the necessary loans. Gains and losses realized on the forward
contracts are reported in the Consolidated Statements of Income as a component of the net gains on sales of residential mortgage loans. In the normal course of business, Peoples United will commit to an interest rate on a mortgage loan
application at the time of application, or anytime thereafter. The risks associated with these interest rate-lock commitments arise if market interest rates change prior to the closing of these loans. Both forward sales commitments and interest
rate-lock commitments made to borrowers on held-for-sale loans are accounted for as derivatives, with changes in fair value recognized in current earnings.
40
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The table below provides a summary of the notional amounts and fair values (presented on a
gross basis) of derivatives outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values (1) |
|
|
|
|
|
Notional Amounts |
|
|
Assets |
|
|
Liabilities |
|
(in millions) |
|
Type of Hedge |
|
March 31, 2015 |
|
|
Dec. 31, 2014 |
|
|
March 31, 2015 |
|
|
Dec. 31, 2014 |
|
|
March 31, 2015 |
|
|
Dec. 31, 2014 |
|
Derivatives Not Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial customers |
|
N/A |
|
$ |
3,871.5 |
|
|
$ |
3,380.2 |
|
|
$ |
149.1 |
|
|
$ |
104.2 |
|
|
$ |
1.7 |
|
|
$ |
8.3 |
|
Institutional counterparties |
|
N/A |
|
|
3,871.5 |
|
|
|
3,380.2 |
|
|
|
3.3 |
|
|
|
11.8 |
|
|
|
125.5 |
|
|
|
86.5 |
|
Risk participation agreements (2) |
|
N/A |
|
|
199.0 |
|
|
|
150.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
N/A |
|
|
51.6 |
|
|
|
49.6 |
|
|
|
1.0 |
|
|
|
0.8 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Forward commitments to sell residential mortgage loans |
|
N/A |
|
|
75.8 |
|
|
|
35.3 |
|
|
|
0.9 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
Interest rate-lock commitments on residential mortgage loans |
|
N/A |
|
|
120.9 |
|
|
|
57.5 |
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
154.3 |
|
|
|
117.3 |
|
|
|
129.0 |
|
|
|
96.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated notes |
|
Cash flow |
|
|
125.0 |
|
|
|
125.0 |
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
1.0 |
|
Subordinated notes |
|
Fair value |
|
|
375.0 |
|
|
|
375.0 |
|
|
|
23.7 |
|
|
|
15.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
23.7 |
|
|
|
15.1 |
|
|
|
1.3 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
|
|
|
|
|
|
|
|
$ |
178.0 |
|
|
$ |
132.4 |
|
|
$ |
130.3 |
|
|
$ |
97.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Assets are recorded in other assets and liabilities are recorded in other liabilities. |
(2) |
Fair value totaled less than $0.1 million at both dates. |
41
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following table summarizes the impact of Peoples Uniteds derivatives on
pre-tax income and AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Pre-Tax Gain (Loss) |
|
|
Amount of Pre-Tax Gain (Loss) |
|
|
|
Type of |
|
Recognized in Earnings (1) |
|
|
Recognized in AOCL |
|
Three Months Ended March 31 (in millions) |
|
Hedge |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Derivatives Not Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial customers |
|
N/A |
|
$ |
67.7 |
|
|
$ |
41.1 |
|
|
$ |
|
|
|
$ |
|
|
Institutional counterparties |
|
N/A |
|
|
(62.5 |
) |
|
|
(39.7 |
) |
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
N/A |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk participation agreements |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments to sell residential mortgage loans |
|
N/A |
|
|
0.4 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Interest rate-lock commitments on residential mortgage loans |
|
N/A |
|
|
(0.5 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
5.3 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
Cash flow |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
|
(0.6 |
) |
|
|
(0.1 |
) |
Interest rate locks (2) |
|
Cash flow |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
Fair value |
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
2.2 |
|
|
|
(0.3 |
) |
|
|
(0.6 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
$ |
7.5 |
|
|
$ |
1.0 |
|
|
$ |
(0.6 |
) |
|
$ |
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Amounts recognized in earnings are recorded in interest income, interest expense or other non-interest income for derivatives designated as hedging instruments and in other non-interest income for derivatives not
designated as hedging instruments. |
(2) |
Income relating to T-Locks terminated in 2012 totaled less than $0.1 million at both dates. |
NOTE 12. BALANCE SHEET OFFSETTING
Assets and
liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Condition and/or subject to enforceable master netting arrangements or similar agreements. Peoples
Uniteds derivative transactions with institutional counterparties are generally executed under International Swaps and Derivative Association (ISDA) master agreements, which include right of set-off provisions that
provide for a single net settlement of all interest rate swap positions, as well as collateral, in the event of default on, or the termination of, any one contract. Nonetheless, the Company does not offset asset and liabilities under such
arrangements in the Consolidated Statements of Condition.
Collateral (generally in the form of marketable debt securities) pledged by
counterparties in connection with derivative transactions is not reported in the Consolidated Statements of Condition unless the counterparty defaults. Collateral that has been pledged by Peoples United to counterparties continues to be
reported in the Consolidated Statements of Condition unless the Company defaults.
42
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following tables provide a gross presentation, the effects of offsetting, and a net
presentation of the Companys financial instruments that are eligible for offset in the Consolidated Statements of Condition. The collateral amounts in these tables are limited to the outstanding balances of the related asset or liability
(after netting is applied) and, therefore, instances of overcollateralization are not presented. The net amounts of the derivative assets and liabilities can be reconciled to the fair value of the Companys derivative financial instruments in
Note 11. The Companys derivative contracts with commercial customers and customer repurchase agreements are not subject to master netting arrangements and, therefore, have been excluded from the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Net |
|
|
Gross Amounts Not Offset |
|
|
|
|
As of March 31, 2015 (in millions) |
|
Amount Recognized |
|
|
Amount Offset |
|
|
Amount Presented |
|
|
Financial Instruments |
|
|
Collateral |
|
|
Net Amount |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty A |
|
$ |
1.0 |
|
|
$ |
|
|
|
$ |
1.0 |
|
|
$ |
(1.0 |
) |
|
$ |
|
|
|
$ |
|
|
Counterparty B |
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
Counterparty C |
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
Counterparty D |
|
|
0.7 |
|
|
|
|
|
|
|
0.7 |
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
Counterparty E |
|
|
24.2 |
|
|
|
|
|
|
|
24.2 |
|
|
|
(24.2 |
) |
|
|
|
|
|
|
|
|
Other counterparties |
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
28.0 |
|
|
$ |
|
|
|
$ |
28.0 |
|
|
$ |
(27.0 |
) |
|
$ |
|
|
|
$ |
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty A |
|
$ |
11.8 |
|
|
$ |
|
|
|
$ |
11.8 |
|
|
$ |
(1.0 |
) |
|
$ |
(10.8 |
) |
|
$ |
|
|
Counterparty B |
|
|
13.2 |
|
|
|
|
|
|
|
13.2 |
|
|
|
(0.3 |
) |
|
|
(12.9 |
) |
|
|
|
|
Counterparty C |
|
|
6.3 |
|
|
|
|
|
|
|
6.3 |
|
|
|
(0.3 |
) |
|
|
(6.0 |
) |
|
|
|
|
Counterparty D |
|
|
10.0 |
|
|
|
|
|
|
|
10.0 |
|
|
|
(0.7 |
) |
|
|
(8.8 |
) |
|
|
0.5 |
|
Counterparty E |
|
|
79.9 |
|
|
|
|
|
|
|
79.9 |
|
|
|
(24.2 |
) |
|
|
(55.7 |
) |
|
|
|
|
Other counterparties |
|
|
5.6 |
|
|
|
|
|
|
|
5.6 |
|
|
|
(0.5 |
) |
|
|
(5.1 |
) |
|
|
|
|
Repurchase agreements (1) |
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
Foreign exchange contracts |
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
128.3 |
|
|
$ |
|
|
|
$ |
128.3 |
|
|
$ |
(27.0 |
) |
|
$ |
(100.3 |
) |
|
$ |
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included in other borrowings in the Consolidated Statements of Condition. |
43
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Net |
|
|
Gross Amounts Not Offset |
|
|
|
|
As of December 31, 2014 (in millions) |
|
Amount Recognized |
|
|
Amount Offset |
|
|
Amount Presented |
|
|
Financial Instruments |
|
|
Collateral |
|
|
Net Amount |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty A |
|
$ |
2.7 |
|
|
$ |
|
|
|
$ |
2.7 |
|
|
$ |
(2.7 |
) |
|
$ |
|
|
|
$ |
|
|
Counterparty B |
|
|
1.5 |
|
|
|
|
|
|
|
1.5 |
|
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
Counterparty C |
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
Counterparty D |
|
|
3.2 |
|
|
|
|
|
|
|
3.2 |
|
|
|
(0.4 |
) |
|
|
(2.8 |
) |
|
|
|
|
Counterparty E |
|
|
15.7 |
|
|
|
|
|
|
|
15.7 |
|
|
|
(15.7 |
) |
|
|
|
|
|
|
|
|
Other counterparties |
|
|
1.3 |
|
|
|
|
|
|
|
1.3 |
|
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
Securities purchased under agreements to resell |
|
|
100.0 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
(100.0 |
) |
|
|
|
|
Foreign exchange contracts |
|
|
0.8 |
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
127.7 |
|
|
$ |
|
|
|
$ |
127.7 |
|
|
$ |
(24.1 |
) |
|
$ |
(102.8 |
) |
|
$ |
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty A |
|
$ |
11.8 |
|
|
$ |
|
|
|
$ |
11.8 |
|
|
$ |
(2.7 |
) |
|
$ |
(9.1 |
) |
|
$ |
|
|
Counterparty B |
|
|
11.8 |
|
|
|
|
|
|
|
11.8 |
|
|
|
(1.5 |
) |
|
|
(10.3 |
) |
|
|
|
|
Counterparty C |
|
|
4.5 |
|
|
|
|
|
|
|
4.5 |
|
|
|
(2.5 |
) |
|
|
(1.9 |
) |
|
|
0.1 |
|
Counterparty D |
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
Counterparty E |
|
|
47.8 |
|
|
|
|
|
|
|
47.8 |
|
|
|
(15.7 |
) |
|
|
(32.1 |
) |
|
|
|
|
Other counterparties |
|
|
11.2 |
|
|
|
|
|
|
|
11.2 |
|
|
|
(1.3 |
) |
|
|
(8.9 |
) |
|
|
1.0 |
|
Repurchase agreements (1) |
|
|
1.0 |
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
Foreign exchange contracts |
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
89.0 |
|
|
$ |
|
|
|
$ |
89.0 |
|
|
$ |
(24.1 |
) |
|
$ |
(63.3 |
) |
|
$ |
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included in other borrowings in the Consolidated Statements of Condition. |
NOTE 13. NEW ACCOUNTING STANDARDS
Reclassification of
Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure
In January 2014, the Financial Accounting
Standards Board (the FASB) amended its standards with respect to the accounting for consumer mortgage loans collateralized by residential real estate to clarify that such loans should, upon foreclosure, be reclassified by a creditor as
REO when either (i) the creditor obtains legal title to the real estate collateral or (ii) a deed in lieu of foreclosure, conveying all interest in the real estate to the creditor, is completed. In addition, the amendment requires a
creditor to provide additional disclosures with respect to (i) the amount of residential real estate meeting the conditions set forth above and (ii) the recorded investment in consumer mortgage loans secured by residential real estate
properties that are in the process of foreclosure. This amendment, which is being applied prospectively, became effective for Peoples United on January 1, 2015 and did not have a significant impact on the Companys Consolidated
Financial Statements (see Note 3).
Revenue Recognition
In May 2014, the FASB amended its standards with respect to revenue recognition. The amended guidance serves to replace all current U.S. GAAP
guidance on this topic and eliminate all industry-specific guidance, providing a unified model to determine when and how revenue is recognized. The underlying principle is that a company should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments also require enhanced disclosures regarding the nature, amount, timing and
uncertainty of revenue and cash flows arising from an entitys contracts with customers. As originally proposed, this new guidance, which can be applied retrospectively or through the use of the cumulative effect transition method, was to
become effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016 (January 1, 2017 for Peoples United) and early adoption was not permitted. In April 2015, the FASB proposed a one-year
deferral of the effective date (to January 1, 2018 for Peoples United) with early adoption, as of the original effective date, permitted. The Company is currently evaluating the impact of the amended guidance on the Companys
Consolidated Financial Statements.
44
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Repurchase Agreements
In June
2014, the FASB amended its standards with respect to repurchase agreements to (i) require that repurchase-to-maturity transactions be accounted for as secured borrowings, thereby eliminating the possibility of such transactions qualifying for
sale accounting treatment, and (ii) eliminate existing guidance for repurchase financings. The amendment also requires enhanced disclosures for certain transactions accounted for as secured borrowings and transfers accounted for as sales when
the transferor also retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. In adopting this new guidance, all entities must report changes in accounting for
transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This amendment became effective for Peoples United on January 1, 2015 and did not have a
significant impact on the Companys Consolidated Financial Statements as none of the Companys repurchase agreements represent repurchase-to-maturity transactions or repurchase financings and all repurchase agreements have been accounted
for as secured borrowings.
Stock Compensation
In June 2014, the FASB amended its standards with respect to stock compensation to require that a performance target that affects vesting, and
that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. The amendment further clarifies that
compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to those periods for which the requisite service has already been
rendered. This new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 (January 1, 2016 for Peoples United) and can be applied either prospectively or
retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. The adoption of this amendment, for which early adoption is permitted, is not expected to have a
significant impact on the Companys Consolidated Financial Statements.
Classification of Certain Government-Guaranteed Residential Mortgage
Loans upon Foreclosure
In August 2014, the FASB amended its standards with respect to the classification of certain
government-guaranteed residential mortgage loans to clarify that upon foreclosure of mortgage loans within the scope of the standard, a creditor will be required to reclassify the previously existing mortgage loan to a separate receivable from the
guarantor, measured at the amount of the guarantee that it expects to collect. This amendment, which is being applied prospectively, became effective for Peoples United on January 1, 2015 and did not have a significant impact on the
Companys Consolidated Financial Statements.
Consolidation
In February 2015, the FASB amended its standards with respect to the analysis that a reporting entity must perform in determining whether
certain types of legal entities should be consolidated. The amendment modifies the evaluation of whether limited partnerships or similar legal entities are variable interest entities (VIEs) or voting interest entities, eliminates the
presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. This
new guidance, which can be applied retrospectively or through the use of the cumulative effect transition method, is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 (January 1, 2016
for Peoples United) with early adoption permitted. The Company is currently evaluating the impact of the amended guidance on the Companys Consolidated Financial Statements.
Presentation of Debt Issuance Costs
In April 2015, the FASB amended its standards with respect to the presentation of debt issuance costs by changing the required presentation of
such costs from an asset on the balance sheet to a deduction from the related debt liability. For public business entities this new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2015 (January 1, 2016 for Peoples United) and is to be applied retrospectively. The adoption of this amendment is not expected to have a significant impact on the Companys Consolidated Financial Statements.
45
Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
Periodic and other filings made by
Peoples United Financial, Inc. (Peoples United or the Company) with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 (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 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 Uniteds 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 Uniteds actual results or financial
condition to differ materially from those expressed in or implied by such statements. Factors of particular importance to Peoples United 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) changes in accounting and regulatory guidance applicable to banks; (7) price levels and conditions in the public securities markets generally; (8) competition and its effect on pricing, spending, third-party relationships and
revenues; and (9) 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 does not undertake any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
46
Selected Consolidated Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
March 31, |
|
(dollars in millions, except per share data) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
Earnings Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (fully taxable equivalent) |
|
$ |
233.9 |
|
|
$ |
233.2 |
|
|
$ |
231.8 |
|
Net interest income |
|
|
228.1 |
|
|
|
228.1 |
|
|
|
227.1 |
|
Provision for loan losses |
|
|
9.8 |
|
|
|
9.9 |
|
|
|
9.5 |
|
Non-interest income |
|
|
89.0 |
|
|
|
86.8 |
|
|
|
79.9 |
|
Non-interest expense |
|
|
217.6 |
|
|
|
207.7 |
|
|
|
216.7 |
|
Operating non-interest expense (1) |
|
|
211.6 |
|
|
|
207.1 |
|
|
|
211.5 |
|
Income before income tax expense |
|
|
89.7 |
|
|
|
97.3 |
|
|
|
80.8 |
|
Net income |
|
|
59.2 |
|
|
|
64.7 |
|
|
|
53.1 |
|
Operating earnings (1) |
|
|
63.2 |
|
|
|
65.1 |
|
|
|
56.5 |
|
|
|
|
|
Selected Statistical Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (2) |
|
|
2.91 |
% |
|
|
3.00 |
% |
|
|
3.17 |
% |
Return on average assets (2) |
|
|
0.66 |
|
|
|
0.74 |
|
|
|
0.65 |
|
Operating return on average assets (1), (2) |
|
|
0.71 |
|
|
|
0.75 |
|
|
|
0.69 |
|
Return on average tangible assets (2) |
|
|
0.70 |
|
|
|
0.79 |
|
|
|
0.69 |
|
Return on average stockholders equity (2) |
|
|
5.1 |
|
|
|
5.5 |
|
|
|
4.7 |
|
Return on average tangible stockholders equity (2) |
|
|
9.2 |
|
|
|
10.1 |
|
|
|
8.7 |
|
Operating return on average tangible stockholders equity (1), (2) |
|
|
9.9 |
|
|
|
10.1 |
|
|
|
9.3 |
|
Efficiency ratio (1) |
|
|
61.9 |
|
|
|
61.3 |
|
|
|
63.9 |
|
|
|
|
|
Common Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
$ |
0.20 |
|
|
$ |
0.22 |
|
|
$ |
0.18 |
|
Operating earnings per share (1) |
|
|
0.21 |
|
|
|
0.22 |
|
|
|
0.19 |
|
Dividends paid per share |
|
|
0.165 |
|
|
|
0.165 |
|
|
|
0.1625 |
|
Dividend payout ratio |
|
|
83.7 |
% |
|
|
76.5 |
% |
|
|
91.5 |
% |
Operating dividend payout ratio (1) |
|
|
78.3 |
|
|
|
76.0 |
|
|
|
86.0 |
|
Book value per share (end of period) |
|
$ |
15.55 |
|
|
$ |
15.44 |
|
|
$ |
15.35 |
|
Tangible book value per share (end of period) (1) |
|
|
8.58 |
|
|
|
8.43 |
|
|
|
8.26 |
|
Stock price: |
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
15.45 |
|
|
|
15.50 |
|
|
|
15.70 |
|
Low |
|
|
13.97 |
|
|
|
13.61 |
|
|
|
13.73 |
|
Close (end of period) |
|
|
15.20 |
|
|
|
15.18 |
|
|
|
14.87 |
|
(1) |
See Non-GAAP Financial Measures and Reconciliation to GAAP. |
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended |
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
Sept. 30, |
|
|
June 30, |
|
|
March 31, |
|
(dollars in millions) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
Financial Condition Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
36,407 |
|
|
$ |
35,997 |
|
|
$ |
34,775 |
|
|
$ |
33,921 |
|
|
$ |
33,112 |
|
Loans |
|
|
26,929 |
|
|
|
26,592 |
|
|
|
25,954 |
|
|
|
25,455 |
|
|
|
24,629 |
|
Securities |
|
|
5,577 |
|
|
|
5,012 |
|
|
|
4,687 |
|
|
|
4,580 |
|
|
|
4,690 |
|
Short-term investments (1) |
|
|
250 |
|
|
|
769 |
|
|
|
508 |
|
|
|
99 |
|
|
|
73 |
|
Allowance for loan losses |
|
|
201 |
|
|
|
198 |
|
|
|
197 |
|
|
|
193 |
|
|
|
190 |
|
Goodwill and other acquisition-related intangible assets |
|
|
2,097 |
|
|
|
2,103 |
|
|
|
2,109 |
|
|
|
2,115 |
|
|
|
2,121 |
|
Deposits |
|
|
27,150 |
|
|
|
26,138 |
|
|
|
25,261 |
|
|
|
24,089 |
|
|
|
23,666 |
|
Borrowings |
|
|
3,143 |
|
|
|
3,692 |
|
|
|
3,416 |
|
|
|
3,773 |
|
|
|
3,887 |
|
Notes and debentures |
|
|
1,042 |
|
|
|
1,034 |
|
|
|
1,022 |
|
|
|
1,040 |
|
|
|
639 |
|
Stockholders equity |
|
|
4,682 |
|
|
|
4,633 |
|
|
|
4,655 |
|
|
|
4,636 |
|
|
|
4,596 |
|
Total risk-weighted assets (2) |
|
|
28,100 |
|
|
|
27,513 |
|
|
|
26,967 |
|
|
|
26,591 |
|
|
|
25,749 |
|
Non-performing assets (3) |
|
|
209 |
|
|
|
224 |
|
|
|
229 |
|
|
|
233 |
|
|
|
231 |
|
Net loan charge-offs |
|
|
7.2 |
|
|
|
8.5 |
|
|
|
8.1 |
|
|
|
6.5 |
|
|
|
7.0 |
|
|
|
|
|
|
|
Average Balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
26,504 |
|
|
$ |
26,136 |
|
|
$ |
25,611 |
|
|
$ |
24,856 |
|
|
$ |
24,248 |
|
Securities (4) |
|
|
5,325 |
|
|
|
4,718 |
|
|
|
4,691 |
|
|
|
4,674 |
|
|
|
4,908 |
|
Short-term investments (1) |
|
|
276 |
|
|
|
276 |
|
|
|
254 |
|
|
|
206 |
|
|
|
121 |
|
Total earning assets |
|
|
32,105 |
|
|
|
31,130 |
|
|
|
30,556 |
|
|
|
29,736 |
|
|
|
29,277 |
|
Total assets |
|
|
35,768 |
|
|
|
34,763 |
|
|
|
34,150 |
|
|
|
33,273 |
|
|
|
32,799 |
|
Deposits |
|
|
26,579 |
|
|
|
25,781 |
|
|
|
24,660 |
|
|
|
23,851 |
|
|
|
22,863 |
|
Borrowings |
|
|
3,018 |
|
|
|
2,854 |
|
|
|
3,443 |
|
|
|
3,793 |
|
|
|
4,348 |
|
Notes and debentures |
|
|
1,041 |
|
|
|
1,027 |
|
|
|
1,022 |
|
|
|
661 |
|
|
|
639 |
|
Total funding liabilities |
|
|
30,638 |
|
|
|
29,662 |
|
|
|
29,125 |
|
|
|
28,305 |
|
|
|
27,850 |
|
Stockholders equity |
|
|
4,663 |
|
|
|
4,679 |
|
|
|
4,648 |
|
|
|
4,609 |
|
|
|
4,564 |
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs to average total loans (annualized) |
|
|
0.11 |
% |
|
|
0.13 |
% |
|
|
0.13 |
% |
|
|
0.10 |
% |
|
|
0.12 |
% |
Non-performing assets to originated loans, real estate owned and repossessed assets (3) |
|
|
0.80 |
|
|
|
0.88 |
|
|
|
0.92 |
|
|
|
0.96 |
|
|
|
1.00 |
|
Originated allowance for loan losses to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans (3) |
|
|
0.74 |
|
|
|
0.74 |
|
|
|
0.75 |
|
|
|
0.75 |
|
|
|
0.78 |
|
Originated non-performing loans (3) |
|
|
107.5 |
|
|
|
95.5 |
|
|
|
94.1 |
|
|
|
91.7 |
|
|
|
92.7 |
|
Average stockholders equity to average total assets |
|
|
13.0 |
|
|
|
13.5 |
|
|
|
13.6 |
|
|
|
13.9 |
|
|
|
13.9 |
|
Stockholders equity to total assets |
|
|
12.9 |
|
|
|
12.9 |
|
|
|
13.4 |
|
|
|
13.7 |
|
|
|
13.9 |
|
Tangible stockholders equity to tangible assets (5) |
|
|
7.5 |
|
|
|
7.5 |
|
|
|
7.8 |
|
|
|
7.9 |
|
|
|
8.0 |
|
Total risk-based capital (2) |
|
|
11.9 |
|
|
|
12.2 |
|
|
|
12.3 |
|
|
|
12.5 |
|
|
|
11.2 |
|
(1) |
Includes securities purchased under agreements to resell. |
(2) |
Consolidated. March 31, 2015 calculated in accordance with Basel III capital rules. See Regulatory Capital Requirements. |
(3) |
Excludes acquired loans. |
(4) |
Average balances for securities are based on amortized cost. |
(5) |
See Non-GAAP Financial Measures and Reconciliation to GAAP. |
48
Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating
Peoples Uniteds 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 Uniteds
underlying operating performance and trends, and facilitates comparisons with the performance of other financial institutions. 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 Uniteds capital position.
The efficiency ratio, which represents an approximate measure of the cost required by Peoples United 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 acquired loans, and non-recurring income) (the denominator). In addition, operating lease expense is excluded from total non-interest expense and netted against operating lease
income within non-interest income to conform with the reporting approach applied to fee-based businesses already presented on a net basis. Peoples United 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 Uniteds 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) non-recurring gains/losses; (ii) writedowns of banking house assets; (iii) severance-related costs; (iv) merger-related expenses, including acquisition integration and other costs; and (v) charges related to
executive-level management separation costs, are generally also excluded when calculating the efficiency ratio. Operating earnings per share (EPS) 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 EPS. Operating return on average assets is calculated by dividing operating earnings by average total assets. Operating return on average tangible stockholders equity is
calculated by dividing operating earnings by average tangible stockholders equity. The operating dividend payout ratio is calculated by dividing dividends paid by operating earnings for the respective period.
49
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 for determining the
non-GAAP financial measures discussed above may differ from those used by other financial institutions.
The following table summarizes
Peoples Uniteds operating non-interest expense and efficiency ratio, as derived from amounts reported in the Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
March 31, |
|
(dollars in millions) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
Total non-interest expense |
|
$ |
217.6 |
|
|
$ |
207.7 |
|
|
$ |
216.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive at operating non-interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Writedowns of banking house assets |
|
|
(5.3 |
) |
|
|
|
|
|
|
(4.4 |
) |
Severance-related costs |
|
|
(0.7 |
) |
|
|
(0.6 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(6.0 |
) |
|
|
(0.6 |
) |
|
|
(5.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating non-interest expense |
|
|
211.6 |
|
|
|
207.1 |
|
|
|
211.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense (1) |
|
|
(9.3 |
) |
|
|
(8.9 |
) |
|
|
(11.1 |
) |
Amortization of other acquisition-related intangible assets |
|
|
(5.9 |
) |
|
|
(6.2 |
) |
|
|
(6.2 |
) |
Other (2) |
|
|
(2.0 |
) |
|
|
(2.4 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense for efficiency ratio |
|
$ |
194.4 |
|
|
$ |
189.6 |
|
|
$ |
192.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (FTE basis) |
|
$ |
233.9 |
|
|
$ |
233.2 |
|
|
$ |
231.8 |
|
Total non-interest income |
|
|
89.0 |
|
|
|
86.8 |
|
|
|
79.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
322.9 |
|
|
|
320.0 |
|
|
|
311.7 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense (1) |
|
|
(9.3 |
) |
|
|
(8.9 |
) |
|
|
(11.1 |
) |
BOLI FTE adjustment |
|
|
0.6 |
|
|
|
0.9 |
|
|
|
0.6 |
|
Net security gains |
|
|
|
|
|
|
(2.7 |
) |
|
|
(0.1 |
) |
Other (3) |
|
|
|
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues for efficiency ratio |
|
$ |
314.2 |
|
|
$ |
309.4 |
|
|
$ |
301.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio |
|
|
61.9 |
% |
|
|
61.3 |
% |
|
|
63.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Operating lease expense is excluded from total non-interest expense and netted against operating lease income within non-interest income to conform with the reporting approach
applied to fee-based businesses already presented on a net basis. |
(2) |
Items classified as other and deducted from non-interest expense for purposes of calculating the efficiency ratio include, as applicable, certain franchise taxes, real estate owned expenses, contract
termination costs and non-recurring expenses. |
(3) |
Items classified as other and added to (deducted from) total revenues for purposes of calculating the efficiency ratio include, as applicable, asset write-offs and gains associated with the sale of branch
locations. |
50
The following table summarizes Peoples Uniteds operating earnings, operating EPS and
operating return on average assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
March 31, |
|
(dollars in millions, except per share data) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
Net income, as reported |
|
$ |
59.2 |
|
|
$ |
64.7 |
|
|
$ |
53.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive at operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Writedowns of banking house assets |
|
|
5.3 |
|
|
|
|
|
|
|
4.4 |
|
Severance-related costs |
|
|
0.7 |
|
|
|
0.6 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax adjustments |
|
|
6.0 |
|
|
|
0.6 |
|
|
|
5.2 |
|
Tax effect |
|
|
(2.0 |
) |
|
|
(0.2 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments, net of tax |
|
|
4.0 |
|
|
|
0.4 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
$ |
63.2 |
|
|
$ |
65.1 |
|
|
$ |
56.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS, as reported |
|
$ |
0.20 |
|
|
$ |
0.22 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to arrive at operating EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
Writedowns of banking house assets |
|
|
0.01 |
|
|
|
|
|
|
|
0.01 |
|
Severance-related costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments per share |
|
|
0.01 |
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating EPS |
|
$ |
0.21 |
|
|
$ |
0.22 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets |
|
$ |
35,768 |
|
|
$ |
34,763 |
|
|
$ |
32,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating return on average assets (annualized) |
|
|
0.71 |
% |
|
|
0.75 |
% |
|
|
0.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize Peoples Uniteds operating return on average tangible
stockholders equity and operating dividend payout ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
March 31, |
|
(dollars in millions) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
Operating earnings |
|
$ |
63.2 |
|
|
$ |
65.1 |
|
|
$ |
56.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average stockholders equity |
|
$ |
4,663 |
|
|
$ |
4,679 |
|
|
$ |
4,564 |
|
Less: Average goodwill and average other acquisition-related intangible assets |
|
|
2,100 |
|
|
|
2,106 |
|
|
|
2,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average tangible stockholders equity |
|
$ |
2,563 |
|
|
$ |
2,573 |
|
|
$ |
2,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating return on average tangible stockholders equity (annualized) |
|
|
9.9 |
% |
|
|
10.1 |
% |
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
March 31, |
|
(dollars in millions) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
Dividends paid |
|
$ |
49.5 |
|
|
$ |
49.5 |
|
|
$ |
48.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
$ |
63.2 |
|
|
$ |
65.1 |
|
|
$ |
56.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating dividend payout ratio |
|
|
78.3 |
% |
|
|
76.0 |
% |
|
|
86.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
51
The following tables summarize Peoples Uniteds tangible equity ratio and tangible
book value per share derived from amounts reported in the Consolidated Statements of Condition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
Sept. 30, |
|
|
June 30, |
|
|
March 31, |
|
(in millions, except per share data) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
Total stockholders equity |
|
$ |
4,682 |
|
|
$ |
4,633 |
|
|
$ |
4,655 |
|
|
$ |
4,636 |
|
|
$ |
4,596 |
|
Less: Goodwill and other acquisition-related intangible assets |
|
|
2,097 |
|
|
|
2,103 |
|
|
|
2,109 |
|
|
|
2,115 |
|
|
|
2,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible stockholders equity |
|
$ |
2,585 |
|
|
$ |
2,530 |
|
|
$ |
2,546 |
|
|
$ |
2,521 |
|
|
$ |
2,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
36,407 |
|
|
$ |
35,997 |
|
|
$ |
34,775 |
|
|
$ |
33,921 |
|
|
$ |
33,112 |
|
Less: Goodwill and other acquisition-related intangible assets |
|
|
2,097 |
|
|
|
2,103 |
|
|
|
2,109 |
|
|
|
2,115 |
|
|
|
2,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible assets |
|
$ |
34,310 |
|
|
$ |
33,894 |
|
|
$ |
32,666 |
|
|
$ |
31,806 |
|
|
$ |
30,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity ratio |
|
|
7.5 |
% |
|
|
7.5 |
% |
|
|
7.8 |
% |
|
|
7.9 |
% |
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
Sept. 30, |
|
|
June 30, |
|
|
March 31, |
|
(in millions, except per share data) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
Tangible stockholders equity |
|
$ |
2,585 |
|
|
$ |
2,530 |
|
|
$ |
2,546 |
|
|
$ |
2,521 |
|
|
$ |
2,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued |
|
|
397.81 |
|
|
|
396.85 |
|
|
|
396.71 |
|
|
|
396.66 |
|
|
|
396.45 |
|
Less: Common shares classified as treasury shares |
|
|
89.05 |
|
|
|
89.05 |
|
|
|
89.04 |
|
|
|
89.03 |
|
|
|
89.03 |
|
Unallocated ESOP common shares |
|
|
7.58 |
|
|
|
7.67 |
|
|
|
7.75 |
|
|
|
7.84 |
|
|
|
7.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares |
|
|
301.18 |
|
|
|
300.13 |
|
|
|
299.92 |
|
|
|
299.79 |
|
|
|
299.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per share |
|
$ |
8.58 |
|
|
$ |
8.43 |
|
|
$ |
8.49 |
|
|
$ |
8.41 |
|
|
$ |
8.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Developments
As previously disclosed, effective
February 23, 2015, the Company converted to a bank holding company simultaneously with Peoples United Banks (the Bank) conversion to a national banking association. Prior to that date, the Company was a savings and loan
holding company within the meaning of the Home Owners Loan Act and the Bank was a federally-chartered savings bank. These changes primarily affect the manner in which both the Company and the Bank are regulated, and are not expected to have a
material effect on either the Companys or the Banks financial condition or results of operations.
Financial Overview
Peoples United reported net
income of $59.2 million, or $0.20 per diluted share, for the three months ended March 31, 2015, compared to $53.1 million, or $0.18 per diluted share, for the year-ago period. Operating earnings were $63.2 million, or $0.21 per share,
and $56.5 million, or $0.19 per share, for the respective periods. Compared to the year-ago period, first quarter 2015 earnings reflect continued loan and deposit growth, meaningful cost control and the negative impact of the historically low
interest rate environment. Peoples Uniteds operating return on average assets was 0.71% for the three months ended March 31, 2015 compared to 0.69% for the year-ago period. Operating return on average tangible stockholders
equity was 9.9% for the three months ended March 31, 2015 compared to 9.3% for the year-ago period.
Compared to the first quarter of
2014, FTE net interest income increased $2.1 million to $233.9 million and the net interest margin decreased 26 basis points to 2.91%. FTE net interest income increased $0.7 million and the net interest margin decreased nine basis points
compared to the fourth quarter of 2014 (see Net Interest Income).
Average total earning assets increased $2.8 billion compared to the
first quarter of 2014, primarily reflecting increases of $2.3 billion in average total loans and $417 million in average securities. Average total funding liabilities increased $2.8 billion compared to the year-ago quarter, reflecting increases
of $3.7 billion in average total deposits and $402 million in average notes and debentures, partially offset by a $1.3 billion decrease in average total borrowings.
Compared to the year-ago quarter, total non-interest income increased $9.1 million and total non-interest expense increased $0.9 million.
The efficiency ratio was 61.9% for the first quarter of 2015 compared to 63.9% for the year-ago period (see Non-Interest Income and Non-Interest Expense).
52
The provision for loan losses in the first quarter of 2015 totaled $9.8 million compared to $9.5
million in the year-ago quarter. Net loan charge-offs as a percentage of average total loans on an annualized basis were 0.11% in the first quarter of 2015 compared to 0.12% in the year-ago quarter. The allowance for loan losses on originated loans
was $191.1 million at March 31, 2015, a $3.0 million increase from December 31, 2014. The allowance for loan losses on acquired loans was $9.8 million and $10.2 million at March 31, 2015 and December 31, 2014, respectively.
Non-performing assets (excluding acquired non-performing loans) totaled $208.8 million at March 31, 2015, a $15.3 million decrease from December 31, 2014. At March 31, 2015, the originated allowance for loan losses as a percentage of
originated loans was 0.74% and as a percentage of originated non-performing loans was 107.5% (see Asset Quality).
Peoples
Uniteds total stockholders equity was $4.7 billion at March 31, 2015 compared to $4.6 billion at December 31, 2014. Stockholders equity as a percentage of total assets was 12.9% at both March 31, 2015 and
December 31, 2014. Tangible stockholders equity as a percentage of tangible assets was 7.5% at both March 31, 2015 and December 31, 2014 (see Stockholders Equity and Dividends). The Banks and Peoples
Uniteds (consolidated) Total risk-based capital ratios were 13.1% and 11.9%, respectively, at March 31, 2015 compared to 13.0% and 12.2%, respectively, at December 31, 2014 (see Regulatory Capital Requirements).
Segment Results
Public companies are required to report (i) certain financial and descriptive information about reportable operating
segments, as defined, and (ii) certain enterprise-wide financial information about products and services, geographic areas and major customers. Operating segment information is reported using a management approach that is
based on the way management organizes the segments for purposes of making operating decisions and assessing performance.
Peoples
Uniteds operations are divided into three primary operating segments that represent its core businesses: Commercial Banking; Retail Banking; and Wealth Management. In addition, the Treasury area manages Peoples Uniteds securities
portfolio, short-term investments, brokered deposits, wholesale borrowings and the funding center.
The Companys operating segments
have been aggregated into two reportable segments: Commercial Banking and Retail 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 allocation of the
Companys insurance business and certain trust activities to the Commercial Banking segment, and the allocation of the Companys brokerage business and certain other trust activities to the Retail Banking segment.
Peoples United uses an internal profitability reporting system, which generates information by operating segment 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 are subjective in nature, are subject to
periodic review and refinement. 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 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). For fixed-term assets and liabilities, the FTP rate is assigned at the time the asset or liability is originated by reference to the Companys FTP yield curve, which is updated daily. For non-maturity-term assets and
liabilities, the FTP rate is determined based upon the underlying characteristics, or behavior, of each particular product and results in the use of a historical rolling average FTP rate determined over a period that is most representative of the
average life of the particular asset or liability. While the Companys FTP methodology serves to remove interest rate risk (IRR) from the operating segments and better facilitate pricing decisions, thereby allowing management to
more effectively assess the longer-term profitability of an operating segment, it may, in sustained periods of low and/or high interest rates, result in a measure of operating segment net interest income that is not reflective of current interest
rates. During the first quarter of 2015, the Company modified its FTP methodology relating to certain deposit products that resulted in a reduction in the funding credit recognized within net interest income for Commercial Banking and Retail
Banking, with the offset reflected in Treasury. Prior period segment results have not been adjusted and continue to reflect the previous FTP methodology.
53
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 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. Average total assets and average total liabilities are presented for each
reportable segment due to managements reliance, in part, on such average balances for purposes of assessing segment performance. During the first quarter of 2015, the Company modified its cost allocation methodology to allocate branch costs
associated with servicing certain customers, which resulted in an increase in non-interest expense for Commercial Banking and Wealth Management, with the offset reflected in Retail Banking. Prior period
segment results have not been adjusted and continue to reflect the previous cost allocation methodology.
Average total assets of each
reportable segment include allocated goodwill and intangible assets, both of which are reviewed for impairment at least annually. For the purpose of goodwill impairment evaluations, management has identified reporting units based upon the
Companys three operating segments: Commercial Banking; Retail Banking; and Wealth Management. The impairment evaluation is performed as of an annual date or more frequently if a triggering event indicates that impairment may have occurred.
Entities have the 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 as described below. In 2014, Peoples United elected to perform the two-step impairment test in its
evaluation of goodwill impairment as of October 1st (the annual impairment evaluation date).
54
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. At this time, management believes that none of the
Companys identified reporting units are at risk of failing the Step 1 goodwill impairment test.
Segment Performance Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
Commercial |
|
|
Retail |
|
|
Reportable |
|
|
|
|
|
|
|
|
Total |
|
(in millions) |
|
Banking |
|
|
Banking |
|
|
Segments |
|
|
Treasury |
|
|
Other |
|
|
Consolidated |
|
Net interest income (loss) |
|
$ |
134.1 |
|
|
$ |
86.6 |
|
|
$ |
220.7 |
|
|
$ |
14.2 |
|
|
$ |
(6.8 |
) |
|
$ |
228.1 |
|
Provision for loan losses |
|
|
11.5 |
|
|
|
3.8 |
|
|
|
15.3 |
|
|
|
|
|
|
|
(5.5 |
) |
|
|
9.8 |
|
Total non-interest income |
|
|
46.0 |
|
|
|
39.9 |
|
|
|
85.9 |
|
|
|
2.6 |
|
|
|
0.5 |
|
|
|
89.0 |
|
Total non-interest expense |
|
|
76.6 |
|
|
|
131.7 |
|
|
|
208.3 |
|
|
|
2.5 |
|
|
|
6.8 |
|
|
|
217.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit) |
|
|
92.0 |
|
|
|
(9.0 |
) |
|
|
83.0 |
|
|
|
14.3 |
|
|
|
(7.6 |
) |
|
|
89.7 |
|
Income tax expense (benefit) |
|
|
31.2 |
|
|
|
(3.1 |
) |
|
|
28.1 |
|
|
|
4.9 |
|
|
|
(2.5 |
) |
|
|
30.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
60.8 |
|
|
$ |
(5.9 |
) |
|
$ |
54.9 |
|
|
$ |
9.4 |
|
|
$ |
(5.1 |
) |
|
$ |
59.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets |
|
$ |
20,891.9 |
|
|
$ |
8,327.6 |
|
|
$ |
29,219.5 |
|
|
$ |
5,949.3 |
|
|
$ |
599.5 |
|
|
$ |
35,768.3 |
|
Average total liabilities |
|
|
5,036.2 |
|
|
|
19,069.2 |
|
|
|
24,105.4 |
|
|
|
6,679.2 |
|
|
|
320.6 |
|
|
|
31,105.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
March 31, 2014 |
|
Commercial |
|
|
Retail |
|
|
Reportable |
|
|
|
|
|
|
|
|
Total |
|
(in millions) |
|
Banking |
|
|
Banking |
|
|
Segments |
|
|
Treasury |
|
|
Other |
|
|
Consolidated |
|
Net interest income (loss) |
|
$ |
122.4 |
|
|
$ |
107.1 |
|
|
$ |
229.5 |
|
|
$ |
2.5 |
|
|
$ |
(4.9 |
) |
|
$ |
227.1 |
|
Provision for loan losses |
|
|
10.9 |
|
|
|
4.4 |
|
|
|
15.3 |
|
|
|
|
|
|
|
(5.8 |
) |
|
|
9.5 |
|
Total non-interest income |
|
|
35.6 |
|
|
|
40.5 |
|
|
|
76.1 |
|
|
|
1.8 |
|
|
|
2.0 |
|
|
|
79.9 |
|
Total non-interest expense |
|
|
67.6 |
|
|
|
136.6 |
|
|
|
204.2 |
|
|
|
1.8 |
|
|
|
10.7 |
|
|
|
216.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit) |
|
|
79.5 |
|
|
|
6.6 |
|
|
|
86.1 |
|
|
|
2.5 |
|
|
|
(7.8 |
) |
|
|
80.8 |
|
Income tax expense (benefit) |
|
|
27.2 |
|
|
|
2.3 |
|
|
|
29.5 |
|
|
|
0.9 |
|
|
|
(2.7 |
) |
|
|
27.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
52.3 |
|
|
$ |
4.3 |
|
|
$ |
56.6 |
|
|
$ |
1.6 |
|
|
$ |
(5.1 |
) |
|
$ |
53.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets |
|
$ |
18,142.8 |
|
|
$ |
8,689.1 |
|
|
$ |
26,831.9 |
|
|
$ |
5,322.0 |
|
|
$ |
644.9 |
|
|
$ |
32,798.8 |
|
Average total liabilities |
|
|
3,899.3 |
|
|
|
19,118.4 |
|
|
|
23,017.7 |
|
|
|
4,874.4 |
|
|
|
342.6 |
|
|
|
28,234.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
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 Peoples Capital and Leasing Corp. (PCLC) and Peoples United Equipment Finance Corp., 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 Peoples United Insurance Agency, Inc. and private
banking.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Net interest income |
|
$ |
134.1 |
|
|
$ |
122.4 |
|
Provision for loan losses |
|
|
11.5 |
|
|
|
10.9 |
|
Total non-interest income |
|
|
46.0 |
|
|
|
35.6 |
|
Total non-interest expense |
|
|
76.6 |
|
|
|
67.6 |
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
92.0 |
|
|
|
79.5 |
|
Income tax expense |
|
|
31.2 |
|
|
|
27.2 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
60.8 |
|
|
$ |
52.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets |
|
$ |
20,891.9 |
|
|
$ |
18,142.8 |
|
Average total liabilities |
|
|
5,036.2 |
|
|
|
3,899.3 |
|
|
|
|
|
|
|
|
|
|
Commercial Banking net income increased $8.5 million compared to the first quarter of 2014, reflecting
increases in net interest income and non-interest income, partially offset by an increase in non-interest expense. The $11.7 million increase in net interest income primarily reflects continued loan growth, partially offset by continued repricing
pressure within the loan portfolio, including the pay-off of higher-yielding loans, new originations at rates lower than the existing portfolio and declining interest income on acquired loans. Included in non-interest income in the first quarter of
2015 are net gains on sales of acquired loans totaling $1.9 million. Excluding these net gains, non-interest income increased $8.5 million compared to the year-ago period, primarily reflecting increases in commercial banking lending fees and
customer interest rate swap income. The $9.0 million increase in non-interest expense in the first quarter of 2015 compared to the first quarter of 2014 primarily reflects a higher level of allocated expenses.
Average total assets increased $2.7 billion and average total liabilities increased $1.1 billion compared to the first quarter of 2014, reflecting loan and deposit growth. In addition, during the three months ended March 31, 2015, certain
customer loans and deposits were transferred from Retail Banking to Commercial Banking to better align with the Banks customer relationship management approach.
Retail Banking includes, as its principal business lines, consumer lending (including residential mortgage and home equity lending) and
consumer business deposit gathering activities. In addition, Retail Banking consists of brokerage, financial advisory services, investment management services and life insurance provided by Peoples Securities, Inc. and non-institutional trust
services.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Net interest income |
|
$ |
86.6 |
|
|
$ |
107.1 |
|
Provision for loan losses |
|
|
3.8 |
|
|
|
4.4 |
|
Total non-interest income |
|
|
39.9 |
|
|
|
40.5 |
|
Total non-interest expense |
|
|
131.7 |
|
|
|
136.6 |
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax expense (benefit) |
|
|
(9.0 |
) |
|
|
6.6 |
|
Income tax (benefit) expense |
|
|
(3.1 |
) |
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(5.9 |
) |
|
$ |
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets |
|
$ |
8,327.6 |
|
|
$ |
8,689.1 |
|
Average total liabilities |
|
|
19,069.2 |
|
|
|
19,118.4 |
|
|
|
|
|
|
|
|
|
|
Retail Bankings net loss in the first quarter of 2015 compared to net income in the first quarter of
2014 primarily reflects a $20.5 million decrease in net interest income. The decrease in net interest income primarily reflects continued repricing pressure within the loan portfolio, including the pay-off of higher-yielding loans, new originations
at rates lower than the existing portfolio and declining interest income on acquired loans, and lower FTP funding credits, partially offset by an increase in average residential mortgage loans. The $4.9 million decrease in non-interest expense
primarily reflects a lower level of direct and allocated expenses. Average total assets decreased $362 million and average total liabilities decreased $49 million compared to the first quarter of 2014. During the three months ended March 31,
2015, certain customer loans and deposits were transferred from Retail Banking to Commercial Banking to better align with the Banks customer relationship management approach.
56
Treasury encompasses the securities portfolio, short-term investments, brokered deposits,
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 IRR component of Peoples Uniteds 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 Uniteds Treasury group and is based on the wholesale cost to Peoples United 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 IRR to the Treasury group.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Net interest income |
|
$ |
14.2 |
|
|
$ |
2.5 |
|
Total non-interest income |
|
|
2.6 |
|
|
|
1.8 |
|
Total non-interest expense |
|
|
2.5 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
14.3 |
|
|
|
2.5 |
|
Income tax expense |
|
|
4.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9.4 |
|
|
$ |
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets |
|
$ |
5,949.3 |
|
|
$ |
5,322.0 |
|
Average total liabilities |
|
|
6,679.2 |
|
|
|
4,874.4 |
|
|
|
|
|
|
|
|
|
|
Treasurys net income increased $7.8 million in the first quarter of 2015 compared to the first quarter
of 2014. The improvement in net interest income primarily reflects lower FTP funding costs and an increase in securities income, partially offset by an increase in interest expense. The increase in non-interest expense primarily reflects an increase
in allocated expenses. Average total assets increased $627 million compared to the first quarter of 2014, primarily reflecting an increase in average securities. The $1.8 billion increase in average total liabilities compared to the first quarter of
2014 primarily reflects increases of $2.2 billion in average brokered deposits and $402 million in notes and debentures, partially offset by a $1.3 billion decrease in average total borrowings.
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; assets and liabilities 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 one-time charges (included in total non-interest expense) totaling $6.0 million and $5.2
million for the three months ended March 31, 2015 and 2014, respectively.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Net interest loss |
|
$ |
(6.8 |
) |
|
$ |
(4.9 |
) |
Provision for loan losses |
|
|
(5.5 |
) |
|
|
(5.8 |
) |
Total non-interest income |
|
|
0.5 |
|
|
|
2.0 |
|
Total non-interest expense |
|
|
6.8 |
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit |
|
|
(7.6 |
) |
|
|
(7.8 |
) |
Income tax benefit |
|
|
(2.5 |
) |
|
|
(2.7 |
) |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5.1 |
) |
|
$ |
(5.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets |
|
$ |
599.5 |
|
|
$ |
644.9 |
|
Average total liabilities |
|
|
320.6 |
|
|
|
342.6 |
|
|
|
|
|
|
|
|
|
|
57
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 interest-earning assets and interest-bearing liabilities; non-interest-bearing sources of funds; hedging activities; and asset quality.
Since December 2008, the Federal Reserve Board has not changed its targeted range for the federal funds rate of 0% to 0.25% and, for the first
quarter of 2015, the average effective federal funds rate was 0.11%. The net interest margin was 2.91% in the first quarter of 2015 compared to 3.00% in the fourth quarter of 2014 and 3.17% in the first quarter of 2014. The decline in the net
interest margin from the fourth quarter of 2014 primarily reflects two fewer calendar days, continued repricing pressure within the loan portfolio, including the pay-off of higher-yielding loans and new loan originations at rates lower than the
existing portfolio, and declining interest income on acquired loans. The net interest margin continues to be negatively 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 capital in low-yielding short-term investments.
First
Quarter 2015 Compared to First Quarter 2014
FTE net interest income increased $2.1 million compared to the first quarter of 2014,
reflecting a $6.0 million increase in total interest and dividend income (including an $8.0 million decrease in interest income on acquired loans) partially offset by a $3.9 million increase in total interest expense, and the net interest
margin decreased 26 basis points to 2.91%. The decline in the net interest margin primarily reflects new loan volume at rates lower than the existing portfolio (which reduced the net interest margin by 19 basis points) and increases in average
deposit and investment balances (which reduced the net interest margin by four and two basis points, respectively).
Average total earning
assets were $32.1 billion in the first quarter of 2015, a $2.8 billion increase from the first quarter of 2014, primarily reflecting increases of $2.3 billion in average total loans, $417 million in average securities and $155 million in average
short-term investments. Average total loans, average securities and average short-term investments comprised 82%, 17% and 1%, respectively, of average total earning assets in the first quarter of 2015, compared to 83%, 16% and 1%, respectively, in
the year-ago quarter. In the current quarter, the yield earned on the total loan portfolio was 3.55% and the yield earned on securities and short-term investments was 2.20%, compared to 3.84% and 2.18%, respectively, in the year-ago quarter.
Excluding adjustable-rate residential mortgage loans, which are mostly of the hybrid variety, 46% of the loan portfolio had floating interest rates at March 31, 2015 compared to 47% at December 31, 2014.
The average total commercial and residential mortgage loan portfolios increased $1.7 billion and $528 million, respectively, compared to the
year-ago quarter, reflecting growth. Average consumer loans increased $38 million compared to the year-ago quarter, reflecting a $52 million increase in average home equity loans partially offset by a $14 million decrease in average indirect auto
loans.
Average total funding liabilities were $30.6 billion in the first quarter of 2015, a $2.8 billion increase from the year-ago
period, reflecting increases of $3.7 billion in average total deposits and $402 million in average notes and debentures, partially offset by a $1.3 billion decrease in average total borrowings. The increase in average total deposits reflects
organic growth and a $2.2 billion increase in average brokered deposits. Excluding brokered deposits, average savings and money market deposits, average non-interest-bearing deposits and average time deposits
increased $995 million, $416 million and $60 million, respectively. Average total deposits comprised 87% and 82% of average total funding liabilities in the first quarter of 2015 and the year-ago period, respectively. The increase in average notes
and debentures reflects the issuance of $400 million of subordinated notes in June 2014.
58
The one basis point increase to 0.42% in the rate paid on average total funding liabilities
primarily reflects an increase in total borrowing costs as well as continued repricing of higher-yielding deposits assumed in acquisitions. The rate paid on average deposits decreased one basis point from the first quarter of 2014, primarily
reflecting a six basis point decrease in time deposits. Average savings and money market deposits and average time deposits comprised 59% and 20%, respectively, of average total deposits in the first quarter of 2015 compared to 58% and 19%,
respectively, in the comparable 2014 period.
First Quarter 2015 Compared to Fourth Quarter 2014
FTE net interest income increased $0.7 million compared to the fourth quarter of 2014, reflecting a $1.4 million increase in total interest and
dividend income partially offset by a $0.7 million increase in total interest expense, and the net interest margin decreased nine basis points to 2.91%. The decline in the net interest margin primarily reflects two fewer calendar days (which reduced
the net interest margin by five basis points) and new loan volume at rates lower than the existing portfolio (which reduced the net interest margin by two basis points).
Average total earning assets increased $975 million, primarily reflecting increases of $607 million in average securities and $368 million in
average total loans. The average total commercial and residential mortgage loan portfolios increased $235 million and $132 million, respectively, compared to the fourth quarter of 2014.
Average total funding liabilities increased $976 million, reflecting increases of $798 million in average total deposits and $165 million
in average total borrowings. The increase in average total deposits reflects organic growth and a $215 million increase in average brokered deposits. The increase in average total borrowings reflects the additional funding used to support loan
growth and securities purchases.
The following table presents average balance sheets, FTE-basis interest income, interest expense and the
corresponding average yields earned and rates paid for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014. 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 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 Uniteds use of derivative
instruments in managing IRR is also reflected in the table, classified according to the instrument hedged and the related risk management objective.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet, Interest and Yield/Rate Analysis (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015 |
|
|
December 31, 2014 |
|
|
March 31, 2014 |
|
Three Months Ended
(dollars in millions) |
|
Average Balance |
|
|
Interest |
|
|
Yield/ Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Yield/ Rate |
|
|
Average Balance |
|
|
Interest |
|
|
Yield/ Rate |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments (2) |
|
$ |
275.9 |
|
|
$ |
0.1 |
|
|
|
0.20 |
% |
|
$ |
276.1 |
|
|
$ |
0.1 |
|
|
|
0.20 |
% |
|
$ |
120.9 |
|
|
$ |
0.1 |
|
|
|
0.19 |
% |
Securities (3) |
|
|
5,325.0 |
|
|
|
30.7 |
|
|
|
2.31 |
|
|
|
4,718.4 |
|
|
|
26.7 |
|
|
|
2.26 |
|
|
|
4,907.9 |
|
|
|
27.3 |
|
|
|
2.23 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial (4) |
|
|
9,896.0 |
|
|
|
91.5 |
|
|
|
3.70 |
|
|
|
9,694.2 |
|
|
|
91.5 |
|
|
|
3.78 |
|
|
|
8,702.7 |
|
|
|
87.8 |
|
|
|
4.04 |
|
Commercial real estate |
|
|
9,401.6 |
|
|
|
85.3 |
|
|
|
3.63 |
|
|
|
9,368.8 |
|
|
|
87.7 |
|
|
|
3.75 |
|
|
|
8,904.5 |
|
|
|
88.7 |
|
|
|
3.98 |
|
Residential mortgage |
|
|
5,010.1 |
|
|
|
40.4 |
|
|
|
3.23 |
|
|
|
4,877.8 |
|
|
|
40.0 |
|
|
|
3.28 |
|
|
|
4,482.4 |
|
|
|
37.9 |
|
|
|
3.38 |
|
Consumer |
|
|
2,196.4 |
|
|
|
18.1 |
|
|
|
3.30 |
|
|
|
2,195.0 |
|
|
|
18.7 |
|
|
|
3.40 |
|
|
|
2,158.7 |
|
|
|
18.3 |
|
|
|
3.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
26,504.1 |
|
|
|
235.3 |
|
|
|
3.55 |
|
|
|
26,135.8 |
|
|
|
237.9 |
|
|
|
3.64 |
|
|
|
24,248.3 |
|
|
|
232.7 |
|
|
|
3.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
32,105.0 |
|
|
$ |
266.1 |
|
|
|
3.32 |
% |
|
|
31,130.3 |
|
|
$ |
264.7 |
|
|
|
3.40 |
% |
|
|
29,277.1 |
|
|
$ |
260.1 |
|
|
|
3.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
3,663.3 |
|
|
|
|
|
|
|
|
|
|
|
3,633.1 |
|
|
|
|
|
|
|
|
|
|
|
3,521.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
35,768.3 |
|
|
|
|
|
|
|
|
|
|
$ |
34,763.4 |
|
|
|
|
|
|
|
|
|
|
$ |
32,798.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing |
|
$ |
5,603.2 |
|
|
$ |
|
|
|
|
|
% |
|
$ |
5,575.7 |
|
|
$ |
|
|
|
|
|
% |
|
$ |
5,187.5 |
|
|
$ |
|
|
|
|
|
% |
Savings, interest-bearing checking and money market |
|
|
15,692.0 |
|
|
|
10.0 |
|
|
|
0.26 |
|
|
|
15,035.6 |
|
|
|
9.8 |
|
|
|
0.26 |
|
|
|
13,278.3 |
|
|
|
8.6 |
|
|
|
0.26 |
|
Time |
|
|
5,284.1 |
|
|
|
12.2 |
|
|
|
0.92 |
|
|
|
5,169.5 |
|
|
|
11.9 |
|
|
|
0.92 |
|
|
|
4,397.6 |
|
|
|
10.7 |
|
|
|
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
26,579.3 |
|
|
|
22.2 |
|
|
|
0.33 |
|
|
|
25,780.8 |
|
|
|
21.7 |
|
|
|
0.34 |
|
|
|
22,863.4 |
|
|
|
19.3 |
|
|
|
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
2,058.0 |
|
|
|
2.2 |
|
|
|
0.42 |
|
|
|
1,943.4 |
|
|
|
2.0 |
|
|
|
0.42 |
|
|
|
3,221.6 |
|
|
|
2.6 |
|
|
|
0.32 |
|
Customer repurchase agreements |
|
|
486.6 |
|
|
|
0.2 |
|
|
|
0.18 |
|
|
|
461.1 |
|
|
|
0.2 |
|
|
|
0.19 |
|
|
|
610.3 |
|
|
|
0.3 |
|
|
|
0.17 |
|
Federal funds purchased |
|
|
472.5 |
|
|
|
0.2 |
|
|
|
0.17 |
|
|
|
447.8 |
|
|
|
0.2 |
|
|
|
0.16 |
|
|
|
507.6 |
|
|
|
0.2 |
|
|
|
0.19 |
|
Other borrowings |
|
|
1.0 |
|
|
|
|
|
|
|
1.78 |
|
|
|
1.3 |
|
|
|
|
|
|
|
1.36 |
|
|
|
8.3 |
|
|
|
|
|
|
|
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
3,018.1 |
|
|
|
2.6 |
|
|
|
0.34 |
|
|
|
2,853.6 |
|
|
|
2.4 |
|
|
|
0.34 |
|
|
|
4,347.8 |
|
|
|
3.1 |
|
|
|
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and debentures |
|
|
1,040.7 |
|
|
|
7.4 |
|
|
|
2.83 |
|
|
|
1,027.5 |
|
|
|
7.4 |
|
|
|
2.90 |
|
|
|
639.2 |
|
|
|
5.9 |
|
|
|
3.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funding liabilities |
|
|
30,638.1 |
|
|
$ |
32.2 |
|
|
|
0.42 |
% |
|
|
29,661.9 |
|
|
$ |
31.5 |
|
|
|
0.43 |
% |
|
|
27,850.4 |
|
|
$ |
28.3 |
|
|
|
0.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
467.1 |
|
|
|
|
|
|
|
|
|
|
|
422.3 |
|
|
|
|
|
|
|
|
|
|
|
384.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
31,105.2 |
|
|
|
|
|
|
|
|
|
|
|
30,084.2 |
|
|
|
|
|
|
|
|
|
|
|
28,234.7 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
4,663.1 |
|
|
|
|
|
|
|
|
|
|
|
4,679.2 |
|
|
|
|
|
|
|
|
|
|
|
4,564.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
35,768.3 |
|
|
|
|
|
|
|
|
|
|
$ |
34,763.4 |
|
|
|
|
|
|
|
|
|
|
$ |
32,798.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/spread (5) |
|
|
|
|
|
$ |
233.9 |
|
|
|
2.90 |
% |
|
|
|
|
|
$ |
233.2 |
|
|
|
2.97 |
% |
|
|
|
|
|
$ |
231.8 |
|
|
|
3.14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
2.91 |
% |
|
|
|
|
|
|
|
|
|
|
3.00 |
% |
|
|
|
|
|
|
|
|
|
|
3.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Average yields earned and rates paid are annualized. |
(2) |
Includes securities purchased under agreements to resell. |
(3) |
Average balances and yields for securities are based on amortized cost. |
(4) |
Includes commercial and industrial loans and equipment financing loans. |
(5) |
The FTE adjustment was $5.8 million, $5.1 million and $4.7 million for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively. |
60
Volume and Rate Analysis
The following table shows the extent to which changes in interest rates and changes in the volume of average total earning assets and average
interest-bearing liabilities have affected Peoples Uniteds 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015 Compared To |
|
|
|
March 31, 2014 Increase (Decrease) |
|
|
December 31, 2014 Increase (Decrease) |
|
(in millions) |
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
0.1 |
|
|
$ |
(0.1 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Securities |
|
|
2.4 |
|
|
|
1.0 |
|
|
|
3.4 |
|
|
|
3.5 |
|
|
|
0.5 |
|
|
|
4.0 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
11.4 |
|
|
|
(7.7 |
) |
|
|
3.7 |
|
|
|
1.9 |
|
|
|
(1.9 |
) |
|
|
|
|
Commercial real estate |
|
|
4.8 |
|
|
|
(8.2 |
) |
|
|
(3.4 |
) |
|
|
0.3 |
|
|
|
(2.7 |
) |
|
|
(2.4 |
) |
Residential mortgage |
|
|
4.3 |
|
|
|
(1.8 |
) |
|
|
2.5 |
|
|
|
1.1 |
|
|
|
(0.7 |
) |
|
|
0.4 |
|
Consumer |
|
|
0.3 |
|
|
|
(0.5 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
20.8 |
|
|
|
(18.2 |
) |
|
|
2.6 |
|
|
|
3.3 |
|
|
|
(5.9 |
) |
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in interest and dividend income |
|
|
23.3 |
|
|
|
(17.3 |
) |
|
|
6.0 |
|
|
|
6.8 |
|
|
|
(5.4 |
) |
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, interest-bearing checking and money market |
|
|
1.5 |
|
|
|
(0.1 |
) |
|
|
1.4 |
|
|
|
0.4 |
|
|
|
(0.2 |
) |
|
|
0.2 |
|
Time |
|
|
2.1 |
|
|
|
(0.6 |
) |
|
|
1.5 |
|
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
3.6 |
|
|
|
(0.7 |
) |
|
|
2.9 |
|
|
|
0.7 |
|
|
|
(0.2 |
) |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
(1.0 |
) |
|
|
0.6 |
|
|
|
(0.4 |
) |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
Customer repurchase agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
(1.1 |
) |
|
|
0.6 |
|
|
|
(0.5 |
) |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and debentures |
|
|
3.1 |
|
|
|
(1.6 |
) |
|
|
1.5 |
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in interest expense |
|
|
5.6 |
|
|
|
(1.7 |
) |
|
|
3.9 |
|
|
|
1.0 |
|
|
|
(0.3 |
) |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
$ |
17.7 |
|
|
$ |
(15.6 |
) |
|
$ |
2.1 |
|
|
$ |
5.8 |
|
|
$ |
(5.1 |
) |
|
$ |
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(in millions) |
|
March 31, 2015 |
|
|
Dec. 31, 2014 |
|
|
March 31, 2014 |
|
Bank service charges |
|
$ |
30.1 |
|
|
$ |
32.0 |
|
|
$ |
30.5 |
|
Commercial banking lending fees |
|
|
12.3 |
|
|
|
8.6 |
|
|
|
8.8 |
|
Investment management fees |
|
|
10.8 |
|
|
|
10.5 |
|
|
|
9.8 |
|
Operating lease income |
|
|
10.8 |
|
|
|
10.2 |
|
|
|
11.3 |
|
Insurance revenue |
|
|
7.6 |
|
|
|
6.6 |
|
|
|
7.7 |
|
Brokerage commissions |
|
|
3.2 |
|
|
|
3.4 |
|
|
|
3.2 |
|
Net gains (losses) on sales of acquired loans |
|
|
1.9 |
|
|
|
(0.3 |
) |
|
|
|
|
Net gains on sales of residential mortgage loans |
|
|
0.7 |
|
|
|
1.0 |
|
|
|
0.8 |
|
Other non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Customer interest rate swap income, net |
|
|
5.3 |
|
|
|
3.2 |
|
|
|
1.4 |
|
BOLI |
|
|
1.1 |
|
|
|
1.7 |
|
|
|
1.3 |
|
Net security gains |
|
|
|
|
|
|
2.7 |
|
|
|
0.1 |
|
Other |
|
|
5.2 |
|
|
|
7.2 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-interest income |
|
|
11.6 |
|
|
|
14.8 |
|
|
|
7.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
$ |
89.0 |
|
|
$ |
86.8 |
|
|
$ |
79.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income increased $9.1 million compared to the first quarter of 2014 and $2.2 million
compared to the fourth quarter of 2014. The increase in non-interest income compared to the first quarter of 2014 primarily reflects increases in customer interest rate swap income, commercial banking lending fees and net gains on sales of acquired
loans. The increase compared to the fourth quarter of 2014 primarily reflects increases in commercial banking lending fees, net gains on sales of acquired loans, customer interest rate swap income and insurance revenue, partially offset by a
decrease in net security gains and bank service charges.
Bank service charges continue to be impacted as a result of certain provisions
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the DFA) (see below). The increase in insurance revenue from the fourth quarter of 2014 reflects the seasonal nature of insurance renewals.
Assets under administration and those under full discretionary management, neither of which are reported as assets of Peoples United,
totaled $10.0 billion and $5.7 billion, respectively, at March 31, 2015, compared to $10.8 billion and $5.6 billion, respectively, at December 31, 2014.
The increase in commercial banking lending fees compared to both the first and fourth quarters of 2014 primarily reflects higher prepayment
fees in the first quarter of 2015. Compared to fourth quarter of 2014, the increase in operating lease income reflects higher levels of equipment leased to PCLC customers. The decrease in net gains on sales of residential mortgage loans from the
fourth quarter of 2014 primarily reflects a 14% decline in the volume of residential mortgage loan sales and narrower spreads on pricing. Net gains on sales of acquired loans in the first quarter of 2015 reflect sales of acquired loans with
contractual balances of $21.2 million and carrying amounts of $18.9 million.
On an FTE basis, BOLI income totaled $1.7 million in the
first quarter of 2015, compared to $1.9 million in the year-ago quarter and $2.6 million in the fourth quarter of 2014. BOLI income in the fourth quarter of 2014 includes death benefits received totaling $0.5 million. Net security gains in the
fourth quarter of 2014 include a $2.3 million gain resulting from the call of a single security acquired in a previous acquisition.
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 the Bank and Peoples United.
Enactment of the DFA has resulted in significant increases in the Companys regulatory compliance burden and costs and may restrict the financial products and services Peoples United offers to its customers.
62
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 DFA created a new
federal consumer protection agency, the Consumer Financial Protection Bureau (the CFPB), which is empowered to promulgate new consumer protection regulations and revise existing regulations in many areas of consumer protection. In
January 2014, a series of final rules issued by the CFPB to implement provisions in the DFA related to mortgage origination and mortgage servicing went into effect and may increase the cost of originating and servicing residential mortgage loans.
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(dollars in millions) |
|
March 31, 2015 |
|
|
Dec. 31, 2014 |
|
|
March 31, 2014 |
|
Compensation and benefits |
|
$ |
114.8 |
|
|
$ |
108.2 |
|
|
$ |
110.4 |
|
Occupancy and equipment |
|
|
38.7 |
|
|
|
36.3 |
|
|
|
38.0 |
|
Professional and outside service fees |
|
|
15.8 |
|
|
|
14.7 |
|
|
|
15.3 |
|
Regulatory assessments |
|
|
9.3 |
|
|
|
9.4 |
|
|
|
8.7 |
|
Operating lease expense |
|
|
9.3 |
|
|
|
8.9 |
|
|
|
11.1 |
|
Amortization of other acquisition-related intangibles |
|
|
5.9 |
|
|
|
6.2 |
|
|
|
6.2 |
|
Other non-interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Stationery, printing, postage and telephone |
|
|
4.8 |
|
|
|
5.1 |
|
|
|
5.4 |
|
Advertising and promotion |
|
|
2.3 |
|
|
|
3.7 |
|
|
|
2.5 |
|
Other |
|
|
16.7 |
|
|
|
15.2 |
|
|
|
19.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-interest expense |
|
|
23.8 |
|
|
|
24.0 |
|
|
|
27.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
$ |
217.6 |
|
|
$ |
207.7 |
|
|
$ |
216.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio |
|
|
61.9 |
% |
|
|
61.3 |
% |
|
|
63.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense increased $0.9 million compared to the first quarter of 2014 and $9.9 million
compared to the fourth quarter of 2014. Included in total non-interest expense are non-operating expenses (see below) totaling $6.0 million in the first quarter of 2015, $0.6 million in the fourth quarter of 2014 and $5.2 million in the first
quarter of 2014.
The improvement in the efficiency ratio compared to the first quarter of 2014 reflects an increase in adjusted total
revenues partially offset by an increase in adjusted total expenses. As compared to the fourth quarter of 2014, the increase in the efficiency ratio primarily reflects an increase in adjusted total expenses, partially offset by an increase in
adjusted total revenues (see Non-GAAP Financial Measures and Reconciliation to GAAP).
Compensation and benefits increased $4.4 million compared to the year-ago quarter and $6.6 million compared to the fourth quarter of 2014.
Compensation and benefits includes severance-related costs (non-operating expenses) totaling $0.7 million in the first quarter of 2015, $0.6 million in the fourth quarter of 2014 and $0.8 million in the first quarter of 2014. The year-over-year
increase ($4.5 million excluding non-operating expenses) primarily reflects normal merit increases and compensation and benefit costs for additional employees primarily within commercial banking, wealth management and regulatory compliance. The
increase from the fourth quarter of 2014 ($6.5 million excluding non-operating expenses) primarily reflects higher payroll and benefit-related costs in the first quarter of 2015.
63
The increase in occupancy and equipment compared to the fourth quarter of 2014 primarily reflects
seasonally-higher costs incurred in the first quarter of 2015. The increase in operating lease expense compared to the fourth quarter of 2014 relates to the higher level of equipment leased to PCLC customers. The decrease in advertising and
promotion compared to the fourth quarter of 2014 reflects the timing of certain advertising campaigns.
Regulatory assessments include
Federal Deposit Insurance Corporation (FDIC) insurance premiums that are primarily based on the Banks average total assets and average tangible equity, and FDIC-defined risk factors. The actual amount of future regulatory
assessments will be dependent on several factors, including: (i) the Banks average total assets and average tangible equity; (ii) the Banks risk profile; and (iii) whether additional special assessments are imposed in
future periods and the manner in which such assessments are determined. The increase in regulatory assessments compared to the first quarter of 2014 primarily reflects the increase in the Banks average total assets.
Scheduled amortization expense attributable to other acquisition-related intangible assets for the full-year of 2015 and each of the next five
years is as follows: $23.8 million in 2015; $22.7 million in 2016; $21.6 million in 2017; $10.2 million in 2018; $9.4 million in 2019; and $9.0 million in 2020.
Other non-interest expense in the first quarter of 2015 and 2014 includes charges associated with the writedowns of certain banking house
assets (non-operating) totaling $5.3 million and $4.4 million, respectively.
Income Taxes
Peoples Uniteds effective
income tax rate was 34.0% for the first quarter of 2015, which approximates the expected income tax rate for the full-year of 2015, compared to 33.9% for the full-year of 2014. Differences, if any, arising between Peoples Uniteds
effective income tax rate and the U.S. federal statutory rate of 35% are generally attributable to: (i) tax-exempt interest earned on certain investments; (ii) tax-exempt income from BOLI; and (iii) state income taxes.
FINANCIAL CONDITION
General
Total assets at March 31, 2015
were $36.4 billion, a $410 million increase from December 31, 2014, reflecting increases of $565 million in total securities and $337 million in total loans, partially offset by decreases of $457 million in cash and cash equivalents and
$100 million in securities purchased under agreements to resell. The increase in total securities reflects purchases of U.S. Treasury and agency securities, Federal Reserve Bank (FRB) stock, residential mortgage-backed securities and
municipal securities. The increase in total loans from December 31, 2014 to March 31, 2015 reflects increases of $238 million in commercial loans and $119 million in residential mortgage loans. Originated loans increased $430 million from
December 31, 2014 to $26.0 billion (commercial loans increased $317 million and retail loans increased $114 million) and acquired loans decreased $93 million. At March 31, 2015, the carrying amount of the acquired loan portfolio
totaled $958 million. The decrease in cash and cash equivalents primarily reflects a $446 million decrease in interest-bearing deposits at the FRB of New York.
Non-performing assets (excluding acquired non-performing loans) totaled $208.8 million at March 31, 2015, a $15.3 million decrease from
December 31, 2014, primarily reflecting decreases in non-performing commercial real estate loans of $16.9 million and non-performing commercial and industrial loans of $13.2 million, partially offset by increases in and non-performing equipment
financing loans of $9.5 million. The allowance for loan losses was $200.9 million ($191.1 million on originated loans and $9.8 million on acquired loans) at March 31, 2015, compared to $198.3 million ($188.1 million on originated loans and
$10.2 million on acquired loans) at December 31, 2014. At March 31, 2015, the originated allowance for loan losses as a percentage of originated loans was 0.74% and as a percentage of originated non-performing loans was 107.5%, compared to
0.74% and 95.5%, respectively, at December 31, 2014.
64
At March 31, 2015, total liabilities were $31.7 billion, a $361 million increase from
December 31, 2014, reflecting increases of $1.0 billion in total deposits, including a $5 million decrease in brokered deposits, partially offset by a $549 million decrease in total borrowings.
Peoples Uniteds total stockholders equity was $4.7 billion at March 31, 2015, a $48.8 million increase from
December 31, 2014. This increase primarily reflects net income of $59.2 million for the three month ended March 31, 2015 and a $27.6 million decrease in accumulated other comprehensive loss (AOCL) since
December 31, 2014, partially offset by dividends paid of $49.5 million in the three months ended March 31, 2015. As a percentage of total assets, stockholders equity was 12.9% at both March 31, 2015 and December 31,
2014. Tangible stockholders equity as a percentage of tangible assets was 7.5% at both March 31, 2015 and December 31, 2014.
Peoples Uniteds (consolidated) Tier 1 Leverage, Common Equity Tier 1, and Tier 1 and Total Risk-Based capital ratios were 8.3%,
10.0%, 10.0% and 11.9%, respectively, at March 31, 2015 (calculated in accordance with Basel III capital rules), compared to 7.9%, 9.8%, 9.8% and 12.2%, respectively, at December 31, 2014. The Banks Tier 1 Leverage, Common Equity
Tier 1, and Tier 1 and Total Risk-Based capital ratios were 8.8%, 10.6%, 10.6% and 13.1%, respectively, at March 31, 2015 (calculated in accordance with Basel III capital rules), compared to 8.5%, 10.5%, 10.5% and 13.1%, respectively, at
December 31, 2014 (see Regulatory Capital Requirements).
Loans
Peoples Uniteds lending
activities consist of originating loans secured by commercial and residential properties, and extending secured and unsecured loans to commercial and consumer customers.
The following tables summarize Peoples Uniteds loan portfolios:
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Property Type: |
|
|
|
|
|
|
|
|
Residential (multi-family) |
|
$ |
3,442.6 |
|
|
$ |
3,378.4 |
|
Retail |
|
|
2,349.3 |
|
|
|
2,422.0 |
|
Office buildings |
|
|
2,179.3 |
|
|
|
2,185.3 |
|
Industrial/manufacturing |
|
|
568.2 |
|
|
|
538.6 |
|
Hospitality/entertainment |
|
|
482.4 |
|
|
|
424.2 |
|
Mixed/special use |
|
|
182.8 |
|
|
|
165.2 |
|
Self storage |
|
|
137.6 |
|
|
|
147.3 |
|
Land |
|
|
61.5 |
|
|
|
62.7 |
|
Health care |
|
|
18.7 |
|
|
|
19.2 |
|
Other |
|
|
48.0 |
|
|
|
61.4 |
|
|
|
|
|
|
|
|
|
|
Total commercial real estate |
|
$ |
9,470.4 |
|
|
$ |
9,404.3 |
|
|
|
|
|
|
|
|
|
|
65
Commercial and Industrial
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Industry: |
|
|
|
|
|
|
|
|
Service |
|
$ |
1,339.8 |
|
|
$ |
1,328.5 |
|
Finance and insurance |
|
|
1,312.7 |
|
|
|
1,174.9 |
|
Manufacturing |
|
|
973.3 |
|
|
|
949.9 |
|
Real estate, rental and leasing |
|
|
812.0 |
|
|
|
873.5 |
|
Wholesale distribution |
|
|
794.4 |
|
|
|
802.6 |
|
Health services |
|
|
768.6 |
|
|
|
724.0 |
|
Retail sales |
|
|
622.7 |
|
|
|
589.0 |
|
Transportation/utility |
|
|
238.0 |
|
|
|
202.8 |
|
Construction |
|
|
186.7 |
|
|
|
194.4 |
|
Arts/entertainment/recreation |
|
|
142.1 |
|
|
|
130.4 |
|
Information/media |
|
|
102.5 |
|
|
|
102.2 |
|
Public administration |
|
|
52.6 |
|
|
|
57.2 |
|
Mining, oil and gas |
|
|
27.6 |
|
|
|
28.2 |
|
Other |
|
|
32.5 |
|
|
|
32.0 |
|
|
|
|
|
|
|
|
|
|
Total commercial and industrial |
|
$ |
7,405.5 |
|
|
$ |
7,189.6 |
|
|
|
|
|
|
|
|
|
|
Equipment Financing
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Industry: |
|
|
|
|
|
|
|
|
Transportation/utility |
|
$ |
1,003.8 |
|
|
$ |
994.8 |
|
Construction |
|
|
368.8 |
|
|
|
371.4 |
|
Finance, insurance and real estate |
|
|
323.6 |
|
|
|
328.3 |
|
Waste |
|
|
204.2 |
|
|
|
211.8 |
|
Printing |
|
|
185.5 |
|
|
|
192.5 |
|
Manufacturing |
|
|
163.0 |
|
|
|
174.9 |
|
Wholesale distribution |
|
|
138.8 |
|
|
|
146.8 |
|
Packaging |
|
|
134.1 |
|
|
|
140.0 |
|
Mining, oil and gas |
|
|
85.3 |
|
|
|
104.6 |
|
Service |
|
|
64.7 |
|
|
|
68.4 |
|
Health services |
|
|
55.5 |
|
|
|
51.9 |
|
Other |
|
|
94.0 |
|
|
|
80.1 |
|
|
|
|
|
|
|
|
|
|
Total equipment financing |
|
$ |
2,821.3 |
|
|
$ |
2,865.5 |
|
|
|
|
|
|
|
|
|
|
66
Residential Mortgage
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Adjustable-rate |
|
$ |
4,501.7 |
|
|
$ |
4,393.8 |
|
Fixed-rate |
|
|
548.8 |
|
|
|
538.2 |
|
|
|
|
|
|
|
|
|
|
Total residential mortgage |
|
$ |
5,050.5 |
|
|
$ |
4,932.0 |
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
Home equity lines of credit |
|
$ |
1,937.5 |
|
|
$ |
1,945.9 |
|
Home equity loans |
|
|
191.9 |
|
|
|
197.2 |
|
Indirect auto |
|
|
23.2 |
|
|
|
26.5 |
|
Other |
|
|
28.9 |
|
|
|
31.0 |
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
$ |
2,181.5 |
|
|
$ |
2,200.6 |
|
|
|
|
|
|
|
|
|
|
Asset Quality
Recent Trends
Significant volatility in the financial and capital markets for much of the period from 2008 through 2012 led to credit and liquidity concerns,
a recessionary economic environment and, in turn, weakness within the commercial sector. While Peoples United 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 interest income
and adversely impact loan loss experience, resulting in an increased provision and allowance for loan losses.
Peoples United
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 attempts to minimize losses associated with commercial 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.
Over the past few years, Peoples United
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, 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.
The Office
of the Comptroller of the Currency ( OCC) guidance requires that loans subject to a borrowers discharge from personal liability following a Chapter 7 bankruptcy be treated as TDRs, included in non-performing loans and written down
to the estimated collateral value, regardless of delinquency status. Included in TDRs at March 31, 2015 are $26.9 million of such loans. Of this amount, $17.7 million, or 66%, were less than 90 days past due on their payments as of that date.
67
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 for commercial loans or, in the case of a
retail loan, when the loan is less than 90 days past due. Loans may continue to be reported as TDRs after they are returned to accrual status.
During the three months ended March 31, 2015, we performed 14 loan modifications that were not classified as TDRs. The balances of the
loans at the time of the respective modifications totaled $17.9 million. 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 3 to the Consolidated Financial Statements for additional
disclosures relating to TDRs.
In October 2012, the FDIC adopted a final rule, which became effective April 1, 2013, that
(i) revised the definitions of certain higher-risk assets used for deposit insurance assessment purposes, including leveraged loans (which are referred to as higher-risk commercial and industrial loans) and selected consumer loans
(which are referred to as higher-risk consumer loans) and (ii) clarified when an asset must be classified as higher-risk. A consumer loan (residential mortgage loans and consumer loans for Peoples United) is considered
higher-risk if the probability of default on such loan, as determined using regulatory-defined historical two-year stress periods, is greater than 20%.
Portfolio Risk ElementsResidential Mortgage Lending
Peoples United does not actively engage in subprime mortgage lending which has, historically, been the riskiest sector of the residential
housing market. Peoples United 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 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 March 31,
2015, the loan portfolio included $1.0 billion of interest-only residential mortgage loans, of which $1.0 million are stated income loans (which Peoples United has not offered since mid-2007). Peoples United 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. Peoples United 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). In general, Peoples Uniteds 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.
Updated estimates of property values are obtained from an independent
third-party for residential mortgage loans 90 days past due. At March 31, 2015, non-performing residential mortgage loans totaling $1.9 million had current LTV ratios of more than 100%. At March 31, 2015, the weighted average LTV ratio and
FICO score for the residential mortgage loan portfolio were 63% and 751, respectively.
68
The Company continues to monitor its foreclosure policies and procedures to ensure ongoing
compliance with applicable industry standards. 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 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 the Company to any material loss.
During the three months ended March 31, 2015, the Company repurchased one residential mortgage loan from government sponsored enterprises
(GSEs) and other parties that we had previously sold to the GSEs and other parties. The balances of the loan at the time of the repurchase totaled $0.1 million and related fees and expenses incurred totaled less than $0.1 million. During
that same time period, the Company issued two investor refunds, totaling less than $0.1 million, under contractual recourse agreements. 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 March 31, 2015.
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 the 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 ElementsHome 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 3.00%, even though the initial rate may be substantially lower. The maximum LTV ratio is 80% on a single-family property, including a condominium, and 70% on a two-family property. 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
March 31, 2015, the committed amount of HELOCs scheduled to have the draw period end during the years shown:
|
|
|
|
|
December 31, (in millions) |
|
Credit Lines |
|
2015 |
|
$ |
152.0 |
|
2016 |
|
|
256.2 |
|
2017 |
|
|
330.2 |
|
2018 |
|
|
334.5 |
|
2019 |
|
|
155.3 |
|
2020 |
|
|
264.0 |
|
Later years |
|
|
2,199.8 |
|
|
|
|
|
|
Total |
|
$ |
3,692.0 |
|
|
|
|
|
|
69
Essentially all of our HELOCs (92%) 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 as of March 31, 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
|
Delinquencies |
|
(dollars in millions) |
|
Balance |
|
|
Amount |
|
|
Percent |
|
HELOC status: |
|
|
|
|
|
|
|
|
|
|
|
|
Still in draw period |
|
$ |
1,776.9 |
|
|
$ |
15.4 |
|
|
|
0.87 |
% |
Amortizing payment |
|
|
160.6 |
|
|
|
8.1 |
|
|
|
5.02 |
|
For the three months ended March 31, 2015, 34% of our borrowers with balances outstanding under HELOCs
paid only the minimum amount due.
The majority of home equity loans fully amortize over terms ranging from 5 to 20 years. Home equity
loans are limited to first or second liens on a borrowers primary residence. The maximum LTV ratio is 80% on a single-family property, including a condominium, and 70% on a two-family property. 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 home equity loans)
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 March 31, 2015, full and complete first lien position
data was not readily available for 46% 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 March 31, 2015, the portion of the home equity portfolio more than 90 days past due with a CLTV greater than 80% was $7.7
million.
As of March 31, 2015, full and complete first lien position data was readily available for 54%, or $1.1 billion, of the
home equity portfolio. Of that total, 38%, or $438.5 million, are in a junior lien position. We estimate that of those junior liens, 35%, or $153.5 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 March 31, 2015, there were 48 loans totaling $3.9 million for which we have received notification that the holder of a superior lien has commenced foreclosure action. For 30 of the loans (totaling
$1.8 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 $0.4 million as of March 31, 2015. 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 March 31, 2015.
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 March 31, 2015, 89% 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 total loans.
70
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.
As of March 31, 2015, the weighted average CLTV ratio and FICO score for the home equity portfolio were 56% and 757, respectively.
Portfolio Risk ElementsCommercial Real Estate Lending
In general, construction loans originated by Peoples United 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.
Peoples
Uniteds construction loan portfolio totaled $659.5 million (2% of total loans) at March 31, 2015. The total committed amount at that date, including both the outstanding balance and the unadvanced portion of such loans, was $1.1 billion.
In some cases, a portion of the total committed amount includes an accompanying interest reserve. At March 31, 2015, construction loans totaling $372.7 million had remaining available interest reserves of $33.8 million. At that date, the
Company had no construction loans with interest reserves that were on non-accrual status and included in non-performing loans.
Recent
economic conditions have 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 similar to
those discussed previously. Peoples United had $16.4 million of restructured construction loans at March 31, 2015.
71
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 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 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.
Peoples United 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 Uniteds 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 Uniteds 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 loans deemed to be impaired, including originated loans classified as 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, are estimated based on the frequency with which loans migrate from one risk rating to another and to default status over time as well as the length of time that it takes losses to emerge. Estimated loan default factors, which are updated
annually (or more frequently, if necessary), are multiplied by loan balances within each risk-rating category and again multiplied by a 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 also 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.
72
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 estimates. 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 evaluates the qualitative factors on a
quarterly basis in order to conclude that they continue to be appropriate. There were no significant changes in the amount of the qualitative component of the related allowance for loan losses during the three months ended March 31, 2015.
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, and the establishment of the
related allowance for loan losses, is based upon a consideration of (i) recent historical loss experience and (ii) certain qualitative factors.
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.
The
qualitative component of the allowance for loan losses for smaller-balance, homogenous loans is intended to incorporate risks inherent in the portfolio, economic uncertainties, regulatory requirements and other subjective factors such as changes in
underwriting standards. Accordingly, consideration is given to: (i) present and forecasted economic conditions, including unemployment rates; (ii) changes in industry trends, including the impact of new regulations, (iii) trends in
property values; (iv) broader portfolio indicators, including delinquencies, non-performing loans, portfolio concentrations, and trends in the volume and terms of loans; and (v) portfolio-specific risk characteristics.
The portfolio-specific risk characteristics considered include: (i) collateral values/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.), the combination of which results is a loan being classified as either High, Moderate or Low risk. These risk
classifications are reviewed quarterly to ensure that changes within the portfolio, as well as economic indicators and industry developments, have been appropriately considered in establishing the related allowance for loan losses.
In establishing the allowance for loan losses for smaller-balance, homogeneous loans, the amount reflecting the Companys consideration
of qualitative factors is added to the amount attributable to historical portfolio loss experience. 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 amount of the qualitative component of the related
allowance for loan losses during the three months ended March 31, 2015.
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.
73
Peoples United 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 loans secured
by residential real estate is to receive updated estimates of property values upon the loan being classified as non-performing (typically upon becoming 90 days past due).
In determining the allowance for loan losses, Peoples United 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 and home
equity portfolios by reference to available market indicators, including real estate price indices within the Companys primary lending areas.
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 did not change its methodologies with respect to determining the
allowance for loan losses during the first three months of 2015. As part of its ongoing assessment of the allowance for loan losses, Peoples United made refinements to certain underlying assumptions used in its methodology during 2014,
including the loss emergence period and selected qualitative factors. These refinements did not have a material impact on the allowance for loan losses or the provision for loan losses as of or for the three months ended March 31, 2015.
Acquired Loans
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.
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.
74
Provision and Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
March 31, |
|
(dollars in millions) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
Allowance for loan losses on originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
188.1 |
|
|
$ |
185.0 |
|
|
$ |
177.5 |
|
Charge-offs |
|
|
(8.1 |
) |
|
|
(9.7 |
) |
|
|
(6.4 |
) |
Recoveries |
|
|
0.9 |
|
|
|
1.2 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs |
|
|
(7.2 |
) |
|
|
(8.5 |
) |
|
|
(5.5 |
) |
Provision for loan losses |
|
|
10.2 |
|
|
|
11.6 |
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
191.1 |
|
|
$ |
188.1 |
|
|
$ |
180.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses on acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
10.2 |
|
|
$ |
11.9 |
|
|
$ |
10.3 |
|
Charge-offs |
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
Provision for loan losses |
|
|
(0.4 |
) |
|
|
(1.7 |
) |
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
9.8 |
|
|
$ |
10.2 |
|
|
$ |
10.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial originated allowance for loan losses as a percentage of originated commercial banking loans |
|
|
0.91 |
% |
|
|
0.91 |
% |
|
|
0.95 |
% |
Retail originated allowance for loan losses as a percentage of originated retail loans |
|
|
0.26 |
|
|
|
0.27 |
|
|
|
0.32 |
|
Total originated allowance for loan losses as a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans |
|
|
0.74 |
|
|
|
0.74 |
|
|
|
0.78 |
|
Originated non-performing loans |
|
|
107.5 |
|
|
|
95.5 |
|
|
|
92.7 |
|
The provision for loan losses on originated loans totaled $10.2 million in the first quarter of 2015,
reflecting $7.2 million in net loan charge-offs (including $3.2 million against previously-established specific reserves) and a $6.2 million increase in the originated allowance for loan losses in response to growth in both the commercial and
residential mortgage loan portfolios. The provision for loan losses on originated loans totaled $11.6 million in the fourth quarter of 2014, reflecting $8.5 million in net loan charge-offs (including $4.0 million against previously-established
specific reserves) and a $7.1 million increase in the originated allowance for loan losses in response to growth in both the commercial and residential mortgage loan portfolios. The provision for loan losses on originated loans totaled $8.0 million
in the first quarter of 2014, reflecting $5.5 million in net loan charge-offs (including $2.5 million against previously-established specific reserves) and a $5.0 million increase in the originated allowance for loan losses in response to growth in
both the commercial and residential mortgage loan portfolios. The provision for loan losses on acquired loans in both the first quarter of 2015 and the fourth quarter of 2014 reflect allowance reversals. The provision for loan losses on acquired
loans in the first quarter of 2014 reflects loan impairment primarily attributable to a single credit.
Management believes that the level
of the allowance for loan losses at March 31, 2015 is appropriate to cover probable losses.
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.
75
For commercial 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 that 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
March 31, |
|
(in millions) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
2.8 |
|
|
$ |
3.3 |
|
|
$ |
2.9 |
|
Commercial and industrial |
|
|
2.1 |
|
|
|
3.2 |
|
|
|
0.6 |
|
Equipment financing |
|
|
1.1 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6.0 |
|
|
|
6.5 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
0.4 |
|
|
|
0.2 |
|
|
|
1.0 |
|
Home equity |
|
|
0.5 |
|
|
|
1.3 |
|
|
|
1.7 |
|
Other consumer |
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1.2 |
|
|
|
2.0 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loan charge-offs |
|
$ |
7.2 |
|
|
$ |
8.5 |
|
|
$ |
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loan Charge-Offs as a Percentage of Average Total Loans (Annualized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2014 |
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
0.12 |
% |
|
|
0.14 |
% |
|
|
0.13 |
% |
Commercial and industrial |
|
|
0.12 |
|
|
|
0.19 |
|
|
|
0.04 |
|
Equipment financing |
|
|
0.04 |
|
|
|
|
|
|
|
0.08 |
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.08 |
|
Home equity |
|
|
0.10 |
|
|
|
0.24 |
|
|
|
0.33 |
|
Other consumer |
|
|
1.62 |
|
|
|
2.87 |
|
|
|
1.45 |
|
Total portfolio |
|
|
0.11 |
% |
|
|
0.13 |
% |
|
|
0.12 |
% |
Net loan charge-offs as a percentage of average total loans (annualized) were 0.11%. The comparatively low
level of net loan charge-offs in recent years, in terms of absolute dollars and as a percentage of average total loans, may not be sustainable in the future.
76
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.
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 collectability 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 March 31, 2015 or December 31, 2014.
Non-Performing Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Dec. 31, |
|
|
Sept. 30, |
|
|
June 30, |
|
|
March 31, |
|
(dollars in millions) |
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
Originated non-performing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
43.3 |
|
|
$ |
60.2 |
|
|
$ |
56.0 |
|
|
$ |
59.7 |
|
|
$ |
60.1 |
|
Commercial and industrial |
|
|
42.6 |
|
|
|
55.8 |
|
|
|
52.8 |
|
|
|
45.8 |
|
|
|
41.7 |
|
Equipment financing |
|
|
34.9 |
|
|
|
25.4 |
|
|
|
29.3 |
|
|
|
30.7 |
|
|
|
22.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
120.8 |
|
|
|
141.4 |
|
|
|
138.1 |
|
|
|
136.2 |
|
|
|
123.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
37.5 |
|
|
|
37.6 |
|
|
|
41.8 |
|
|
|
44.8 |
|
|
|
51.3 |
|
Home equity |
|
|
19.4 |
|
|
|
17.9 |
|
|
|
16.6 |
|
|
|
18.0 |
|
|
|
19.0 |
|
Other consumer |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
57.0 |
|
|
|
55.6 |
|
|
|
58.5 |
|
|
|
62.9 |
|
|
|
70.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated non-performing loans (1) |
|
|
177.8 |
|
|
|
197.0 |
|
|
|
196.6 |
|
|
|
199.1 |
|
|
|
194.3 |
|
REO: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
16.5 |
|
|
|
13.6 |
|
|
|
16.2 |
|
|
|
14.9 |
|
|
|
17.0 |
|
Commercial |
|
|
10.2 |
|
|
|
11.0 |
|
|
|
12.4 |
|
|
|
13.9 |
|
|
|
16.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total REO |
|
|
26.7 |
|
|
|
24.6 |
|
|
|
28.6 |
|
|
|
28.8 |
|
|
|
33.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossessed assets |
|
|
4.3 |
|
|
|
2.5 |
|
|
|
3.5 |
|
|
|
4.8 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
208.8 |
|
|
$ |
224.1 |
|
|
$ |
228.7 |
|
|
$ |
232.7 |
|
|
$ |
231.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated non-performing loans as a percentage of originated loans |
|
|
0.68 |
% |
|
|
0.77 |
% |
|
|
0.79 |
% |
|
|
0.82 |
% |
|
|
0.84 |
% |
Non-performing assets as a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans, REO and repossessed assets |
|
|
0.80 |
|
|
|
0.88 |
|
|
|
0.92 |
|
|
|
0.96 |
|
|
|
1.00 |
|
Tangible stockholders equity and originated allowance for loan losses |
|
|
7.52 |
|
|
|
8.24 |
|
|
|
8.37 |
|
|
|
8.61 |
|
|
|
8.72 |
|
(1) |
Reported net of government guarantees totaling: $17.5 million at March 31, 2015; $17.6 million at December 31, 2014; $18.1 million at September 30, 2014; $18.4 million at June 30, 2014; and
$19.2 million at March 31, 2014. 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 March 31, 2015, the principal loan classes to which these government guarantees relate are commercial and industrial loans (99%) and commercial real
estate loans (1%). |
77
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 (LSA) totaling: $72.2 million and $2.6 million, respectively, at March 31, 2015; $100.6 million and $3.0 million, respectively, at December 31, 2014; $113.3
million and $3.0 million, respectively, at September 30, 2014; $114.1 million and $4.2 million, respectively, at June 30, 2014; and $141.4 million and $4.3 million, respectively, at March 31, 2014. Such loans otherwise meet
Peoples Uniteds 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 LSA. 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.
Total non-performing assets decreased $15.3 million from December 31, 2014 and equaled 0.80% of originated
loans, real estate owned (REO) and repossessed assets at March 31, 2015. The decrease in total non-performing assets from December 31, 2014 primarily reflects decreases in non-performing commercial real estate loans of $16.9
million and non-performing commercial and industrial loans of $13.2 million, partially offset by increases in non-performing equipment financing loans of $9.5 million and REO of $2.1 million.
All loans and REO acquired in the Butler Bank acquisition (completed in 2010) are subject to an FDIC LSA, which 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 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 has also identified $606.0 million in originated potential problem loans at March 31, 2015. 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
Uniteds loan rating system, which is consistent with guidelines established by banking regulators.
At March 31, 2015,
originated potential problem loans consisted of commercial and industrial loans ($284.4 million), commercial real estate loans ($83.8 million) and equipment financing loans ($237.8 million). 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. While management
takes a proactive approach with respect to the identification and resolution of problem loans, the level of non-performing assets may increase in the future.
78
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 Uniteds and the 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 Uniteds, as well as the Banks, liquidity positions are monitored daily by management. The Asset and Liability
Management Committee (ALCO) of the Bank has been authorized by the Board of Directors of Peoples United to set guidelines to ensure maintenance of prudent levels of liquidity for Peoples United as well as for the Bank. ALCO
reports to the Treasury and Finance Committee of the Board of Directors of Peoples United.
Asset liquidity is provided by: cash;
short-term investments and securities purchased under agreements to resell; proceeds from maturities, principal repayments and sales of securities; 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 present data on cash provided by and used in Peoples Uniteds operating, investing and financing activities.
At March 31, 2015, Peoples United (parent company) liquid assets included $198 million in intercompany short-term advances to the Bank and $128 million in debt securities available for sale while the Banks liquid assets included
$557 million in cash and cash equivalents and $4.3 billion in debt securities available for sale. Securities available for sale with a fair value of $1.47 billion at March 31, 2015 were pledged as collateral for public deposits and for
other purposes.
Liability liquidity is measured by Peoples Uniteds and the 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 $27.1 billion at March 31, 2015 and represented 75% of total
funding (the sum of total deposits, total borrowings, notes and debentures, and stockholders equity). Borrowings are used to diversify Peoples Uniteds funding mix and to support asset growth. Borrowings and notes and debentures
totaled $3.1 billion and $1.0 billion, respectively, at March 31, 2015, representing 9% and 3%, respectively, of total funding at that date.
The Banks current available sources of borrowings include: federal funds purchased, advances from the Federal Home Loan Bank
(FHLB) of Boston and the FRB of New York, and repurchase agreements. At March 31, 2015, the Banks total borrowing capacity from (i) the FHLB of Boston and the FRB of New York for advances and (ii) repurchase
agreements was $9.1 billion based on the level of qualifying collateral available for these borrowings. In addition, the Bank had unsecured borrowing capacity of $1.2 billion at that date. FHLB advances are secured by the Banks investment
in FHLB stock and by a security agreement that requires the Bank to maintain, as collateral, sufficient qualifying assets not otherwise pledged (principally single-family residential mortgage loans, HELOCs, home equity loans and commercial real
estate loans).
At March 31, 2015, the Bank had outstanding commitments to originate loans totaling $1.4 billion and approved, but
unused, lines of credit extended to customers totaling $5.6 billion (including $2.0 billion of HELOCs).
The sources of liquidity
discussed above are deemed by management to be sufficient to fund outstanding loan commitments and to meet Peoples Uniteds and the Banks other obligations.
Stockholders Equity and Dividends
Peoples Uniteds total stockholders equity was $4.68 billion at March 31, 2015, a $48.8 million increase from
December 31, 2014. This increase primarily reflects net income of $59.2 million for the three months ended March 31, 2015 and a $27.6 million decrease in AOCL since December 31, 2014, partially offset by dividends paid of
$49.5 million in the three months ended March 31, 2015. The decrease in AOCL, net of tax, primarily reflects a decrease in the net unrealized loss on securities available for sale. Stockholders equity equaled 12.9% of total assets at both
March 31, 2015 and December 31, 2014. Tangible stockholders equity equaled 7.5% of tangible assets at both March 31, 2015 and December 31, 2014.
In April 2015, Peoples Uniteds Board of Directors voted to increase the dividend on common stock to an annual rate of
$0.67 per share. The quarterly dividend of $0.1675 per share is payable on May 15, 2015 to shareholders of record on May 1, 2015. In February 2015, the Bank paid a cash dividend of $62 million to Peoples United.
79
Regulatory Capital Requirements
Peoples United and the Bank
are subject to Basel III capital rules that became effective on January 1, 2015. The Basel III capital rules, 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 prior 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 total 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 total risk-weighted assets of at least 7.0%); (ii) a minimum ratio of Tier 1 capital to total 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 total 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) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average total assets, as defined.
The following summary compares Peoples Uniteds and the Banks regulatory capital amounts and ratios under the Basel III
capital rules:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2015 |
|
|
Minimum Capital Required Basel III Phase-In (2015) |
|
|
Classification as Well-Capitalized |
|
(dollars in millions) |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Tier 1 Leverage (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples United |
|
$ |
2,808.3 |
|
|
|
8.3 |
% |
|
$ |
1,354.6 |
|
|
|
4.0 |
% |
|
$ |
1,693.2 |
|
|
|
5.0 |
% |
Bank |
|
|
2,973.5 |
|
|
|
8.8 |
|
|
|
1,351.4 |
|
|
|
4.0 |
|
|
|
1,689.2 |
|
|
|
5.0 |
|
Common Equity Tier 1 Capital (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples United |
|
|
2,808.3 |
|
|
|
10.0 |
|
|
|
1,523.9 |
|
|
|
4.5 |
|
|
|
2,201.2 |
|
|
|
6.5 |
|
Bank |
|
|
2,973.5 |
|
|
|
10.6 |
|
|
|
1,520.3 |
|
|
|
4.5 |
|
|
|
2,196.0 |
|
|
|
6.5 |
|
Tier 1 Risk-Based Capital (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples United |
|
|
2,808.3 |
|
|
|
10.0 |
|
|
|
1,686.0 |
|
|
|
6.0 |
|
|
|
2,247.9 |
|
|
|
8.0 |
|
Bank |
|
|
2,973.5 |
|
|
|
10.6 |
|
|
|
1,685.0 |
|
|
|
6.0 |
|
|
|
2,246.7 |
|
|
|
8.0 |
|
Total Risk-Based Capital (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoples United |
|
|
3,357.6 |
|
|
|
11.9 |
|
|
|
2,247.9 |
|
|
|
8.0 |
|
|
|
2,809.9 |
|
|
|
10.0 |
|
Bank |
|
|
3,676.9 |
|
|
|
13.1 |
|
|
|
2,246.7 |
|
|
|
8.0 |
|
|
|
2,808.4 |
|
|
|
10.0 |
|
(1) |
Tier 1 Leverage ratio represents Tier 1 Capital divided by Average Total Assets (less goodwill, other acquisition-related intangibles and other deductions from Common Equity Tier 1 Capital). |
(2) |
Common Equity Tier 1 Capital ratio represents total stockholders equity, excluding: (i) after-tax net unrealized gains (losses) on certain securities classified as available for sale; (ii) after-tax net
unrealized gains (losses) on securities transferred to held to maturity; (iii) goodwill and other acquisition-related intangible assets; and (iv) the amount recorded in AOCL relating to pension and other postretirement benefits divided by Total
Risk-Weighted Assets. |
(3) |
Tier 1 Risk-Based Capital ratio represents Common Equity Tier 1 Capital plus additional Tier 1 Capital (together, Tier 1 Capital) divided by Total Risk-Weighted Assets. |
(4) |
Total Risk-Based Capital ratio represents Tier 1 Capital plus subordinated notes and debentures, up to certain limits, and the allowance for loan losses, up to 1.25% of Total Risk-Weighted Assets, divided by Total
Risk-Weighted Assets. |
Management currently estimates that, as of March 31, 2015, the Companys and the Banks
risk-based capital ratios could be negatively impacted by as much as 25-35 basis points on a fully phased-in basis.
80
The following summary compares the Banks regulatory capital amounts and ratios to the
OCCs requirements for classification as a well-capitalized institution and for minimum capital adequacy. At December 31, 2014, the Banks adjusted total assets, as defined, were $34.0 billion and its total risk-weighted assets, as
defined, were $27.5 billion. At December 31, 2014, the Bank exceeded each of its regulatory capital requirements.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OCC Requirements |
|
|
|
|
|
|
|
|
|
Classification as |
|
|
Minimum |
|
As of December 31, 2014 |
|
Peoples United Bank |
|
|
Well-Capitalized |
|
|
Capital Adequacy |
|
(dollars in millions) |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Tangible capital |
|
$ |
2,881.5 |
(1) |
|
|
8.5 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
$ |
510.3 |
|
|
|
1.5 |
% |
Leverage (core) capital |
|
|
2,881.5 |
(1) |
|
|
8.5 |
|
|
$ |
1,700.9 |
|
|
|
5.0 |
% |
|
|
1,360.8 |
|
|
|
4.0 |
|
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 |
|
|
2,881.5 |
(1) |
|
|
10.5 |
|
|
|
1,647.3 |
|
|
|
6.0 |
|
|
|
1,098.2 |
|
|
|
4.0 |
|
Total |
|
|
3,582.2 |
(2) |
|
|
13.0 |
|
|
|
2,745.4 |
|
|
|
10.0 |
|
|
|
2,196.3 |
|
|
|
8.0 |
|
(1) |
Represents the Banks total equity capital, excluding: (i) after-tax net unrealized gains and losses on certain securities classified as available for sale; (ii) after-tax net unrealized gains and losses on
securities transferred to held to maturity; (iii) after-tax net unrealized gains and losses on derivatives accounted for as cash flow hedges; (iv) certain assets not recognized for regulatory capital purposes (principally goodwill and other
acquisition-related intangible assets); and (v) the amount recorded in AOCL 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. |
Market Risk Management
Market risk represents the risk of loss to earnings, capital and the economic values of certain assets and liabilities resulting from changes
in interest rates, equity prices and foreign currency exchange rates. The only significant market risk exposure for Peoples United at this time is IRR, which is a result of the Companys core business activities of making loans and
accepting deposits.
Interest Rate Risk
The effective management of IRR is essential to achieving the Companys financial objectives. Responsibility for overseeing management of
IRR resides with ALCO. The goal of ALCO is to generate a stable net interest margin over entire interest rate cycles regardless of changes in either short- or long-term interest rates. Generating earnings by taking excessive IRR is prohibited by the
IRR limits established by the Companys Board of Directors. ALCO manages IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are
complementary and provide both short-term and long-term risk profiles of the Company.
Net Interest Income at Risk Simulation is
used to measure the sensitivity of net interest income to changes in market rates over a forward twelve-month period. This simulation captures underlying product behaviors, such as asset and liability re-pricing dates, balloon dates, interest rate
indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as: (i) future balance sheet volume and mix assumptions that are management
judgments based on estimates and historical experience; (ii) prepayment projections for loans and securities that are projected under each interest rate scenario using internal and external analytics; (iii) new business loan rates that are
based on recent new business origination experience; and (iv) deposit pricing assumptions that are based on historical regression models and management judgment. Combined, these assumptions can be inherently uncertain, and as a result, actual
results may differ from simulation forecasts due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies.
81
The Company uses two sets of standard scenarios to measure net interest income at risk. Parallel
shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Yield curve twist scenarios assume the shape of the curve flattens or steepens instantaneously centered around the 18-month point of
the curve, thereby segmenting the yield curve into a short-end and a long-end. Internal policy regarding IRR simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at
risk for the subsequent one-year period should not decline by more than: 7% for a 100 basis point shift; 10% for a 200 basis point shift; and 15% for a 300 basis point shift. Current policy does not specify limits for yield curve twist simulations.
The following tables set forth the estimated percent change in the Companys net interest income at risk over one-year simulation
periods beginning March 31, 2015 and December 31, 2014. Given the interest rate environment at those dates, simulations for interest rate declines of more than 25 basis points were not deemed to be meaningful.
|
|
|
|
|
|
|
|
|
|
|
Estimated Percent Change in |
|
Parallel Shock Rate Change |
|
Net Interest Income |
|
(basis
points) |
|
March 31, 2015 |
|
|
December 31, 2014 |
|
+300 |
|
|
10.2 |
% |
|
|
9.2 |
% |
+200 |
|
|
7.6 |
|
|
|
6.9 |
|
+100 |
|
|
3.9 |
|
|
|
3.4 |
|
-25 |
|
|
(1.3 |
) |
|
|
(1.1 |
) |
|
|
|
|
Estimated Percent Change in |
|
Yield Curve Twist Rate Change |
|
Net Interest Income |
|
(basis
points) |
|
March 31, 2015 |
|
|
December 31, 2014 |
|
Short End -25 |
|
|
(0.3 |
)% |
|
|
(0.2 |
)% |
Short End +100 |
|
|
1.3 |
|
|
|
1.1 |
|
Short End +200 |
|
|
3.2 |
|
|
|
2.7 |
|
Long End -100 |
|
|
(4.7 |
) |
|
|
(4.1 |
) |
Long End +100 |
|
|
2.7 |
|
|
|
2.6 |
|
Long End +200 |
|
|
5.0 |
|
|
|
4.9 |
|
The net interest income at risk simulation results indicate that at both March 31, 2015 and
December 31, 2014, the Company is asset sensitive over the twelve-month forecast horizon (i.e. net interest income will increase if market rates rise). This is primarily due to (i) approximately 90% of the Companys loan portfolio
being funded by less rate-sensitive core deposits and (ii) approximately 40% of the Companys loan portfolio being comprised of Prime and one-month Libor-based floating-rate loans. The increase in asset sensitivity in the +100 basis points
scenario reflects increases in both floating-rate loans and core deposits since December 31, 2014.
The Company is more asset
sensitive when the short-end rises as a result of the increases in both one-month Libor-based floating-rate loans and core deposits since December 31, 2014. Based on the Companys IRR
position at March 31, 2015, an immediate 100 basis point increase in interest rates translates to an approximate $38 million increase in net interest income on an annualized basis.
82
Economic Value of Equity at Risk Simulation is conducted in tandem with net interest
income simulations, to ascertain a longer term view of the Companys IRR position by capturing longer-term re-pricing risk and options risk embedded in the balance sheet. It measures the sensitivity of economic value of equity to changes in
interest rates. Economic value of equity at risk simulation values only the current balance sheet and does not incorporate the growth assumptions used for income simulations. As with net interest income modeling, this simulation captures product
characteristics such as loan resets, re-pricing terms, maturity dates, rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity and non-maturity deposit attrition rates. These assumptions can have significant
impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. The Company conducts core deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process.
All key assumptions are subject to periodic review.
Base case economic value of equity at risk is calculated by estimating the net
present value of all future cash flows from existing assets and liabilities using current interest rates. The base case scenario assumes that future interest rates remain unchanged. Internal policy currently limits the exposure to a decrease in
economic value of equity at risk resulting from instantaneous parallel shifts of the yield curve in the following manner: 5% for a 100 basis point shift; 10% for a 200 basis point shift; and 15% for a 300 basis point shift.
The following table sets forth the estimated percent change in the Companys economic value of equity at risk, assuming various
instantaneous parallel shocks in interest rates. Given the interest rate environment at both March 31, 2015 and December 31, 2014, simulations for interest rate declines of more than 25 basis points were not deemed to be meaningful.
|
|
|
|
|
|
|
|
|
|
|
Estimated Percent Change in |
|
Parallel Shock Rate Change |
|
Economic Value of Equity |
|
(basis
points) |
|
March 31, 2015 |
|
|
December 31, 2014 |
|
+300 |
|
|
(5.2 |
)% |
|
|
(7.8 |
)% |
+200 |
|
|
(1.2 |
) |
|
|
(3.3 |
) |
+100 |
|
|
0.8 |
|
|
|
(0.6 |
) |
-25 |
|
|
(0.9 |
) |
|
|
(0.4 |
) |
The Companys economic value of equity at risk profile indicates that at both March 31, 2015 and
December 31, 2014, the Company is moderately liability sensitive in a rising interest rate environment. This liability sensitive profile is the result of slightly longer asset duration compared to the duration of liabilities. The Companys
economic value of equity risk declined at March 31, 2015 as compared to December 31, 2014, reflecting increases in floating rate loans and core deposits. Lower interest rates in the quarter also contributed to the decline in economic
value of equity risk, as lower interest rates serve to lengthen the life of indeterminate maturity deposits and shorten the life of mortgage-related assets and, together, reduce long-term liability sensitivity.
Peoples Uniteds IRR position at March 31, 2015, as set forth in the net interest income at risk and economic value of equity
at risk tables above, reflects an asset sensitive net interest income at risk position and moderately liability sensitive economic value of equity at risk position. From a net interest income perspective, asset sensitivity over the next 12 months is
primarily attributable to the effect of the substantial Prime and Libor-based loan balances that are primarily funded by less interest rate sensitive deposits. From an economic value of equity perspective, the increased value of these deposits in a
rising interest rate environment is less than the decline in value of fixed-rate assets, which serves to create a moderately liability sensitive risk position. Given the uncertainty of the magnitude, timing and direction of future interest rate
movements and the shape of the yield curve, actual results may vary from those predicted by the Companys models.
Management has
established procedures to be followed in the event of an anticipated or actual breach in policy limits. As of March 31, 2015, there were no breaches of the Companys internal policy limits with respect to either IRR measure. Management
utilizes both interest rate measures in the normal course of measuring and managing IRR and believes that each measure is valuable in understanding the Companys IRR position.
83
Peoples United uses derivative financial instruments, including interest rate swaps, as
components of its market risk management (principally to manage IRR). Certain other derivatives are entered into in connection with transactions with commercial customers. Derivatives are not used for speculative purposes. At March 31, 2015,
Peoples United used interest rate swaps to manage IRR associated with certain interest-bearing liabilities.
Peoples United
has entered into a pay fixed/receive floating interest rate swap to hedge the LIBOR-based floating interest rate payments on the Companys $125 million subordinated notes (such payments began in February 2012). These notes had a fixed interest
rate of 5.80% until February 2012, at which time the interest rate converted to three-month LIBOR plus 68.5 basis points. Peoples United has agreed with the swap counterparty to exchange, at specified
intervals, the difference between fixed-rate (1.99%) and floating-rate interest amounts calculated based on a notional amount of $125 million. The floating-rate interest amounts received under the swap
are calculated using the same floating-rate paid on these notes. The swap effectively converts the variable-rate subordinated notes to a
fixed-rate liability and consequently reduces Peoples Uniteds exposure to increases in interest rates. This swap is accounted for as a cash flow hedge.
The Bank has entered into a pay floating/receive fixed interest rate swap to hedge the change in fair value of the Banks
$400 million subordinated notes due to changes in interest rates. The Bank has agreed with the swap counterparty to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated based on a
notional amount of $375 million. The fixed-rate interest payments received on the swap will essentially offset the fixed-rate interest payments made on these notes, notwithstanding the notional difference between these notes and the swap. The
floating-rate interest amounts paid under the swap are calculated based on three-month LIBOR plus 126.5 basis points. The swap effectively converts the fixed-rate subordinated notes to a floating-rate liability. This swap is accounted for as a fair
value hedge.
Peoples United has written guidelines that have been approved by its Board of Directors and ALCO governing the use of
derivative financial instruments, including approved counterparties and credit limits. Credit risk associated with these instruments is controlled and monitored through policies and procedures governing collateral management and credit approval.
By using derivatives, Peoples United is exposed to credit risk to the extent that counterparties to the derivative contracts do not
perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Companys counterparty credit risk is equal to the amount reported as a derivative asset in the Consolidated Statements of Condition. In
accordance with the Companys balance sheet offsetting policy (see Note 12 to the Consolidated Financial Statements), amounts reported as derivative assets represent derivative contracts in a gain position, without consideration for derivative
contracts in a loss position with the same counterparty (to the extent subject to master netting arrangements) and posted collateral. Peoples United seeks to minimize counterparty credit risk through credit approvals, limits, monitoring
procedures, execution of master netting arrangements and obtaining collateral, where appropriate. Counterparties to Peoples Uniteds derivatives include major financial institutions and exchanges that undergo comprehensive and periodic
internal credit analysis as well as maintain investment grade credit ratings from the major credit rating agencies. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote and
losses, if any, would be immaterial.
84
Certain of Peoples Uniteds derivative contracts contain provisions establishing
collateral requirements (subject to minimum collateral posting thresholds) based on the Companys external credit rating. If the Companys senior unsecured debt rating were to fall below the level generally recognized as investment grade,
the counterparties to such derivative contracts could require additional collateral on those derivative transactions in a net liability position (after considering the effect of master netting arrangements and posted collateral). The aggregate fair
value of derivative instruments with such credit-related contingent features that were in a net liability position at March 31, 2015 was $10.6 million, for which Peoples United had posted collateral of $10.1 million in the normal course
of business. If the Companys senior unsecured debt rating had fallen below investment grade as of that date, $0.5 million in additional collateral would have been required.
Foreign Currency Risk
Foreign exchange
contracts are commitments to buy or sell foreign currency on a future date at a contractual price. Peoples United uses these instruments on a limited basis to eliminate its exposure to fluctuations in currency exchange rates on certain of its
commercial loans that are denominated in foreign currencies. Gains and losses on foreign exchange contracts substantially offset the translation gains and losses on the related loans.
Derivative Financial Instruments
The
following table summarizes certain information concerning derivative financial instruments utilized by Peoples United in its management of IRR and foreign currency risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
|
Foreign |
|
|
|
Cash Flow |
|
|
Fair Value |
|
|
Exchange |
|
As of March 31, 2015 (dollars in millions) |
|
Hedge |
|
|
Hedge |
|
|
Contracts |
|
Notional principal amounts |
|
|
$ 125.0 |
|
|
|
$ 375.0 |
|
|
$ |
51.6 |
|
Weighted average interest rates: |
|
|
|
|
|
|
|
|
|
|
|
|
Pay floating (receive fixed) |
|
|
N/A |
|
|
|
Libor +1.265% (4.00%) |
|
|
|
N/A |
|
Pay fixed (receive floating) |
|
|
1.99% (Libor + 0.685%) |
|
|
|
N/A |
|
|
|
N/A |
|
Weighted average remaining term to maturity (in months) |
|
|
23 |
|
|
|
112 |
|
|
|
2 |
|
Fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
Recognized as an asset |
|
|
$ |
|
|
|
$ 23.7 |
|
|
$ |
1.0 |
|
Recognized as a liability |
|
|
1.3 |
|
|
|
|
|
|
|
0.5 |
|
85
Peoples United enters into interest rate swaps with certain of its commercial customers. In
order to minimize its risk, these customer derivatives (pay floating/receive fixed) have been offset with essentially matching interest rate swaps with Peoples Uniteds institutional counterparties (pay fixed/receive floating). Hedge
accounting has not been applied for these derivatives. Accordingly, changes in the fair value of all such interest rate swaps are recognized in current earnings.
The following table summarizes certain information concerning these interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
|
|
Commercial |
|
|
Institutional |
|
As of March 31, 2015 (dollars in millions) |
|
Customers |
|
|
Counterparties |
|
Notional principal amounts |
|
|
$ 3,871.5 |
|
|
|
$ 3,871.5 |
|
Weighted average interest rates: |
|
|
|
|
|
|
|
|
Pay floating (receive fixed) |
|
|
0.58% (2.04%) |
|
|
|
|
|
Pay fixed (receive floating) |
|
|
|
|
|
|
1.94% (0.58%) |
|
Weighted average remaining term to maturity (in months) |
|
|
88 |
|
|
|
88 |
|
Fair value: |
|
|
|
|
|
|
|
|
Recognized as an asset |
|
|
$ 149.1 |
|
|
|
$ 3.3 |
|
Recognized as a liability |
|
|
1.7 |
|
|
|
125.5 |
|
See Notes 11 and 12 to the Consolidated Financial Statements for further information relating to derivatives.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
The information required by this item appears on pages 81 through 86 of this report.
Item 4 Controls and Procedures
Peoples Uniteds management, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness
of Peoples Uniteds disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that Peoples Uniteds disclosure controls and procedures are effective, as of March 31, 2015, to ensure that information relating to Peoples United, which is required to be disclosed in the reports
Peoples United files with the Securities and Exchange Commission under the Exchange Act, is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to management, including the
principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
During the quarter ended March 31, 2015, there has not been any change in Peoples Uniteds internal control over financial
reporting that has materially affected, or is reasonably likely to materially affect, Peoples Uniteds internal control over financial reporting.
Part II Other Information
Item 1 Legal Proceedings
In the normal course of business, Peoples United is subject to various legal proceedings.
Management has discussed with legal counsel the nature of these legal proceedings. In the opinion of management, Peoples Uniteds financial condition, results of operations or liquidity will not be affected materially as a result of the
eventual outcome of these legal proceedings. See Note 8 to the Consolidated Financial Statements for a further discussion of legal proceedings.
Item 1A Risk Factors
There have been no material changes in risk factors since December 31, 2014.
86
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
(c) The following table provides information with respect to purchases made by Peoples United of its common stock during the
three months ended
March 31, 2015:
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of |
|
|
Maximum number |
|
|
|
|
|
|
|
|
|
shares purchased as |
|
|
of shares that may |
|
|
|
Total number |
|
|
Average |
|
|
part of publicly |
|
|
yet be purchased |
|
|
|
of shares |
|
|
price paid |
|
|
announced plans |
|
|
under the plans |
|
Period |
|
purchased |
|
|
per share |
|
|
or programs |
|
|
or programs |
|
January 1 - 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tendered by employees (1) |
|
|
874 |
|
|
$ |
15.29 |
|
|
|
|
|
|
|
|
|
February 1 - 28, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tendered by employees (1) |
|
|
22,573 |
|
|
$ |
14.93 |
|
|
|
|
|
|
|
|
|
March 1 - 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tendered by employees (1) |
|
|
176,937 |
|
|
$ |
15.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tendered by employees (1) |
|
|
200,384 |
|
|
$ |
15.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
All shares listed were tendered by employees of Peoples United in satisfaction of their related minimum tax withholding obligations upon the vesting of restricted stock awards granted in prior periods and/or in
payment of the exercise price and satisfaction of their related minimum tax withholding obligations upon the exercise of stock options granted in prior periods. The average price paid per share is equal to the average of the high and low trading
price of Peoples Uniteds common stock on The NASDAQ Stock Market on the vesting or exercise date or, if no trades took place on that date, the most recent day for which trading data was available. There is no limit on the number of
shares that may be tendered by employees of Peoples United in the future for these purposes. Shares acquired in payment of the option exercise price or in satisfaction of minimum tax withholding obligations are not eligible for reissuance in
connection with any subsequent grants made pursuant to equity compensation plans maintained by Peoples United. All shares acquired in this manner are retired by Peoples United, resuming the status of authorized but unissued shares of
Peoples Uniteds common stock. |
Item 3 Defaults Upon Senior Securities
None.
Item 4
Mine Safety Disclosures
None.
Item 5 Other Information
None.
87
Item 6 Exhibits
The following Exhibits are filed herewith:
|
|
|
Designation |
|
Description |
|
|
10.12* |
|
Peoples United Bank Nonqualified Savings and Retirement Plan (amended and restated as of January 1, 2015) |
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certifications |
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certifications |
|
|
32 |
|
Section 1350 Certifications |
|
|
101.1 |
|
The following financial information from Peoples United Financial, Inc.s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 formatted in XBRL: (i) Consolidated Statements of Condition as of
March 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Income for the three months ended March 31, 2015 and 2014; (iii) Consolidated Statements of Comprehensive Income for the three months ended
March 31, 2015 and 2014; (iv) Consolidated Statements of Changes in Stockholders Equity for the three months ended March 31, 2015 and 2014; (v) Consolidated Statements of Cash Flows for the three months ended
March 31, 2015 and 2014; and (vi) Notes to Consolidated Financial Statements. |
* |
Each exhibit identified by an asterisk constitutes a management contract or compensatory plan, contract or arrangement. |
88
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Peoples United Financial, Inc. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PEOPLES UNITED FINANCIAL, INC. |
|
|
|
|
|
|
|
Date: May 11, 2015 |
|
|
|
By: |
|
/s/ John P. Barnes |
|
|
|
|
|
|
|
|
John P. Barnes |
|
|
|
|
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
Date: May 11, 2015 |
|
|
|
By: |
|
/s/ R. David Rosato |
|
|
|
|
|
|
|
|
R. David Rosato |
|
|
|
|
|
|
|
|
Senior Executive Vice President and Chief
Financial Officer |
|
|
|
|
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
Date: May 11, 2015 |
|
|
|
By: |
|
/s/ Jeffrey Hoyt |
|
|
|
|
|
|
|
|
Jeffrey Hoyt |
|
|
|
|
|
|
|
|
Senior Vice President and Controller |
|
|
|
|
|
|
|
|
(Principal Accounting Officer) |
|
|
89
INDEX TO EXHIBITS
|
|
|
Designation |
|
Description |
|
|
10.12* |
|
Peoples United Bank Nonqualified Savings and Retirement Plan (amended and restated as of January 1, 2015) |
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certifications |
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certifications |
|
|
32 |
|
Section 1350 Certifications |
|
|
101.1 |
|
The following financial information from Peoples United Financial, Inc.s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 formatted in XBRL: (i) Consolidated Statements of Condition as of
March 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Income for the three months ended March 31, 2015 and 2014; (iii) Consolidated Statements of Comprehensive Income for the three months ended
March 31, 2015 and 2014; (iv) Consolidated Statements of Changes in Stockholders Equity for the three months ended March 31, 2015 and 2014; (v) Consolidated Statements of Cash Flows for the three months ended
March 31, 2015 and 2014; and (vi) Notes to Consolidated Financial Statements. |
* |
Each exhibit identified by an asterisk constitutes a management contract or compensatory plan, contract or arrangement. |
Exhibit 10.12
PEOPLES UNITED BANK NONQUALIFIED SAVINGS AND RETIREMENT PLAN
(amended and restated as of January 1, 2015)
PEOPLES UNITED BANK NONQUALIFIED SAVINGS AND RETIREMENT PLAN
Peoples United Bank, a federally chartered savings bank (the Bank), hereby amends and restates the Peoples United Bank
Supplemental Savings Plan (the Plan) as of January 1, 2015 except as otherwise provided herein. Effective as of October 1, 2008, the Plan shall be known as the Peoples United Bank Nonqualified Savings and Retirement Plan.
ARTICLE I
PRELIMINARY BACKGROUND
The Plan was initially established and maintained for many years to enable designated employees of the Bank (formerly known as Peoples
Bank) who were adversely impacted by Code restrictions applicable to tax-qualified plans and corresponding provisions of the 401(k) Plan to elect to obtain additional benefits equal to those not available under the 401(k) Plan because of such
restrictions. The Plan is not qualified under the provisions of the Code and benefits are provided on an unfunded basis for purposes of the Code. Effective as of August 14, 2006, the Bank added new employer contribution credit provisions with
respect to certain eligible Plan Participants. Effective as of November 1, 2008, the Bank revised the method by which earnings credits are made to Participants Accounts under the Plan. Effective as of January 1, 2012, the Plan was
amended to eliminate discretionary matching contribution credits and certain employer contribution credits, and to expand the class of employees eligible to receive other types of employer contribution credits. Effective as of January 1, 2013,
the Plan was amended to permit eligible Plan Participants to make certain elections regarding the form of distribution for accrued Plan balances.
ARTICLE II
DEFINITIONS
Unless the context clearly otherwise requires, as used in the Plan, the following terms shall have the references and meanings set
forth in this Section 2.
2.1. Account shall refer to the total of any Participants Grandfathered Account, Current
Plan Account and Deferral Account of each Participant. The Grandfathered Account and Current Plan Account of each Participant whose Credited Service has not terminated prior to December 1, 2008 shall merge into a single Deferral Account.
2.2. Administrative Committee shall mean the Administrative Committee appointed from time to time pursuant to Section 13.1 of
the 401(k) Plan.
2.2A Annual Post-2012 Subaccount shall refer to that portion of the
Participants Post-2012 Account as is equal to the sum of (a) Participant Contributions for any given calendar year subsequent to 2012, plus (b) all Bank matching contributions attributable to Participant Contributions for the
applicable year, plus (c) all Restoration Benefit Contributions attributable to the Participants compensation for the applicable year, plus (d) all adjustments and credits attributable to the foregoing, determined in the manner set
forth in Article VI hereof. A Participants Annual Post-2012 Subaccount for a given year may be designated by reference to a particular calendar year. For example, the Participants Annual Post-2012 Subaccount attributable to Participant
Contributions and related contributions and credits for 2013 may be referred to as the Participants 2013 Subaccount.
2.3. Annual Valuation Date shall mean December 31 of any year during which any Plan benefits are in pay status provided that
in the event the Bank changes its fiscal year, the Bank may change the date of subsequent Annual Valuation Dates, but in no event shall more than twelve months elapse without an Annual Valuation Date other than by reason of there being no Plan
benefits in pay status.
2.4. Bank shall mean Peoples United Bank, which is a federally chartered savings bank, and any
successor to Peoples United Bank.
2.5. Beneficiary shall mean any person who is entitled to benefits accrued to a
deceased Participant pursuant to the terms of the Plan or who would be so entitled in the event of the death of a Participant.
2.6.
Board shall mean the Board of Directors of the Bank or any similar body carrying out the functions such body carried out as of January 1, 2008.
2.7. CEO shall mean the Chief Executive Officer of the Bank or such officer or other person as may as of the time of reference
have substantially the responsibilities and duties of the Chief Executive Officer of the Bank as of January 1, 2008.
2.8.
Change in Control shall mean the occurrence of any of the following:
(a) The Board of Directors of the Bank or
Parent, shall approve (A) a merger or consolidation (or series of mergers and consolidations) of the Bank or Parent with any other corporation other than (1) a merger or consolidation (or series of mergers and consolidations) which would
result in the voting stock (as described in Subsection (b) of this Section) of the Bank or Parent outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the
surviving entity) more than 80% of the combined voting power of the voting stock of the Bank or Parent (or such surviving entity) outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement
a recapitalization of the Bank or Parent (or similar transaction) in which no person (as defined in Subsection (b) of this Section) acquires more than 20 percent of the combined voting power of the then outstanding securities of the Bank
or Parent, or (B) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Bank or Parent, or (C) the adoption of any plan or proposal for the
liquidation or dissolution of the Bank;
2
(b) Any person (as such term is defined in Section 3(a)(9) and
Section 13(d)(3) of the Exchange Act), corporation, or other entity (other than the Bank, Parent, or any benefit plan, including, but not limited to, any employee stock ownership plan, sponsored by the Bank, Parent, or any subsidiary) shall
become the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities representing 20 percent or more of the combined voting power of the then outstanding securities of the Bank
or Parent ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire such
securities); or
(c) During any period of two consecutive calendar years, individuals who at the beginning of such period
constitute the entire Board of Directors of the Bank or Parent, and any new director (excluding a director designated by a person who has entered into an agreement with the Bank or Parent to effect a transaction described in Subsection (a) or
(b) of this Section) whose election by the Board of Directors or nomination for election by the shareholders of the Bank or Parent was approved by a vote of at least two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was previously so approved (Incumbent Board), shall cease for any reason to constitute a majority thereof.
2.9. Code shall mean the Internal Revenue Code of 1986 as it has been, or hereafter from time to time may be amended, and all
reference to it or any provision thereof shall include any law which in the future may supersede it or such provision.
2.10.
Committee shall mean the Human Resources Committee of the Board or such other committee of the Board or of the Board of Directors of Parent as may as of the time of reference have substantially the responsibilities and duties of the
Human Resources Committee as of January 1, 2008.
2.11. [intentionally omitted]
2.12. Credited Service shall mean the period of an employees employment as an employee, subject to the terms and conditions
set forth in Article XVI hereof.
2.13. Current Plan Account shall refer to the Account established for a Participant to which
all contributions made or credited on behalf of such Participant pursuant to the Plan after December 31, 2004 and before December 1, 2008 (as adjusted pursuant to Article VI hereof) have been or may be credited.
2.14. Deferral Account shall refer to the account to which all Participant Contributions, Bank matching contributions (as provided
for in Section 4.5), Enhanced Benefit Contributions and Restoration Benefit Contributions are allocated on or after December 1, 2008, plus any amount resulting from the merger of the Grandfathered Account and Current Plan Account, as
adjusted in accordance with Article VI.
3
2.15. Election Compensation shall mean and include the sum of (i) and
(ii) where (i) is the total amount of salary, wages or compensation paid to Participant by the Bank during the Plan Year for services rendered as an employee of the Bank including overtime pay, commissions, and bonuses, but excluding any
equity based compensation and earnings thereon, incentive payments with an accrual or vesting period longer than one year (and such exclusion shall apply to the year of deferral and the year of payment), and furthermore excluding any fees, credits
or benefits under this Plan, the 401 (k) Plan, the Retirement Plan, the Peoples United Financial, Inc. Employee Stock Ownership Plan, the Peoples United Bank Cap Excess Plan, the Peoples United Bank Enhanced Senior Pension
Plan, or any other benefits under plans (whether or not qualified under the Code) providing for deferral of income, severance pay, payments for reimbursement of business expenses incurred by the Participant, tuition reimbursement, insurance premiums
paid by the Bank or other special emoluments; and (ii) is the total amount of salary reduction contributions made by the Bank on behalf of a Participant during the Plan Year under this Plan or the 401(k) Plan and any salary reductions agreed to
by the Participant pursuant to salary reduction agreements under a plan which meets the requirements of Section 125 of the Code. Election Compensation for any Plan Year beginning after December 31, 2004 shall include any STIP bonus based
on service during such Plan Year and payable in the next subsequent year and shall exclude any STIP bonus paid during such Plan Year but based on service for any prior Plan Year. In the event an individual becomes a Participant after the first day
of a Plan Year because he first became eligible to participate in the Plan during such Plan Year, Election Compensation for such Plan Year shall apply only to otherwise Election Compensation which is both (x) earned with respect to services
rendered after the end of the payroll period during which such Participant makes a contribution election pursuant to Section 4.4 and (y) paid on or after the first payroll date on which contributions may be withheld in accordance with the
Banks payroll practices; provided that any STIP Bonus or other compensation based on services for a Plan Year or other specified period earned for performance during such Plan Year and included in his Election Compensation for such Plan Year
shall equal a portion of such STIP Bonus or such other compensation for such Plan Year multiplied by the ratio of the number of full calendar months remaining in such performance period beginning with the first day of the second calendar month after
such election over the total number of full calendar months in the performance period.
2.16. Election Match Compensation
shall mean for any Plan Year a Participants Election Compensation for such Plan Year adjusted so as to substitute the STIP payment actually received during such Plan Year for the STIP bonus earned for such Plan Year but paid in a subsequent
Plan Year.
2.17. Eligible Voters shall mean (i) Participants employed by the Bank after May 1, 1998 who have unpaid
benefits under the Plan and (ii) Beneficiaries of such deceased Participants who have unpaid benefits under the Plan; but excluding (A) after a Change in Control any person who was not a Participant or a Beneficiary sixty-five
(65) days prior to the earlier of such Change in
4
Control or the beginning of the Potential Change in Control Period ending with such Change in Control and (B) during a Potential Change in Control Period any person not a Participant or
Beneficiary prior to the beginning thereof; provided, however, that in the event there is more than one such Beneficiary with respect to any individual deceased Participant, such Beneficiaries shall have a single vote which shall be cast as
determined by a majority in interests of all Beneficiaries of such deceased Participant.
2.18. Enhanced Benefit Contribution
shall mean with respect to an eligible Participant four percent (4%) of such Participants Election Compensation. No Enhanced Benefit Contribution shall be made for any Plan Year beginning after December 31, 2011.
2.19. 401(k) Plan shall mean the Peoples Bank 401(k) Employee Savings Plan as it may be amended from time to time.
2.20. 401(k) Maximum Basic Employer Contribution for a Plan Year shall mean with respect to any Participant four percent
(4%) of such Participants 401(k) Election Compensation for such Plan Year regardless of the amount of any contributions actually made with respect to such Participant under the 401(k) Plan.
2.21. 401 (k) Maximum Discretionary Employer Contribution shall mean with respect to a Participant one percent (1%) or
such other percent as the Bank may determine to make for such Plan Year as a discretionary contribution under the 401(k) Plan multiplied by a Participants 401(k) Election Compensation regardless of the amount of any contributions made with
respect to such Participant under the 401(k) Plan. Notwithstanding the foregoing, no Discretionary Employer Contribution shall be made to the Plan for any Plan Year beginning on or after January 1, 2012.
2.22. 401(k) Election Compensation shall mean for a Participant for a Plan Year the total salary for such Plan Year as defined by
the 401(k) Plan with respect to which a Participant would be able to elect to make employee contributions under the terms of the 401(k) Plan for such Plan Year without regard to maximum contribution limitations thereunder, but taking into account
the limitations under Section 401(a)(17) of the Code as reflected in the 401(k) Plan for such Plan Year.
2.23. Full Funding
Amount shall mean an amount which the Recordkeeper calculates based on the best information available to it, to be equal to the total amount of any vested and unpaid benefits of all Participants who are employees of the Bank after May 1,
1998 (and their Beneficiaries) and Beneficiaries of any such deceased Participants as of the valuation requirement date. For purposes of this Section 2.23, the valuation requirement date refers to (1) the date of an actual
Change in Control or (2) the date which is reasonably selected during a Potential Change in Control Period by the Bank or the Trustee, or (3) if such calculation is not on or after a Change in Control or during a Potential Change in
Control Period any date which is reasonable and convenient. Calculations and recalculations of the Full Funding Amount (as described in Article IX hereof) shall assume that each Participant terminated employment as of the valuation requirement
5
date of such calculation or recalculation. In computing the Full Funding Amount, there shall be added an amount equal to an amount calculated by the Trustee to be likely to be sufficient to
provide for all expenses in administering and terminating the Trust and distributing benefits, including reasonable expenses of the Committee (if then in existence) and of any litigation or other assertion of claims which the Trustee deems to have a
higher degree of probability than extremely remote, including (but not limited to) any such litigation or other assertion of claims which the Trustee may institute or assert against the Bank.
2.24. Grandfathered Account shall refer to the Account established for each Participant who was such prior to January 1, 2005
to which all contributions made on behalf of such Participant prior to January 1, 2005 (as adjusted pursuant to Article VI hereof) have been credited.
2.25. The Bank shall be considered Insolvent and the Bank shall be deemed subject to insolvency for purposes of this Trust
Agreement if (i) the Bank is unable to pay its debts as they become due, or (ii) the Bank is subject to a pending proceeding as a debtor under the United States Bankruptcy Code, or (iii) the Bank is determined to be insolvent by the
Office of Thrift Supervision, Federal Deposit Insurance Corporation, the Federal Reserve Bank, or any other federal or state authority having the power to act as or to appoint a receiver or similar officer in the event it finds the Bank is
insolvent.
2.26. Interest Credit Date shall mean November 1, 2008.
2.27. Interim Funding Amount shall mean an amount which the Recordkeeper calculates based on the best information available to him
to be equal to the total amount of any vested and unpaid benefits of (i) all Participants who are employees of the Bank after May 1, 1998, and who as of the Interim Valuation Requirement Date requiring such calculation either (A) are
no longer employees of the Bank or (B) have attained age sixty-three (63) and three hundred twenty-five (325) days and (ii) all Beneficiaries of deceased Participants entitled to benefits under the Plan as a result of such
deceased Participants death. In computing the Interim Funding Amount, there shall be added an amount equal to an amount estimated by the Trustee to be likely to be sufficient to provide for all expenses in administering the Trust and
distributing benefits for the sixty (60) months following the relevant Interim Valuation Requirement Date, including reasonable expenses of the Committee (if then in existence) and of any litigation or other assertion of claims which the
Trustee deems to have a higher degree of probability than remote, including (but not limited to) any such litigation or other assertion of claims which the Trustee may institute or assert against the Bank.
2.28. Interim Valuation Requirement Date shall mean the last date of each fiscal year of the Bank.
2.29. The terms Interim 2005 Procedures and Interim 2006 Procedures shall mean the Procedures described as such
respectively in Exhibit A adopted by the Bank to govern certain aspects of plan operations from October 4, 2004 through December 31, 2006 in a good faith attempt to conform with US Treasury Proposed Regulations, Revenue rulings and
Guidance pursuant to Section 409A of the Code.
6
2.29A. Minimum Salary Grade means the salary grade identified as such on Appendix A
hereto (as the same may be updated from time to time with the approval of the CEO or his designee), in each case as in effect during the Effective Period designated in such Appendix A.
2.29B. Normal Retirement Date shall mean the date upon which a Participant attains age sixty-five (65).
2.30. Parent shall mean Peoples United Financial, Inc., a Delaware corporation, or its corporate successor or assigns; and
the determination of whether any corporation or other entity is a successor or assign of said Peoples United Financial, Inc., for purposes of this Agreement shall be made by the CEO or, in the event there is no then acting CEO, by the Board of
Directors of the Bank.
2.31. Participant shall mean, any employee of the Bank who is covered by the Plan and any former
employee of the Bank for whom amounts have been credited pursuant to the provisions of this Plan and who has not yet received her or his full vested benefit hereunder.
2.32. Participant Contributions shall mean amounts contributed for the benefit of a Participant pursuant to an election by a
Participant described in the provisions of Section 4.1, 4.2, 4.3 or 4.4.
2.33. The Plan shall mean this Peoples
United Bank Nonqualified Savings and Retirement Plan as amended through the date hereof and as it may be amended from time to time hereafter. The Plan was formerly known as the Peoples Bank Supplemental Savings Plan and as the Peoples
United Bank Supplemental Savings Plan.
2.34. Plan Interest shall mean interest computed at the nominal annual rate,
compounded monthly, as will result in an annual percentage yield (APY) at the rate set forth on Appendix B hereto for the applicable Plan Years (or partial Plan Year for 2008) specified in such Appendix B. Upon recommendation of the Administrative
Committee, the Committee may (but shall not be required to) increase or decrease the annual percentage yield rate for a Plan Year prior to the beginning of such Plan Year.
2.35. Plan Year shall mean the twelve (12) month period beginning each January 1 and ending each December 31.
2.35A Post-2012 Account shall refer to that portion of the Participants Account as is equal to the difference between
(a) the aggregate balance of the Participants Account minus (b) the balance of the Participants Pre-2013 Account. A Participants Post-2012 Account shall be further subdivided into a series of Annual Post-2012 Subaccounts
for each successive calendar year subsequent to 2012, as defined elsewhere herein.
7
2.36. A Potential Change in Control shall be deemed to have occurred under this
Agreement if (i) the Bank or Parent enters into any agreement the consummation of which would result in the occurrence of a Change in Control, or (ii) the CEO declares in writing that, or the Board of Directors of the Bank or Parent adopts
a resolution to the effect that, a Potential Change in Control has occurred.
2.37. Potential Change in Control Period shall
mean the period commencing on the date that a Potential Change in Control occurs and ending upon the earlier to occur of the following: (i) the date of a Change in Control, or (ii) the date such Potential Change in Control Period ends in
accordance with the provisions of the Trust Agreement.
2.37A Pre-2013 Account shall refer to that portion of the
Participants Account as is equal to the sum of (a) the balance of the Participants Account on December 31, 2012, plus (b) all Bank matching contributions (as provided for in Section 4.5) attributable to Participant
Contributions for any calendar year prior to 2013 (but only to the extent not already included pursuant to subsection(a)), plus (c) all Enhanced Benefit Contributions and Restoration Benefit Contributions attributable to the Participants
compensation for any calendar year prior to 2013 (but only to the extent not already included pursuant to subsection(a)), plus (d) all adjustments and credits attributable to the foregoing, determined in the manner set forth in Article VI
hereof.
2.38. Qualified Vote shall mean the Vote of at least sixty-five (65%) percent of the total number of Eligible
Voters.
2.39. Recordkeeper shall mean such individual or entity as the Bank may retain consistent with the terms of this Plan
and the Trust Agreement to maintain records of Participant Accounts pursuant to the terms of the Plan or any other person as the Trustee may select to make computations pursuant to any provision of the Trust Agreement.
2.40. Restoration Benefit Contribution shall mean with respect to an eligible Participant for a Plan Year three percent
(3%) of such Participants Election Compensation earned in excess of the limitations under Section 401(a)(17) of the Code as reflected in the 401(k) Plan for such Plan Year.
2.41. Service Agreement shall mean (a) the agreement entered into between the Bank and Putnam Fiduciary Trust Company
effective as of October 3, 1994 entitled PEOPLES BANK SUPPLEMENTAL SAVINGS PLAN Service Agreement as such agreement may have been and may hereafter be amended, restated or replaced by a superseding agreement between the
parties thereto and (b) such other agreement (including any amendment, restatement or replacement thereto) between the Bank and any other individual or entity as the Bank may retain consistent with the terms of the Plan and the Trust Agreement
relating to the performance of services on behalf of the Bank or for the benefit of any Participant with respect to the administration or operation of the Plan, including the calculation or payment of any benefits pursuant thereto.
2.42. STIP bonus shall refer to payments made pursuant to the Banks Short-Term Incentive Plan and any plan or program which
the Committee may determine is a replacement for such incentive plan and in no event shall STIP bonus include any payments under the Long-Term Incentive Plans presently maintained by the Bank or any replacement therefor.
8
2.43. Super Qualified Vote shall mean the Vote of at least eighty-five
(85%) percent of the total number of Eligible Voters.
2.44. Trust shall mean the Trust established and maintained
pursuant to the terms of Article IX hereof.
2.45. Trustee shall mean the entity then acting as Trustee under the Trust
Agreement.
2.46. Trust Agreement shall mean the trust agreement described in Section 9.1 hereof.
2.47. Vote shall mean and include a vote in person or by proxy or execution of a written consent signed by a Participant or
Beneficiary authorizing or approving any action (including one or more amendments of this Plan).
ARTICLE III
PARTICIPATION
3.1.
Prior to January 1, 2005. Any person who was a Participant on or prior to October 4, 2004 shall remain a Participant. No person shall become a Participant after October 4, 2004 and prior to January 1, 2005.
3.2. Between January 1, 2005 and December 31, 2006. Any person who was not a Participant as of October 4, 2004, and who
prior to December 31, 2006 was an employee of the Bank, had a salary grade equal to or higher than the Minimum Salary Grade, and in accordance with Interim Procedures 2005 or Interim Procedures 2006 elected to have salary deferrals made under
the Plan of Election Compensation earned during 2005 or 2006 shall become a Participant as of the date of his first such deferral.
3.3.
After December 31, 2006. On and after December 31, 2006 an employee of the Bank with a salary grade equal to or higher than the Minimum Salary Grade shall become a Participant: (a) for any Plan Year provided prior to the
beginning of such Plan Year he has elected to make Participant Contributions of Election Compensation earned for such Plan Year; or (b) if he becomes an employee of the Bank with a salary grade equal to or higher than the Minimum Salary Grade
during such Plan Year elects to make contributions from his Election Compensation earned during such Plan Year within thirty (30) days of his becoming an employee of the Bank with a salary grade equal to or higher than the Minimum Salary Grade.
3.4. Participation With Respect to Restoration Benefit Contributions.
(a) On or after August 14, 2006, an employee of the Bank with a salary grade equal to or higher than the Minimum Salary Grade who is not
entitled after August 13, 2006 to accrue credited service under the Retirement Plan shall become a Participant with respect to, or, if the employee is already a Participant in the Plan, shall become eligible to receive, Restoration Benefit
Contributions in accordance with Section 4.6.
9
(b) For the avoidance of doubt, for the period beginning August 14, 2006 through
December 31, 2011 the terms of subsection (a) of this Section 3.4 are to be interpreted so that a Participant who is eligible to accrue a benefit under the Retirement Plan and who continues to accrue credited service thereunder will
not be eligible to receive Restoration Benefit Contributions under this Plan.
(c) For Plan Years beginning on and after January 1,
2012, upon the cessation of benefit accruals under the Peoples United Bank Employees Retirement Plan, the terms of subsection (a) of this Section 3.4 apply to all employees of the Bank who have a salary grade equal to or higher than
the Minimum Salary Grade (whether hired before, on or after August 14, 2006).
3.5. Participation With Respect to Enhanced Benefit
Contributions. On or after August 14, 2006, an employee of the Bank with a salary grade equal to or higher than the Minimum Salary Grade who either (i) was hired by the Bank after August 13, 2006 or (ii) first attained a
salary grade equal to or higher than the Minimum Salary Grade after March 1, 2008 shall become a Participant with respect to, or, if the employee is already a Participant in the Plan, shall become eligible to receive, Enhanced Benefit
Contributions in accordance with Section 4.7. For the avoidance of doubt, this provision is to be interpreted so that a Participant who is eligible to accrue a benefit under the Peoples United Bank Enhanced Senior Pension Plan will not be
eligible to receive Enhanced Benefit Contributions under this Plan. Effective for Plan Years beginning on or after January 1, 2012, Enhanced Benefit Contributions will no longer be made to the Plan.
3.6. Termination of Participation. A Participant shall remain such until all of his benefits under the Plan have been distributed to
him or, if earlier, his death.
ARTICLE IV
CONTRIBUTIONS
4.1.
Participant Contributions from Compensation Prior to January 1, 2005
Any Participant who was such at any time prior to
January 1, 2005 was entitled to elect to contribute as of each payroll date up to a total of 15% of his Election Compensation on such payroll date (less his employee contributions to the 401(k) Plan made on such date) provided such election was
made in accordance with procedures then in effect under the Plan and the 401(k) Plan.
4.2. Participant Contributions from Compensation
Earned or Paid During 2005 or 2006.
(a) Any Participant who was such at any time during 2005 may elect to contribute
as of each payroll date during such Plan Year up to a total of 15% of his Election Compensation payable on such payroll date (less his employee contributions to the 401(k) Plan made on such date) provided such election was made in accordance with
the Interim 2005 Procedures.
10
(b) Any Participant who was such at any time during 2006 may elect to contribute
as of each payroll date during such Plan Year up to a total of 15% of his Election Compensation payable on such payroll date (less his employee contributions to the 401(k) Plan made on such date) provided such election was made in accordance with
the Interim 2006 Procedures.
4.3. Participant Contributions From Election Compensation After 2006.
(a) A Participant may elect to contribute to the Plan up to twenty percent (20%) of his Election Compensation for any Plan
Year beginning after December 31, 2006 and prior to January 1, 2009, provided he does so by filing an irrevocable written election during designated periods of the prior Plan Year in accordance with instructions authorized by the
Committee. Such election may designate separate percentages with respect to STIP bonuses and other Election Compensation, but neither such election shall exceed twenty percent (20%).
(b) A Participant may elect to contribute to the Plan up to fifty percent (50%) of his Election Compensation for any Plan
Year beginning after December 31, 2008, provided he does so by filing an irrevocable written election during designated periods of the prior Plan Year in accordance with instructions authorized by the Committee. Such election may designate
separate percentages with respect to STIP bonuses and the other Election Compensation, but neither such election shall exceed fifty percent (50%).
4.4. Contributions by New Participants; Special Rule for First Day of Plan Year.
(a) Any employee of the Bank who first becomes eligible to be a Participant during a Plan Year and who becomes a Participant in accordance
with the provisions of Section 3.3 for a partial Plan Year may elect to contribute to the Plan up to (i) if such Plan Year is 2007 or 2008, twenty percent (20%) of his Election Compensation for such Plan Year provided such election is made
prior to the end of thirty (30) days after he becomes eligible to become a Participant and (ii) if such Plan Year is 2009 or later, fifty percent (50%) of his Election Compensation for such Plan Year provided such election is made
prior to the end of thirty (30) days after he becomes eligible to become a Participant.
(b) Beginning with the 2009 Plan Year, any
employee of an affiliate of the Bank who is expected to become eligible to be a Participant on the first day of a Plan Year may elect to contribute to the Plan up to fifty percent (50%) of his Election Compensation for such Plan Year provided
such election is made prior to the end of the preceding Plan Year. An election made pursuant to this subsection (b) shall not take effect and shall be disregarded for all purposes if the individual making such election does not, in fact, become
eligible to be a Participant in the Plan as of the first day of the Plan Year for which such election was made.
11
4.5. Bank Matching Contributions.
(a) As soon as practicable at or after the end of each Plan Year the Bank shall determine for such Plan Year for each
Participant his Election Match Compensation and his 401(k) Maximum Basic Employer Contribution. In the case of a Participant whose employment terminates prior to the end of a Plan Year, the Bank shall determine the Election Match Compensation and
the 401(k) Maximum Basic Employer Contribution for such Participant for that portion of the Plan Year during which the Participant was employed, as soon as practicable at or after the date the Participants employment was terminated.
(b) Within a reasonable time after such determination the Bank shall credit to the (i) Current Plan Account in the case of
Plan Years ending after December 31, 2003 and prior to December 1, 2008 and (ii) Deferral Account in the case of Plan Years ending on or after December 1, 2008 of each Participant a matching contribution equal to the result
obtained by subtracting such Participants 401(k) Maximum Basic Employer Contribution from the sum of (A) the lesser of (x) 4% of such Participants Basic Election Match Compensation or (y) such Participants
Participant contributions pursuant to this Article IV for such Plan Year with respect to his Basic Election Match Compensation, plus (B) the lesser of (x) 4% of such Participants STIP Election Match Compensation or (y) such
Participants Participant Contributions pursuant to this Article IV for such Plan Year with respect to his STIP Election Match Compensation; provided, however, that such matching contribution shall not be less than zero. For purposes of this
subsection (b), the term Basic Election Match Compensation means the Participants Election Match Compensation for the Plan Year excluding any STIP bonus actually received during such year; and the term STIP Election Match
Compensation means the Participants Election Match Compensation excluding his Basic Election Match Compensation.
(c) In the event the Bank determines to make a discretionary contribution, as soon as practical after both completing the
computations pursuant to subsection (a) of this Section and determining to make a discretionary contribution, the Bank shall credit to the (i) Current Plan Account in the case of Plan Years ending after December 31, 2003 and prior to
December 1, 2008 and (ii) Deferral Account in the case of Plan Years ending on or after December 1, 2008 of each Participant who has deferred any Election Match Compensation hereunder during such Plan Year an amount equal to up to one
hundred percent (100%) of such Participants contribution for such Plan Year pursuant to this Article IV to the extent that such Participants Participant Contributions exceeded four percent (4%) of his Election Match
Compensation but did not exceed five percent (5%) of his Election Match Compensation for such Plan Year reduced by such Participants 401(k) Maximum Discretionary Employer Contribution for such Plan Year; provided that such matching
contribution shall not be less than zero; and further provided that such
12
matching contribution shall be made only if the Participant is actively employed by the Bank at the end of the Plan Year with respect to which such matching contribution would otherwise be made.
Notwithstanding the foregoing, no Discretionary Matching Employer Contribution shall be made to the Plan for any Plan Year beginning on or after January 1, 2012.
(d) A Participant shall become vested in matching contributions made to his Account pursuant to this Section 4.5 with
respect to Plan Years beginning on or after January 1, 2015 upon the earliest to occur of (i) completion of one year of Credited Service, (ii) attainment of his Normal Retirement Date, or (iii) his death.
4.6. Restoration Benefit Contributions
(a) On and after August 14, 2006, the Bank shall credit to the Deferral Account of each eligible Participant who is actively employed by
the Bank at the end of the applicable Plan Year a Restoration Benefit Contribution as soon as practicable following the end of the Plan Year with respect to which such contribution is to be made. In order to be eligible to begin receiving
Restoration Benefit Contributions, a Participant must have completed one Year of Employer Retirement Contribution Eligibility Service as defined under the 401(k) Plan.
(b) A Participant shall become vested in his or her Restoration Benefit Contributions according to the following vesting schedule
|
|
|
Years of Credited Service |
|
Vested Percentage |
Less than 2 |
|
None |
2 |
|
25% |
3 |
|
50% |
4 |
|
75% |
5 or more |
|
100% |
Notwithstanding the foregoing, the Participant shall become fully vested in his Restoration Benefit
Contributions upon the earlier of his death or attainment of his Normal Retirement Date.
4.7. Enhanced Benefit Contributions
(a) On and after August 14, 2006, through the Plan Year ended December 31, 2011, the Bank shall credit Enhanced Benefit Contributions
to the Deferral Account of each employee of the Bank with a salary grade equal to or higher than the Minimum Salary Grade who (i) was hired by the Bank after August 13, 2006, or (ii) first attained a salary grade equal to or higher
than the Minimum Salary Grade after March 1, 2008, provided, in both cases, the employee was actively
13
employed by the Bank at the end of the applicable Plan Year. In order to be eligible to begin receiving Enhanced Benefit Contributions, the Participant must have completed one Year of
Employer Retirement Contribution Eligibility Service as defined under the 401(k) Plan and only Election Match Compensation received the first day of the month after satisfaction of the service requirement was considered for that Plan Year. No
Enhanced Benefit Contributions will be made for Plan Years beginning January 1, 2012, and after.
(b) A Participant shall become fully
vested while in Credited Service in his Enhanced Benefit Contributions upon the earliest of (A), (B) or (C), where (A) is the later of (i) the attainment of age fifty-five (55), or (ii) the completion of 5 Years of Vesting
Service; (B) is the Participants death, and (C) is his attainment of his Normal Retirement Date. In the event a Participants Credited Service is terminated prior to his being so vested, his Enhanced Benefit Contributions under
this Plan shall be forfeited; provided that, in the event of his rehire and his subsequently becoming vested, his Enhanced Benefit Contributions shall be reinstated and he shall become vested therein.
4.8. Operating Rules
For
purposes of this Article IV
(a) any compensation earned during the Banks payroll period (as described in Section 3401(b) of
the Code) which includes the last day of such Plan Year payable after the end of such Plan Year in accordance with arrangements by which the Bank normally pays its employees shall be considered Election Compensation for the Plan Year in which it is
payable; and
(b) any other compensation earned during a Plan Year and paid in a subsequent Plan Year shall be considered Election
Compensation during the Plan Year in which it is earned; and
(c) each election percentage shall be a whole number.
ARTICLE V
ACCOUNTS
5.1. Grandfathered Accounts. As of December 31, 2004 the balances of the accounts of all Participants were determined and
each such account shall be maintained from such date through November 30, 2008 as a separate Grandfathered Account and all investment results from such date allocable thereto in accordance with the provisions of Article VI shall be credited
thereto.
14
5.2. Current Plan Accounts. The Bank shall maintain for each Participant who is such on or
after January 1, 2005 and prior to December 1, 2008 a Current Plan Account to which all such Participants (i) Participant Contributions made on or after January 1, 2005 and prior to December 1, 2008, (ii) Bank
matching contributions (as provided for in Section 4.5) made on or after January 1, 2005 and prior to December 1, 2008, (iii) Restoration Benefit Contributions made on or after January 1, 2008 and prior to December 1,
2008 and (iv) Enhanced Benefit Contributions made on or after January 1, 2008 and prior to December 1, 2008, and all investment results from the applicable dates allocable thereto in accordance with the provisions of Article VI shall
be credited.
5.3. Time of Crediting Contributions. After December 31, 2004 and prior to December 1, 2008, all
Participant Contributions shall be withheld from such Participants pay for each payroll date and shall be credited to such Participants Current Plan Account as of or as soon as practicable after such date. On and after December 1,
2008, all Participant Contributions shall instead be allocated to such Participants Deferral Account. All Bank matching contributions (as provided for in Section 4.5) allocable after January 1, 2005 and prior to December 1, 2008
shall be allocated to the Participants Current Plan Account as of the date provided for in accordance with the terms and administrative procedures of this Plan in effect from time to time during such period. All Bank matching contributions (as
provided for in Section 4.5) allocable on and after December 1, 2008 shall be credited as of the date determined in accordance with the provisions of Section 4.5. Restoration Benefit Contributions and Enhanced Benefit Contributions
shall be credited as of the date determined in accordance with the provisions of Sections 4.6 and 4.7, respectively.
ARTICLE VI
HYPOTHETICAL INVESTMENT
6.1. Adjustments Prior to the Interest Credit Date to Pre-June 1, 2008 Accounts. Except as provided by Section 6.2, to the
extent practicable under procedures available to the Bank, all amounts credited to an Account of a Participant who became such on or before June 1, 2008, shall be increased or decreased prior to the Interest Credit Date in accordance with such
Participants investment election under the 401(k) Plan to reflect the value such amount would have if actually so invested as such elections change from time to time prior to June 1, 2008, but not as changed on or after such date. In the
event such Participant has different elections under the 401(k) Plan with respect to a balance accumulated as of a certain time on the one hand and contributions received thereafter on the other, to the extent practicable under procedures available
to the Bank, such Participants Account shall be deemed to be invested (a) with respect to the balance as of the date of the accumulation described in this sentence in accordance with the investment instructions for such accumulated
balance and (b) with respect to amounts credited to his Account after such date in accordance with the investment instructions for such contributions. Notwithstanding the foregoing, in the event the Participant has any loan balances outstanding
with respect to his account under the 401(k) Plan, the amount of such loans shall not be taken into account in determining the proportions in which his Account is deemed to be invested.
15
6.2. Investment Selections for Accounts on and After June 1, 2008 and Prior to the
Interest Credit Date.
(a) All amounts credited to any Account of a Participant who first becomes such on and after June 1, 2008,
and all amounts credited to any Account of a Participant who became such before June 1, 2008 and who chooses to make an investment election pursuant to this subsection (a) prior to the Interest Credit Date shall in accordance with
procedures made available to him by the Bank be increased or decreased in accordance with such Participants investment election under this Plan to reflect the value such amount would have if actually invested in accordance with such election.
Such Participants election under the Plan shall be limited to investment selections available to Participants under the 401(k) Plan at the time of such election. Such Participants shall be able to make separate elections with respect to
accumulated Account balances and amounts to be credited to such Accounts after such election. To the extent any portion (including all) of the Account of any Participant who becomes such on or after June 1, 2008 and prior to the Interest Credit
Date, is not the subject of an investment election, such portion of such Account shall be increased or decreased as if it were actually invested in the T. Rowe Price Retirement Fund available under the Plan that under procedures established by the
Plans third party administrator most closely matches the date on which the Participant is projected to attain his Normal Retirement Date or where provided under such procedures, to the T. Rowe Price Retirement Income Fund. Investment
selections in effect for Account balances and amounts to be credited in the future to such Accounts as of June 1, 2008 or any time thereafter and prior to the Interest Credit Date shall remain in effect until such Participant expressly
otherwise directs and regardless of any change in investment directions such Participant makes with respect to his 401(k) accounts.
(b)
On and after June 1, 2008 and prior to the Interest Credit Date, all amounts credited to an Account of a Participant who became such before June 1, 2008, shall be increased or decreased in accordance with such Participants investment
election under the 401(k) Plan as of May 31, 2008 or as otherwise provided pursuant to the provisions of the Plan as of May 31, 2008, to reflect the value such amount would have if actually invested in accordance with that election except
to the extent such Participant elects different hypothetical investments in accordance with the provisions of subsection (a) of this Section. No change in investment directions under the 401(k) Plan becoming effective on or after June 1,
2008, shall have any effect on adjustments to a Participants Account under this Plan.
6.3. Adjustments on or After the Interest
Credit Date.
(a) All Accounts of any Participant who becomes such on or after the Interest Credit Date, and that portion of a
Participants Account which is attributable to contributions made by on or on behalf of a Participant on or after the Interest Credit Date, shall not be adjusted in accordance with the provisions of Section 6.1 or 6.2, but instead shall be
credited with Plan Interest monthly.
16
(b) Accounts of all Participants who are such as of the Interest Credit Date shall continue to be
adjusted in accordance with the provisions of Section 6.2 based in all respects upon such Participants investment elections and any other applicable provisions of Section 6.2 as in effect on the Interest Credit Date provided that
(i) except as provided below in this Section, no Participant shall after the Interest Credit Date have the right to change investment elections and (ii) any Participant may at any time in a manner provided by the Bank elect to have all (but not
less than all) balances of such Participants Account credited with Plan Interest after the date of such election in lieu of any amounts otherwise determinable under Section 6.2. Any such election shall become effective at such time as the
Bank shall determine to be administratively convenient. Notwithstanding the foregoing, in the event that any time after January 1, 2009 any part of a Participants Account is deemed to be hypothetically invested in shares of Parent stock,
any hypothetical dividend paid with respect to such stock to such Account shall be deemed invested in the Putnam Stable Value Fund or in such other manner as the CEO may determine upon recommendation of the Administrative Committee. Notwithstanding
the foregoing provisions of this Section 6.3, any Participant whose Credited Service is terminated prior to December 1, 2008 and who has not made an election pursuant to clause (ii) of this Section 6.3(b) may continue to change
hypothetical investments in accordance with the provisions of Section 6.2.
(c) On and after December 1, 2012, all balances in a
Participants Account shall be credited with Plan Interest in lieu of any amounts otherwise determinable under Section 6.2 and regardless of whether such Participant has made an election pursuant to subsection (b)(ii) above.
ARTICLE VII
DEATH
BENEFITS
7.1. Beneficiaries. In the event the death of a Participant whether during or after termination of his Credited
Service, prior to payment of such Participants full vested Account balance benefit in accordance with the provisions of Article VIII, the unpaid vested amount shall be paid to such Participants Beneficiary designated in a form provided
by, and filed with, the Committee. If no such form has been filed, such benefits shall be payable to such Participants spouse and if no spouse is then living, to the legal representative of such Participants estate. All benefits payable
pursuant to this Article VII shall be payable in accordance with the provisions of Article VIII. In the event a Participant and his spouse or other designated Beneficiary (primary or contingent) die as a result of the same event (whether or not it
is possible to determine who was the first to die) and die within thirty (30) days of each other, this Plan shall be administered as if the Participant survived his spouse or such other Beneficiary.
7.2. No Other Death Benefits. Except as provided in this Article VII, no benefits under this Plan shall be payable to a
Participants Beneficiary after such Participants death.
17
ARTICLE VIII
METHOD OF PAYMENT
8.1.
Distribution of Current Plan Account Relating to Participant Contributions and Bank Matching Contributions. The portion of a Participants Current Plan Account relating to Participant Contributions and/or Bank matching contributions (as
provided for in Section 4.5) shall be distributed to such Participant as follows. The balance of such portion of the Participants Current Plan Account shall be determined as of the end of the month preceding his last full month of
Credited Service. An amount equal to ten percent of such account balance shall be distributed in twelve equal monthly installments commencing on the first payroll payment date of the 7th month
following such termination and of each of the next 11 months. As of the first payroll date of the twelfth month following such commencement of payments, the portion of the full balance of such Participants account (determined as of the most
recent available valuation date under the 401(k) Plan preceding such payment date) shall be distributed to such Participant or in the event of her or his death, to her or his Beneficiary.
8.2. Distribution of Current Plan Account Relating to Restoration Benefit Contributions and Enhanced Benefit Contributions. On and
after January 1, 2008, the vested portion of a Participants Current Plan Account relating to Restoration Benefit Contributions and/or Enhanced Benefit Contributions shall be distributed to such Participant in a single lump sum payment on
the first payroll payment date of the 7th month following the Participants termination of Credited Service with the Bank.
8.3.
Distributions of Grandfathered Accounts to Participants. A Participants Grandfathered Account shall be valued and distributed in the same manner as the portion of the Participants Current Plan Account relating to Participant
Contributions and Bank matching contributions (as provided for in Section 4.5), except that installment payments shall commence as of the first payroll date of the month next following such Participants termination of Credited Service and
continue for an additional 11 months. As of the first payroll date of the twelfth month following such commencement of payments, the full balance of such Participants account (determined as of the most recent available valuation date under the
401(k) Plan preceding such payment date) shall be distributed to such Participant or in the event of her or his death, to her or his Beneficiary.
8.4. Distribution of Accounts After December 1, 2008.
(a) The foregoing provisions of this Article VIII shall not apply to any distributions made to any Participant who terminates his Credited
Service at any time on or after December 1, 2008.
(b) Unless the Participant makes an effective election pursuant to
Section 8.6 hereof with respect to his Pre-2013 Account, the total Pre-2013 Account balance of any Participant who terminates his Credited Service on or after December 31, 2008 shall be distributed to him in a single lump sum as soon as
administratively practicable during the seventh month following such termination, and if he is not then living, such total Pre-2013 Account balance shall be distributed
18
to his Beneficiary in a single lump-sum as soon as administratively practicable following such Participants death. Amounts distributable pursuant to this Section 8.4(b) shall be
determined in accordance with the provisions of Section 8.7 hereof.
8.5 Distribution of Post-2012 Account Balances. A
Participants vested Annual Post-2012 Subaccount balance shall be payable following the termination of the Participants Credited Service as described in subsections (a) and (b) below based on the Participants election made
with respect to a given Annual Post-2012 Subaccount balance pursuant to administrative procedures as established by the Committee.
|
(a) |
Timing of Payment. Subject to Section 8.6, a Participants vested Annual Post-2012 Subaccount balance attributable to a given calendar year shall be paid to a Participant on one of the following dates
based on the form of payment elected by Participant with respect to such year: |
|
(i) |
in the case of a lump sum payment, as soon as administratively practicable during the seventh month following termination of the Participants Credited Service; or |
|
(ii) |
in the case of installment payments, the first such payment shall be made on the later of (x) the first administratively practicable date during the seventh month following termination of the Participants
Credited Service or (y) the first administratively practicable date in the month of February following termination of the Participants Credited Service, with each subsequent installment being payable on the first administratively
practicable date in February of each subsequent year. |
|
(iii) |
Notwithstanding the foregoing, in the event the Participant dies prior to receiving payment of some or all of his Post-2012 Account balance, the entire unpaid amount of the Participants Post-2012 Account balance
shall be paid to the Participants Beneficiary in a single lump sum on the first administratively practicable date following the date of the Participants death. Amounts distributable pursuant to this Section 8.5(a)(iii) shall be
determined in accordance with the provisions of Section 8.7 hereof. |
|
(b) |
Form of Payment. A Participant shall, on an annual basis, elect the form of payment in which his Annual Post-2012 Subaccount balance shall be paid. A Participant may make a different election with respect to each
Annual Post-2012 Subaccount balance; provided, however, that such election must be made prior to the commencement of the calendar year pertaining to a given Annual Post-2012 Subaccount. Participants may elect to have benefits paid in one of the
following forms of payment: |
|
(i) |
a single lump sum; or |
19
|
(ii) |
five annual installments; or |
|
(iii) |
ten annual installments. |
Amounts distributable pursuant to this Section 8.5(b) shall be
determined in accordance with the provisions of Section 8.7 hereof.
If no election is made with respect to a given Annual Post-2012 Subaccount, the
Participant shall be deemed to have elected to receive payment of such subaccount balance in a lump sum.
8.6 New Election for Pre-2013
Account: Change in Election for Annual Post-2012 Subaccounts. Notwithstanding any provision to the contrary elsewhere in this Plan, and subject to the following paragraph, a Participant may (x) make an installment payment election regarding
his Pre-2013 Account balance (and, in such event, the Participants Pre-2013 Account shall be treated as though it were a single Annual Post-2012 Subaccount for purposes of Section 8.5 hereof) and (y) change his distribution election with
respect to a given Annual Post-2012 Subaccount to elect another form of payment or a different number of installments. Any such installment payment election or change of election (each, a subsequent election) shall be made in accordance
with election procedures established by the Committee and shall be subject in all cases to the requirements of subsection (a) and (b) below and other provision of this Article. If such election becomes effective as provided below, then
that portion of the Participants Account as is affected by such election (i.e., his Pre-2013 Account and one or more Annual Post-2012 Subaccounts) will be payable at the time and in the form specified in his subsequent election.
The Participants subsequent election under this Section will become effective only if the following criteria are satisfied: (a) the
election does not become effective until one year after the date the election is made; and (b) the election extends the date for payment, or the start date for installment payments, by at least five years from the previously elected date (or
other applicable date, in the case of a Participants Pre-2013 Account). No subsequent election may be made with respect to any portion of a Participants Account that is already in payment status.
No subsequent election under the preceding paragraph may operate to accelerate any payment or distribution hereunder or violate any requirement of Code
Section 409A or the regulations and rulings thereunder. Installment payments to a Participant will be deemed a single payment for purposes of the anti-acceleration rule under Code Section 409A(a)(3) and the rules governing the timing of
changes in elections with respect to the time and form of payment hereunder pursuant to Code Section 409A(a)(4).
8.7. Valuation
of Accounts. For purposes of determining the amount payable to a Participant (or his or her beneficiaries) on a given distribution date, the value of the Participants Account or any Subaccount thereof shall be determined on a date as close
as administratively practicable to the applicable distribution date. In the case of an installment payment election, the amount to be distributed on the initial payment date with respect to a given Annual Post-2012 Subaccount shall be equal to
(1) the balance of the Participants Annual Post-2012 Subaccount for the applicable year determined as set forth above, divided by (2) the number of installments
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elected. The amount of each subsequent installment payment shall be equal to (3) the unpaid balance of the applicable Annual Post-2012 Subaccount determined as set forth above, divided by
(4) the remaining number of installment payments to be made, except that the final installment payment shall be equal to the unpaid balance of the applicable Annual Post-2012 Subaccount on a date as close as administratively practicable to the
final payment date. Adjustments and credits attributable to the unpaid balance of any Annual Post-2012 Subaccount shall continue to accrue determined in the manner set forth in Article VI hereof.
ARTICLE IX
TRUST;
CHANGE IN CONTROL
9.1. Non-Qualified Trust. The Bank has entered into a Trust Agreement with an independent third party acting
as the Trustee establishing the Trust. The Trust is intended to provide for the funding of the Banks obligation to provide benefits under the Plan to the extent provided pursuant to the provisions of Sections 9.2 and 9.3. In the event of
Insolvency of the Bank, assets held under the Trust shall be subject to the claims of the general creditors of the Bank under federal and state law as set forth in the Trust Agreement. In the event of such Insolvency, any and all such assets will be
available to satisfy the claims of general creditors of the Bank even if all benefits under the Plan have not otherwise been provided for and even if all such benefits of Participants who have terminated their Credited Service have not been fully
provided for. Nothing herein shall be deemed to prohibit Participants or Beneficiaries from asserting claims for Plan benefits as general creditors of the Bank. The Bank may cause, subject to, and in accordance with, the terms of the Trust
Agreement, Plan benefits to be provided from the assets of the Trust, the general assets of the Bank, or a combination thereof, as the Bank may determine to be in the Banks best interests. No person eligible for, or entitled to, Plan benefits
hereunder shall have any property, equitable or security rights in any specific assets of the Bank or held as part of the Trust. The Plan constitutes a mere promise by the Bank to make benefit payments in the future. It is intended that this Plan be
unfunded for federal income tax purposes and Title I of the Employee Retirement Income Security Act of 1974, as amended. The obligation to pay all Plan benefits shall be treated as an item of indebtedness by the Bank to the Participant or
Beneficiary, and except as otherwise paid from the Trust, such payments shall be made from the general assets of the Bank. All amounts as may be required to be withheld by any applicable federal, state or local law shall be withheld and remitted as
required by any such law and payments made to the Participant or any Beneficiary shall be the net amount after withholding.
9.2.
Discretionary Payments to Trust. The Bank, in the sole discretion of the CEO, may at any time, or from time to time, make deposits (in addition to those required pursuant to Section 9.3) of cash or other property acceptable to the
Trustee in trust with the Trustee to augment the principal of the Trust, such additions to be held, administered and disposed of by the Trustee as provided in the agreement setting forth the terms of the Trust. Neither the Trustee nor any
Participant or Beneficiary shall have any right to compel such additional deposits.
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9.3. Mandatory Payments to Trust.
(a) Upon a Potential Change in Control or a Change in Control, the Bank shall, as soon as possible, but in no event longer than
thirty (30) days following such Potential Change in Control or Change in Control, make a contribution to the Trust of cash or other property acceptable to the Trustee which when added to the total value of the Trust Fund would equal the Full
Funding Amount. In the event of a Potential Change in Control, the Full Funding Amount shall be recalculated in the event such Potential Change in Control Period extends beyond the required valuation date used in the first or other last subsequent
computation made as a result of such Potential Change in Control Period. In the event that the Trustee later determines that provision made in determining the Full Funding Amount for expenses was not adequate, the Bank shall make additional deposits
to provide for such expenses as determined by the Trustee from time to time.
(b) No more than sixty (60) days after
the last day of each fiscal year of the Bank, the Bank shall:
(i) Cause the Recordkeeper to compute the Interim Funding
Amount as of such last day and deliver to the Trustee the Recordkeepers certification or other written statement satisfactory to the Trustee of such Interim Funding Amount; and
(ii) Pay to the Trustee an amount which when added to the value of the Trust Fund as of such last day would result in a sum
equal to or greater than such Interim Funding Amount.
ARTICLE X
NONASSIGNABILITY
10.1.
No Assignment. The Plan is designed to provide payment of benefits solely for the support of the Participant and, to the extent of any death benefits, such Participants beneficiary. No person eligible for or entitled to a benefit
payable hereunder shall have any right, power or authority to anticipate, assign, sell, transfer, pledge or otherwise encumber, whether by voluntary action or by operation of law, the right to receive such benefit payment nor shall such right
otherwise be subject to encumbrance, attachment or garnishment by creditors of the Participant or the Participants Beneficiary.
ARTICLE XI
ADMINISTRATION
11.1.
The Committee. The Plan shall be administered by the Committee. The Committee may delegate its administrative authority to officers or other employees of the Bank, provided that no such delegate shall determine his own benefits hereunder. The
Committee shall have complete and discretionary authority to determine eligibility, the amount of benefits payable under the Plan and to otherwise construe, interpret and apply the provisions of the Plan and its determinations shall be conclusive on
the Bank, its employees and any other person claiming any benefit under the Plan. Notwithstanding the foregoing provisions of this Article
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XI, any determination made by the Committee upon or after a Change in Control or during a Potential Change in
Control Period shall be binding only if accepted by the Participant or Beneficiary and, to the extent not so accepted, such determination of the Committee shall be of no effect and given no weight and such Participant or Beneficiary shall have his
rights determined in accordance with the procedures of any of the provisions of the Trust Agreement, and the Bank shall pay to the Trustee any funds necessary to provide such benefits as so determined.
ARTICLE XII
CLAIMS
PROCEDURE
12.1 General.
(a) If a Participant, Former Participant or Beneficiary disagrees with the computation of the benefits to which he is entitled under the Plan
and wishes to claim benefits or additional benefits, he must file his claim in writing or electronically with the Committee. The Committee may act as the Claims Officer as hereinafter provided or may designate a member of the Committee or one or
more other individuals who may (but shall not be required to) be a Participant or other Employee. If no claim is received by the Committee within 60 days after the claimant receives notice of his benefits, no claim will be permitted and the Claims
Officers determination shall be final.
The claimant may designate any other person, at his own expense, to act on his behalf in
pursuing a benefit claim or appealing the denial of a benefit claim. The term claimant as used in this claims procedure includes any other person he designates to represent him as well as after his death, his beneficiary.
When a claim for benefits is made under Plan, the Claims Officer is required to notify the claimant within 90 days after the claim is received
if the claim for benefits has been denied. In special cases where the Claims Officer needs more time to decide, the Claims Officer may notify the claimant in writing or electronically prior to the end of the initial 90 day period and may take up to
90 additional days.
(b) If the claim is denied in whole or in part, the Claims Officer will send to the claimant a written or electronic
notice including:
(i) one or more specific reasons for the denial;
(ii) specific reference to the Plan provisions on which the denial is based;
(iii) a description of any additional material or information that would be necessary to perfect the claim and an explanation
of why such material or information is necessary;
(iv) information regarding what steps should be taken if the claimant
wants to submit a request for review; and
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(v) a description of the Plans review procedures and the time limits
applicable to the procedures including a statement of the claimants rights to bring a civil action under Section 502(a) of ERISA following a determination upon completion of claimants appeal adverse to claimants position.
(c) If the claim for benefits is denied, the claimant may file an appeal in writing or electronically with the Committee.
(i) The written claim for review must be filed within 60 days after the claimant has received the notice described above that
the claim was denied. If a written claim for review is not filed within 60 days after the claimant receives the notice that the claim was denied, the claimant is deemed to have accepted the Claims Officers decision.
(ii) The claimant may submit written comments, documents, records and other information relating to claimants claim for
benefits.
(iii) The claimant will be provided upon request and free of charge reasonable access to, and copies of, all
documents, records, and other information relevant to claimants claim.
(iv) The Committee will take into account all
comments, documents, records and other information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
(d) After receiving a request for review, the Committee will review the claim within 60 days and will give the claimant a written or
electronic notice of its decision, which is final. In special cases where the Committee needs more time to decide, the Committee will notify the claimant in writing prior to the end of the initial 60 day period and may take up to 60 additional days.
If the Committee denies the claim, the notice will include:
(i) one or more specific reasons for the denial;
(ii) specific reference to the Plan provisions on which the denial is based;
(iii) a statement that the claimant is entitled to receive upon request and free of charge reasonable access to, and copies of,
all documents, records, and other information relevant to claimants claim for benefits; and
(iv) a statement of the
claimants right to bring a civil action under Section 502(a) of ERISA.
(e) Notwithstanding any other provisions of this Plan
to the contrary, the terms of Subsections (a), (b) and (c) of this Section 12.1 shall apply until such time as the
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Committee shall adopt revised claims procedures; provided, however, that the Committee may make any such revisions in such procedures as it deems necessary to assure compliance with the
applicable provisions of Section 503 of the Act and the regulations thereunder.
(f) Any person whose claim has been denied in whole
or in part must exhaust the administrative review procedures provided in this Section 12.1, including any revisions made in accordance with subsection (d) hereof prior to initiating any claim for judicial review.
(g) Any action taken or omitted by any fiduciary with respect to the Plan, including any decision, interpretation, claim denial or review on
appeal, shall be conclusive and binding on all interested parties and shall be subject to judicial modification or reversal only to the extent it is determined by a court of competent jurisdiction that such action or omission was arbitrary and
capricious and contrary to the terms of the Plan.
12.2. Change in Control. During a Potential Change in Control Period or upon or
after a Change in Control, a Participant or Beneficiary at his election may determine at any time not to follow or to cease following the procedures set forth in this Article XII, and to assert and enforce any claims under the Plan without regard to
the provisions of this Article XII, including enforcing any remedies in accordance with the provisions of the Trust Agreement.
ARTICLE
XIII
AMENDMENT AND TERMINATION
13.1. General. The Committee may amend the Plan from time to time; provided, however, that no such amendment shall have the effect of
reducing any vested benefit under the Plan.
13.2. Change in Control. Notwithstanding the provisions of Section 13.1,
(a) an amendment to Section 9.3(a) hereof, or to the definitions of Change in Control, Potential Change in Control, Potential Change in Control Period or Change in Control Agreement, or eliminating or reducing the rights or authority of
the Advisory Committee provided by Article XV hereof may be made only in the event it is approved by a Qualified Vote and (b) an amendment to reduce the funding requirements pursuant to Section 9.3(b) or changing the definition of Interim
Funding Amount or Interim Valuation Requirement Date may be made only in the event it is approved by the vote of sixty-five percent (65%) of all Participants who are employed by the Bank after May 1, 1998, and not employed by the Bank at
the time of such vote.
13.3. Termination. The Bank reserves the right to terminate the Plan or to cease benefit accruals under the
Plan at any time. However, except as may be required pursuant to any applicable federal, state or local law, any Plan benefit then accrued and vested shall remain payable in accordance with the terms of the Plan to the extent then accrued.
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ARTICLE XIV
CONSTRUCTION
14.1.
Governing Law. The Plan shall be administered in accordance with the laws of Connecticut, to the extent applicable, and not preempted by any other applicable federal law.
14.2. No Contract. Nothing in the Plan shall be construed to confer upon any person any legal right to be continued as an employee of
the Bank. The Bank expressly reserves the right to discharge any employee whenever the interest of the Bank in its sole judgment may so require without any liability on the part of the Bank. The Bank shall be the Plan Administrator of the Plan.
14.3. FDIC Restrictions. It is intended that the Plan be and remain a bona fide deferred compensation plan for purposes of
Section 18(k) of the Federal Deposit Insurance Act and Part 359 of Federal Deposit Insurance Corporation (FDIC) regulations, including FDIC Reg § 359.1(d) and the terms of the Plan shall be so construed in the event of any
ambiguity.
14.4. Other Contracts. The benefits payable under the Plan shall not be limited by the provisions of any other
agreement entered into by the Bank and any Participant prior to January 1, 2009 relating to payments in the event of Change in Control; but benefits under any such other agreement may, if such other agreement so provides, be reduced as a result
of benefits payable under the Plan.
14.5. Successors and Assigns. The provisions of this Plan shall be binding upon and inure to
the benefit of the Bank and its successors and assigns, and references to the Bank herein shall include its successors and assigns. References to Parent shall include its successors and assigns.
14.6. Pronouns. Unless the context clearly indicates otherwise, pronouns of one gender or number may refer to subjects or objects of a
different gender or number.
14.7. Code Section 409A. From and after October 4, 2004 this Plan is intended to meet the
requirements of Section 409A of the Code and shall be construed whenever possible in a manner which will result in the Plan being and the Trust being in compliance therewith and which will not subject any Participant to any additional taxes or
penalties pursuant to such Section 409A.
14.8. Headings. The headings of Articles and Sections are included solely for
convenience of reference. If there is any conflict between such headings and the text of the Plan, the text shall control.
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ARTICLE XV
ADVISORY COMMITTEE
15.1.
Advisory Committee. During a Potential Change in Control Period or upon or after a Change in Control, a majority of Plan Voters at any time, and from time to time, may appoint an Advisory Committee to monitor and represent the interests of
the Plan Voters and the Beneficiary of any deceased Participant with respect to the Plan, and the Trust. The Advisory Committee shall be composed of one to three individuals, some or all of whom may (but none of whom shall be required to) be Plan
Voters. The Advisory Committee shall act by majority vote unless it unanimously agrees otherwise and shall otherwise adopt its own procedures which may include authorizing one member thereof to act for the Advisory Committee. Any member of the
Advisory Committee may resign by giving written notice to the other members thereof, or, if he is the sole member, to a majority or all of the then Plan Voters. Any member may be removed by action of a majority of Plan Voters, and additional
members, including replacement of any resigned, removed or deceased member may be designated by action of a majority of Plan Voters. All actions by any Participant shall be in a writing signed by such Participant. A Participant may sign a single
writing effectuating removal and replacement. For purposes of this Article XV, the term Plan Voters shall mean each individual who is an employee of the Bank after May 1, 1998 and who is a Participant in this Plan; but excluding
(a) after a Change in Control any person who was not a Plan Voter prior to the earlier of such Change in Control or the beginning of the Potential Change in Control Period ending with such Change in Control and (b) during a Potential
Change in Control Period any person not a Plan Voter prior to the beginning thereof. For purposes of this Article XV, the term Plan Voter shall mean at anytime all individuals who were employed at the Bank after January 1, 2009 and
who are Participants exclusive of (i) after a Change in Control any person who was not a Plan Voter prior to the earlier of such Change in Control or the beginning of the Potential Change in Control Period ending with such Change in Control and
(ii) during a Potential Change in Control Period any person not a Plan Voter prior to the beginning thereof.
15.2. Purpose and
Duties. The purpose of the Advisory Committee shall be to disseminate information concerning the Plan, and the Trust to Plan Voters and Beneficiaries of deceased Plan Voters, to gather information and data concerning, and otherwise investigate,
inquiries, controversies, or disputes deemed reasonable by the Advisory Committee and raised by any Participant or any such Beneficiary, to discuss such matters with the CEO of the Bank or members of the Board, or of the Human Resources Committee of
the Board, the Actuary or the Trustee, and to take any action authorized under the Trust Agreement with respect to any such inquiries, controversy or dispute which it, in its discretion, deems reasonable to protect the legitimate interest of any
Participant or Beneficiary, and monitor and report to Plan Voters and Beneficiaries of deceased Plan Voter with respect to litigation or arbitration proceedings under the Plan. The Advisory Committee may (but shall not be required to) negotiate on
behalf of any Plan Voter or Beneficiary of a deceased Plan Voter; provided, however, that in no event shall the Advisory Committee be deemed authorized to institute any legal or arbitration proceedings hereunder or enter into any agreement
purporting to settle or limit the rights of any Participant or Beneficiary under the Plan or in or to the Trust or its assets. Nothing herein shall prohibit a Participant or Beneficiary of a deceased Participant individually or with others (whether
or not as a
27
class action) from instituting legal or arbitration proceedings to enforce his own rights under the Plan while the Advisory Committee is negotiating pursuant to the provisions of this Section
whether or not such Participant or Beneficiary is a member of the Advisory Committee.
15.3. Rights. Without request or demand, the
Advisory Committee shall be entitled to all reports, information, and data to which the Bank is entitled (without request or demand) under the Trust Agreement and any other reports, information, or data received by the Bank from the Trustee or the
Actuary. The Bank shall give the following written notices to the Advisory Committee (which the Advisory Committee may waive if deemed in the best interest of Plan Voters): (i) twenty (20) days prior to the payment of any benefits or other
sums from the Trust other than Trustees fees and expenses in the operations of the Plan, the amount to be so paid, the computation thereof, and the amount of any benefits under the Plan and Trustees fees and expenses to be paid from the
Banks general assets; (ii) no later than five (5) days after making any contribution to the Trust, the amount of such contribution and the Recordkeepers certification and detailed computations on the basis of which the
determination of such amount was made; (iii) any amendments proposed to be made to the Trust Agreement twenty (20) days prior to the Banks requesting from Participants a Qualified Vote or a Super Qualified Vote; (iv) within five
(5) days after any substitution of Trust assets by the Bank; (v) at least twenty (20) days before any change in investment policy is made by the Committee or other authorized body under the Trust Agreement; (vi) twenty (20) days
after the close of each calendar quarter, a report of all contributions to and payments from, the Trust Fund during such quarter; (vii) five (5) days prior to any change of Recordkeeper, the name and address of the proposed new
Recordkeeper and a brief description of its relevant experience and controlling shareholders, and the reasons for such change; (viii) five (5) days prior to any change in the Service Agreement, a full description of, or a copy of such
changes; (ix) within five (5) days of any change in any member of the Human Resources Committee of the Board of Directors of the Bank or of any individual to whom it delegates any authority with respect to the Plan or any change in
authority previously so delegated to an individual, the name of any new member of the Committee, the name of any person no longer serving as such a member, the name of any additional person to whom such authority has been granted, the name of any
person from whom such authority has been taken and a description of any change in any such authority granted to any person; and (x) within five (5) days of any change in the 401(k) Review Committee, the name of any new person and the name
of any person no longer serving as such a member. The Advisory Committee, or a person designated by it, may vote on behalf of any Participant who so authorizes it or a delegate chosen by it to vote on behalf of such Participant pursuant to any
provision of the Trust Agreement. Acquiescence or inaction by the Advisory Committee shall not be deemed to be approval or consent and in any event shall in no way bind or limit the rights of Participants or Beneficiaries of deceased Participants.
ARTICLE XVI
CREDITED SERVICE AND ADOPTION BY AFFILIATES
16.1. |
Computation of Credited Service For Purposes of Article IV and Article VIII. |
For
purposes of applying the provisions of Articles IV and VIII:
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(a) The Credited Service of a Participant shall terminate upon his termination of
service with the Bank (except as provided in Section 16.3), but such termination of service shall be determined in accordance with the following rules: A period of a leave of absence for military leave, or sick leave or other bona fide leave of
absence shall constitute Credited Service for only a period of six (6) months or, if longer, as long as such Participants right to reemployment is guaranteed by statute or contract, and unless such Participant returns to actual Credited
Service upon the expiration of such six (6) month or longer period such Participants Credited Service shall terminate upon such expiration or his earlier death or resignation. In order to constitute a bona fide leave of absence, there
must be a reasonable expectation that the Participant will return to perform services for the Bank.
(b) A Participant
shall be deemed to have a termination of Credited Service in the event his hours of service as an employee or independent contractor are permanently reduced to less than 50% of his average hours of service during the preceding 36 months (or if
employed as an employee or independent contractor by the Bank or any member of an affiliated group less than 36 months, during such shorter period)
(c) A Participant shall not be deemed to have had a termination of Credited Service if he is employed by the Bank or any member
of an affiliated group as an employee or independent contractor 50% or more of his average hours of service during the preceding 36 months (or if employed as an employee or independent contractor by the Bank or any member of an affiliated group less
than 36 months, during such shorter period).
16.2. |
Computation of Credited Service For Purposes of Section 8.2. |
For purposes of applying
the provisions of Section 8.2:
(a) The Credited Service of a Participant shall terminate upon his disability,
retirement or termination of service with the Bank (except as provided in Section 16.3) for any reason; and the following types of absences shall not be deemed to terminate the Credited Service of a Participant:
(i) Leave of absence granted for sickness, injury, disability, government, civic or charitable service or any other specific
reason, for not more than two (2) years.
(ii) Absence for military service under leave of absence granted by the Bank
or when required by law, provided he returns to service as an employee of the Bank or an affiliated employer described in Section 16.3 within ninety (90) days of his release from active military duty or any longer period during which his
right to re-employment is protected by law.
29
(iii) Lay off not in excess of two (2) years until employment is terminated
either by the employee or the Bank or an affiliated employer described in Section 16.3.
(b) Credited Service shall
not be deemed terminated by the first twenty-four (24) consecutive months of a maternity or paternity leave of absence. For purposes of this paragraph, a maternity or paternity leave of absence means an absence (i) by reason of
the pregnancy; (ii) by reason of the birth of a child of an employee; (iii) by reason of the placement of a child with the an employee in connection with the adoption of the child by such employee; or (iv) for purposes of caring for
such child for a period beginning immediately following such birth or placement. The Committee may, in its discretion reasonably require an employee to furnish timely information to establish that an absence from work is a maternity or paternity
absence and the number of days for which there was such an absence.
16.3. |
Employment in Affiliated Group. |
Once a person is actually an employee of the Bank
(without reference to the provisions of this Section), employment by any member of an affiliated group shall be deemed employment by the Bank for purposes of determining whether he remains in Credited Service. The term member of an affiliated
group shall include each and all of the following: (i) any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code), which group includes the Bank; (ii) any trade or business
(whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with the Bank; (iii) any organization (whether incorporated or not) which is a member of affiliated service group (as defined in
Section 414(m) of the Code) which includes the Bank; and (iv) any other entity required to be aggregated with the Bank pursuant to Regulations under Section 414(o) of the Code.
16.4. |
Adoption by Affiliates |
(a) With the consent of the Committee and upon
recommendation of the Administrative Committee, this Plan may be adopted by any corporations or trade or businesses or other organizations or entities included in the definition of member of an affiliated group set forth in
Section 16.3. Separate accounts shall be maintained with respect to all contributions made by such adopting employer. Such adopting employer shall be solely responsible for any contributions required with respect to compensation paid by such
adopting employer unless otherwise agreed by the Bank. In the event that any such amounts are paid by the adopting employer to fund its obligations into any trust described in Article IX such amounts shall be subject to the claims of creditors of
the Bank in accordance with the terms of Section 9.1 and with respect to such amounts so paid by such adopting employer, the terms of Section 9.1 shall be construed as if the term the Bank refers to either the Bank or
such adopting employer. Further the provisions of Section 9.2 and 9.3 shall with respect to the adopting employer be
30
construed as if the terms the Bank were referring to such adopting employer. In the event that the Bank and/or one or more adopting employers shares in payment of compensation to any
Participant, the contributions shall be required hereunder shall be allocated by them in proportion to the total compensation paid by all of them to such Participant unless the Bank and such other payors otherwise agree.
(b) Any adopting employer may withdraw from the Plan or terminate the Plan as to its employees and shall do so upon 60 days
notice so to do from the Bank, and to the extent permissible any amounts in such Trust attributable to contributions by such adopting employer shall be paid to such adopting employer or its designee. No distributions from such Trust to pay for Plan
benefits earned from an adopting employer shall be paid except to the extent such funds are attributable to the contributions of such adopting employer and no Trust funds so applicable shall be used to pay for benefits not attributable to service to
such affiliated employer.
(c) Unless specifically provided in a writing signed by the Bank, service to such affiliated
employer prior to the time of the adoption of the Plan by such affiliated employer shall not be counted for purposes of eligibility, vesting or benefit accrual notwithstanding any other provisions of this Plan.
16.5. Special Rule for 2009 Bank Consolidations. For those Participants who, as of December 31, 2008, were employees of one of the
banks being merged with and into the Bank effective as of January 1, 2009 (the Subsidiary Banks), service prior to January 1, 2009 recognized for purposes of eligibility and vesting under the Chittenden Corporation Incentive
Savings and Profit Sharing Plan for the Subsidiary Bank employees who were participants in (or eligible to participate in) such plan as of December 31, 2008 will also be recognized for such employees solely for purposes of eligibility and
vesting (but not benefit accrual) under the Plan.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Bank, acting by its undersigned officer, duly authorized, hereby
executes the Plan to be effective as herein provided.
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PEOPLES UNITED BANK |
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By: |
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John P. Barnes |
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Its Chief Executive Officer |
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EXHIBIT A
Amended and Restated Peoples United Bank Supplemental Savings Plan
Effective October 4, 2004
I. |
The Interim 2005 Procedures are described as follows: |
Prior to December 31, 2004
Participants were required to elect irrevocably the total percentage of their Election Compensation for 2005 and STIP bonus earned in 2004 and payable in 2005 to be deferred as contributions to the 401(k) Plan and this Plan. However, Participants
were able to change their elections with respect to contributions to the 401(k) Plan. Contributions to this Plan in 2005 commenced only after a Participant ceased being able to make 401(k) deferrals because of application of Sections 402(g),
401(a)(17) and 415 of the Code. In February, 2005 the Interim 2005 Procedures were changed to provide that for purposes of determining Participant Contributions under this Plan with respect to such compensation, the Participants 401(k)
contribution percentage elections in effect as of the first payroll date in March of 2005 would be applied regardless of any change made in such election thereafter. In June, 2005 the Interim 2005 Procedures were changed to provide Plan Participants
an opportunity to elect a separate percentage deferral rate for the STIP bonus based on service during 2005 and payable in 2006 which differed from that applicable to other Election Compensation for 2005 and provided that they made such election on
or prior to June 30, 2005.
II. |
The Interim 2006 Procedures are described as follows: |
Prior to December 31, 2005
Participants were required to elect irrevocably the total percentage of their Election Compensation for 2006 to be deferred as contributions to the 401(k) Plan and this Plan. Participants were allowed to change their 401(k) Plan deferrals during
2006, but no such changes did or would affect the amount of contributions with respect to 2006 Election Compensation under this Plan. Contributions to this Plan with respect to Election Compensation for 2006 (including contributions with respect to
STIP bonuses earned in 2006 and paid in 2007) commenced only after a Participant would have ceased being able to make 401(k) deferrals because of application of Sections 402(g), 401(a)(17) and 415 of the Code if the application of those
Sections had been determined by reference to such Participants 401(k) Plan percentage deferral elections last elected prior to December 31, 2006 (regardless of any change actually made in such Participants 401(k) Plan deferral
election). The Interim 2006 Procedures allowed for separate elections applicable to (a) the STIP bonus based on service in 2006 and payable in 2007 and (b) to all other Election Compensation for 2006.
33
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certifications
CERTIFICATIONS
I, John P. Barnes, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Peoples United Financial, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
|
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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Date: May 11, 2015 |
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/s/ John P. Barnes |
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John P. Barnes |
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Principal Executive Officer |
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Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certifications
CERTIFICATIONS
I, R. David Rosato, certify
that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Peoples United Financial, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report; |
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4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
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5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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Date: May 11, 2015 |
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/s/ R. David Rosato |
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R. David Rosato |
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Principal Financial Officer |
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Exhibit 32
Section 1350 Certifications
Executive Certifications
pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code), each of the undersigned officers of Peoples United Financial, Inc. (the Company), a Delaware corporation, does hereby certify, to the best of such officers knowledge, that:
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1. |
The Companys Quarterly Report on Form 10-Q for the period ended March 31, 2015 (the Report) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934.
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2. |
Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period ended March 31, 2015. |
This Certification is made effective as of the date the Report is filed with the Securities and Exchange Commission.
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Date: May 11, 2015 |
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/s/ John P. Barnes |
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John P. Barnes |
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Principal Executive Officer |
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Date: May 11, 2015 |
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/s/ R. David Rosato |
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R. David Rosato |
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Principal Financial Officer |
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The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and is not being filed as part of the Report or as a separate disclosure document.
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