Notes to Fin
ancial Statements
December 31, 2015 and 2014
The Peoples United Bank, N.A. 401(k) Employee
Savings Plan (the Plan) formerly known as The Peoples United Bank 401(k) Employee Savings Plan is a defined contribution plan sponsored by Peoples United Bank, N.A. (Peoples, the Bank, or
the Plan Sponsor). Effective February 23, 2015, the Plan changed its name. Under the terms of a trust agreement, beginning in January 2015, Fidelity Management Trust Company (as Trustee) and Fidelity Investments
(as Recordkeeper) (collectively Fidelity) have been empowered to perform such trust and administrative services as may be necessary to carry out the purposes of the Plan. Prior to January 2015, Mercer Trust Company and
Mercer HR Services served as the trustee and recordkeeper, respectively. However, the Trustee does not have any discretionary authority concerning the investment of the trust fund or the payment of distributions to participants. The Plan is
administered by the Compensation, Nominating and Governance Committee, appointed by the board of directors of Peoples, and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
In general, all employees become eligible to participate in the Plan on their date of hire. Contributions made by Plan
participants and by Peoples are invested (as directed by the individual participants) in the Putnam Stable Value Fund, Peoples United Financial, Inc. common stock, or any of a series of mutual funds investment options offered by the
Plan. All of the Plans investments are participant-directed investments.
Participant accounts are credited with
the participants voluntary payroll contributions, allocations of Peoples matching contribution percentages, and Plan earnings. Allocations are based on the participants eligible pre-tax earnings (as defined) and payroll
contribution percentages. Forfeitures are utilized to reduce future employer contributions. Participants are fully vested in their own contributions at all times, and in Peoples matching contributions after one year of credited service.
Participants who receive an additional Peoples contribution in lieu of participation in the Peoples United Bank Employees Retirement Plan (see note 5) vest as follows: 25% after two years of credited service; 50% after three
years of credited service; 75% after four years of credited service; and 100% after five years of credited service.
On
termination of service, death, disability, or retirement, a participant (or their beneficiary, subject to certain Plan provisions) may elect to receive a lump-sum amount equal to the full value of the participants vested interest in his or her
account, or monthly, quarterly, semi-annual or annual installments over a period of time not to exceed the life expectancy of the participant or the joint life and last survivor expectancy of the participant and his or her beneficiary.
5
PEOPLES UNITED BANK, N.A. 401(k)
EMPLOYEE SAVINGS PLAN
Notes
to Financial Statements
December 31, 2015 and 2014
Effective July 1, 2014, the Savings Banks Employees Retirement Association 401(k) Plan
as adopted by Danversbank was merged with and into the Plan and assets totaling approximately $15.6 million were transferred into the Plan. The Plan was amended to credit certain employees vesting for prior service rendered to previous entities, as
defined.
The foregoing Plan description is presented for general information purposes only. Participants should refer to the Plan
document for more complete information.
(2)
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Summary of Significant Accounting Policies
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(a)
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Basis of Presentation
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The accompanying financial statements have been prepared
on the accrual basis of accounting.
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles (GAAP) requires management of the Plan to make estimates and assumptions that affect the reported amounts of net assets available for Plan benefits and changes therein. Actual results of the Plan could differ significantly
from those estimates and assumptions.
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(b)
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Recent Accounting Pronouncements
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In May 2015, the Financial Accounting Standards
Board (the FASB) issued Accounting Standards Update (ASU) No. 2015-07,
Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent)
(ASU 2015-07). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value (NAV) per share practical expedient.
ASU 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. Investments that calculate NAV per share (or its equivalent), but
for which the practical expedient is not applied, will continue to be included in the fair value hierarchy along with the related required disclosures. ASU 2015-07 is effective for fiscal years beginning after December 15, 2015, and is to be
applied retrospectively, with early adoption permitted.
6
PEOPLES UNITED BANK, N.A. 401(k)
EMPLOYEE SAVINGS PLAN
Notes
to Financial Statements
December 31, 2015 and 2014
In July 2015, the FASB issued ASU 2015-12,
Plan Accounting: Defined Benefit Pension Plans
(Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient
(consensuses of the FASB Emerging Issues Task Force)
(ASU 2015-12). This guidance attempts to reduce complexity in employee benefit plan accounting by specifically addressing the following items: (i) allowing the measurement,
presentation and disclosure of fully benefit-responsive investment contracts (FBRICs) solely at contract value; (ii) eliminating various requirements for plan investment disclosures, such as net appreciation/depreciation by general
investment by type and individual investments that represent 5% or more of net assets; and (iii) providing a practical expedient that permits a plan to measure investments as of a month-end date closest to the plans fiscal year-end. Part
I also clarifies that indirect investments in FBRICs through investment companies, such as stable value common collective trust funds, are not included in the scope of the FBRICs guidance because these types of investments typically qualify for fair
value measurement using the NAV practical expedient. Parts I and II are to be applied on a retrospective basis and Part III is to be applied on a prospective basis for fiscal years beginning after December 15, 2015 (January 1, 2016 for the
Plan). Early adoption is permitted.
The Plan elected to early adopt the provisions of ASU 2015-07 and Parts I and II of ASU 2015-12 for
the 2015 plan year. Part III of ASU 2015-12 is not applicable to the Plan. The adoption of these amendments did not have a significant impact on the Plans Financial Statements. Previously reported financial information pertaining to 2014 has
been restated to present that information on a comparable basis.
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(c)
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Investment Valuation and Income Recognition
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Investments representing shares of
mutual funds and Peoples United Financial, Inc. common stock are stated at fair value based on quoted market prices.
The Plan
invests indirectly in a FBRIC through its participation in the Putnam Stable Value Fund (the Stable Value Fund). The Stable Value Fund is a collective trust fund consisting of investments in investment contracts issued by insurance
companies and other financial institutions as well as synthetic investment contracts, and is stated at NAV, as defined in Accounting Standards Codification (ASC) 820,
Fair Value Measurements and Disclosures
(ASC
820)
(see note 3).
7
PEOPLES UNITED BANK, N.A. 401(k)
EMPLOYEE SAVINGS PLAN
Notes
to Financial Statements
December 31, 2015 and 2014
The net unrealized appreciation or depreciation for the year is reported together with
realized gains and losses in the statements of changes in net assets available for plan benefits. Purchases and sales of investments are recorded on a
trade-date
basis. Realized investment gains and losses are
determined based on the weighted average historical cost basis of the investment sold. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date.
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(d)
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Fair Value Measurement of Investments
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Investments, except for the Stable Value
Fund which is not subject to the fair value hierarchy, are reported at fair value in the accompanying statements of net assets available for plan benefits. ASC 820 establishes a framework for measuring fair value. That framework provides a hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy assigns the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under ASC 820, along with a brief
description of each, are as follows:
Level 1
Inputs to the valuation methodology are unadjusted quoted prices for identical
assets or liabilities in active markets that the Plan has the ability to access.
Level 2
Inputs to the valuation
methodology include:
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quoted prices for similar assets or liabilities in active markets;
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quoted prices for identical or similar assets or liabilities in inactive markets;
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observable inputs for the asset or liability other than quoted prices; and
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inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the
asset or liability.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
The asset or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of
any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
8
PEOPLES UNITED BANK, N.A. 401(k)
EMPLOYEE SAVINGS PLAN
Notes
to Financial Statements
December 31, 2015 and 2014
A description of the valuation methodologies used to measure Plan assets at fair value is
provided below:
Common Stock
Valued at the closing price as reported in the active market on which the identical security is
traded.
Mutual Fund Shares
Valued at the NAV per share as reported in the active markets on which the individual securities
are traded. There are no restrictions as to the redemption of these investments nor does the Plan have any contractual obligations to further invest in any of the individual mutual funds.
Collective Trust
Valued based on reported NAV, as provided by the Plan administrator of the fund. The NAV is used as a practical
expedient to estimate fair value. If available, quoted market prices (NAV) are used to value investments in the trust. The fair value of certain other investments for which quoted market prices are not available are valued based on yields currently
available on comparable securities of issuers with similar credit ratings. There are no imposed redemption restrictions nor does the Plan have any contractual obligations to further invest in the trusts.
The preceding methods described may produce a fair value that may not be indicative of net realizable value or reflective of future fair
values. Furthermore, although Plan management believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date. Except for those changes made in connection with the early adoption of ASU 2015-07, there were no changes in the Plans valuation methodologies during 2015 or
2014.
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(e)
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Notes Receivable from Participants
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Participant loans are accounted for in
accordance with ASU 2010-25,
Plan Accounting-Defined Contribution Pension Plans (Topic 962) Reporting Loans to Participants by Defined Contribution Pension Plans,
which requires that such loans be classified as notes receivable from
participants, segregated from plan investments and measured at their unpaid principal balance plus any accrued but unpaid interest, which approximates fair value.
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(f)
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Payments of Distributions
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Distributions to participants are recorded when paid.
9
PEOPLES UNITED BANK, N.A. 401(k)
EMPLOYEE SAVINGS PLAN
Notes
to Financial Statements
December 31, 2015 and 2014
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(g)
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Administrative Expenses
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Certain direct expenses and fees related to the
administration of the Plan are paid from Plan assets. All other administrative expenses are paid by participants.
Forfeitures of nonvested Peoples contributions for
participants may be used to reduce future Peoples matching contributions. During 2015 and 2014, $229,025 and $400,409 in forfeitures were used to reduce Peoples matching contributions, respectively. There was $85,652 in forfeitures
available to reduce future employer matching contributions at December 31, 2015 (none at December 31, 2014).
The Plan, through its participation in the Stable Value Fund, has
indirectly invested in a FBRIC. The Stable Value Fund, a collective trust, is a commingled pool that invests in: (i) investment contracts issued by insurance companies and other financial institutions; (ii) fixed income securities; and
(iii) money market funds.
The following tables set forth the fair value of Plan assets, by level, within the ASC 820 fair value
hierarchy:
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Fair Value Measurement Using
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As of December 31, 2015 (in thousands)
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Level 1
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Level 2
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Level 3
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Total
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Mutual funds
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$
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502,479
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$
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$
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$
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502,479
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Peoples United Financial, Inc. common stock
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97,998
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97,998
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Total investments, at fair value
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600,477
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600,477
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Putnam Stable Value Fund *
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111,870
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Total investments
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$
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600,477
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$
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$
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$
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712,347
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Fair Value Measurement Using
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As of December 31, 2014 (in thousands)
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Level 1
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Level 2
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Level 3
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Total
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Mutual funds
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$
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491,586
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$
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$
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$
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491,586
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Peoples United Financial, Inc. common stock
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94,461
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94,461
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Total investments, at fair value
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586,047
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586,047
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Putnam Stable Value Fund *
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113,196
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Total investments
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$
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586,047
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$
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$
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$
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699,243
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* The fair values of the Putnam Stable Value Fund reflected in the tables above have been determined using the
NAV per share (or its equivalent) practical expedient and, as such, have not been categorized within the fair value hierarchy. The fair values presented in the tables are intended to permit reconciliation of the fair value hierarchy table to amounts
presented in the Statements of Net Assets Available for Plan Benefits.
10
PEOPLES UNITED BANK, N.A. 401(k)
EMPLOYEE SAVINGS PLAN
Notes
to Financial Statements
December 31, 2015 and 2014
(4)
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Notes Receivable from Participants
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Participants may borrow up to 50% of their vested
account balances (subject to a maximum loan amount of $50,000) and may have up to two loans outstanding at any time (subject to a minimum loan amount of $1,000). Loans generally have a five-year term (longer if used for the purchase of a primary
residence) but may be repaid in full at any time. The interest rate for each loan, which remains fixed through the duration of the loan, is the Prime lending rate as listed in The Wall Street Journal in effect on the first business day of the month
in which the participant requests the loan, plus 1%. Loans granted at different times may bear different interest rates. Interest begins to accrue on the date the loan proceeds are disbursed to the participant and will continue to accrue until the
entire loan balance is paid in full, whether before or after maturity or default. Loan rates ranged from 4.25% to 10.77% at December 31, 2015 and 2014.
(5)
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Employer and Participant Contributions
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Effective January 1, 2009, participating
employees could contribute from 1% to 50% of their pre-tax earnings (as defined) and allocate their contributions to the Plans various investment funds. Participant contributions may not exceed a specified base amount, adjusted annually for
cost-of-living increases, as determined by the Internal Revenue Service (the IRS). The base amount per participant was $18,000 in 2015 and $17,500 in 2014.
Participants who are age 50 and older at any time during the Plan year may make catch up contributions in that year. These
contributions are additional tax deferred contributions that eligible participants are permitted to make in excess of annual IRS tax-deferred contribution limits. For 2015 and 2014, the maximum amount of catch up contributions permitted
to have been made to the Plan was $6,000 and $5,500, respectively. Peoples makes matching contributions equal to 100% of a participants contributions (excluding catch up contributions) up to and including 4% of the participants
earnings.
All eligible employees hired on or after January 1, 2015 are automatically enrolled in the Plan with a 1% deferral
percentage, unless the employee elects a different percentage, including 0%.
During 2006, the Plan was amended to allow employees hired
on or after August 14, 2006 to receive an additional annual contribution equal to 3% of their eligible pre-tax earnings (as defined) in lieu of participation in The Peoples United Bank, N.A. Employees Retirement Plan (the
ERP), which was closed to new participants effective August 14, 2006. In July 2011, Peoples amended the ERP to freeze, effective December 31, 2011, the accrual of pension benefits for participants in that
plan.
In conjunction with the ERP amendment, Peoples amended the Plan to provide for contributions to the Plan on behalf of all ERP
participants, effective January 1, 2012, in an annual amount equal to 3% of the employees eligible pre-tax earnings (as defined). At December 31, 2015 and 2014, the Plan recorded additional employer contributions receivable totaling
$9,018,022 and $8,640,479, respectively, representing amounts due from Peoples as a result of these Plan amendments.
Peoples
matching contributions are made at the same time as participant contributions, while contributions in lieu of retirement plan participation are made on an annual basis. All of Peoples contributions are allocated to the investment funds in the
same proportion elected by the participant with respect to a participants own contributions. If the participant does not have an investment election on file, the contribution is made to an appropriate age-based retirement fund offered by the
Plan based upon the participants years to normal retirement eligibility (age 65).
11
PEOPLES UNITED BANK, N.A. 401(k)
EMPLOYEE SAVINGS PLAN
Notes
to Financial Statements
December 31, 2015 and 2014
(6)
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Distributions to Participants
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Participant contributions may not be withdrawn from the
Plan prior to the termination of the participants employment with Peoples, unless the participant has either attained age 59-1/2 or is able to demonstrate financial hardship, as defined in Section 401(k) of the Internal Revenue Code
(the IRC). Peoples contributions may be withdrawn subject to specified limitations. The Plan also provides for distributions upon termination, retirement or death, subject to specified conditions. The normal form of payment for
participants is a lump sum distribution.
(7)
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Risk and Uncertainties
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The Plan invests in various types of investment securities that
are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur
in the near term and that such changes could materially affect the amounts reported in the accompanying statements of net assets available for plan benefits.
Although it has not expressed any intention to do so, Peoples
has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of termination, partial termination, or complete discontinuance of contributions, all participants
would become fully vested in their accounts and benefits would be payable under the terms of the Plan.
The Plan received a favorable tax determination letter from the IRS
dated September 20, 2013, indicating that the Plan, as then designed, was in compliance with the applicable requirements of the IRC, and was therefore exempt from federal income taxes. The Plan has been amended since receiving the determination
letter. However, the Plan administrator and the Plans tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
U.S. GAAP requires the Plan administrator to evaluate tax positions taken by the Plan and recognize a tax liability (or derecognize an
asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan and has concluded that, as of December 31,
2015, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or derecognition of an asset) or disclosure in the financial statements.
12
PEOPLES UNITED BANK, N.A. 401(k)
EMPLOYEE SAVINGS PLAN
Notes
to Financial Statements
December 31, 2015 and 2014
The Plan is no longer subject to income tax examinations for years prior to 2012.
(10)
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Related Party Transactions
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The Plans investments include shares of Peoples
United Financial, Inc. common stock. Peoples is the Plan Sponsor and, therefore, these transactions qualify as party-in-interest transactions. Notes receivable from participants also qualify as party-in-interest transactions. All of these
party-in-interest transactions are exempt from the prohibited transaction rules of ERISA.
(11)
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Reconciliation of Financial Statements to Form 5500
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The following is a reconciliation
of net assets available for plan benefits per the financial statements to the Form 5500:
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As of December 31 (in thousands)
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2015
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2014
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Net assets available for plan benefits per financial statements
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$
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736,513
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$
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724,177
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Plus: Adjustment from contract value to fair value for fully benefit-responsive investment
contracts held by collective trust
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2,139
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Net assets available for plan benefits per Form 5500
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$
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736,513
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$
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726,316
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The following is a reconciliation of net investment income per the financial statements to the Form 5500:
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Year ended December 31 (in thousands)
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2015
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Total net investment income per financial statements, including interest from notes receivable
from participants
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$
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16,244
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Less: Changes in adjustment from fair value to contract value for fully benefit-responsive
investment contracts held by collective trust
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(2,139
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)
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Total net investment income per Form 5500
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$
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14,105
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As discussed in Note 2, the Plan adopted ASU 2015-12 for the 2015 plan year. As a result, the Plans
Stable Value Fund is measured at fair value using the NAV per share (or its equivalent) practical expedient for both the financial statements and the Form 5500 as of December 31, 2015.
13