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. These accounting estimates are reviewed with the Audit Committee of the Board of Directors.
The judgments used by management in applying 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, 2015, as supplemented by the Quarterly Report for the period ended March 31, 2016 and this Quarterly Report for the period ended June 30, 2016,
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 (VIEs), 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.
6
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Affordable housing investments, including all legally binding commitments to fund future
investments, are included in other assets in the Consolidated Statements of Condition ($173.5 million and $158.4 million at June 30, 2016 and December 31, 2015, respectively). Included in other liabilities in the Consolidated Statements of
Condition is a liability for all legally binding unfunded commitments to fund future investments ($82.8 million and $74.9 million at those dates). 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 $2.9 million and $2.7 million for the three months ended
June 30, 2016 and 2015, respectively, and $5.9 million and $5.5 million for the six months ended June 30, 2016 and 2015, respectively.
As discussed in Note 13, effective January 1, 2016, the Company adopted, with retrospective application, amended standards with respect
to the presentation of debt issuance costs by changing the required presentation of such costs from an asset on the statement of condition to a deduction from the related debt liability. The adoption of this new guidance did not impact the
Companys results of operations or cash flows. In accordance with the amended standard, debt issuance costs totaling $5.6 million at December 31, 2015, previously included in other assets, are now included as a component of notes and
debentures in the Consolidated Statements of Condition.
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, 2015. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results of operations that may be
expected for the entire year or any other interim period.
Pending Acquisition
On June 27, 2016, Peoples United announced the signing of a definitive agreement to acquire Suffolk Bancorp (Suffolk)
based in Riverhead, New York. Under the terms of the definitive agreement, each share of Suffolk common stock will be converted into the right to receive 2.225 shares of Peoples United common stock, with a total transaction value of
approximately $391 million as of June 30, 2016. At June 30, 2016, Suffolk reported total assets of $2.2 billion and total deposits of $1.9 billion and operates 27 branches in the greater Long Island area.
The transaction, which is expected to close late in the fourth quarter of 2016, is subject to regulatory approval and the approval of Suffolk
shareholders. Peoples United shareholder approval is not required for the transaction.
7
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 June 30, 2016 (in millions)
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency
|
|
$
|
451.8
|
|
|
$
|
5.0
|
|
|
$
|
|
|
|
$
|
456.8
|
|
GSE (1) residential mortgage-backed securities and CMOs (2)
|
|
|
4,202.8
|
|
|
|
55.9
|
|
|
|
(3.9
|
)
|
|
|
4,254.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
4,654.6
|
|
|
|
60.9
|
|
|
|
(3.9
|
)
|
|
|
4,711.6
|
|
Equity securities
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
4,654.8
|
|
|
$
|
60.9
|
|
|
$
|
(3.9
|
)
|
|
$
|
4,711.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
1,188.9
|
|
|
$
|
95.2
|
|
|
$
|
|
|
|
$
|
1,284.1
|
|
GSE residential mortgage-backed securities
|
|
|
559.0
|
|
|
|
7.9
|
|
|
|
|
|
|
|
566.9
|
|
Other
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
1,749.4
|
|
|
$
|
103.1
|
|
|
$
|
|
|
|
$
|
1,852.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Government sponsored enterprise
|
|
(2)
|
Collateralized mortgage obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 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
|
|
$
|
363.7
|
|
|
$
|
0.2
|
|
|
$
|
(1.1
|
)
|
|
$
|
362.8
|
|
GSE residential mortgage-backed securities and CMOs
|
|
|
4,191.3
|
|
|
|
22.3
|
|
|
|
(48.9
|
)
|
|
|
4,164.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
4,555.0
|
|
|
|
22.5
|
|
|
|
(50.0
|
)
|
|
|
4,527.5
|
|
Equity securities
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
4,555.2
|
|
|
$
|
22.5
|
|
|
$
|
(50.0
|
)
|
|
$
|
4,527.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
$
|
1,019.6
|
|
|
$
|
55.8
|
|
|
$
|
(0.1
|
)
|
|
$
|
1,075.3
|
|
GSE residential mortgage-backed securities
|
|
|
588.5
|
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
585.7
|
|
Other
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
1,609.6
|
|
|
$
|
55.8
|
|
|
$
|
(2.9
|
)
|
|
$
|
1,662.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale with a fair value of $1.90 billion and $1.64 billion at June 30, 2016 and
December 31, 2015, respectively, were pledged as collateral for public deposits and for other purposes.
8
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 June 30, 2016, 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
|
|
$
|
147.0
|
|
|
$
|
147.1
|
|
|
$
|
|
|
|
$
|
|
|
After 1 but within 5 years
|
|
|
181.7
|
|
|
|
185.3
|
|
|
|
|
|
|
|
|
|
After 5 but within 10 years
|
|
|
123.1
|
|
|
|
124.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
451.8
|
|
|
|
456.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE residential mortgage-backed securities and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 but within 10 years
|
|
|
908.6
|
|
|
|
938.2
|
|
|
|
|
|
|
|
|
|
After 10 years
|
|
|
3,294.2
|
|
|
|
3,316.6
|
|
|
|
559.0
|
|
|
|
566.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,202.8
|
|
|
|
4,254.8
|
|
|
|
559.0
|
|
|
|
566.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
4.8
|
|
After 1 but within 5 years
|
|
|
|
|
|
|
|
|
|
|
21.7
|
|
|
|
22.3
|
|
After 5 but within 10 years
|
|
|
|
|
|
|
|
|
|
|
360.1
|
|
|
|
392.4
|
|
After 10 years
|
|
|
|
|
|
|
|
|
|
|
802.3
|
|
|
|
864.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
1,188.9
|
|
|
|
1,284.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
147.0
|
|
|
|
147.1
|
|
|
|
6.3
|
|
|
|
6.3
|
|
After 1 but within 5 years
|
|
|
181.7
|
|
|
|
185.3
|
|
|
|
21.7
|
|
|
|
22.3
|
|
After 5 but within 10 years
|
|
|
1,031.7
|
|
|
|
1,062.6
|
|
|
|
360.1
|
|
|
|
392.4
|
|
After 10 years
|
|
|
3,294.2
|
|
|
|
3,316.6
|
|
|
|
1,361.3
|
|
|
|
1,431.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,654.6
|
|
|
$
|
4,711.6
|
|
|
$
|
1,749.4
|
|
|
$
|
1,852.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
9
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. Certain unrealized losses totaled less than $0.1 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuous Unrealized Loss Position
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months Or Longer
|
|
|
Total
|
|
As of June 30, 2016 (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
|
|
$
|
|
|
|
$
|
|
|
|
$
|
768.3
|
|
|
$
|
(3.9
|
)
|
|
$
|
768.3
|
|
|
$
|
(3.9
|
)
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal
|
|
|
0.8
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.8
|
|
|
$
|
|
|
|
$
|
768.6
|
|
|
$
|
(3.9
|
)
|
|
$
|
769.4
|
|
|
$
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuous Unrealized Loss Position
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months Or Longer
|
|
|
Total
|
|
As of December 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
|
|
$
|
2,200.8
|
|
|
$
|
(20.3
|
)
|
|
$
|
933.9
|
|
|
$
|
(28.6
|
)
|
|
$
|
3,134.7
|
|
|
$
|
(48.9
|
)
|
U.S. Treasury and agency
|
|
|
346.3
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
346.3
|
|
|
|
(1.1
|
)
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE residential mortgage-backed securities
|
|
|
585.7
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
585.7
|
|
|
|
(2.8
|
)
|
State and municipal
|
|
|
22.3
|
|
|
|
(0.1
|
)
|
|
|
3.7
|
|
|
|
|
|
|
|
26.0
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,155.1
|
|
|
$
|
(24.3
|
)
|
|
$
|
937.6
|
|
|
$
|
(28.6
|
)
|
|
$
|
4,092.7
|
|
|
$
|
(52.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016, approximately 2% of the 1,473 securities owned by the Company, consisting of 20
securities classified as available for sale and six securities classified as held to maturity, had gross unrealized losses totaling $3.9 million and less than $0.1 million, respectively. All of the GSE residential mortgage-backed securities and
CMOs had AAA credit ratings and an average final maturity of 11 years. The state and municipal securities had an average credit rating of AA and an average maturity of six 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 June 30, 2016 and December 31, 2015 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 or
six months ended June 30, 2016 and 2015.
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 (the FHLB) of Boston, is currently required to purchase and hold shares of capital stock in the FHLB of Boston (total cost of $157.8 million and $154.0 million at June 30, 2016 and December 31, 2015, respectively) 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. acquisition, the Bank acquired shares of
capital stock in the FHLB of New York (total cost of $11.3 million at both June 30, 2016 and December 31, 2015). 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 June 30, 2016 and the cost of the investment approximates fair value.
The Bank, as a member of the Federal Reserve Bank system, is currently required to purchase and hold shares of capital stock in the Federal
Reserve Bank of New York (the FRB-NY) (total cost of $148.3 million and $140.1 million at June 30, 2016 and December 31, 2015, respectively) in an amount equal to 6% of its capital and surplus. Based on the current capital
adequacy and liquidity position of the FRB-NY, management believes there is no impairment in the Companys investment at June 30, 2016 and the cost of the investment approximates fair value.
Included in short-term investments are interest-bearing deposits at the FRB-NY totaling $188.4 million at June 30, 2016 and $333.7
million at December 31, 2015. These deposits represent an alternative to overnight federal funds sold and had a yield of 0.50% at both dates.
10
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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 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 six months ended June 30, 2016.
The following
table summarizes Peoples Uniteds loans by loan portfolio segment and class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
(in millions)
|
|
Originated
|
|
|
Acquired
|
|
|
Total
|
|
|
Originated
|
|
|
Acquired
|
|
|
Total
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
9,734.7
|
|
|
$
|
276.6
|
|
|
$
|
10,011.3
|
|
|
$
|
9,696.9
|
|
|
$
|
331.9
|
|
|
$
|
10,028.8
|
|
Commercial and industrial
|
|
|
7,865.9
|
|
|
|
200.2
|
|
|
|
8,066.1
|
|
|
|
7,526.4
|
|
|
|
222.3
|
|
|
|
7,748.7
|
|
Equipment financing
|
|
|
2,992.4
|
|
|
|
13.5
|
|
|
|
3,005.9
|
|
|
|
2,957.6
|
|
|
|
15.7
|
|
|
|
2,973.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Portfolio
|
|
|
20,593.0
|
|
|
|
490.3
|
|
|
|
21,083.3
|
|
|
|
20,180.9
|
|
|
|
569.9
|
|
|
|
20,750.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate
|
|
|
5,062.1
|
|
|
|
104.8
|
|
|
|
5,166.9
|
|
|
|
4,733.3
|
|
|
|
117.9
|
|
|
|
4,851.2
|
|
Fixed-rate
|
|
|
559.8
|
|
|
|
62.3
|
|
|
|
622.1
|
|
|
|
536.1
|
|
|
|
69.7
|
|
|
|
605.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total residential mortgage
|
|
|
5,621.9
|
|
|
|
167.1
|
|
|
|
5,789.0
|
|
|
|
5,269.4
|
|
|
|
187.6
|
|
|
|
5,457.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
2,082.7
|
|
|
|
33.5
|
|
|
|
2,116.2
|
|
|
|
2,115.5
|
|
|
|
38.2
|
|
|
|
2,153.7
|
|
Other consumer
|
|
|
49.0
|
|
|
|
0.8
|
|
|
|
49.8
|
|
|
|
48.5
|
|
|
|
0.9
|
|
|
|
49.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
2,131.7
|
|
|
|
34.3
|
|
|
|
2,166.0
|
|
|
|
2,164.0
|
|
|
|
39.1
|
|
|
|
2,203.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail Portfolio
|
|
|
7,753.6
|
|
|
|
201.4
|
|
|
|
7,955.0
|
|
|
|
7,433.4
|
|
|
|
226.7
|
|
|
|
7,660.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
28,346.6
|
|
|
$
|
691.7
|
|
|
$
|
29,038.3
|
|
|
$
|
27,614.3
|
|
|
$
|
796.6
|
|
|
$
|
28,410.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred loan costs, which are included in loans by respective class and accounted for as interest yield
adjustments, totaled $65.4 million at June 30, 2016 and $59.8 million at December 31, 2015.
11
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 for the three and six months ended June 30, 2016 and 2015. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Commercial
|
|
|
Retail
|
|
|
|
|
June 30, 2016 (in millions)
|
|
Originated
|
|
|
Acquired
|
|
|
Total
|
|
|
Originated
|
|
|
Acquired
|
|
|
Total
|
|
|
Total
|
|
Balance at beginning of period
|
|
$
|
184.9
|
|
|
$
|
7.7
|
|
|
$
|
192.6
|
|
|
$
|
22.7
|
|
|
$
|
0.2
|
|
|
$
|
22.9
|
|
|
$
|
215.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
(6.1
|
)
|
Recoveries
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.7
|
|
|
|
|
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
(5.1
|
)
|
Provision for loan losses
|
|
|
7.9
|
|
|
|
(0.5
|
)
|
|
|
7.4
|
|
|
|
2.6
|
|
|
|
|
|
|
|
2.6
|
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
189.7
|
|
|
$
|
7.2
|
|
|
$
|
196.9
|
|
|
$
|
23.3
|
|
|
$
|
0.2
|
|
|
$
|
23.5
|
|
|
$
|
220.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
Commercial
|
|
|
Retail
|
|
|
|
|
June 30, 2016 (in millions)
|
|
Originated
|
|
|
Acquired
|
|
|
Total
|
|
|
Originated
|
|
|
Acquired
|
|
|
Total
|
|
|
Total
|
|
Balance at beginning of period
|
|
$
|
181.8
|
|
|
$
|
7.9
|
|
|
$
|
189.7
|
|
|
$
|
21.1
|
|
|
$
|
0.2
|
|
|
$
|
21.3
|
|
|
$
|
211.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(8.0
|
)
|
|
|
(0.3
|
)
|
|
|
(8.3
|
)
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
(5.5
|
)
|
|
|
(13.8
|
)
|
Recoveries
|
|
|
0.7
|
|
|
|
|
|
|
|
0.7
|
|
|
|
2.0
|
|
|
|
|
|
|
|
2.0
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
|
(7.3
|
)
|
|
|
(0.3
|
)
|
|
|
(7.6
|
)
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
(3.5
|
)
|
|
|
(11.1
|
)
|
Provision for loan losses
|
|
|
15.2
|
|
|
|
(0.4
|
)
|
|
|
14.8
|
|
|
|
5.7
|
|
|
|
|
|
|
|
5.7
|
|
|
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
189.7
|
|
|
$
|
7.2
|
|
|
$
|
196.9
|
|
|
$
|
23.3
|
|
|
$
|
0.2
|
|
|
$
|
23.5
|
|
|
$
|
220.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Commercial
|
|
|
Retail
|
|
|
|
|
June 30, 2015 (in millions)
|
|
Originated
|
|
|
Acquired
|
|
|
Total
|
|
|
Originated
|
|
|
Acquired
|
|
|
Total
|
|
|
Total
|
|
Balance at beginning of period
|
|
$
|
173.1
|
|
|
$
|
9.4
|
|
|
$
|
182.5
|
|
|
$
|
18.0
|
|
|
$
|
0.4
|
|
|
$
|
18.4
|
|
|
$
|
200.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
(3.7
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
(6.0
|
)
|
Recoveries
|
|
|
2.2
|
|
|
|
|
|
|
|
2.2
|
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
(3.2
|
)
|
Provision for loan losses
|
|
|
4.8
|
|
|
|
0.7
|
|
|
|
5.5
|
|
|
|
2.4
|
|
|
|
(0.2
|
)
|
|
|
2.2
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
176.4
|
|
|
$
|
10.1
|
|
|
$
|
186.5
|
|
|
$
|
18.7
|
|
|
$
|
0.2
|
|
|
$
|
18.9
|
|
|
$
|
205.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
Commercial
|
|
|
Retail
|
|
|
|
|
June 30, 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
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
(10.3
|
)
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
(3.8
|
)
|
|
|
(14.1
|
)
|
Recoveries
|
|
|
2.8
|
|
|
|
|
|
|
|
2.8
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
(7.5
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
(2.9
|
)
|
|
|
(10.4
|
)
|
Provision for loan losses
|
|
|
14.3
|
|
|
|
0.3
|
|
|
|
14.6
|
|
|
|
3.1
|
|
|
|
(0.2
|
)
|
|
|
2.9
|
|
|
|
17.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
176.4
|
|
|
$
|
10.1
|
|
|
$
|
186.5
|
|
|
$
|
18.7
|
|
|
$
|
0.2
|
|
|
$
|
18.9
|
|
|
$
|
205.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following is a summary, by loan portfolio segment and impairment methodology, of the
allowance for loan losses and related portfolio balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2016
|
|
Originated Loans
Individually Evaluated
for Impairment
|
|
|
Originated Loans
Collectively Evaluated
for Impairment
|
|
|
Acquired Loans
(Discounts Related to
Credit Quality)
|
|
|
Total
|
|
(in millions)
|
|
Portfolio
|
|
|
Allowance
|
|
|
Portfolio
|
|
|
Allowance
|
|
|
Portfolio
|
|
|
Allowance
|
|
|
Portfolio
|
|
|
Allowance
|
|
Commercial
|
|
$
|
162.5
|
|
|
$
|
5.0
|
|
|
$
|
20,430.5
|
|
|
$
|
184.7
|
|
|
$
|
490.3
|
|
|
$
|
7.2
|
|
|
$
|
21,083.3
|
|
|
$
|
196.9
|
|
Retail
|
|
|
96.9
|
|
|
|
4.1
|
|
|
|
7,656.7
|
|
|
|
19.2
|
|
|
|
201.4
|
|
|
|
0.2
|
|
|
|
7,955.0
|
|
|
|
23.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
259.4
|
|
|
$
|
9.1
|
|
|
$
|
28,087.2
|
|
|
$
|
203.9
|
|
|
$
|
691.7
|
|
|
$
|
7.4
|
|
|
$
|
29,038.3
|
|
|
$
|
220.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2015
|
|
Originated Loans
Individually Evaluated
for Impairment
|
|
|
Originated Loans
Collectively Evaluated
for Impairment
|
|
|
Acquired Loans
(Discounts Related to
Credit Quality)
|
|
|
Total
|
|
(in millions)
|
|
Portfolio
|
|
|
Allowance
|
|
|
Portfolio
|
|
|
Allowance
|
|
|
Portfolio
|
|
|
Allowance
|
|
|
Portfolio
|
|
|
Allowance
|
|
Commercial
|
|
$
|
155.1
|
|
|
$
|
5.5
|
|
|
$
|
20,025.8
|
|
|
$
|
176.3
|
|
|
$
|
569.9
|
|
|
$
|
7.9
|
|
|
$
|
20,750.8
|
|
|
$
|
189.7
|
|
Retail
|
|
|
97.0
|
|
|
|
3.9
|
|
|
|
7,336.4
|
|
|
|
17.2
|
|
|
|
226.7
|
|
|
|
0.2
|
|
|
|
7,660.1
|
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
252.1
|
|
|
$
|
9.4
|
|
|
$
|
27,362.2
|
|
|
$
|
193.5
|
|
|
$
|
796.6
|
|
|
$
|
8.1
|
|
|
$
|
28,410.9
|
|
|
$
|
211.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The recorded investments, by class of loan, of originated non-performing loans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
(in millions)
|
|
2016
|
|
|
2015
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Equipment financing
|
|
$
|
40.0
|
|
|
$
|
27.5
|
|
Commercial real estate
|
|
|
35.4
|
|
|
|
30.2
|
|
Commercial and industrial
|
|
|
34.7
|
|
|
|
44.9
|
|
|
|
|
|
|
|
|
|
|
Total (1)
|
|
|
110.1
|
|
|
|
102.6
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
29.9
|
|
|
|
37.2
|
|
Home equity
|
|
|
17.4
|
|
|
|
19.5
|
|
Other consumer
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Total (2)
|
|
|
47.3
|
|
|
|
56.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
157.4
|
|
|
$
|
159.4
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reported net of government guarantees totaling $15.8 million and $16.9 million at June 30, 2016 and December 31, 2015, 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 June 30, 2016, the
principal loan classes to which these government guarantees relate are commercial and industrial loans (99%) and commercial real estate loans (1%).
|
(2)
|
Includes $11.5 million and $19.9 million of loans in the process of foreclosure at June 30, 2016 and December 31, 2015, respectively.
|
13
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The preceding table excludes acquired loans that are (i) accounted for as purchased
credit impaired loans or (ii) covered by a Federal Deposit Insurance Corporation (FDIC) loss-share agreement (LSA) totaling $23.4 million and $2.1 million, respectively, at June 30, 2016 and $27.7 million and $2.3
million, respectively, at December 31, 2015. 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 June 30, 2016 or
December 31, 2015.
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.
TDRs may either be accruing or placed on non-accrual status (and reported as non-performing loans) depending upon the loans specific
circumstances, including the nature and extent of the related modifications. TDRs on non-accrual status remain classified as such 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.
Impairment is evaluated on a collective basis for
smaller-balance loans with similar credit risk and on an individual loan basis for other loans. If a loan is deemed to be impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported (net of the allowance) at the
present value of expected future cash flows discounted at the loans original effective interest rate or at the fair value of the collateral less cost to sell if repayment is expected solely from the collateral. Interest payments on impaired
non-accrual
loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof,
are charged off when deemed uncollectible.
Peoples Uniteds recorded investment in originated loans classified as TDRs totaled
$191.6 million and $195.7 million at June 30, 2016 and December 31, 2015, respectively. The related allowance for loan losses at both June 30, 2016 and December 31, 2015 was $5.9 million. Interest income recognized on TDRs
totaled $1.0 million for both the three months ended June 30, 2016 and 2015, and $2.1 million for both the six months ended June 30, 2016 and 2015. Fundings under commitments to lend additional amounts to borrowers with loans classified as
TDRs were immaterial for the three and six months ended June 30, 2016 and 2015. Originated loans that were modified and classified as TDRs during the three and six months ended June 30, 2016 and 2015
principally involve reduced payment and/or payment deferral, extension of term (generally no more than two years for commercial loans and nine years for retail loans) and/or a temporary reduction of interest rate (generally less than
200 basis points).
14
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 and six months ended June 30, 2016 and 2015. For purposes of this disclosure, recorded investments represent amounts immediately prior to and subsequent to the restructuring.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
(dollars in millions)
|
|
Number
of Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate (1)
|
|
|
2
|
|
|
$
|
2.7
|
|
|
$
|
2.7
|
|
Commercial and industrial (2)
|
|
|
12
|
|
|
|
13.2
|
|
|
|
13.2
|
|
Equipment financing (3)
|
|
|
16
|
|
|
|
5.2
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30
|
|
|
|
21.1
|
|
|
|
21.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage (4)
|
|
|
19
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Home equity (5)
|
|
|
18
|
|
|
|
1.4
|
|
|
|
1.4
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
37
|
|
|
|
6.3
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
67
|
|
|
$
|
27.4
|
|
|
$
|
27.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the following concessions: extension of term (2 contracts; recorded investment of $2.7 million).
|
(2)
|
Represents the following concessions: extension of term (7 contracts; recorded investment of $3.8 million); reduced payment and/or payment deferral (4 contracts; recorded investment of $9.0 million); or a combination of
concessions (1 contract; recorded investment of $0.4 million).
|
(3)
|
Represents the following concessions: extension of term (9 contracts; recorded investment of $1.6 million); reduced payment and/or payment deferral (6 contracts; recorded investment of $3.5 million); or a combination of
concessions (1 contract; recorded investment of $0.1 million).
|
(4)
|
Represents the following concessions: loans restructured through bankruptcy (8 contracts; recorded investment of $0.7 million); reduced payment and/or payment deferral (5 contracts; recorded investment of $3.4 million);
or a combination of concessions (6 contracts; recorded investment of $0.8 million).
|
(5)
|
Represents the following concessions: loans restructured through bankruptcy (10 contracts; recorded investment of $0.7 million); or a combination of concessions (8 contracts; recorded investment of $0.7
million).
|
15
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
(dollars in millions)
|
|
Number
of Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate (1)
|
|
|
5
|
|
|
$
|
3.8
|
|
|
$
|
3.8
|
|
Commercial and industrial (2)
|
|
|
25
|
|
|
|
18.4
|
|
|
|
18.4
|
|
Equipment financing (3)
|
|
|
26
|
|
|
|
11.3
|
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
56
|
|
|
|
33.5
|
|
|
|
33.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage (4)
|
|
|
38
|
|
|
|
10.2
|
|
|
|
10.2
|
|
Home equity (5)
|
|
|
36
|
|
|
|
2.8
|
|
|
|
2.8
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
74
|
|
|
|
13.0
|
|
|
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
130
|
|
|
$
|
46.5
|
|
|
$
|
46.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the following concessions: extension of term (3 contracts; recorded investment of $2.9 million); reduced payment and/or payment deferral (1 contract; recorded investment of $0.9 million); or a combination of
concessions (1 contract; recorded investment of less than $0.1 million).
|
(2)
|
Represents the following concessions: extension of term (14 contracts; recorded investment of $8.2 million); reduced payment and/or payment deferral (7 contracts; recorded investment of $9.4 million); or a combination
of concessions (4 contracts; recorded investment of $0.8 million).
|
(3)
|
Represents the following concessions: extension of term (11 contracts; recorded investment of $2.0 million); reduced payment and/or payment deferral (11 contracts; recorded investment of $7.8 million); or a combination
of concessions (4 contracts; recorded investment of $1.5 million).
|
(4)
|
Represents the following concessions: loans restructured through bankruptcy (12 contracts; recorded investment of $2.2 million); reduced payment and/or payment deferral (10 contracts; recorded investment of
$4.8 million); or a combination of concessions (16 contracts; recorded investment of $3.2 million).
|
(5)
|
Represents the following concessions: loans restructured through bankruptcy (23 contracts; recorded investment of $1.8 million); reduced payment and/or payment deferral (1 contract; recorded investment of $0.1
million); or a combination of concessions (12 contracts; recorded investment of $0.9 million).
|
16
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
(dollars in millions)
|
|
Number
of Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate (1)
|
|
|
2
|
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
Commercial and industrial (2)
|
|
|
20
|
|
|
|
24.7
|
|
|
|
24.7
|
|
Equipment financing (3)
|
|
|
5
|
|
|
|
7.7
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27
|
|
|
|
32.8
|
|
|
|
32.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage (4)
|
|
|
16
|
|
|
|
6.2
|
|
|
|
6.2
|
|
Home equity (5)
|
|
|
22
|
|
|
|
2.9
|
|
|
|
2.9
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
38
|
|
|
|
9.1
|
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
65
|
|
|
$
|
41.9
|
|
|
$
|
41.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the following concessions: extension of term (2 contracts; recorded investment of $0.4 million).
|
(2)
|
Represents the following concessions: extension of term (12 contracts; recorded investment of $4.4 million); reduced payment and/or payment deferral (5 contracts; recorded investment of $18.8 million); or a combination
of concessions (3 contracts; recorded investment of $1.5 million).
|
(3)
|
Represents the following concessions: reduced payment and/or payment deferral (2 contracts; recorded investment of $4.9 million); or a combination of concessions (3 contracts; recorded investment of $2.8 million).
|
(4)
|
Represents the following concessions: loans restructured through bankruptcy (5 contracts; recorded investment of $1.5 million); reduced payment and/or payment deferral (3 contracts; recorded investment of $1.3 million);
temporary rate reduction (1 contract; recorded investment of $0.1 million); or a combination of concessions (7 contracts; recorded investment of $3.3 million).
|
(5)
|
Represents the following concessions: loans restructured through bankruptcy (13 contracts; recorded investment of $1.8 million); reduced payment and/or payment deferral (1 contract; recorded investment of $0.1
million); temporary rate reduction (1 contract; recorded investment of $0.5 million); or a combination of concessions (7 contracts; recorded investment of $0.5 million).
|
17
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
|
|
(dollars in millions)
|
|
Number
of Contracts
|
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate (1)
|
|
|
10
|
|
|
$
|
5.3
|
|
|
$
|
5.3
|
|
Commercial and industrial (2)
|
|
|
28
|
|
|
|
34.8
|
|
|
|
34.8
|
|
Equipment financing (3)
|
|
|
10
|
|
|
|
15.3
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
48
|
|
|
|
55.4
|
|
|
|
55.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage (4)
|
|
|
36
|
|
|
|
11.9
|
|
|
|
11.9
|
|
Home equity (5)
|
|
|
54
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
90
|
|
|
|
16.8
|
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
138
|
|
|
$
|
72.2
|
|
|
$
|
72.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the following concessions: extension of term (10 contracts; recorded investment of $5.3 million).
|
(2)
|
Represents the following concessions: extension of term (16 contracts; recorded investment of $13.1 million); reduced payment and/or payment deferral (8 contracts; recorded investment of $19.4 million); or a combination
of concessions (4 contracts; recorded investment of $2.3 million).
|
(3)
|
Represents the following concessions: reduced payment and/or payment deferral (5 contracts; recorded investment of $10.6 million); or a combination of concessions (5 contracts; recorded investment of $4.7 million).
|
(4)
|
Represents the following concessions: loans restructured through bankruptcy (11 contracts; recorded investment of $3.9 million); reduced payment and/or payment deferral (7 contracts; recorded investment of $2.8
million); temporary rate reduction (2 contracts; recorded investment of $0.3 million); or a combination of concessions (16 contracts; recorded investment of $4.9 million).
|
(5)
|
Represents the following concessions: loans restructured through bankruptcy (37 contracts; recorded investment of $2.8 million); reduced payment and/or payment deferral (3 contracts; recorded investment of $0.3
million); temporary rate reduction (1 contract; recorded investment of $0.5 million); or a combination of concessions (13 contracts; recorded investment of $1.3 million).
|
18
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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 and six months ended June 30, 2016 and 2015. For purposes of this disclosure, the previous 12 months is measured from July 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 or six months ended June 30, 2016 or 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
(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
|
|
|
2
|
|
|
$
|
0.9
|
|
|
|
2
|
|
|
$
|
3.4
|
|
Commercial and industrial
|
|
|
5
|
|
|
|
0.6
|
|
|
|
1
|
|
|
|
0.9
|
|
Equipment financing
|
|
|
5
|
|
|
|
3.1
|
|
|
|
3
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12
|
|
|
|
4.6
|
|
|
|
6
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
2
|
|
|
|
1.2
|
|
|
|
7
|
|
|
|
1.6
|
|
Home equity
|
|
|
3
|
|
|
|
0.3
|
|
|
|
6
|
|
|
|
0.7
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5
|
|
|
|
1.5
|
|
|
|
13
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17
|
|
|
$
|
6.1
|
|
|
|
19
|
|
|
$
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
(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
|
|
|
2
|
|
|
$
|
0.9
|
|
|
|
2
|
|
|
$
|
3.4
|
|
Commercial and industrial
|
|
|
5
|
|
|
|
0.6
|
|
|
|
3
|
|
|
|
1.0
|
|
Equipment financing
|
|
|
9
|
|
|
|
4.8
|
|
|
|
7
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16
|
|
|
|
6.3
|
|
|
|
12
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
7
|
|
|
|
2.5
|
|
|
|
21
|
|
|
|
8.2
|
|
Home equity
|
|
|
8
|
|
|
|
0.6
|
|
|
|
17
|
|
|
|
1.5
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15
|
|
|
|
3.1
|
|
|
|
38
|
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31
|
|
|
$
|
9.4
|
|
|
|
50
|
|
|
$
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
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 June 30, 2016
|
|
|
As of December 31, 2015
|
|
(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
|
|
$
|
47.1
|
|
|
$
|
45.9
|
|
|
$
|
|
|
|
$
|
46.5
|
|
|
$
|
45.3
|
|
|
$
|
|
|
Commercial and industrial
|
|
|
44.9
|
|
|
|
42.3
|
|
|
|
|
|
|
|
53.2
|
|
|
|
50.8
|
|
|
|
|
|
Equipment financing
|
|
|
38.5
|
|
|
|
33.6
|
|
|
|
|
|
|
|
32.6
|
|
|
|
26.0
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
66.0
|
|
|
|
60.0
|
|
|
|
|
|
|
|
67.2
|
|
|
|
60.4
|
|
|
|
|
|
Home equity
|
|
|
24.0
|
|
|
|
20.6
|
|
|
|
|
|
|
|
23.3
|
|
|
|
20.5
|
|
|
|
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
220.5
|
|
|
$
|
202.4
|
|
|
$
|
|
|
|
$
|
222.8
|
|
|
$
|
203.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With a related allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
18.3
|
|
|
$
|
14.1
|
|
|
$
|
1.7
|
|
|
$
|
18.8
|
|
|
$
|
14.7
|
|
|
$
|
1.9
|
|
Commercial and industrial
|
|
|
25.0
|
|
|
|
21.8
|
|
|
|
2.6
|
|
|
|
19.2
|
|
|
|
14.7
|
|
|
|
3.3
|
|
Equipment financing
|
|
|
5.6
|
|
|
|
4.8
|
|
|
|
0.7
|
|
|
|
3.8
|
|
|
|
3.6
|
|
|
|
0.3
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
14.5
|
|
|
|
14.4
|
|
|
|
3.2
|
|
|
|
14.1
|
|
|
|
14.0
|
|
|
|
2.9
|
|
Home equity
|
|
|
2.0
|
|
|
|
1.9
|
|
|
|
0.9
|
|
|
|
2.3
|
|
|
|
2.1
|
|
|
|
1.0
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
65.4
|
|
|
$
|
57.0
|
|
|
$
|
9.1
|
|
|
$
|
58.2
|
|
|
$
|
49.1
|
|
|
$
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
65.4
|
|
|
$
|
60.0
|
|
|
$
|
1.7
|
|
|
$
|
65.3
|
|
|
$
|
60.0
|
|
|
$
|
1.9
|
|
Commercial and industrial
|
|
|
69.9
|
|
|
|
64.1
|
|
|
|
2.6
|
|
|
|
72.4
|
|
|
|
65.5
|
|
|
|
3.3
|
|
Equipment financing
|
|
|
44.1
|
|
|
|
38.4
|
|
|
|
0.7
|
|
|
|
36.4
|
|
|
|
29.6
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
179.4
|
|
|
|
162.5
|
|
|
|
5.0
|
|
|
|
174.1
|
|
|
|
155.1
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
80.5
|
|
|
|
74.4
|
|
|
|
3.2
|
|
|
|
81.3
|
|
|
|
74.4
|
|
|
|
2.9
|
|
Home equity
|
|
|
26.0
|
|
|
|
22.5
|
|
|
|
0.9
|
|
|
|
25.6
|
|
|
|
22.6
|
|
|
|
1.0
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
106.5
|
|
|
|
96.9
|
|
|
|
4.1
|
|
|
|
106.9
|
|
|
|
97.0
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
285.9
|
|
|
$
|
259.4
|
|
|
$
|
9.1
|
|
|
$
|
281.0
|
|
|
$
|
252.1
|
|
|
$
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following tables summarize, 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 June 30,
|
|
|
|
2016
|
|
|
2015
|
|
(in millions)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
61.6
|
|
|
$
|
0.4
|
|
|
$
|
66.2
|
|
|
$
|
0.4
|
|
Commercial and industrial
|
|
|
62.2
|
|
|
|
0.5
|
|
|
|
70.7
|
|
|
|
0.6
|
|
Equipment financing
|
|
|
36.5
|
|
|
|
|
|
|
|
33.0
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
160.3
|
|
|
|
0.9
|
|
|
|
169.9
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
72.3
|
|
|
|
0.4
|
|
|
|
75.9
|
|
|
|
0.3
|
|
Home equity
|
|
|
22.4
|
|
|
|
|
|
|
|
21.1
|
|
|
|
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
94.7
|
|
|
|
0.4
|
|
|
|
97.0
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
255.0
|
|
|
$
|
1.3
|
|
|
$
|
266.9
|
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
(in millions)
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
60.9
|
|
|
$
|
0.7
|
|
|
$
|
72.1
|
|
|
$
|
0.7
|
|
Commercial and industrial
|
|
|
62.6
|
|
|
|
0.9
|
|
|
|
65.1
|
|
|
|
1.0
|
|
Equipment financing
|
|
|
34.8
|
|
|
|
0.1
|
|
|
|
29.9
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
158.3
|
|
|
|
1.7
|
|
|
|
167.1
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
72.7
|
|
|
|
0.8
|
|
|
|
75.7
|
|
|
|
0.7
|
|
Home equity
|
|
|
22.3
|
|
|
|
0.1
|
|
|
|
21.3
|
|
|
|
0.1
|
|
Other consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
95.0
|
|
|
|
0.9
|
|
|
|
97.0
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
253.3
|
|
|
$
|
2.6
|
|
|
$
|
264.1
|
|
|
$
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following tables summarize, by class of loan, aging information for originated loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
As of June 30, 2016 (in millions)
|
|
Current
|
|
|
30-89
Days
|
|
|
90 Days
or More
|
|
|
Total
|
|
|
Total
Originated
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
9,706.7
|
|
|
$
|
7.4
|
|
|
$
|
20.6
|
|
|
$
|
28.0
|
|
|
$
|
9,734.7
|
|
Commercial and industrial
|
|
|
7,807.3
|
|
|
|
19.6
|
|
|
|
39.0
|
|
|
|
58.6
|
|
|
|
7,865.9
|
|
Equipment financing
|
|
|
2,906.3
|
|
|
|
67.5
|
|
|
|
18.6
|
|
|
|
86.1
|
|
|
|
2,992.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,420.3
|
|
|
|
94.5
|
|
|
|
78.2
|
|
|
|
172.7
|
|
|
|
20,593.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
5,572.1
|
|
|
|
30.8
|
|
|
|
19.0
|
|
|
|
49.8
|
|
|
|
5,621.9
|
|
Home equity
|
|
|
2,068.3
|
|
|
|
6.3
|
|
|
|
8.1
|
|
|
|
14.4
|
|
|
|
2,082.7
|
|
Other consumer
|
|
|
48.8
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
49.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,689.2
|
|
|
|
37.3
|
|
|
|
27.1
|
|
|
|
64.4
|
|
|
|
7,753.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans
|
|
$
|
28,109.5
|
|
|
$
|
131.8
|
|
|
$
|
105.3
|
|
|
$
|
237.1
|
|
|
$
|
28,346.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $14.8 million, $11.5 million and $21.4 million, respectively, and $20.2 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
As of December 31, 2015 (in millions)
|
|
Current
|
|
|
30-89
Days
|
|
|
90 Days
or More
|
|
|
Total
|
|
|
Total
Originated
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
9,667.7
|
|
|
$
|
15.0
|
|
|
$
|
14.2
|
|
|
$
|
29.2
|
|
|
$
|
9,696.9
|
|
Commercial and industrial
|
|
|
7,466.5
|
|
|
|
13.1
|
|
|
|
46.8
|
|
|
|
59.9
|
|
|
|
7,526.4
|
|
Equipment financing
|
|
|
2,886.7
|
|
|
|
63.9
|
|
|
|
7.0
|
|
|
|
70.9
|
|
|
|
2,957.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,020.9
|
|
|
|
92.0
|
|
|
|
68.0
|
|
|
|
160.0
|
|
|
|
20,180.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
|
5,212.9
|
|
|
|
31.1
|
|
|
|
25.4
|
|
|
|
56.5
|
|
|
|
5,269.4
|
|
Home equity
|
|
|
2,098.9
|
|
|
|
7.1
|
|
|
|
9.5
|
|
|
|
16.6
|
|
|
|
2,115.5
|
|
Other consumer
|
|
|
48.2
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
48.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,360.0
|
|
|
|
38.4
|
|
|
|
35.0
|
|
|
|
73.4
|
|
|
|
7,433.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans
|
|
$
|
27,380.9
|
|
|
$
|
130.4
|
|
|
$
|
103.0
|
|
|
$
|
233.4
|
|
|
$
|
27,614.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $16.0 million, $15.0 million and $20.5 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.
22
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Commercial 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.
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 quarterly 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.
23
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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 June 30, 2016 and December 31, 2015, the allowance for loan losses on acquired loans was $7.4 million and $8.1 million, respectively.
The following is a summary, by class of loan, of credit quality indicators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016 (in millions)
|
|
Commercial
Real Estate
|
|
|
Commercial
and
Industrial
|
|
|
Equipment
Financing
|
|
|
Total
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
9,486.6
|
|
|
$
|
7,397.9
|
|
|
$
|
2,588.0
|
|
|
$
|
19,472.5
|
|
Special mention
|
|
|
121.2
|
|
|
|
177.7
|
|
|
|
107.1
|
|
|
|
406.0
|
|
Substandard
|
|
|
126.9
|
|
|
|
287.7
|
|
|
|
297.3
|
|
|
|
711.9
|
|
Doubtful
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans
|
|
|
9,734.7
|
|
|
|
7,865.9
|
|
|
|
2,992.4
|
|
|
|
20,593.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
214.4
|
|
|
|
158.7
|
|
|
|
6.0
|
|
|
|
379.1
|
|
Special mention
|
|
|
18.9
|
|
|
|
4.2
|
|
|
|
4.6
|
|
|
|
27.7
|
|
Substandard
|
|
|
42.6
|
|
|
|
37.3
|
|
|
|
2.9
|
|
|
|
82.8
|
|
Doubtful
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired loans
|
|
|
276.6
|
|
|
|
200.2
|
|
|
|
13.5
|
|
|
|
490.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,011.3
|
|
|
$
|
8,066.1
|
|
|
$
|
3,005.9
|
|
|
$
|
21,083.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016 (in millions)
|
|
Residential
Mortgage
|
|
|
Home
Equity
|
|
|
Other
Consumer
|
|
|
Total
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low risk
|
|
$
|
2,754.4
|
|
|
$
|
954.3
|
|
|
$
|
28.2
|
|
|
$
|
3,736.9
|
|
Moderate risk
|
|
|
2,327.1
|
|
|
|
672.6
|
|
|
|
7.7
|
|
|
|
3,007.4
|
|
High risk
|
|
|
540.4
|
|
|
|
455.8
|
|
|
|
13.1
|
|
|
|
1,009.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans
|
|
|
5,621.9
|
|
|
|
2,082.7
|
|
|
|
49.0
|
|
|
|
7,753.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low risk
|
|
|
86.1
|
|
|
|
|
|
|
|
|
|
|
|
86.1
|
|
Moderate risk
|
|
|
32.2
|
|
|
|
|
|
|
|
|
|
|
|
32.2
|
|
High risk
|
|
|
48.8
|
|
|
|
33.5
|
|
|
|
0.8
|
|
|
|
83.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired loans
|
|
|
167.1
|
|
|
|
33.5
|
|
|
|
0.8
|
|
|
|
201.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,789.0
|
|
|
$
|
2,116.2
|
|
|
$
|
49.8
|
|
|
$
|
7,955.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 (in millions)
|
|
Commercial
Real Estate
|
|
|
Commercial
and
Industrial
|
|
|
Equipment
Financing
|
|
|
Total
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
9,438.6
|
|
|
$
|
7,153.4
|
|
|
$
|
2,550.0
|
|
|
$
|
19,142.0
|
|
Special mention
|
|
|
130.6
|
|
|
|
121.0
|
|
|
|
119.1
|
|
|
|
370.7
|
|
Substandard
|
|
|
127.7
|
|
|
|
250.5
|
|
|
|
288.5
|
|
|
|
666.7
|
|
Doubtful
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans
|
|
|
9,696.9
|
|
|
|
7,526.4
|
|
|
|
2,957.6
|
|
|
|
20,180.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
260.9
|
|
|
|
175.9
|
|
|
|
6.1
|
|
|
|
442.9
|
|
Special mention
|
|
|
20.1
|
|
|
|
6.6
|
|
|
|
5.0
|
|
|
|
31.7
|
|
Substandard
|
|
|
49.1
|
|
|
|
39.8
|
|
|
|
4.6
|
|
|
|
93.5
|
|
Doubtful
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired loans
|
|
|
331.9
|
|
|
|
222.3
|
|
|
|
15.7
|
|
|
|
569.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,028.8
|
|
|
$
|
7,748.7
|
|
|
$
|
2,973.3
|
|
|
$
|
20,750.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015 (in millions)
|
|
Residential
Mortgage
|
|
|
Home
Equity
|
|
|
Other
Consumer
|
|
|
Total
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low risk
|
|
$
|
2,579.3
|
|
|
$
|
959.2
|
|
|
$
|
25.8
|
|
|
$
|
3,564.3
|
|
Moderate risk
|
|
|
2,208.6
|
|
|
|
651.2
|
|
|
|
7.9
|
|
|
|
2,867.7
|
|
High risk
|
|
|
481.5
|
|
|
|
505.1
|
|
|
|
14.8
|
|
|
|
1,001.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans
|
|
|
5,269.4
|
|
|
|
2,115.5
|
|
|
|
48.5
|
|
|
|
7,433.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low risk
|
|
|
97.7
|
|
|
|
|
|
|
|
|
|
|
|
97.7
|
|
Moderate risk
|
|
|
36.2
|
|
|
|
|
|
|
|
|
|
|
|
36.2
|
|
High risk
|
|
|
53.7
|
|
|
|
38.2
|
|
|
|
0.9
|
|
|
|
92.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired loans
|
|
|
187.6
|
|
|
|
38.2
|
|
|
|
0.9
|
|
|
|
226.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,457.0
|
|
|
$
|
2,153.7
|
|
|
$
|
49.4
|
|
|
$
|
7,660.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
25
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 June 30, 2016, the outstanding principal balance and
carrying amount of the acquired loan portfolio were $791.9 million and $691.7 million, respectively ($901.9 million and $796.6 million, respectively, at December 31, 2015).
26
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following tables summarize activity in the accretable yield for the acquired loan
portfolio:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
(in millions)
|
|
2016
|
|
|
2015
|
|
Balance at beginning of period
|
|
$
|
280.8
|
|
|
$
|
361.6
|
|
Accretion
|
|
|
(10.5
|
)
|
|
|
(14.3
|
)
|
Reclassification from nonaccretable difference for loans with improved cash flows (1)
|
|
|
|
|
|
|
0.8
|
|
Other changes in expected cash flows (2)
|
|
|
|
|
|
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
270.3
|
|
|
$
|
316.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
(in millions)
|
|
2016
|
|
|
2015
|
|
Balance at beginning of period
|
|
$
|
296.0
|
|
|
$
|
396.3
|
|
Accretion
|
|
|
(22.1
|
)
|
|
|
(29.6
|
)
|
Reclassification from nonaccretable difference for loans with improved cash flows (1)
|
|
|
|
|
|
|
1.1
|
|
Other changes in expected cash flows (2)
|
|
|
(3.6
|
)
|
|
|
(50.9
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
270.3
|
|
|
$
|
316.9
|
|
|
|
|
|
|
|
|
|
|
|
(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 $9.7 million and $3.3 million,
respectively, at June 30, 2016, and $7.1 million and $5.5 million, respectively, at December 31, 2015. Repossessed assets totaled $11.6 million and $9.5 million at June 30, 2016 and December 31, 2015, 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
(88.8 million shares at both June 30, 2016 and December 31, 2015) 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) (0.2 million shares at June 30, 2016 and 0.3 million shares at December 31, 2015). 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 United pension and other postretirement 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 and six months ended June 30, 2016 and 2015 is reported in the Consolidated Statements of Comprehensive Income.
27
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
Plans
|
|
|
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, 2015
|
|
$
|
(140.0
|
)
|
|
$
|
(17.7
|
)
|
|
$
|
(19.5
|
)
|
|
$
|
|
|
|
$
|
(177.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
|
|
|
|
54.1
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
53.8
|
|
Amounts reclassified from AOCL (1)
|
|
|
1.9
|
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
|
|
0.3
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period other comprehensive income
|
|
|
1.9
|
|
|
|
54.0
|
|
|
|
1.0
|
|
|
|
|
|
|
|
56.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2016
|
|
$
|
(138.1
|
)
|
|
$
|
36.3
|
|
|
$
|
(18.5
|
)
|
|
$
|
|
|
|
$
|
(120.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Pension
and Other
Postretirement
Plans
|
|
|
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
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
Amounts reclassified from AOCL (1)
|
|
|
2.2
|
|
|
|
|
|
|
|
1.0
|
|
|
|
0.5
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period other comprehensive income (loss)
|
|
|
2.2
|
|
|
|
0.6
|
|
|
|
1.0
|
|
|
|
(0.1
|
)
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2015
|
|
$
|
(140.7
|
)
|
|
$
|
(3.1
|
)
|
|
$
|
(20.5
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(164.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See the following table for details about these reclassifications.
|
28
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
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
Affected Line Item
in the Statement Where
|
(in millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Net Income is Presented
|
Details about components of AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other postretirement plans items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
(1.6
|
)
|
|
$
|
(2.0
|
)
|
|
$
|
(3.1
|
)
|
|
$
|
(4.0
|
)
|
|
(1)
|
Prior service credit
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
0.5
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
(1.8
|
)
|
|
|
(2.7
|
)
|
|
|
(3.5
|
)
|
|
Income before income tax expense
|
|
|
|
0.5
|
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
1.3
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(1.1
|
)
|
|
|
(1.9
|
)
|
|
|
(2.2
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net realized gains on securities available for sale
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
Income before income tax expense (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized losses on securities transferred to held to maturity
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
|
(1.5
|
)
|
|
|
(1.5
|
)
|
|
Income before income tax expense (3)
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(1.0
|
)
|
|
|
(1.0
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized gains and losses on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
(0.2
|
)
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
|
(4)
|
Interest rate locks (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
|
Income before income tax expense
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(1.4
|
)
|
|
$
|
(1.9
|
)
|
|
$
|
(3.1
|
)
|
|
$
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in the computation of net periodic benefit income (expense) 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)
|
Included in interest expense - notes and debentures.
|
(5)
|
Amount reclassified from AOCL totaled less than $0.1 million for all periods.
|
29
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
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(in millions, except per share data)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
68.5
|
|
|
$
|
61.7
|
|
|
$
|
131.4
|
|
|
$
|
120.9
|
|
Dividends and undistributed earnings allocated to participating securities
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
|
|
(0.4
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable to common shareholders
|
|
$
|
68.3
|
|
|
$
|
61.4
|
|
|
$
|
131.0
|
|
|
$
|
120.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding for basic EPS
|
|
|
302.5
|
|
|
|
300.1
|
|
|
|
302.2
|
|
|
|
299.6
|
|
Effect of dilutive equity-based awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common and common-equivalent shares for diluted EPS
|
|
|
302.5
|
|
|
|
300.1
|
|
|
|
302.2
|
|
|
|
299.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.23
|
|
|
$
|
0.20
|
|
|
$
|
0.43
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
0.23
|
|
|
$
|
0.20
|
|
|
$
|
0.43
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 22.1 million shares for both the three and six months ended June 30, 2016 and 20.5 million shares for both the three and six
months ended June 30, 2015, respectively, have been excluded from the calculation of diluted EPS.
NOTE 6. GOODWILL AND OTHER ACQUISITION-RELATED
INTANGIBLE ASSETS
Changes in
the carrying amount of Peoples Uniteds goodwill are summarized as follows for the six months ended June 30, 2016. There were no changes in goodwill during the six months ended June 30, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Segment
|
|
|
|
|
(in millions)
|
|
Commercial
Banking
|
|
|
Retail
Banking
|
|
|
Wealth
Management
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
1,222.8
|
|
|
$
|
681.9
|
|
|
$
|
54.0
|
|
|
$
|
1,958.7
|
|
Acquisition of Eagle Insurance Group, LLC
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
1.4
|
|
Adjustments
|
|
|
(0.7
|
)
|
|
|
(2.3
|
)
|
|
|
(0.1
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2016
|
|
$
|
1,222.1
|
|
|
$
|
679.6
|
|
|
$
|
55.3
|
|
|
$
|
1,957.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In April 2016, Peoples United Insurance Agency, a subsidiary of the Bank, acquired Eagle Insurance
Group, LLC (Eagle Insurance), a Massachusetts-based insurance brokerage firm, focused on commercial insurance, in an all-cash transaction. In connection with the acquisition, the Company recorded goodwill of $1.4 million, other
acquisition-related intangible assets, representing insurance customer relationships, of $1.6 million and a deferred tax asset of $0.9 million.
30
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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 June 30, 2016 and December 31, 2015, tax deductible goodwill totaled $26.6 million and $24.1 million, respectively, and related, almost entirely, to the
acquisitions of Eagle Insurance, Kesten-Brown Insurance, LLC and Butler Bank.
Peoples Uniteds other acquisition-related
intangible assets totaled $119.1 million and $129.1 million at June 30, 2016 and December 31, 2015, respectively. At June 30, 2016, the carrying amounts of other acquisition-related intangible assets were as follows: trade name
intangible ($76.1 million); core deposit intangible ($17.8 million); trust relationship intangible ($18.5 million); and insurance relationship intangible ($6.7 million).
Amortization expense of other acquisition-related intangible assets totaled $5.8 million and $6.0 million for the three months ended
June 30, 2016 and 2015, respectively, and $11.6 million and $11.9 million for the six months ended June 30, 2016 and 2015, respectively. Scheduled amortization expense attributable to other acquisition-related intangible assets for the
full-year of 2016 and each of the next five years is as follows: $23.3 million in 2016; $22.2 million in 2017; $10.8 million in 2018; $10.1 million in 2019; $9.7 million in 2020; and $9.4 million in 2021. There were no impairment losses relating to
goodwill or other acquisition-related intangible assets recorded during the six months ended June 30, 2016 and 2015.
NOTE 7. EMPLOYEE BENEFIT
PLANS
Peoples United Employee
Pension and Other Postretirement Plans
Peoples United maintains a qualified noncontributory defined benefit pension plan
(the Peoples 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 Peoples 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 Peoples Qualified Plan to freeze, effective December 31, 2011, the accrual of
pension benefits for Peoples 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.
In addition to the
Peoples Qualified Plan, Peoples United continues to maintain a qualified defined benefit pension plan that covers former Chittenden employees who meet certain eligibility requirements (the Chittenden Qualified Plan).
Effective December 31, 2005, accrued benefits were frozen based on participants then-current service and pay levels. Interest continues to be credited on undistributed balances at a crediting rate specified by the Chittenden Qualified
Plan. 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 Peoples Qualified Plan.
31
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Peoples Uniteds funding policy is to contribute the amounts required by
applicable regulations, although additional amounts may be contributed from time to time.
Peoples United also maintains
(i) unfunded, nonqualified supplemental plans to provide retirement benefits to certain senior officers (the Supplemental Plans) and (ii) an unfunded plan that provides retirees with optional medical, dental and life insurance
benefits (the Other Postretirement 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.
Components of net periodic benefit (income) expense and other amounts recognized in other comprehensive income for the Peoples Qualified
Plan, the Chittenden Qualified Plan and the Supplemental Plans (together the Pension Plans) and the Other Postretirement Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Other
Postretirement Plan
|
|
Three months ended June 30 (in millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net periodic benefit (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
|
|
Interest cost
|
|
|
4.7
|
|
|
|
6.1
|
|
|
|
0.2
|
|
|
|
0.2
|
|
Expected return on plan assets
|
|
|
(8.6
|
)
|
|
|
(8.8
|
)
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
1.5
|
|
|
|
1.8
|
|
|
|
|
|
|
|
0.1
|
|
Recognized prior service credit
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) expense
|
|
$
|
(2.3
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Other
Postretirement Plan
|
|
Six months ended June 30 (in millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net periodic benefit (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
0.1
|
|
Interest cost
|
|
|
9.4
|
|
|
|
11.4
|
|
|
|
0.3
|
|
|
|
0.3
|
|
Expected return on plan assets
|
|
|
(17.2
|
)
|
|
|
(16.9
|
)
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
3.0
|
|
|
|
3.8
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Recognized prior service credit
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
Settlements
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income) expense
|
|
|
(4.6
|
)
|
|
|
(1.6
|
)
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized
in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
(3.0
|
)
|
|
|
(3.8
|
)
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
Prior service credit
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax changes recognized in other comprehensive income
|
|
|
(2.6
|
)
|
|
|
(3.4
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit (income)
expense and other comprehensive income
|
|
$
|
(7.2
|
)
|
|
$
|
(5.0
|
)
|
|
$
|
0.5
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Effective January 1, 2016, Peoples United changed the method used to estimate the
interest cost component of net periodic benefit income for the Pension Plans and the Other Postretirement Plan. Instead of using spot interest rate yield curves, Peoples United has elected to use a full yield curve approach to estimate this
component of benefit income by applying the specific spot rates along the yield curve, used in the determination of the benefit obligations, to the relevant projected cash flows. This change did not affect the measurement of Peoples
Uniteds total benefit obligations as the change in interest cost is completely offset by the actuarial gain or loss recognized. Peoples United considers this a change in accounting estimate and, accordingly, accounted for it
prospectively in 2016.
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 $2.5 million for the six months ended June 30, 2016. At June 30, 2016, the loan balance totaled $188.6 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 3,310,297 shares of Peoples United common stock have been allocated
or committed to be released to participants accounts. At June 30, 2016, 7,143,278 shares of Peoples United common stock, with a fair value of $104.7 million at that date, have not been allocated or committed to be released.
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 $2.8 million and $2.6 million for the six months ended June 30, 2016 and 2015, respectively.
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 these legal proceedings and, based on the advice of counsel and the information currently available, believes that the eventual outcome of these legal proceedings will not have a material adverse effect on its financial condition, results
of operations or liquidity.
NOTE 9. SEGMENT INFORMATION
See Segment Results
included in Item 2 for segment information for the three and six months ended June 30, 2016 and 2015.
33
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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).
|
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.
34
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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 June 30, 2016 and December 31, 2015, 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 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.
35
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 June 30, 2016 (in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
6.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6.8
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency
|
|
|
456.8
|
|
|
|
|
|
|
|
|
|
|
|
456.8
|
|
GSE residential mortgage-backed securities and CMOs
|
|
|
|
|
|
|
4,254.8
|
|
|
|
|
|
|
|
4,254.8
|
|
Equity securities
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded funds
|
|
|
30.0
|
|
|
|
|
|
|
|
|
|
|
|
30.0
|
|
Fixed income securities
|
|
|
|
|
|
|
4.9
|
|
|
|
|
|
|
|
4.9
|
|
Mutual funds
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
Interest rate swaps
|
|
|
|
|
|
|
360.6
|
|
|
|
|
|
|
|
360.6
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
Forward commitments to sell residential mortgage loans
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
496.2
|
|
|
$
|
4,622.2
|
|
|
$
|
|
|
|
$
|
5,118.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
283.3
|
|
|
$
|
|
|
|
$
|
283.3
|
|
Risk participation agreements
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
Interest rate-lock commitments on residential mortgage loans
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
285.5
|
|
|
$
|
|
|
|
$
|
285.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
As of December 31, 2015 (in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading account securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
6.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6.7
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency
|
|
|
362.8
|
|
|
|
|
|
|
|
|
|
|
|
362.8
|
|
GSE residential mortgage-backed securities and CMOs
|
|
|
|
|
|
|
4,164.7
|
|
|
|
|
|
|
|
4,164.7
|
|
Equity securities
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-traded funds
|
|
|
29.4
|
|
|
|
|
|
|
|
|
|
|
|
29.4
|
|
Fixed income securities
|
|
|
|
|
|
|
5.1
|
|
|
|
|
|
|
|
5.1
|
|
Mutual funds
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
Interest rate swaps
|
|
|
|
|
|
|
157.0
|
|
|
|
|
|
|
|
157.0
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
Forward commitments to sell residential mortgage loans
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
400.9
|
|
|
$
|
4,328.2
|
|
|
$
|
|
|
|
$
|
4,729.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
$
|
108.5
|
|
|
$
|
|
|
|
$
|
108.5
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Interest rate-lock commitments on residential mortgage loans
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
109.5
|
|
|
$
|
|
|
|
$
|
109.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015, 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 six months ended June 30, 2016
and 2015.
36
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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%.
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.
37
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following tables summarize Peoples Uniteds assets that are measured at fair
value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
As of June 30, 2016 (in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Loans held for sale (1)
|
|
$
|
|
|
|
$
|
61.4
|
|
|
$
|
|
|
|
$
|
61.4
|
|
Impaired loans (2)
|
|
|
|
|
|
|
|
|
|
|
57.0
|
|
|
|
57.0
|
|
REO and repossessed assets (3)
|
|
|
|
|
|
|
|
|
|
|
24.6
|
|
|
|
24.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
61.4
|
|
|
$
|
81.6
|
|
|
$
|
143.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
As of December 31, 2015 (in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Loans held for sale (1)
|
|
$
|
|
|
|
$
|
34.5
|
|
|
$
|
|
|
|
$
|
34.5
|
|
Impaired loans (2)
|
|
|
|
|
|
|
|
|
|
|
49.1
|
|
|
|
49.1
|
|
REO and repossessed assets (3)
|
|
|
|
|
|
|
|
|
|
|
22.1
|
|
|
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
34.5
|
|
|
$
|
71.2
|
|
|
$
|
105.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists of residential mortgage loans; no fair value adjustments were recorded for the six months ended June 30, 2016 and 2015.
|
(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 $40.7 million of Commercial
loans and $16.3 million of Retail loans at June 30, 2016. The provision for loan losses on impaired loans totaled $2.5 million and $3.2 million for the six months ended June 30, 2016 and 2015, respectively.
|
(3)
|
Represents: (i) $9.7 million of residential REO; (ii) $3.3 million of commercial REO; and (iii) $11.6 million of repossessed assets at June 30, 2016. Charge-offs to the allowance for loan losses
related to loans that were transferred to REO or repossessed assets totaled $2.3 million and $0.8 million for the six months ended June 30, 2016 and 2015, respectively. Write downs and net loss on sale of foreclosed/repossessed assets charged
to non-interest expense totaled $1.5 million and $0.4 million for the same periods.
|
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.
38
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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-NY Stock
Both FHLB and
FRB-NY 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). 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.
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.
39
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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.
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 June 30, 2016 (in millions)
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
343.9
|
|
|
$
|
343.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
343.9
|
|
Short-term investments
|
|
|
363.9
|
|
|
|
|
|
|
|
363.9
|
|
|
|
|
|
|
|
363.9
|
|
Securities held to maturity
|
|
|
1,749.4
|
|
|
|
|
|
|
|
1,851.0
|
|
|
|
1.5
|
|
|
|
1,852.5
|
|
FHLB and FRB stock
|
|
|
317.4
|
|
|
|
|
|
|
|
317.4
|
|
|
|
|
|
|
|
317.4
|
|
Total loans, net (1)
|
|
|
28,760.9
|
|
|
|
|
|
|
|
5,684.0
|
|
|
|
23,281.0
|
|
|
|
28,965.0
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
4,732.1
|
|
|
|
|
|
|
|
4,760.7
|
|
|
|
|
|
|
|
4,760.7
|
|
Other deposits
|
|
|
24,267.0
|
|
|
|
|
|
|
|
24,267.0
|
|
|
|
|
|
|
|
24,267.0
|
|
FHLB advances
|
|
|
3,562.4
|
|
|
|
|
|
|
|
3,571.8
|
|
|
|
|
|
|
|
3,571.8
|
|
Federal funds purchased
|
|
|
680.0
|
|
|
|
|
|
|
|
680.0
|
|
|
|
|
|
|
|
680.0
|
|
Customer repurchase agreements
|
|
|
320.8
|
|
|
|
|
|
|
|
320.8
|
|
|
|
|
|
|
|
320.8
|
|
Notes and debentures
|
|
|
1,058.2
|
|
|
|
|
|
|
|
1,034.8
|
|
|
|
|
|
|
|
1,034.8
|
|
(1)
|
Excludes impaired loans totaling $57.0 million measured at fair value on a non-recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
|
|
|
|
|
Carrying
|
|
|
Measurements Using
|
|
|
|
|
As of December 31, 2015 (in millions)
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
334.8
|
|
|
$
|
334.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
334.8
|
|
Short-term investments
|
|
|
380.5
|
|
|
|
|
|
|
|
380.5
|
|
|
|
|
|
|
|
380.5
|
|
Securities held to maturity
|
|
|
1,609.6
|
|
|
|
|
|
|
|
1,661.0
|
|
|
|
1.5
|
|
|
|
1,662.5
|
|
FHLB and FRB stock
|
|
|
305.4
|
|
|
|
|
|
|
|
305.4
|
|
|
|
|
|
|
|
305.4
|
|
Total loans, net (1)
|
|
|
28,150.8
|
|
|
|
|
|
|
|
5,315.3
|
|
|
|
22,893.7
|
|
|
|
28,209.0
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
4,818.1
|
|
|
|
|
|
|
|
4,836.5
|
|
|
|
|
|
|
|
4,836.5
|
|
Other deposits
|
|
|
23,599.3
|
|
|
|
|
|
|
|
23,599.3
|
|
|
|
|
|
|
|
23,599.3
|
|
FHLB advances
|
|
|
3,463.8
|
|
|
|
|
|
|
|
3,468.7
|
|
|
|
|
|
|
|
3,468.7
|
|
Customer repurchase agreements
|
|
|
469.5
|
|
|
|
|
|
|
|
469.5
|
|
|
|
|
|
|
|
469.5
|
|
Federal funds purchased
|
|
|
374.0
|
|
|
|
|
|
|
|
374.0
|
|
|
|
|
|
|
|
374.0
|
|
Notes and debentures
|
|
|
1,033.1
|
|
|
|
|
|
|
|
1,012.9
|
|
|
|
|
|
|
|
1,012.9
|
|
(1)
|
Excludes impaired loans totaling $49.1 million measured at fair value on a non-recurring basis.
|
40
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 AOCL 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 interest rate and foreign exchange risks associated with customer
interest rate swaps and foreign exchange contracts are 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.
41
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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.
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). There were no derivative instruments with such credit-related contingent features in a net liability position at June 30, 2016.
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.
42
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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 interest rate swaps are recognized in current earnings.
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.
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.
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.
43
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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.
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
|
|
|
June 30,
2016
|
|
|
Dec. 31,
2015
|
|
|
June 30,
2016
|
|
|
Dec. 31,
2015
|
|
|
June 30,
2016
|
|
|
Dec. 31,
2015
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial customers
|
|
|
N/A
|
|
|
$
|
5,119.5
|
|
|
$
|
4,644.8
|
|
|
$
|
315.9
|
|
|
$
|
130.9
|
|
|
$
|
1.4
|
|
|
$
|
2.6
|
|
Institutional counterparties
|
|
|
N/A
|
|
|
|
5,119.5
|
|
|
|
4,644.8
|
|
|
|
1.4
|
|
|
|
7.2
|
|
|
|
281.4
|
|
|
|
105.3
|
|
Risk participation agreements (2)
|
|
|
N/A
|
|
|
|
236.8
|
|
|
|
244.4
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
N/A
|
|
|
|
74.0
|
|
|
|
56.7
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
0.2
|
|
Forward commitments to sell residential mortgage loans
|
|
|
N/A
|
|
|
|
67.9
|
|
|
|
44.7
|
|
|
|
1.2
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
Interest rate-lock commitments on residential mortgage loans
|
|
|
N/A
|
|
|
|
98.1
|
|
|
|
65.4
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319.0
|
|
|
|
139.3
|
|
|
|
285.0
|
|
|
|
108.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated notes
|
|
|
Cash flow
|
|
|
|
125.0
|
|
|
|
125.0
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Subordinated notes
|
|
|
Fair value
|
|
|
|
375.0
|
|
|
|
375.0
|
|
|
|
43.3
|
|
|
|
18.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43.3
|
|
|
|
18.9
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
362.3
|
|
|
$
|
158.2
|
|
|
$
|
285.5
|
|
|
$
|
109.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Assets are recorded in other assets and liabilities are recorded in other liabilities.
|
(2)
|
Fair value totaled less than $0.1 million at December 31, 2015.
|
44
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
|
|
Six months ended June 30 (in millions)
|
|
Hedge
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial customers
|
|
|
N/A
|
|
|
$
|
220.7
|
|
|
$
|
13.3
|
|
|
$
|
|
|
|
$
|
|
|
Institutional counterparties
|
|
|
N/A
|
|
|
|
(214.0
|
)
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
N/A
|
|
|
|
(0.4
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
Risk participation agreements
|
|
|
N/A
|
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
Forward commitments to sell residential mortgage loans
|
|
|
N/A
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate-lock commitments on residential mortgage loans
|
|
|
N/A
|
|
|
|
(0.7
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
6.2
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Cash flow
|
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
|
|
(0.4
|
)
|
|
|
(0.8
|
)
|
Interest rate locks (2)
|
|
|
Cash flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Fair value
|
|
|
|
4.4
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
3.9
|
|
|
|
3.6
|
|
|
|
(0.4
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
10.1
|
|
|
$
|
10.7
|
|
|
$
|
(0.4
|
)
|
|
$
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 totaled less than $0.1 million for both periods.
|
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.
45
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 June 30, 2016 (in millions)
|
|
Amount
Recognized
|
|
|
Amount
Offset
|
|
|
Amount
Presented
|
|
|
Financial
Instruments
|
|
|
Collateral
|
|
|
Net
Amount
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty A
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Counterparty B
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
Counterparty C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty D
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
Counterparty E
|
|
|
43.3
|
|
|
|
|
|
|
|
43.3
|
|
|
|
(43.3
|
)
|
|
|
|
|
|
|
|
|
Other counterparties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45.2
|
|
|
$
|
|
|
|
$
|
45.2
|
|
|
$
|
(44.7
|
)
|
|
$
|
|
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty A
|
|
$
|
13.4
|
|
|
$
|
|
|
|
$
|
13.4
|
|
|
$
|
|
|
|
$
|
(13.4
|
)
|
|
$
|
|
|
Counterparty B
|
|
|
18.5
|
|
|
|
|
|
|
|
18.5
|
|
|
|
(0.2
|
)
|
|
|
(18.3
|
)
|
|
|
|
|
Counterparty C
|
|
|
13.6
|
|
|
|
|
|
|
|
13.6
|
|
|
|
|
|
|
|
(13.6
|
)
|
|
|
|
|
Counterparty D
|
|
|
15.1
|
|
|
|
|
|
|
|
15.1
|
|
|
|
(1.2
|
)
|
|
|
(13.8
|
)
|
|
|
0.1
|
|
Counterparty E
|
|
|
210.9
|
|
|
|
|
|
|
|
210.9
|
|
|
|
(43.3
|
)
|
|
|
(167.6
|
)
|
|
|
|
|
Other counterparties
|
|
|
10.4
|
|
|
|
|
|
|
|
10.4
|
|
|
|
|
|
|
|
(10.4
|
)
|
|
|
|
|
Foreign exchange contracts
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
282.4
|
|
|
$
|
|
|
|
$
|
282.4
|
|
|
$
|
(44.7
|
)
|
|
$
|
(237.1
|
)
|
|
$
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Net
|
|
|
Gross Amounts Not Offset
|
|
|
|
|
As of December 31, 2015 (in millions)
|
|
Amount
Recognized
|
|
|
Amount
Offset
|
|
|
Amount
Presented
|
|
|
Financial
Instruments
|
|
|
Collateral
|
|
|
Net
Amount
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty A
|
|
$
|
0.6
|
|
|
$
|
|
|
|
$
|
0.6
|
|
|
$
|
(0.6
|
)
|
|
$
|
|
|
|
$
|
|
|
Counterparty B
|
|
|
0.7
|
|
|
|
|
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
Counterparty C
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
Counterparty D
|
|
|
0.7
|
|
|
|
|
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
Counterparty E
|
|
|
22.6
|
|
|
|
|
|
|
|
22.6
|
|
|
|
(22.6
|
)
|
|
|
|
|
|
|
|
|
Other counterparties
|
|
|
0.8
|
|
|
|
|
|
|
|
0.8
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
0.1
|
|
Foreign exchange contracts
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26.6
|
|
|
$
|
|
|
|
$
|
26.6
|
|
|
$
|
(25.9
|
)
|
|
$
|
|
|
|
$
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty A
|
|
$
|
8.4
|
|
|
$
|
|
|
|
$
|
8.4
|
|
|
$
|
(0.6
|
)
|
|
$
|
(7.8
|
)
|
|
$
|
|
|
Counterparty B
|
|
|
10.4
|
|
|
|
|
|
|
|
10.4
|
|
|
|
(0.7
|
)
|
|
|
(9.7
|
)
|
|
|
|
|
Counterparty C
|
|
|
5.1
|
|
|
|
|
|
|
|
5.1
|
|
|
|
(0.6
|
)
|
|
|
(4.5
|
)
|
|
|
|
|
Counterparty D
|
|
|
8.9
|
|
|
|
|
|
|
|
8.9
|
|
|
|
(0.7
|
)
|
|
|
(7.3
|
)
|
|
|
0.9
|
|
Counterparty E
|
|
|
69.5
|
|
|
|
|
|
|
|
69.5
|
|
|
|
(22.6
|
)
|
|
|
(46.9
|
)
|
|
|
|
|
Other counterparties
|
|
|
3.6
|
|
|
|
|
|
|
|
3.6
|
|
|
|
(0.7
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
Foreign exchange contracts
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
106.1
|
|
|
$
|
|
|
|
$
|
106.1
|
|
|
$
|
(25.9
|
)
|
|
$
|
(79.1
|
)
|
|
$
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13. NEW ACCOUNTING STANDARDS
Standards effective in 2016
Stock Compensation
In June 2014, the
Financial Accounting Standards Board (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 amendment, which is being applied prospectively, became
effective for Peoples United on January 1, 2016 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 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 amendment, which is being applied retrospectively, became effective for Peoples United on January 1, 2016 and did not have a significant impact on the Companys
Consolidated Financial Statements.
47
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
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 statement of condition to a deduction from the related debt liability. This amendment, which is being applied retrospectively, became effective for Peoples United on January 1, 2016 and did not have a
significant impact on the Companys Consolidated Financial Statements. See Note 1.
Retirement Benefits
In April 2015, the FASB amended its standards with respect to the accounting for retirement benefits by providing a practical expedient, for
entities with fiscal year-ends that do not coincide with a month-end, permitting such entities to measure defined benefit plan assets and obligations using the month-end that is closest to its fiscal year-end. This practical expedient is to be
applied consistently from year to year and to all plans if an entity has more than one plan. Further, in cases where a significant event caused by the entity (such as a plan amendment, curtailment or settlement) that requires the remeasurement of
defined benefit plan assets and obligations does not coincide with a month-end, entities may elect to remeasure both plan assets and obligations using the month-end that is closest to the date of the significant event. This amendment, which is being
applied prospectively, became effective for Peoples United on January 1, 2016 and did not have a significant impact on the Companys Consolidated Financial Statements.
Business Combinations
In September 2015,
the FASB amended its standards with respect to business combinations to eliminate the requirement to restate prior period financial statements for measurement period adjustments. Instead, the amended guidance requires that, during the measurement
period, an acquirer recognize adjustments of previously recorded provisional amounts in the reporting period in which such adjustments are determined. In doing so, the acquirer would be required to record the cumulative effect of measurement period
adjustments on current and prior period earnings, including the prior period impact on depreciation, amortization or other income statement items. The amended standard also contains additional disclosure requirements with respect to measurement
period adjustments. This amendment, which is being applied prospectively, became effective for Peoples United on January 1, 2016 and did not have a significant impact on the Companys Consolidated Financial Statements.
Standards effective in 2017
Derivatives and Hedging
In March 2016, the FASB amended its standards with respect to derivatives and hedging. The first amendment clarifies that a change in
the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship and discontinuation of the application of hedge accounting. This amendment
does not require additional disclosures beyond disclosure about a change in accounting principle in the period of adoption. The second amendment clarifies the requirements for assessing whether contingent call (put) options that can accelerate the
payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment is required to assess the embedded call (put) options solely in accordance with a four-step decision sequence and no
longer is required to assess whether the event that triggers the ability to exercise the option is related to interest rate or credit risk. For public business entities, both of these new amendments are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2016 (January 1, 2017 for Peoples United) and may be applied either prospectively or on a modified retrospective basis. Earlier application is permitted as of the beginning
of an interim or annual reporting period. The adoption of these amendments is not expected to have a significant impact on the Companys Consolidated Financial Statements.
48
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Investments Equity Method and Joint Ventures
In March 2016, the FASB amended its standards with respect to the equity method of accounting by eliminating the requirement that, upon an
investment qualifying for use of the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations and retained earnings
retrospectively, as if the equity method of accounting had been in effect during all previous periods that the investment was held. Rather, under the new guidance, upon qualifying for the equity method of accounting, no retroactive adjustment of the
investment is required. Instead, any unrealized holding gain or loss is to be recognized through other comprehensive income on the date the investment qualifies for use of the equity method. This amendment is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2016 (January 1, 2017 for Peoples United) and is to be applied prospectively. The adoption of this amendment is not expected to have a significant impact on the
Companys Consolidated Financial Statements.
Stock Compensation
In March 2016, the FASB amended its standards with respect to certain aspects of the accounting for share-based payment awards, including:
(i) the related income tax consequences; (ii) the classification of awards as either equity or liabilities; and (iii) the classification in the statement of cash flows. For public business entities, these amendments are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 (January 1, 2017 for Peoples United) and should be applied prospectively. The Company is currently evaluating the impact of the amended
guidance on the Companys Consolidated Financial Statements.
Standards effective in 2018
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 issued, 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 fiscal years, beginning on or after December 15, 2016
(January 1, 2017 for Peoples United) and early adoption was not permitted.
In July 2015, the FASB approved a one-year deferral of
the effective date (now January 1, 2018 for Peoples United) with early adoption, as of the original effective date, permitted. In March, April and May 2016, the FASB issued amendments to clarify the implementation guidance and add some
practical expedients in certain areas, including: (i) principal versus agent considerations; (ii) the identification of performance obligations; and (iii) certain aspects of the accounting for licensing arrangements. These amendments
do not change the core principle of the guidance and are effective for and follow the same transition requirements as the core principle. The Company is currently evaluating the impact of the amended guidance on the Companys Consolidated
Financial Statements.
Presentation of Deferred Taxes
In November 2015, the FASB amended its standards with respect to the presentation of deferred income taxes to eliminate the requirement to
separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of condition, thereby simplifying the presentation of deferred income taxes. For public business entities, this new amendment is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 (January 1, 2018 for Peoples United) and may be applied either prospectively or retrospectively to all periods presented. Earlier
application of the amendment is permitted as of the beginning of an interim or annual reporting period. The adoption of this amendment is not expected to have a significant impact on the Companys Consolidated Financial Statements.
49
Peoples United Financial, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Recognition and Measurement of Financial Instruments
In January 2016, the FASB amended its standards to address certain aspects of recognition, presentation and disclosure of financial
instruments. The amended guidance (i) requires that equity investments be measured at fair value with changes in fair value recognized in net income and (ii) simplifies the impairment assessment of equity investments without readily
determinable fair values by permitting a qualitative assessment to identify impairment. The guidance also contains additional disclosure and presentation requirements associated with financial instruments. For public business entities this new
guidance is effective in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 (January 1, 2018 for Peoples United). The cumulative effect transition method will be applied to all outstanding
instruments as of the date of adoption, while changes to the accounting for equity investments without readily determinable fair values will be applied prospectively. The Company is currently evaluating the impact of the amended guidance on the
Companys Consolidated Financial Statements.
Standards effective in 2019
Accounting for Leases
In February 2016,
the FASB amended its standards with respect to the accounting for leases. The amended guidance serves to replace all current U.S. GAAP guidance on this topic and requires that an operating lease be recognized on the statement of condition as a
right-to-use asset along with a corresponding liability representing the rent obligation. Key aspects of current lessor accounting remain unchanged from existing guidance. This standard is expected to result in an increase to assets and
liabilities recognized and, therefore, increase risk-weighted assets for regulatory capital purposes. The guidance requires the use of the modified retrospective transition approach for existing leases that have not expired before the date of
initial application and will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (January 1, 2019 for Peoples United). The Company is currently evaluating the impact of the
amended guidance on the Companys Consolidated Financial Statements.
Standards effective in 2020
Financial Instruments Credit Losses
In June 2016, the FASB amended its standards with respect to certain aspects of measurement, recognition and disclosure of credit losses on
loans and other financial instruments, including available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is to be applied through a cumulative-effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). For certain assets (such as debt securities for which an other-than-temporary impairment has been recognized before the
effective date and purchased financial assets with credit deterioration), a prospective transition approach is required. For public business entities, this new amendment is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019 (January 1, 2020 for Peoples United) and earlier application is permitted as of the beginning of an interim or annual reporting period beginning after December 15, 2018. The Company is currently
evaluating the impact of the amended guidance on the Companys Consolidated Financial Statements.
NOTE 14. SUBSEQUENT EVENTS
On July 21, 2016, the Bank
announced that its subsidiary, Peoples Securities, Inc., entered into a definitive agreement to acquire Gerstein Fisher, a $3 billion investment management firm based in New York City. The transaction is expected to bring Peoples United
Wealth Managements total assets under administration to nearly $20 billion, of which approximately $8 billion would be under discretionary management. The all-cash transaction is expected to close during the fourth quarter of 2016, subject to
customary approvals and consents, including the consent of Gerstein Fishers clients.
50