EDGAR 10-K Filing

Company CIK: 1378946
Filing Year: 2021
Filename: 1378946_10-K_2021_0001628280-21-003563.json

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ITEM 1. BUSINESS
Item 1. Business
General
People’s United Financial, Inc. (“People’s United” or the “Company”) is a bank holding company and a financial holding company registered under the Bank Holding Company Act of 1956 (the “BHC Act”), as amended, and is incorporated under the state laws of Delaware. People’s United is the holding company for People’s United Bank, National Association (the “Bank”), a national banking association headquartered in Bridgeport, Connecticut.
The principal business of People’s United is to provide, through the Bank and its subsidiaries, commercial banking, retail banking and wealth management services to individual, corporate and municipal customers. Traditional banking activities are conducted primarily within New England and southeastern New York, and include extending secured and unsecured commercial and consumer loans, originating mortgage loans secured by residential and commercial properties, and accepting consumer, commercial and municipal deposits.
In addition to traditional banking activities, the Bank provides specialized financial services tailored to specific markets including: personal, institutional and employee benefit trust; cash management; and municipal banking. Through its
non-banking subsidiaries, the Bank offers: equipment financing through People’s Capital and Leasing Corp. (“PCLC”), People’s United Equipment Finance Corp. (“PUEFC”) and LEAF Commercial Capital, Inc. (“LEAF”); brokerage, financial advisory services, investment management services and life insurance through People’s Securities, Inc. (“PSI”); and investment advisory services and financial management and planning services through People’s United Advisors, Inc. (“PUA”).
This full-range of financial services is delivered through a network of 417 branches located in Connecticut, southeastern New York, Massachusetts, Vermont, New Hampshire and Maine, including 84 full-service in-store Stop & Shop supermarket branches throughout Connecticut and 56 in southeastern New York that provide customers with seven-days-a-week banking in most locations. The Bank’s distribution network includes investment and brokerage offices, commercial banking offices, online banking and investment trading, a 24-hour telephone banking service and participation in a worldwide ATM network. PCLC, PUEFC and LEAF maintain a sales presence in 16 states to support equipment financing operations throughout the United States. The Bank maintains a mortgage warehouse lending group located in Kentucky and a national credits group that has participations in commercial loans and commercial real estate loans to borrowers in various industries on a national scale.
People’s United’s operations are divided into three primary operating segments that represent its core businesses: Commercial Banking; Retail Banking; and Wealth Management. In addition, the Treasury area manages People’s United’s securities portfolio, short-term investments, brokered deposits and wholesale borrowings.
The Company’s operating segments have been aggregated into two reportable segments: Commercial Banking and Retail Banking. Commercial Banking consists principally of commercial real estate lending, middle market and business banking, mortgage warehouse and asset-based lending, and the equipment financing operations of PCLC, PUEFC and LEAF. This segment also provides treasury management services, capital market capabilities and commercial deposit products. Retail Banking includes, as its principal business lines, consumer lending (including residential mortgage and home equity lending) and consumer deposit gathering activities. This segment also includes those services provided by PSI and PUA as well as
non-institutional trust services.
Effective June 27, 2018, the Bank completed its acquisition of Vend Lease Company (“Vend Lease”). Effective October 1, 2018, People’s United completed its acquisition of First Connecticut Bancorp, Inc. (“First Connecticut”) based in Farmington, Connecticut. Effective January 2, 2019, the Bank completed its acquisition of VAR Technology Finance (“VAR”). Both Vend Lease and VAR are now considered divisions of LEAF. Effective April 1, 2019, People’s United completed its acquisition of BSB Bancorp, Inc. (“BSB Bancorp”) based in Belmont, Massachusetts. Effective November 1, 2019, People’s United completed its acquisition of United Financial Bancorp, Inc. (“United Financial”) based in Hartford, Connecticut. The assets acquired and liabilities assumed in these transactions were recorded at their estimated fair values as of the respective closing dates. People’s United’s results of operations include the results of these acquired companies beginning with the respective effective dates. See Note 2 to the Consolidated Financial Statements for a further discussion on these acquisitions. Further discussion of People’s United’s business and operations appears on pages 21 through 72.
On February 22, 2021, People’s United and M&T Bank Corporation (“M&T”) announced that they have entered into a definitive agreement under which M&T will acquire People’s United in an all-stock transaction. Under the terms of the agreement, each share of People’s United common stock will be converted into the right to receive 0.118 shares of M&T common stock. The merger is expected to close in the fourth quarter of 2021, subject to the satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by the shareholders of each company.
Supervision and Regulation
People’s United Financial, Inc.
General
As a bank holding company and a financial holding company, People’s United is regulated under the BHC Act and is subject to supervision, examination and regulation by the Board of Governors of the Federal Reserve System (the “FRB”). Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a serious risk to the subsidiary bank. A bank holding company should have sufficient capital and an effective capital planning process, consistent with its overall risk profile and considering the size, scope, and complexity of its operations, to ensure its safe and sound operation. In addition, the FRB evaluates a bank holding company’s capital planning and capital distribution processes, and its capital sufficiency in light of relevant regulations and supervisory guidance applicable to bank holding companies.
Activities Restrictions Applicable to Bank Holding Companies. The activities of a bank holding company, including People’s United, must be financially-related activities permissible for a bank holding company, unless the bank holding company has elected to be treated as a financial holding company. A bank holding company that has made a financial holding company election may also engage in activities permissible under section 4(k) of the BHC Act.
Federal law prohibits a bank holding company directly or indirectly, from acquiring:
•control (as defined under the BHC Act) of another bank (or a holding company parent) without prior FRB approval;
•through merger, consolidation or purchase of assets, another bank or a holding company thereof, or acquiring all or substantially all of the assets of such institution or holding company without prior approval by the FRB or the Office of the Comptroller of the Currency (the “OCC”); or
•control of any depository institution not insured by the Federal Deposit Insurance Corporation (the “FDIC”) (except through a merger with and into the holding company’s bank subsidiary that is approved by the OCC).
The BHC Act prohibits a bank holding company (directly or indirectly, or through one or more subsidiaries) from acquiring another bank or holding company thereof without prior written approval of the FRB; acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary bank, a non-subsidiary holding company or a non-subsidiary company engaged in activities other than those permitted by the BHC Act; or acquiring or retaining control of a depository institution that is not federally insured. In evaluating applications by holding companies to acquire banks, the FRB must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the Deposit Insurance Fund (the “DIF”), the convenience and needs of the community, and competitive factors.
Federal Securities Law
People’s United’s common stock is registered with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. People’s United is subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the Exchange Act.
Delaware Corporation Law
People’s United is incorporated under the laws of the State of Delaware and is, therefore, subject to regulation by the state of Delaware. The rights of People’s United’s stockholders are governed by the Delaware General Corporation Law.
Regulatory Capital Requirements
Bank holding companies and national banks are subject to various regulations regarding capital requirements administered by U.S. banking agencies. The FRB (in the case of a bank holding company) and the OCC (in the case of a bank) may initiate certain actions if a bank holding company or a bank fails to meet minimum capital requirements. In addition, under its prompt corrective action regulations, the OCC is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized bank. These actions could have a direct material effect on a bank’s financial statements. People’s United and the Bank are subject to regulatory capital requirements administered by the FRB and the OCC, respectively. Both People’s United and the Bank are subject to capital rules (the “Basel III capital rules”) issued by U.S. banking agencies. See Management’s Discussion and Analysis-Regulatory Capital Requirements beginning on page 67 for a further discussion regarding capital requirements.
Dividends and Capital Distributions
People’s United is dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and other general corporate purposes. People’s United’s ability to pay cash dividends is governed by federal law and regulations, including requirements to maintain adequate capital above regulatory minimums and safety and soundness practices.
The National Bank Act and OCC regulations impose limitations upon dividend payments by national banks. A national bank must file an application with the OCC if the total amount of its dividends for the applicable calendar year exceeds the national bank’s net income for that year plus its retained net income for the preceding two years. The Bank may not pay dividends to People’s United if, after paying those dividends, it would fail to meet the required minimum levels under
risk-based capital guidelines or if the OCC notified the Bank that it was in need of more than normal supervision.
In addition, a national bank is required to file an application with the OCC for the redemption of subordinated debt under certain circumstances, as well as for reductions in permanent capital.
Under the Federal Deposit Insurance Act (the “FDI Act”), an insured depository institution, such as the Bank, is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is used in the FDI Act). Payment of dividends by the Bank also may be restricted at any time at the discretion of the appropriate regulator if it deems the payment to constitute an unsafe and unsound banking practice. See Note 15 to the Consolidated Financial Statements for a further discussion on capital distributions.
Supervision and Regulation
People’s United Bank, National Association
General
The Bank is subject to regulation, examination, supervision and reporting requirements by the OCC as its primary regulator, by the FDIC as the deposit insurer and by the Consumer Financial Protection Bureau (the “CFPB”) with respect to compliance with designated consumer financial laws. Its deposit accounts are insured up to applicable limits by the FDIC under the DIF.
The Bank files reports with the OCC concerning its activities and financial condition, and must obtain regulatory approval from the OCC prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions. The OCC conducts periodic examinations to assess compliance with various regulatory requirements. The OCC has substantial discretion to impose enforcement action on a national bank that fails to comply with applicable regulatory requirements, particularly with respect to capital requirements imposed on national banks. In addition, the FDIC has the authority to recommend to the OCC that enforcement action be taken with respect to a particular national bank and, if action is not taken by the OCC, the FDIC has authority to take such action under certain circumstances.
This regulation and supervisory structure establishes a comprehensive framework of activities in which a national bank can engage and is intended primarily for the protection of the DIF, depositors and consumers. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such laws and regulations or interpretations thereof, whether by the OCC, the FDIC, and the CFPB or through legislation, could have a material adverse impact on the Bank and its operations.
The Bank’s brokerage subsidiary, PSI, is regulated by the SEC, the Financial Industry Regulatory Authority and state securities regulators. PUA is subject to the disclosure and regulatory requirements of the Investment Advisers Act of 1940, as administered by the SEC.
Activity Powers. National association banks derive their lending, investment and other activity powers primarily from the National Bank Act and the regulations of the OCC thereunder. Under these laws and regulations, national banks generally may invest in:
•real estate mortgages;
•consumer and commercial loans;
•certain types of debt securities; and
•certain other assets.
The ability of a national bank to invest in debt securities is limited to those securities that are readily marketable, investment grade and primarily non-speculative. OCC regulations also impose limits on the amount of investments in certain types of debt securities.
Safety and Soundness Standards. Each federal banking agency, including the OCC, has adopted guidelines establishing general standards relating to internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.
In addition, the OCC adopted regulations to require a national bank that is given notice by the OCC that it is not satisfying any of such safety and soundness standards to submit a compliance plan to the OCC. If, after being so notified, a national bank fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the OCC may issue an order directing corrective and other actions of the types to which a significantly undercapitalized institution is subject under the “prompt corrective action” provisions of the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”). If a national bank fails to comply with such an order, the OCC may seek to enforce the order in judicial proceedings and to impose civil monetary penalties.
Prompt Corrective Action. FDICIA also established a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, federal bank regulators, including the OCC, are required to take certain, and authorized to take other, supervisory actions against undercapitalized institutions, based upon five categories of capitalization which FDICIA created: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”.
The severity of the action authorized or required to be taken under the prompt corrective action regulations increases as a bank’s capital decreases within the three undercapitalized categories. All banks are prohibited from paying dividends or other capital distributions or paying management fees to any controlling person if, following such distribution, the bank would be undercapitalized. The OCC is required to monitor closely the condition of an undercapitalized bank and to restrict the growth of its assets. An undercapitalized bank is required to file a capital restoration plan within 45 days of the date the bank receives notice or is deemed to have notice that it is within any of the three undercapitalized categories, and the plan must be guaranteed by a parent holding company.
The aggregate liability of a parent holding company is limited to the lesser of:
•an amount equal to 5% of the bank’s total assets at the time it became “undercapitalized”; and
•the amount that is necessary (or would have been necessary) to bring the bank into compliance with all capital standards applicable with respect to such bank as of the time it fails to comply with a capital restoration plan.
If a bank fails to submit an acceptable plan, it is treated as if it were “significantly undercapitalized”. Banks that are significantly or critically undercapitalized are subject to a wider range of regulatory requirements and restrictions. Under OCC regulations, generally, a national bank is treated as “well-capitalized” if its Total risk-based capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 8% or greater, its Common Equity Tier 1 (“CET 1”) capital ratio is 6.5% or greater and its
Tier 1 leverage ratio is 5% or greater, and it is not subject to any order or directive by the OCC to meet a specific capital level. Basel III capital rules also revised the prompt corrective action framework by incorporating new regulatory capital minimums. As of December 31, 2020, the Bank’s regulatory capital ratios exceeded the OCC’s numeric criteria for classification as a
“well-capitalized” institution.
Insurance Activities. National banks are generally permitted to engage in certain insurance and annuity activities through subsidiaries. However, federal banking laws prohibit depository institutions from conditioning the extension of credit to individuals upon either the purchase of an insurance product or annuity from an entity affiliated with the depository institution or an agreement by the consumer not to purchase an insurance product or annuity from an entity that is not affiliated with the depository institution. Applicable regulations also require prior disclosure of this prohibition to potential insurance product or annuity customers.
Federal banking agencies, including the OCC, also require depository institutions that offer non-deposit investment products, such as certain annuity and related insurance products, to disclose to the consumer that the products are not federally insured, are not guaranteed by the institution and are subject to investment risk including possible loss of principal. These disclosure requirements apply if the institution offers the non-deposit investment products directly or through affiliates or subsidiaries.
Deposit Insurance. The Bank is a member of, and pays its deposit insurance assessments to, the DIF.
The FDIC has established a system for setting deposit insurance premiums based upon the risks a particular bank poses to the DIF. The quarterly assessment is based on a bank’s average consolidated total assets minus average tangible equity (defined as Tier 1 capital). The FDIC applies a scorecard-based assessment system for financial institutions with more than $10 billion in assets (such as the Bank). One of the financial ratios used in the scorecard is the ratio of “higher risk” assets to Tier 1 capital and reserves. The classification of assets such as commercial and industrial loans, securities and consumer loans as “higher risk” is determined in accordance with applicable FDIC regulations and guidance. See Management’s Discussion and Analysis-Non-Interest Expense beginning on page 41 for a further discussion regarding regulatory assessments.
Under the FDI Act, the FDIC may terminate the insurance of an institution’s deposits upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Transactions with Affiliates. National banks are subject to the affiliate and insider transaction rules set forth in Sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve Act, and their implementing regulations, Regulation W and Regulation O, issued by the FRB. Affiliated transaction provisions, among other things, prohibit or limit a national bank from extending credit to, or entering into certain transactions with, its affiliates and principal stockholders, directors and executive officers.
In addition, national banks are prohibited from making a loan to an affiliate that is engaged in non-bank holding company activities and purchasing or investing in securities issued by an affiliate that is not a subsidiary. The FRB and the OCC require each depository institution that is subject to the affiliate transaction restrictions of Sections 23A and 23B of the Federal Reserve Act to implement policies and procedures to ensure compliance with Regulation W.
In addition to the insider transaction limitations of Sections 22(g) and 22(h) of the Federal Reserve Act, Section 402 of the Sarbanes-Oxley Act of 2002 prohibits the extension of personal loans to directors and executive officers of issuers (as defined in the Sarbanes-Oxley Act). The prohibition, however, does not apply to mortgage loans advanced by an insured depository institution, such as the Bank, that are subject to the insider lending restrictions of Section 22(h) of the Federal Reserve Act.
Privacy Standards. The Bank is subject to OCC regulations implementing statutorily-mandated privacy protection. These regulations require the Bank to disclose its privacy policy, including identifying with whom it shares “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, the Bank is required to provide its customers with the ability to “opt-out” of having the Bank share their non-public personal information with unaffiliated third parties before the Bank can disclose such information, subject to certain exceptions.
In addition to certain state laws governing protection of customer information, the Bank is subject to federal regulatory guidelines establishing standards for safeguarding customer information. The guidelines describe the agencies’ expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer. Federal guidelines also impose certain customer disclosures and other actions in the event of unauthorized access to customer information.
Community Reinvestment Act. Under the Community Reinvestment Act (the “CRA”), as implemented by the OCC regulations, any national bank, including the Bank, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the OCC, in connection with its examination of a federally-chartered savings bank, to assess the depository institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution.
Current CRA regulations rate an institution based on its actual performance in meeting community needs. In particular, the evaluation system focuses on three tests:
•a lending test, to evaluate the institution’s record of making loans in its service areas;
•an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing and programs benefiting low or moderate income individuals and businesses; and
•a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices.
The CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank received a “satisfactory” rating in its most recent CRA examination for the evaluation period ending December 31, 2018. The Federal banking agencies adopted regulations implementing the requirements under the Gramm-Leach-Bliley Act that insured depository institutions publicly disclose certain agreements that are in fulfillment of the CRA. The Bank has no such agreements in place at this time.
Loans to One Borrower. Generally, national banks may not make a loan or extend credit, including credit associated with derivatives and securities financing transactions, to a single or related group of borrowers in excess of 15% of the institution’s unimpaired capital and surplus. Additional amounts may be loaned, not in excess of 10% of unimpaired capital and surplus, if such loans or extensions of credit are secured by readily-marketable collateral. The Bank is in compliance with applicable loans to one borrower limitations.
Nontraditional Mortgage Products. The Federal banking agencies have issued guidance for institutions that originate or service nontraditional or alternative mortgage products, defined to include all residential mortgage loan products that allow borrowers to defer repayment on principal or interest, such as interest-only mortgages and payment option adjustable-rate mortgages. A portion of the Bank’s adjustable-rate residential mortgage loans represent interest-only residential mortgage loans. None of these loans permit negative amortization or optional payment amounts.
Recognizing that alternative mortgage products expose institutions to increased risks as compared to traditional loans where payments amortize or reduce the principal amount, the guidance requires increased scrutiny for alternative mortgage products. Institutions that originate or service alternative mortgages should have: (i) strong risk management practices that include maintenance of capital levels and allowance for credit losses (“ACL”) commensurate with the risk; (ii) prudent lending policies and underwriting standards that address a borrower’s repayment capacity; and (iii) programs and practices designed to ensure that consumers receive clear and balanced information to assist in making informed decisions about mortgage products. The guidance also recommends heightened controls and safeguards when an institution combines an alternative mortgage product with features that compound risk, such as a simultaneous second-lien or the use of reduced documentation to evaluate a loan application. The Bank complies with the guidance on non-traditional mortgage products as it is interpreted and applied by the OCC.
Liquidity. The Bank maintains sufficient liquidity to ensure its safe and sound operation, in accordance with applicable OCC regulations.
Assessments. The OCC charges assessments to recover the cost of examining national banks and their affiliates. These assessments are based on three components: (i) the size of the institution on which the basic assessment is based; (ii) the institution’s supervisory condition, which results in an additional assessment based on a percentage of the basic assessment for any savings institution with a composite rating of 3, 4 or 5 in its most recent safety and soundness examination; and (iii) the complexity of the institution’s operations, which results in an additional assessment based on a percentage of the basic assessment for any savings institution that managed over $1 billion in trust assets, serviced for others loans aggregating more than $1 billion, or had certain off-balance-sheet assets aggregating more than $1 billion.
Branching. Under OCC branching regulations, the Bank is generally authorized to open branches nationwide. The Bank is required to submit an application to the OCC and publish a public notice prior to establishing a new branch or relocating an existing branch. OCC authority preempts any state law purporting to regulate branching by national banks.
Anti-Money Laundering and Customer Identification. The Bank is subject to OCC and Financial Crimes Enforcement Network regulations implementing the Bank Secrecy Act, as amended by the USA PATRIOT Act. The USA PATRIOT Act gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the USA PATRIOT Act takes measures intended to encourage information sharing among banks, regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative reporting obligations on a broad range of financial institutions, including national banks like the Bank.
Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank (the “FHLB”) system, which consists of twelve regional FHLBs, each subject to supervision and regulation by the Federal Housing Finance Agency. The FHLB system provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLBs. It makes loans or advances to members in accordance with policies and procedures, including collateral requirements, established by the respective boards of directors of the FHLBs. These policies and procedures are subject to the regulation and oversight of the Federal Housing Finance Agency, which has also established standards of community or investment service that members must meet to maintain access to long-term advances.
The Bank, as a member of the FHLB of Boston, is currently required to purchase and hold shares of capital stock in the FHLB of Boston in an amount equal to 0.20% of the Bank’s Membership Stock Investment Base plus an Activity Based Stock Investment Requirement. The Activity Based Stock Investment Requirement is equal to 3.0% of the principal balance of FHLB advances with an original maturity of one day and 4.0% of the principal balance of FHLB advances with an original maturity of two days or longer. The Bank is in compliance with these requirements. 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”) in an amount equal to 6% of its capital and surplus.
Reserve Requirements. In December 2020, the FRB adopted a final rule that served to lower reserve requirement ratios on transaction accounts maintained at depository institutions, including the Bank, to zero percent, thereby effectively eliminating all reserve requirements.
Market Area and Competition
People’s United’s primary market areas are New England and southeastern New York, with Connecticut, Massachusetts and New York having the largest concentration of its loans, deposits and branches. At December 31, 2020, 25%, 20% and 18% of the Company’s loans by outstanding principal amount were to customers located within Connecticut, Massachusetts and New York, respectively. Loans to customers located in the New England states as a group represented 55% of total loans at December 31, 2020. However, substantially the entire equipment financing portfolio (94% at December 31, 2020) was to customers located outside of New England. At December 31, 2020, 29% of the equipment financing portfolio was to customers located in Texas, California and New York, and no other state exposure was greater than 7%.
As of June 30, 2020, People’s United had: (i) the largest market share of deposits in Fairfield County, Connecticut; (ii) the second largest market share of deposits in the state of Connecticut; and (iii) the largest market share of deposits in the state of Vermont. People’s United competes for deposits, loans and financial services with commercial banks, savings institutions, commercial and consumer finance companies, mortgage banking companies, insurance companies, credit unions and a variety of other institutional lenders and securities firms.
As People’s United’s predominant market, Connecticut is one of the most attractive banking markets in the U.S. With a total population of approximately 3.6 million and a median household income of $81,962, Connecticut ranks seventh in the U.S., well above the U.S. median household income of $67,761, according to U.S. Census data and SNL Financial. The median household income in New York, which has the Company’s second highest number of branches, was $74,462, according to U.S. Census data and SNL Financial. The median household income in Massachusetts and Vermont, which have the Company’s third and fourth highest number of branches, was $87,126 and $67,454, respectively, according to U.S. Census data and SNL Financial.
The principal basis of competition for deposits is the interest rate paid for those deposits and related fees, the convenience of access to services through traditional and non-traditional delivery alternatives, and the quality of services to customers. The principal basis of competition for loans is through the interest rates and loan fees charged and the development of relationships based on the efficiency, convenience and quality of services provided to borrowers. Further competition has been created through the rapid acceleration of commerce conducted over the Internet. This has enabled institutions, including People’s United, to compete in markets outside their traditional geographic boundaries.
Human Capital Management
As an organization, we remain steadfast in our commitment to focus on our impact as a good corporate citizen and to create a culture where our moral and ethical obligations intersect with our top priorities of providing an exceptional customer experience and empowering our employees. Our human capital management strategy aligns with that commitment to ensure we leverage the talent needed, not just for today, but also for the future. Our employees are the foundation of our success and are responsible for upholding our guiding principles, which embody integrity, trust, empathy, collaboration, work ethic, courage, inclusion and positive attitude.
As of December 31, 2020 the Bank employed 5,987 total employees in the United States with a breakdown as follows:
•Full-Time 5,640
•Part-Time 287
•Temporary 60
Talent Acquisition, Development and Retention
Hiring and Early-Stage Career Programs
Successful execution of our strategy largely depends on attracting, developing and retaining dedicated employees and members of our management team. The skills, experience and industry knowledge of our employees significantly benefit our overall operations and performance. We regularly evaluate, modify, and enhance our methodology and processes to enhance employee engagement, productivity, and efficiency opportunities, skills, and resources they need to be successful.
To continuously provide our customers with a great banking experience, we are committed to hiring and building an outstanding team. In 2020, we hired 934 new employees, including 13 senior officers for key strategic positions. Though hiring was down 47% from the previous year due to the COVID-19 pandemic and a decrease in turnover, our commitment to maintaining a skilled and engaged workforce to meet the needs of our customers, especially during this challenging time, was and continues to be a top priority.
Another way we invest in our employees is through the continuous development and learning opportunities we provide. From early-stage career programs to management and leadership development, our employees are encouraged to take advantage of these dynamic tools to cultivate the knowledge and skills needed to perform and grow.
In 2020, we launched our first rotational development program where we enrolled 11 recent college graduates into a
one-year learning experience, working directly with business areas where they will be assigned to positions upon graduation. Seven of these associates were participants in our corporate intern program, which we run each year attracting rising juniors and seniors from colleges and universities across our footprint.
Talent Development, Career & Succession Planning
To build manager capability and leadership skills, we offer several programs that combine instructor-led and self-paced curriculum as well as dialogues with executives and applied learning.
In 2020, we added a new program, “Always Coaching,” to build the coaching capability of our managers. Through coaching and the self-discovery it promotes for employees, we are supporting managers across all lines of our business to leverage coaching techniques to accelerate employee performance.
To provide all employees with access to continuous learning, we employ learning platforms that contain a library of
on-demand courses on a variety of relevant topics that focus on skill enhancement, product knowledge and competency development.
To develop a pipeline of future leaders, high potential employees are nominated to participate in the “Lead from Any Chair” program, where emerging talent in non-management roles are exposed to training designed to increase strategic and business acumen and the development of impact and influence across the organization.
To identify our top talent and prepare them for future leadership roles, we have a disciplined annual talent management program that begins with managers and employees discussing career aspirations, followed by performance and potential talent discussions and succession planning, all supported by an integrated talent management portal.
Total Rewards
Our pay-for-performance culture enables employees to earn a salary and bonus based on how they perform compared against established business and development goals. This alignment of performance with goals originating from the top of the organization ensures that everyone is working toward a common purpose, which results in a clear vision and better outcomes.
To additionally recognize and reward employees who demonstrate the behaviors associated with our Guiding Principles and exhibit strong performance and results, we introduced two new recognition programs in 2020. The People’s United Leadership program for managers to nominate deserving employees, and a peer-to-peer recognition program where colleagues can reward and recognize each other through an interactive platform.
Our benefit programs also demonstrate our commitment to the health and wellbeing of our employees. They include medical, dental, vision and other wellness plan options. For employees desiring to continue their education and explore opportunities across the organization, we offer tuition reimbursement and an internal job-posting program. We also offer flexible work arrangements, paid time off, employee assistance programs with 24/7 support, and leave of absence/family leave policies to help our employees balance their professional and personal goals.
Diversity Equity and Inclusion/Culture
We embrace diversity and inclusion. Our commitment to diversity and inclusion is represented by our hiring of the first Chief Diversity Officer in the Bank’s history who will be empowered to focus on creating and executing our multi-year diversity, equity and inclusion strategy.
•As of December 31, 2020, women represented 62% of our overall workforce and represented 58% of new hires and 63% of promotions in 2020.
•As of December 31, 2020, people of color represented approximately 30% of our overall workforce and accounted for 32% of new hires and 33% of promotions.
•The Women in Leadership (“WIL”) program launched in 2015 and has been a foundational pillar supporting our culture of diversity and inclusion. With 11 chapters across the country, WIL provided resources, support and contributions to over 25 community organizations. WIL also provides development opportunities through its signature mentoring program and event programming.
To protect our customers, our employees and our brand, as well as ensure we uphold our values of trust and respect for each other, all employees are required to successfully complete annual training on topics including safety, ethics and privacy. Employees must also complete training on sexual harassment prevention. Additionally, we consistently enforce policies such as Conflict Resolution, Discrimination- and Harassment-Free Work Environment, and Workplace Violence Prevention that help create and sustain our respectful, inclusive and positive work environment. People’s United prohibits discrimination based on, including but not limited to, age, race, color, religion, sex, sexual orientation, gender, and gender identity and expression.
Health and Safety/Well-Being
Due to the priority and concern for the health and safety of our employees given the COVID-19 environment, we instituted many protocols and practices in 2020 that enabled us to meet the needs of our customers and maintain banking operations while demonstrating our commitment to the wellbeing of our employees.
We were able to swiftly shift two-thirds of the workforce to work remotely while our Retail Branch employees worked onsite following safety protocols to ensure their health and safety. A Health & Safety site plan was created for all work locations and a mandatory Health & Safety on-line pre-screen survey was implemented for all employees to successfully complete prior to entering a People’s United worksite. Training on health and safety practices was administered to all employees.
To assist employees with balancing their personal responsibilities during this time, we created an additional
Paid-Time-Off award program (10 days) for employees who did not have the ability to work remotely due to the nature of their jobs.
To support employee health and wellbeing, we implemented the CARES Act changes to our Medical plan covering telehealth services at 100% regardless of diagnosis and waived member out-of-pocket costs for COVID-related approved testing and treatment. We also implemented CARES Act changes to our 401(k) plan to allow for COVID-related distributions and increase the 401(k) loan allowance amount and 401(k) loan re-payment deferral period.
To maintain open communications and obtain feedback from our employees with respect to their continued wellbeing and productivity while working remotely, we created a dedicated intranet site with resources and FAQs and conducted surveys. Results from the survey conducted in September 2020 revealed that:
•88% of the respondents felt they were as or more productive working from home; and
•95% of the respondents felt the frequency and effectiveness of the communication from the Company had exceeded or met their expectations.
Access to Information
As a public company, People’s United is subject to the informational requirements of the Exchange Act, as amended and, in accordance therewith, files reports, proxy and information statements and other information with the SEC. Such reports, proxy and information statements and other information can be inspected and copied at prescribed rates at the public reference room maintained by the SEC at 100 F Street N.E., Washington, D.C. 20549 and are available on the SEC’s EDGAR database on the internet at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. People’s United’s common stock is listed on the NASDAQ Global Select Market under the symbol PBCT.
Copies of many of these reports are also available through People’s United’s website at www.peoples.com.
People’s United currently provides website access to the following reports:
Form 10-K;
Form 10-Q;
Form 8-K;
Annual Report to Shareholders; and
Proxy Statement for Annual Meeting of Shareholders

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Interest Rate Risk
Changes in Interest Rates Could Adversely Affect Our Results of Operations and Financial Condition
People’s United makes most of its earnings based on the difference between interest it earns compared to interest it pays. This difference is called the “interest spread”. People’s United earns interest on loans and to a much lesser extent on securities and short-term investments. These are called “interest-earning assets.” People’s United pays interest on some forms of deposits and on funds it borrows from other sources. These are called “interest-bearing liabilities.”
People’s United’s interest spread can change depending on when interest rates earned on interest-earning assets change, compared to when interest rates paid on interest-bearing liabilities change. Some rate changes occur while these assets or liabilities are still on People’s United’s books. Other rate changes occur when these assets or liabilities mature and are replaced by new interest-earning assets or interest-bearing liabilities at different rates. It may be difficult to replace interest-earning assets quickly, since customers may not want to borrow money when interest rates are high, or People’s United may not be able to make loans that meet its lending standards. People’s United interest spread may also change based on the mix of
interest-earning assets and interest-bearing liabilities.
People’s United’s interest spread may be lower if the timing of interest rate changes is different for its interest-earning assets compared to its interest-bearing liabilities. For example, if interest rates go down, People’s United could earn less on some of its interest-earning assets while it is still obligated to pay higher rates on some of its interest-bearing liabilities. On the other hand, if interest rates go up, People’s United might have to pay more on some of its interest-bearing liabilities while it continues to receive lower rates on some of its interest-earning assets.
People’s United manages this risk using many different techniques. If unsuccessful in managing this risk, People’s United may be less profitable.
The Planned Phase-Out of LIBOR as a Reference Rate Could Adversely Affect our Results of Operations and Financial Condition
The London Interbank Offered Rate (“LIBOR”) is the reference rate used for many of our transactions, including lending and borrowing activities and the purchase and sale of securities, as well as derivative contracts entered into to manage the risk related to such transactions. In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it would no longer compel contributing banks to submit to the Intercontinental Exchange (“ICE”) Benchmark Administrator the rates required to calculate LIBOR after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot be, and will not be, guaranteed after 2021. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments.
In response to the FCA’s announcement, regulators, industry groups and certain committees (e.g. the Alternative Reference Rates Committee) have published recommended fall-back language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g. the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating-rate instruments. At this time, it is not possible to predict whether these specific recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.
A transition from LIBOR could create considerable cost and additional risk for the Company. There remains uncertainty as to whether the composition or characteristics of any successor or alternative rate to LIBOR will be similar to, or produce the same economic value as, LIBOR. The transition may change our market risk profile, potentially requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation and increase legal and operational costs. While we are currently unable to assess the ultimate impact of a transition from LIBOR, failure to effectively manage the transition could have a material adverse effect on our business, results of operations and financial condition.
Lending and Credit-Related Risk
The Geographic Concentration of Our Loan Portfolio Could Make Us Vulnerable to a Downturn in the Economies in Which We Operate
At December 31, 2020, 25%, 20% and 18% of the Company’s loans by outstanding principal amount were to customers located within Connecticut, Massachusetts and New York, respectively. Loans to people and businesses located in the New England states as a group represented 55% of total loans at that date. How well our business performs depends very much on the health of these regional and local economies. We could experience losses in our real estate-related loan portfolios if the prices for housing and other kinds of real estate decreased significantly in New England or southeastern New York.
If the economic environment deteriorates, or negative trends emerge with respect to the financial markets, the New England and southeastern New York economies could suffer more than the national economy. This would be especially likely in Fairfield County, Connecticut (where the Company is headquartered) as well as the suburban communities of New York City and Boston as a result of the significant number of people living in these areas who also work in the financial services industry.
In addition, our ability to continue to originate real estate loans may be impaired by adverse changes in the local and regional economic conditions in these real estate markets. Decreases in real estate values could adversely affect the value of property used as collateral for our loans. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings. In addition, if poor economic conditions result in decreased demand for real estate loans, our profits may decrease because our alternative investments may be less profitable than real estate loans.
Our equipment financing business, which operates nationally, could be negatively affected by adverse changes in the national economy, even if those changes have no significant effect on the local and regional economies in which our other businesses operate.
No assurance can be given that such conditions will not occur or that such conditions will not result in a decrease in our interest income, an increase in our non-accrual loans, an increase in our provision for credit losses or an adverse impact on our loan losses.
If People’s United’s Allowance for Credit Losses Is Not Sufficient to Cover Actual Loan Losses, Our Earnings Would Decrease
We maintain an allowance for credit losses (“ACL”) on loans, securities and off-balance-sheet credit exposures. In the case of loans and securities, the ACL represents a contra-asset valuation account that is deducted from the amortized cost basis of these assets to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the ACL represents a liability account reported as a component of other liabilities in the Consolidated Statement of Condition. The amount of each allowance account represents management’s best estimate of current expected credit losses on these financial instruments considering available information, from both internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the underlying instruments. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. As a result, the determination of the appropriate level of ACL inherently involves a high degree of subjectivity and requires us to make significant estimates related to current and expected future credit risks and trends, all of which may undergo material changes. Continuing deterioration in economic conditions affecting borrowers and securities issuers; new information regarding existing loans, credit commitments and securities holdings; and identification of additional problem loans, ratings down-grades and other factors, both within and outside of our control, may require an increase in the ACL on loans, securities and off-balance sheet credit exposures.
In addition, bank regulatory agencies periodically review our ACL and may require an increase in credit loss expense or the recognition of further loan charge-offs, based on judgments different than those of management. Furthermore, if any
charge-offs related to loans, securities or off-balance sheet credit exposures in future periods exceed our ACL on loans, securities or off-balance sheet credit exposures, we will need to recognize additional credit loss expense to increase the applicable allowance. Any increase in the ACL on loans, securities and/or off-balance sheet credit exposures will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations. See Note 1, “Summary of Significant Accounting Policies” and Note 6, “Allowance for Credit Losses” in the accompanying Consolidated Financial Statements for a further discussion.
Changes in Our Asset Quality Could Adversely Affect Our Results of Operations and Financial Condition
Asset quality measures the performance of a borrower in repaying a loan, with interest, on time. While we believe we have benefited from relatively stable asset quality, there are elements of our loan portfolio that inherently present greater credit risk, such as interest-only residential mortgage loans, home equity loans and lines with incomplete first lien data, and commercial real estate loans. Each of these portfolio risk elements, where potentially material in the context of our overall loan portfolio, are discussed in greater detail within Management’s Discussion and Analysis-Asset Quality beginning on page 52. While the Company believes that it manages asset quality through prudent underwriting practices and collection operations, it is possible that our asset quality could deteriorate, depending upon economic conditions and other factors.
Availability of First Lien Data With Respect to Our Home Equity Loans and Lines of Credit Could Delay Our Response to Any Deterioration in the Borrower’s Credit
We do not currently have statistics for our entire portfolio of home equity loans and lines of credit with respect to first liens serviced by third parties that have priority over our junior liens, as we did not historically capture that data on our loan servicing systems. As a result, we may therefore be unaware that the loan secured by the first lien is not performing, which could delay our response to an apparent deterioration in the borrower’s creditworthiness. As of December 31, 2020, full and complete first lien position data was not readily available for 36% of the home equity portfolio which, in turn, represented
2% of our overall loan portfolio at that date.
We are working to obtain the missing first lien information and have, in certain cases, obtained the data through information reported to credit bureaus when the borrower defaults. This data collection effort, however, can be more difficult in cases where more than one mortgage is reported in a borrower’s credit report and/or there is not a corresponding property address associated with a reported mortgage, in which case we are often unable to associate a specific first lien with our junior lien. See the discussion in Management’s Discussion and Analysis-Asset Quality-Portfolio Risk Elements-Home Equity Lending beginning on page 54 for more detail, including steps we are taking to otherwise address this issue.
Operational Risk
Our Business Is Affected by the International, National, Regional and Local Economies in Which We Operate
Changes in international, national, regional and local economic conditions affect our business. If economic conditions change significantly or quickly, our business operations could suffer, and we could become weaker financially as a result.
During certain economic cycles, the housing and real estate markets, as well as the broader economy, may experience declines, both on a national and local level. Housing market conditions in the New England and New York metro regions, where much of our lending activity occurs, may be adversely impacted, leading to a reduced level of sales, an increased inventory of houses on the market, a decline in house prices and an increase in the length of time houses remain on the market. No assurance can be given that these economic conditions will not occur or that such conditions will not result in a decrease in our interest income, an increase in our non-accrual loans, an increase in our provision for credit losses or an adverse impact on our loan losses.
Significant volatility in the financial and capital markets during this time may lead to credit and liquidity concerns, a recessionary economic environment and, in turn, weakness within the commercial sector. Our loan portfolio is not immune to potential negative consequences arising as a result of general economic weakness and, in particular, a prolonged downturn in the housing market on a national scale. Decreases in real estate values could adversely affect the value of property used as collateral for loans. In addition, adverse changes in the economy could have a negative effect on the ability of borrowers to make scheduled loan payments, which would likely have an adverse impact on earnings. Further, an increase in loan delinquencies may serve to decrease interest income and adversely impact loan loss experience, resulting in an increased provision and ACL.
International economic uncertainty continues to have an impact on the U.S. financial markets, potentially suppressing stock prices and adding to volatility. Our foreign country exposure, which is defined as the aggregation of exposure maintained with financial institutions, companies or individuals in a given country outside of the U.S., is minimal and indirect, with the majority of such exposure comprised of corporate debt securities. Our sovereign credit exposure is comprised of an immaterial amount of government bonds issued by a single non-European sovereign.
The Success of Our Stop & Shop Branches Depends on the Success of the Stop & Shop Brand
One element of our strategy is to focus on increasing deposits by providing a wide range of convenient services to our customers. An integral component of this strategy is the Bank’s supermarket banking initiative, pursuant to which, as of December 31, 2020, the Bank has established 140 full-service Stop & Shop branches throughout Connecticut and southeastern New York, most of which are in close proximity to our traditional branches, which provide customers with the convenience of seven-days-a-week banking in most locations. At December 31, 2020, 34% of the Bank’s branches were located in
Stop & Shop supermarkets and 11% of our total deposits at that date were held in Stop & Shop branches.
The Bank currently has exclusive branching rights in Stop & Shop supermarkets in the state of Connecticut and certain counties in the state of New York, in the form of licensing agreements between The Stop & Shop Supermarket Company and the Bank, which provides for the leasing of space to the Bank within Stop & Shop supermarkets for branch use. The Bank has the exclusive right to branch in these supermarkets until 2022, provided that the Bank does not default on its obligations under the licensing agreement.
Stop & Shop is a leading grocery store in Connecticut. The success of the Bank’s supermarket branches is dependent, in part, on the success of the Stop & Shop supermarkets in which they are located. A drop in Stop & Shop’s market share, a decrease in the number of Stop & Shop locations or customers, or a decline in the overall quality of Stop & Shop supermarkets could result in decreased business for the Stop & Shop branches, in the form of fewer loan originations, lower deposit generation and fewer overall branch transactions, and could influence market perception of the Bank’s Stop & Shop supermarket branches as convenient banking locations.
On January 21, 2021, the Bank announced its decision not to renew its agreements with Stop & Shop to operate
140 in-store branches in Connecticut and New York upon their expiration in 2022. Branch closures will take place over several years using a phased approach.
Our Goodwill May be Determined to be Impaired at a Future Date Depending on the Results of Periodic Impairment Evaluations
People’s United evaluates goodwill for impairment on an annual basis (or more frequently, if necessary). According to applicable accounting requirements, acceptable valuation methods include present-value measurements based on multiples of earnings or revenues, or similar performance measures. If the quoted market price for People’s United common stock were to decline significantly, or if it was determined that the carrying amount of our goodwill exceeded its implied fair value, we would be required to write down the asset recorded for goodwill as reflected in the Consolidated Statements of Condition. This, in turn, would result in a non-cash charge to earnings and, thus, a reduction in stockholders’ equity. See Notes 1 and 8 to the Consolidated Financial Statements for additional information concerning People’s United’s goodwill and the required impairment test.
We Depend on Our Executive Officers and Key Personnel to Continue Implementing Our Long-Term Business Strategy and Could Be Harmed by the Loss of Their Services
We believe that our continued growth and future success will depend in large part upon the skills of our management team. The competition for qualified personnel in the financial services industry can be intense, and the loss of our key personnel or an inability to continue to attract, retain and motivate key personnel could adversely affect our business.
A Failure In or Breach Of Our Operational or Security Systems or Infrastructure, or Those of Our Third-Party Vendors and Other Service Providers, Including as a Result of Cyber-Attacks, Could Disrupt Our Business, Result in the Disclosure or Misuse of Confidential or Proprietary Information, Damage Our Reputation, Increase Our Costs and Cause Losses
In the ordinary course of business, we rely on our ability to securely process, record, monitor and store data associated with a large number of customer transactions on a continuous basis. In doing so, our business relies on various digital technologies, computer and email systems, software and networks to conduct operations, and for which we have information security procedures and controls in place. Still, as customer, public and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, breakdowns and security breaches.
Security breaches and cybersecurity-related incidents may include, but are not limited to, attempts to access information, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer or proprietary information), account takeovers, unavailability of service or other events. These types of threats may derive from human error, fraud or malice on the part of external or internal parties, or may result from accidental technological failure. Further sources of operational and information security risk to us include (i) our customers, who, when accessing our products and services, may use computers or mobile devices that are beyond our security control systems and (ii) third parties with whom we do business or that facilitate our business activities (including exchanges, clearing houses, financial intermediaries or vendors that provide services or security solutions for our operations) should they suffer breakdowns, failures or capacity constraints of their own systems.
In recent years, information security risks for financial institutions, such as ours, have increased due, in part, to (i) the proliferation of new technologies, including internet and mobile banking capabilities, to conduct financial transactions and (ii) the increased sophistication and activities of organized crime, hackers, terrorists, hostile foreign governments, activists and other external parties. There have been several instances involving financial services and consumer-based companies reporting unauthorized access to, and disclosure of, client or customer information or the destruction or theft of corporate data. There have also been highly-publicized cases where hackers have requested “ransom” payments in exchange for not disclosing customer information.
While we have not, to date, experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to these matters remains heightened because of, among other things: (i) the constantly evolving nature of these threats; (ii) the size and scale of People’s United; (iii) our plans to continue implementing our internet and mobile banking strategies and develop additional remote connectivity solutions in order to serve our customers when and how they want to be served; (iv) our expanded geographic footprint; (v) the outsourcing of some of our business operations; and (vi) the continued uncertain global economic environment. As a result, cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a focus for us. As threats continue to increase in number, intensity and sophistication, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities.
Disruptions or failures in the physical infrastructure or operating systems that support our business and customers, or cyber-attacks or security breaches of the networks, systems or devices that our customers use to access our products and services could result in customer attrition, regulatory fines, penalties or intervention, reputational harm, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of operations or financial condition.
External and Market-Related Risk
In Response to Competitive Pressures, Our Costs Could Increase if We Were Required to Increase Our Service and Convenience Levels or Our Margins Could Decrease if We Were Required to Increase Deposit Rates or Lower Interest Rates on Loans
People’s United faces significant competition for deposits and loans. In deciding where to deposit their money, many people look first at the interest rate they will earn. They also might consider whether a bank offers other kinds of services they might need and, if they have been a customer of a bank before, what their experience was like. People also like convenience, so the number of offices and banking hours may be important. Some people also prefer the availability of on-line services.
People’s United competes with other banks, credit unions, brokerage firms and money market funds for deposits. Some people may decide to buy bonds or similar kinds of investments issued by companies or by federal, state and local governments and agencies, instead of opening a deposit account.
In making decisions about loans, many people consider the interest rate they will have to pay. They also consider any extra fees they might have to pay in order to get the loan. Many business loans are more complicated because there may not be a standard type of loan that meets all of the customer’s needs. Business borrowers consider many different factors that are not all financial in nature, including the type and amount of security the lender wants and other terms of the loan that do not involve the interest rate.
People’s United competes with other banks, credit unions, credit card issuers, finance companies, mortgage lenders and mortgage brokers for loans. Insurance companies also compete with People’s United for some types of commercial loans.
Several of People’s United’s competitors have branches in the same market area as it does, some of which are much larger than it is. The New England region, including Connecticut, which is People’s United’s predominant market, and specifically Fairfield County, where People’s United is headquartered, is an attractive banking market. As locally-based banks continue to be acquired by large regional and national companies, there are not as many bank competitors in our market as there used to be, but the remaining ones are usually larger and have more resources than the banks they acquired.
People’s United also has competition from outside its own market area. A bank that does not have any branches in our primary markets can still have customers there by providing online banking services. It costs money to set up and maintain a branch system. Banks that do not spend as much money on branches as People’s United might be more profitable than we are, even if they pay higher interest on deposits and charge lower interest on loans.
Compliance and Regulatory Risk
Changes in Federal and State Regulation Could Adversely Affect Our Results of Operations and Financial Condition
The banking business is heavily regulated by the federal and state governments. Banking laws and rules are for the most part intended to protect depositors, not stockholders.
Banking laws and rules can change at any time. The government agencies responsible for supervising People’s United’s businesses can also change the way they interpret these laws and rules, even if the rules themselves do not change. We need to make sure that our business activities comply with any changes in these rules or the interpretation of the rules. We might be less profitable if we have to change the way we conduct business in order to comply. Our business might suffer in other ways as well.
Changes in state and federal tax laws or the accounting standards we are required to follow can make our business less profitable. Changes in the government’s economic and monetary policies may hurt our ability to compete for deposits and loans. Changes in these policies can also make it more expensive for us to do business.
The government agencies responsible for supervising our business can take drastic action if they think we are not conducting business safely or are too weak financially. They can force People’s United to hold additional capital, pay higher deposit insurance premiums, stop paying dividends, stop making certain kinds of loans or stop offering certain kinds of deposits. If the agencies took any of these steps or other similar steps, it would probably make our business less profitable.
While it is difficult to fully quantify the increase in our regulatory compliance burden, we do believe that costs associated with regulatory compliance will continue to increase.
Our Ability to Declare and Pay Dividends May Be Subject to Additional Regulatory Restrictions and We May Not Pay Dividends on Our Common Stock in the Future
People’s United’s stockholders receive dividends, as the Board of Directors may declare, out of funds legally available for such payments. Our ability to pay dividends depends primarily on our receipt of dividends from the Bank, the payment of which is subject to numerous limitations under federal and state banking laws, regulations and policies. As a consequence of these various limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our common stock. In addition, as a bank holding company our ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the FRB regarding capital adequacy and dividends. As a result of negative retained income (as defined) at the Bank as of December 31, 2020, and a consolidated net loss in the fourth quarter of 2020 brought about by a $353.0 million non-cash goodwill impairment charge, both the Company and the Bank may be required to obtain the non-objection of their respective primary regulator prior to declaring and paying a dividend.
Acquisition-Related Risk
Failure to Complete the Merger With M&T Could Negatively Affect Our Stock Price and Our Future Business and Financial Results
If the pending merger with M&T is not completed for any reason, People’s United’s ongoing business may be adversely affected and, without realizing any of the benefits of having completed the merger, People’s United would be subject to a number of risks, including the following:
•we may experience negative reactions from the financial markets, including negative effects on our stock price;
•we may experience negative reactions from our customers and vendors;
•we will have incurred substantial expenses and will be required to pay certain costs relating to the merger, including legal, accounting, and other fees, whether or not the merger is completed; and
•our management team will have devoted substantial time and resources to matters relating to the merger, and would otherwise have devoted their time and resources to other opportunities that may have been beneficial to People’s United.
In addition, if the Merger Agreement is terminated and People’s United seeks another merger or business combination, the market price of our common stock could decline, which could make it more difficult to find a party willing to offer equivalent or more attractive consideration than the consideration M&T has agreed to provide in the merger.
We Will be Subject to Uncertainties While Our Merger With M&T is Pending, Which Would Adversely Affect Our Business
Uncertainty about the effect of the merger on our employees and customers may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is consummated and for a period of time thereafter, and could cause customers and others that deal with us to seek to change their existing business relationships with us. Employee retention may be particularly challenging during the pendency of the merger, as employees may experience uncertainty about their roles with the surviving corporation following the merger.
The Merger Agreement May be Terminated and Our Merger With M&T May Not be Completed
The Merger Agreement is subject to a number of customary closing conditions, including the receipt of regulatory approvals and the requisite approvals of our and M&T’s stockholders. Conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and, accordingly, the merger may be delayed or may not be completed. In addition, we and/or M&T may elect to terminate the Merger Agreement under certain circumstances.
Shareholder Litigation Could Prevent or Delay the Closing of Our Pending Merger With M&T or Otherwise Negatively Affect our Business and Operations
We may incur additional costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with our pending merger with M&T. Such litigation could have an adverse effect on our financial condition and results of operations and could prevent or delay the consummation of the merger.
Because the Market Price of M&T’s Common Stock May Fluctuate, Our Stockholders Cannot be Certain of the Precise Value of the Merger Consideration They May Receive In Our Proposed Merger With M&T
At the time our pending merger with M&T is completed, each issued and outstanding share of our common stock (other than certain shares held by us or M&T) will be converted into the right to receive 0.118 shares of M&T’s common stock. There will be a time lapse between each of the date of the proxy statement/prospectus for the stockholders’ meeting to approve the merger, the date on which our stockholders vote to approve the merger, and the date on which our stockholders entitled to receive shares of M&T’s common stock actually receive such shares. The market value of M&T’s common stock may fluctuate during these periods as a result of a variety of factors, including general market and economic conditions, changes in M&T’s businesses, operations and prospects, and regulatory considerations. Many of these factors are outside of our and M&T’s control. Consequently, at the time that our stockholders must decide whether to approve the merger, they will not know the actual market value of the shares of M&T’s common stock they will receive when the merger is completed. The actual value of the shares of M&T’s common stock received by our shareholders will depend on the market value of shares of M&T’s common stock at the time the merger is completed. This market value may be less or more than the value used to determine the exchange ratio stated in the Merger Agreement.
General
Risks Relating to the Impact of COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease (“COVID-19”) a global pandemic. The COVID-19 pandemic has had, and continues to have, a material impact on businesses around the world and the economic environments in which they operate. In March 2020, the United States declared a federal state of emergency in response to the COVID-19 pandemic, which continued to spread throughout the country. The outbreak of this virus has disrupted global financial markets and negatively affected supply and demand across a broad range of industries. There are a number of factors associated with the outbreak and its impact on global economies, including the United States, that have had, and could continue to have, a material adverse effect on (among other things) the profitability, capital and liquidity of financial institutions such as People’s United.
The COVID-19 pandemic has caused disruption to our customers, suppliers and staff. A number of states in which we operate have implemented restrictions on the movement of their respective populations, with a resultant significant impact on economic activity in those states. The pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering-in-place requirements in many states and communities. As a result, the demand for our products and services has been, and may continue to be, significantly impacted. The circumstances around this pandemic are evolving rapidly and will likely continue to impact our business in future periods.
In the United States, the Federal government has taken action to provide financial support to those sectors of the economy most impacted by the COVID-19 pandemic. The details of how these actions will impact our customers and, therefore, the impact on People’s United remains uncertain at this stage. The actions taken by the U.S. government and the Federal banking regulators may indicate a view on the potential severity of a downturn and post-recovery environment, which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period.
An immediate financial impact during 2020 has been higher lifetime expected credit losses driven by a worsening of the economic scenarios used to calculate the ACL due, primarily, to a weakening in gross domestic product and employment in the United States. See Note 6, "Allowance for Credit Losses" in the accompanying Consolidated Financial Statements for further discussion.
Should the COVID-19 pandemic continue to cause disruption to economic activity, there could be further impacts on the Company’s income due to lower lending and transaction volumes and lower wealth management revenue due to volatility and weakness in the equity markets. Other potential risks include credit rating migration which could negatively impact our
risk-weighted assets and capital position, and potential liquidity stress due, among other factors, to increased customer drawdowns, notwithstanding the significant initiatives that the U.S. government and the Federal banking regulators have put in place to support both funding and liquidity. In addition, lower interest rates will negatively impact net interest income. Should the aforementioned economic conditions persist, the impairment of goodwill and other acquisition-related intangible assets could occur. Further, while the Company continues to develop its program for transitioning away from interbank offered rates, including LIBOR, the COVID-19 pandemic could affect its progress as well as the progress of other market participants.
Government actions and support measures taken in response to the COVID-19 pandemic may create restrictions in relation to capital. These may limit management’s flexibility in managing the business and taking action with respect to capital distribution and capital allocation. In addition, federal and state legislative and regulatory developments in response to COVID-19 may continue to impact our business and operations by, for example, requiring forbearance on loans, suspending foreclosure sales and imposing restrictions on our ability to charge certain fees. The extent of such impact will depend on the outcome of certain developments, including but not limited to, the duration and spread of the pandemic as well as its continuing impact on our customers, vendors and employees, all of which are uncertain at this time. Although vaccine distribution began in late 2020, uncertainty remains with respect to when, and to what extent, economic activity will notably improve.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
People’s United’s corporate headquarters is located in Bridgeport, Connecticut. The headquarters building had a net book value of $42 million at December 31, 2020 and People’s United occupies 89% of the building; all other available office space is leased to an unrelated party. People’s United delivers its financial services through a network of 417 branches located throughout Connecticut, southeastern New York, Massachusetts, Vermont, New Hampshire and Maine. People’s United’s branch network is primarily concentrated in Connecticut, where it has 172 offices (including 84 located in Stop & Shop supermarkets). People’s United also has 101 branches in southeastern New York (including 56 located in Stop & Shop supermarkets), 64 branches in Massachusetts, 38 branches in Vermont, 25 branches in New Hampshire and 17 branches in Maine. People’s United owns 143 of its branches, which had an aggregate net book value of $124 million at
December 31, 2020. People’s United’s remaining banking operations are conducted in leased locations. Information regarding People’s United’s operating leases for office space and related rent expense appears in Note 7 to the Consolidated Financial Statements.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
The information required by this item appears in Note 22 to the Consolidated Financial Statements.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
None.
Part II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
The common stock of People’s United is listed on the NASDAQ Global Select Market under the symbol “PBCT”.
On February 19, 2021, the closing price of People’s United common stock was $15.68. As of that date, there were approximately 21,150 record holders of People’s United common stock.
Five-Year Performance Comparison
The following graph compares total shareholder return on People’s United common stock over the last five fiscal years with: (i) the Standard & Poor’s 500 Stock Index (the “S&P 500 Stock Index”); (ii) the Russell Midcap Index; and (iii) the SNL Large Cap U.S. Bank & Thrift Index (the “SNL Large Cap Index”). Index values are as of December 31 of the indicated year.
The graph assumes $100 invested on December 31, 2015 in each of People’s United’s common stock, the S&P 500 Stock Index, the Russell Midcap Index and the SNL Large Cap Index. The graph also assumes reinvestment of all dividends.
The Russell Midcap Index is a market-capitalization weighted index comprised of 800 publicly-traded companies which are among the 1,000 largest U.S. companies (by market capitalization) but not among the 200 largest such companies. People’s United is included as a component of the Russell Midcap Index. The SNL Large Cap Index is an index prepared by SNL Securities comprised of 40 financial institutions (including People’s United) located throughout the U.S.
Issuer Purchases of Equity Securities
The following table provides information with respect to purchases made by People’s United of its common stock during the three months ended December 31, 2020:
Period Total number
of shares
purchased Average
price paid
per share Total number of
shares purchased as
part of publicly
announced plans or
programs Maximum number
of shares that may
yet be purchased
under the plans or
programs
October 1-31, 2020:
Tendered by employees (1) - $ - - -
November 1-30, 2020:
Tendered by employees (1) - $ - - -
December 1-31, 2020:
Tendered by employees (1) 9,260 $ 12.78 - -
Total:
Tendered by employees (1) 9,260 $ 12.78 - -
(1)All shares listed were tendered by employees of People’s United in satisfaction of their related minimum tax withholding obligations upon the vesting of restricted stock awards granted in prior periods and/or in payment of the exercise price and satisfaction of their related minimum tax withholding obligations upon the exercise of stock options granted in prior periods. The average price paid per share is equal to the average of the high and low trading price of People’s United’s common stock on The NASDAQ Global Select Market on the vesting or exercise date or, if no trades took place on that date, the most recent day for which trading data was available. There is no limit on the number of shares that may be tendered by employees of People’s United in the future for these purposes. Shares acquired in payment of the option exercise price or in satisfaction of minimum tax withholding obligations are not eligible for reissuance in connection with any subsequent grants made pursuant to equity compensation plans maintained by People’s United. All shares acquired in this manner are retired by People’s United, resuming the status of authorized but unissued shares of People’s United’s common stock.
Additional information required by this item is included in Part III, Item 12 of this report, and Notes 15 and 28 to the Consolidated Financial Statements.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
As of and for the years ended December 31
(dollars in millions, except per common share data) 2020 2019 2018 2017 2016
Earnings Data:
Net interest income (fully taxable equivalent) $ 1,605.6 $ 1,441.7 $ 1,262.4 $ 1,143.2 $ 1,004.5
Net interest income 1,575.8 1,412.3 1,236.0 1,100.5 972.2
Provision for credit losses (1) 155.8 28.3 30.0 26.0 36.6
Non-interest income 492.7 431.1 366.4 352.9 342.7
Non-interest expense (2) 1,564.1 1,162.7 996.1 960.3 868.8
Income before income tax expense 348.6 652.4 576.3 467.1 409.5
Net income 219.6 520.4 468.1 337.2 281.0
Net income available to common shareholders (2) 205.5 506.3 454.0 323.1 279.2
Selected Statistical Data:
Net interest margin 2.99 % 3.14 % 3.12 % 2.98 % 2.80 %
Return on average assets (2) 0.36 1.01 1.04 0.79 0.71
Return on average common equity 2.7 7.4 7.8 6.0 5.8
Return on average tangible common equity (2) 4.8 13.4 14.3 11.0 10.2
Efficiency ratio (2) 54.2 55.8 57.4 57.7 60.5
Financial Condition Data:
Total assets $ 63,092 $ 58,590 $ 47,877 $ 44,453 $ 40,610
Loans 43,870 43,596 35,241 32,575 29,745
Securities 9,191 7,790 7,233 7,043 6,738
Short-term investments 3,766 317 266 378 182
Allowance for credit losses on loans (3) 425 247 240 234 229
Goodwill and other acquisition-related intangible assets 2,846 3,275 2,866 2,560 2,142
Deposits 52,138 43,590 36,159 33,056 29,861
Borrowings 1,148 5,155 3,593 4,104 4,057
Notes and debentures 1,010 993 896 902 1,030
Stockholders’ equity 7,603 7,947 6,534 5,820 5,142
Non-accrual loans (3) 329 224 218 178 173
Ratios:
Net loan charge-offs to average total loans 0.11 % 0.06 % 0.07 % 0.07 % 0.06 %
Non-performing assets to total loans, real
estate owned and repossessed assets (3) 0.78 0.57 0.67 0.61 0.64
Allowance for credit losses on loans to (3):
Total loans 0.97 0.57 0.68 0.72 0.77
Non-accrual loans 129.1 110.0 110.4 131.4 132.8
Average stockholders’ equity to average total assets 12.8 13.6 13.4 13.1 12.2
Stockholders’ equity to total assets 12.1 13.6 13.6 13.1 12.7
Tangible common equity to tangible assets (2) 7.5 8.0 7.6 7.2 7.2
Total risk-based capital (4) 12.4 12.0 12.5 12.2 12.5
Common Share Data:
Earnings per common share:
Basic $ 0.49 $ 1.28 $ 1.30 $ 0.98 $ 0.92
Diluted (2) 0.49 1.27 1.29 0.97 0.92
Dividends paid per common share 0.7175 0.7075 0.6975 0.6875 0.6775
Common dividend payout ratio (2) 148.0 % 54.3 % 53.7 % 70.6 % 73.7 %
Book value per common share (end of period) $ 17.56 $ 17.60 $ 16.95 $ 16.40 $ 15.85
Tangible book value per common share (end of period) (2) 10.77 10.12 9.23 8.87 8.92
Stock price:
High 17.00 18.03 20.26 19.85 20.13
Low 9.37 13.81 13.66 15.97 13.62
Close (end of period) 12.93 16.90 14.43 18.70 19.36
(1)Provision for credit losses in 2020 reflects the application of the CECL standard and the impact of COVID-19.
(2)See Non-GAAP Financial Measures and Reconciliation to GAAP.
(3)Allowance for credit losses on loans and asset quality ratios for 2020 reflect the initial adoption and application of the CECL standard. Ratios for prior periods have been restated to reflect the total loan portfolio (originated and acquired). Non-accrual loans for prior periods have been restated to include acquired loans. See Asset Quality.
(4)Total risk-based capital ratios presented are for People’s United Financial, Inc. See Regulatory Capital Requirements.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Periodic and other filings made by People’s United with the SEC pursuant to the Exchange Act may, from time to time, contain information and statements that are forward-looking in nature. Such filings include the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and may include other forms such as proxy statements. Other written or oral statements made by People’s United or its representatives from time to time may also contain
forward-looking statements.
In general, forward-looking statements usually use words such as “expect,” “anticipate,” “believe,” “should,” and similar expressions, and include all statements about People’s United’s operating results or financial position for future periods. Forward-looking statements represent management’s beliefs, based upon information available at the time the statements are made, with regard to the matters addressed; they are not guarantees of future performance.
All forward-looking statements are subject to risks and uncertainties that could cause People’s United’s actual results or financial condition to differ materially from those expressed in or implied by such statements. Factors of particular importance to People’s United include, but are not limited to: (1) changes in general, international, national or regional economic conditions; (2) changes in interest rates; (3) changes in loan default and charge-off rates; (4) changes in deposit levels; (5) changes in levels of income and expense in non-interest income and expense related activities; (6) changes in accounting and regulatory guidance applicable to banks; (7) price levels and conditions in the public securities markets generally; (8) competition and its effect on pricing, spending, third-party relationships and revenues; (9) the pending merger with M&T; (10) changes in regulation resulting from or relating to financial reform legislation; and (11) the COVID-19 pandemic and its effect on the economic and business environment in which we operate.
All forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. People’s United does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
General
The following discussion and analysis presents the more significant factors that affected People's United's financial condition as of December 31, 2020 and 2019, and the results of operations for each of the years then ended. For a discussion and analysis of the more significant factors that affected periods prior to 2019, refer to Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 2, 2020.
People’s United is a bank holding company and a financial holding company, and the Bank is a national banking association. The principal business of People’s United is to provide, through the Bank and its subsidiaries, commercial banking, retail banking and wealth management services to individual, corporate and municipal customers. The Bank, which is headquartered in Bridgeport, Connecticut, had $63.1 billion in total assets as of December 31, 2020. Its deposit accounts are insured up to applicable limits by the FDIC under the DIF. The Bank is subject to regulation, examination, supervision and reporting requirements by the OCC, as its primary regulator, and by the FDIC as the deposit insurer. In addition, the CFPB has responsibility for supervising the Bank’s compliance with designated consumer financial laws.
People’s United’s results of operations are largely dependent upon revenues generated through net interest income and fee-based revenues and, to a much lesser extent, other forms of non-interest income such as gains on asset sales. Sources for these revenues are diversified across People’s United’s three primary operating segments that represent its core businesses: Commercial Banking; Retail Banking; and Wealth Management. People’s United’s results of operations are also significantly affected by the provision for credit losses and the level of non-interest expense. In addition, People’s United’s results of operations may also be affected by general and local economic conditions, changes in market interest rates, government policies and actions of regulatory authorities.
Recent Developments
On February 22, 2021, People’s United and M&T announced that they have entered into a definitive agreement under which M&T will acquire People’s United in an all-stock transaction. Under the terms of the agreement, each share of People’s United common stock will be converted into the right to receive 0.118 shares of M&T common stock. The merger is expected to close in the fourth quarter of 2021, subject to the satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by the shareholders of each company.
On January 21, 2021, the Bank announced its decision not to renew its agreements with Stop & Shop to operate
140 in-store branches in Connecticut and New York upon their expiration in 2022. Branch closures will take place over several years using a phased approach.
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. Economic activity in many countries, including the United States, began to deteriorate rapidly as the COVID-19 pandemic spread across the globe. In the United States, which has been operating under a presidentially-declared national emergency since
March 13, 2020, the COVID-19 pandemic continues to cause disruption to the capital markets as well as business and economic activity. Since March, individual municipalities and entire states adopted travel and work location restrictions, social distancing requirements, and in some cases, shelter-in-place protocols in order to slow the spread of the virus. These measures resulted in the closure of many schools, stores, offices, restaurants and manufacturing facilities, causing a decline in spending and an increase in layoffs. While some re-opening measures have been initiated on a limited scale, negative trends in both U.S. Gross Domestic Product (“GDP”) and unemployment persisted throughout 2020.
In response, the Federal government introduced several measures to mitigate the magnitude of the pandemic’s effects. Most notably, on March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which provided financial assistance for businesses and individuals as well as targeted regulatory relief for financial institutions, was signed into law. In December 2020, Congress approved an additional round of relief legislation, the Consolidated Appropriations Act, 2021 (see Asset Quality), providing new stimulus for individuals, businesses and hospitals, and extending some provisions of the CARES Act that would have expired on December 31, 2020. Also in March 2020, the Federal Open Market Committee (the “FOMC”) of the Federal Reserve reduced short-term interest rates by 150 basis points (to near zero) and announced various other initiatives to enhance liquidity and support the flow of credit to households and businesses.
The impact of the COVID-19 pandemic on economic conditions, both in the United States and abroad, has created global uncertainty about the future economic environment including the length and depth of any global recession that may occur. Concerns over interest rates, domestic and global policy issues, U.S. trade policy and geopolitical events, and the influence of those factors on the markets in general, further add to this uncertainty. Although vaccine distribution began in late 2020, uncertainty remains with respect to when, and to what extent, economic activity will notably improve.
Sale of Business
On November 2, 2020, the Bank completed its sale of People’s United Insurance Agency, Inc. (“PUIA”) to AssuredPartners in an all-cash transaction for $120 million. PUIA is a full-service insurance brokerage providing commercial, personal and employee benefit insurance solutions. The decision to sell PUIA was a result of the Bank’s continued reassessment of its business model in an effort to identify opportunities to improve its core banking products and services and to further enhance digital offerings across markets. Prior to the sale, the activities of PUIA were included in the Wealth Management operating segment which, for reporting purposes, was allocated among the Commercial Banking and Retail Banking reportable segments (see “Segment Results” for additional information). The sale resulted in a pre-tax gain, net of expenses, of $75.9 million, which is included in non-interest income in the Consolidated Statements of Income. See
Note 2 to the Consolidated Financial Statements for a further discussion.
Critical Accounting Policies
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 management’s 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 ACL and the recoverability of goodwill and other intangible assets.
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 ACL in future periods, and the inability to collect outstanding principal may result in increased loan losses. People's United’s critical accounting policies and critical estimates are summarized in Note 1 to the Consolidated Financial Statements.
Allowance for Credit Losses
The ACL is established through provisions for credit losses on loans charged to income. Losses on loans are charged to the ACL when all or a portion of a loan is deemed to be uncollectible. Recoveries of loans previously charged off are credited to the ACL when realized. On January 1, 2020, the Company adopted new accounting guidance, which requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans and other financial assets measured at amortized cost (the “CECL standard”). Previously, an ACL on loans was recognized based on probable incurred losses. See Note 1 to the Consolidated Financial Statements for a further discussion of the Company’s accounting policies and methodologies for establishing the ACL and the liability for off-balance-sheet credit exposures beginning in 2020.
The ACL remains a critical accounting estimate for the following reasons:
•Estimates relating to the ACL require management to project future borrower performance, including cash flows, delinquencies, charge-offs, and collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate probability of default and loss given default;
•The ACL is influenced by factors outside of management’s control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions including, but not limited to, housing prices, interest rates, GDP, inflation, and unemployment; and
•Judgment is required to determine whether the models used to generate the ACL produce results that appropriately reflect a current estimate of lifetime expected credit losses.
Because management’s estimates of the ACL involve judgment and are influenced by factors outside their control, there is uncertainty inherent in such estimates. Changes in these estimates could significantly impact the allowance and provision for credit losses.
As discussed further in Note 6 to the Consolidated Financial Statements, as a result of a deterioration in U.S. economic conditions caused by the emergence, in March 2020, of the COVID-19 pandemic, and the corresponding increase in economic uncertainty, a fourth forward-looking economic scenario (the “Severe Downside” scenario) has also been considered for purposes of estimating expected credit losses since that time. All four scenarios reflect the effects of the COVID-19 pandemic as well as the United States government’s monetary and fiscal response. Each scenario is assigned a weighting with the majority of the weighting placed on the Baseline scenario and lower weights placed on each of the Upside, Downside and Severe Downside scenarios. The weightings assigned by management are based on the economic outlook and available information at each reporting date.
As a result of the unprecedented economic uncertainty resulting from the COVID-19 pandemic, the Company’s future loss estimates may vary considerably as a result of: (i) changes in the economy compared to management’s December 31, 2020 assumptions; (ii) the magnitude of the pandemic; and (iii) the impact of the United States’ monetary and fiscal response.
Goodwill and Other Acquisition-Related Intangible Assets
Goodwill and indefinite-lived intangible assets are required to be reviewed for impairment at least annually, with impairment losses charged to expense when they occur. Acquisition-related intangible assets, other than goodwill and
indefinite-lived intangible assets, are amortized to expense over their estimated useful lives in a manner consistent with that in which the related benefits are expected to be realized, and are periodically reviewed by management to assess recoverability. Impairment losses on other acquisition-related intangibles are recognized as a charge to expense if carrying amounts exceed fair values.
Goodwill is evaluated for impairment at the reporting unit level. For the purpose of the goodwill impairment evaluation, management has identified reporting units based upon the Company’s three operating segments: Commercial Banking; Retail Banking; and Wealth Management. The specific assets and liabilities assigned to the reporting units is based on whether such assets and liabilities will be employed in or relate to the operations of a particular reporting unit. Newly acquired goodwill is allocated to reporting units based on the degree to which a reporting unit is expected to benefit from the related acquisition. The impairment evaluation is performed as of an annual measurement date or more frequently if a triggering event indicates that impairment may have occurred.
Entities have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of such events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity is not required to perform the quantitative impairment test as described below.
The quantitative test is used to identify potential impairment, and involves comparing each reporting unit’s estimated fair value to its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill is not deemed to be impaired. Should the carrying amount of the reporting unit exceed its estimated fair value, an impairment loss shall be recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill.
The Company estimates the fair value of its reporting units by applying a weighting of values determined using (i) the discounted cash flow method of the income approach and (ii) the guideline public company method of the market approach. The income approach is based on significant assumptions and judgments, including internal forecasts and growth rates, as well as discount rates and terminal values that reflect management’s assessment of market participant views of the risks associated with the projected cash flows of the reporting units. The market approach is based on a comparison of certain financial metrics, including trading multiples and control premiums, derived from the market prices of stocks of companies that are actively traded and engaged in the same or similar businesses as the Company and the respective reporting unit. The derived multiples are then applied to the reporting unit’s financial metrics to produce an indication of value. Differences in the identification of reporting units or in the selection of valuation techniques and related assumptions could result in materially different evaluations of goodwill impairment.
People’s United performed a quantitative assessment of goodwill impairment as of October 1, 2020 (its annual measurement date). In doing so, the income-based discounted cash flow approach was more heavily weighted (75%) than the market-based approach (25%) due to significant volatility in the market since the COVID-19 pandemic was declared a National Emergency on March 13, 2020. As noted above, the income approach to estimating fair value requires significant assumptions and judgments, including projections of future operating results and cash flows of each reporting unit that are based on an internal budget and strategic plan, expected long-term growth rates, discount rates, terminal multiples and the effects of external factors and market conditions. Changes in these estimates and assumptions could materially affect the estimated fair value of each reporting unit that could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results of operations.
The following discusses the key assumptions utilized in the discounted cash flow valuation methodology that require significant management judgment:
•Future Operating Results & Cash Flows - Projections of future cash flows utilized in arriving at the fair value estimate are derived from historical experience and assumptions regarding future growth and profitability of each reporting unit. Cash flows for a period of five years subsequent to the measurement date are utilized in the determination of the fair value of each reporting unit. Projections for the first three years are consistent with the Company’s operating budget and strategic plan. Projections beyond three years are based on long-term growth rates developed upon consideration of past and current performance as well as the economic and regulatory environments. Beyond five years, a terminal value is determined using a perpetuity growth rate based on inflation and real GDP growth rates.
•Discount Rates - The cash flows determined based on the process described above are discounted to their present value. The discount rate (cost of equity) applied is comprised of a risk-free interest rate, an equity risk premium, a size premium, a factor covering the systemic market risk (equity beta) and, where applicable, a company-specific risk premium. The values for the factors applied are determined primarily using external sources of information. The equity betas are determined based on a group of public companies similar to the reporting unit. The discount rates applied to the reporting units in connection with the quantitative impairment assessment ranged from 11.0% to 13.5%. Differences in the discount rates between reporting units are primarily due to distinct risks and uncertainties regarding the cash flows of the different reporting units.
Based on the quantitative assessment performed as of October 1, 2020, People’s United recognized a non-cash goodwill impairment charge totaling $353.0 million (representing 12% of total goodwill) associated with the Retail Banking reporting unit, while the fair values of the Commercial Banking and Wealth Management reporting units continued to exceed the respective carrying values by 4% and 103%, respectively. The projected cash flows of the Retail Banking reporting unit declined from prior period valuations due to record-low mortgage rates and the Federal Reserve’s updated guidance in the third quarter of 2020 regarding inflation targeting and expectations for interest rates to remain low for an extended period of time. The lower yielding and longer duration nature of the Company’s residential mortgage portfolio and a decline in home equity portfolio balances in recent years adversely impacted the Retail Banking reporting unit.
The Commercial Banking reporting unit’s allocated goodwill totaled approximately $2.0 billion as of October 1, 2020. Because the estimated fair value of the reporting unit was not substantially in excess of its carrying amount as of that date, a sensitivity analysis of both the projected future cash flows and the discount rate was performed. The results of that sensitivity analysis indicated (i) that a 10% reduction in the discrete cash flows projected for the five years subsequent to the measurement date would not result in the reporting unit’s estimated fair value being less than its carrying value and (ii) that an increase in the discount rate of 50 basis points would not result in the reporting unit’s estimated fair value being less than its carrying value. Management will continue to monitor the remaining goodwill for potential impairment.
After considering the effects of the aforementioned impairment charge and the Company’s market capitalization as of October 1, 2020, the implied control premium was determined to be approximately 55-60%. This implied control premium is largely a function of the Company’s stock price on the measurement date ($10.17) and in the weeks leading up to that date. Notably, through September 30, 2020, the Company’s stock price had only closed at or below $10.17 seven times with six of those occurrences between September 10, 2020 and September 29, 2020, a period during which several key market indices experienced volatility.
Subsequent to the measurement date, an improved outlook with regard to interest rates and a reduction in the level of economic uncertainty due, in part, to widespread distribution of the COVID-19 vaccine has resulted in a significant (~50%) appreciation in People’s United’s stock price and an approximate $2.0 billion increase in its market capitalization. At the same time, the Company’s expectations with respect to future earnings and cash flows have also improved.
Due to the high degree of subjectivity involved in estimating the fair value of the Company’s reporting units, a decline in People’s United’s expected future cash flows or projected growth rates due to further deterioration in the economic environment, or continued market capitalization of the Company below book value, could result in an additional non-cash goodwill impairment charge that is material to People’s United’s results from operations but would have no effect on the Company’s cash balances, liquidity or tangible equity. In addition, because goodwill and other acquisition-related intangible assets are not included in the calculation of regulatory capital, the Company’s well-capitalized regulatory capital ratios would not be affected by such a potential non-cash charge.
Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating People’s United’s results of operations in accordance with GAAP, management routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as the efficiency and tangible common equity ratios, tangible book value per common share and operating earnings metrics. Management believes these
non-GAAP financial measures provide information useful to investors in understanding People’s United’s underlying operating performance and trends, and facilitates comparisons with the performance of other financial institutions. Further, the efficiency ratio and operating earnings metrics are used by management in its assessment of financial performance, including non-interest expense control, while the tangible common equity ratio and tangible book value per common share are used to analyze the relative strength of People’s United’s capital position.
The efficiency ratio, which represents an approximate measure of the cost required by People’s United to generate a dollar of revenue, is the ratio of (i) total non-interest expense (excluding operating lease expense, goodwill impairment charges, amortization of other acquisition-related intangible assets, losses on real estate assets and non-recurring expenses) (the numerator) to (ii) net interest income on a fully taxable equivalent (“FTE”) basis plus total non-interest income (including the FTE adjustment on bank-owned life insurance (“BOLI”) income, the netting of operating lease expense and excluding gains and losses on sales of assets other than residential mortgage loans and acquired loans, and non-recurring income) (the denominator). People’s United generally considers an item of income or expense to be non-recurring if it is not similar to an item of income or expense of a type incurred within the last two years and is not similar to an item of income or expense of a type reasonably expected to be incurred within the following two years.
Operating earnings exclude from net income available to common shareholders those items that management considers to be of such a non-recurring or infrequent nature that, by excluding such items (net of income taxes), People’s United’s results can be measured and assessed on a more consistent basis from period to period. Items excluded from operating earnings, which include, but are not limited to: (i) non-recurring gains/losses; (ii) merger-related expenses, including acquisition integration and other costs; (iii) write-downs of banking house assets and related lease termination costs; (iv) severance-related costs; and (v) charges related to executive-level management separation costs, are generally also excluded when calculating the efficiency ratio. Operating earnings per common share (“EPS”) is derived by determining the per common share impact of the respective adjustments to arrive at operating earnings and adding (subtracting) such amounts to (from) diluted EPS, as reported. Operating return on average assets is calculated by dividing operating earnings (annualized) by average total assets. Operating return on average tangible common equity is calculated by dividing operating earnings (annualized) by average tangible common equity. The operating common dividend payout ratio is calculated by dividing common dividends paid by operating earnings for the respective period.
Pre-provision net revenue is a useful financial measure as it enables an assessment of the Company’s ability to generate earnings to cover credit losses through a credit cycle as well as providing an additional basis for comparing the Company’s results of operation between periods by isolating the impact of the provision for credit losses, which can vary significantly between periods.
The tangible common equity ratio is the ratio of (i) tangible common equity (total stockholders’ equity less preferred stock, goodwill and other acquisition-related intangible assets) (the numerator) to (ii) tangible assets (total assets less goodwill and other acquisition-related intangible assets) (the denominator). Tangible book value per common share is calculated by dividing tangible common equity by common shares (total common shares issued, less common shares classified as treasury shares and unallocated Employee Stock Ownership Plan (“ESOP”) common shares).
In light of diversity in presentation among financial institutions, the methodologies used by People’s United for determining the non-GAAP financial measures discussed above may differ from those used by other financial institutions.
The following table summarizes People’s United’s operating non-interest expense and efficiency ratio, as derived from amounts reported in the Consolidated Statements of Income:
Years ended December 31 (dollars in millions) 2020 2019 2018 2017 2016
Total non-interest expense $ 1,564.1 $ 1,162.7 $ 996.1 $ 960.3 $ 868.8
Adjustments to arrive at operating non-interest expense:
Goodwill impairment (353.0) - - - -
Merger-related expenses (45.9) (49.1) (11.4) (30.6) (4.0)
Intangible asset write-down - (16.5) - - -
Acquisition integration and other costs - - - - (0.7)
Total (398.9) (65.6) (11.4) (30.6) (4.7)
Operating non-interest expense 1,165.2 1,097.1 984.7 929.7 864.1
Adjustments:
Amortization of other acquisition-related
intangible assets (40.8) (32.5) (21.8) (30.0) (23.6)
Operating lease expense (36.4) (38.8) (36.4) (35.2) (36.3)
Other (1) (10.2) (6.2) (6.4) (5.1) (5.7)
Total non-interest expense for efficiency ratio $ 1,077.8 $ 1,019.6 $ 920.1 $ 859.4 $ 798.5
Net interest income (FTE basis) $ 1,605.6 $ 1,441.7 $ 1,262.4 $ 1,143.2 $ 1,004.5
Total non-interest income 492.7 431.1 366.4 352.9 342.7
Total revenues 2,098.3 1,872.8 1,628.8 1,496.1 1,347.2
Adjustments:
Gain on sale of business, net of expenses (75.9) - - - -
Operating lease expense (36.4) (38.8) (36.4) (35.2) (36.3)
BOLI FTE adjustment 3.5 2.5 1.9 3.4 2.8
Gain on sale of branches, net of expenses - (7.6) - - -
Net security (gains) losses - (0.2) 9.8 25.4 5.9
Other (2) (0.4) (2.8) - (1.3) (0.8)
Total revenues for efficiency ratio $ 1,989.1 $ 1,825.9 $ 1,604.1 $ 1,488.4 $ 1,318.8
Efficiency ratio 54.2 % 55.8 % 57.4 % 57.7 % 60.5 %
(1)Items classified as “other” and deducted from non-interest expense for purposes of calculating the efficiency ratio include certain franchise taxes and real estate owned expenses.
(2)Items classified as “other” and deducted from total revenues for purposes of calculating the efficiency ratio include, as applicable, asset write-offs and gains/losses associated with the sale of branch locations.
The following table summarizes People’s United’s operating earnings, operating EPS and operating return on average assets:
Years ended December 31
(dollars in millions, except per common share data) 2020 2019 2018 2017 2016
Net income available to common shareholders $ 205.5 $ 506.3 $ 454.0 $ 323.1 $ 279.2
Adjustments to arrive at operating earnings:
Goodwill impairment 353.0 - - - -
Merger-related expenses 45.9 49.1 11.4 30.6 4.0
Gain on sale of business, net of expenses (75.9) - - - -
Gain on sale of branches, net of expenses - (7.6) - - -
Intangible asset write-down - 16.5 - - -
Security losses associated with tax reform (1)
- - 10.0 10.0 -
Acquisition integration and other costs - - - - 0.7
Total pre-tax adjustments 323.0 58.0 21.4 40.6 4.7
Tax effect (2) 6.1 (12.2) (14.0) (17.9) (1.6)
Total adjustments, net of tax 329.1 45.8 7.4 22.7 3.1
Operating earnings $ 534.6 $ 552.1 $ 461.4 $ 345.8 $ 282.3
Diluted EPS, as reported $ 0.49 $ 1.27 $ 1.29 $ 0.97 $ 0.92
Adjustment to arrive at operating EPS:
Goodwill impairment 0.83 - - - -
Merger-related expenses 0.09 0.10 0.02 0.07 0.01
Gain on sale of business, net of expenses (0.14) - - - -
Gain on sale of branches, net of expenses - (0.01) - - -
Intangible asset write-down - 0.03 - - -
Security losses associated with tax reform - - 0.02 0.02 -
Tax benefits associated with tax reform - - (0.02) (0.02) -
Acquisition integration and other costs - - - - -
Total adjustments per common share 0.78 0.12 0.02 0.07 0.01
Operating EPS $ 1.27 $ 1.39 $ 1.31 $ 1.04 $ 0.93
Average total assets $ 61,038 $ 51,658 $ 45,030 $ 42,582 $ 39,784
Operating return on average assets 0.88 % 1.07 % 1.02 % 0.81 % 0.71 %
(1)Security losses incurred as a tax planning strategy in response to tax reform-related benefits are considered non-operating.
(2)The goodwill impairment charge in 2020 is non-tax-deductible. Includes $9.2 million of benefits recognized in connection with tax reform for the year ended December 31, 2018.
The following table summarizes People’s United’s pre-provision net revenue, as derived from amounts reported in the Consolidated Statements of Income:
Years ended December 31 (in millions) 2020 2019 2018 2017 2016
Net interest income $ 1,575.8 $ 1,412.3 $ 1,236.0 $ 1,100.5 $ 972.2
Non-interest income 492.7 431.1 366.4 352.9 342.7
Non-interest expense (1,564.1) (1,162.7) (996.1) (960.3) (868.8)
Pre-provision net revenue 504.4 680.7 606.3 493.1 446.1
Non-operating income (75.9) (7.6) 10.0 10.0 -
Non-operating expense 398.9 65.6 11.4 30.6 4.7
Operating pre-provision net revenue $ 827.4 $ 738.7 $ 627.7 $ 533.7 $ 450.8
The following tables summarize People’s United’s operating return on average tangible common equity and operating common dividend payout ratio:
Years ended December 31 (dollars in millions) 2020 2019 2018 2017 2016
Operating earnings $ 534.6 $ 552.1 $ 461.4 $ 345.8 $ 282.3
Average stockholders’ equity $ 7,812 $ 7,071 $ 6,037 $ 5,592 $ 4,859
Less: Average preferred stock 244 244 244 244 41
Average common equity 7,568 6,827 5,793 5,348 4,818
Less: Average goodwill and average other
acquisition-related intangible assets
3,247 3,060 2,623 2,410 2,083
Average tangible common equity $ 4,321 $ 3,767 $ 3,170 $ 2,938 $ 2,735
Operating return on average tangible common equity 12.4 % 14.7 % 14.6 % 11.8 % 10.3 %
Years ended December 31 (dollars in millions) 2020 2019 2018 2017 2016
Common dividends paid $ 304.1 $ 274.8 $ 243.8 $ 227.9 $ 205.7
Operating earnings $ 534.6 $ 552.1 $ 461.4 $ 345.8 $ 282.3
Operating common dividend payout ratio 56.9 % 49.8 % 52.8 % 65.9 % 72.9 %
The following tables summarize People’s United’s tangible common equity ratio and tangible book value per common share derived from amounts reported in the Consolidated Statements of Condition:
As of December 31 (dollars in millions) 2020 2019 2018 2017 2016
Total stockholders’ equity $ 7,603 $ 7,947 $ 6,534 $ 5,820 $ 5,142
Less: Preferred stock 244 244 244 244 244
Common equity 7,359 7,703 6,290 5,576 4,898
Less: Goodwill and other acquisition-related
intangible assets
2,846 3,275 2,866 2,560 2,142
Tangible common equity $ 4,513 $ 4,428 $ 3,424 $ 3,016 $ 2,756
Total assets $ 63,092 $ 58,590 $ 47,877 $ 44,453 $ 40,610
Less: Goodwill and other acquisition-related
intangible assets
2,846 3,275 2,866 2,560 2,142
Tangible assets $ 60,246 $ 55,315 $ 45,011 $ 41,893 $ 38,468
Tangible common equity ratio 7.5 % 8.0 % 7.6 % 7.2 % 7.2 %
As of December 31 (in millions except per common share data) 2020 2019 2018 2017 2016
Tangible common equity $ 4,513 $ 4,428 $ 3,424 $ 3,016 $ 2,756
Common shares issued 533.68 532.83 466.32 435.64 405.00
Less: Common shares classified as treasury shares 109.00 89.17 89.03 89.04 89.06
Common shares outstanding 424.68 443.66 377.29 346.60 315.94
Less: Unallocated ESOP shares 5.57 5.92 6.27 6.62 6.97
Common shares 419.11 437.74 371.02 339.98 308.97
Tangible book value per common share $ 10.77 $ 10.12 $ 9.23 $ 8.87 $ 8.92
Economic Environment
People’s United’s results are subject to fluctuations based on economic conditions that can affect, among other things, interest rates, deposit flows, credit demand and the ability of borrowers to service debt. The U.S. economy contracted 3.5% in 2020, after growing 2.3% in 2019, as a result of the impact of the COVID-19 pandemic and steps taken by government authorities to control the spread of the virus. While the most severe impact from COVID-19 was felt in the first half of 2020, growth accelerated in the second half of the year, but was still restrained by the continuing spread of the virus and limits on certain activities to reduce infections. Non-farm payrolls shrank by 22 million in March/April before partially recovering to end the year down by 9 million in 2020. The national unemployment rate increased from 3.5% at the end of 2019 to 14.8% in April before settling at 6.7% as of December 2020. The labor force shrank by 4.0 million people in 2020 compared to an increase of 1.4 million people in 2019, as the labor force participation rate declined from 63.3% in December 2019 to 61.5% in
December 2020.
The FOMC responded promptly and aggressively at the onset of the pandemic and cut the Federal funds rate effectively to zero in March setting the policy rate at 0.00% - 0.25%, where it remained for the rest of the year and where the FOMC indicated they expect it to maintain through 2021. In addition, the FOMC announced their intention to increase their purchases of Treasury and mortgage-backed securities by at least $700 billion in total to provide liquidity to the financial markets. As a consequence of these steps and the market’s reaction to them, the yield on the 2-year Treasury note decreased from 1.58% to 0.13% during 2020, and the yield on the 10-year Treasury note decreased from 1.92% to 0.93%. The slope of the yield
curve - the difference between short-term and long-term interest rates - increased in 2020 as the difference between the 10-year and the 2-year Treasury yields went from 0.34% at December 31, 2019 to 0.80% at December 31, 2020. The contraction in economic output impacted prices with inflation measures declining to near 1% or less on a year-over-year basis in the first half of the year. The subsequent recovery eased deflationary pressures. By year-end, the headline consumer price index was
1.3% above the prior year level, compared to 2.3% at December 2019. The Personal Consumption price index for
December 2020 was also 1.3% above the prior year level compared to 1.6% at December 2019.
The 2020 interest rate environment, on balance, was not supportive of the net interest margin and led to a 15 basis point reduction in the margin. Loan losses remained low, but the economic displacements precipitated by the pandemic necessitated a substantial increase in the provision for credit losses. Marginal loan growth in 2020 was supported by originations under the Paycheck Protection Program (the “PPP”), while deposit growth was substantially boosted by stimulus payments under the CARES Act. The Company expects the economic recovery that started in the second half of 2020 to continue throughout 2021, which should support a return to more normalized loan growth. Deposit growth will be dependent on the size of additional stimulus payments and the consumer’s propensity to save.
The New England region and southeastern New York comprise People’s United’s primary market area. Several areas within this region were severely impacted by the COVID-19 pandemic, with New York, Connecticut and Massachusetts suffering among the highest per capita death rates in the nation. The end-of-year experience during the third national wave of the pandemic, however, was more moderate within the region. The impact of the pandemic on the regional economy has been severe. Job losses in 2020 were large enough to eliminate virtually all of the job gains in the ten years of expansion from 2010 to 2019. Massachusetts was the only state in the market area with employment materially above its January 2010 level at approximately 105%.
Economic growth within People’s United’s primary market area is expected to mirror the national experience as its skilled labor force should enable it to be competitive in high-growth potential sectors of the economy, including health care, technology, education, and advanced manufacturing, while the sectors dependent on renewed social contact such as travel and leisure will depend on the national success at suppressing the COVID-19 pandemic to enable people to travel and socialize without fear of adverse health consequences. Although vaccine distribution began in late 2020, uncertainty remains with respect to when, and to what extent, economic activity will notably improve.
Financial Overview
People’s United completed its acquisitions of Vend Lease effective June 27, 2018, First Connecticut effective
October 1, 2018, VAR effective January 2, 2019, BSB Bancorp effective April 1, 2019 and United Financial effective November 1, 2019. The assets acquired and liabilities assumed in these transactions were recorded at their estimated fair values as of the respective closing dates. People’s United’s results of operations include the results of these acquired companies beginning with the respective effective dates and financial data for prior periods has not been restated and therefore, are not directly comparable to subsequent periods. See Note 2 to the Consolidated Financial Statements for a further discussion on these acquisitions.
Comparison of Financial Condition at December 31, 2020 and 2019. Total assets at December 31, 2020 were $63.1 billion, a $4.5 billion increase from December 31, 2019, primarily reflecting increases of $3.4 billion in short-term investments, $1.4 billion in total securities, $499 million in other assets and $273 million in total loans, partially offset by decreases of $485 million in loans held-for-sale and $385 million in goodwill (see Note 8 to the Consolidated Financial Statements). The increase in short-term investments reflects an increase in interest bearing deposits at the FRB-NY. The increase in total securities primarily reflects net purchases of government sponsored enterprise (“GSE”) mortgage-backed securities and a $102 million increase in the unrealized gain on debt securities available-for-sale, partially offset by principal repayments and maturities of U.S Treasury and agency securities. The increase in total loans from December 31, 2019 to December 31, 2020 reflects a $2.5 billion increase in commercial loans, partially offset by a $2.3 billion decrease in retail loans, as the Company continues to remix the balance sheet with a focus on higher-yielding portfolios. Included in commercial loans at December 31, 2020 are PPP loans totaling $2.3 billion. The increase in other assets primarily reflects the change in fair value of derivative financial instruments. The decrease in loans held-for-sale reflects the sale of consumer and commercial loans previously acquired in the United Financial acquisition (see Note 5 to the Consolidated Financial Statements).
Non-performing assets totaled $341.6 million at December 31, 2020, a $94.1 million increase from December 31, 2019, primarily reflecting increases of $61.6 million in non-accrual equipment finance loans and $36.9 million in non-accrual commercial and industrial loans, partially offset by a $12.4 million decrease in other real estate owned (“REO”). The ACL on loans was $425.1 million at December 31, 2020 compared to $246.6 million at December 31, 2019 (see Note 6 to the Consolidated Financial Statements). At December 31, 2020, the ACL as a percentage of total loans was 0.97% and as a percentage of non-accrual loans was 129.1%, compared to 0.57% and 110.0%, respectively, at December 31, 2019.
At December 31, 2020, total liabilities were $55.5 billion, a $4.8 billion increase from December 31, 2019, primarily reflecting an $8.5 billion increase in total deposits, partially offset by a $4.0 billion decrease in total borrowings.
People’s United’s total stockholders’ equity was $7.6 billion at December 31, 2020, a $344 million decrease from December 31, 2019. As a percentage of total assets, stockholders’ equity was 12.8% and 13.6% at December 31, 2020 and 2019, respectively. Tangible common equity as a percentage of tangible assets was 7.5% and 8.0% at December 31, 2020 and 2019, respectively.
People’s United’s (consolidated) Tier 1 Leverage capital ratio and its CET 1, Tier 1 and Total risk-based capital ratios were 8.4%, 10.5%, 11.0% and 12.4%, respectively, at December 31, 2020, compared to 9.1%, 10.2%, 10.7% and 12.0%, respectively, at December 31, 2019. The Bank’s Tier 1 Leverage capital ratio and its CET 1, Tier 1 and Total risk-based capital ratios were 8.7%, 11.5%, 11.5% and 12.8%, respectively, at December 31, 2020, compared to 9.3%, 10.9%, 10.9% and 12.1%, respectively, at December 31, 2019.
Comparison of Results of Operations for the Years Ended December 31, 2020 and 2019. People’s United reported net income of $219.6 million, or $0.49 per diluted common share, for the year ended December 31, 2020, compared to $520.4 million, or $1.27 per diluted common share, for the 2019 period. Included in the 2020 results are: (i) a goodwill impairment charge (non-tax-deductible) totaling $353.0 million, or $(0.83) per common share; (ii) merger-related expenses totaling $45.9 million ($36.5 million after-tax), or $(0.09) per common share; and (iii) a $75.9 million ($60.4 million after-tax), or $0.14 per common share, net gain recognized on the sale of PUIA. Results for 2019 include merger-related expenses totaling $49.1 million ($38.8 million after-tax) or $(0.10) per common share, and a $16.5 million charge ($13.0 million after-tax), or $(0.03) per common share, associated with the complete write-down of an acquisition-related intangible asset stemming from the liquidation of the Company’s public mutual funds. On an operating basis, earnings were $534.6 million in 2020, or
$1.27 per share, compared to $552.1 million, or $1.39 per share, in 2019. The results for 2020 reflect the benefits from recent acquisitions, continued loan and deposit growth, and meaningful cost control, partially offset by a goodwill impairment charge and an increase in the provision for credit losses.
People’s United’s return on average assets was 0.36% for 2020 compared to 1.01% for the 2019 period. Return on average tangible common equity was 4.8% for 2020 compared to 13.4% for the 2019 period. On an operating basis, return on average assets was 0.88% for 2020 (1.07% for 2019) and return on average tangible common equity was 12.4% (14.7% for 2019). FTE net interest income totaled $1.6 billion in 2020, a $163.9 million increase from the year-ago period, and the net interest margin decreased 15 basis points from 2019 to 2.99%. The decrease in the net interest margin primarily reflects lower yields on the loan portfolio, partially offset by lower rates on deposits and borrowings.
Average total earning assets increased $7.8 billion compared to 2019, reflecting increases of $6.0 billion in average total loans, $926 million in average securities and $892 million in average short-term investments. Average total funding liabilities increased $8.1 billion compared to 2019, reflecting a $9.1 billion increase in average total deposits, partially offset by a $1.1 billion decrease in average total borrowings.
Compared to 2019, total non-interest income increased $61.6 million (included in 2020 is a $75.9 million net gain recognized on the sale of PUIA). The $401.4 million increase in total non-interest expense in 2020 compared to 2019 primarily resulted from a $353.0 million goodwill impairment charge taken in the fourth quarter. The efficiency ratio was 54.2% for 2020 compared to 55.8% for the year-ago period. The provision for credit losses on loans totaled $156.1 million in 2020 compared to $28.3 million in the year-ago period. The increase primarily reflects the initial application of the CECL standard and the economic uncertainties brought about by COVID-19, specifically as it relates to assumptions regarding GDP and unemployment. Net loan charge-offs as a percentage of average total loans were 0.11% in 2020 compared to 0.06% in 2019.
Segment Results
People’s United’s operations are divided into three primary operating segments that represent its core businesses: Commercial Banking; Retail Banking; and Wealth Management. In addition, the Treasury area manages People’s United’s securities portfolio, short-term investments, brokered deposits, wholesale borrowings and the funding center.
The Company’s operating segments have been aggregated into two reportable segments: Commercial Banking and Retail Banking. These reportable segments have been identified and organized based on the nature of the underlying products and services applicable to each segment, the type of customers to whom those products and services are offered and the distribution channel through which those products and services are made available. With respect to the Company’s traditional wealth management activities, this presentation results in the allocation of the Company’s insurance business and certain trust activities to the Commercial Banking segment, and the allocation of the Company’s brokerage business and certain other trust activities to the Retail Banking segment.
Segment Performance Summary
Net Income (Loss)
Years ended December 31 (in millions) 2020 2019 2018
Commercial Banking $ 640.2 $ 416.5 $ 369.6
Retail Banking (1) (229.7) 113.4 64.7
Total reportable segments 410.5 529.9 434.3
Treasury (94.3) 53.3 67.7
Other (96.6) (62.8) (33.9)
Total Consolidated $ 219.6 $ 520.4 $ 468.1
(1)Retail Banking includes a $353.0 million non-cash goodwill impairment charge in 2020. See Note 8 to the Consolidated Financial Statements for a further discussion.
People’s United uses an internal profitability reporting system to generate information by operating segment, which is based on a series of management estimates and allocations regarding funds transfer pricing (“FTP”), the provision for credit losses on loans, non-interest expense and income taxes. These estimates and allocations, some of which are subjective in nature, are subject to periodic review and refinement. Any changes in estimates and allocations that may affect the reported results of any segment will not affect the consolidated financial position or results of operations of People’s United as a whole.
FTP, which is used in the calculation of each operating segment’s net interest income, measures the value of funds used in and provided by an operating segment. The difference between the interest income on earning assets and the interest expense on funding liabilities, and the corresponding FTP charge for interest income or credit for interest expense, results in net spread income (see Treasury). For fixed-term assets and liabilities, the FTP rate is assigned at the time the asset or liability is originated by reference to the Company’s FTP yield curve, which is updated daily. For non-maturity-term assets and liabilities, the FTP rate is determined based upon the underlying characteristics, or behavior, of each particular product and results in the use of a historical rolling average FTP rate determined over a period that is most representative of the average life of the particular asset or liability. While the Company’s FTP methodology serves to remove interest rate risk (“IRR”) from the operating segments and better facilitate pricing decisions, thereby allowing management to more effectively assess the
longer-term profitability of an operating segment, it may, in sustained periods of low and/or high interest rates, result in a measure of operating segment net interest income that is not reflective of current interest rates.
A five-year rolling average net charge-off rate is used as the basis for the provision for credit losses on loans for the respective operating segment in order to present a level of portfolio credit cost that is representative of the Company’s historical experience, without presenting the potential volatility from year-to-year changes in credit conditions. While this method of allocation allows management to assess the longer-term profitability of an operating segment more effectively, it may result in a measure of an operating segment’s provision for credit losses on loans that does not reflect actual incurred losses for the periods presented. The provision for credit losses for Treasury reflects the application of the CECL standard (see Note 4 to the Consolidated Financial Statements for a further discussion).
People’s United allocates a majority of non-interest expenses to each operating segment using a full-absorption costing process (i.e. all expenses are fully-allocated to the segments). Direct and indirect costs are analyzed and pooled by process and assigned to the appropriate operating segment and corporate overhead costs are allocated to the operating segments. Income tax expense is allocated to each operating segment using a constant rate, based on an estimate of the consolidated effective income tax rate for the year. Average total assets and average total liabilities are presented for each reportable segment due to management’s reliance, in part, on such average balances for purposes of assessing segment performance.
For a more detailed description of the estimates and allocations used to measure segment performance, see Note 25 to the Consolidated Financial Statements.
Commercial Banking consists principally of commercial real estate lending, middle market and business banking, the equipment financing operations of PCLC, PUEFC and LEAF, and mortgage warehouse and asset-based lending. This segment also provides treasury management services, capital market capabilities and commercial deposit products. Commercial insurance services were previously provided through PUIA (see Note 2 to the Consolidated Financial Statements for a further discussion).
Years ended December 31 (in millions) 2020 2019 2018
Net interest income $ 1,098.9 $ 807.1 $ 699.2
Provision for credit losses 52.8 44.1 38.7
Total non-interest income 217.3 206.5 177.8
Total non-interest expense 478.5 448.7 383.7
Income before income tax expense 784.9 520.8 454.6
Income tax expense 144.7 104.3 85.0
Net income $ 640.2 $ 416.5 $ 369.6
Average total assets $ 35,946.3 $ 29,746.8 $ 25,956.7
Average total liabilities 16,524.6 11,490.2 9,305.0
Commercial Banking’s net income increased $223.7 million in 2020 compared to 2019, reflecting increases in net interest income and non-interest income, partially offset by an increase in non-interest expense. The $291.8 million increase in net interest income primarily reflects the benefits from increases in FTP net spread income and average commercial loan and lease balances, and a decrease in interest expense, partially offset by the adverse effect of a decline in loan yields. Non-interest income increased $10.8 million in 2020 compared to 2019, primarily reflecting increases in commercial banking lending fees and net gains on sales of loans, partially offset by a decrease in net customer interest rate swap income. The $29.8 million increase in non-interest expense in 2020 compared to 2019 reflects a higher level of allocated expenses, partially offset by a lower level of direct expenses.
Compared to 2019, average total assets increased $6.2 billion, primarily reflecting loans acquired in recently completed acquisitions as well as organic loan growth and PPP loans. Average total liabilities increased $5.0 billion in 2020 compared to 2019, primarily reflecting organic deposit growth and deposits assumed in recently completed acquisitions.
Retail Banking includes, as its principal business lines, consumer lending (including residential mortgage and home equity lending) and consumer deposit products. This segment also includes brokerage, financial advisory services, investment management services and life insurance through PSI, investment advisory services and financial management and planning services through PUA and non-institutional trust services.
Years ended December 31 (in millions) 2020 2019 2018
Net interest income $ 634.9 $ 555.1 $ 467.2
Provision for credit losses 10.0 8.9 9.0
Total non-interest income 182.2 195.9 186.7
Total non-interest expense 1,009.4 600.2 565.3
Income (loss) before income tax expense (benefit) (202.3) 141.9 79.6
Income tax expense (benefit) 27.4 28.5 14.9
Net income (loss) $ (229.7) $ 113.4 $ 64.7
Average total assets $ 13,447.3 $ 12,560.9 $ 10,103.3
Average total liabilities 26,978.3 23,397.7 20,699.1
Retail Banking’s net loss in 2020 compared to net income in the year-ago period reflects an increase in net interest income, which was more than offset by a decrease in non-interest income and an increase in non-interest expense. The
$79.8 million increase in net interest income primarily reflects a decrease in interest expense, the benefits from increases in FTP net spread income and average residential mortgage loan balances, partially offset by the adverse effect of a decline in loan yields. Non-interest income decreased $13.7 million in 2020 compared to 2019, primarily reflecting decreases in bank service charges and investment management fees. The $409.2 million increase in non-interest expense in 2020 compared to 2019 reflects a $353.0 million non-cash goodwill impairment charge (see Note 8 to the Consolidated Financial Statements), as well as a higher level of allocated expenses, partially offset by a lower level of direct expenses.
Compared to 2019, average total assets increased $886 million, primarily reflecting loans acquired in recently completed acquisitions and organic loan growth. Average total liabilities increased $3.6 billion, primarily reflecting organic deposit growth and deposits assumed in recently completed acquisitions.
Treasury encompasses the securities portfolio, short-term investments, brokered deposits, wholesale borrowings and the funding center, which includes the impact of derivative financial instruments used for risk management purposes.
The income or loss for the funding center represents the IRR component of People’s United’s net interest income as calculated by its FTP model in deriving each operating segment’s net interest income. Under this process, the funding center buys funds from liability-generating business lines, such as retail deposits, and sells funds to asset-generating business lines, such as commercial lending. The price at which funds are bought and sold on any given day is set by People’s United’s Treasury group and is based on the wholesale cost to People’s United of assets and liabilities with similar maturities.
Liability-generating businesses sell newly-originated liabilities to the funding center and recognize a funding credit, while asset-generating businesses buy funding for newly-originated assets from the funding center and recognize a funding charge. Once funding for an asset is purchased from or a liability is sold to the funding center, the price that is set by the Treasury group will remain with that asset or liability until it matures or reprices, which effectively transfers responsibility for managing IRR to the Treasury group.
Years ended December 31 (in millions) 2020 2019 2018
Net interest income (loss) $ (118.5) $ 66.5 $ 93.0
Total non-interest income 7.8 14.1 8.3
Total non-interest expense 3.7 13.8 17.8
Income (loss) before income tax expense (benefit) (114.1) 66.8 83.5
Income tax expense (benefit) (19.8) 13.5 15.8
Net income (loss) $ (94.3) $ 53.3 $ 67.7
Average total assets $ 9,988.1 $ 7,882.3 $ 7,955.8
Average total liabilities 8,863.8 9,011.9 8,544.3
Treasury’s net loss in 2020 compared to net income in the year-ago period primarily reflects a decrease in net interest income. The $185.0 million decrease in net interest income primarily reflects the adverse effect from a decrease in FTP net spread income, primarily resulting from the reduction in interest rates initiated by the FOMC (see Recent Developments and Net Interest Income), partially offset by the benefits from a decrease in interest expense and an increase in average securities balances. Non-interest income in 2020 includes BOLI death benefits received totaling $2.1 million and a net loss on equity securities totaling $0.8 million. The $10.1 million decrease in non-interest expense in 2020 compared to 2019 reflects a lower level of allocated expenses.
Compared to 2019, average total assets increased $2.1 billion, primarily reflecting increases in securities and short-term investments. Average total liabilities decreased $148 million in 2020 compared to 2019, primarily reflecting a decrease in borrowings, partially offset by an increase in deposits.
Other includes the residual financial impact from the allocation of revenues and expenses (including the provision for credit losses on loans) and certain revenues and expenses not attributable to a particular segment; assets and liabilities not attributable to a particular segment; reversal of the FTE adjustment since net interest income for each segment is presented on an FTE basis; and the FTP impact from excess capital. The provision for credit losses on loans in 2020 reflects the application of the CECL standard and the impact of COVID-19. Included in non-interest income are (i) a $75.9 million net gain recognized on the sale of PUIA in 2020 and (ii) gains of $7.6 million resulting from the sale of eight branches in central Maine and
$3.3 million on a sale-leaseback transaction in 2019. Included in non-interest expense are (i) merger-related expenses totaling $45.9 million and $49.1 million in 2020 and 2019, respectively, and (ii) a $16.5 million charge in 2019 associated with the complete write-down of an acquisition-related intangible asset stemming from the liquidation of the Company’s public mutual funds.
Years ended December 31 (in millions) 2020 2019 2018
Net interest loss $ (39.5) $ (16.4) $ (23.4)
Provision for credit losses 93.3 (24.7) (17.7)
Total non-interest income 85.4 14.6 (6.4)
Total non-interest expense 72.5 100.0 29.3
Loss before income tax expense (119.9) (77.1) (41.4)
Income tax expense (23.3) (14.3) (7.5)
Net loss $ (96.6) $ (62.8) $ (33.9)
Average total assets $ 1,656.4 $ 1,468.0 $ 1,013.9
Average total liabilities 859.6 686.9 444.1
Net Interest Income
Net interest income and net interest margin are affected by many factors, including changes in average balances; interest rate fluctuations and the slope of the yield curve; sales of loans and securities; residential mortgage loan and mortgage-backed security prepayment rates; product pricing; competitive forces; the relative mix, repricing characteristics and maturity of interest-earning assets and interest-bearing liabilities; non-interest-bearing sources of funds; hedging activities; and asset quality.
Net Interest Margin Net Interest Income - FTE
Years ended December 31 (percent) Years ended December 31 (dollars in millions)
In March 2020, the FOMC lowered the target range for the federal funds rate by a total of 150 basis points (see Recent Developments), bringing the current target range to between 0.00% and 0.25%. In 2019, the FOMC lowered the target range three times by a total of 75 basis points. Previously, the FOMC raised the target range four times during 2018 by a total of
100 basis points. For the fourth quarter of 2020, the average effective federal funds rate was 0.09%.
The net interest margin was 2.99% in 2020 compared to 3.14% in 2019 and 3.12% in 2018. The decline in the net interest margin over the past two years generally reflects lower yields on the loan and securities portfolios, partially offset by lower rates on deposits and borrowings.
2020 Compared to 2019
FTE net interest income increased $163.9 million compared to 2019, reflecting a $65.7 million decrease in total interest and dividend income, which was more than offset by a $229.6 million decrease in total interest expense. The net interest margin decreased 15 basis points to 2.99% reflecting lower yields on the loan and securities portfolios, which reduced the net interest margin by 55 basis points and ten basis points, respectively, partially offset by lower rates on deposits and borrowings, which benefited the net interest margin by 37 basis points and 13 basis points, respectively. Included in interest income in 2020 are fees, net of related costs, totaling $34.6 million, recognized in connection with the Company’s role in originating loans under the PPP. Fees earned as a participating PPP lender are deferred and recognized over the earlier of the life of the related loans or until forgiven by the Small Business Administration (“SBA”).
Average total earning assets were $53.7 billion in 2020, a $7.8 billion increase from 2019, reflecting increases of $6.0 billion in average total loans, $926 million in average securities and $892 million in average short-term investments. The increase in average total loans reflects loans and leases acquired in connection with acquisitions completed in 2019, PPP loans (average of $1.7 billion in 2020), as well as organic growth. Average total loans, average securities and average short-term investments comprised 83%, 15% and 2%, respectively, of average total earning assets in 2020 compared to 84%, 15% and 1%, respectively, in 2019. At December 31, 2020 and 2019, approximately 46% and 44%, respectively, of the Company’s loan portfolio was comprised of Prime Rate and one-month LIBOR-based floating-rate loans.
Average total funding liabilities were $51.7 billion in 2020, an $8.1 billion increase from the year-ago period, reflecting a $9.1 billion increase in average total deposits, partially offset by a $1.1 billion decrease in average total borrowings. The increase in average total deposits reflects organic growth, deposits assumed in connection with acquisitions completed in 2019 and a $580 million increase in average brokered deposits. Excluding brokered deposits, average savings and average
non-interest-bearing deposits increased $4.5 billion and $4.0 billion, respectively, while average time deposits decreased
$53 million. Average total deposits comprised 93% and 90% of average total funding liabilities in 2020 and 2019, respectively.
The 62 basis point decrease to 0.46% from 1.08% in the rate paid on average total funding liabilities in 2020 compared to 2019 primarily reflects the decreases in the target federal funds rate discussed above. The rate paid on average total deposits decreased 52 basis points in 2020, reflecting decreases of 61 basis points in savings, interest-bearing checking and money market deposits and 56 basis points in time deposits and the benefit from a $4.0 billion increase in non-interest-bearing deposits. Average savings, interest-bearing checking and money market deposits and average time deposits comprised 58% and 16%, respectively, of average total deposits in 2020 compared to 57% and 21%, respectively, in 2019.
Average Balance Sheet, Interest and Yield/Rate Analysis
The table on the following page presents average balance sheets, FTE-basis interest income, interest expense and the corresponding average yields earned and rates paid for the years ended December 31, 2020, 2019 and 2018. The average balances are principally daily averages and, for loans, include both performing and non-performing balances. Interest income on loans includes the effect of deferred loan fees and costs accounted for as yield adjustments, but does not include interest on loans for which People’s United has ceased to accrue interest. Premium amortization and discount accretion (including amounts attributable to purchase accounting adjustments) are also included in the respective interest income and interest expense amounts. The impact of People’s United’s use of derivative instruments in managing IRR is also reflected in the table, classified according to the instrument hedged and the related risk management objective.
Average Balance Sheet, Interest and Yield/Rate Analysis
2020 2019 2018
Years ended December 31
(dollars in millions) Average
Balance Interest Yield/
Rate Average
Balance Interest Yield/
Rate Average
Balance Interest Yield/
Rate
Assets:
Short-term investments $ 1,125.1 $ 3.4 0.31 % $ 232.7 $ 4.8 2.06 % $ 278.9 $ 5.0 1.81 %
Securities (1) 8,143.7 215.7 2.65 7,217.5 205.2 2.84 7,343.7 200.9 2.74
Loans:
Commercial real estate 14,057.6 488.6 3.48 12,480.1 556.4 4.46 11,017.7 463.4 4.21
Commercial and industrial 13,456.8 451.0 3.35 9,874.7 454.3 4.60 8,611.7 375.4 4.36
Equipment financing 4,898.2 263.3 5.38 4,574.9 253.8 5.55 4,040.8 212.3 5.25
Residential mortgage 9,569.2 333.3 3.48 9,314.8 329.9 3.54 7,188.6 237.1 3.30
Home equity and other
consumer 2,400.5 89.5 3.73 2,174.0 106.1 4.88 1,995.6 88.6 4.44
Total loans 44,382.3 1,625.7 3.66 38,418.5 1,700.5 4.43 32,854.4 1,376.8 4.19
Total earning assets 53,651.1 $ 1,844.8 3.44 % 45,868.7 $ 1,910.5 4.17 % 40,477.0 $ 1,582.7 3.91 %
Other assets 7,387.0 5,789.3 4,552.7
Total assets $ 61,038.1 $ 51,658.0 $ 45,029.7
Liabilities and stockholders’
equity:
Deposits:
Non-interest-bearing $ 12,864.4 $ - - % $ 8,822.9 $ - - % $ 8,069.8 $ - - %
Savings, interest-bearing
checking and money
market 27,831.9 92.2 0.33 22,204.1 209.3 0.94 19,630.1 127.4 0.65
Time 7,520.6 95.0 1.26 8,115.7 147.6 1.82 5,901.4 88.7 1.50
Total deposits 48,216.9 187.2 0.39 39,142.7 356.9 0.91 33,601.3 216.1 0.64
Borrowings:
FHLB advances 1,371.2 13.7 1.00 2,098.0 50.1 2.39 2,653.6 54.5 2.05
Federal funds purchased 688.2 5.4 0.79 1,127.5 24.6 2.18 682.2 13.6 2.00
Customer repurchase
agreements 379.0 1.1 0.29 296.6 2.2 0.75 252.7 1.0 0.40
Other borrowings - - - 3.3 0.1 1.87 104.5 1.8 1.66
Total borrowings 2,438.4 20.2 0.83 3,525.4 77.0 2.18 3,693.0 70.9 1.92
Notes and debentures 1,009.5 31.8 3.15 922.1 34.9 3.78 889.8 33.3 3.75
Total funding liabilities 51,664.8 $ 239.2 0.46 % 43,590.2 $ 468.8 1.08 % 38,184.1 $ 320.3 0.84 %
Other liabilities 1,561.5 996.5 808.4
Total liabilities 53,226.3 44,586.7 38,992.5
Stockholders’ equity 7,811.8 7,071.3 6,037.2
Total liabilities and
stockholders’ equity $ 61,038.1 $ 51,658.0 $ 45,029.7
Net interest income/spread (2) $ 1,605.6 2.98 % $ 1,441.7 3.09 % $ 1,262.4 3.07 %
Net interest margin 2.99 % 3.14 % 3.12 %
(1)Average balances and yields for securities are based on amortized cost.
(2)The FTE adjustment was $29.8 million, $29.4 million and $26.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Volume and Rate Analysis
The following table shows the extent to which changes in interest rates and changes in the volume of average total earning assets and average interest-bearing liabilities have affected People’s United net interest income. For each category of earning assets and interest-bearing liabilities, information is provided relating to: (i) changes in volume (changes in average balances multiplied by the prior year’s average interest rates); (ii) changes in rates (changes in average interest rates multiplied by the prior year’s average balances); and (iii) the total change. Changes attributable to both volume and rate have been allocated proportionately.
2020 Compared to 2019
Increase (Decrease)
2019 Compared to 2018
Increase (Decrease)
(in millions) Volume Rate Total Volume Rate Total
Interest and dividend income:
Short-term investments $ 5.6 $ (7.0) $ (1.4) $ (0.9) $ 0.7 $ (0.2)
Securities 25.2 (14.7) 10.5 (3.5) 7.8 4.3
Loans:
Commercial real estate 64.7 (132.5) (67.8) 64.0 29.0 93.0
Commercial and industrial 139.2 (142.5) (3.3) 57.3 21.6 78.9
Equipment financing 17.5 (8.0) 9.5 29.2 12.3 41.5
Residential mortgage 8.9 (5.5) 3.4 74.3 18.5 92.8
Home equity and other consumer 10.3 (26.9) (16.6) 8.3 9.2 17.5
Total loans 240.6 (315.4) (74.8) 233.1 90.6 323.7
Total change in interest and dividend income
271.4 (337.1) (65.7) 228.7 99.1 327.8
Interest expense:
Deposits:
Savings, interest-bearing checking and money market
43.4 (160.5) (117.1) 18.4 63.5 81.9
Time (10.2) (42.4) (52.6) 37.8 21.1 58.9
Total deposits 33.2 (202.9) (169.7) 56.2 84.6 140.8
Borrowings:
FHLB advances (13.6) (22.8) (36.4) (12.5) 8.1 (4.4)
Federal funds purchased (7.3) (11.9) (19.2) 9.6 1.4 11.0
Customer repurchase agreements 0.5 (1.6) (1.1) 0.2 1.0 1.2
Other borrowings (0.1) - (0.1) (1.9) 0.2 (1.7)
Total borrowings (20.5) (36.3) (56.8) (4.6) 10.7 6.1
Notes and debentures 3.1 (6.2) (3.1) 1.2 0.4 1.6
Total change in interest expense
15.8 (245.4) (229.6) 52.8 95.7 148.5
Change in net interest income $ 255.6 $ (91.7) $ 163.9 $ 175.9 $ 3.4 $ 179.3
The following table provides the weighted-average yields earned and rates paid for each major category of earning assets and funding liabilities as of December 31, 2020:
(dollars in millions) Balance Yield/Rate
Earning assets:
Short-term investments $ 3,766.0 0.11 %
Securities 9,191.2 2.40
Loans 43,869.5 3.31
Total earning assets $ 56,826.7 2.95 %
Funding liabilities:
Non-interest-bearing deposits $ 15,881.7 - %
Interest-bearing deposits:
Money market 15,266.1 0.17
Interest-bearing checking 9,301.4 0.18
Savings 6,029.7 0.04
Time 5,658.8 0.92
Borrowings 1,147.6 0.28
Notes and debentures 1,009.6 3.97
Total funding liabilities $ 54,294.9 0.26 %
Non-Interest Income
Percentage
Increase (Decrease)
Years ended December 31 (dollars in millions) 2020 2019 2018 2020/2019
2019/2018
Bank service charges $ 97.5 $ 107.5 $ 99.9 (9.3) % 7.6 %
Investment management fees 73.2 78.2 81.5 (6.4) (4.0)
Commercial banking lending fees 50.9 42.7 37.3 19.2 14.5
Operating lease income 49.7 50.8 44.4 (2.2) 14.4
Insurance revenue 33.7 37.0 34.6 (8.9) 6.9
Cash management fees 33.4 28.4 27.1 17.6 4.8
Net security gains (losses) - 0.2 (9.8) n/m n/m
Gain on sale of business, net of expenses 75.9 - - n/m n/m
Other non-interest income:
Net gains on sales of loans 15.5 0.4 1.8 n/m (77.8)
Customer interest rate swap income, net 14.9 24.0 7.7 (37.9) 211.7
BOLI 12.7 10.7 7.2 18.7 48.6
Credit card fees 7.7 8.2 6.4 (6.1) 28.1
Net gains on sales of residential mortgage loans
held-for-sale 4.8 1.9 1.2 152.6 58.3
Other 22.8 41.1 27.1 (44.5) 51.7
Total other non-interest income 78.4 86.3 51.4 (9.2) 67.9
Total non-interest income $ 492.7 $ 431.1 $ 366.4 14.3 % 17.7 %
n/m - not meaningful
Total non-interest income in 2020 increased $61.6 million compared to 2019. Excluding the $75.9 million gain on the sale of PUIA in 2020 and the $7.6 million gain on the sale of branches in 2019, both of which are considered non-operating income, non-interest income decreased $6.7 million in 2020 compared to 2019. Increases in commercial banking lending fees and net gains on sales of loans were more than offset by decreases in bank service charges and other non-interest income.
The decrease in bank service charges in 2020 compared to 2019 primarily reflects the adverse impact from the lower level of customer activity resulting from the economic uncertainties brought about by COVID-19. The decreases in investment management fees in 2020 compared to 2019 primarily reflects the effect of market volatility during 2020. At
December 31, 2020, assets under discretionary management totaled $9.5 billion compared to $9.2 billion at December 31, 2019.
The increase in commercial banking lending fees in 2020 compared to 2019 is primarily related to the levels of prepayment income and loan syndication fees collected in the respective periods. The level of insurance revenue reflects the continued soft commercial insurance market. In November 2020, the Bank completed its sale of PUIA (see Note 2 to the Consolidated Financial Statements for a further discussion).
Net gains on sales of loans in 2020 include gains, net of expenses, totaling $16.9 million from the sale of consumer and commercial loans previously acquired in the United Financial acquisition. The decrease in net customer interest rate swap income in 2020 compared to 2019 reflects lower levels in both the number and notional value of swap transactions. On an FTE basis, BOLI income totaled $16.1 million in 2020, compared to $13.2 million in 2019. BOLI income includes death benefits received totaling $2.1 million and $2.2 million in 2020 and 2019, respectively.
The increase in net gains on sales of residential mortgage loans in 2020 compared to 2019 reflects improved spreads on pricing as well as a 15% increase in the volume of residential mortgage loans sold.
Other non-interest income in 2020 includes a $5.8 million charge relating to the write-down of a mortgage servicing right asset acquired in the United Financial acquisition. Included in other non-interest income in 2019 is a $7.6 million gain, net of expenses, on the sale of eight branches and a $3.3 million gain resulting from the sale-leaseback of a building.
Non-Interest Expense
Percentage
Increase (Decrease)
Years ended December 31 (dollars in millions) 2020 2019 2018 2020/2019
2019/2018
Compensation and benefits $ 674.8 $ 646.2 $ 562.9 4.4 % 14.8 %
Occupancy and equipment 199.0 185.9 168.2 7.0 10.5
Professional and outside services 113.2 98.2 77.6 15.3 26.5
Amortization of other acquisition-related intangible assets 40.8 32.5 21.8 25.5 49.1
Operating lease expense 36.4 38.8 36.4 (6.2) 6.6
Regulatory assessments 32.7 26.1 37.9 25.3 (31.1)
Goodwill impairment 353.0 - - 100.0 N/A
Other non-interest expense:
Stationary, printing, postage and telephone 26.0 26.6 24.7 (2.3) 7.7
Advertising and promotion 13.3 16.4 15.8 (18.9) 3.8
Other 74.9 92.0 50.8 (18.6) 81.1
Total other non-interest expense 114.2 135.0 91.3 (15.4) 47.9
Total non-interest expense $ 1,564.1 $ 1,162.7 $ 996.1 34.5 % 16.7 %
Efficiency ratio 54.2 % 55.8 % 57.4 %
Total non-interest expense increased $401.4 million in 2020 compared to 2019. Excluding non-operating expenses in both 2020 (goodwill impairment of $353.0 million and merger-related expenses totaling $45.9 million) and 2019
(merger-related and other expenses totaling $65.6 million), non-interest expense increased $68.1 million in 2020 compared to 2019.
The improvement in the efficiency ratio in 2020 compared to 2019 reflects increases in adjusted total revenues and adjusted total expenses (see Non-GAAP Financial Measures and Reconciliation to GAAP).
Compensation and benefits includes merger-related expenses totaling $1.5 million in 2020 and $11.2 million in 2019. Excluding such expenses, compensation and benefits increased $38.3 million, or 6.0%, in 2020 compared to 2019. The increase in 2020 compared to 2019 primarily reflects the incremental costs relating to recently completed acquisitions, as well as the effect of normal merit increases and higher incentive-related expenses.
The increase in occupancy and equipment expense in 2020 compared to and 2019 primarily reflects higher
equipment-related costs and the incremental costs resulting from acquisitions completed in 2019, partially offset by the benefits from consolidating branches and other office space over the past several years. In January 2021, the Bank announced its decision not to renew its agreements with Stop & Shop to operate 140 in-store branches in Connecticut and New York upon their expiration in 2020. Branch closures will take place over several years using a phased approach.
Professional and outside services fees include merger-related expenses totaling $20.9 million in 2020 and $15.1 million in 2019. Excluding such expenses, professional and outside services fees increased $9.2 million in 2020 compared to 2019, primarily resulting from higher levels of spending on projects and computer-related services. The decrease in operating lease expense in 2020 compared to 2019 primarily relates to the levels of equipment leased to equipment financing customers, while the decrease in advertising and promotion expense primarily reflects the timing of certain advertising campaigns.
Regulatory assessments include FDIC insurance premiums, which are based on the Bank’s average total assets and average tangible equity, and FDIC-defined risk factors. The actual amount of future regulatory assessments will be dependent on several factors, including: (i) the Bank’s average total assets and average tangible equity; (ii) the Bank’s risk profile; and (iii) whether additional special assessments are imposed in future periods and the manner in which such assessments are determined. The increase in regulatory assessments in 2020 compared to 2019 primarily reflects an increase in the Bank’s total assessment base resulting from recent acquisitions and organic growth.
The increases in amortization of other acquisition-related intangible assets expense in 2020 compared to 2019 reflects the effect of additional intangible assets resulting from the acquisitions completed during 2019. Scheduled amortization expense attributable to other acquisition-related intangible assets for each of the next five years is as follows: $35.5 million in 2021; $31.0 million in 2022; $23.3 million in 2023; $19.6 million in 2024; and $16.8 million in 2025.
Goodwill is evaluated for impairment as of the annual measurement date or more frequently if a triggering event indicates that it is more likely than not that an impairment loss has been incurred. People’s United performed a quantitative assessment of goodwill impairment as of October 1, 2020 (its annual measurement date). A quantitative assessment includes determining the estimated fair value of each reporting unit, utilizing a combination of the discounted cash flow method of the income approach and the guideline public company method of the market approach, and comparing that fair value to each reporting unit’s carrying amount. Based on the quantitative assessment performed as of October 1, 2020, People’s United recognized a non-cash goodwill impairment charge totaling $353.0 million (representing 12% of total goodwill) associated with the Retail Banking reporting unit (see Note 8 to the Consolidated Financial Statements for a further discussion).
Included in other non-interest expense are merger-related costs totaling $20.8 million and $13.7 million in 2020 and 2019, respectively. Also included in other non-interest expense in 2019 is a $16.5 million charge (considered a non-operating expense) associated with the complete write-down of an acquisition-related intangible asset stemming from the liquidation of the Company’s public mutual funds.
Income Taxes
Income tax expense totaled $129.0 million and $132.0 million for the years ended December 31, 2020 and 2019, respectively. People’s United’s effective income tax rate was 37.0% and 20.2% for the respective years. Income tax expense in each year includes $14.8 million and $12.7 million, respectively, of federal income tax credits, which relate, primarily, to an increase in tax-advantaged investments. People’s United’s effective income tax rate for 2021 is expected to be approximately 21%.
Differences, if any, arising between People’s United’s effective income tax rate and the U.S. federal statutory rate of
21% are generally attributable to: (i) tax-exempt interest earned on certain investments; (ii) tax-exempt income from BOLI; and (iii) state income taxes. The effective income tax rate in 2020 reflects the impact of a non-deductible goodwill impairment charge for which no tax benefit was realized (see Note 8 to the Consolidated Financial Statements for a further discussion). Excluding non-deductible goodwill impairment, the effective income tax rate was 18.4% for 2020.
People’s United holds ownership interests in limited partnerships formed to develop and operate affordable housing units for lower income tenants throughout its franchise area. The underlying partnerships, which are considered variable interest entities, are not consolidated into the Company’s Consolidated Financial Statements. These investments have historically played a role in enabling the Bank to meet its CRA requirements while, at the same time, providing tax benefits, including federal income tax credits. The cost of the Company’s 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 $31.4 million and $25.0 million for the years ended December 31, 2020 and 2019, respectively.
Income tax expense in both 2020 and 2019 reflects the state tax benefit resulting from the formation of People’s Mortgage Investment Company, a wholly owned subsidiary of the Bank. The formation of this subsidiary was a result of Connecticut tax legislation, which became effective on January 1, 1999, that allows for the transfer of mortgage loans to a passive investment subsidiary. The related earnings of the subsidiary, and any dividends it pays to the parent, are not subject to Connecticut income tax.
See Notes 1 and 14 to the Consolidated Financial Statements for additional information concerning income tax expense.
Securities
2020 2019 2018
As of December 31 (in millions) Amortized
Cost Fair Value Amortized
Cost Fair Value Amortized
Cost Fair Value
Debt securities
held-to-maturity:
State and municipal $ 2,824.3 $ 3,060.2 $ 2,503.9 $ 2,645.5 $ 2,352.4 $ 2,369.4
GSE mortgage-backed
securities
1,079.9 1,116.3 1,271.4 1,279.1 1,367.5 1,334.3
Corporate 89.7 89.0 92.4 93.9 70.9 70.7
Other 1.5 1.5 1.5 1.5 1.5 1.5
Total debt securities
held-to-maturity
$ 3,995.4 $ 4,267.0 $ 3,869.2 $ 4,020.0 $ 3,792.3 $ 3,775.9
Debt securities
available-for-sale:
U.S. Treasury and agency $ 529.8 $ 541.6 $ 689.5 $ 687.1 $ 699.0 $ 678.0
GSE mortgage-backed
and CMO (1) securities
4,274.7 4,383.9 2,856.3 2,877.2 2,486.6 2,443.0
Total debt securities
available-for-sale
$ 4,804.5 $ 4,925.5 $ 3,545.8 $ 3,564.3 $ 3,185.6 $ 3,121.0
(1)Collateralized Mortgage Obligation
People’s United strives to maintain an appropriate balance between loan portfolio growth and deposit funding. The Company’s management believes that a large debt securities portfolio funded with wholesale borrowings provides limited economic value and therefore, at December 31, 2020, the debt securities portfolio only comprised 14% of total assets.
People’s United has historically utilized the debt securities portfolio for earnings generation (in the form of interest and dividend income), liquidity, IRR management, asset diversification and tax planning. Debt securities available-for-sale are used as part of People’s United’s asset/liability management strategy and may be sold in response to, or in anticipation of, factors such as changes in market conditions and interest rates, changes in security prepayment rates, liquidity considerations and regulatory capital requirements.
The Company primarily invests in debt securities rated in the highest categories assigned by nationally recognized statistical ratings organizations (“NRSRO”) and all credit risk undergoes an internal creditworthiness assessment separate from NRSRO ratings. Management has internal guidelines for the credit quality and duration of People’s United’s debt securities portfolio and monitors these on a regular basis.
At December 31, 2020, the fair value of People’s United’s debt securities available-for-sale portfolio totaled $4.93 billion, or 8% of total assets, compared to $3.56 billion, or 6% of total assets, at December 31, 2019. The $1.36 billion increase in fair value in 2020 compared to 2019 primarily reflects net purchases of GSE mortgage-backed securities and a $102.5 million increase in the unrealized gain on debt securities available-for-sale in 2020. At December 31, 2020 and 2019, the fair value of the debt securities available-for-sale portfolio exceeded the amortized cost by $121.0 million and $18.5 million, respectively. The increase in investment grade state and municipal securities in both 2020 and 2019 reflects the Company’s continued investment in such securities based on their value relative to other securities of comparable duration, yield and credit risk.
With respect to debt securities available-for-sale, all unrealized gains and those unrealized losses representing temporary declines in value due to factors other than credit are recorded in stockholders’ equity, net of income taxes, as a component of accumulated comprehensive income (loss). As a result, management anticipates continued fluctuations in stockholders’ equity due to changes in the fair value of such debt securities, albeit on a relatively modest scale due to the duration of the portfolio. The duration of the entire debt securities portfolio was approximately 4.1 years at both December 31, 2020 and 2019.
In addition to the debt securities held-to-maturity and available-for-sale discussed above, the Bank holds shares of capital stock in the FRB-NY (total cost of $228.4 million at December 31, 2020) and the FHLB of Boston (total cost of $38.2 million at December 31, 2020). Dividend income on FRB-NY capital stock totaled $2.0 million and $3.8 million for the years ended December 31, 2020 and 2019, respectively. Dividend income on FHLB capital stock totaled $4.8 million and $7.0 million for the years ended December 31, 2020 and 2019, respectively.
In connection with the Company’s adoption of the CECL standard on January 1, 2020, selected accounting policies related to securities have been revised and/or certain accounting policy elections have been made. See Notes 1 and 4 to the Consolidated Financial Statements for additional information concerning securities.
Lending Activities
As a result of adopting the CECL standard on January 1, 2020, the Company’s prior distinction between the originated loan portfolio and the acquired loan portfolio is no longer necessary. Accordingly, prior period disclosures have been revised to conform to the current period presentation.
People’s United conducts its lending activities principally through its Commercial Banking and Retail Banking operating segments. The Company’s lending activities consist of originating loans secured by commercial and residential properties, and extending secured and unsecured loans to commercial and consumer customers.
In 2020, total loans increased $273 million compared to 2019 and increased $8.4 billion in 2019 compared to 2018.
At the respective acquisition dates in 2019, the fair values of BSB Bancorp’s and United Financial’s loans were $2.64 billion and $5.54 billion, respectively. Loans held-for-sale at December 31, 2020 and 2019 consisted of newly-originated residential mortgage loans with carrying amounts of $26.5 million and $19.7 million, respectively. At December 31, 2019, loans
held-for-sale also included $333.7 million of consumer loans and $157.9 million of commercial loans previously acquired in the United Financial acquisition, all of which were subsequently sold by the end of February 2020.
The following table summarizes the loan portfolio before deducting the ACL on loans:
As of December 31 (in millions) 2020 2019 2018 2017 2016
Commercial:
Commercial real estate (1) $ 13,336.9 $ 14,762.3 $ 11,649.6 $ 11,068.7 $ 10,247.3
Commercial and industrial (1) 10,764.1 8,693.2 7,504.0 6,967.6 6,348.1
Equipment financing 4,930.0 4,910.4 4,339.2 3,905.4 3,032.5
MW/ABL (2) 4,218.2 2,348.4 1,584.9 1,763.5 1,777.0
Total Commercial Portfolio
33,249.2 30,714.3 25,077.7 23,705.2 21,404.9
Retail:
Residential mortgage:
Adjustable-rate 5,517.3 7,064.8 6,662.0 5,926.6 5,549.1
Fixed-rate 3,001.6 3,253.3 1,492.2 879.1 667.6
Total residential mortgage
8,518.9 10,318.1 8,154.2 6,805.7 6,216.7
Home equity and other consumer:
Home equity 1,997.2 2,406.5 1,962.5 2,015.2 2,072.6
Other consumer 104.2 157.2 47.0 49.2 50.7
Total home equity and other consumer
2,101.4 2,563.7 2,009.5 2,064.4 2,123.3
Total Retail Portfolio
10,620.3 12,881.8 10,163.7 8,870.1 8,340.0
Total loans $ 43,869.5 $ 43,596.1 $ 35,241.4 $ 32,575.3 $ 29,744.9
(1)In connection with the United Bank core system conversion in April 2020, approximately $400 million of loans secured by owner-occupied commercial properties were prospectively at that time reclassified from commercial real estate loans to commercial and industrial loans. Loan balances for 2019 were not restated to conform to the current period presentation.
(2)Mortgage warehouse lending/asset based lending
People’s United’s loan portfolio is primarily concentrated within New England and New York. At December 31, 2020 and 2019, 55% and 58% of the total loan portfolio represented loans to customers located within the New England states, respectively. Loans to customers located in New York represented 18% of the total loan portfolio at both dates.
Total Loans
As of December 31 (dollars in billions)
Contractual Maturity and Interest Rate Sensitivity
The following table presents the contractual maturity of People’s United’s loan portfolio as of December 31, 2020:
(in millions) One Year
or Less After One
Year Through
Five Years After
Five Years Total Due
After
One Year Total
Contractual maturity:
Commercial $ 6,150.2 $ 16,080.9 $ 11,018.1 $ 27,099.0 $ 33,249.2
Retail 72.9 203.9 10,343.5 10,547.4 10,620.3
Total $ 6,223.1 $ 16,284.8 $ 21,361.6 $ 37,646.4 $ 43,869.5
The following table presents, as of December 31, 2020, loan amounts due after December 31, 2021, and whether these loans have adjustable or fixed interest rates:
Interest Rate
(in millions) Adjustable Fixed Total
Commercial $ 15,078.3 $ 12,020.7 $ 27,099.0
Retail 7,107.0 3,440.4 10,547.4
Total loans due after one year $ 22,185.3 $ 15,461.1 $ 37,646.4
The following tables set forth the contractual maturity (based on final payment date) and interest rate sensitivity (based on next repricing date) of People’s United’s commercial and industrial loans (including MW/ABL) and construction loans:
As of December 31, 2020 (in millions)
One Year
or Less After One
Year Through
Five Years After
Five Years Total
Contractual maturity:
Commercial and industrial loans $ 4,653.4 $ 6,950.3 $ 3,378.6 $ 14,982.3
Construction loans:
Commercial real estate 387.2 324.0 323.4 1,034.6
Residential mortgage 12.5 32.3 - 44.8
Total $ 5,053.1 $ 7,306.6 $ 3,702.0 $ 16,061.7
As of December 31, 2020 (in millions)
One Year
or Less After One
Year Through
Five Years After
Five Years Total
Interest rate sensitivity:
Variable rates $ 10,851.5 $ 552.1 $ 103.3 $ 11,506.9
Fixed rates 92.0 3,182.2 1,280.6 4,554.8
Total $ 10,943.5 $ 3,734.3 $ 1,383.9 $ 16,061.7
Commercial Portfolio
The commercial lending businesses include commercial real estate, commercial and industrial lending (including MW/ABL), and equipment financing.
Commercial Real Estate
People’s United manages the commercial real estate portfolio by limiting the concentration in any particular loan type, term, industry, or to any individual borrower. People’s United’s highest loan concentration in the commercial real estate loan portfolio is in the residential (multifamily) sector, which represented 32% of this loan portfolio at December 31, 2020 and
35% at December 31, 2019.
As of December 31 (in millions) 2020 2019
Property Type:
Residential (multifamily) $ 4,231.4 $ 5,140.2
Retail 3,579.3 3,843.8
Office buildings 2,366.7 2,689.6
Hospitality/entertainment 980.4 948.4
Industrial/manufacturing 840.3 784.2
Health care 560.7 561.3
Mixed/special use 353.2 287.2
Self storage 198.7 209.8
Land 79.3 73.8
Other 146.9 224.0
Total commercial real estate $ 13,336.9 $ 14,762.3
Commercial Real Estate Portfolio
As of December 31 (dollars in billions)
The disruption in economic activity throughout 2020 caused by the COVID-19 pandemic was the primary reason behind a $1.4 billion decrease in this portfolio compared to 2019. In addition, expected run-off totaling $224 million in the transactional portion of the New York multifamily portfolio and run-off in the acquired portfolio negatively impacted balances in 2020. Included in the commercial real estate portfolio are construction loans totaling $1.0 billion at both December 31, 2020 and 2019, net of the unadvanced portion of such loan totaling $447 million and $724 million, respectively.
At December 31, 2020 and 2019, 26% and 29%, respectively, of People’s United’s commercial real estate portfolio was secured by properties located in New York. At both December 31, 2020 and 2019, 23% were secured by properties located in Connecticut. In addition, 32% and 31% of the commercial real estate portfolio was secured by properties located in Massachusetts, Vermont and New Hampshire at December 31, 2020 and 2019, respectively. No other state exposure was greater than 5% at both December 31, 2020 and 2019.
Commercial real estate is dependent on the successful operation of the related income-producing real estate. Accordingly, the income streams generated by this portfolio can be impacted by changes in the real estate market and, to a large extent, the New England and southeastern New York economies. People’s United continues to focus on maintaining strong asset quality standards in a competitive market generally characterized by aggressive pricing and less attractive underwriting terms. The growth and performance of this portfolio is largely dependent on the economic environment and may be adversely impacted if the economy weakens in the future.
Commercial Real Estate Diversification by Property Type
As of December 31, 2020 (percent)
Commercial and Industrial (including MW/ABL)
People’s United provides diversified products and services to its commercial customers, including short-term working capital credit facilities, term financing, asset-based loans, letters of credit, cash management services and commercial deposit accounts.
As of December 31 (in millions) 2020 2019
Industry:
Finance and insurance $ 4,485.5 $ 2,521.8
Service 2,688.4 1,975.0
Health services 1,489.6 960.1
Manufacturing 1,384.7 1,175.1
Wholesale trade 1,223.4 1,286.6
Real estate, rental and leasing 1,152.1 1,131.0
Retail trade 851.3 694.0
Construction 533.6 314.3
Transportation and utilities 450.4 384.3
Arts, entertainment and recreation 236.2 159.3
Information and media 165.7 141.8
Printing 79.0 91.0
Packaging 58.5 65.5
Public administration 49.9 64.6
Other 134.0 77.2
Total commercial and industrial $ 14,982.3 $ 11,041.6
Commercial and Industrial Portfolio
As of December 31 (dollars in billions)
Commercial products are generally packaged together to create a financing solution specifically tailored to the needs of the customer. Taking a total relationship-focused approach with commercial customers to meet their financing needs has resulted in substantial growth in non-interest-bearing deposits over time, as well as in opportunities to provide other banking services to principals and employees of these commercial customers.
The borrower’s ability to repay a commercial loan is closely tied to the ongoing profitability and cash flow of the borrower’s business. Consequently, a commercial loan tends to be more directly impacted by changes in economic cycles that affect businesses generally and the borrower’s business specifically. The availability of adequate collateral is a factor in commercial loan decisions and loans are generally collateralized and/or guaranteed by third parties.
In 2020, the commercial and industrial portfolio increased $3.9 billion compared to 2019, reflecting PPP loans totaling $2.3 billion and a $1.9 billion increase in the mortgage warehouse portfolio, partially offset by the adverse effect the COVID-19 pandemic had on loan demand.
At December 31, 2020 and 2019, the commercial and industrial portfolio included $771 million and $767 million, respectively, of asset-based lending loans to companies with annual sales between $15 million and $500 million, of which 70% and 68% were to companies located within the Company’s geographic footprint at December 31, 2020 and 2019, respectively. Targeted industries include wholesale and distribution, manufacturing, food distribution and processing, transportation, and retail and business services. Credit facilities include revolving and working capital lines of credit, machinery and equipment term loans and lines of credit, owner-occupied real estate mortgage loans and stretch term loans for qualified customers.
The commercial and industrial portfolio also included $3.4 billion of mortgage warehouse loans at December 31, 2020, compared to $1.5 billion at December 31, 2019. Such loans represent lines of credit extended to a loan originator to fund a mortgage that a borrower initially used to purchase a property. The extension of credit generally lasts from the loan’s point of origination to the point when the mortgage is sold into the secondary market. At December 31, 2020 and 2019, 16% and 12%, respectively, of the mortgage warehouse loans were to customers located within the Company’s footprint.
At December 31, 2020 and 2019, 21% and 20%, respectively, of the commercial and industrial loan portfolio consisted of loans to Connecticut-based businesses. Commercial and industrial loan exposure in the states of Vermont, Massachusetts and New Hampshire totaled a combined 27% and 31% at December 31, 2020 and 2019, respectively. Commercial and industrial loan exposure in the state of New York totaled 18% at both dates. No other state exposure was greater than 6%. While People’s United continues to focus on asset quality, the performance of the commercial lending and industrial portfolio may be adversely impacted if the economy weakens in the future.
Included in commercial and industrial loans at December 31, 2020 are PPP loans totaling $2.3 billion (including
$720 million in Service, $374 million in Health services, $310 million in Manufacturing, $266 million in Construction and $156 million in Retail trade) and associated deferred loan fees totaling $45.9 million.
Commercial and Industrial Diversification by Industry
As of December 31, 2020 (percent)
Equipment Financing
People’s Financial has three equipment financing businesses - PCLC, PUEFC and LEAF. The three companies have different business models and go-to-market strategies, and are viewed in the marketplace as separate companies.
•PCLC is an equipment finance company specializing in financing for the transportation, equipment rental, construction, manufacturing, printing, packaging and service industries in all 50 states. PCLC assists companies in acquiring new and used equipment and/or refinancing existing equipment.
•PUEFC is a secured equipment finance company with a focus on the construction, equipment rental, road transportation and waste industries nationwide.
•LEAF maintains a nationwide origination footprint working with manufacturers, distributors, dealers and end-users of essential use equipment and software in a variety of industries including industrial, manufacturing, light construction, office products and medical.
Substantially the entire equipment financing portfolio (94% and 95% at December 31, 2020 and 2019, respectively) was to customers located outside of New England. At December 31, 2020, 29% of the equipment financing portfolio consisted of loans to customers located in Texas, California and New York, and no other state exposure was greater than 7%.
As of December 31 (in millions) 2020 2019
Industry:
Transportation and utilities $ 1,122.8 $ 1,213.3
Construction 716.7 689.9
Service 713.1 694.2
Rental and leasing 500.3 580.2
Manufacturing 416.6 306.4
Health services 268.8 219.4
Wholesale trade 263.3 256.8
Waste management 198.9 196.8
Printing 178.7 191.8
Retail trade 142.3 121.3
Packaging 118.7 114.3
Mining, oil and gas 67.4 74.7
Other 222.4 251.3
Total equipment financing $ 4,930.0 $ 4,910.4
Equipment Financing Portfolio
As of December 31 (dollars in billions)
The equipment financing portfolio increased $20 million in 2020 compared to 2019, primarily reflecting growth in LEAF’s portfolio. Operating on a national scale, equipment financing represented 15% and 16% of the total Commercial portfolio at December 31, 2020 and 2019, respectively. While People’s United continues to focus on asset quality, the performance of the equipment financing portfolio may be adversely impacted if the national economy weakens in the future.
Equipment Financing Diversification by Industry
As of December 31, 2020 (percent)
Retail Portfolio
Residential Mortgage Lending
People’s United offers its customers a wide range of residential mortgage loan products. These include conventional fixed-rate loans, jumbo fixed-rate loans (loans with principal balances greater than established Freddie Mac and Fannie Mae limits), adjustable-rate loans, sometimes referred to as “ARM” loans, interest-only loans (loans where payments made by the borrower consist of only interest for a set period of time, before the payments change to principal and interest), as well as Federal Housing Administration insured loans and various state housing finance authority loans. People’s United originates these loans through its network of retail branches and calling officers, as well as correspondent lenders and mortgage brokers.
At both December 31, 2020 and 2019, 81% of the residential mortgage loan portfolio was secured by properties located in New England and 11% and 10%, respectively, at these dates, was secured by properties located in New York. At December 31, 2020 and 2019, the residential mortgage loan portfolio included $866 million and $1.1 billion, respectively of interest-only loans. See Asset Quality for further discussion of interest-only loans. Also included in residential mortgage loans at December 31, 2020 and 2019 are construction loans totaling $45 million and $41 million, respectively.
People’s United’s residential mortgage loan originations totaled $1.3 billion in 2020 and $1.1 billion in 2019. The mix and volume of residential mortgage loan originations vary in response to changes in market interest rates, customer preferences and the level of refinancing activity. ARM loans accounted for 50% of total residential mortgage originations in 2020 compared to 52% in 2019.
Residential Mortgage Originations
Years ended December 31 (dollars in millions)
In 2020, ARM loans decreased $1.5 billion and fixed-rate residential mortgage loans decreased $252 million, both as compared to 2019, primarily reflecting People’s United’s decision to remix the balance sheet with a focus on higher-yielding loan portfolios.
Residential Mortgage Originations by Product
Year ended December 31, 2020 (percent)
People’s United’s loan loss experience within the residential mortgage portfolio continues to be primarily attributable to a small number of loans. The continued performance of the residential mortgage loan portfolio in the future may be adversely impacted by the level and direction of interest rates, consumer preferences and the regional economy.
Home Equity and Other Consumer Lending
People’s United offers home equity lines of credit (“HELOCs”) and home equity loans, and to a lesser extent, other forms of installment and revolving credit loans. At December 31, 2020, 78% of the consumer loan portfolio was to customers located within the New England states. Future growth of People’s United’s home equity and other consumer loan portfolio is highly dependent upon economic conditions, the interest rate environment and competitors’ strategies.
As of December 31 (in millions) 2020 2019
HELOCs $ 1,814.1 $ 2,153.2
Home equity loans 183.1 253.3
Other 104.2 157.2
Total home equity and other consumer $ 2,101.4 $ 2,563.7
Asset Quality
CARES Act
Issued in response to the economic disruption caused by the COVID-19 pandemic, the CARES Act provides financial assistance for businesses and individuals as well as targeted regulatory relief for financial institutions. The following provisions of the CARES Act are significant to People’s United.
Paycheck Protection Program
The CARES Act created a new loan guarantee program known as the PPP, the objective of which is to provide small businesses with financial support to cover payroll and certain other qualifying expenses. Loans made under the PPP are fully guaranteed by the SBA, whose guarantee is backed by the full faith and credit of the United States. PPP loans also afford borrowers forgiveness up to the principal amount of the loan, plus accrued interest, provided the loan proceeds are used to retain workers and maintain payroll or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness. As of February 22, 2021, People’s United, as a participating PPP lender, had approved, submitted to the SBA and funded PPP loan requests totaling approximately $3.3 billion, of which approximately $2.6 billion remains outstanding. For regulatory capital purposes, PPP loans are assigned a zero risk-weighting as a result of the related SBA guarantee.
Loan Forbearance Initiatives
The CARES Act, along with supervisory guidance issued by the federal banking regulators, also created a forbearance program for federally-backed mortgage loans and provides financial institutions with the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (“TDRs”). Specifically, short-term modifications made on a good faith basis in response to COVID-19 to borrowers that are current prior to any relief, are not required to be considered for TDR classification. This includes short-term (e.g. six months or less) modifications such as payment deferrals, fee waivers, extensions of repayment terms or other delays in payment that are insignificant. This exception relates to any eligible loan modification made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the national emergency related to COVID-19 is ended. In December 2020, the signing of the Consolidated Appropriations Act, 2021 extended this guidance to modifications made until the earlier of January 1, 2022 or 60 days after the end of the COVID-19 national emergency. Further, for loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. The Company applied this guidance in 2020 however, its policies and practices with respect to the assessment of loan repayment, non-accrual status and charge-offs remain unchanged.
As of February 22, 2021, the Company had granted loan forbearance requests representing approximately $7.5 billion of outstanding balances across nearly all of the Company’s loan portfolios, with the most significant activity noted in commercial real estate, commercial and industrial, and equipment financing. Of the loans that were granted a deferral related to COVID-19, approximately 92% have left deferral and made their first full payment. We anticipate that this percentage will increase as the remainder of these loans exit their first deferral.
The CARES Act also prohibits servicers of federally-backed mortgage loans from initiating any foreclosure action on any residential property that is not vacant or abandoned for a period of 60 days, beginning on March 18, 2020. In addition to these federal measures, some state governments have taken action to require forbearance with respect to certain loans and fees. The Company continues to monitor both federal and state regulatory developments in relation to COVID-19 and their potential impact on our operations.
General
As a result of adopting the CECL standard on January 1, 2020, the Company’s prior distinction between the originated loan portfolio and the acquired loan portfolio is no longer necessary. Accordingly, prior period disclosures have been revised to conform to the current period presentation. In addition, the portfolio segments and loan classes are unchanged following the adoption of the CECL standard with the exception of MW/ABL which, prior to January 1, 2020, was included in commercial and industrial.
While People’s United continues to adhere to prudent underwriting standards, the loan portfolio is not immune to potential negative consequences arising as a result of general economic weakness and, in particular, a prolonged downturn in the housing market on a national scale. Decreases in real estate values could adversely affect the value of property used as collateral for loans. In addition, adverse changes in the economy could have a negative effect on the ability of borrowers to make scheduled loan payments, which would likely have an adverse impact on earnings. Further, an increase in loan delinquencies may serve to decrease interest income and adversely impact loan loss experience, resulting in an increased provision and ACL.
People’s United actively manages asset quality through its underwriting practices and collection operations. Underwriting practices tend to focus on optimizing the return of a given risk classification while collection operations focus on minimizing losses once an account becomes delinquent. People’s United attempts to minimize losses associated with commercial loans by requiring borrowers to pledge adequate collateral and/or provide for third-party guarantees. Loss mitigation within the residential mortgage loan portfolio is highly dependent on the value of the underlying real estate.
Certain loans whose terms have been modified are considered TDRs. Loans are considered TDRs if the borrower is experiencing financial difficulty and is afforded a concession by People’s 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 loan’s 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.
Guidance issued by the OCC requires that loans subject to a borrower’s discharge from personal liability following a Chapter 7 bankruptcy be treated as TDRs, included in non-accrual loans and written down to the estimated collateral value, regardless of delinquency status. Included in TDRs at December 31, 2020 are $38.4 million of such loans. Of this amount, $30.2 million, or 79%, were less than 90 days past due on their payments as of that date.
TDRs may either be accruing or placed on non-accrual status (and reported as non-accrual loans) depending upon the loan’s 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.
During 2020, we performed 61 loan modifications that were not classified as TDRs. The balances of the loans at the time of the respective modifications totaled $247.7 million. In each case, we concluded that the modification did not result in the granting of a concession based on one or more of the following considerations: (i) the receipt of additional collateral (the nature and amount of which was deemed to serve as adequate compensation for other terms of the restructuring) and/or guarantees; (ii) the borrower having access to funds at a market rate for debt with similar risk characteristics as the restructured debt; and (iii) the restructuring resulting in a delay in payment that is insignificant in relation to the other terms of the obligation. See Note 5 to the Consolidated Financial Statements and Loan Forbearance Initiatives above for additional disclosures relating to TDRs.
Portfolio Risk Elements-Residential Mortgage Lending
People’s United does not actively engage in subprime mortgage lending that has, historically, been the riskiest sector of the residential housing market. People’s United has virtually no exposure to subprime loans, or to similarly high-risk Alt-A loans and structured investment vehicles. While no standard definition of “subprime” exists within the industry, the Company has generally defined subprime as borrowers with credit scores of 660 or less, either at or subsequent to origination.
At December 31, 2020, the loan portfolio included $866.4 million of interest-only residential mortgage loans. People’s United began originating interest-only residential mortgage loans in March 2003. The underwriting guidelines and requirements for such loans are generally more restrictive than those applied to other types of residential mortgage loans. People’s United has not originated interest-only residential mortgage loans that permit negative amortization or optional payment amounts. Amortization of an interest-only residential mortgage loan begins after the initial interest rate changes (e.g. after 5 years for a 5/1 ARM loan). In general, People’s United’s underwriting guidelines for residential mortgage loans require the following: (i) properties must be single-family and owner-occupied primary residences; (ii) lower loan-to-value (“LTV”) ratios (less than 60% on average); (iii) higher credit scores (greater than 700 on average); and (iv) sufficient post-closing reserves.
Updated estimates of property values are obtained from an independent third-party for residential mortgage loans 90 days past due. At December 31, 2020, non-accrual residential mortgage loans totaling $0.2 million had current LTV ratios of more than 100%. At that date, the weighted average LTV ratio and FICO score for the residential mortgage loan portfolio were
62% and 762, respectively.
The Company continues to monitor its foreclosure policies and procedures to ensure ongoing compliance with applicable industry standards. We believe that our established procedures for reviewing foreclosure affidavits and validating information contained in related loan documentation are sound and consistently applied, and that our foreclosure affidavits are accurate. As a result, People’s United has not found it necessary to interrupt or suspend foreclosure proceedings. We have also considered the effect of representations and warranties that we made to third-party investors in connection with whole loan sales, and believe our representations and warranties were true and correct and do not expose the Company to any material loss.
During 2020, the Company repurchased six residential mortgage loans from GSEs that we had previously sold to the GSEs. The balance of the loans at the time of the repurchase totaled $0.8 million and related fees and expenses incurred totaled less than $0.1 million. During that same time period, the Company issued 26 investor refunds, totaling $0.1 million, under contractual recourse agreements. Based on the limited number of repurchase requests the Company has historically received, the immaterial cost associated with such repurchase requests and management’s view that this past experience is consistent with our current and near-term estimate of such exposure, the Company has established a reserve for such repurchase requests, which totaled $0.2 million at December 31, 2020.
The aforementioned foreclosure issues and the potential for additional legal and regulatory action could impact future foreclosure activities, including lengthening the time required for residential mortgage lenders, including the Bank, to initiate and complete the foreclosure process. In recent years, foreclosure timelines have increased as a result of, among other reasons: (i) delays associated with the significant increase in the number of foreclosure cases as a result of current economic conditions; (ii) additional consumer protection initiatives related to the foreclosure process; and (iii) voluntary and/or mandatory programs intended to permit or require lenders to consider loan modifications or other alternatives to foreclosure. Further increases in the foreclosure timeline may have an adverse effect on collateral values and our ability to minimize losses.
Portfolio Risk Elements-Home Equity Lending
The majority of our HELOCs have an initial draw period of 91/2 years followed by a 20-year repayment phase. During the initial draw period, interest-only payments are required, after which the disbursed balance is fully amortized over a 20-year repayment term. HELOCs carry variable rates indexed to the Prime Rate with a lifetime interest rate ceiling and floor, and are secured by first or second liens on the borrower’s primary residence. The rate used to qualify borrowers is the Prime Rate plus 3.00%, even though the initial rate may be substantially lower. The maximum LTV ratio is 80% on a single-family property, including a condominium, and 70% on a two-family property. Lower LTV ratios are required on larger line amounts. The minimum FICO credit score is 680. The borrower has the ability to convert the entire balance or a portion of the balance to a fixed-rate term loan during the draw period. There is a limit of three term loans that must be fully amortized over a term not to exceed the original HELOC maturity date.
A smaller portion of our HELOC portfolio has an initial draw period of 10 years with a variable-rate interest-only payment, after which there is a 5-year amortization period. An additional small portion of our HELOC portfolio has a 5-year draw period which, at our discretion, may be renewed for an additional 5-year interest-only draw period.
The following table sets forth, as of December 31, 2020, the committed amount of HELOCs scheduled to have the draw period end during the years shown:
December 31, (in millions) Credit Lines
2020 $ 227.4
2021 399.3
2022 422.1
2023 465.1
2024 464.9
Later years 2,195.6
Total $ 4,174.4
Approximately 88% of our HELOCs are presently in their draw period. Although converted amortizing payment loans represent only a small portion of the portfolio, our default and delinquency statistics indicate a higher level of occurrence for such loans when compared to HELOCs that are still in the draw period.
Delinquency statistics for the HELOC portfolio as of December 31, 2020 are as follows:
Portfolio
Balance Delinquencies
(dollars in millions) Amount Percent
HELOC status:
Still in draw period $ 1,787.9 $ 13.8 0.87 %
Amortizing payment 209.3 12.5 5.99
For the three months ended December 31, 2020, 53% of our borrowers with balances outstanding under HELOCs paid only the minimum amount due.
The majority of home equity loans fully amortize over terms ranging from 5 to 20 years. Home equity loans are limited to first or second liens on a borrower’s primary residence. The maximum LTV ratio is 80% on a single-family property, including a condominium, and 70% on a two-family property. Lower LTV ratios are required on larger line amounts.
We are not able, at this time, to develop statistics for the entire home equity portfolio (both HELOCs and home equity loans) with respect to first liens serviced by third parties that have priority over our junior liens, as lien position data has not historically been captured on our loan servicing systems. As of December 31, 2020, full and complete first lien position data was not readily available for 36% of the home equity portfolio. Effective January 2011, we began tracking lien position data for all new originations and our collections department continues to add lien position data once a loan reaches 75 days past due in connection with our updated assessment of combined loan-to-value (“CLTV”) exposure, which takes place for loans 90 days past due. In addition, when we are notified that the holder of a superior lien has commenced a foreclosure action, our home equity account is identified in the collections system for ongoing monitoring of the legal action. As of December 31, 2020, the portion of the home equity portfolio more than 90 days past due with a CLTV greater than 80% was $3.1 million.
As of December 31, 2020, full and complete first lien position data was readily available for 64%, or $1.2 billion, of the home equity portfolio. Of that total, 40%, or $470.5 million, are in a junior lien position. We estimate that of those junior liens, 35%, or $164.7 million, are held or serviced by others.
When the first lien is held by a third party, we can, in some cases, obtain an indication that a first lien is in default through information reported to credit bureaus. However, because more than one mortgage may be reported in a borrower’s credit report and there may not be a corresponding property address associated with reported mortgages, we are often unable to associate a specific first lien with our junior lien. As of December 31, 2020, there were seven loans totaling $0.9 million for which we have received notification that the holder of a superior lien has commenced foreclosure action. For one of the loans (totaling less than $0.1 million), our second lien position was performing at the time such foreclosure action was commenced. There was no estimated loss related to that one loan as of December 31, 2020. It is important to note that the percentage of new home equity originations for which we hold the first lien has increased from approximately 40% in 2009 to approximately
52% as of December 31, 2020.
We believe there are several factors that serve to mitigate the potential risk associated with the limitations on available first lien data. Most importantly, our underwriting guidelines for home equity loans, which have been, and continue to be, consistently applied, generally require the following: (i) properties located within our geographic footprint; (ii) lower LTV ratios; and (iii) higher credit scores. Notwithstanding the maximum LTV ratios and minimum FICO scores discussed previously, actual LTV ratios at origination were less than 60% on average and current FICO scores of our borrowers are greater than 750 on average. In addition, as of December 31, 2020, 97% of the portfolio balance relates to originations that occurred since 2005, which is generally recognized as the peak of the last housing bubble. We believe these factors are a primary reason for the portfolio’s relatively low level of non-accrual loans and net loan charge-offs, both in terms of absolute dollars and as a percentage of average total loans.
Each month, all home equity and second mortgage loans greater than 180 days past due (regardless of our lien position) are analyzed in order to determine the amount by which the balance outstanding (including any amount subject to a first lien) exceeds the underlying collateral value. To the extent a shortfall exists, a charge-off is recognized. This charge-off activity is reflected in our established ACL for home equity and second mortgage loans as part of the component attributable to historical portfolio loss experience, which considers losses incurred over the most recent 12-month period. While the limitations on available first lien data could impact the accuracy of our loan loss estimates, we believe that our methodology results in an ACL that appropriately estimates the inherent probable losses within the portfolio, including those loans originated prior to January 2011 for which certain lien position data is not available.
As of December 31, 2020, the weighted average CLTV ratio and FICO score for the home equity portfolio were 57% and 742, respectively.
Portfolio Risk Elements-Commercial Real Estate Lending
In general, construction loans originated by People’s United are used to finance improvements to commercial, industrial or residential property. Repayment is typically derived from the sale of the property as a whole, the sale of smaller individual units or by a take-out from a permanent mortgage. The term of the construction period generally does not exceed two years. Loan commitments are based on established construction budgets that represent an estimate of total costs to complete the proposed project, including both hard (direct) costs (such as building materials and labor) and soft (indirect) costs (such as legal and architectural fees). In addition, project costs may include an appropriate level of interest reserve to carry the project through to completion. If established, such interest reserves are determined based on: (i) a percentage of the committed loan amount; (ii) the loan term; and (iii) the applicable interest rate. Regardless of whether a loan contains an interest reserve, the total project cost statement serves as the basis for underwriting and determining which items will be funded by the loan and which items will be funded through borrower equity.
Construction loans are funded, at the request of the borrower, not more than once per month, based on the extent of work completed, and are monitored, throughout the life of the project, by an independent professional construction engineer and the Company’s commercial real estate lending department. Interest is advanced to the borrower upon request, based on the progress of the project toward completion. The amount of interest advanced is added to the total outstanding principal under the loan commitment. Should the project not progress as scheduled, the adequacy of the interest reserve necessary to carry the project through to completion is subject to close monitoring by management. Should the interest reserve be deemed to be inadequate, the borrower is required to fund the deficiency. Similarly, once a loan is fully funded, the borrower is required to fund all interest payments.
People’s United’s construction loan portfolio totaled $1.2 billion (3% of total loans) at December 31, 2020. The total committed amount at that date, including both the outstanding balance and the unadvanced portion of such loans, was
$1.7 billion. In some cases, a portion of the total committed amount includes an accompanying interest reserve. At December 31, 2020, construction loans totaling $634.7 million had remaining available interest reserves of $44.9 million. At that date, the Company had construction loans with interest reserves totaling $0.1 million that were on non-accrual status and included in non-accrual loans.
Historically, certain economic conditions have resulted in an increase in the number of extension requests for commercial real estate and construction loans, some of which may have included related repayment guarantees. Modifications of commercial real estate loans involving maturity extensions are evaluated according to the Company’s normal underwriting standards and are classified as TDRs if the borrower is experiencing financial difficulty and is afforded a concession by People’s United similar to those discussed previously. People’s United had $4.2 million of restructured construction loans at December 31, 2020.
An extension may be granted to allow for the completion of the project, marketing or sales of completed units, or to provide for permanent financing, and is based on a re-underwriting of the loan and management’s assessment of the borrower’s ability to perform according to the agreed-upon terms. Typically, at the time of an extension, borrowers are performing in accordance with contractual loan terms. Extension terms generally do not exceed 12 to 18 months and usually require that the borrower provide additional economic support in the form of partial repayment, additional collateral or guarantees. In cases where the fair value of the collateral or the financial resources of the borrower are deemed insufficient to repay the loan, reliance may be placed on the support of a guarantee, if applicable. However, such guarantees are never considered the sole source of repayment.
People’s United evaluates the financial condition of guarantors based on the most current financial information available. Most often, such information takes the form of (i) personal financial statements of net worth, cash flow statements and tax returns (for individual guarantors) and (ii) financial and operating statements, tax returns and financial projections (for legal entity guarantors). The Company’s evaluation is primarily focused on various key financial metrics, including net worth, leverage ratios and liquidity. It is the Company’s policy to update such information annually, or more frequently as warranted, over the life of the loan.
While People’s United does not specifically track the frequency with which it has pursued guarantor performance under a guarantee, the Company’s underwriting process, both at origination and upon extension, as applicable, includes an assessment of the guarantor’s reputation, creditworthiness and willingness to perform. Historically, when the Company has found it necessary to seek performance under a guarantee, it has been able to effectively mitigate its losses.
In considering the impairment status of such loans, an evaluation is made of the collateral and future cash flow of the borrower as well as the anticipated support of any repayment guarantor. In the event that the guarantor is unwilling or unable to perform, a legal remedy is pursued. When performance under the loan terms is deemed to be uncertain, including performance of the guarantor, all or a portion of the loan may be charged-off, typically based on the fair value of the collateral securing the loan.
Allowance and Provision for Credit Losses on Loans
The ACL is established through provisions for credit losses on loans charged to income. Losses are charged to the ACL when all or a portion of a loan is deemed to be uncollectible. Recoveries of loans previously charged off are credited to the ACL when realized.
Under the CECL standard, the Company determines the ACL on loans based upon a consideration of its historical portfolio loss experience, current borrower-specific risk characteristics, forecasts of future economic conditions and other relevant factors. The allowance is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. At December 31, 2020, the collective ACL totaled $404.6 million and the specific allocation of the ACL for loans evaluated on an individual basis totaled $20.5 million.
The Company’s loan portfolio segments include Commercial and Retail and each of these segments comprises multiple loan classes, which are characterized by similarities in initial measurement, risk attributes, and the manner in which credit risk is monitored and assessed. The Commercial loan portfolio segment is comprised of the commercial real estate, commercial and industrial, equipment financing and MW/ABL loan classes. The Retail loan portfolio segment is comprised of the residential mortgage, home equity and other consumer loan classes. Common characteristics and risk profiles include the type/purpose of loan and historical/expected credit loss patterns. The Company periodically reassesses each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary.
For a more detailed discussion of the Company’s ACL methodology and related policies, see Note 1 to the Consolidated Financial Statements.
The following table presents the activity in the ACL and ratios:
Years ended December 31 (dollars in millions) 2020 2019 2018 2017 2016
Balance at beginning of period $ 246.6 $ 240.4 $ 234.4 $ 229.3 $ 211.0
CECL transition adjustment 72.2 N/A N/A N/A N/A
Balance at beginning of period, adjusted 318.8 240.4 234.4 229.3 211.0
Charge-offs:
Commercial:
Commercial real estate (9.8) (1.4) (5.2) (4.6) (2.4)
Commercial and industrial (16.8) (7.5) (7.3) (9.6) (6.1)
Equipment financing (25.8) (18.2) (13.9) (7.3) (6.4)
MW/ABL - (0.4) (1.2) - -
Total (52.4) (27.5) (27.6) (21.5) (14.9)
Retail:
Residential mortgage (1.3) (1.1) (0.8) (1.1) (2.5)
Home equity (1.6) (1.8) (1.6) (4.2) (5.0)
Other consumer (3.6) (1.1) (0.9) (1.1) (1.0)
Total (6.5) (4.0) (3.3) (6.4) (8.5)
Total charge-offs (58.9) (31.5) (30.9) (27.9) (23.4)
Recoveries:
Commercial:
Commercial real estate 0.4 0.5 0.9 0.4 0.6
Commercial and industrial 2.1 1.8 1.5 2.7 1.3
Equipment financing 3.7 3.8 2.4 1.6 0.2
MW/ABL 0.2 0.2 - 0.2 -
Total 6.4 6.3 4.8 4.9 2.1
Retail:
Residential mortgage 1.0 1.1 0.6 0.5 1.4
Home equity 0.9 1.7 1.2 1.0 1.1
Other consumer 0.8 0.3 0.3 0.6 0.5
Total 2.7 3.1 2.1 2.1 3.0
Total recoveries 9.1 9.4 6.9 7.0 5.1
Net loan charge-offs (49.8) (22.1) (24.0) (20.9) (18.3)
Provision for credit losses on loans 156.1 28.3 30.0 26.0 36.6
Balance at end of period $ 425.1 $ 246.6 $ 240.4 $ 234.4 $ 229.3
ACL as a percentage of (1):
Total loans 0.97 0.57 0.68 0.72 0.77
Non-accrual loans 129.1 110.0 110.4 131.4 132.8
The provision for credit losses on loans totaled $156.1 million in 2020, reflecting net loan charge-offs of $49.8 million and an increase in the ACL resulting from the initial application of the CECL standard and the economic uncertainties brought about by COVID-19, specifically as it relates to assumptions regarding GDP and unemployment. The provision for credit losses on loans totaled $28.3 million in 2019, reflecting net loan charge-offs of $22.1 million and an increase in the ACL in response to portfolio-specific risk factors and loan growth. The ACL as a percentage of total loans was 0.97% and 0.57% at December 31, 2020 and 2019, respectively.
Loan Charge-Offs
The Company’s charge-off policies, which comply with standards established by banking regulators, are consistently applied from period to period. Charge-offs are recorded on a monthly basis. Partially charged-off loans continue to be evaluated on a monthly basis and additional charge-offs or loan loss provisions may be recorded on the remaining loan balance based on the same criteria.
For unsecured consumer loans, charge-offs are generally recorded when the loan is deemed to be uncollectible or
120 days past due, whichever occurs first. For consumer loans secured by real estate, including residential mortgage loans,
charge-offs are generally recorded when the loan is deemed to be uncollectible or 180 days past due, whichever occurs first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Factors that demonstrate an ability to repay may include: (i) a loan that is secured by adequate collateral and is in the process of collection; (ii) a loan supported by a valid guarantee or insurance; or (iii) a loan supported by a valid claim against a solvent estate.
For commercial loans, a charge-off is recorded when the Company determines that it will not collect all amounts contractually due based on the fair value of the collateral less cost to sell.
The decision whether to charge-off all or a portion of a loan rather than to record a specific or general loss allowance is based on an assessment of all available information that aids in determining the loan’s net realizable value. Typically, this involves consideration of both (i) the fair value of any collateral securing the loan, including whether the estimate of fair value has been derived from an appraisal or other market information and (ii) other factors affecting the likelihood of repayment, including the existence of guarantees and insurance. If the amount by which the Company’s recorded investment in the loan exceeds its net realizable value is deemed to be a confirmed loss, a charge-off is recorded. Otherwise, a specific or general reserve is established, as applicable. The comparatively low level of net loan charge-offs in recent years, in terms of absolute dollars and as a percentage of average total loans, may not be sustainable in the future.
The following table summarizes net loan charge-offs by class of loan and total net loan charge-offs to average total loans:
Years ended December 31 2020 2019 2018 2017 2016
Commercial:
Commercial real estate 0.07 % 0.01 % 0.04 % 0.04 % 0.02 %
Commercial and industrial 0.14 0.07 0.08 0.10 0.08
Equipment financing 0.45 0.32 0.28 0.17 0.21
MW/ABL (0.01) 0.01 0.08 (0.10) -
Retail:
Residential mortgage (1) - - - 0.01 0.02
Home equity (2) 0.03 - 0.02 0.15 0.19
Other consumer 2.21 0.70 1.27 1.09 0.98
Total portfolio 0.11 % 0.06 % 0.07 % 0.07 % 0.06 %
(1)Less than 0.01% at December 31, 2020, 2019 and 2018.
(2)Less than 0.01% at December 31, 2019.
The following table presents, by class of loan, the allocation of the ACL on loans and the percent of loans in each class to total loans:
2020 2019 2018 2017 2016
As of December 31
(dollars in millions) Amount Percent
of Loan
Portfolio Amount Percent
of Loan
Portfolio Amount Percent
of Loan
Portfolio Amount Percent
of Loan
Portfolio Amount Percent
of Loan
Portfolio
Commercial:
Commercial real estate
$ 122.9 30.4 % $ 76.9 33.9 % $ 79.9 33.1 % $ 80.6 34.0 % $ 77.3 34.4 %
Commercial and industrial
79.0 24.5 93.6 19.9 85.5 21.3 80.6 21.4 86.4 21.4
Equipment financing
97.9 11.3 47.4 11.3 44.1 12.3 43.3 12.0 41.2 10.2
MW/ABL 3.8 9.6 - 5.4 - 4.5 - 5.4 - 6.0
Retail:
Residential mortgage
66.2 19.4 20.0 23.7 21.8 23.1 20.6 20.9 16.8 20.9
Home equity 52.4 4.6 7.7 5.5 8.4 5.6 8.4 6.2 7.0 7.0
Other consumer 2.9 0.2 1.0 0.3 0.7 0.1 0.9 0.1 0.6 0.1
Total ACL
$ 425.1 100.0 % $ 246.6 100.0 % $ 240.4 100.0 % $ 234.4 100.0 % $ 229.3 100.0 %
The allocation of the ACL on loans at December 31, 2020 reflects management’s assessment of credit risk and probable loss within each portfolio. This assessment is based on a variety of internal and external factors including, but not limited to, the likelihood and severity of loss, portfolio growth and related risk characteristics, and current economic conditions. The allocation of a portion of the allowance to one portfolio does not preclude its availability to absorb losses in another portfolio. Management believes that the level of the ACL on loans at December 31, 2020 represents an appropriate estimate of lifetime expected credit losses.
Past Due and Non-Accrual Loans
Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. 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. A loan may be placed on non-accrual status before it reaches 90 days past due if such loan has been identified as presenting uncertainty with respect to the collectability of interest and principal. A loan past due 90 days or more may remain on accruing status if such loan is both well secured and in the process of collection.
All previously accrued but unpaid interest on non-accrual loans is reversed from interest income in the period in which the accrual of interest is discontinued. Interest payments received on non-accrual loans are generally applied as a reduction of principal if future collections are doubtful, although such interest payments may be recognized as income. A loan remains on non-accrual status until the factors that indicated doubtful collectability no longer exist or until a loan is determined to be uncollectible and is charged-off against the ACL. There were no loans past due 90 days or more and still accruing interest at December 31, 2020 or 2019.
People’s United’s non-performing assets are summarized as follows:
As of December 31 (dollars in millions) 2020 2019 2018 2017 2016
Commercial:
Commercial real estate $ 60.4 $ 53.8 $ 46.8 $ 30.0 $ 32.5
Commercial and industrial 75.4 38.5 54.1 46.2 47.6
Equipment financing 109.3 47.7 44.3 46.5 39.4
MW/ABL 1.0 - - - -
Total 246.1 140.0 145.2 122.7 119.5
Retail:
Residential mortgage 62.3 63.3 55.0 38.9 34.9
Home equity 20.5 20.8 16.5 16.1 17.9
Other consumer 0.2 - 1.1 0.7 0.4
Total 83.0 84.1 72.6 55.7 53.2
Total non-accrual loans (1) 329.1 224.1 217.8 178.4 172.7
REO:
Residential 3.2 11.9 5.5 7.6 8.1
Commercial 3.6 7.3 8.7 9.3 4.0
Total REO 6.8 19.2 14.2 16.9 12.1
Repossessed assets 5.7 4.2 3.9 2.5 7.2
Total non-performing assets $ 341.6 $ 247.5 $ 235.9 $ 197.8 $ 192.0
Non-accrual loans as a percentage of total loans 0.75 % 0.51 % 0.62 % 0.55 % 0.58 %
Non-performing assets as a percentage of:
Total loans, REO and repossessed assets 0.78 0.57 0.67 0.61 0.64
Tangible stockholders’ equity and ACL 6.59 5.03 6.03 5.66 5.94
(1)Reported net of government guarantees totaling $2.5 million, $1.3 million, $1.9 million, $3.1 million and $13.1 million at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. These government guarantees relate, almost entirely, to guarantees provided by the SBA as well as selected other Federal agencies and represent the carrying value of the loans that are covered by such guarantees, the extent of which (i.e. full or partial) varies by loan. At December 31, 2020, all of the government guarantees relate to commercial and industrial loans.
Total non-performing assets increased $94.1 million from December 31, 2019 and equaled 0.57% of total loans, REO and repossessed assets at December 31, 2020. The increase in total non-performing assets from December 31, 2019 primarily reflects increases of $61.6 million in non-accrual equipment financing loans, $36.9 million in non-accrual commercial and industrial loans and $6.6 million in non-accrual commercial real estate loans, partially offset by a $12.4 million decrease in REO. The increase in non-accrual equipment financing loans primarily relates to PCLC’s motor coach portfolio, which has experienced a significant decline in business as a result of the COVID-19 pandemic.
In addition to the non-accrual loans discussed above, People’s United has also identified $1.3 billion in potential problem loans at December 31, 2020. Potential problem loans represent loans that are currently performing, but for which known information about possible credit deterioration on the part of the related borrowers causes management to have concerns as to the ability of such borrowers to comply with contractual loan repayment terms and which may result in the disclosure of such loans as non-performing at some time in the future. The potential problem loans are generally loans that, although performing, have been classified as “substandard” in accordance with People’s United’s loan rating system, which is consistent with guidelines established by banking regulators.
At December 31, 2020, potential problem loans consisted of commercial and industrial loans ($456.9 million), commercial real estate loans ($417.3 million), equipment financing loans ($369.6 million) and MW/ABL loans ($16.7 million). Such loans are closely monitored by management and have remained in performing status for a variety of reasons including, but not limited to, delinquency status, borrower payment history and fair value of the underlying collateral. Management cannot predict the extent to which economic conditions may worsen or whether other factors may adversely impact the ability of these borrowers to make payments. Accordingly, there can be no assurance that potential problem loans will not become 90 days or more past due, be placed on non-accrual status, be restructured, or require additional provisions for loan losses.
The levels of non-performing assets and potential problem loans are expected to fluctuate in response to changing economic and market conditions, and the relative sizes of the respective loan portfolios, along with management’s degree of success in resolving problem assets. While management takes a proactive approach with respect to the identification and resolution of problem loans, the level of non-performing assets may increase in the future.
Off-Balance-Sheet Arrangements
Detailed discussions pertaining to People’s United’s off-balance-sheet arrangements are included in the following sections: Funding, Liquidity, Stockholders’ Equity and Dividends, and Market Risk Management.
Funding
People’s United’s primary funding sources are deposits and stockholders’ equity, which represented 95% of total assets at December 31, 2020. Borrowings and notes and debentures also are available sources of funding.
Deposits
People’s United’s strategy is to focus on increasing deposits by providing a wide range of convenient services to commercial, retail, business and wealth management customers. People’s United provides customers access to their deposits through 417 branches, including 140 full-service in-store Stop & Shop supermarket branches, 631 ATMs, telephone banking and an Internet banking site.
2020 2019 2018
As of December 31
(dollars in millions) Amount Weighted-
Average
Rate Amount Weighted-
Average
Rate Amount Weighted-
Average
Rate
Non-interest-bearing $ 15,881.7 - % $ 9,803.7 - % $ 8,543.0 - %
Money market 15,266.1 0.17 11,651.3 0.98 9,859.7 1.10
Interest-bearing checking 9,301.4 0.18 7,941.3 0.84 6,723.6 0.90
Total 24,567.5 0.17 19,592.6 0.92 16,583.3 1.04
Savings 6,029.7 0.04 4,987.7 0.23 4,116.5 0.09
Time deposits maturing:
Within 3 months 1,850.6 1.10 3,984.7 1.90 1,480.0 1.66
After 3 but within
6 months 1,155.1 0.68 2,659.3 2.12 1,375.6 1.67
After 6 months but within
1 year 1,464.1 0.75 1,354.8 1.77 2,511.5 1.83
After 1 but within 2 years 950.8 1.02 816.3 1.82 1,275.5 1.98
After 2 but within 3 years 165.7 1.75 275.4 2.23 153.5 1.97
After 3 but within 4 years 18.1 0.99 97.8 2.37 102.1 1.63
After 4 but within 5 years 54.4 0.68 17.2 1.09 18.0 1.29
After 5 years (1) - 0.99 - 0.99 - 1.10
Total 5,658.8 0.92 9,205.5 1.95 6,916.2 1.78
Total deposits $ 52,137.7 0.19 % $ 43,589.5 0.85 % $ 36,159.0 0.83 %
(1)Amount totaled less than $0.1 million for all periods.
Deposits equaled 83% and 74% of total assets at December 31, 2020 and 2019, respectively. Deposits and stockholders’ equity constituted 95% of People’s United’s funding base at December 31, 2020 compared to 88% at December 31, 2019.
The expansion of People’s United’s branch network and its commitment to developing full-service relationships with its customers are integral components of People’s United’s strategy to expand market share and continue growing deposits. At December 31, 2020, People’s United’s network of Stop & Shop branches held $5.8 billion in total deposits and deposits in supermarket branches open for more than one year averaged $41 million per store. On January 21, 2021, the Bank announced its decision not to renew its agreements with Stop & Shop to operate 140 in-store branches in Connecticut and New York upon their expiration in 2022. Branch closures will take place over several years using a phased approach.
Non-interest-bearing deposits are an important source of low-cost funding and fee income for People’s United. In addition, People’s United believes that checking accounts represent one of the core relationships between a financial institution and its customers, and it is from these relationships that cross-selling of other financial services can be achieved.
Non-interest-bearing deposits equaled 30% of total deposits at December 31, 2020 and 22% at December 31, 2019. Time deposits of $100,000 or more totaled $3.0 billion at December 31, 2020, of which $1.1 billion mature within three months, $619 million mature after three months but within six months, $770 million mature after six months but within one year and $561 million mature after one year. Included in total deposits at December 31, 2020 are $4.5 billion of brokered deposits, comprised of money market ($4.2 billion), interest-bearing checking ($152 million) and time ($151 million). See Note 11 to the Consolidated Financial Statements for additional information concerning deposits.
Total Deposits
As of December 31 (dollars in billions)
The following table presents, by rate category, the remaining period to maturity of time deposits outstanding:
Period to Maturity from December 31, 2020
(in millions) Within
Three
Months Over Three
to
Six Months Over Six
Months to
One Year Over
One to Two
Years Over
Two to
Three Years Over
Three to
Four Years Over
Four to
Five Years Over Five Years (1) Total
0.50% or less $ 724.0 $ 647.5 $ 657.4 $ 369.5 $ 16.6 $ 1.6 $ 18.6 $ - $ 2,435.2
0.51% to 1.00% 213.7 359.5 422.5 301.0 58.6 10.8 35.0 - 1,401.1
1.01% to 1.50% 72.6 7.1 260.3 23.7 12.4 4.5 0.8 - 381.4
1.51% to 2.00% 682.6 15.5 10.6 79.9 0.4 0.2 - - 789.2
2.01% to 2.50% 25.9 14.7 18.0 50.4 4.4 - - - 113.4
2.51% and
greater 131.8 110.8 95.3 126.3 73.3 1.0 - - 538.5
Total $ 1,850.6 $ 1,155.1 $ 1,464.1 $ 950.8 $ 165.7 $ 18.1 $ 54.4 $ - $ 5,658.8
(1)Amount totaled less than $0.1 million at December 31, 2020.
Borrowings
People’s United’s primary source for borrowings are advances from the FHLB of Boston, which provides credit for member institutions within its assigned region, and federal funds purchased, which are typically unsecured overnight loans among banks. Customer repurchase agreements primarily consist of transactions with commercial and municipal customers.
At December 31, 2020, the Bank’s total borrowing capacity from (i) the FHLB of Boston and the FRB-NY for advances and (ii) repurchase agreements was $16.6 billion based on the level of qualifying collateral available for these borrowings. In addition, the Bank had unsecured borrowing capacity of $1.0 billion at that date. FHLB advances are secured by the Bank’s investment in FHLB stock and by a security agreement that requires the Bank to maintain, as collateral, sufficient qualifying assets not otherwise pledged (principally single-family residential mortgage loans, home equity lines of credit and loans, and commercial real estate loans).
Total borrowings equaled 2% of total assets at December 31, 2020 compared to 9% at December 31, 2019. FHLB advances and customer repurchase agreements each represented 1%, of total assets at December 31, 2020, while federal funds purchased totaled less than 1% of total assets. See Note 12 to the Consolidated Financial Statements for additional information concerning borrowings.
2020 2019 2018
As of December 31 (dollars in millions) Amount Weighted-
Average Rate Amount Weighted-
Average Rate Amount Weighted-
Average Rate
Fixed-rate FHLB advances
maturing:
Within 1 month $ - - % $ 3,060.8 1.79 % $ 2,270.3 2.59 %
After 1 month but within
1 year 556.9 0.41 44.8 1.79 61.0 1.76
After 1 but within 2 years 1.2 0.50 6.8 2.11 54.2 1.75
After 2 but within 3 years 0.5 0.05 1.2 0.51 6.8 2.11
After 3 but within 4 years - - 0.6 0.05 1.3 0.52
After 4 but within 5 years 8.6 1.70 - - 0.6 0.05
After 5 years 2.5 0.83 11.2 1.50 10.3 1.64
Total FHLB advances 569.7 0.43 3,125.4 1.79 2,404.5 2.54
Federal funds purchased
maturing:
Within 1 month 125.0 0.07 1,620.0 1.61 845.0 2.53
Customer repurchase
agreements maturing:
Within 1 month 452.9 0.14 409.1 0.69 332.9 0.61
Other borrowings maturing:
Within 1 year - - - - 11.0 2.40
Total other borrowings - - - - 11.0 2.40
Total borrowings $ 1,147.6 0.28 % $ 5,154.5 1.64 % $ 3,593.4 2.36 %
Notes and Debentures
Notes and debentures totaled $1.0 billion and $993 million at December 31, 2020 and 2019, respectively, and equaled 1% of total assets at each respective date. See Note 13 to the Consolidated Financial Statements for additional information concerning notes and debentures.
Contractual Cash Obligations
The following table is a summary of People’s United’s contractual cash obligations, other than deposit liabilities. Additional information concerning the Company’s contractual cash obligations is included in Notes 11, 12, 13 and 22 to the Consolidated Financial Statements. Purchase obligations included in the table below represent those agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions. A substantial majority of People’s United’s purchase obligations are renewable on a year-to-year basis. As such, the purchase obligations included in this table only reflect the contractual commitment.
Payments Due by Period
As of December 31, 2020 (in millions) Total Less Than
One Year One to
Three Years Four to
Five Years After Five
Years
Borrowings $ 1,147.6 $ 1,134.8 $ 1.7 $ 8.6 $ 2.5
Notes and debentures 1,009.6 - 498.9 510.7 -
Interest payments on fixed-rate borrowings and notes and debentures (1) 101.1 39.4 53.4 8.2 0.1
Operating leases 306.7 66.7 86.3 57.8 95.9
Purchase obligations 206.1 83.2 98.1 24.0 0.8
Total $ 2,771.1 $ 1,324.1 $ 738.4 $ 609.3 $ 99.3
(1)Interest payments on floating-rate borrowings are not included in the table above as the timing and amount of such payments is uncertain. See Note 12 to the Consolidated Financial Statements.
Future contingent commitments totaling $182.4 million at December 31, 2020, related to limited partnership affordable housing investments, are not included in the table above as the timing of the related capital calls cannot be estimated. Similarly, income tax liabilities totaling $33.4 million, including related interest and penalties, are not included in the table above as the timing of their resolution cannot be estimated. See Note 14 to the Consolidated Financial Statements.
Also not included in the table above are expected future net benefit payments related to the Company’s pension and other postretirement plans that are due as follows: $33.5 million in less than one year; $66.2 million in one to three years; $72.2 million in four to five years; and $199.9 million after five years. See Note 19 to the Consolidated Financial Statements.
Liquidity
Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs. Liquidity management addresses both People’s United’s and the Bank’s ability to fund new loans and investments as opportunities arise, to meet customer deposit withdrawals and to repay borrowings and subordinated notes as they mature. People’s United’s, as well as the Bank’s, liquidity positions are monitored daily by management. The Asset and Liability Management Committee (“ALCO”) of the Bank has been authorized by the Board of Directors of People’s United to set guidelines to ensure maintenance of prudent levels of liquidity for People’s United as well as for the Bank. ALCO reports to the Treasury and Finance Committee of the Board of Directors of People’s United.
Asset liquidity is provided by: cash; short-term investments and securities purchased under agreements to resell; proceeds from maturities, principal repayments and sales of securities; and proceeds from scheduled principal collections, prepayments and sales of loans. In addition, certain securities may be used to collateralize borrowings under repurchase agreements. The Consolidated Statements of Cash Flows present data on cash provided by and used in People’s United’s operating, investing and financing activities. At December 31, 2020, People’s United (parent company) liquid assets included $305 million in cash and $5 million in equity securities, while the Bank’s liquid assets included $4.9 billion in debt securities available-for-sale and $3.9 billion in cash and cash equivalents. At December 31, 2020, debt securities available-for-sale with a fair value of $4.9 billion and debt securities held-to-maturity with an amortized cost basis of $2.1 billion were pledged as collateral for public deposits and for other purposes.
Liability liquidity is measured by both People’s United’s and the Bank’s ability to obtain deposits and borrowings at
cost-effective rates that are diversified with respect to markets and maturities. Deposits, which are considered the most stable source of liability liquidity, totaled $52.1 billion at December 31, 2020 and represented 84% of total funding (the sum of total deposits, total borrowings, notes and debentures, and stockholders’ equity). Borrowings are used to diversify People’s United’s funding mix and to support asset growth. Borrowings and notes and debentures totaled $1.1 billion and $1.0 billion, respectively, at December 31, 2020, representing 2% and 1%, respectively, of total funding at that date.
The Bank’s current available sources of borrowings include: federal funds purchased, advances from the FHLB of Boston and the FRB-NY, and repurchase agreements. At December 31, 2020, the Bank’s total borrowing capacity from (i) the FHLB of Boston and the FRB-NY for advances and (ii) repurchase agreements was $16.6 billion based on the level of qualifying collateral available for these borrowings. In addition, the Bank had unsecured borrowing capacity of $1.0 billion at that date.
Earning Asset Mix Funding Base
$56.9 billion as of December 31, 2020 (percent)
$62.3 billion as of December 31, 2020 (percent)
At December 31, 2020, the Bank had outstanding commitments to originate loans totaling $1.3 billion and approved, but unused, lines of credit extended to customers totaling $10.2 billion (including $2.8 billion of HELOCs).
The sources of liquidity discussed above are deemed by management to be sufficient to fund outstanding loan commitments and to meet both People’s United’s and the Bank’s other obligations.
Stockholders’ Equity and Dividends
People’s United’s total stockholders’ equity was $7.60 billion at December 31, 2020, a $344.4 million decrease from December 31, 2019. This decrease primarily reflects: (i) the repurchase of 19.8 million shares of People’s United common stock, at a total cost of $304.4 million, during the first quarter of 2020; and (ii) common and preferred dividends paid in 2020 totaling $318.2 million, partially offset by (i) net income in 2020 of $219.6 million; and (ii) a $77.7 million decrease in accumulated other comprehensive loss (“AOCL”) since December 31, 2019. The decrease in AOCL, net of tax, primarily reflects a $78.1 million increase in the unrealized gain on debt securities available-for-sale. As a percentage of total assets, stockholders’ equity was 12.1% and 13.6% at December 31, 2020 and 2019, respectively. Tangible common equity as a percentage of tangible assets was 7.5% and 8.0% at December 31, 2020 and December 31, 2019, respectively.
In June 2019, the Company’s Board of Directors authorized the repurchase of up to 20.0 million shares of People’s United’s outstanding common stock. Such shares may be repurchased, either directly or through agents, in the open market at prices and terms satisfactory to management. In the fourth quarter of 2019, the Company repurchased 19.8 million shares of People’s United common stock under this authorization at a total cost of $304.4 million. In March 2020, People’s United completed this repurchase authorization (see above). Shares acquired in this manner have not been retired by the Company and, as a result, remain available for issuance in the future.
Common dividends declared and paid per common share totaled $0.7175 and $0.7075 for the years ended
December 31, 2020 and 2019, respectively. People’s United’s common dividend payout ratio (common dividends paid as a percentage of net income available to common shareholders) for the years ended December 31, 2020 and 2019 was 148.0% and 54.3%, respectively. On an operating basis, the common dividend payout ratio was 56.9% and 49.8% for the respective periods. The Company’s Board of Directors declared a quarterly dividend on its common stock of $0.18 per share on January 21, 2021, which was paid on February 15, 2021 to shareholders of record on February 1, 2021.
The Bank paid cash dividends totaling $498.0 million and $457.0 million to People’s United (parent company) in 2020 and 2019, respectively. See Risk Factors - Compliance and Regulatory Risk for a further discussion regarding the Company's and Bank's ability to declare and pay dividends.
Regulatory Capital Requirements
Both People’s United and the Bank are subject to the Basel III capital rules issued by U.S. banking agencies. The
Basel III capital rules require U.S. financial institutions to maintain: (i) a minimum ratio of CET 1 capital to total risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET 1 risk-based capital ratio, effectively resulting in a minimum CET 1 risk-based capital ratio of 7.0%); (ii) a minimum ratio of Tier 1 capital to total
risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 risk-based capital ratio, effectively resulting in a minimum Tier 1 risk-based capital ratio of 8.5%); (iii) a minimum ratio of Total (that is, Tier 1 plus Tier 2) capital to total risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% Total risk-based capital ratio, effectively resulting in a minimum Total risk-based capital ratio of 10.5%); and (iv) a minimum Tier 1 Leverage capital ratio of at least 4.0%, calculated as the ratio of Tier 1 capital to average total assets, as defined.
In order to avoid limitations on distributions, including dividend payments, and certain discretionary bonus payments, a financial institution must hold a capital conservation buffer of 2.50% above its minimum risk-based capital requirements.
For regulatory capital purposes, subordinated note issuances qualify, up to certain limits, as Tier 2 capital for Total
risk-based capital. In accordance with regulatory capital rules, the eligible amount of the Bank’s $400 million subordinated notes due 2024 and People’s United’s $75 million subordinated notes due 2024 included in Tier 2 capital will both be reduced each year until the year of final maturity by 20%, or $80 million and $15 million, respectively.
As discussed in Note 1 to the Consolidated Financial Statements, the Company’s adoption of the CECL standard effective January 1, 2020, resulted in an approximate 10 basis points decrease in the capital ratios at both the Bank and People’s United at that time. In December 2018, the Federal banking agencies approved a final rule allowing an option to phase-in, over three years, the day one regulatory capital effects of the CECL standard. In March 2020, the Federal banking agencies issued an interim final rule providing an alternative option to delay, for two years, an estimate of the CECL standard’s effect on regulatory capital (relative to incurred loss methodology’s effect on regulatory capital), followed by a three-year transition period. The Company has elected the alternative option provided in the March 2020 interim final rule.
The following is a summary of People’s United’s and the Bank’s regulatory capital amounts and ratios under the Basel III capital rules. The minimum capital required amounts are based on the capital conservation buffer of the Basel III capital rules. In connection with the adoption of the Basel III capital rules, both the Company and the Bank elected to opt-out of the requirement to include most components of AOCL in CET 1 capital. At December 31, 2020, People’s United’s and the Bank’s total risk-weighted assets, as defined, totaled $45.1 billion and $45.0 billion, respectively.
As of December 31, 2020 Minimum Capital Required Classification as
Well-Capitalized
(dollars in millions) Amount Ratio Amount Ratio Amount Ratio
Tier 1 Leverage Capital (1):
People’s United $ 4,967.8 8.4 % $ 2,374.3 4.0 % N/A N/A
Bank 5,168.4 8.7 2,373.7 4.0 $ 2,967.2 5.0 %
CET 1 Risk-Based Capital (2):
People’s United 4,723.7 10.5 3,155.3 7.0 N/A N/A
Bank 5,168.4 11.5 3,151.1 7.0 2,926.0 6.5
Tier 1 Risk-Based Capital (3):
People’s United 4,967.8 11.0 3,831.4 8.5 2,704.5 6.0
Bank 5,168.4 11.5 3,826.3 8.5 3,601.3 8.0
Total Risk-Based Capital (4):
People’s United 5,589.5 12.4 4,732.9 10.5 4,507.5 10.0
Bank 5,745.1 12.8 4,726.7 10.5 4,501.6 10.0
(1)Tier 1 Leverage Capital ratio represents CET 1 Capital plus Additional Tier 1 Capital instruments (together, “Tier 1 Capital”) divided by Average Total Assets (less goodwill, other acquisition-related intangibles and other deductions from CET 1 Capital).
(2)CET 1 Risk-Based Capital ratio represents equity capital, as defined, less: (i) after-tax net unrealized gains (losses) on certain securities classified as available-for-sale; (ii) after-tax net unrealized gains (losses) on securities transferred to held-to-maturity; (iii) goodwill and other acquisition-related intangible assets; and (iv) the amount recorded in AOCL relating to pension and other postretirement benefits divided by Total Risk-Weighted Assets.
(3)Tier 1 Risk-Based Capital ratio represents Tier 1 Capital divided by Total Risk-Weighted Assets.
(4)Total Risk-Based Capital ratio represents Tier 1 Capital plus subordinated notes and debentures, up to certain limits, and the ACL, up to 1.25% of Total Risk-Weighted Assets, divided by Total Risk-Weighted Assets.
See Note 16 to the Consolidated Financial Statements for additional information concerning both the Company’s and the Bank’s regulatory capital amounts and ratios.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Management
Market risk represents the risk of loss to earnings, capital and the economic values of certain assets and liabilities resulting from changes in interest rates, equity prices and foreign currency exchange rates. The only significant market risk exposure for People’s United at this time is IRR, which is a result of the Company’s core business activities of making loans and accepting deposits.
Interest Rate Risk
The effective management of IRR is essential to achieving the Company’s financial objectives. Responsibility for overseeing management of IRR resides with ALCO. The goal of ALCO is to generate a stable net interest margin over entire interest rate cycles regardless of changes in either short- or long-term interest rates. Generating earnings by taking excessive IRR is prohibited by the IRR limits established by the Company’s Board of Directors. ALCO manages IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are complementary and provide both short-term and long-term risk profiles of the Company.
Net Interest Income at Risk Simulation is used to measure the sensitivity of net interest income to changes in market rates over a period of time, such as 12 or 24 months. This simulation captures underlying product behaviors, such as asset and liability repricing dates, balloon dates, interest rate indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as: (i) future balance sheet volume and mix assumptions that are management judgments based on estimates and historical experience; (ii) prepayment projections for loans and securities that are projected under each interest rate scenario using internal and external analytics;
(iii) new business loan spreads that are based on recent new business origination experience; and (iv) deposit pricing assumptions that are based on historical experience and management judgment. Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from simulation forecasts due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies.
The Company uses two sets of standard scenarios to measure net interest income at risk. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Yield curve twist scenarios assume the shape of the curve flattens or steepens instantaneously centered on the 18-month point of the curve, thereby segmenting the yield curve into a “short-end” and a “long-end”.
The following tables set forth the estimated percent change in the Company’s net interest income at risk over one-year simulation periods beginning December 31, 2020 and 2019. Given the current spot interest rate curve at December 31, 2020, a down 100 basis point rate scenario is no longer simulated due to negative interest rates in this scenario.
Parallel Shock Rate Change
(basis points) Estimated Percent Change
in Net Interest Income
2020 2019
+300 22.6 % 4.8 %
+200 16.0 3.5
+100 8.2 2.0
-(25) (1.7) N/A
-100 N/A (2.1)
Yield Curve Twist Rate Change
(basis points) Estimated Percent Change
in Net Interest Income
2020 2019
Short End -25 (1.0) % N/A
Short End +100 6.1 0.6
Long End -25 (0.7) N/A
Long End +100 2.4 1.6
The net interest income at risk simulation results indicate that at both December 31, 2020 and 2019, the Company is asset sensitive over the twelve-month forecast horizon (i.e. net interest income will increase if market rates rise). The asset sensitive position at December 31, 2020 primarily reflects: (i) 100% of the Company’s loan portfolio being funded by less rate-sensitive core deposits; (ii) approximately 46% of the Company’s loan portfolio being comprised of Prime Rate and one-month
LIBOR-based floating-rate loans; and (iii) the repricing of variable-rate loans, the origination of fixed-rate loans as well as the purchase and reinvestment of securities all over the twelve-month forecast horizon.
The increase the Company’s asset sensitivity since December 31, 2019 is primarily due to: (i) faster mortgage-backed security and residential mortgage loan prepayment speeds in the low interest rate environment; (ii) a decline in residential mortgage loans; (iii) higher liquid deposits resulting from governmental stimulus programs and reduced consumer spending during the COVID-19 pandemic; (iv) the addition of $1.3 billion of term deposits; and (v) the execution of pay fixed/receive floating interest rates swaps ($550 million aggregate notional value); (vi) decreased deposit pricing elasticity and lengthened deposit pricing lag assumptions in the Company’s IRR model resulting from observed deposit behavior; partially offset by the repurchase of 19.8 million shares of common stock, the addition of $2.5 billion of fixed-rate PPP loans and an increase in the securities portfolio. Based on the Company’s IRR position at December 31, 2020, an immediate 100 basis point parallel increase in interest rates translates to an approximate $123 million increase in net interest income on an annualized basis.
Economic Value of Equity at Risk Simulation is conducted in tandem with net interest income simulations, to ascertain a longer term view of the Company’s IRR position by capturing longer-term re-pricing risk and options risk embedded in the balance sheet. It measures the sensitivity of economic value of equity to changes in interest rates. Economic value of equity at risk simulation values only the current balance sheet and does not incorporate the growth assumptions used for income simulations. As with net interest income modeling, this simulation captures product characteristics such as loan resets, repricing terms, maturity dates, rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity and
non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. The Company conducts core deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process. All key assumptions are subject to periodic review.
Base case economic value of equity at risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates. The current spot interest rate curve is shocked up and down to generate new interest rate curves for parallel rate shock scenarios. These new curves are then used to recalculate economic value of equity at risk for these rate shock scenarios.
The following table sets forth the estimated percent change in the Company’s economic value of equity at risk, assuming various instantaneous parallel shocks in interest rates. Given the current spot interest rate curve at December 31, 2020, a down 100 basis point rate scenario is no longer simulated due to negative rates in this scenario.
Parallel Shock Rate Change
(basis points) Estimated Percent Change
in Economic Value of Equity
2020 2019
+300 11.6 % (12.6) %
+200 13.7 (6.6)
+100 10.3 (1.6)
-25 (3.9) (3.3)
-100 N/A (3.0)
The Company’s economic value of equity at risk profile indicates that at December 31, 2020, the Company’s economic value of equity is asset sensitive. The increase in assert sensitivity since December 31, 2019 primarily reflects: (i) an increase in the modeled weighted average life of non-maturity deposits and a decrease in the duration of both mortgage-backed securities and residential mortgage loans resulting from lower interest rates; (ii) a decline in residential mortgage loans; (iii) an increase in liquid deposits; and (iv) the addition of $1.3 billion of term deposits; partially offset by the addition of PPP loans, increase in the securities portfolio and deposit modeling assumption updates.
People’s United’s IRR position at December 31, 2020, as set forth in the net interest income at risk and economic value of equity at risk tables above, reflects an asset sensitive net interest income at risk position and a liability sensitive economic value of equity position. From a net interest income perspective, asset sensitivity over the next 12 months is primarily attributable to the effect of the substantial Prime and LIBOR-based loan balances that are funded mainly by less rate-sensitive deposits. From an economic value of equity perspective, in a rising rate environment, the Company’s assets are more price sensitive than its liabilities due to slightly longer asset duration, which serves to create a liability sensitive risk position. Given the uncertainty of the magnitude, timing and direction of future interest rate movements and the shape of the yield curve, actual results may vary from those predicted by the Company’s models.
Management has established procedures to be followed in the event of an anticipated or actual breach in policy limits. As of December 31, 2020, there were no breaches of the Company’s internal policy limits with respect to either IRR measure. Management utilizes both interest rate measures in the normal course of measuring and managing IRR and believes that each measure is valuable in understanding the Company’s IRR position.
People’s United uses derivative financial instruments, including interest rate swaps, as components of its market risk management (principally to manage IRR). Certain other derivatives are entered into in connection with transactions with commercial customers. Derivatives are not used for speculative purposes. At December 31, 2020, People’s United used interest rate swaps to manage IRR associated with certain interest-bearing assets and interest-bearing liabilities.
The Bank has entered into pay floating/receive fixed interest rate swaps to reduce its IRR exposure to the variability in interest cash flows on certain floating-rate commercial loans. The Bank has agreed with the swap counterparties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated based on notional amounts totaling $210 million. The floating-rate interest payments made under the swaps are calculated using the same floating rate received on the commercial loans. The swaps effectively convert the floating-rate one-month LIBOR interest payments received on the commercial loans to a fixed rate and consequently reduce the Bank’s exposure to variability in short-term interest rates. These swaps are accounted for as cash flow hedges.
The Bank has entered into a pay floating/receive fixed interest rate swap to hedge the change in fair value due to changes in interest rates of the Bank’s $400 million subordinated notes. 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.
People’s United has written guidelines that have been approved by its Board of Directors and ALCO governing the use of derivative financial instruments, including approved counterparties and credit limits. Credit risk associated with these instruments is controlled and monitored through policies and procedures governing collateral management and credit approval.
By using derivatives, People’s 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 Company’s counterparty credit risk is equal to the amount reported as a derivative asset in the Consolidated Statements of Condition. In accordance with the Company’s balance sheet offsetting policy (see Note 1 to the Consolidated Financial Statements), amounts reported as derivative assets represent derivative contracts in a gain position, without consideration for derivative contracts in a loss position with the same counterparty (to the extent subject to master netting arrangements) and posted collateral. People’s 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 People’s United’s 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 People’s United’s derivative contracts contain provisions establishing collateral requirements (subject to minimum collateral posting thresholds) based on the Company’s external credit rating. If the Company’s senior unsecured debt rating were to fall below the level generally recognized as investment grade, the counterparties to such derivative contracts could require additional collateral on those derivative transactions in a net liability position (after considering the effect of master netting arrangements and posted collateral). The aggregate fair value of derivative instruments with such credit-related contingent features that were in a net liability position at December 31, 2020 was $0.7 million, for which People’s United had posted no collateral in the normal course of business. If the Company’s senior unsecured debt rating had fallen below investment grade as of that date, $0.7 million in additional collateral would have been required.
Foreign Currency Risk
Foreign exchange contracts are commitments to buy or sell foreign currency on a future date at a contractual price. People’s 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.
Derivative Financial Instruments
The following table summarizes certain information concerning derivative financial instruments utilized by People’s United in its management of IRR and foreign currency risk:
Interest Rate Swaps Foreign
Exchange
Contracts
As of December 31, 2020 (dollars in millions) Fair Value Hedge Cash Flow Hedge
Notional principal amounts $ 375.0 $ 550.0 $ 285.3
Weighted average interest rates:
Pay floating (receive fixed) Libor + 1.265% (4.00%) N/A N/A
Pay fixed (receive floating) N/A 0.53% (0.25%) N/A
Weighted average remaining term to maturity (in months) 42 20 1
Fair value:
Recognized as an asset $ - $ - $ 12.8
Recognized as a liability - - 8.8
People’s United enters into interest rate swaps and caps with certain of its commercial customers. In order to minimize its risk, these customer interest rate swaps (pay floating/receive fixed) and caps have been offset with essentially matching interest rate swaps (pay fixed/receive floating) and caps with People’s United’s institutional counterparties. Hedge accounting has not been applied for these derivatives. Accordingly, changes in the fair value of all such interest rate swaps and caps are recognized in current earnings.
The following table summarizes certain information concerning these interest rate swaps and caps:
Interest Rate Swaps Interest Rate Caps
As of December 31, 2020 (dollars in millions) Commercial
Customers Institutional
Counterparties Commercial
Customers Institutional
Counterparties
Notional principal amounts $ 8,878.6 $ 8,881.3 $ 185.1 $ 185.1
Weighted average interest rates:
Pay floating (receive fixed) 0.40% (2.38%) - N/A N/A
Pay fixed (receive floating) - 2.25% (0.40%) N/A N/A
Weighted average strike rate N/A N/A 3.37 % 3.37 %
Weighted average remaining term to maturity
(in months) 77 77 22 22
Fair value:
Recognized as an asset $ 778.0 $ 5.8 $ 3.0 $ -
Recognized as a liability 0.4 156.8 - 3.0
See Notes 22 and 23 to the Consolidated Financial Statements for further information relating to derivatives.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The information required by this item begins on page 81.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
People’s United’s management, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of People’s United’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that People’s United’s disclosure controls and procedures are effective, as of
December 31, 2020, to ensure that information relating to People’s United, which is required to be disclosed in the reports People’s United files with the SEC under the Exchange Act, is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
During the quarter ended December 31, 2020, there has not been any change in People’s United’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, People’s United’s internal control over financial reporting. People’s United’s Management’s Report on Internal Control Over Financial Reporting appears on
page 80 and the related Report of Independent Registered Public Accounting Firm appears on page 85.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
Part III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Directors of the Corporation
The information required herein is incorporated by reference to our definitive proxy statement or in an amendment to this Form 10-K, to be filed no later than 120 days after the end of the fiscal year covered by this Form 10-K.
Audit Committee Financial Expert
The Board of Directors has determined that all members of the Audit Committee of the Board are each an “audit committee financial expert” and are “independent” within the meaning of those terms as used in the instructions to this Item 10.
Executive Officers of the Corporation
The information required herein is incorporated by reference to our definitive proxy statement or in an amendment to this Form 10-K, to be filed no later than 120 days after the end of the fiscal year covered by this Form 10-K.
People’s United has adopted a Code of Ethics that applies to its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The text of the Code of Ethics is available on People’s United’s website at www.peoples.com, under “Investor Relations-Governance Documents-Code of Ethics for Senior Financial Officers.”
Additional information required by this item is incorporated by reference to our definitive proxy statement or in an amendment to this Form 10-K, to be filed no later than 120 days after the end of the fiscal year covered by this Form 10-K.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required herein is incorporated by reference to our definitive proxy statement or in an amendment to this Form 10-K, to be filed no later than 120 days after the end of the fiscal year covered by this Form 10-K.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides summary information about People’s United’s equity compensation plans as of
December 31, 2020:
Equity Compensation Plan Information
Plan category (a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights (1) (b)
Weighted-average
exercise price of
outstanding options,
warrants and rights (2) (c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in Column (a)) (3)
Equity compensation plans approved by
security holders 20,600,894 $ 16.19 25,704,590
Equity compensation plans not approved by
security holders - n/a -
Total 20,600,894 $ 16.19 25,704,590
(1)Consists of the following as of December 31, 2020: 2,578,622 performance shares (assuming maximum performance for each of the performance measures) and 18,022,272 options. There is no exercise event as to performance shares which vest, if at all, following the three-year performance period.
(2)The weighted-average exercise price in column (b) does not take the performance share awards into account.
(3)Of this amount, 258,714 shares are issuable as shares of restricted stock pursuant to the People’s United Financial, Inc. Directors’ Equity Compensation Plan. The remaining 25,445,876 shares are issuable pursuant to the People’s United Financial, Inc. 2014 Long-Term Incentive Plan either in the form of options, stock appreciation rights, shares of restricted stock or performance shares. Information describing these plans appears in Note 20 to the Consolidated Financial Statements.
Additional information required by this item is incorporated by reference to our definitive proxy statement or in an amendment to this Form 10-K, to be filed no later than 120 days after the end of the fiscal year covered by this Form 10-K.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required herein is incorporated by reference to our definitive proxy statement or in an amendment to this Form 10-K, to be filed no later than 120 days after the end of the fiscal year covered by this Form 10-K.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
The information required herein is incorporated by reference to our definitive proxy statement or in an amendment to this Form 10-K, to be filed no later than 120 days after the end of the fiscal year covered by this Form 10-K.
Part IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(a)(1) The following consolidated financial statements of People’s United Financial, Inc. and the independent registered public accounting firm report thereon are included herein beginning on page 81:
Consolidated Statements of Condition as of December 31, 2020 and 2019
Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(a)(2) Financial statement schedules have been omitted as they are not applicable or the information is included in the consolidated financial statements or notes thereto.
(a)(3) Exhibits
The following Exhibits are filed with this Report or are incorporated by reference. Each exhibit identified by an asterisk constitutes a management contract or compensatory plan, contract or arrangement.
Designation Description
3.1 Third Amended and Restated Certificate of Incorporation of People's United Financial, Inc. (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2013)
3.2 Amended Eighth Amended and Restated Bylaws of People's United Financial, Inc. (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on June 26, 2018)
3.3 Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of People's United Financial, Inc. (incorporated by reference to Exhibit 3.1(a) to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2016)
3.4 Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of People's United Financial, Inc. (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2017)
4 Description of Registrant's Securities (incorporated by reference to Exhibit 4 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2020)
4.1 Form of Stock Certificate of People's United Financial, Inc. (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to Form S-1 filed with the Securities and Exchange Commission on February 13, 2007 (Registration No. 333-138389))
4.2 Indenture, dated as of February 14, 2007, by and between Chittenden Corporation and The Bank of New York Trust Company, N.A. as Trustee (incorporated by reference to Exhibit 4.2 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009)
4.3 Form of Global Note, registered in the name of Cede & Co. as nominee (February 17, 2007) (incorporated by reference to Exhibit 4.3 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009)
4.5 Senior Indenture dated as of December 6, 2012 between People's United Financial, Inc. and The Bank of New York Mellon as Trustee (incorporated by reference to Exhibit 4.5 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2013)
4.6 Form of Global Note, registered in the name of Cede & Co. as nominee (December 6, 2012) (incorporated by reference to Exhibit 4.6 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2013)
Designation Description
4.7 Issuing and Paying Agency Agreement dated June 26, 2014 between People's United Bank as Issuer and Bank of New York Mellon as Agent (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on June 26, 2014)
4.8 Form of Global Subordinated Note, registered in the name of Cede & Co. as nominee (June 26, 2014) (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on June 26, 2014)
10.1* Form of Change in Control Agreement (Senior Executive Vice Presidents) (incorporated by reference to Exhibit 10.2(c) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012)
10.2* People’s United Financial, Inc. Short-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2017)
10.3* Amended and Restated People's Bank 1998 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.9 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2007)
10.4* People's United Financial, Inc. 2008 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.10 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2010)
10.5* Form of Stock Option Agreement under 2008 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2013)
10.6* Form of Grant Agreement for Restricted Stock under 2008 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2013)
10.7* People's United Financial, Inc. Amended and Restated 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2017)
10.7(a)* Amendment No. 1 to the People's United Financial, Inc. 2014 Long-Term Incentive Plan, as Amended and Restated, February 16, 2017 (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 1, 2018)
10.7(b)* Form of Grant Agreement for Performance Shares under the People’s United Financial, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7(a) to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2017)
10.7(c)* Form of Grant Agreement for Stock Options under the People’s United Financial, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7(b) to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2017)
10.7(d)* Form of Grant Agreement for Stock Options under the People’s United Financial, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7(c) to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2017)
10.7(e)* Form of Grant Agreement for Restricted Stock under the People’s United Financial, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7(d) to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2017)
10.7(f)* Form of Grant Agreement for Restricted Stock under the People’s United Financial, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7(e) to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2017)
10.8* First Amended and Restated People's United Bank Cap Excess Plan (incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009)
10.8(a)* First Amendment to the First Amended and Restated People's United Bank Cap Excess Plan (incorporated by reference to Exhibit 10.9(a) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012)
10.9* The People's United Bank Enhanced Senior Pension Plan-First Amendment and Restatement (incorporated by reference to Exhibit 10.14 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009)
10.9(a)* First Amendment to The People's United Bank Enhanced Senior Pension Plan (incorporated by reference to Exhibit 10.10(a) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012)
10.10* Non-Qualified Pension Trust Agreement, dated as of March 18, 1997, between People's Bank and Morgan Guaranty Trust Company of New York (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on February 2, 2007 (Registration No. 333-138389))
Designation Description
10.10(a)* Amendment to People's Bank Non-Qualified Pension Trust Agreement (incorporated by reference to Exhibit 10.15(a) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2008)
10.10(b)* Trustee Engagement Agreement (Non-Qualified Pension Plans) dated May 21, 2014 between People's United Bank and First Bankers Trust Services, Inc. (incorporated by reference to Exhibit 10.11(b) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2015)
10.11* People's United Bank, N.A. Nonqualified Savings and Retirement Plan (amended and restated as of January 1, 2016) (incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2016)
10.12* People's Bank Supplemental Savings Plan Non-Qualified Trust Agreement, dated as of July 23, 1998, between People's Bank and Morgan Guaranty Trust Company of New York (incorporated by reference to Exhibit 10.17 to Amendment No. 3 to Form S-1 filed with the Securities and Exchange Commission on February 2, 2007 (Registration No. 333-138389))
10.12(a)* Amendment to People's Bank Supplemental Savings Plan Non-Qualified Trust Agreement (incorporated by reference to Exhibit 10.17(a) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2008)
10.12(b)* Trustee Engagement Agreement (Nonqualified Savings and Retirement Plan) dated May 21, 2014 between People's United Bank and First Bankers Trust Services, Inc. (incorporated by reference to Exhibit 10.13(b) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2015)
10.13* People's United Financial, Inc. Third Amended and Restated Directors' Equity Compensation Plan (incorporated by reference to Exhibit 4.5 to Form S-8 filed with the Securities and Exchange Commission on September 30, 2019)
10.14* People's Bank Change-in-Control Employee Severance Plan (incorporated by reference to Exhibit 10.25 to Amendment No. 4 to Form S-1 filed with the Securities and Exchange Commission on February 13, 2007 (Registration No. 333-138389))
10.15* People's United Financial, Inc. 2007 Recognition and Retention Plan (amended) (incorporated by reference to Exhibit 10.26 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2008)
10.15(a)* Form of Grant Agreement for Restricted Stock under 2007 Recognition and Retention Plan (incorporated by reference to Exhibit 10.16(d) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012)
10.16* People's United Financial, Inc. 2007 Stock Option Plan (amended) (incorporated by reference to Exhibit 10.27 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2008)
10.16(a)* Form of Grant Agreement for Stock Options under 2007 Stock Option Plan (incorporated by reference to Exhibit 10.17(d) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012)
10.17* Chittenden Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.28 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009)
10.17(a)* Amendment No. 1 to the Chittenden Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.28(a) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009)
10.17(b)* Amendment No. 2 to the Chittenden Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.18(b) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012)
10.17(c)* Amendment No. 3 to the Chittenden Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.18(c) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012)
10.18* The Chittenden Corporation Supplemental Executive Savings Plan (incorporated by reference to Exhibit 10.30 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009)
Designation Description
10.18(a)* Amendment No. 1 to the Chittenden Corporation Supplemental Executive Savings Plan (incorporated by reference to Exhibit 10.30(a) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009)
10.18(b)* Amendment No. 2 to the Chittenden Corporation Supplemental Executive Savings Plan (incorporated by reference to Exhibit 10.19(b) to Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2012)
10.19* Purchase and Assumption Agreement dated as of April 16, 2010 among Federal Deposit Insurance Corporation as Receiver of Butler Bank, Federal Deposit Insurance Corporation, and People's United Bank (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2010)
21 Subsidiaries
23 Consent of KPMG LLP
31.1 Rule 13a-14(a)/15d-14(a) Certifications
31.2 Rule 13a-14(a)/15d-14(a) Certifications
32 Section 1350 Certifications
99.1 Impact of Inflation
101.1 The following financial information from People’s United Financial, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 formatted in Inline XBRL: (i) Consolidated Statements of Condition as of December 31, 2020 and 2019; (ii) Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018; and (vi) Notes to Consolidated Financial Statements.
104 Cover page formatted in Inline XBRL and contained within Exhibit 101.1