Loans | NOTE 3. LOANS For purposes of disclosures related to the credit quality of financing receivables and the allowance for loan losses, People’s United has identified two loan portfolio segments, Commercial and Retail, which are comprised of the following loan classes: • Commercial Portfolio • Retail Portfolio Loans acquired in connection with business combinations beginning in 2010 are referred to as ‘acquired’ loans as a result of the manner in which they are accounted for (see further discussion under ‘Acquired Loans’). All other loans are referred to as ‘originated’ loans. Accordingly, selected credit quality disclosures that follow are presented separately for the ‘originated’ loan portfolio and the ‘acquired’ loan portfolio. People’s United maintains several significant accounting policies with respect to loans, including: • Establishment of the allowance for loan losses (including the identification of ‘impaired’ loans and related impairment measurement considerations); • Income recognition (including the classification of a loan as ‘non-accrual’ and the treatment of loan origination costs); and • Recognition of loan charge-offs. The Company did not change its policies with respect to loans or its methodology for determining the allowance for loan losses during the nine months ended September 30, 2015. The following table summarizes People’s United’s loans by loan portfolio segment and class: September 30, 2015 December 31, 2014 (in millions) Originated Acquired Total Originated Acquired Total Commercial: Commercial real estate $ 9,436.7 $ 348.7 $ 9,785.4 $ 8,960.3 $ 444.0 $ 9,404.3 Commercial and industrial 7,257.2 235.0 7,492.2 6,891.1 298.5 7,189.6 Equipment financing 2,802.4 18.7 2,821.1 2,839.0 26.5 2,865.5 Total commercial 10,059.6 253.7 10,313.3 9,730.1 325.0 10,055.1 Total Commercial Portfolio 19,496.3 602.4 20,098.7 18,690.4 769.0 19,459.4 Retail: Residential mortgage: Adjustable-rate 4,655.7 125.4 4,781.1 4,254.7 139.1 4,393.8 Fixed-rate 527.5 72.8 600.3 446.8 91.4 538.2 Total residential mortgage 5,183.2 198.2 5,381.4 4,701.5 230.5 4,932.0 Consumer: Home equity 2,101.3 39.9 2,141.2 2,092.9 50.2 2,143.1 Other consumer 49.9 1.0 50.9 56.3 1.2 57.5 Total consumer 2,151.2 40.9 2,192.1 2,149.2 51.4 2,200.6 Total Retail Portfolio 7,334.4 239.1 7,573.5 6,850.7 281.9 7,132.6 Total loans $ 26,830.7 $ 841.5 $ 27,672.2 $ 25,541.1 $ 1,050.9 $ 26,592.0 Net deferred loan costs, which are included in total loans and accounted for as interest yield adjustments, totaled $58.9 million at September 30, 2015 and $54.8 million at December 31, 2014. The following table presents a summary, by loan portfolio segment, of activity in the allowance for loan losses. With respect to the originated portfolio, an allocation of a portion of the allowance to one segment does not preclude its availability to absorb losses in another segment. Three months ended Commercial Retail September 30, 2015 (in millions) Originated Acquired Total Originated Acquired Total Total Balance at beginning of period $ 176.4 $ 10.1 $ 186.5 $ 18.7 $ 0.2 $ 18.9 $ 205.4 Charge-offs (4.1 ) — (4.1 ) (2.0 ) — (2.0 ) (6.1 ) Recoveries 1.2 — 1.2 0.8 — 0.8 2.0 Net loan charge-offs (2.9 ) — (2.9 ) (1.2 ) — (1.2 ) (4.1 ) Provision for loan losses 3.8 (0.9 ) 2.9 3.3 — 3.3 6.2 Balance at end of period $ 177.3 $ 9.2 $ 186.5 $ 20.8 $ 0.2 $ 21.0 $ 207.5 Nine months ended Commercial Retail September 30, 2015 (in millions) Originated Acquired Total Originated Acquired Total Total Balance at beginning of period $ 169.6 $ 9.8 $ 179.4 $ 18.5 $ 0.4 $ 18.9 $ 198.3 Charge-offs (14.4 ) — (14.4 ) (5.8 ) — (5.8 ) (20.2 ) Recoveries 4.0 — 4.0 1.7 — 1.7 5.7 Net loan charge-offs (10.4 ) — (10.4 ) (4.1 ) — (4.1 ) (14.5 ) Provision for loan losses 18.1 (0.6 ) 17.5 6.4 (0.2 ) 6.2 23.7 Balance at end of period $ 177.3 $ 9.2 $ 186.5 $ 20.8 $ 0.2 $ 21.0 $ 207.5 Three months ended Commercial Retail September 30, 2014 (in millions) Originated Acquired Total Originated Acquired Total Total Balance at beginning of period $ 163.5 $ 9.6 $ 173.1 $ 19.0 $ 0.5 $ 19.5 $ 192.6 Charge-offs (6.2 ) (0.2 ) (6.4 ) (2.9 ) — (2.9 ) (9.3 ) Recoveries 0.5 — 0.5 0.7 — 0.7 1.2 Net loan charge-offs (5.7 ) (0.2 ) (5.9 ) (2.2 ) — (2.2 ) (8.1 ) Provision for loan losses 8.2 2.1 10.3 2.2 (0.1 ) 2.1 12.4 Balance at end of period $ 166.0 $ 11.5 $ 177.5 $ 19.0 $ 0.4 $ 19.4 $ 196.9 Nine months ended Commercial Retail September 30, 2014 (in millions) Originated Acquired Total Originated Acquired Total Total Balance at beginning of period $ 158.5 $ 9.8 $ 168.3 $ 19.0 $ 0.5 $ 19.5 $ 187.8 Charge-offs (15.3 ) (2.6 ) (17.9 ) (8.3 ) (0.1 ) (8.4 ) (26.3 ) Recoveries 3.1 — 3.1 1.6 — 1.6 4.7 Net loan charge-offs (12.2 ) (2.6 ) (14.8 ) (6.7 ) (0.1 ) (6.8 ) (21.6 ) Provision for loan losses 19.7 4.3 24.0 6.7 — 6.7 30.7 Balance at end of period $ 166.0 $ 11.5 $ 177.5 $ 19.0 $ 0.4 $ 19.4 $ 196.9 The following is a summary, by loan portfolio segment and impairment methodology, of the allowance for loan losses and related portfolio balances: As of September 30, 2015 Originated Loans Originated Loans Acquired Loans Total (in millions) Portfolio Allowance Portfolio Allowance Portfolio Allowance Portfolio Allowance Commercial $ 169.0 $ 8.2 $ 19,327.3 $ 169.1 $ 602.4 $ 9.2 $ 20,098.7 $ 186.5 Retail 97.2 3.7 7,237.2 17.1 239.1 0.2 7,573.5 21.0 Total $ 266.2 $ 11.9 $ 26,564.5 $ 186.2 $ 841.5 $ 9.4 $ 27,672.2 $ 207.5 As of December 31, 2014 Originated Loans Originated Loans Acquired Loans Total (in millions) Portfolio Allowance Portfolio Allowance Portfolio Allowance Portfolio Allowance Commercial $ 174.5 $ 7.6 $ 18,515.9 $ 162.0 $ 769.0 $ 9.8 $ 19,459.4 $ 179.4 Retail 95.0 3.9 6,755.7 14.6 281.9 0.4 7,132.6 18.9 Total $ 269.5 $ 11.5 $ 25,271.6 $ 176.6 $ 1,050.9 $ 10.2 $ 26,592.0 $ 198.3 The recorded investments, by class of loan, of originated non-performing loans are summarized as follows: (in millions) September 30, December 31, Commercial: Commercial and industrial $ 62.9 $ 55.8 Commercial real estate 31.8 60.2 Equipment financing 29.4 25.4 Total (1) 124.1 141.4 Retail: Residential mortgage 38.2 37.6 Home equity 21.0 17.9 Other consumer — 0.1 Total (2) 59.2 55.6 Total $ 183.3 $ 197.0 (1) Reported net of government guarantees totaling $17.3 million and $17.6 million at September 30, 2015 and December 31, 2014, respectively. These government guarantees relate, almost entirely, to guarantees provided by the Small Business Administration as well as selected other Federal agencies and represent the carrying value of the loans that are covered by such guarantees, the extent of which (i.e. full or partial) varies by loan. At September 30, 2015, the principal loan classes to which these government guarantees relate are commercial and industrial loans (99%) and commercial real estate loans (1%). (2) Includes $19.8 million and $18.9 million of loans in the process of foreclosure at September 30, 2015 and December 31, 2014, respectively. The preceding table excludes acquired loans that are (i) accounted for as purchased credit impaired loans or (ii) covered by a Federal Deposit Insurance Corporation (“FDIC”) loss-share agreement (“LSA”) totaling $36.6 million and $1.8 million, respectively, at September 30, 2015 and $100.6 million and $3.0 million, respectively, at December 31, 2014. Such loans otherwise meet People’s United’s definition of a non-performing loan but are excluded because the loans are included in loan pools that are considered performing and/or credit losses are covered by an FDIC LSA. The discounts arising from recording these loans at fair value were due, in part, to credit quality. The acquired loans are generally accounted for on a pool basis and the accretable yield on the pools is being recognized as interest income over the life of the loans based on expected cash flows at the pool level. A loan is generally considered “non-performing” when it is placed on non-accrual status. A loan is generally placed on non-accrual A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impaired loans also include certain originated loans whose terms have been modified in such a way that they are considered troubled debt restructurings (“TDRs”). Originated loans are considered TDRs if the borrower is experiencing financial difficulty and is afforded a concession by 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. Generally, TDRs are placed on non-accrual status (and reported as non-performing loans) until the loan qualifies for return to accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of six months in the case of a commercial loan or, in the case of a retail loan, when the loan is less than 90 days past due. Loans may continue to be reported as TDRs after they are returned to accrual status. In accordance with regulatory guidance, residential mortgage and home equity loans restructured in connection with the borrower’s bankruptcy and meeting certain criteria are also required to be classified as TDRs, included in non-performing loans and written down to the estimated collateral value, regardless of delinquency status. Acquired loans that are modified are not considered for TDR classification provided they are evaluated for impairment on a pool basis. People’s United’s recorded investment in originated loans classified as TDRs totaled $199.2 million and $181.6 million at September 30, 2015 and December 31, 2014, respectively. The related allowance for loan losses at September 30, 2015 and December 31, 2014 was $6.8 million and $7.1 million, respectively. Interest income recognized on TDRs totaled $1.1 million for both the three months ended September 30, 2015 and 2014, and $3.2 million and $3.1 million for the nine months ended September 30, 2015 and 2014, respectively. Fundings under commitments to lend additional amounts to borrowers with loans classified as TDRs were immaterial for the three and nine months ended September 30, 2015 and 2014. Originated loans that were modified and classified as TDRs during the three and nine months ended September 30, 2015 and 2014 principally involve reduced payment and/or payment deferral, extension of term (generally no more than two years for commercial loans and nine years for retail loans) and/or a temporary reduction of interest rate (generally less than 200 basis points). The following tables summarize, by class of loan, the recorded investments in loans modified as TDRs during the three and nine months ended September 30, 2015 and 2014. For purposes of this disclosure, recorded investments represent amounts immediately prior to and subsequent to the restructuring. Three Months Ended September 30, 2015 (dollars in millions) Number Pre-Modification Post-Modification Commercial: Commercial real estate (1) 10 $ 7.0 $ 7.0 Commercial and industrial (2) 7 24.4 24.4 Equipment financing (3) 8 4.2 4.2 Total 25 35.6 35.6 Retail: Residential mortgage (4) 15 5.0 5.0 Home equity (5) 17 1.3 1.3 Other consumer — — — Total 32 6.3 6.3 Total 57 $ 41.9 $ 41.9 (1) Represents the following concessions: extension of term (7 contracts; recorded investment of $2.1 million); reduced payment and/or payment deferral (2 contracts; recorded investment of $1.2 million); or a combination of concessions (1 contract; recorded investment of $3.7 million). (2) Represents the following concessions: extension of term (3 contracts; recorded investment of $9.8 million); reduced payment and/or payment deferral (3 contracts; recorded investment of $13.6 million); or a combination of concessions (1 contract; recorded investment of $1.0 million). (3) Represents the following concessions: reduced payment and/or payment deferral (3 contracts; recorded investment of $2.0 million); or a combination of concessions (5 contracts; recorded investment of $2.2 million). (4) Represents the following concessions: loans restructured through bankruptcy (6 contracts; recorded investment of $1.2 million); reduced payment and/or payment deferral (4 contracts; recorded investment of $0.8 million); or a combination of concessions (5 contracts; recorded investment of $3.0 million). (5) Represents the following concessions: loans restructured through bankruptcy (12 contracts; recorded investment of $0.9 million); reduced payment and/or payment deferral (1 contract; recorded investment of $0.1 million); or a combination of concessions (4 contracts; recorded investment of $0.3 million). Nine Months Ended September 30, 2015 (dollars in millions) Number Pre-Modification Post-Modification Commercial: Commercial real estate (1) 20 $ 12.3 $ 12.3 Commercial and industrial (2) 35 59.2 59.2 Equipment financing (3) 18 19.6 19.6 Total 73 91.1 91.1 Retail: Residential mortgage (4) 50 16.9 16.9 Home equity (5) 70 6.2 6.2 Other consumer — — — Total 120 23.1 23.1 Total 193 $ 114.2 $ 114.2 (1) Represents the following concessions: extension of term (17 contracts; recorded investment of $7.4 million); reduced payment and/or payment deferral (2 contracts; recorded investment of $1.2 million); or a combination of concessions (1 contract; recorded investment of $3.7 million). (2) Represents the following concessions: extension of term (19 contracts; recorded investment of $22.9 million); reduced payment and/or payment deferral (11 contracts; recorded investment of $33.0 million); or a combination of concessions (5 contracts; recorded investment of $3.3 million). (3) Represents the following concessions: reduced payment and/or payment deferral (8 contracts; recorded investment of $12.7 million); or a combination of concessions (10 contracts; recorded investment of $6.9 million). (4) Represents the following concessions: loans restructured through bankruptcy (16 contracts; recorded investment of $5.1 million); reduced payment and/or payment deferral (11 contracts; recorded investment of $3.6 million); temporary rate reduction (2 contracts; recorded investment of $0.3 million); or a combination of concessions (21 contracts; recorded investment of $7.9 million). (5) Represents the following concessions: loans restructured through bankruptcy (48 contracts; recorded investment of $3.8 million); reduced payment and/or payment deferral (4 contracts; recorded investment of $0.3 million); temporary rate reduction (1 contract; recorded investment of $0.5 million); or a combination of concessions (17 contracts; recorded investment of $1.6 million). Three Months Ended September 30, 2014 (dollars in millions) Number Pre-Modification Post-Modification Commercial: Commercial real estate (1) 9 $ 5.8 $ 5.8 Commercial and industrial (2) 7 2.9 2.9 Equipment financing (3) 6 1.4 1.4 Total 22 10.1 10.1 Retail: Residential mortgage (4) 28 6.6 6.6 Home equity (5) 36 3.3 3.3 Other consumer — — — Total 64 9.9 9.9 Total 86 $ 20.0 $ 20.0 (1) Represents the following concessions: extension of term (8 contracts; recorded investment of $5.5 million); or reduced payment and/or payment deferral (1 contract; recorded investment of $0.3 million). (2) Represents the following concessions: extension of term (6 contracts; recorded investment of $2.8 million); or reduced payment and/or payment deferral (1 contract; recorded investment of $0.1 million). (3) Represents the following concessions: reduced payment and/or payment deferral (1 contract; recorded investment of $0.1 million); or a combination of concessions (5 contracts; recorded investment of $1.3 million). (4) Represents the following concessions: loans restructured through bankruptcy (11 contracts; recorded investment of $1.0 million); reduced payment and/or payment deferral (4 contracts; recorded investment of $0.7 million); or a combination of concessions (13 contracts; recorded investment of $4.9 million). (5) Represents the following concessions: loans restructured through bankruptcy (22 contracts; recorded investment of $1.6 million); reduced payment and/or payment deferral (7 contracts; recorded investment of $0.8 million); temporary rate reduction (1 contract; recorded investment of $0.5 million); or a combination of concessions (6 contracts; recorded investment of $0.4 million). Nine Months Ended September 30, 2014 (dollars in millions) Number Pre-Modification Post-Modification Commercial: Commercial real estate (1) 22 $ 32.1 $ 32.1 Commercial and industrial (2) 36 27.2 27.2 Equipment financing (3) 17 5.1 5.1 Total 75 64.4 64.4 Retail: Residential mortgage (4) 113 32.0 32.0 Home equity (5) 108 10.2 10.2 Other consumer — — — Total 221 42.2 42.2 Total 296 $ 106.6 $ 106.6 (1) Represents the following concessions: extension of term (14 contracts; recorded investment of $10.9 million); reduced payment and/or payment deferral (4 contracts; recorded investment of $1.8 million); temporary rate reduction (1 contract; recorded investment of $18.2 million); or a combination of concessions (3 contracts; recorded investment of $1.2 million). (2) Represents the following concessions: extension of term (13 contracts; recorded investment of $5.9 million); reduced payment and/or payment deferral (8 contracts; recorded investment of $2.5 million); or a combination of concessions (15 contracts; recorded investment of $18.8 million). (3) Represents the following concessions: reduced payment and/or payment deferral (2 contracts; recorded investment of $0.3 million); or a combination of concessions (15 contracts; recorded investment of $4.8 million). (4) Represents the following concessions: loans restructured through bankruptcy (28 contracts; recorded investment of $5.0 million); extension of term (1 contract; recorded investment of $0.5 million); reduced payment and/or payment deferral (26 contracts; recorded investment of $8.6 million); or a combination of concessions (58 contracts; recorded investment of $17.9 million). (5) Represents the following concessions: loans restructured through bankruptcy (53 contracts; recorded investment of $4.7 million); reduced payment and/or payment deferral (16 contracts; recorded investment of $2.1 million); temporary rate reduction (2 contracts; recorded investment of $0.6 million); or a combination of concessions (37 contracts; recorded investment of $2.8 million). The following is a summary, by class of loan, of information related to TDRs of originated loans completed within the previous 12 months that subsequently defaulted during the three and nine months ended September 30, 2015 and 2014. For purposes of this disclosure, the previous 12 months is measured from October 1 of the respective prior year and a default represents a previously-modified Three Months Ended September 30, 2015 2014 (dollars in millions) Number Recorded Number Recorded Commercial: Commercial real estate — $ — 3 $ 3.7 Commercial and industrial 1 0.6 1 0.7 Equipment financing 1 0.3 — — Total 2 0.9 4 4.4 Retail: Residential mortgage 2 0.2 13 2.1 Home equity 2 0.1 6 0.3 Other consumer — — — — Total 4 0.3 19 2.4 Total 6 $ 1.2 23 $ 6.8 Nine Months Ended September 30, 2015 2014 (dollars in millions) Number Recorded Number Recorded Commercial: Commercial real estate 2 $ 3.4 5 $ 4.1 Commercial and industrial 4 1.4 2 0.8 Equipment financing 8 4.1 8 1.0 Total 14 8.9 15 5.9 Retail: Residential mortgage 18 6.7 39 12.7 Home equity 16 1.5 23 1.6 Other consumer — — — — Total 34 8.2 62 14.3 Total 48 $ 17.1 77 $ 20.2 People’s United’s impaired loans consist of certain originated loans, including all TDRs. The following table summarizes, by class of loan, information related to individually-evaluated impaired loans within the originated portfolio. As of September 30, 2015 As of December 31, 2014 (in millions) Unpaid Recorded Related Unpaid Recorded Related Without a related allowance for loan losses: Commercial: Commercial real estate $ 48.0 $ 47.4 $ — $ 57.1 $ 55.8 $ — Commercial and industrial 63.5 59.6 — 51.7 48.6 — Equipment financing 21.5 17.7 — 30.2 21.4 — Retail: Residential mortgage 67.9 61.1 — 65.4 58.9 — Home equity 22.3 19.5 — 21.3 18.3 — Other consumer — — — — — — Total $ 223.2 $ 205.3 $ — $ 225.7 $ 203.0 $ — With a related allowance for loan losses: Commercial: Commercial real estate $ 17.8 $ 13.5 $ 1.9 $ 52.1 $ 27.8 $ 4.0 Commercial and industrial 22.2 21.3 5.6 21.4 17.4 3.5 Equipment financing 12.5 9.5 0.7 3.6 3.5 0.1 Retail: Residential mortgage 14.9 14.8 2.9 15.6 15.3 2.6 Home equity 1.9 1.8 0.8 2.6 2.5 1.3 Other consumer — — — — — — Total $ 69.3 $ 60.9 $ 11.9 $ 95.3 $ 66.5 $ 11.5 Total impaired loans: Commercial: Commercial real estate $ 65.8 $ 60.9 $ 1.9 $ 109.2 $ 83.6 $ 4.0 Commercial and industrial 85.7 80.9 5.6 73.1 66.0 3.5 Equipment financing 34.0 27.2 0.7 33.8 24.9 0.1 Total 185.5 169.0 8.2 216.1 174.5 7.6 Retail: Residential mortgage 82.8 75.9 2.9 81.0 74.2 2.6 Home equity 24.2 21.3 0.8 23.9 20.8 1.3 Other consumer — — — — — — Total 107.0 97.2 3.7 104.9 95.0 3.9 Total $ 292.5 $ 266.2 $ 11.9 $ 321.0 $ 269.5 $ 11.5 The following table summarizes, by class of loan, the average recorded investment and interest income recognized on impaired loans for the periods indicated. The average recorded investment amounts are based on month-end balances. Three Months Ended September 30, 2015 2014 (in millions) Average Interest Average Interest Commercial: Commercial real estate $ 59.2 $ 0.5 $ 81.8 $ 0.3 Commercial and industrial 83.0 0.2 51.0 0.2 Equipment financing 26.7 0.1 30.6 0.2 Total 168.9 0.8 163.4 0.7 Retail: Residential mortgage 74.4 0.4 72.3 0.4 Home equity 21.2 0.1 18.4 0.1 Other consumer — — — — Total 95.6 0.5 90.7 0.5 Total $ 264.5 $ 1.3 $ 254.1 $ 1.2 Nine Months Ended September 30, 2015 2014 (in millions) Average Interest Average Interest Commercial: Commercial real estate $ 67.8 $ 1.2 $ 75.7 $ 1.2 Commercial and industrial 71.1 1.2 42.9 0.8 Equipment financing 28.9 0.3 29.4 0.6 Total 167.8 2.7 148.0 2.6 Retail: Residential mortgage 75.3 1.1 71.4 1.0 Home equity 21.3 0.2 17.3 0.2 Other consumer — — — — Total 96.6 1.3 88.7 1.2 Total $ 264.4 $ 4.0 $ 236.7 $ 3.8 The following tables summarize, by class of loan, aging information for originated loans: Past Due As of September 30, 2015 (in millions) Current 30-89 90 Days Total Total Commercial: Commercial real estate $ 9,403.2 $ 21.0 $ 12.5 $ 33.5 $ 9,436.7 Commercial and industrial 7,173.6 29.2 54.4 83.6 7,257.2 Equipment financing 2,733.3 59.0 10.1 69.1 2,802.4 Total 19,310.1 109.2 77.0 186.2 19,496.3 Retail: Residential mortgage 5,117.5 39.9 25.8 65.7 5,183.2 Home equity 2,084.6 6.3 10.4 16.7 2,101.3 Other consumer 49.6 0.3 — 0.3 49.9 Total 7,251.7 46.5 36.2 82.7 7,334.4 Total originated loans $ 26,561.8 $ 155.7 $ 113.2 $ 268.9 $ 26,830.7 Included in the “Current” and “30-89 Days” categories above are early non-performing commercial real estate loans, commercial and industrial loans, and equipment financing loans totaling $19.3 million, $25.8 million and $19.3 million, respectively, and $23.0 million of retail loans in the process of foreclosure or bankruptcy. These loans are less than 90 days past due but have been placed on non-accrual status as a result of having been identified as presenting uncertainty with respect to the collectability of interest and principal. Past Due As of December 31, 2014 (in millions) Current 30-89 90 Days Total Total Commercial: Commercial real estate $ 8,908.0 $ 17.6 $ 34.7 $ 52.3 $ 8,960.3 Commercial and industrial 6,814.9 32.4 43.8 76.2 6,891.1 Equipment financing 2,793.3 41.0 4.7 45.7 2,839.0 Total 18,516.2 91.0 83.2 174.2 18,690.4 Retail: Residential mortgage 4,647.3 29.1 25.1 54.2 4,701.5 Home equity 2,079.3 5.0 8.6 13.6 2,092.9 Other consumer 55.8 0.4 0.1 0.5 56.3 Total 6,782.4 34.5 33.8 68.3 6,850.7 Total originated loans $ 25,298.6 $ 125.5 $ 117.0 $ 242.5 $ 25,541.1 Included in the “Current” and “30-89 Days” categories above are early non-performing commercial real estate loans, commercial and industrial loans, and equipment financing loans totaling $25.6 million, $29.5 million and $20.7 million, respectively, and $21.8 million of retail loans in the process of foreclosure or bankruptcy. These loans are less than 90 days past due but have been placed on non-accrual status as a result of having been identified as presenting uncertainty with respect to the collectability of interest and principal. Commercial Credit Quality Indicators The Company utilizes an internal loan risk rating system as a means of monitoring portfolio credit quality and identifying both problem and potential problem loans. Under the Company’s risk rating system, loans not meeting the criteria for problem and potential problem loans as specified below are considered to be “Pass”-rated loans. Problem and potential problem loans are classified as either “Special Mention,” “Substandard” or “Doubtful.” Loans that do not currently expose the Company to sufficient enough risk of loss to warrant classification as either Substandard or Doubtful, but possess weaknesses that deserve management’s close attention, are classified as Special Mention. Substandard loans represent those credits characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful possess all the weaknesses inherent in those classified Substandard with the added characteristic that collection or liquidation in full, on the basis of existing facts, conditions and values, is highly questionable and/or improbable. Risk ratings on commercial loans are subject to ongoing monitoring by lending and credit personnel with such ratings updated annually or more frequently, if warranted. The Company’s internal Loan Review function is responsible for independently evaluating the appropriateness of those credit risk ratings in connection with its cyclical reviews, the approach to which is risk-based and determined by reference to underlying portfolio credit quality and the results of prior reviews. Differences in risk ratings noted in conjunction with such periodic portfolio loan reviews, if any, are reported to management each month. Retail Credit Quality Indicators Pools of smaller-balance, homogeneous loans with similar risk and loss characteristics are also assessed for probable losses. These loan pools include residential mortgage, home equity and other consumer loans that are not assigned individual loan risk ratings. Rather, the assessment of these portfolios is based upon a consideration of recent historical loss experience, broader portfolio indicators, including trends in delinquencies, non-performing loans and portfolio concentrations, and portfolio-specific risk characteristics, the combination of which determines whether a loan is classified as “High”, “Moderate” or “Low” risk. The portfolio-specific risk characteristics considered include: (i) collateral values/ loan-to-value (“LTV”) ratios (above and below 70%); (ii) borrower credit scores under the FICO scoring system (above and below a score of 680); and (iii) other relevant portfolio risk elements such as income verification at the time of underwriting (stated income vs. non-stated income) and the property’s intended use (owner occupied, non-owner occupied, second home, etc.). In classifying a loan as either “High”, “Moderate” or “Low” risk, the combination of each of the aforementioned risk characteristics is considered for that loan, resulting, effectively, in a “matrix approach” to its risk classification. These risk classifications are reviewed periodically to ensure that they continue to be appropriate in light of changes within the portfolio and/or economic indicators as well as other industry developments. For example, to the extent LTV ratios exceed 70% (reflecting a weaker collateral position for the Company) or borrower FICO scores are less than 680 (reflecting weaker financial standing and/or credit history of the customer), the loans are considered to have an increased level of inherent loss. As a result, a loan with a combination of these characteristics would generally be classified as “High” risk. Conversely, as LTV ratios decline (reflecting a stronger collateral position for the Company) or borrower FICO scores exceed 680 (reflecting stronger financial standing and/or credit history of the customer), the loans are considered to have a decreased level of inherent loss. A loan with a combination of these characteristics would generally be classified as “Low” risk. This analysis also considers (i) the extent of underwriting that occurred at the time of origination (direct income verification provides further support for credit decisions) and (ii) the property’s intended use (owner-occupied properties are less likely to default compared to ‘investment-type’ non-owner occupied properties, second homes, etc.). Loans not otherwise deemed to be “High” or “Low” risk are classified as “Moderate” risk. LTV ratios and FICO scores are determined at origination and updated periodically throughout the life of the loan. LTV ratios are updated for loans 90 days past due and FICO scores are updated for the entire portfolio quarterly. The portfolio stratification (“High”, “Moderate” and “Low” risk) and identification of the corresponding credit quality indicators also occurs quarterly. Commercial and Retail loans are also evaluated to determine whether they are impaired loans, which are included in the tabular disclosures of credit quality indicators that follow. Acquired Loans Credit Quality Indicators Upon acquiring a loan portfolio, the Company’s internal Loan Review function undertakes the process of assigning risk ratings to all commercial loans in accordance with the Company’s established policy, which may differ in certain respects from the risk rating policy of the predecessor company. The length of time necessary to complete this process varies based on the size of the acquired portfolio, the quality of the documentation maintained in the underlying loan files and the extent to which the predecessor company followed a risk rating approach comparable to People’s United’s. As a result, while acquired loans are risk rated, there are occasions when such ratings may be deemed “preliminary” until the Company’s re-rating process has been completed. Acquired loans are initially recorded at fair value, determined based upon an estimate of the amount and timing of both principal and interest cash flows expected to be collected and discounted using a market interest rate. The difference between contractually required principal and interest payments at the acquisition date and the undiscounted cash flows expected to be collected at the acquisition date is referred to as the “nonaccretable difference”, which includes an estimate of future credit losses expected to be incurred over the life of the portfolio. A decrease in the expected cash flows in subsequent periods requires the establishment of an allowance for loan losses at that time. At September 30, 2015 and December 31, 2014, the allowance for loan losses on acquired loans was $9.4 million and $10.2 million, respectively. The following is a summary, by class of loan, of credit quality indicators: As of September 30, 2015 (in millions) Commercial Commercial Equipment Total Commercial: Originated loans: Pass $ 9,211.9 $ 6,864.3 $ 2,434.7 $ 18,510.9 Special mention 93.9 106.0 95.3 295.2 Substandard 130.9 283.8 272.4 687.1 Doubtful — 3.1 — 3.1 Total originated loans 9,436.7 7,257.2 2,802.4 19,496.3 Acquired loans: Pass 269.6 184.9 5.5 460.0 Special mention 22.3 5.4 0.4 28.1 Substandard 55.0 44.1 12.8 111.9 Doubtful 1.8 0.6 — 2.4 Total acquired loans 348.7 235.0 18.7 602.4 Total $ 9,785.4 $ 7,492.2 $ 2,821.1 $ 20,098.7 As of September 30, 2015 (in millions) Residential Home Other Total Retail: Originated loans: Low risk $ 2,502.4 $ 950.7 $ 25.9 $ 3,479.0 Moderate risk 2,171.3 636.9 8.3 2,816.5 High risk 509.5 513.7 15.7 1,038.9 Total originated loans 5,183.2 2,101.3 49.9 7,334.4 Acquired loans: Low risk 99.3 — — 99.3 Moderate risk 40.3 — — 40.3 High risk 58.6 39.9 1.0 99.5 Total acquired loans 198.2 39.9 1.0 239.1 Total $ 5,381.4 $ 2,141.2 $ 50.9 $ 7,573.5 As of December 31, 2014 (in millions) Commercial Commercial Equipment Total Commercial: Originated loans: Pass $ 8,730.9 $ 6,477.4 $ 2,481.2 $ 17,68 |