| Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
| Dec. 31, 2017 |
| Basis of Financial Statement Presentation | Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in
conformity with U.S. generally accepted accounting principles
(“GAAP”) and include the accounts of People’s
United and its subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation. Certain
reclassifications have been made to prior year amounts to conform
to the current year presentation.
In preparing the consolidated financial statements, management is
required to make significant estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from 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
allowance for loan losses and asset impairment judgments, such as
the recoverability of goodwill and other intangible assets. These
accounting estimates, which are included in the discussion below,
are reviewed with the Audit Committee of the Board of
Directors.
The judgments used by management in applying critical accounting
policies may be affected by economic conditions, which may result
in changes to future financial results. For example, subsequent
evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the allowance for
loan losses in future periods, and the inability to collect
outstanding principal may result in increased loan losses. |
| Cash Equivalents | For purposes of the Consolidated Statements of Cash Flows, cash
equivalents include highly-liquid instruments, such as:
(i) interest-bearing deposits at the Federal Reserve Bank of
New York (the “FRB-NY”); |
| Securities | Securities
Marketable equity and debt securities (other than those reported as
short-term investments) are classified as either trading account
securities, held-to-maturity available-for-sale
Securities purchased for sale in the near term as well as those
securities held by PSI (in accordance with the requirements for a
broker-dealer) are classified as trading account securities and
reported at fair value with unrealized gains and losses reported in
non-interest
Debt securities for which People’s United has the intent and
ability to hold to maturity are classified as held-to-maturity available-for-sale after-tax
Security transactions are recorded on the trade date. Realized
gains and losses are determined using the specific identification
method and reported in non-interest
Securities transferred from available-for-sale held-to-maturity pre-tax
Management conducts a periodic review and evaluation of the
securities portfolio to determine if the decline in fair value of
any security is deemed to be other-than-temporary.
Other-than-temporary impairment losses are recognized on debt
securities when: (i) People’s United has an intention to
sell the security; (ii) it is more likely than not that
People’s United will be required to sell the security prior
to recovery; or (iii) People’s United does not expect to
recover the entire amortized cost basis of the security.
Other-than-temporary impairment losses on debt securities are
reflected in earnings as realized losses to the extent the
impairment is related to credit losses of the issuer. The amount of
the impairment related to other factors is recognized in other
comprehensive income. Management has the ability and intent to hold
the securities classified as held-to-maturity
Both Federal Home Loan Bank (“FHLB”) stock and
FRB-NY non-marketable FRB-NY |
| Securities Resale and Securities Repurchase Agreements | Securities Resale and Securities Repurchase
Agreements
In securities resale agreements, a counterparty transfers
securities to People’s United (as transferee) and
People’s United agrees to resell the same securities to the
counterparty at a fixed price in the future. In securities
repurchase agreements, which include both retail arrangements with
customers and wholesale arrangements with other counterparties,
People’s United (as transferor) transfers securities to a
counterparty and agrees to repurchase the same securities from the
counterparty at a fixed price in the future.
People’s United accounts for securities resale agreements as
secured lending transactions and securities repurchase agreements
as secured borrowings since the transferor maintains effective
control over the transferred securities and the transfer meets the
other criteria for such accounting. The securities are pledged by
the transferor as collateral and the transferee has the right by
contract to repledge that collateral provided the same collateral
is returned to the transferor upon maturity of the underlying
agreement. The fair value of the pledged collateral approximates
the recorded amount of the secured loan or borrowing. Decreases in
the fair value of the transferred securities below an established
threshold require the transferor to provide additional
collateral. |
| Loans Held-for-Sale | Loans Held-for-Sale
Loans held-for-sale are reported at the lower of cost or fair value
in the aggregate with any adjustment for net unrealized losses
reported in non-interest held-for-sale non-interest |
| Loans | Loans
Loans acquired in connection with business combinations are
referred to as ‘acquired’ loans as a result of the
manner in which they are accounted for (see further discussion
under ‘Acquired Loans’ below). All other loans are
referred to as ‘originated’ loans.
Basis of Accounting
Originated loans are reported at amortized cost less the allowance
for loan losses. Interest on loans is accrued to income monthly
based on outstanding principal balances. Loan origination fees and
certain direct loan origination costs are deferred, and the net fee
or cost is recognized in interest income as an adjustment of yield.
Depending on the loan portfolio, amounts are amortized or accreted
using the level yield method over either the actual life or the
estimated average life of the loan. |
| Non-accrual Loans | Non-accrual
A loan is generally considered “non-performing” non-accrual non-accrual non-accrual
All previously accrued but unpaid interest on non-accrual non-accrual non-accrual |
| Impaired Loans | Impaired Loans
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 loans whose
terms have been modified in such a way that they are considered
troubled debt restructurings (“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.
TDRs may either be accruing or placed on non-accrual non-performing non-accrual non-performing
Impairment is evaluated on a collective basis for smaller-balance
loans with similar credit risk and on an individual loan basis for
other loans. If a loan is deemed to be impaired, a specific
valuation allowance is allocated, if necessary, so that the loan is
reported (net of the allowance) at the present value of expected
future cash flows discounted at the loan’s original effective
interest rate or at the fair value of the collateral less cost to
sell if repayment is expected solely from the collateral. Interest
payments on impaired non-accrual
Acquired Loans
Loans acquired in a business combination are initially recorded at
fair value with no carryover of an acquired entity’s
previously established allowance for loan losses. Fair value of the
loans is determined using market participant assumptions in
estimating the amount and timing of both principal and interest
cash flows expected to be collected, as adjusted for an estimate of
future credit losses and prepayments, and then applying a
market-based discount rate to those cash flows. Acquired loans are
evaluated upon acquisition and classified as either purchased
performing or purchased credit impaired (“PCI”).
For purchased performing loans, any premium or discount,
representing the difference between the fair value and the
outstanding principal balance of the loans, is recognized (using
the level yield method) as an adjustment to interest income over
the remaining period to contractual maturity or until the loan is
repaid in full or sold. Subsequent to the acquisition date, the
method utilized to estimate the required allowance for loan losses
for these loans is similar to that for originated loans. However, a
provision for loan losses is only recorded when the required
allowance for loan losses exceeds any remaining purchase discount
at the loan level.
PCI loans represent those acquired loans with specific evidence of
deterioration in credit quality since origination and for which it
is probable that, as of the acquisition date, all contractually
required principal and interest payments will not be
collected .
Under the accounting model for PCI loans, the excess of cash flows
expected to be collected over the carrying amount of the loans,
referred to as the “accretable yield”, is accreted into
interest income over the life of the loans in each pool using the
level yield method. Accordingly, PCI loans are not subject to
classification as non-accrual
Subsequent to acquisition, actual cash collections are monitored
relative to management’s expectations and revised cash flow
forecasts are prepared, as warranted. These revised forecasts
involve updates, as necessary, of the key assumptions and estimates
used in the initial estimate of fair value. Generally speaking,
expected cash flows are affected by:
• Changes in the expected principal
and interest payments over the estimated life –
• Changes in prepayment assumptions
–
• Changes in interest rate indices
for variable rate loans –
A decrease in expected cash flows in subsequent periods may
indicate that the loan pool is impaired, which would require the
establishment of an allowance for loan losses by a charge to the
provision for loan losses. An increase in expected cash flows in
subsequent periods serves, first, to reduce any previously
established allowance for loan losses by the increase in the
present value of cash flows expected to be collected, and results
in a recalculation of the amount of accretable yield for the loan
pool. The adjustment of accretable yield due to an increase in
expected cash flows is accounted for as a change in estimate. The
additional cash flows expected to be collected are reclassified
from the nonaccretable difference to the accretable yield, and the
amount of periodic accretion is adjusted accordingly over the
remaining life of the loans in the pool.
PCI loans may be resolved either through receipt of payment (in
full or in part) from the borrower, the sale of the loan to a third
party or foreclosure of the collateral. In the event of a sale of
the loan, a gain or loss on sale is recognized and reported within
non-interest re-assessment
Allowance and Provision for Loan Losses
Originated Portfolio
The allowance for loan losses is established through provisions for
loan losses charged to income. Losses on loans, including impaired
loans, are charged to the allowance for loan losses when all or a
portion of a loan is deemed to be uncollectible. Recoveries of
loans previously charged off are credited to the allowance for loan
losses when realized.
People’s United maintains the allowance for loan losses at a
level that is deemed to be appropriate to absorb probable losses
inherent in the respective loan portfolios, based on a quarterly
evaluation of a variety of factors. These factors include, but are
not limited to: (i) People’s United’s historical
loan loss experience and recent trends in that experience;
(ii) risk ratings assigned by lending personnel to commercial
real estate loans, commercial and industrial loans, and equipment
financing loans, and the results of ongoing reviews of those
ratings by People’s United’s independent loan review
function; (iii) an evaluation of delinquent and non-performing
The Company’s allowance for loan losses consists of three
elements: (i) an allowance for larger-balance, non-homogeneous (loan-by-loan) smaller-balance,
Larger-balance, Non-homogeneous larger-balance, non-homogeneous charge-off
In establishing the allowance for loan losses for larger-balance,
non-homogeneous
Smaller-balance, Homogeneous Loans.
The qualitative component of the allowance for loan losses for
smaller-balance, homogenous loans is intended to incorporate risks
inherent in the portfolio, economic uncertainties, regulatory
requirements and other subjective factors such as changes in
underwriting standards. Accordingly, consideration is given to:
(i) present and forecasted economic conditions, including
unemployment rates; (ii) changes in industry trends, including
the impact of new regulations, (iii) trends in property
values; (iv) broader portfolio indicators, including
delinquencies, non-performing
Portfolio-specific risk characteristics considered include:
(i) collateral values/LTV ratios (above and below 70%);
(ii) borrower credit scores under the FICO scoring system
(above and below a score of 680); and (iii) other relevant
portfolio risk elements such as income verification at the time of
underwriting (stated income vs. non-stated non-owner
In establishing the allowance for loan losses for smaller-balance,
homogeneous loans, the amount reflecting the Company’s
consideration of qualitative factors is added to the amount
attributable to historical portfolio loss experience. In this
manner, historical charge-off
Individually Impaired Loans. non-accrual charge-off charge-off
People’s United performs an analysis of its impaired loans,
including collateral dependent impaired loans, on a quarterly
basis. Individually impaired collateral dependent loans are
measured based upon the appraised value of the underlying
collateral and other market information. Generally, the
Company’s policy is to obtain updated appraisals for
commercial collateral dependent loans when the loan is downgraded
to a risk rating of “substandard” or
“doubtful”, and the most recent appraisal is more than
12 months old or a determination has been made that the property
has experienced a significant decline in value. Appraisals are
prepared by independent, licensed third-party appraisers and are
subject to review by the Company’s internal commercial
appraisal department or external appraisers contracted by the
commercial appraisal department. The conclusions of the external
appraisal review are reviewed by the Company’s Chief
Commercial Appraiser prior to acceptance. The Company’s
policy with respect to impaired loans secured by residential real
estate is to receive updated estimates of property values upon the
loan being classified as non-performing
In determining the allowance for loan losses, People’s United
gives appropriate consideration to the age of appraisals through
its regular evaluation of other relevant qualitative and
quantitative information. Specifically, between scheduled
appraisals, property values are monitored within the commercial
portfolio by reference to current originations of collateral
dependent loans and the related appraisals obtained during
underwriting as well as by reference to recent trends in commercial
property sales as published by leading industry sources. Property
values are monitored within the residential mortgage and home
equity portfolios by reference to available market indicators,
including real estate price indices within the Company’s
primary lending areas.
In most situations where a guarantee exists, the guarantee
arrangement is not a specific factor in the assessment of the
related allowance for loan losses. However, the assessment of a
guarantor’s credit strength is reflected in the
Company’s internal loan risk ratings which, in turn, are an
important factor in its allowance for loan loss methodology for
loans within the commercial and industrial, and commercial real
estate portfolios.
People’s United did not change its methodologies with respect
to determining the allowance for loan losses during 2017. As part
of its ongoing assessment of the allowance for loan losses,
People’s United regularly makes refinements to certain
underlying assumptions used in its methodologies. However, such
refinements did not have a material impact on the allowance for
loan losses or the provision for loan losses as of or for the year
ended December 31, 2017.
While People’s United seeks to use the best available
information to make these determinations, future adjustments to the
allowance for loan losses may be necessary based on changes in
economic conditions, results of regulatory examinations, further
information obtained regarding known problem loans, the
identification of additional problem loans and other factors.
Acquired Portfolio
Acquired loans are evaluated upon acquisition and classified as
either purchased performing or PCI, which represents those acquired
loans with specific evidence of deterioration in credit quality
since origination and for which it is probable that, as of the
acquisition date, all contractually required principal and interest
payments will not be collected. PCI loans are generally accounted
for on a pool basis, with pools formed based on the loans’
common risk characteristics, such as loan collateral type and
accrual status. Each pool is accounted for as a single asset with a
single composite interest rate and an aggregate expectation of cash
flows.
For purchased performing loans, the required allowance for loan
losses is determined in a manner similar to that for originated
loans with a provision for loan losses only recorded when the
required allowance for loan losses exceeds any remaining purchase
discount at the loan level. For PCI loans, 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 loans in each pool. A decrease in the expected cash flows in
subsequent periods requires the establishment of an allowance for
loan losses at that time.
Loan Charge-Offs
The Company’s charge-off charged-off
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
The decision whether to charge-off charge-off |
| Wealth Management and Other Fee-Based Revenues | Wealth Management and Other Fee-Based
Investment management fees are accrued when earned based on total
assets managed and administered, which are not reported as assets
of People’s United. Insurance revenue represents commissions
earned solely from performing broker- and agency-related services.
Insurance commission revenues related to agency-billed policies are
recognized at the later of the policy billing date or the policy
effective date. Insurance commission revenues on premiums directly
billed by insurance carriers are generally recognized as revenue
during the period commissions are paid by the insurance carrier.
Brokerage commissions are recognized on a trade-date basis. Bank
service charges are recorded when earned. |
| Bank-Owned Life Insurance | Bank-Owned Life Insurance
Bank-owned life insurance (“BOLI”) represents the cash
surrender value of life insurance policies purchased on the lives
of certain key executives and former key executives. BOLI funds are
generally invested in separate accounts and are supported by a
stable wrap agreement to fully insulate the underlying investments
against changes in fair value. Increases in the cash surrender
value of these policies and death benefits in excess of the related
invested premiums are included in non-interest low-to-moderate |
| Premises and Equipment | Premises and Equipment
Premises and equipment are reported at cost less accumulated
depreciation and amortization, except for land, which is reported
at cost. Buildings, data processing and other equipment, computer
software, furniture and fixtures are depreciated using the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized using the straight-line method
over the shorter of the remaining lease term, the estimated useful
life of the improvements or 10 years. Capitalized software
development costs are amortized on a straight-line basis over the
estimated useful life of the software. Generally, the estimated
useful lives are as follows: buildings – 40 years; data
processing and other equipment – 3 to 5 years; computer
software – 3 to 5 years; and furniture and fixtures
– 10 years. |
| Goodwill and Other Acquisition-Related Intangible Assets | Goodwill and Other Acquisition-Related Intangible
Assets
An acquirer in a business combination is required, upon initially
obtaining control of another entity, to recognize the assets,
liabilities and any non-controlling pre-acquisition
Intangible assets are recognized in an amount equal to the excess
of the consideration transferred over the fair value of the
tangible net assets acquired. “Acquisition-related intangible
assets” are separately identified, recognized and amortized,
where appropriate, for assets such as trade names, certain
contractual agreements and the estimated values of acquired core
deposits and/or customer relationships. Mutual fund management
contract intangibles recognized by People’s United are deemed
to have indefinite useful lives and, accordingly, are not
amortized. The remaining intangible asset is recognized as
goodwill.
Goodwill and indefinite-lived intangible assets are not amortized
but, rather, are reviewed for impairment at least annually, with
impairment losses recognized as a charge 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, with
impairment losses recognized as a charge to expense if carrying
amounts exceed fair values.
The Company’s trade name intangibles are amortized on either
(i) an accelerated basis over a period of approximately 20
years or (ii) a straight-line basis over 5 years. Core deposit
intangibles are amortized on an accelerated basis over a period
ranging from 7 to 10 years. Customer relationship intangibles are
amortized on a straight-line basis over the estimated remaining
average life of those relationships, which ranges from 10 to
15 years from the respective acquisition dates. Intangibles
stemming from contractual agreements, such as favorable lease and
non-compete
Goodwill is evaluated for impairment at the reporting unit level.
For the purpose of goodwill impairment evaluations, management has
identified reporting units based upon the Company’s three
operating segments: Commercial Banking; Retail Banking; and Wealth
Management. The impairment evaluation is performed as of an annual
date or more frequently if a triggering event indicates that
impairment may have occurred.
Entities have the option to first assess qualitative factors to
determine whether the existence of events or circumstances leads to
a determination that it is more likely than not that the fair value
of a reporting unit is less than its carrying amount. If, after
assessing the totality of such events or circumstances, an entity
determines it is not more likely than not that the fair value of a
reporting unit is less than its carrying amount, then the entity is
not required to perform the two-step
The first step (“Step 1”) 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
indicator of potential impairment is deemed to exist and a second
step is performed to measure the amount of such impairment, if any.
At this time, none of the Company’s identified reporting
units are at risk of failing the Step 1 goodwill impairment
test.
The second step (“Step 2”) involves calculating the
implied fair value of goodwill for each reporting unit for which
impairment was indicated in Step 1. The implied fair value of
goodwill is determined in a manner similar to how the amount of
goodwill is determined in a business combination (i.e. by measuring
the excess of the estimated fair value of the reporting unit, as
determined in Step 1, over the aggregate estimated fair values of
the individual assets, liabilities, and identifiable intangibles
applicable to that reporting unit as of the impairment testing
date). If the implied fair value of goodwill exceeds the carrying
amount of goodwill assigned to the reporting unit, no impairment
exists. If the carrying amount of goodwill assigned to a reporting
unit exceeds the implied fair value of the goodwill, an impairment
loss is recorded in an amount equal to such excess. An impairment
loss cannot exceed the carrying amount of goodwill assigned to a
reporting unit, and the loss (write-down)
The Company estimates the fair value of its reporting units based
on an appropriate weighting of values based on (i) a
present-value measurement technique (discounted cash flow analysis
based on internal forecasts) and (ii) market-based trading and
transaction multiples. The discounted cash flow analysis is based
on significant assumptions and judgments including future growth
rates and discount rates reflecting management’s assessment
of market participant views of the risks associated with the
projected cash flows of the reporting units. The market-based
trading and transaction multiples are 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.
In conducting its 2017 goodwill impairment evaluation (as of the
annual October 1st evaluation date), People’s United elected
to perform the optional qualitative assessment for both the
Commercial Banking and Retail Banking reporting units and, upon
doing so, concluded that performance of the two-step two-step two-step |
| Real Estate Owned | Real Estate Owned
Real estate owned (“REO”) properties acquired through
foreclosure or deed-in-lieu |
| Income Taxes | Income Taxes
Deferred taxes are recognized for the estimated future tax effects
attributable to “temporary differences” and tax loss
carryforwards. Temporary differences are differences between the
financial statement carrying amounts and the tax bases of existing
assets and liabilities. A deferred tax liability is recognized for
all temporary differences that will result in future taxable
income. A deferred tax asset is recognized for all temporary
differences that will result in future tax deductions and for all
tax loss carryforwards, subject to reduction of the asset by a
valuation allowance in certain circumstances. This valuation
allowance is recognized if, based on an analysis of available
evidence, management determines that it is more likely than not
that some portion or all of the deferred tax asset will not be
realized. The valuation allowance is subject to ongoing adjustment
based on changes in circumstances that affect management’s
judgment about the realizability of the deferred tax asset.
Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to future taxable income. The effect on
deferred tax assets and liabilities of a change in tax laws or
rates is recognized in income tax expense in the period that
includes the enactment date of the change. Effective January 1,
2017, tax benefits attributable to deductions in excess of
financial statement amounts arising from the exercise of
non-statutory paid-in
Individual tax positions taken or expected to be taken on a tax
return must satisfy certain criteria in order for some or all of
the related tax benefits to be recognized in the financial
statements. Specifically, a recognition threshold of more-likely-than-not |
| Earnings Per Common Share | Earnings Per Common Share
Basic earnings per common share (“EPS”) excludes
dilution and is computed by dividing earnings attributable to
common shareholders by the weighted average number of common shares
outstanding for the year. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue
common stock (such as stock options and performance shares) were
exercised or converted into additional common shares that would
then share in the earnings of the entity. Diluted EPS is computed
by dividing earnings attributable to common shareholders by the
weighted average number of common shares outstanding for the year,
plus an incremental number of common-equivalent shares computed
using the treasury stock method.
Unvested share-based payment awards, which include the right to
receive non-forfeitable two-class two-class |
| Derivative Financial Instruments and Hedging Activities | Derivative Financial Instruments and Hedging
Activities
People’s United uses derivative financial instruments as
components of its market risk management (principally to manage
interest rate risk (“IRR”)). Certain other derivatives
are entered into in connection with transactions with commercial
customers. Derivatives are not used for speculative purposes.
All derivatives are recognized as either assets or liabilities in
the Consolidated Statements of Condition, reported at fair value
and presented on a gross basis. Until a derivative is settled, a
favorable change in fair value results in an unrealized gain that
is recognized as an asset, while an unfavorable change in fair
value results in an unrealized loss that is recognized as a
liability.
The Company generally applies hedge accounting to its derivatives
used for market risk management purposes. Hedge accounting is
permitted only if specific criteria are met, including a
requirement that a highly effective relationship exist between the
derivative instrument and the hedged item, both at inception of the
hedge and on an ongoing basis. The hedge accounting method depends
upon whether the derivative instrument is classified as a fair
value hedge (i.e. hedging an exposure related to a recognized asset
or liability, or a firm commitment) or a cash flow hedge (i.e.
hedging an exposure related to the variability of future cash flows
associated with a recognized asset or liability, or a forecasted
transaction). Changes in the fair value of effective fair value
hedges are recognized in current earnings (with the change in fair
value of the hedged asset or liability also recorded in earnings).
Changes in the fair value of effective cash flow hedges are
recognized in other comprehensive income (loss) until earnings are
affected by the variability in cash flows of the designated hedged
item. Ineffective portions of hedge results are recognized in
current earnings. Changes in the fair value of derivatives for
which hedge accounting is not applied are recognized in current
earnings.
People’s United formally documents at inception all
relationships between the derivative instruments and the hedged
items, as well as its risk management objectives and strategies for
undertaking the hedge transactions. This process includes linking
all derivatives that are designated as hedges to specific assets
and liabilities, or to specific firm commitments or forecasted
transactions. People’s United also formally assesses, both at
inception of the hedge and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in the fair values or cash flows of
the hedged items. If it is determined that a derivative is not
highly effective or has ceased to be a highly effective hedge,
People’s United would discontinue hedge accounting
prospectively. Gains or losses resulting from the termination of a
derivative accounted for as a cash flow hedge remain in AOCL and
are amortized to earnings over the remaining period of the former
hedging relationship, provided the hedged item continues to be
outstanding or it is probable the forecasted transaction will
occur.
People’s United uses the dollar offset method, regression
analysis and scenario analysis to assess hedge effectiveness at
inception and on an ongoing basis. Such methods are chosen based on
the nature of the hedge strategy and are used consistently
throughout the life of the hedging relationship.
Certain derivative financial instruments are offered to commercial
customers to assist them in meeting their financing and investing
objectives and for their risk management purposes. These derivative
financial instruments consist primarily of interest rate swaps and
caps, but also include foreign exchange contracts. The interest
rate and foreign exchange risks associated with customer interest
rate swaps and caps and foreign exchange contracts are mitigated by
entering into similar derivatives having essentially offsetting
terms with institutional counterparties.
Interest rate-lock commitments extended to borrowers relate to the
origination of residential mortgage loans. To mitigate the IRR
inherent in these commitments, People’s United enters into
mandatory delivery and best efforts contracts to sell
adjustable-rate and fixed-rate residential mortgage loans
(servicing released). Forward commitments to sell and interest
rate-lock commitments on residential mortgage loans are considered
derivatives and their respective estimated fair values are adjusted
based on changes in interest rates.
Changes in the fair value of derivatives for which hedge accounting
is not applied are recognized in current earnings, including
customer derivatives, interest-rate lock commitments and forward
sale commitments. |
| Balance Sheet Offsetting | Balance Sheet Offsetting
Assets and liabilities relating to certain financial instruments,
including derivatives, may be eligible for offset in the
Consolidated Statements of Condition and/or subject to enforceable
master netting arrangements or similar agreements. People’s
United’s derivative transactions with institutional
counterparties are generally executed under International Swaps and
Derivative Association (“ISDA”) master agreements,
which include “right of set-off”
Collateral (generally in the form of marketable debt securities)
pledged by counterparties in connection with derivative
transactions is not reported in the Consolidated Statements of
Condition unless the counterparty defaults. Collateral that has
been pledged by People’s United to counterparties continues
to be reported in the Consolidated Statements of Condition unless
the Company defaults. |
| Fair Value Measurements | Fair Value Measurements
Accounting standards related to fair value measurements define fair
value, provide a framework for measuring fair value and establish
related disclosure requirements. Broadly, fair value is defined as
the exchange price that would be received for an asset or paid to
transfer a liability in the principal or most advantageous market
for the asset or liability in an orderly transaction between market
participants at the measurement date. Accordingly, an “exit
price” approach is required in determining fair value. In
support of this principle, a fair value hierarchy has been
established that prioritizes the inputs used to measure fair value,
requiring entities to maximize the use of market or observable
inputs (as more reliable measures) and minimize the use of
unobservable inputs. Observable inputs reflect market data obtained
from independent sources, while unobservable inputs generally
require significant management judgment.
The three levels within the fair value hierarchy are as
follows:
• Level 1 – Unadjusted
quoted market prices for identical assets or liabilities in active
markets that the entity has the ability to access at the
measurement date (such as active exchange-traded equity securities
or mutual funds and certain U.S. and government agency debt
securities).
• Level 2 – Observable
inputs other than quoted prices included in Level 1, such
as:
• quoted prices for similar assets or
liabilities in active markets (such as U.S. agency and GSE issued
mortgage-backed securities and CMOs);
• quoted prices for identical or
similar assets or liabilities in less active markets (such as
certain U.S. and government agency debt securities, and corporate
and municipal debt securities that trade infrequently); and
• other inputs that (i) are
observable for substantially the full term of the asset or
liability (e.g. interest rates, yield curves, prepayment speeds,
default rates, etc.) or (ii) can be corroborated by observable
market data (such as interest rate and currency derivatives and
certain other securities).
• Level 3 – Valuation
techniques that require unobservable inputs that are supported by
little or no market activity and are significant to the fair value
measurement of the asset or liability (such as pricing models,
discounted cash flow methodologies and similar techniques that
typically reflect management’s own estimates of the
assumptions a market participant would use in pricing the asset or
liability).
People’s United maintains policies and procedures to value
assets and liabilities using the most relevant data available. |
| Stock-Based Compensation | Stock-Based Compensation
People’s United’s stock-based compensation plans
provide for awards of stock options, restricted stock and
performance shares to directors, officers and employees. Costs
resulting from the issuance of such share-based payment awards are
required to be recognized in the financial statements based on the
grant date fair value of the award. Stock-based compensation
expense is recognized over the requisite service period, which is
generally the vesting period. |
| New Accounting Standards | New Accounting Standards
Standards effective in 2017
Derivatives and Hedging
In March 2016, the Financial Accounting Standards Board (the
“FASB”) amended its standards with respect to
derivatives and hedging. The first amendment clarifies that a
change in the counterparty to a derivative instrument that has been
designated as the hedging instrument does not, in and of itself,
require dedesignation of that hedging relationship and
discontinuation of the application of hedge accounting. This
amendment does not require additional disclosures beyond disclosure
about a change in accounting principle in the period of adoption.
The second amendment clarifies the requirements for assessing
whether contingent call (put) options that can accelerate the
payment of principal on debt instruments are clearly and closely
related to their debt hosts. An entity performing the assessment is
required to assess the embedded call (put) options solely in
accordance with a four-step decision sequence and no longer is
required to assess whether the event that triggers the ability to
exercise the option is related to interest rate or credit risk.
These amendments, which are being applied prospectively, became
effective for People’s United on January 1, 2017 and did
not have a significant impact on the Company’s Consolidated
Financial Statements.
Investments – Equity Method and Joint Ventures
In March 2016, the FASB amended its standards with respect to the
equity method of accounting by eliminating the requirement that,
upon an investment qualifying for use of the equity method of
accounting as a result of an increase in the level of ownership
interest or degree of influence, an investor must adjust the
investment, results of operations and retained earnings
retrospectively, as if the equity method of accounting had been in
effect during all previous periods that the investment was held.
Rather, under the new guidance, upon qualifying for the equity
method of accounting, no retroactive adjustment of the investment
is required. Instead, any unrealized holding gain or loss is to be
recognized through other comprehensive income on the date the
investment qualifies for use of the equity method. This amendment,
which is being applied prospectively, became effective for
People’s United on January 1, 2017 and did not have a
significant impact on the Company’s Consolidated Financial
Statements.
Stock Compensation
In March 2016, the FASB amended its standards with respect to
certain aspects of the accounting for share-based
Standards effective in 2018
Revenue Recognition
In May 2014, the FASB amended its standards with respect to revenue
recognition. The amended guidance serves to replace all current
GAAP guidance on this topic and eliminate all industry-specific
guidance, providing a unified model to determine when and how
revenue is recognized. The underlying principle is that a company
should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. The amendments also require
enhanced disclosures regarding the nature, amount, timing and
uncertainty of revenue and cash flows arising from an
entity’s contracts with customers. As originally issued, this
new guidance, which can be applied retrospectively or through the
use of the cumulative effect transition method, was to become
effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2016 (January 1,
2017 for People’s United) and early adoption was not
permitted.
In July 2015, the FASB approved a one-year
The Company’s revenue is comprised of net interest income on
financial assets and financial liabilities (approximately 75%) and
non-interest non-deposit
In completing its assessment of those revenue streams within the
scope of the guidance, the Company identified one revenue source
for which the timing of recognition will change under the new
standard. The Company currently recognizes revenue for certain
insurance brokerage activities, such as installments on agency
bill, direct bill and contingent commission revenue, over a period
of time either due to the transfer of value to customers or as the
remuneration becomes determinable. Under the new guidance, certain
of these revenues, as well as certain costs associated with
originating such policies, will be substantially recognized on the
effective date of the associated policies when control of the
policy transfers to the customer.
While the adoption of this standard is not expected to have a
material impact on the Company’s Consolidated Financial
Statements, its current accounting policies and practices or the
timing or amount of revenue recognized, the Company has, where
appropriate, evaluated necessary changes to business processes,
systems and internal controls in order to support the recognition,
measurement and disclosure requirements of the new standard. The
guidance was adopted on January 1, 2018 using the modified
retrospective method and resulted in a cumulative-effect transition
adjustment which served to increase opening retained earnings by
$0.7 million.
Presentation of Deferred Taxes
In November 2015, the FASB amended its standards with respect to
the presentation of deferred income taxes to eliminate the
requirement to separate deferred income tax liabilities and assets
into current and noncurrent amounts in a classified statement of
condition, thereby simplifying the presentation of deferred income
taxes. For public business entities, this new amendment is
effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017 (January 1, 2018 for
People’s United) and may be applied either prospectively or
retrospectively to all periods presented. Earlier application of
the amendment is permitted as of the beginning of an interim or
annual reporting period. The adoption of this amendment is not
expected to have a significant impact on the Company’s
Consolidated Financial Statements.
Recognition and Measurement of Financial Instruments
In January 2016, the FASB amended its standards to address certain
aspects of recognition, presentation and disclosure of financial
instruments. The amended guidance (i) requires that equity
investments (other than equity method investments) be measured at
fair value with changes in fair value recognized in net income and
(ii) simplifies the impairment assessment of equity
investments without readily determinable fair values by permitting
a qualitative assessment to identify impairment. Both FRB-NY
For public business entities, this new guidance is effective in
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2017 (January 1, 2018 for
People’s United). The cumulative effect transition method
will be applied to all outstanding instruments as of the date of
adoption, while changes to the accounting for equity investments
without readily determinable fair values will be applied
prospectively. As noted in Note 4, at December 31, 2017, the
Company’s securities portfolio included equity securities
with an amortized cost of $9.6 million and a fair value of
$8.7 million. Accordingly, upon adoption of this guidance on
January 1, 2018, a cumulative-effect transition adjustment,
representing the cumulative unrealized loss (net-of-tax) held-for-investment
Statement of Cash Flows: Classification of Certain Cash Receipts
and Cash Payments
In August 2016, the FASB amended its standards to address the
classification of certain cash receipts and payments within the
statement of cash flows. Specifically, the amended guidance
addresses the following: (i) debt prepayment or debt
extinguishment costs; (ii) settlement of zero-coupon
Asset Derecognition and Accounting for Partial Sales of
Nonfinancial Assets
In February 2017, the FASB amended its standards to clarify the
scope of its guidance on derecognition of a nonfinancial asset and
provide additional guidance on the definition of in-substance
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost
In March 2017, the FASB amended its standards to (i) require
that the service cost component of net benefit cost associated with
pension and postretirement plans be reported in the same line item
in which the related employees’ compensation cost is reported
and (ii) specify that only the service cost component is
eligible for capitalization. The other components of net benefit
cost, which may not be capitalized, are to be presented separately.
For public business entities, this new guidance, which is to be
applied retrospectively, is effective for fiscal years, and interim
periods within those fiscal years, beginning after
December 15, 2017 (January 1, 2018 for People’s United)
and early adoption is permitted. The adoption of this amendment
will result in a reclassification of certain net benefit cost
components from compensation and benefits expense to other
non-interest
Stock Compensation
In July 2017, the FASB amended its standards with respect to
share-based payment awards to provide explicit guidance pertaining
to the provisions of modification accounting. The amendment
clarifies that an entity should not account for the effects of a
modification if the award’s fair value, vesting conditions
and classification (as either debt or equity) are the same
immediately before and after the modification. This new guidance is
effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017 (January 1, 2018 for
People’s United) and is to be applied prospectively to awards
modified on or after the adoption date. Earlier application of the
amendment is permitted. The adoption of this amendment is not
expected to have a significant impact on the Company’s
Consolidated Financial Statements.
Standards effective in 2019
Accounting for Leases
In February 2016, the FASB amended its standards with respect to
the accounting for leases. The amended guidance serves to replace
all current GAAP guidance on this topic and requires that an
operating lease be recognized on the statement of condition as a
“right-of-use”
In January 2018, the FASB proposed further amendments to the
standard with the objective of reducing the cost and complexity of
implementing the guidance. The first proposal introduces an
optional transition method which would allow entities to recognize
a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption rather than in the earliest
period presented. The second proposal provides a practical
expedient whereby lessors could elect, by class of underlying
asset, to not separate lease and related non-lease
In preparing for adoption, the Company has formed a
cross-functional working group comprised of individuals from
various disciplines, including procurement, real estate and
finance, to evaluate the amended guidance and its potential impact
on its Consolidated Financial Statements. To date, the Company has
identified several areas that are within the scope of the guidance,
including its contracts with respect to leased real estate and
office equipment. In addition, operating lease agreements entered
into with customers by the Company’s equipment financing
businesses are also subject to the new guidance. The Company
continues to evaluate the impact of the guidance, including
determining whether additional contracts exist that are deemed to
be in scope. As such, no conclusions have yet been reached
regarding the potential impact of adoption on the Company’s
Consolidated Financial Statements. The Federal banking agencies
have indicated that to the extent a “right-of-use”
Premium Amortization – Purchased Callable Debt
Securities
In April 2017, the FASB amended its standards to shorten the
amortization period for certain callable debt securities held at a
premium, requiring such premiums to be amortized to the earliest
call date unless applicable guidance related to certain pools of
securities is applied to consider estimated prepayments. Under
prior guidance, entities were generally required to amortize
premiums on individual, non-pooled
Derivatives and Hedging
In August 2017, the FASB amended its standards with respect to the
accounting for derivatives and hedging, simplifying existing
guidance in order to enable companies to more accurately portray
the economic effects of risk management activities in the financial
statements and enhancing the transparency and understandability of
hedge results through improved disclosures. This new guidance is
effective for public business entities for fiscal years, and
interim periods within those fiscal years, beginning after
December 15, 2018 (January 1, 2019 for People’s United)
with early adoption permitted. The Company is still evaluating
whether to apply the early adoption provisions of the standard.
However, given the limited number of derivatives currently
designated as hedging instruments, the adoption of this amendment
is not expected to have a significant impact on the Company’s
Consolidated Financial Statements.
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income
In February 2018, as a result of the enactment of the Tax Cuts and
Jobs Act (the “Act”), the FASB issued new accounting
guidance providing entities with the option to reclassify, from
accumulated other comprehensive income to retained earnings,
certain “stranded tax effects” resulting from
application of the Act. An entity that elects to do so must provide
the following disclosures in the period of adoption: (i) that an
election was made to reclassify the income tax effects of the Act
from accumulated other comprehensive income to retained earnings
and (ii) a description of other income tax effects related to the
application of the Act that were reclassified from accumulated
other comprehensive income to retained earnings, if any (e.g.
income tax effects other than the effect of the change in the U.S.
federal corporate income tax rate on gross deferred tax amounts and
related valuation allowances). Regardless of whether an entity
elects to adopt the guidance or not it is required to disclose its
accounting policy for releasing income tax effects from accumulated
other comprehensive income (e.g. the portfolio approach or the
security-by-security approach).
The guidance is effective for all organizations for fiscal years
beginning after December 15, 2018 (January 1, 2019 for
People’s United), including interim periods within those
fiscal years, and early adoption is permitted. Entities electing to
apply the guidance should do so (i) as of the beginning of the
period of adoption or (ii) retrospectively to each period in which
the effect of the change in the U.S. federal corporate income tax
rate is recognized. The Company is currently evaluating the new
guidance, including its impact on the Company’s Consolidated
Financial Statements (see Note 12).
Standards effective in 2020
Financial Instruments – Credit Losses
In June 2016, the FASB amended its standards with respect to
certain aspects of measurement, recognition and disclosure of
credit losses on loans and other financial instruments, including
available-for-sale
While early adoption is permitted, the Company does not expect to
elect that option. In preparing for adoption, the Company has
established a cross-functional working group comprised of
individuals from various disciplines, including credit, risk
management, information technology and finance. That working group,
which is subject to the Company’s established corporate
governance and oversight structure, is currently engaged in:
(i) identifying key interpretative issues;
(ii) determining the appropriate level of portfolio
segmentation; (iii) reviewing historical data so as to
identify potential data and resource gaps; and (iv) evaluating
existing credit loss forecasting models and processes in order to
determine what modifications may be required. In addition, the
Company has purchased a third-party vendor solution that will aid
in the application of the standard.
As a result of the required change in approach toward determining
estimated credit losses from the current “incurred
loss” model to one based on estimated cash flows over a
loan’s contractual life, adjusted for prepayments (a
“life of loan” model), the Company expects the new
guidance will result in an increase in the allowance for loan
losses, particularly for longer duration portfolios. The Company
also expects the new guidance may result in an allowance for debt
securities. In both cases, the extent of the change is
indeterminable at this time as it will be dependent upon portfolio
composition and credit quality at the adoption date, as well as
economic conditions and forecasts at that time. Further, to date,
no guidance has been issued by either the Company’s or the
Bank’s primary regulators with respect to how the impact of
the amended standard is to be treated for regulatory capital
purposes.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB amended its standards with respect to
goodwill, simplifying how an entity is required to conduct the
impairment assessment by eliminating Step 2, which requires a
hypothetical purchase price allocation, from the goodwill
impairment test. Instead, goodwill impairment will now be measured
as the amount by which a reporting unit’s carrying amount
exceeds its fair value, not to exceed the carrying amount of
goodwill. An entity will still have the option to perform a
qualitative assessment to determine if a quantitative impairment
test is necessary. For public business entities, this new guidance
is effective in fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2019
(January 1, 2020 for People’s United) and is to be
applied prospectively. Early adoption is permitted for any
impairment tests performed after January 1, 2017. This
amendment, which the Company elected to early adopt effective
January 1, 2018, is not expected to have a significant impact
on the Company’s Consolidated Financial Statements. |
| People's United Employee Pension and Other Postretirement Plans | People’s United Employee Pension and Other
Postretirement Plans
People’s United maintains a qualified noncontributory defined
benefit pension plan (the “People’s Qualified
Plan”) that covers substantially all full-time and part-time
employees who (i) meet certain age and length of service
requirements and (ii) were employed by the Bank prior to
August 14, 2006. Benefits are based upon the employee’s
years of credited service and either the average compensation for
the last five years or the average compensation for the five
consecutive years of the last ten years that produce the highest
average.
New employees of the Bank starting on or after August 14, 2006
are not eligible to participate in the People’s Qualified
Plan. Instead, the Bank makes contributions on behalf of these
employees to a qualified defined contribution plan in an annual
amount equal to 3% of the employee’s eligible compensation.
Employee participation in this plan is restricted to employees who
(i) are at least 18 years of age and (ii) worked at least
1,000 hours in a year. Both full-time and part-time employees are
eligible to participate as long as they meet these
requirements.
In July 2011, the Bank amended the People’s Qualified Plan to
“freeze”, effective December 31, 2011, the accrual
of pension benefits for People’s Qualified Plan participants.
As such, participants will not earn any additional benefits after
that date. Instead, effective January 1, 2012, the Bank began
making contributions on behalf of these participants to a qualified
defined contribution plan in an annual amount equal to 3% of the
employee’s eligible compensation.
In addition to the People’s Qualified Plan, People’s
United continues to maintain a qualified defined benefit pension
plan that covers former Chittenden employees who meet certain
eligibility requirements (the “Chittenden Qualified
Plan”). Effective December 31, 2005, accrued benefits
were frozen based on participants’ then-current service and
pay levels. Interest continues to be credited on undistributed
balances at a crediting rate specified by the Chittenden Qualified
Plan. During April 2010, participants who were in payment status as
of April 1, 2010, or whose accrued benefit as of that date was
scheduled to be paid in the form of an annuity commencing
May 1, 2010 based upon elections made by April 15,
2010, were transferred into the People’s Qualified Plan.
People’s United also continues to maintain a qualified
defined benefit pension plan that covers former Suffolk employees
who meet certain eligibility requirements (the “Suffolk
Qualified Plan”). Effective December 31, 2012, accrued
benefits were frozen based on participants’ then-current
service and pay levels. Interest continues to be credited on
undistributed balances at a crediting rate specified by the Suffolk
Qualified Plan.
People’s United also maintains (i) unfunded,
nonqualified supplemental plans to provide retirement benefits to
certain senior officers (the “Supplemental Plans”) and
(ii) an unfunded plan that provides retirees with optional
medical, dental and life insurance benefits (the “Other
Postretirement Plan”). People’s United accrues the cost
of these postretirement benefits over the employees’ years of
service to the date of their eligibility for such benefit. |
| Employee Stock Ownership Plan | Employee Stock Ownership Plan
In April 2007, People’s United established an ESOP. At that
time, People’s United loaned the ESOP $216.8 million to
purchase 10,453,575 shares of People’s United common stock in
the open market. In order for the ESOP to repay the loan,
People’s United expects to make annual cash contributions of
approximately $18.8 million until 2036. Such cash
contributions may be reduced by the cash dividends paid on
unallocated ESOP shares, which totaled $4.8 million in 2017,
$5.0 million in 2016 and $5.1 million in 2015. At
December 31, 2017, the loan balance totaled
$180.8 million.
Employee participation in this plan is restricted to those
employees who (i) are at least 18 years of age and
(ii) worked at least 1,000 hours within 12 months of their
hire date or any plan year (January 1 to December 31) after their
date of hire. Employees meeting the aforementioned eligibility
criteria during the plan year must continue to be employed as of
the last day of the plan year in order to receive an allocation of
shares for that plan year.
Shares of People’s United common stock are held by the ESOP
and allocated to eligible participants annually based upon a
percentage of each participant’s eligible compensation. Since
the ESOP was established, a total of 3,832,978 shares of
People’s United common stock have been allocated or committed
to be released to participants’ accounts. At
December 31, 2017, 6,620,597 shares of People’s United
common stock, with a fair value of $123.8 million at that
date, have not been allocated or committed to be released.
Compensation expense related to the ESOP is recognized at an amount
equal to the number of common shares committed to be released by
the ESOP for allocation to participants’ accounts multiplied
by the average fair value of People’s United’s common
stock during the reporting period. The difference between the fair
value of the shares of People’s United’s common stock
committed to be released and the cost of those common shares is
recorded as a credit to additional paid-in paid-in |
| Directors' Equity Compensation Plan | Directors’ Equity Compensation Plan
The People’s United Financial, Inc. Directors’ Equity
Compensation Plan (the “Directors’ Plan”)
provides for an annual award of shares of People’s United
common stock with a fair value of approximately $95,000 to each
non-employee one-year
In 2017, 2016 and 2015, directors were granted a total of 49,050
shares, 58,020 shares and 62,690 shares, respectively, of
People’s United common stock, with grant date fair values of
$17.65 per share, $16.24 per share and $15.23 per share,
respectively, at those dates. Expense totaling $0.9 million
for the Directors’ Plan was recognized for each of the years
ended December 31, 2017, 2016 and 2015. At December 31,
2017, a total of 144,001 shares remain available for issuance. |
| Segment Information | Public companies are required to report (i) certain financial
and descriptive information about “reportable operating
segments,” as defined, and (ii) certain enterprise-wide
financial information about products and services, geographic areas
and major customers. Operating segment information is reported
using a “management approach” that is based on the way
management organizes the segments for purposes of making operating
decisions and assessing performance.
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.
Commercial Banking
Retail Banking non-institutional
People’s United’s segment disclosure is based on an
internal profitability reporting system, which generates
information by operating segment based on a series of management
estimates and allocations regarding funds transfer pricing
(“FTP”), the provision for loan losses, non-interest
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. 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
A five-year rolling average net charge-off year-to-year
People’s United allocates a majority of non-interest full-absorption
The “Other” category includes the residual financial
impact from the allocation of revenues and expenses (including the
provision for loan losses) and certain revenues and expenses not
attributable to a particular segment; assets and liabilities not
attributable to a particular segment; reversal of the FTE
adjustment since net interest income for each segment is presented
on an FTE basis; and the FTP impact from excess capital. The
“Other” category also includes certain gains totaling
$7.5 million and $9.2 million for the years ended
December 31, 2016 and 2015 (none in 2017), respectively
(included in non-interest non-interest non-interest |
| Fair Value, Measurements, Recurring [Member] | |
| Fair Value Measurements | Recurring Fair Value Measurements
Trading Account Securities and Securities Available-For-Sale
When available, People’s United uses quoted market prices for
identical securities received from an independent,
nationally-recognized, third-party pricing service (as discussed
further below) to determine the fair value of investment securities
such as U.S. Treasury and agency securities that are included in
Level 1. When quoted market prices for identical securities
are unavailable, People’s United uses prices provided by the
independent pricing service based on recent trading activity and
other observable information including, but not limited to, market
interest rate curves, referenced credit spreads and estimated
prepayment rates where applicable. These investments include
certain U.S. and government agency debt securities, corporate and
municipal debt securities, GSE mortgage-backed securities and CMOs,
all of which are included in Level 2.
The Company’s available-for-sale available-for-sale 10- 15-year
Changes in the prices obtained from the pricing service are
analyzed from month to month, taking into consideration changes in
market conditions including changes in mortgage spreads, changes in
U.S. Treasury security yields and changes in generic pricing of
securities with similar duration. As a further point of validation,
the Company generates its own month-end 10- 15-year
Other Assets
As discussed in Note 17, certain unfunded, nonqualified
supplemental plans have been established to provide retirement
benefits to certain senior officers. People’s United has
funded two trusts to provide benefit payments to the extent such
benefits are not paid directly by People’s United, the assets
of which are included in other assets in the Consolidated
Statements of Condition. When available, People’s United
determines the fair value of the trust assets using quoted market
prices for identical securities received from a third-party
nationally recognized pricing service.
Derivatives
People’s United values its derivatives using internal models
that are based on market or observable inputs, including interest
rate curves and forward/spot prices for selected currencies.
Derivative assets and liabilities included in Level 2
represent interest rate swaps and caps, foreign exchange contracts,
risk participation agreements, forward commitments to sell
residential mortgage loans and interest rate-lock commitments on
residential mortgage loans. |
| Fair Value, Measurements, Nonrecurring [Member] | |
| Fair Value Measurements | Non-Recurring
Loans Held for Sale
Residential mortgage loans held for sale are recorded at the lower
of cost or fair value and are therefore measured at fair value on a
non-recurring
Impaired Loans
Loan impairment is deemed to exist when full repayment of principal
and interest according to the contractual terms of the loan is no
longer probable. Impaired loans are reported based on one of three
measures: the present value of expected future cash flows
discounted at the loan’s original effective interest rate;
the loan’s observable market price; or the fair value of the
collateral (less estimated cost to sell) if the loan is collateral
dependent. Accordingly, certain impaired loans may be subject to
measurement at fair value on a non-recurring
People’s United has estimated the fair values of these assets
using Level 3 inputs, such as discounted cash flows based on
inputs that are largely unobservable and, instead, reflect
management’s own estimates of the assumptions a market
participant would use in pricing such loans and/or the fair value
of collateral based on independent third-party appraisals for
collateral-dependent loans. Such appraisals are based on the market
and/or income approach to value and are subject to a discount (to
reflect estimated cost to sell) that generally approximates
10%.
REO and Repossessed Assets
REO and repossessed assets are recorded at the lower of cost or
fair value, less estimated selling costs, and are therefore
measured at fair value on a non-recurring |
| Fair Value Measurements Not Measured At Fair Value [Member] | |
| Fair Value Measurements | Financial Assets and Financial Liabilities Not Measured At
Fair Value
As discussed in Note 1, fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability
in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at
the measurement date (an “exit price” approach to fair
value).
Acceptable valuation techniques (when quoted market prices are not
available) that might be used to estimate the fair value of
financial instruments include discounted cash flow analyses and
comparison to similar instruments. Such estimates are highly
subjective and require judgments regarding significant matters such
as the amount and timing of future cash flows and the selection of
discount rates that appropriately reflect market and credit risks.
Changes in these judgments often have a material impact on the fair
value estimates. In addition, since these estimates are made as of
a specific point in time, they are susceptible to material
near-term changes. Fair values estimated in this manner do not
reflect any premium or discount that could result from the sale of
a large volume of a particular financial instrument, nor do they
reflect possible tax ramifications or estimated transaction
costs.
The following is a description of the principal valuation methods
used by People’s United for those financial instruments that
are not measured at fair value either on a recurring or
non-recurring
Cash, Short-Term Investments and Securities Purchased Under
Agreements to Resell
Cash and due from banks is classified as Level 1. Short-term
investments and securities purchased under agreements to resell
have fair values that approximate the respective carrying amounts
because the instruments are payable on demand or have short-term
maturities, and present relatively low credit risk and IRR. As
such, these fair values are classified as Level 2.
Securities Held-to-Maturity
When available, the fair values of investment securities
held-to-maturity
FHLB and FRB-NY
Both FHLB and FRB-NY non-marketable
Loans
For valuation purposes, the loan portfolio is segregated into its
significant categories, which are commercial real estate,
commercial and industrial, equipment financing, residential
mortgage, home equity and other consumer. These categories are
further segregated, where appropriate, into components based on
significant financial characteristics such as type of interest rate
(fixed or adjustable) and payment status (performing or
non-performing).
The fair values of performing loans were estimated by discounting
the anticipated cash flows from the respective portfolios, assuming
future prepayments and using market interest rates for new loans
with comparable credit risk. As a result, the valuation method for
performing loans, which is consistent with certain guidance
provided in accounting standards, does not fully incorporate the
“exit price” approach to fair value. The fair values of
non-performing
Deposit Liabilities
The fair values of time deposits represent contractual cash flows
discounted at current rates determined by reference to observable
inputs including a LIBOR/swap curve over the remaining period to
maturity. As such, these fair values are classified as
Level 2. The fair values of other deposit liabilities (those
with no stated maturity, such as checking and savings accounts) are
equal to the carrying amounts payable on demand. Deposit fair
values do not include the intangible value of core deposit
relationships that comprise a significant portion of People’s
United’s deposit base. Management believes that
People’s United’s core deposit relationships provide a
relatively stable, low-cost
Borrowings and Notes and Debentures
The fair values of federal funds purchased and customer repurchase
agreements are equal to the respective carrying amounts due to the
short maturities (generally overnight). The fair values of FHLB
advances and other borrowings represent contractual repayments
discounted using interest rates currently available on borrowings
with similar characteristics and remaining maturities and are
classified as Level 2. The fair values of notes and debentures
were based on dealer quotes and are classified as Level 2.
Lending-Related Financial Instruments
The estimated fair values of People’s United’s
lending-related financial instruments approximate the respective
carrying amounts. Such instruments include commitments to extend
credit, unadvanced lines of credit and letters of credit, for which
fair values were estimated based on an analysis of the interest
rates and fees currently charged to enter into similar
transactions, considering the remaining terms of the instruments
and the creditworthiness of the potential borrowers. |
