People's United Financial, Inc. (Form: 10-Q, Received: 05/10/2013 11:48:11)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

Commission File Number 001-33326

PEOPLE’S UNITED FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-8447891

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


850 Main Street, Bridgeport, Connecticut		06604
(Address of principal executive offices)		(Zip Code)

(203) 338-7171

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 30, 2013, there were 330,734,186 shares of the registrant’s common stock outstanding.

People’s United Financial Inc.

Form 10-Q

Table of Contents


		Page
Part I – Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Condition as of March 31, 2013 and December 31, 2012		1

	Consolidated Statements of Income for the Three Months Ended March 31, 2013 and 2012		2

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2013 and 2012		3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2013 and 2012		4

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012		5

	Notes to Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		84

Item 4.	Controls and Procedures		84

Part II – Other Information

Item 1.	Legal Proceedings		85

Item 1A.	Risk Factors		85

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		85

Item 3.	Defaults Upon Senior Securities		86

Item 4.	Mine Safety Disclosures		86

Item 5.	Other Information		86

Item 6.	Exhibits		86

Signatures			87

Item 1 - Financial Statements

People’s United Financial, Inc.

Consolidated Statements of Condition - (Unaudited)


(in millions)	March 31, 2013			December 31, 2012
Assets
Cash and due from banks	$	320.5		$	470.0
Short-term investments (note 2)		127.2			131.4

Total cash and cash equivalents		447.7			601.4

Securities (note 2):
Trading account securities, at fair value		6.4			6.5
Securities available for sale, at fair value		4,570.4			4,532.3
Securities held to maturity, at amortized cost (fair value of $60.6 million and $60.9 million)		56.1			56.2
Federal Home Loan Bank stock, at cost		83.0			73.7

Total securities		4,715.9			4,668.7

Loans held for sale		50.7			77.0

Loans (note 3):
Commercial		8,469.5			8,400.0
Commercial real estate		7,599.2			7,294.2
Residential mortgage		3,958.8			3,886.1
Consumer		2,133.4			2,156.3

Total loans		22,160.9			21,736.6
Less allowance for loan losses		(187.3	)		(188.0	)

Total loans, net		21,973.6			21,548.6

Goodwill (note 6)		1,954.5			1,954.5
Other acquisition-related intangible assets (note 6)		192.5			199.0
Premises and equipment		327.0			330.4
Bank-owned life insurance		336.3			336.5
Other assets (notes 3 and 11)		600.0			608.3

Total assets	$	30,598.2		$	30,324.4


Liabilities
Deposits:
Non-interest-bearing	$	4,994.3		$	5,084.3
Savings, interest-bearing checking and money market		12,210.8			11,959.8
Time		4,586.5			4,706.4

Total deposits		21,791.6			21,750.5

Borrowings:
Federal Home Loan Bank advances		1,407.4			1,178.3
Federal funds purchased		934.0			619.0
Retail repurchase agreements		506.9			588.2
Other borrowings		1.0			1.0

Total borrowings		2,849.3			2,386.5

Notes and debentures		659.3			659.0
Other liabilities (note 11)		411.9			489.6

Total liabilities		25,712.1			25,285.6


Commitments and contingencies (note 8)

Stockholders’ Equity
Common stock ($0.01 par value; 1.95 billion shares authorized; 396.2 million shares and 395.8 million shares issued)		3.9			3.9
Additional paid-in capital		5,265.2			5,261.3
Retained earnings		753.6			756.2
Treasury stock, at cost (67.3 million shares and 56.2 million shares) (note 4)		(856.4	)		(712.2	)
Accumulated other comprehensive loss (note 4)		(108.5	)		(96.9	)
Unallocated common stock of Employee Stock Ownership Plan, at cost (8.3 million shares and 8.4 million shares) (note 7)		(171.7	)		(173.5	)

Total stockholders’ equity		4,886.1			5,038.8

Total liabilities and stockholders’ equity	$	30,598.2		$	30,324.4

See accompanying notes to consolidated financial statements.

People’s United Financial, Inc.

Consolidated Statements of Income - (Unaudited)


	Three Months Ended March 31,
(in millions, except per share data)	2013		2012
Interest and dividend income:
Commercial	$	86.7	$	92.8
Commercial real estate		85.5		91.7
Residential mortgage		34.5		36.2
Consumer		18.8		20.7

Total interest on loans (note 12)		225.5		241.4
Securities		22.7		18.0
Loans held for sale		0.4		0.5
Short-term investments		0.1		0.3

Total interest and dividend income (note 12)		248.7		260.2

Interest expense:
Deposits		20.8		23.1
Borrowings		2.3		1.7
Notes and debentures		6.3		2.2

Total interest expense		29.4		27.0

Net interest income (note 12)		219.3		233.2
Provision for loan losses (note 3)		12.4		11.5

Net interest income after provision for loan losses (note 12)		206.9		221.7

Non-interest income:
Bank service charges		30.1		30.3
Investment management fees		9.0		8.6
Insurance revenue		8.3		8.4
Brokerage commissions		3.3		3.1
Operating lease income		8.3		6.7
Net gains on sales of residential mortgage loans		5.7		3.6
Other non-interest income		18.2		11.7

Total non-interest income		82.9		72.4

Non-interest expense:
Compensation and benefits		108.2		110.3
Occupancy and equipment		37.9		33.4
Professional and outside service fees		13.9		15.3
Operating lease expense		7.5		5.6
Amortization of other acquisition-related intangible assets (note 6)		6.5		6.6
Other non-interest expense		38.0		37.4

Total non-interest expense		212.0		208.6

Income before income tax expense (note 12)		77.8		85.5
Income tax expense (note 12)		25.3		28.2

Net income (note 12)	$	52.5	$	57.3

Earnings per common share (notes 5 and 12):
Basic	$	0.16	$	0.17
Diluted		0.16		0.17

See accompanying notes to consolidated financial statements.

People’s United Financial, Inc.

Consolidated Statements of Comprehensive Income - (Unaudited)


	Three Months Ended March 31,
(in millions)	2013			2012
Net income	$	52.5		$	57.3

Other comprehensive income (loss), net of tax:
Net actuarial loss, prior service cost and transition obligation related to pension and other postretirement benefit plans		1.3			1.7
Net unrealized gains and losses on securities available for sale		(13.1	)		1.5
Net unrealized gains and losses on derivatives accounted for as cash flow hedges		0.2			(0.5	)

Total other comprehensive (loss) income, net of tax (note 4)		(11.6	)		2.7

Total comprehensive income	$	40.9		$	60.0

See accompanying notes to consolidated financial statements.

People’s United Financial, Inc.

Consolidated Statements of Changes in Stockholders’ Equity - (Unaudited)


Three months ended March 31, 2013 (in millions, except per share data)	Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Unallocated ESOP Common Stock			Total Stockholders’ Equity
Balance at December 31, 2012	$	3.9	$	5,261.3	$	756.2		$	(712.2	)	$	(96.9	)	$	(173.5	)	$	5,038.8
Net income		—		—		52.5			—			—			—			52.5
Other comprehensive loss, net of tax		—		—		—			—			(11.6	)		—			(11.6	)
Cash dividends on common stock ($0.16 per share)		—		—		(52.8	)		—			—			—			(52.8	)
Restricted stock awards		—		2.6		—			—			—			—			2.6
ESOP common stock committed to be released (note 7)		—		—		(0.7	)		—			—			1.8			1.1
Common stock repurchased (note 4)		—		—		—			(144.2	)		—			—			(144.2	)
Common stock repurchased and retired upon vesting of restricted stock awards		—		—		(1.6	)		—			—			—			(1.6	)
Stock options and related tax benefits		—		1.3		—			—			—			—			1.3

Balance at March 31, 2013	$	3.9	$	5,265.2	$	753.6		$	(856.4	)	$	(108.5	)	$	(171.7	)	$	4,886.1


Three months ended March 31, 2012 (in millions, except per share data)	Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Unallocated ESOP Common Stock			Total Stockholders’ Equity
Balance at December 31, 2011	$	3.9	$	5,247.0	$	734.5		$	(493.5	)	$	(95.8	)	$	(180.7	)	$	5,215.4
Net income		—		—		57.3			—			—			—			57.3
Other comprehensive income, net of tax		—		—		—			—			2.7			—			2.7
Cash dividends on common stock ($0.1575 per share)		—		—		(54.9	)		—			—			—			(54.9	)
Restricted stock awards		—		3.2		(0.2	)		0.8			—			—			3.8
ESOP common stock committed to be released (note 7)		—		—		(0.7	)		—			—			1.8			1.1
Common stock repurchased (note 4)		—		—		—			(56.4	)		—			—			(56.4	)
Common stock repurchased and retired upon vesting of restricted stock awards		—		—		(1.4	)		—			—			—			(1.4	)
Stock options and related tax benefits		—		2.1		—			—			—			—			2.1

Balance at March 31, 2012 (note 12)	$	3.9	$	5,252.3	$	734.6		$	(549.1	)	$	(93.1	)	$	(178.9	)	$	5,169.7

See accompanying notes to consolidated financial statements.

People’s United Financial, Inc.

Consolidated Statements of Cash Flows - (Unaudited)


	Three Months Ended March 31,
(in millions)	2013			2012
Cash Flows from Operating Activities:
Net income	$	52.5		$	57.3
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		12.4			11.5
Depreciation and amortization of premises and equipment		10.1			9.3
Expense related to operating leases		7.5			5.6
Amortization of other acquisition-related intangible assets		6.5			6.6
Net gains on sales of residential mortgage loans		(5.7	)		(3.6	)
ESOP common stock committed to be released		1.1			1.1
Expense related to share-based awards		3.9			5.6
Originations of loans held-for-sale		(223.4	)		(195.7	)
Proceeds from sales of loans held-for-sale		255.4			244.5
Net decrease in trading account securities		0.1			49.2
Net changes in other assets and liabilities		(45.8	)		(26.0	)

Net cash provided by operating activities		74.6			165.4

Cash Flows from Investing Activities:
Proceeds from principal repayments and maturities of securities available for sale		278.4			220.0
Proceeds from principal repayments of securities held to maturity		0.1			—
Proceeds from redemption of FHLB stock		0.9			4.0
Purchases of securities available for sale		(358.2	)		(235.9	)
Purchases of FHLB stock		(10.2	)		—
Proceeds from sales of loans		—			7.4
Loan disbursements, net of principal collections		(435.6	)		(120.6	)
Purchases of premises and equipment		(6.7	)		(0.1	)
Purchases of leased equipment		(9.3	)		(14.9	)
Proceeds from sales of real estate owned		5.1			7.5
Return of premiums on bank-owned life insurance, net		0.9			0.1

Net cash used in investing activities		(534.6	)		(132.5	)

Cash Flows from Financing Activities:
Net increase in deposits		41.1			451.7
Net increase (decrease) in borrowings with terms of three months or less		463.8			(44.4	)
Repayments of borrowings with terms of more than three months		(0.1	)		(0.1	)
Cash dividends paid on common stock		(52.8	)		(54.9	)
Common stock repurchases		(145.8	)		(57.8	)
Proceeds from stock options exercised, including excess income tax benefits		0.1			0.2

Net cash provided by financing activities		306.3			294.7

Net (decrease) increase in cash and cash equivalents		(153.7	)		327.6
Cash and cash equivalents at beginning of period		601.4			780.9

Cash and cash equivalents at end of period	$	447.7		$	1,108.5


Supplemental Information:
Interest payments	$	26.2		$	31.2
Income tax payments		5.1			2.2
Real estate properties acquired by foreclosure		3.1			4.5

See accompanying notes to consolidated financial statements.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 1. GENERAL

In the opinion of management, the accompanying unaudited consolidated financial statements of People’s United Financial, Inc. (“People’s United Financial” or the “Company”) have been prepared to reflect all adjustments necessary to present fairly the financial position and results of operations as of the dates and for the periods shown. All significant intercompany transactions and balances are eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

As discussed in Note 12, previously reported results for the three months ended March 31, 2012 have been revised to reflect a reduction in interest income on certain acquired loans.

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. The current economic environment has increased the degree of uncertainty inherent in these significant estimates.

Note 1 to People’s United Financial’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012, as supplemented by this Quarterly Report for the period ended March 31, 2013, provides disclosure of People’s United Financial’s significant accounting policies. 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, and other-than-temporary declines in the fair value of securities. These significant accounting policies and critical estimates are reviewed with the Audit Committee of the Board of Directors.

The judgments used by management in applying these critical accounting policies may be affected by a further and prolonged deterioration in the economic environment, 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.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in conformity with U.S. generally accepted accounting principles have been omitted or condensed. As a result, the accompanying consolidated financial statements should be read in conjunction with People’s United Financial’s Annual Report on Form 10-K for the year ended December 31, 2012. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results of operations that may be expected for the entire year or any other interim period.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 2. SECURITIES AND SHORT-TERM INVESTMENTS

The amortized cost, gross unrealized gains and losses, and fair value of People’s United Financial’s securities available for sale and securities held to maturity are as follows:


As of March 31, 2013 (in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available for sale:
Debt securities:
U.S. Treasury and agency	$	23.3	$	0.6	$	—		$	23.9
GSE (1) residential mortgage-backed securities and CMOs (2)		3,844.2		59.9		(3.7	)		3,900.4
State and municipal		579.5		11.2		(8.3	)		582.4
Corporate		58.0		2.3		—			60.3
Other		2.6		0.6		—			3.2

Total debt securities		4,507.6		74.6		(12.0	)		4,570.2
Equity securities		0.2		—		—			0.2

Total securities available for sale	$	4,507.8	$	74.6	$	(12.0	)	$	4,570.4

Securities held to maturity:
Debt securities:
Corporate	$	55.0	$	4.5	$	—		$	59.5
Other		1.1		—		—			1.1

Total securities held to maturity	$	56.1	$	4.5	$	—		$	60.6

(1)

Government sponsored enterprise

(2)

Collateralized mortgage obligations


As of December 31, 2012 (in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities available for sale:
Debt securities:
U.S. Treasury and agency	$	30.1	$	0.6	$	—		$	30.7
GSE residential mortgage-backed securities and CMOs		3,830.9		69.1		(1.0	)		3,899.0
State and municipal		527.4		15.0		(2.8	)		539.6
Corporate		57.9		2.0		—			59.9
Other		2.6		0.3		—			2.9

Total debt securities		4,448.9		87.0		(3.8	)		4,532.1
Equity securities		0.2		—		—			0.2

Total securities available for sale	$	4,449.1	$	87.0	$	(3.8	)	$	4,532.3

Securities held to maturity:
Debt securities:
Corporate	$	55.0	$	4.7	$	—		$	59.7
Other		1.2		—		—			1.2

Total securities held to maturity	$	56.2	$	4.7	$	—		$	60.9

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

The following tables summarize debt securities available for sale with unrealized losses, segregated by the length of time the securities have been in a continuous unrealized loss position at the respective dates. Certain unrealized losses totaled less than $0.1 million.


	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months Or Longer				Total
As of March 31, 2013 (in millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
GSE residential mortgage-backed securities and CMOs	$	1,235.0	$	(3.7	)	$	—	$	—	$	1,235.0	$	(3.7	)
State and municipal		324.0		(8.3	)		0.1		—		324.1		(8.3	)
U.S. Treasury and agency		7.0		—			—		—		7.0		—

Total	$	1,566.0	$	(12.0	)	$	0.1	$	—	$	1,566.1	$	(12.0	)


	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months Or Longer				Total
As of December 31, 2012 (in millions)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
GSE residential mortgage-backed securities and CMOs	$	571.6	$	(1.0	)	$	—	$	—	$	571.6	$	(1.0	)
State and municipal		148.2		(2.8	)		0.1		—		148.3		(2.8	)
U.S. Treasury and agency		4.2		—			—		—		4.2		—

Total	$	724.0	$	(3.8	)	$	0.1	$	—	$	724.1	$	(3.8	)

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 Financial has an intention to sell the security; (ii) it is more likely than not that People’s United Financial will be required to sell the security prior to recovery; or (iii) People’s United Financial does not expect to recover the entire amortized cost basis of the security. Other-than-temporary losses on debt securities are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time People’s United Financial expects to receive full value for the securities.

Management believes that all gross unrealized losses within the securities portfolio at March 31, 2013 and December 31, 2012 are temporary impairments. Management does not intend to sell such securities. No other-than-temporary impairment losses were recognized in the Consolidated Statements of Income for the three months ended March 31, 2013 and 2012.

Security transactions are recorded on the trade date. Realized gains and losses are determined using the specific identification method and reported in non-interest income.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

The following table is a summary of the amortized cost and fair value of debt securities as of March 31, 2013, based on remaining period to contractual maturity. Information for GSE residential mortgage-backed securities and CMOs is based on the final contractual maturity dates without considering repayments and prepayments.


	Available for Sale				Held to Maturity
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
U.S. Treasury and agency:
Within 1 year	$	18.0	$	18.1	$	—	$	—
After 5 but within 10 years		5.3		5.8		—		—

Total		23.3		23.9		—		—

GSE residential mortgage-backed securities and CMOs:
After 5 but within 10 years		681.4		684.8		—		—
After 10 years		3,162.8		3,215.6		—		—

Total		3,844.2		3,900.4		—		—

State and municipal:
Within 1 year		1.5		1.6		—		—
After 1 but within 5 years		15.0		15.7		—		—
After 5 but within 10 years		121.4		125.3		—		—
After 10 years		441.6		439.8		—		—

Total		579.5		582.4		—		—

Corporate:
After 1 but within 5 years		58.0		60.3		—		—
After 5 but within 10 years		—		—		55.0		59.5

Total		58.0		60.3		55.0		59.5

Other:
Within 1 year		—		—		0.1		0.1
After 1 but within 5 years		—		—		1.0		1.0
After 10 years		2.6		3.2		—		—

Total		2.6		3.2		1.1		1.1

Total:
Within 1 year		19.5		19.7		0.1		0.1
After 1 but within 5 years		73.0		76.0		1.0		1.0
After 5 but within 10 years		808.1		815.9		55.0		59.5
After 10 years		3,607.0		3,658.6		—		—

Total	$	4,507.6	$	4,570.2	$	56.1	$	60.6

People’s United Bank, as a member of the Federal Home Loan Bank (“FHLB”) of Boston, is currently required to purchase and hold shares of FHLB capital stock (total cost of $70.1 million at March 31, 2013 and $59.9 million at December 31, 2012) in an amount equal to its membership base investment plus an activity based investment determined according to People’s United Bank’s level of outstanding FHLB advances. As a result of the Smithtown Bancorp, Inc. (“Smithtown”) acquisition completed in 2010, People’s United Financial acquired shares of capital stock in the FHLB of New York (total cost of $12.9 million at March 31, 2013 and $13.8 million at December 31, 2012). Based on the current capital adequacy and liquidity position of both the FHLB of Boston and the FHLB of New York, management believes there is no impairment in the Company’s investment at March 31, 2013 and the cost of the investment approximates fair value.

The balance of short-term investments at March 31, 2013 and December 31, 2012 primarily consisted of $72.8 million and $69.7 million, respectively, of interest-bearing deposits at the Federal Reserve Bank of New York. These deposits represent an alternative to overnight federal funds sold and had a yield of 0.25% at both March 31, 2013 and December 31, 2012.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 3. LOANS

For purposes of disclosures related to the credit quality of financing receivables and the allowance for loan losses, People’s United Financial has identified two loan portfolio segments, Commercial Banking and Retail, which are comprised of the following loan classes:

•

Commercial Banking: commercial real estate; commercial and industrial; and equipment financing.

•

Retail: residential mortgage; home equity; and other consumer.

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’ below). 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 Financial 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 three months ended March 31, 2013.

The following table summarizes People’s United Financial’s loans by loan portfolio segment and class:


	March 31, 2013						December 31, 2012
(in millions)	Originated		Acquired		Total		Originated		Acquired		Total
Commercial Banking:
Commercial real estate	$	6,632.7	$	966.5	$	7,599.2	$	6,256.1	$	1,038.1	$	7,294.2

Commercial and industrial		5,499.8		586.9		6,086.7		5,437.4		610.3		6,047.7
Equipment financing		2,261.1		121.7		2,382.8		2,201.9		150.4		2,352.3

Total commercial		7,760.9		708.6		8,469.5		7,639.3		760.7		8,400.0

Total Commercial Banking		14,393.6		1,675.1		16,068.7		13,895.4		1,798.8		15,694.2

Retail:
Residential mortgage:
Adjustable-rate		3,238.7		191.1		3,429.8		3,130.9		204.3		3,335.2
Fixed-rate		389.1		139.9		529.0		400.5		150.4		550.9

Total residential mortgage		3,627.8		331.0		3,958.8		3,531.4		354.7		3,886.1

Consumer:
Home equity		1,967.8		74.8		2,042.6		1,969.4		82.1		2,051.5
Other consumer		88.6		2.2		90.8		102.3		2.5		104.8

Total consumer		2,056.4		77.0		2,133.4		2,071.7		84.6		2,156.3

Total Retail		5,684.2		408.0		6,092.2		5,603.1		439.3		6,042.4

Total loans	$	20,077.8	$	2,083.1	$	22,160.9	$	19,498.5	$	2,238.1	$	21,736.6

Net deferred loan costs, which are included in total loans and accounted for as interest yield adjustments, totaled $42.6 million at March 31, 2013 and $41.9 million at December 31, 2012.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

The following tables present 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 March 31, 2013	Commercial Banking									Retail
(in millions)	Originated			Acquired			Total			Originated			Acquired			Total			Total
Balance at beginning of period	$	157.5		$	10.5		$	168.0		$	20.0		$	—		$	20.0		$	188.0

Charge-offs		(7.4	)		(3.0	)		(10.4	)		(3.8	)		(0.3	)		(4.1	)		(14.5	)
Recoveries		1.0			—			1.0			0.4			—			0.4			1.4

Net loan charge-offs		(6.4	)		(3.0	)		(9.4	)		(3.4	)		(0.3	)		(3.7	)		(13.1	)
Provision for loan losses		8.4			2.3			10.7			1.4			0.3			1.7			12.4

Balance at end of period	$	159.5		$	9.8		$	169.3		$	18.0		$	—		$	18.0		$	187.3


Three months ended March 31, 2012	Commercial Banking								Retail
(in millions)	Originated			Acquired		Total			Originated			Acquired		Total			Total
Balance at beginning of period	$	160.4		$	7.4	$	167.8		$	15.1		$	—	$	15.1		$	182.9

Charge-offs		(8.1	)		—		(8.1	)		(4.8	)		—		(4.8	)		(12.9	)
Recoveries		0.9			—		0.9			0.8			—		0.8			1.7

Net loan charge-offs		(7.2	)		—		(7.2	)		(4.0	)		—		(4.0	)		(11.2	)
Provision for loan losses		4.3			0.3		4.6			6.9			—		6.9			11.5

Balance at end of period	$	157.5		$	7.7	$	165.2		$	18.0		$	—	$	18.0		$	183.2

The following is a summary, by loan portfolio segment and impairment methodology, of the allowance for loan losses and related portfolio balances:


As of March 31, 2013	Originated Loans Individually Evaluated for Impairment				Originated Loans Collectively Evaluated for Impairment				Acquired Loans (Discounts Related to Credit Quality)				Total
(in millions)	Portfolio		Allowance		Portfolio		Allowance		Portfolio		Allowance		Portfolio		Allowance
Commercial Banking	$	210.0	$	12.6	$	14,183.6	$	146.9	$	1,675.1	$	9.8	$	16,068.7	$	169.3
Retail		69.5		—		5,614.7		18.0		408.0		—		6,092.2		18.0

Total	$	279.5	$	12.6	$	19,798.3	$	164.9	$	2,083.1	$	9.8	$	22,160.9	$	187.3


As of December 31, 2012	Originated Loans Individually Evaluated for Impairment				Originated Loans Collectively Evaluated for Impairment				Acquired Loans (Discounts Related to Credit Quality)				Total
(in millions)	Portfolio		Allowance		Portfolio		Allowance		Portfolio		Allowance		Portfolio		Allowance
Commercial Banking	$	217.3	$	20.3	$	13,678.1	$	137.2	$	1,798.8	$	10.5	$	15,694.2	$	168.0
Retail		53.6		—		5,549.5		20.0		439.3		—		6,042.4		20.0

Total	$	270.9	$	20.3	$	19,227.6	$	157.2	$	2,238.1	$	10.5	$	21,736.6	$	188.0

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

The recorded investments, by class of loan, of originated non-performing loans are summarized as follows:


(in millions)	March 31, 2013		December 31, 2012
Commercial Banking:
Commercial real estate	$	86.5	$	84.4
Commercial and industrial		50.9		54.8
Equipment financing		24.8		27.2

Total (1)		162.2		166.4

Retail:
Residential mortgage		66.8		65.0
Home equity		22.2		21.0
Other consumer		0.2		0.3

Total		89.2		86.3

Total	$	251.4	$	252.7

(1)

Reported net of government guarantees totaling $9.9 million and $9.7 million at March 31, 2013 and December 31, 2012, 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 March 31, 2013, the principal loan classes to which these government guarantees relate are commercial and industrial loans (approximately 90%) and commercial real estate loans (approximately 10%).

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 totaling $174 million and $7 million, respectively, at March 31, 2013 and $174 million and $8 million, respectively, at December 31, 2012. Such loans otherwise meet People’s United Financial’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 loss-share agreement. The discounts arising from recording these loans at fair value were due, in part, to credit quality. The acquired loans are generally accounted for on a pool basis and the accretable yield on the pools is being recognized as interest income over the life of the loans based on expected cash flows at the pool level.

A loan is generally considered “non-performing” when it is placed on non-accrual status. A loan is generally placed on non-accrual status when it becomes 90 days past due as to interest or principal payments. Past due status is based on the contractual payment terms of the loan. A loan may be placed on non-accrual status before it reaches 90 days past due if such loan has been identified as presenting uncertainty with respect to the collectability of interest and principal. A loan past due 90 days or more may remain on accruing status if such loan is both well secured and in the process of collection. There were no loans past due 90 days or more and still accruing interest at March 31, 2013 or December 31, 2012.

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 Financial, 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. Loans may continue to be reported as TDRs after they are returned to accrual status. In accordance with recent 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 Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

People’s United Financial’s recorded investment in originated loans classified as TDRs totaled $186.6 million and $180.8 million at March 31, 2013 and December 31, 2012, respectively. The related allowance for loan losses at March 31, 2013 and December 31, 2012 was $4.6 million and $5.8 million, respectively. Interest income recognized on TDRs totaled $1.6 million and $1.9 million for the three months ended March 31, 2013 and 2012, respectively. Fundings under commitments to lend additional amounts to borrowers with loans classified as TDRs were immaterial for the three months ended March 31, 2013 and 2012. Originated loans that were modified and classified as TDRs during the three months ended March 31, 2013 and 2012 principally involve payment deferral, extension of term (generally no more than twenty four months) 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 months ended March 31, 2013 and 2012. For purposes of this disclosure, recorded investments represent amounts immediately prior to and subsequent to the restructuring.


	Three Months Ended March 31, 2013
(dollars in millions)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Banking:
Commercial real estate (1)		3	$	3.9	$	3.9
Commercial and industrial (2)		3		1.6		1.6
Equipment financing (3)		3		2.5		2.5

Total		9		8.0		8.0

Retail:
Residential mortgage (4)		56		17.5		17.5
Home equity (5)		32		2.4		2.4
Other consumer		—		—		—

Total		88		19.9		19.9

Total		97	$	27.9	$	27.9

(1)	Represents the following concessions: a combination of concessions (3 contracts; recorded investment of $3.9 million).

(2)	Represents the following concessions: payment deferral (1 contract; recorded investment of $1.2 million); or a combination of concessions (2 contracts; recorded investment of $0.4 million).

(3)	Represents the following concessions: a combination of concessions (3 contracts; recorded investment of $2.5 million).

(4)

Represents the following concessions: loans restructured through bankruptcy (23 contracts; recorded investment of $4.8 million); payment deferral (3 contracts; recorded investment of $0.5 million); temporary rate reduction (1 contract; recorded investment of $2.6 million); or a combination of concessions (29 contracts; recorded investment of $9.6 million).

(5)

Represents the following concessions: loans restructured through bankruptcy (21 contracts; recorded investment of $1.4 million); payment deferral (2 contracts; recorded investment of $0.3 million); temporary rate reduction (1 contract; recorded investment of $0.5 million); or a combination of concessions (8 contracts; recorded investment of $0.2 million).

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)


	Three months ended March 31, 2012
(dollars in millions)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Banking:
Commercial real estate (1)		7	$	1.2	$	1.2
Commercial and industrial (2)		21		25.5		25.5
Equipment financing (3)		17		5.2		5.2

Total		45		31.9		31.9

Retail:
Residential mortgage (4)		11		6.0		6.0
Home equity (5)		1		0.1		0.1
Other consumer		—		—		—

Total		12		6.1		6.1

Total		57	$	38.0	$	38.0

(1)	Represents the following concessions: payment deferral (1 contract; recorded investment of $0.1 million); or a combination of concessions (6 contracts; recorded investment of $1.1 million).

(2)	Represents the following concessions: payment deferral (7 contracts; recorded investment of $19.5 million); temporary rate reduction (1 contract; recorded investment of $0.3 million); or a combination of concessions (13 contracts; recorded investment of $5.7 million).

(3)	Represents the following concessions: extension of term (4 contracts; recorded investment of $2.9 million); payment deferral (1 contract; recorded investment of $0.2 million); or a combination of concessions (12 contracts; recorded investment of $2.1 million).

(4)	Represents the following concessions: payment deferral (5 contracts; recorded investment of $2.0 million); temporary rate reduction (3 contracts; recorded investment of $3.3 million); or a combination of concessions (3 contracts; recorded investment of $0.7 million).

(5)	Represents the following concession: payment deferral (1 contract; recorded investment of $0.1 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 months ended March 31, 2013 and 2012. For purposes of this disclosure, the previous 12 months is measured from April 1 of the respective prior year and a default represents a previously-modified loan that became past due 30 days or more during the three months ended March 31, 2013 and 2012.


	Three Months Ended March 31,
	2013				2012
(dollars in millions)	Number of Contracts		Recorded Investment as of Period End		Number of Contracts		Recorded Investment as of Period End
Commercial Banking:
Commercial real estate		—	$	—		—	$	—
Commercial and industrial		4		0.5		5		0.2
Equipment financing		2		0.8		2		1.5

Total		6		1.3		7		1.7

Retail:
Residential mortgage		18		4.6		3		1.1
Home equity		3		0.2		—		—
Other consumer		—		—		—		—

Total		21		4.8		3		1.1

Total		27	$	6.1		10	$	2.8

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

People’s United Financial’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 March 31, 2013						As of December 31, 2012
(in millions)	Unpaid Principal Balance		Recorded Investment		Related Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Related Allowance for Loan Losses
Without a related allowance for loan losses:
Commercial Banking:
Commercial real estate	$	59.2	$	57.7	$	—	$	50.4	$	50.0	$	—
Commercial and industrial		21.9		21.2		—		36.7		36.0		—
Equipment financing		35.5		26.8		—		21.0		17.0		—
Retail:
Residential mortgage		58.4		55.7		—		43.1		41.0		—
Home equity		15.3		13.8		—		13.7		12.6		—
Other consumer		—		—		—		—		—		—

Total	$	190.3	$	175.2	$	—	$	164.9	$	156.6	$	—


With a related allowance for loan losses:
Commercial Banking:
Commercial real estate	$	66.9	$	44.4	$	6.5	$	85.5	$	48.8	$	8.3
Commercial and industrial		58.5		52.8		5.7		50.1		45.9		8.6
Equipment financing		8.7		7.1		0.4		26.1		19.6		3.4
Retail:
Residential mortgage		—		—		—		—		—		—
Home equity		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—

Total	$	134.1	$	104.3	$	12.6	$	161.7	$	114.3	$	20.3


Total impaired loans:
Commercial Banking:
Commercial real estate	$	126.1	$	102.1	$	6.5	$	135.9	$	98.8	$	8.3
Commercial and industrial		80.4		74.0		5.7		86.8		81.9		8.6
Equipment financing		44.2		33.9		0.4		47.1		36.6		3.4

Total		250.7		210.0		12.6		269.8		217.3		20.3

Retail:
Residential mortgage		58.4		55.7		—		43.1		41.0		—
Home equity		15.3		13.8		—		13.7		12.6		—
Other consumer		—		—		—		—		—		—

Total		73.7		69.5		—		56.8		53.6		—

Total	$	324.4	$	279.5	$	12.6	$	326.6	$	270.9	$	20.3

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

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 March 31,
	2013				2012
(in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial Banking:
Commercial real estate	$	96.4	$	0.4	$	116.6	$	0.4
Commercial and industrial		78.4		0.8		60.9		0.6
Equipment financing		34.9		0.3		54.4		0.8

Total		209.7		1.5		231.9		1.8

Retail:
Residential mortgage		45.7		0.3		15.1		0.1
Home equity		12.7		—		0.7		—
Other consumer		—		—		—		—

Total		58.4		0.3		15.8		0.1

Total	$	268.1	$	1.8	$	247.7	$	1.9

The following tables summarize, by class of loan, aging information for originated loans:


			Past Due
As of March 31, 2013 (in millions)	Current		30-89 Days		90 Days or More		Total		Total Originated
Commercial Banking:
Commercial real estate	$	6,552.8	$	11.3	$	68.6	$	79.9	$	6,632.7
Commercial and industrial		5,434.2		20.5		45.1		65.6		5,499.8
Equipment financing		2,215.4		38.2		7.5		45.7		2,261.1

Total		14,202.4		70.0		121.2		191.2		14,393.6


Retail:
Residential mortgage		3,511.0		61.8		55.0		116.8		3,627.8
Home equity		1,941.6		12.3		13.9		26.2		1,967.8
Other consumer		87.0		1.4		0.2		1.6		88.6

Total		5,539.6		75.5		69.1		144.6		5,684.2

Total originated loans	$	19,742.0	$	145.5	$	190.3	$	335.8	$	20,077.8

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 $18.7 million, $14.9 million and $17.3 million, respectively, and $20.1 million of retail loans in 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 collectibility of interest and principal.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)


			Past Due
As of December 31, 2012 (in millions)	Current		30-89 Days		90 Days or More		Total		Total Originated
Commercial Banking:
Commercial real estate	$	6,160.6	$	30.2	$	65.3	$	95.5	$	6,256.1
Commercial and industrial		5,362.3		27.7		47.4		75.1		5,437.4
Equipment financing		2,159.0		33.4		9.5		42.9		2,201.9

Total		13,681.9		91.3		122.2		213.5		13,895.4


Retail:
Residential mortgage		3,415.8		60.1		55.5		115.6		3,531.4
Home equity		1,944.5		11.2		13.7		24.9		1,969.4
Other consumer		100.0		2.0		0.3		2.3		102.3

Total		5,460.3		73.3		69.5		142.8		5,603.1

Total originated loans	$	19,142.2	$	164.6	$	191.7	$	356.3	$	19,498.5

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 $19.9 million, $16.3 million and $17.7 million, respectively, and $16.8 million of retail loans in 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 collectibility of interest and principal.

The following is a summary, by class of loan, of credit quality indicators:


As of March 31, 2013 (in millions)	Commercial Real Estate		Commercial and Industrial		Equipment Financing		Total
Commercial Banking:
Originated loans:
Pass	$	6,331.8	$	5,094.6	$	2,033.1	$	13,459.5
Special mention		81.7		68.6		97.8		248.1
Substandard		217.7		332.9		130.2		680.8
Doubtful		1.5		3.7		—		5.2

Total originated loans		6,632.7		5,499.8		2,261.1		14,393.6

Acquired loans:
Pass		563.4		399.1		44.2		1,006.7
Special mention		98.1		68.9		17.5		184.5
Substandard		291.2		116.9		60.0		468.1
Doubtful		13.8		2.0		—		15.8

Total acquired loans		966.5		586.9		121.7		1,675.1

Total	$	7,599.2	$	6,086.7	$	2,382.8	$	16,068.7


As of March 31, 2013 (in millions)	Residential Mortgage		Home Equity		Other Consumer		Total
Retail:
Originated loans:
Low risk	$	1,824.1	$	760.6	$	59.4	$	2,644.1
Moderate risk		1,311.2		453.2		7.7		1,772.1
High risk		492.5		754.0		21.5		1,268.0

Total originated loans		3,627.8		1,967.8		88.6		5,684.2

Acquired loans:
Low risk		144.0		—		—		144.0
Moderate risk		89.9		—		—		89.9
High risk		97.1		74.8		2.2		174.1

Total acquired loans		331.0		74.8		2.2		408.0

Total	$	3,958.8	$	2,042.6	$	90.8	$	6,092.2

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)


As of December 31, 2012 (in millions)	Commercial Real Estate		Commercial and Industrial		Equipment Financing		Total
Commercial Banking:
Originated loans:
Pass	$	5,947.9	$	5,021.2	$	1,960.2	$	12,929.3
Special mention		82.2		93.8		113.2		289.2
Substandard		223.5		318.9		128.5		670.9
Doubtful		2.5		3.5		—		6.0

Total originated loans		6,256.1		5,437.4		2,201.9		13,895.4

Acquired loans:
Pass		656.3		403.2		54.0		1,113.5
Special mention		74.2		88.0		21.1		183.3
Substandard		293.0		116.4		75.3		484.7
Doubtful		14.6		2.7		—		17.3

Total acquired loans		1,038.1		610.3		150.4		1,798.8

Total	$	7,294.2	$	6,047.7	$	2,352.3	$	15,694.2


As of December 31, 2012 (in millions)	Residential Mortgage		Home Equity		Other Consumer		Total
Retail:
Originated loans:
Low risk	$	1,729.7	$	740.4	$	72.7	$	2,542.8
Moderate risk		1,292.1		440.0		7.8		1,739.9
High risk		509.6		789.0		21.8		1,320.4

Total originated loans		3,531.4		1,969.4		102.3		5,603.1

Acquired loans:
Low risk		149.9		—		—		149.9
Moderate risk		99.7		—		—		99.7
High risk		105.1		82.1		2.5		189.7

Total acquired loans		354.7		82.1		2.5		439.3

Total	$	3,886.1	$	2,051.5	$	104.8	$	6,042.4

Commercial Banking 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 banking 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.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

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, delinquency trends and portfolio-specific risk characteristics, the combination of which determines whether a loan is classified as “High”, “Moderate” or “Low” risk.

The 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 banking and retail loans, other than acquired loans, are also evaluated to determine whether they are impaired loans, which are included in the preceding tabular disclosures of credit quality indicators. 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 TDRs.

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 Banking 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 Financial’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.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

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 March 31, 2013 and December 31, 2012, the allowance for loan losses on acquired loans was $9.8 million and $10.5 million, respectively.

Acquired Loans

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that all contractually required payments will not be collected are initially recorded at fair value without recording an allowance for loan losses. Fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows. Acquired loans are generally accounted for on a pool basis, with pools formed based on the loans’ common risk characteristics, such as loan collateral type and accrual status. Each pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Under the accounting model for acquired loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the “accretable yield”, is accreted into interest income over the life of the loans in each pool using the effective yield method. Accordingly, acquired loans are not subject to classification as non-accrual in the same manner as originated loans. Rather, acquired loans are considered to be accruing loans because their interest income relates to the accretable yield recognized at the pool level and not to contractual interest payments at the loan level. The difference between contractually required principal and interest payments and the cash flows expected to be collected, referred to as the “nonaccretable difference”, includes estimates of both the impact of prepayments and future credit losses expected to be incurred over the life of the loans in each pool. As such, charge-offs on acquired loans are first applied to the nonaccretable difference and then to any allowance for loan losses recognized subsequent to acquisition.

Subsequent to acquisition, actual cash collections are monitored relative to 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 – Updates to changes in expected cash flows are driven by the credit outlook and actions taken with borrowers. Changes in expected future cash flows resulting from loan modifications are included in the assessment of expected cash flows;

•

Changes in prepayment assumptions – Prepayments affect the estimated life of the loans which may change the amount of interest income, and possibly principal, expected to be collected; and

•

Changes in interest rate indices for variable rate loans – Expected future cash flows are based, as applicable, on the variable rates in effect at the time of the assessment of expected cash flows.

A decrease in expected cash flows in subsequent periods may indicate that the loan pool is impaired, which would require the establishment of an allowance for loan losses by a charge to the provision for loan losses. An increase in expected cash flows in subsequent periods serves, first, to reduce any previously established allowance for loan losses by the increase in the present value of cash flows expected to be collected, and results in a recalculation of the amount of accretable yield for the loan pool. The adjustment of accretable yield due to an increase in expected cash flows is accounted for as a change in estimate. The additional cash flows expected to be collected are reclassified from the nonaccretable difference to the accretable yield, and the amount of periodic accretion is adjusted accordingly over the remaining life of the loans in the pool.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

An acquired loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party or foreclosure of the collateral. In the event of a sale of the loan, a gain or loss on sale is recognized and reported within non-interest income based on the difference between the sales proceeds and the carrying amount of the loan. In other cases, individual loans are removed from the pool based on comparing the amount received from its resolution (fair value of the underlying collateral less costs to sell in the case of a foreclosure) with its outstanding balance. Any difference between these amounts is absorbed by the nonaccretable difference established for the entire pool. For loans resolved by payment in full, there is no adjustment of the nonaccretable difference since there is no difference between the amount received at resolution and the outstanding balance of the loan. In these cases, the remaining accretable yield balance is unaffected and any material change in remaining effective yield caused by the removal of the loan from the pool is addressed in connection with the subsequent cash flow re-assessment for the pool. Acquired loans subject to modification are not removed from the pool even if those loans would otherwise be deemed TDRs as the pool, and not the individual loan, represents the unit of account.

At the respective acquisition dates in 2011 and 2010, on an aggregate basis, the acquired loan portfolio had contractually required principal and interest payments receivable of $7.57 billion; expected cash flows of $7.02 billion; and a fair value (initial carrying amount) of $5.36 billion. The difference between the contractually required principal and interest payments receivable and the expected cash flows ($550.9 million) represented the initial nonaccretable difference. The difference between the expected cash flows and fair value ($1.66 billion) represented the initial accretable yield. Both the contractually required principal and interest payments receivable and the expected cash flows reflect anticipated prepayments, determined based on historical portfolio experience. At March 31, 2013, the outstanding principal balance and carrying amount of the acquired loan portfolio were $2.13 billion and $2.08 billion, respectively ($2.30 billion and $2.24 billion, respectively, at December 31, 2012). At March 31, 2013, the aggregate remaining nonaccretable difference applicable to acquired loans totaled $157.0 million.

The following table summarizes activity in the accretable yield for the acquired loan portfolio:


	Three Months Ended March 31,
(in millions)	2013			2012
Balance at beginning of period	$	890.2		$	1,310.4
Accretion		(37.1	)		(60.3	)
Reclassification from nonaccretable difference for loans with improved cash flows (1)		—			13.5
Other changes in expected cash flows (2)		(106.1	)		10.2

Balance at end of period	$	747.0		$	1,273.8

(1)

Results in increased interest income as a prospective yield adjustment over the remaining life of the corresponding pool of loans.

(2)

Represents changes in cash flows expected to be collected due to factors other than credit (e.g. changes in prepayment assumptions and/or changes in interest rates on variable rate loans), as well as loan sales, modifications and payoffs.

Other Real Estate Owned and Repossessed Assets (included in Other Assets)

Other real estate owned (“REO”) was comprised of residential and commercial properties totaling $16.9 million and $9.6 million, respectively, at March 31, 2013, and $17.2 million and $11.4 million, respectively, at December 31, 2012. Repossessed assets totaled $7.2 million and $8.3 million at March 31, 2013 and December 31, 2012, respectively.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 4. STOCKHOLDERS’ EQUITY

Treasury Stock

Treasury stock includes (i) common stock repurchased by People’s United Financial, either directly or through agents, in the open market at prices and terms satisfactory to management in connection with stock repurchases authorized by its Board of Directors and (ii) common stock purchased for awards under the People’s United Financial, Inc. 2007 Recognition and Retention Plan (the “RRP”).

In October 2011, People’s United Financial’s Board of Directors authorized the repurchase of up to 5% of the Company’s common stock outstanding, or 18.0 million shares. During the three months ended March 31, 2012, 4.5 million shares of People’s United Financial common stock were repurchased under this authorization at a total cost of $56.4 million. People’s United Financial completed the repurchase of the remaining number of shares of common stock available under this authorization in November 2012.

In November 2012, People’s United Financial’s Board of Directors authorized an additional repurchase of up to 10% of the Company’s common stock outstanding, or 33.6 million shares. During the three months ended March 31, 2013, 11.1 million shares of People’s United Financial common stock were repurchased under this authorization at a total cost of $144.2 million.

In conjunction with establishing the RRP in October 2007, a trustee purchased 7.0 million shares of People’s United Financial common stock in the open market with funds provided by People’s United Financial. At March 31, 2013, 2.9 million shares were available to be awarded in the form of restricted stock under the provisions of the RRP.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

Comprehensive Income

Comprehensive income represents the sum of net income and items of “other comprehensive income or loss,” including: (i) net actuarial gains and losses, prior service credits and costs, and transition assets and obligations related to People’s United Financial’s pension and other postretirement benefit plans; (ii) net unrealized gains or losses on securities available for sale; and (iii) net gains or losses on derivatives accounted for as cash flow hedges. People’s United Financial’s total comprehensive income for the three months ended March 31, 2013 and 2012 is reported in the Consolidated Statements of Comprehensive Income.

The following is a summary of the changes in the components of accumulated other comprehensive loss (“AOCL”), which are included in People’s United Financial’s stockholders’ equity on an after-tax basis:


(in millions)	Pension and Other Postretirement Benefits			Net Unrealized Gains (Losses) on Securities Available for Sale			Net Unrealized Gains (Losses) on Derivatives Accounted for as Cash Flow Hedges			Total Accumulated Other Comprehensive Loss
Balance at December 31, 2012	$	(148.2	)	$	52.8		$	(1.5	)	$	(96.9	)

Other comprehensive income (loss) before reclassifications		0.2			(13.1	)		—			(12.9	)
Amounts reclassified from AOCL (1)		1.1			—			0.2			1.3

Current period other comprehensive income (loss)		1.3			(13.1	)		0.2			(11.6	)

Balance at March 31, 2013	$	(146.9	)	$	39.7		$	(1.3	)	$	(108.5	)

(1)

See table below for details about these reclassifications.


(in millions)	Pension and Other Postretirement Benefits			Net Unrealized Gains (Losses) on Securities Available for Sale		Net Unrealized Gains (Losses) on Derivatives Accounted for as Cash Flow Hedges			Total Accumulated Other Comprehensive Loss
Balance at December 31, 2011	$	(138.8	)	$	43.2	$	(0.2	)	$	(95.8	)
Current period other comprehensive income (loss)		1.7			1.5		(0.5	)		2.7

Balance at March 31, 2012	$	(137.1	)	$	44.7	$	(0.7	)	$	(93.1	)

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

The following is a summary of the amounts reclassified from AOCL during the three months ended March 31, 2013 (in millions):


Details about components of AOCL:	Amount Reclassified from AOCL			Affected Line Item in the Statement Where Net Income is Presented
Amortization of pension and other postretirement benefits items:
Prior service credit	$	0.3		(1)
Net actuarial loss		(1.9	)	(1)

		(1.6	)	Income before income tax expense
		0.5		Income tax benefit

	$	(1.1	)	Net income


Amortization of unrealized gains and losses on cash flow hedges:
Interest rate swaps	$	(0.3	)	Interest expense - notes and debentures
Interest rate locks (2)		—		Interest expense - notes and debentures

		(0.3	)	Income before income tax expense
		0.1		Income tax benefit

	$	(0.2	)	Net income


Total reclassifications for the period	$	(1.3	)

(1)

Included in the computation of net periodic pension cost reflected in compensation and benefits expense (see Note 7 for additional details).

(2)

Amount reclassified from AOCL is less than $0.1 million.

NOTE 5. EARNINGS PER COMMON SHARE

The following is an analysis of People’s United Financial’s basic and diluted earnings per share (“EPS”), reflecting the application of the two-class method, as described below:


	Three Months Ended March 31,
(in millions, except per share data)	2013			2012
Net income	$	52.5		$	57.3
Dividends and undistributed earnings allocated to participating securities		(0.3	)		(0.3	)

Income attributable to common shareholders	$	52.2		$	57.0


Average common shares outstanding for basic EPS		325.1			344.9
Effect of dilutive equity-based awards		0.1			0.1

Average common and common-equivalent shares for diluted EPS		325.2			345.0


Basic EPS	$	0.16		$	0.17


Diluted EPS	$	0.16		$	0.17

Unvested share-based payment awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered to participate with common stock in undistributed earnings for purposes of computing EPS. Accordingly, companies that issue share-based payment awards considered to be participating securities, including People’s United Financial, are required to calculate basic and diluted EPS amounts under the two-class method. Restricted stock awards granted by People’s United Financial are considered participating securities pursuant to this guidance. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating securities and (ii) exclude from the denominator the dilutive impact of the participating securities.

All unallocated ESOP common shares and all common shares accounted for as treasury shares have been excluded from the calculation of basic and diluted EPS. Anti-dilutive equity-based awards totaling 14.7 million and 12.2 million for the three months ended March 31, 2013 and 2012, respectively, have been excluded from the calculation of diluted EPS.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 6. GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLE ASSETS

Changes in the carrying amount of goodwill are summarized as follows for the three months ended March 31, 2012 (no change in goodwill for the three months ended March 31, 2013).


	Operating Segment
(in millions)	Commercial Banking		Retail and Business Banking		Wealth Management		Total
Balance at March 31, 2013	$	1,222.8	$	681.9	$	49.8	$	1,954.5


	Operating Segment
(in millions)	Commercial Banking		Retail and Business Banking		Wealth Management		Total
Balance at December 31, 2011	$	1,220.9	$	680.7	$	49.8	$	1,951.4
Adjustments		1.3		0.3		—		1.6

Balance at March 31, 2012	$	1,222.2	$	681.0	$	49.8	$	1,953.0

Recent acquisitions have been undertaken with the objective of expanding the Company’s business, both geographically and through product offerings, as well as realizing synergies and economies of scale by combining with the acquired entities. For these reasons, a market-based premium was paid for the acquired entities which, in turn, resulted in the recognition of goodwill, representing the excess of the respective purchase prices over the estimated fair value of the net assets acquired.

All of People’s United Financial’s tax deductible goodwill was created in transactions in which the Company purchased the assets of the target (as opposed to purchasing the issued and outstanding stock of the target). At March 31, 2013 and December 31, 2012, tax deductible goodwill totaled $14.1 million and $14.8 million, respectively, and related, almost entirely, to the Butler Bank acquisition completed in 2010.

People’s United Financial’s other acquisition-related intangible assets totaled $192.5 million and $199.0 million at March 31, 2013 and December 31, 2012, respectively. At March 31, 2013, the carrying amounts of other acquisition-related intangible assets were as follows: trade name intangible ($102.2 million); core deposit intangible ($60.9 million); trust relationship intangible ($27.8 million); and insurance relationship intangible ($1.6 million).

Amortization expense of other acquisition-related intangible assets totaled $6.5 million and $6.6 million for the three months ended March 31, 2013 and 2012, respectively. Scheduled amortization expense attributable to other acquisition-related intangible assets for the full-year of 2013 and each of the next five years is as follows: $26.2 million in 2013; $24.8 million in 2014; $23.8 million in 2015; $22.7 million in 2016; $21.6 million in 2017; and $10.2 million in 2018. There were no impairment losses relating to goodwill or other acquisition-related intangible assets recorded during the three months ended March 31, 2013 or 2012.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 7. EMPLOYEE BENEFIT PLANS

People’s United Financial Employee Pension and Other Postretirement Benefit Plans

People’s United Financial maintains a qualified noncontributory defined benefit pension plan (the “Qualified Plan”) that covers substantially all full-time and part-time employees who meet certain age and length of service requirements and who were employed by People’s United 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 People’s United Bank starting on or after August 14, 2006 are not eligible to participate in the Qualified Plan. Instead, People’s United Financial 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 are at least 18 years of age and 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, People’s United Bank amended the Qualified Plan to “freeze”, effective December 31, 2011, the accrual of pension benefits for Qualified Plan participants. As such, participants will not earn any additional benefits after that date. Instead, effective January 1, 2012, People’s United Bank will make a contribution on behalf of these participants to a qualified defined contribution plan in an annual amount equal to 3% of the employee’s eligible compensation.

People’s United Financial’s funding policy is to contribute the amounts required by applicable regulations, although additional amounts may be contributed from time to time.

People’s United Financial also maintains (i) unfunded, nonqualified supplemental plans (the “Supplemental Plans”) to provide retirement benefits to certain senior officers and (ii) an unfunded plan that provides retirees with optional medical, dental and life insurance benefits (“other postretirement benefits”). People’s United Financial accrues the cost of these postretirement benefits over the employees’ years of service to the date of their eligibility for such benefits.

Components of the net periodic benefit (income) expense and other amounts recognized in other comprehensive income or loss for the plans described above are as follows:


	Pension Benefits						Other Postretirement Benefits
Three months ended March 31 (in millions)	2013			2012			2013			2012
Net periodic benefit (income) expense:
Interest cost	$	4.5		$	4.4		$	0.2		$	0.2
Expected return on plan assets		(6.7	)		(6.6	)		—			—
Amortization of unrecognized net transition obligation		—			—			—			0.1
Recognized net actuarial loss		1.5			1.1			—			—
Recognized prior service credit		—			—			(0.1	)		(0.1	)
Settlements		0.2			0.2			—			—

Net periodic benefit (income) expense		(0.5	)		(0.9	)		0.1			0.2

Other changes in plan assets and benefit obligations recognized in other comprehensive income or loss:
Net actuarial loss		(1.5	)		(1.1	)		—			—
Transition obligation		—			—			—			(0.1	)
Prior service credit		—			—			0.1			0.1

Total pre-tax changes recognized in other comprehensive income or loss		(1.5	)		(1.1	)		0.1			—

Total recognized in net periodic benefit (income) expense and other comprehensive income or loss	$	(2.0	)	$	(2.0	)	$	0.2		$	0.2

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

Chittenden Pension Plan

In addition to the plans described above, People’s United Financial continues to maintain a qualified defined benefit pension plan that covers former Chittenden Corporation employees who meet certain eligibility requirements (the “Chittenden Plan”). Effective December 31, 2005, accrued benefits were frozen based on participants’ then-current service and pay levels. 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 United Financial Qualified Plan. Net periodic benefit (income) expense for the Chittenden Plan totaled $(0.2) million and $0.3 million for the three months ended March 31, 2013 and 2012, respectively.

Employee Stock Ownership Plan

In April 2007, People’s United Financial established an Employee Stock Ownership Plan (“the ESOP”). At that time, People’s United Financial loaned the ESOP $216.8 million to purchase 10,453,575 shares of People’s United Financial common stock in the open market. In order for the ESOP to repay the loan, People’s United Financial 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 $1.3 million for the three months ended March 31, 2013. At March 31, 2013, the loan balance totaled $198.3 million.

Shares of People’s United Financial 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 2,177,829 shares of People’s United Financial common stock have been allocated or committed to be released to participants’ accounts. At March 31, 2013, a total of 8,275,746 shares of People’s United Financial common stock, with a fair value of $111.1 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 Financial’s common stock during the reporting period. The difference between the fair value of the shares of People’s United Financial’s common stock committed to be released and the cost of those common shares is recorded as a credit to additional paid-in capital (if fair value exceeds cost) or, to the extent that no such credits remain in additional paid-in capital, as a charge to retained earnings (if fair value is less than cost). Expense recognized for the ESOP totaled $1.1 million for both the three months ended March 31, 2013 and 2012.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 8. LEGAL PROCEEDINGS

In the normal course of business, People’s United Financial is subject to various legal proceedings. Management has discussed with legal counsel the nature of the pending actions described below, as well as other legal proceedings. Based on the information currently available, advice of counsel, available insurance coverage and the recorded liability for probable legal settlements and costs, People’s United Financial believes that the eventual outcome of these matters will not (individually or in the aggregate) have a material adverse effect on its financial condition, results of operations or liquidity.

Litigation Relating to the Smithtown Bancorp, Inc. Transaction

On February 25, 2010 and March 29, 2010, Smithtown and several of its officers and directors were named in two lawsuits commenced in United States District Court, Eastern District of New York ( Waterford Township Police & Fire Retirement v. Smithtown Bancorp, Inc., et al. and Yourgal v. Smithtown Bancorp, Inc. et al. , respectively) on behalf of a putative class of all persons and entities who purchased Smithtown’s common stock between March 13, 2008 and February 1, 2010, alleging claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934. The plaintiffs allege, among other things, that Smithtown’s loan loss reserve, fair value of its assets, recognition of impaired assets and its internal and disclosure controls were materially false, misleading or incomplete. As a result of the merger of Smithtown with and into People’s United Financial on November 30, 2010, People’s United Financial has become the successor party to Smithtown in this matter.

On April 26, 2010, the named plaintiff in the Waterford action moved to consolidate its action with the Yourgal action, to have itself appointed lead plaintiff in the consolidated action and to obtain approval of its selection of lead counsel. The Court approved the consolidation of the two suits, with Waterford Township named the lead plaintiff. On March 22, 2012, People’s United Financial filed a Motion to Dismiss the Complaint. On March 29, 2013, the Court granted People’s United Financial’s Motion to Dismiss. On April 30, 2013, the plaintiffs filed a second amended complaint.

Other

People’s United Bank has been named as a defendant in a lawsuit ( Marta Farb, on behalf of herself and all others similarly situated v. People’s United Bank ) arising from its assessment and collection of overdraft fees on its checking account customers. The complaint was filed in the Superior Court of Connecticut, Judicial District of Waterbury, on April 22, 2011 and alleges that People’s United Bank engaged in certain unfair practices in the posting of electronic debit card transactions from highest to lowest dollar amount. The complaint also alleges that such practices were inadequately disclosed to customers and were unfairly used by People’s United Bank for the purpose of generating revenue by maximizing the number of overdrafts a customer is assessed. The complaint seeks certification of a class of checking account holders residing in Connecticut and who have incurred at least one overdraft fee, injunctive relief, compensatory, punitive and treble damages, disgorgement and restitution of overdraft fees paid, and attorneys’ fees. On June 16, 2011, People’s United Bank filed a Motion to Dismiss the Complaint, and on December 7, 2011, that motion was denied by the court. On April 11, 2012, the plaintiff filed an amended complaint, and on May 15, 2012, People’s United Bank filed a Motion to Strike the Amended Complaint. That motion remains pending. Expedited discovery in this case began in July 2012. On April 10, 2013, People’s United Bank renewed its Motion to Dismiss the Complaint.

People’s United Bank has been named as a defendant in a lawsuit ( Tracy Fracasse and K. Lee Brown, individually and on behalf of others similarly situated v. People’s United Bank) based on allegations that People’s United Bank failed to pay overtime compensation required by (i) the federal Fair Labor Standards Act and (ii) the Connecticut Minimum Wage Act. The plaintiffs allege that they were employed as “underwriters” and were misclassified as exempt employees. The plaintiffs further allege that they worked in excess of 40 hours per week and were erroneously denied overtime compensation as required by federal and state wage and hour laws. The complaint was filed in the U.S. District Court of Connecticut on May 3, 2012. Since the complaint is brought under both federal and state law, the complaint seeks certification of two different but overlapping classes. The plaintiffs seek damages in the amount of their respective unpaid overtime and minimum wage compensation, liquidated damages and interest and attorneys’ fees. On June 29, 2012, People’s United Bank filed its Answer and Affirmative Defenses.

NOTE 9. SEGMENT INFORMATION

See “Segment Results” included in Item 2 for segment information for the three months ended March 31, 2013 and 2012.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 10. FAIR VALUE MEASUREMENTS

Accounting standards related to fair value measurements define fair value, provide a framework for measuring fair value and establish related disclosure requirements. Broadly, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accordingly, an “exit price” approach is required in determining fair value. In support of this principle, a fair value hierarchy has been established that prioritizes the inputs used to measure fair value, requiring entities to maximize the use of market or observable inputs (as more reliable measures) and minimize the use of unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs generally require significant management judgment. The three levels within the fair value hierarchy are as follows:

•

Level 1 – Unadjusted quoted market prices for identical assets or liabilities in active markets that the entity has the ability to access at the measurement date (such as active exchange-traded equity securities 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 Financial maintains policies and procedures to value assets and liabilities using the most relevant data available. Described below are the valuation methodologies used by People’s United Financial and the resulting fair values for those financial instruments measured at fair value on both a recurring and a non-recurring basis, as well as for those financial assets and financial liabilities not measured at fair value but for which fair value is disclosed.

Recurring Fair Value Measurements

Trading Account Securities and Securities Available For Sale

When available, People’s United Financial 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 Financial uses prices provided by the independent pricing service based on recent trading activity and other observable information including, but not limited to, market interest rate curves, referenced credit spreads and estimated prepayment rates where applicable. These investments include certain U.S. and government agency debt securities, corporate and municipal debt securities, and GSE residential mortgage-backed securities and CMOs, all of which are included in Level 2.

Substantially all of the Company’s available-for-sale securities represent GSE residential mortgage-backed securities and CMOs. The fair values of these securities are based on prices obtained from the independent pricing service. The pricing service uses various techniques to determine pricing for the Company’s mortgage-backed securities, including option pricing and discounted cash flow analysis. The inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, reference data, monthly payment information and collateral performance. At both March 31, 2013 and December 31, 2012, the entire available-for-sale residential mortgage-backed securities portfolio was comprised of 15-year GSE securities. An active market exists for securities that are similar to the Company’s GSE residential mortgage-backed securities and CMOs, making observable inputs readily available.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

Changes in the prices obtained from the pricing service are analyzed from month to month, taking into consideration changes in market conditions including changes in mortgage spreads, changes in U.S. Treasury security yields and changes in generic pricing of 15-year securities. As a further point of validation, the Company generates its own month-end fair value estimate for all mortgage-backed securities, agency-issued CMOs (also backed by 15-year mortgage-backed securities), and state and municipal securities. While the Company has not adjusted the prices obtained from the independent pricing service, any notable differences between those prices and the Company’s estimates are subject to further analysis. This additional analysis may include a review of prices provided by other independent parties, a yield analysis, a review of average life changes using Bloomberg analytics and a review of historical pricing for the particular security. Based on management’s review of the prices provided by the pricing service, the fair values incorporate observable market inputs used by market participants at the measurement date and, as such, are classified as Level 2 securities.

Other Assets

As discussed in Note 7, the Supplemental Plans are unfunded, nonqualified plans that provide retirement benefits to certain senior officers. People’s United Financial has funded two trusts to provide benefit payments to the extent such benefits are not paid directly by People’s United Financial, the assets of which are included in other assets in the Consolidated Statements of Condition. When available, People’s United Financial 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 Financial values its derivatives using internal models that are based on market or observable inputs including interest rate curves and forward/spot prices for selected currencies. Derivative assets and liabilities included in Level 2 represent interest rate swaps, foreign exchange contracts, risk participation agreements, interest rate-lock commitments on residential mortgage loans and forward commitments to sell residential mortgage loans.

The following tables summarize People’s United Financial’s financial instruments that are measured at fair value on a recurring basis:


	Fair Value Measurements Using
As of March 31, 2013 (in millions)	Level 1		Level 2		Level 3		Total
Financial assets:
Trading account securities:
U.S. Treasury	$	6.4	$	—	$	—	$	6.4
Securities available for sale:
U.S. Treasury and agency		23.9		—		—		23.9
GSE residential mortgage-backed securities and CMOs		—		3,900.4		—		3,900.4
State and municipal		—		582.4		—		582.4
Corporate		—		60.3		—		60.3
Other		—		3.2		—		3.2
Equity securities		—		0.2		—		0.2
Other assets:
Fixed income securities		—		41.3		—		41.3
Equity mutual funds		—		0.3		—		0.3
Interest rate swaps		—		70.8		—		70.8
Foreign exchange contracts		—		0.1		—		0.1
Forward commitments to sell residential mortgage loans		—		2.7		—		2.7

Total	$	30.3	$	4,661.7	$	—	$	4,692.0

Financial liabilities:
Interest rate swaps	$	—	$	65.0	$	—	$	65.0
Interest rate-lock commitments on residential mortgage loans		—		3.3		—		3.3

Total	$	—	$	68.3	$	—	$	68.3

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)


	Fair Value Measurements Using
As of December 31, 2012 (in millions)	Level 1		Level 2		Level 3		Total
Financial assets:
Trading account securities:
U.S. Treasury	$	6.5	$	—	$	—	$	6.5
Securities available for sale:
U.S. Treasury and agency		30.7		—		—		30.7
GSE residential mortgage-backed securities and CMOs		—		3,899.0		—		3,899.0
State and municipal		—		539.6		—		539.6
Corporate		—		59.9		—		59.9
Other		—		2.9		—		2.9
Equity securities		—		0.2		—		0.2
Other assets:
Fixed income securities		—		40.9		—		40.9
Equity mutual funds		—		0.4		—		0.4
Interest rate swaps		—		75.0		—		75.0
Forward commitments to sell residential mortgage loans		—		3.1		—		3.1

Total	$	37.2	$	4,621.0	$	—	$	4,658.2

Financial liabilities:
Interest rate swaps	$	—	$	70.2	$	—	$	70.2
Foreign exchange contracts		—		0.1		—		0.1
Interest rate-lock commitments on residential mortgage loans		—		3.5		—		3.5

Total	$	—	$	73.8	$	—	$	73.8

As of March 31, 2013 and December 31, 2012, the fair value of the risk participation agreements totaled less than $0.1 million.

There were no transfers into or out of the Level 1 or Level 2 categories during the three months ended March 31, 2013 and 2012.

Non-Recurring Fair Value Measurements

Loans Held for Sale

Residential mortgage loans held for sale are recorded at the lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. When available, People’s United Financial uses observable secondary market data, including pricing on recent closed market transactions for loans with similar characteristics. Accordingly, such loans are classified as Level 2 measurements. When observable data is unavailable, valuation methodologies using current market interest rate data adjusted for inherent credit risk are used, and such loans are included in Level 3.

Impaired Loans

Loan impairment is deemed to exist when full repayment of principal and interest according to the contractual terms of the loan is no longer probable. Impaired loans are reported based on one of three measures: the present value of expected future cash flows discounted at the 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 basis. People’s United Financial has estimated the fair values of these assets using Level 3 inputs, such as 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%.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

REO and Repossessed Assets

REO and repossessed assets are recorded at the lower of cost or fair value, less estimated selling costs, and are therefore measured at fair value on a non-recurring basis. People’s United Financial has estimated the fair values of these assets using Level 3 inputs, such as independent third-party appraisals and price opinions. Such appraisals are based on the market and/or income approach to value and are subject to a discount (to reflect estimated cost to sell) that generally approximates 10%. Assets that are acquired through loan default are recorded as held for sale initially at the lower of the recorded investment in the loan or fair value (less estimated selling costs) upon the date of foreclosure/repossession. Subsequent to foreclosure/repossession, valuations are updated periodically and the carrying amounts of these assets may be reduced further.

The following tables summarize People’s United Financial’s assets that are measured at fair value on a non-recurring basis:


	Fair Value Measurements Using
As of March 31, 2013 (in millions)	Level 1		Level 2		Level 3		Total
Loans held for sale (1)	$	—	$	50.7	$	—	$	50.7
Impaired loans (2)		—		—		104.3		104.3
REO and repossessed assets (3)		—		—		33.7		33.7

Total	$	—	$	50.7	$	138.0	$	188.7


	Fair Value Measurements Using
As of December 31, 2012 (in millions)	Level 1		Level 2		Level 3		Total
Loans held for sale (1)	$	—	$	77.0	$	—	$	77.0
Impaired loans (2)		—		—		114.3		114.3
REO and repossessed assets (3)		—		—		36.9		36.9

Total	$	—	$	77.0	$	151.2	$	228.2

(1)

Consists of residential mortgage loans; no fair value adjustments were recorded for the three months ended March 31, 2013 and 2012.

(2)

Represents the recorded investment in originated impaired loans with a related allowance for loan losses measured based on the fair value of the underlying collateral less cost to sell. The total consists of $44.4 million, $52.8 million and $7.1 million of commercial real estate loans, commercial and industrial loans, and equipment financing loans, respectively, at March 31, 2013. The provision for loan losses on collateral-dependent impaired loans totaled $(1.4) million and $0.7 million for the three months ended March 31, 2013 and 2012, respectively.

(3)

Represents: (i) $16.9 million of residential REO; (ii) $9.6 million of commercial REO; and (iii) $7.2 million of repossessed assets at March 31, 2013. Charge-offs to the allowance for loan losses related to loans that were transferred to REO and repossessed assets totaled $0.3 million and $0.5 million for the three months ended March 31, 2013 and 2012, respectively. Write downs and net loss on sale of foreclosed/repossessed assets charged to non-interest expense totaled $0.2 million and $0.2 million for the same periods.

Financial Assets and Financial Liabilities Not Measured At Fair Value

As discussed previously, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date (an “exit price” approach to fair value).

Acceptable valuation techniques (when quoted market prices are not available) that might be used to estimate the fair value of financial instruments include discounted cash flow analyses and comparison to similar instruments. Such estimates are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material impact on the fair value estimates. In addition, since these estimates are made as of a specific point in time, they are susceptible to material near-term changes. Fair values estimated in this manner do not reflect any premium or discount that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or estimated transaction costs.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

The following is a description of the principal valuation methods used by People’s United Financial for those financial instruments that are not measured at fair value either on a recurring or non-recurring basis:

Cash and Short-Term Investments

Cash and due from banks are classified as Level 1. Short-term investments have fair values that approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities, and present relatively low credit risk and interest rate risk. As such, these fair values are classified as Level 2.

Securities Held to Maturity

When available, the fair values of investment securities held to maturity are measured based on quoted market prices for identical securities in active markets and, accordingly, are classified as Level 1 assets. When quoted market prices for identical securities are not available, fair values are estimated based on quoted prices for similar assets in active markets or through the use of pricing models containing observable inputs (i.e. market interest rates, financial information and credit ratings of the issuer, etc.). These fair values are included in Level 2. In cases where there may be limited information available and/or little or no market activity for the underlying security, fair value is estimated using pricing models containing unobservable inputs and classified as Level 3.

FHLB Stock

FHLB stock is a non-marketable equity security classified as Level 2 and reported at cost, which equals par value (the amount at which shares have been redeemed in the past). No significant observable market data is available for this security.

Loans

For valuation purposes, the loan portfolio is segregated into its significant categories, which are commercial real estate, commercial and industrial, equipment financing, residential mortgage, home equity and other consumer. These categories are further segregated, where appropriate, into components based on significant financial characteristics such as type of interest rate (fixed or adjustable) and payment status (performing or non-performing). Fair values are estimated for each component using a valuation method selected by management.

The fair values of performing loans were estimated by discounting the anticipated cash flows from the respective portfolios, assuming future prepayments and using market interest rates for new loans with comparable credit risk. As a result, the valuation method for performing loans, which is consistent with certain guidance provided in accounting standards, does not fully incorporate the “exit price” approach to fair value. The fair values of non-performing loans were based on recent collateral appraisals or management’s analysis of estimated cash flows discounted at rates commensurate with the credit risk involved. The estimated fair values of residential mortgage loans are classified as Level 2 as a result of the observable market inputs (i.e. market interest rates, prepayment assumptions, etc.) available for this loan type. The fair values of all other loan types are classified as Level 3 as the inputs contained within the respective discounted cash flow models are largely unobservable and, instead, reflect management’s own estimates of the assumptions a market participant would use in pricing such loans. The fair value of home equity lines of credit was based on the outstanding loan balances, and therefore does not reflect the value associated with earnings from future loans to existing customers.

Deposit Liabilities

The fair values of time deposits represent contractual cash flows discounted at current rates determined by reference to observable inputs including a LIBOR/swap curve over the remaining period to maturity. As such, these fair values are classified as Level 2. The fair values of other deposit liabilities (those with no stated maturity, such as checking and savings accounts) are equal to the carrying amounts payable on demand. Deposit fair values do not include the intangible value of core deposit relationships that comprise a significant portion of People’s United Financial’s deposit base. Management believes that People’s United Financial’s core deposit relationships provide a relatively stable, low-cost funding source that has a substantial intangible value separate from the deposit balances.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

Borrowings and Notes and Debentures

The fair values of retail repurchase agreements and federal funds purchased are equal to the carrying amounts due to the short maturities (generally overnight). The fair values of FHLB advances and other borrowings represent contractual repayments discounted using interest rates currently available on borrowings with similar characteristics and remaining maturities and are classified as Level 2. The fair values of notes and debentures were based on dealer quotes and are classified as Level 2.

Lending-Related Financial Instruments

The estimated fair values of People’s United Financial’s lending-related financial instruments approximate the respective carrying amounts. These include commitments to extend credit, unadvanced lines of credit and letters of credit for which fair values were estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the instruments and the creditworthiness of the potential borrowers.

The following tables summarize the carrying amounts, estimated fair values and placement in the fair value hierarchy of People’s United Financial’s financial instruments that are not measured at fair value either on a recurring or non-recurring basis:


	Carrying Amount		Estimated Fair Value Measurements Using
As of March 31, 2013 (in millions)	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	320.5	$	320.5	$	—	$	—	$	320.5
Short-term investments		127.2		—		127.2		—		127.2
Securities held to maturity		56.1		—		59.5		1.1		60.6
FHLB stock		83.0		—		83.0		—		83.0
Total loans, net (1)		21,869.3		—		4,000.9		18,210.8		22,211.7
Financial liabilities:
Time deposits		4,586.5		—		4,643.4		—		4,643.4
Other deposits		17,205.1		—		17,205.1		—		17,205.1
FHLB advances		1,407.4		—		1,423.1		—		1,423.1
Federal funds purchased		934.0		—		934.0		—		934.0
Retail repurchase agreements		506.9		—		506.9		—		506.9
Other borrowings		1.0		—		1.0		—		1.0
Notes and debentures		659.3		—		671.2		—		671.2

(1)	Excludes impaired loans totaling $104.3 million measured at fair value on a non-recurring basis.


	Carrying Amount		Estimated Fair Value Measurements Using
As of December 31, 2012 (in millions)	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	470.0	$	470.0	$	—	$	—	$	470.0
Short-term investments		131.4		—		131.4		—		131.4
Securities held to maturity		56.2		—		59.7		1.2		60.9
FHLB stock		73.7		—		73.7		—		73.7
Total loans, net (1)		21,434.3		—		3,925.6		17,972.7		21,898.3
Financial liabilities:
Time deposits		4,706.4		—		4,769.7		—		4,769.7
Other deposits		17,044.1		—		17,044.1		—		17,044.1
FHLB advances		1,178.3		—		1,194.5		—		1,194.5
Federal funds purchased		619.0		—		619.0		—		619.0
Retail repurchase agreements		588.2		—		588.2		—		588.2
Other borrowings		1.0		—		1.0		—		1.0
Notes and debentures		659.0		—		666.9		—		666.9

(1)	Excludes impaired loans totaling $114.3 million measured at fair value on a non-recurring basis.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

People’s United Financial uses derivative financial instruments as components of its market risk management (principally to manage interest rate risk). 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. Amounts reported represent the fair values of the derivative contracts, net of amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from derivative contracts executed with the same counterparty under a master netting arrangement. Until a derivative is settled, favorable changes in fair values result in unrealized gains that are recognized as assets, while unfavorable changes result in unrealized losses that are recognized as liabilities.

People’s United Financial 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 or 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 Financial 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 Financial 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 Financial would discontinue hedge accounting prospectively. Gains or losses resulting from the termination of a derivative accounted for as a cash flow hedge remain in accumulated other comprehensive income or loss and are amortized to earnings over the remaining period of the former hedging relationship, provided the hedged item continues to be outstanding.

People’s United Financial uses the dollar offset method, regression analysis and scenario analysis to assess hedge effectiveness at inception and on an ongoing basis. Such methods are chosen based on the nature of the hedge strategy and are used consistently throughout the life of the hedging relationship.

Certain derivative financial instruments are offered to commercial customers to assist them in meeting their financing and investing objectives and for their risk management purposes. These derivative financial instruments consist primarily of interest rate swaps, but also include foreign exchange contracts. The interest rate risk associated with customer interest rate swaps is mitigated by entering into similar derivatives having essentially offsetting terms with other counterparties.

Interest rate-lock commitments extended to borrowers relate to the origination of residential mortgage loans. To mitigate the interest rate risk inherent in these commitments, People’s United Financial 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.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

By using derivatives, People’s United Financial is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s counterparty credit risk is equal to the amount reported as a derivative asset in the Consolidated Statements of Condition. In accordance with the Company’s offsetting policy noted earlier, amounts reported as derivative assets represent derivative contracts in a gain position, net of derivative contracts in a loss position with the same counterparty (to the extent subject to master netting arrangements) and posted collateral. People’s United Financial seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, execution of master netting arrangements and obtaining collateral, where appropriate. Counterparties to People’s United Financial’s derivatives include major financial institutions with investment grade credit ratings from the major rating agencies. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote and losses, if any, would be immaterial.

Certain of People’s United Financial’s derivative contracts contain provisions establishing collateral requirements (subject to minimum collateral posting thresholds) based on the Company’s external credit rating. If the Company’s senior unsecured debt rating were to fall below the level generally recognized as investment grade, the counterparties to such derivative contracts could require additional collateral on those derivative transactions in a net liability position (after considering the effect of master netting arrangements and posted collateral). The aggregate fair value of derivative instruments with such credit-related contingent features that were in a net liability position at March 31, 2013 was $12.7 million, for which People’s United Financial had posted collateral of $11.0 million in the normal course of business. If the Company’s senior unsecured debt rating had fallen below investment grade as of that date, $1.7 million in additional collateral would have been required.

The following sections further discuss each class of derivative financial instrument used by People’s United Financial, including management’s principal objectives and risk management strategies.

Interest Rate Swaps

People’s United Financial may, from time to time, enter into pay fixed/receive floating interest rate swaps that are used to manage interest rate risk associated with certain interest-earning assets and interest-bearing liabilities.

Interest rate swaps associated with interest-earning assets, which matured in March 2012, were used to match more closely the repricing of certain commercial real estate loans and the funding associated with these loans. These interest rate swaps were accounted for as fair value hedges.

People’s United Financial has entered into an interest rate swap to hedge the LIBOR-based floating rate payments on the Company’s $125 million subordinated notes (such payments began in February 2012). The subordinated notes had a fixed interest rate of 5.80% until February 2012, at which time the interest rate converted to the three-month LIBOR plus 68.5 basis points. People’s United Financial has agreed with the swap counterparty to exchange, at specified intervals, the difference between fixed-rate (1.99%) and floating-rate interest amounts calculated based on a notional amount of $125 million. The floating rate interest amounts received under the interest rate swap are calculated using the same floating rate paid on the subordinated notes. The interest rate swap effectively converts the variable rate subordinated notes to a fixed interest rate and consequently reduces People’s United Financial’s exposure to increases in interest rates. This interest rate swap is accounted for as a cash flow hedge.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

Interest Rate Locks

In connection with its planned issuance of senior notes in the fourth quarter of 2012, People’s United Financial entered into U.S. Treasury forward interest rate locks (“T-Locks”) to hedge the risk that the 10-year U.S. Treasury yield component of the underlying coupon of the fixed rate senior notes would rise prior to establishing the fixed interest rate on the senior notes. Upon pricing the senior notes, the T-Locks were terminated and the unrealized gain of $0.9 million was included (on a net-of-tax basis) as a component of accumulated other comprehensive loss. The gain will be recognized as a reduction of interest expense over the ten-year period during which the hedged item ($500 million senior note issuance) affects earnings.

Foreign Exchange Contracts

Foreign exchange contracts are commitments to buy or sell foreign currency on a future date at a contractual price. People’s United Financial uses these instruments on a limited basis to eliminate its exposure to fluctuations in currency exchange rates on certain of its commercial loans that are denominated in foreign currencies. Gains and losses on foreign exchange contracts substantially offset the translation gains and losses on the related loans. Effective in the first quarter of 2010, People’s United Financial no longer designates foreign exchange contracts as hedging instruments.

Risk Participation Agreements

People’s United Financial has entered into risk participation agreements under which it may either assume or sell credit risk associated with a borrower’s performance under certain interest rate derivative contracts. In those instances in which People’s United Financial has assumed credit risk, it is not a party to the derivative contract and has entered into the risk participation agreement because it is also a party to the related loan agreement with the borrower. In those instances in which People’s United Financial has sold credit risk, it is the sole party to the derivative contract and has entered into the risk participation agreement because it sold a portion of the related loan. People’s United Financial manages its credit risk under risk participation agreements by monitoring the creditworthiness of the borrower, based on its normal credit review process. The notional amounts of the risk participation agreements reflect People’s United Financial’s pro-rata share of the derivative contracts, consistent with its share of the related loans.

Customer Derivatives

People’s United Financial has entered into interest rate swaps with certain of its commercial customers. In order to minimize its risk, these customer derivatives (pay floating/receive fixed swaps) have been offset with essentially matching interest rate swaps with People’s United Financial’s counterparties (pay fixed/receive floating swaps). Hedge accounting has not been applied for these derivatives. Accordingly, changes in the fair value of all such interest rate swaps are recognized in current earnings.

Forward Commitments to Sell Residential Mortgage Loans and Related Interest Rate-Lock Commitments

People’s United Financial enters into forward commitments to sell adjustable-rate and fixed-rate residential mortgage loans (all to be sold servicing released) in order to reduce the market risk associated with originating loans for sale in the secondary market. In order to fulfill a forward commitment, People’s United Financial delivers originated loans at prices or yields specified by the contract. The risks associated with such contracts arise from the possible inability of counterparties to meet the contract terms or People’s United Financial’s inability to originate the necessary loans. Gains and losses realized on the forward contracts are reported in the Consolidated Statements of Income as a component of the net gains on sales of residential mortgage loans. In the normal course of business, People’s United Financial will commit to an interest rate on a mortgage loan application at a time after the application is approved by People’s United Financial. The risks associated with these interest rate-lock commitments arise if market interest rates change prior to the closing of these loans. Both forward sales commitments and interest rate-lock commitments made to borrowers on held-for-sale loans are accounted for as derivatives, with changes in fair value recognized in current earnings.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

The table below provides a summary of the notional amounts and fair values (presented on a gross basis) of derivatives outstanding:


						Fair Values (1)
		Notional Amounts				Assets				Liabilities
(in millions)	Type of Hedge	March 31, 2013		Dec. 31, 2012		March 31, 2013		Dec. 31, 2012		March 31, 2013		Dec. 31, 2012
Derivatives Not Designated as Hedging Instruments:
Interest rate swaps:
Commercial customers	N/A	$	1,385.6	$	1,274.6	$	66.4	$	73.8	$	2.7	$	0.6
Other counterparties	N/A		1,385.6		1,274.6		4.4		1.2		59.2		66.2
Foreign exchange contracts	N/A		4.4		6.3		0.1		—		—		0.1
Risk participation agreements (2)	N/A		30.6		5.3		—		—		—		—
Forward commitments to sell residential mortgage loans	N/A		154.7		185.8		2.7		3.1		—		—
Interest rate-lock commitments on residential mortgage loans	N/A		187.0		216.4		—		—		3.3		3.5

Total							73.6		78.1		65.2		70.4


Derivatives Designated as Hedging Instruments:
Interest rate swaps:
Subordinated notes	Cash flow		125.0		125.0		—		—		3.1		3.4

Total							—		—		3.1		3.4

Total derivatives						$	73.6	$	78.1	$	68.3	$	73.8

(1)	Assets are recorded in other assets and liabilities are recorded in other liabilities.

(2)	Fair value totaled less than $0.1 million at both dates.

The following table summarizes the impact of People’s United Financial’s derivatives on pre-tax income and AOCL:


	Type of	Amount of Pre-Tax Gain (Loss) Recognized in Earnings (1)						Amount of Pre-Tax Gain (Loss) Recognized in AOCL
Three months ended March 31 (in millions)	Hedge	2013			2012			2013		2012
Derivatives Not Designated as Hedging Instruments:
Interest rate swaps:
Commercial customers	N/A	$	(3.2	)	$	(4.3	)	$	—	$	—
Other counterparties	N/A		4.2			4.6			—		—
Foreign exchange contracts	N/A		0.2			(0.2	)		—		—
Risk participation agreements	N/A		0.3			—			—		—
Forward commitments to sell residential mortgage loans	N/A		(0.3	)		1.1			—		—
Interest rate-lock commitments on residential mortgage loans	N/A		(0.3	)		(1.2	)		—		—

Total			0.9			—			—		—


Derivatives Designated as Hedging Instruments:
Interest rate swaps	Cash flow		(0.3	)		(0.1	)		0.3		(0.1	)
Interest rate locks (2)	Cash flow		—			—			—		—

Total			(0.3	)		(0.1	)		0.3		(0.1	)

Total derivatives		$	0.6		$	(0.1	)	$	0.3	$	(0.1	)

(1)	Amounts recognized in earnings are recorded in interest income or interest expense for derivatives designated as hedging instruments and in other non-interest income for derivatives not designated as hedging instruments.

(2)	Reflects income (less than $0.1 million for the three months ended March 31, 2013) relating to interest rate locks terminated in 2012.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

NOTE 12. REVISED FINANCIAL RESULTS

Previously reported results for the three months ended March 31, 2012 have been revised to reflect a reduction in interest income on certain acquired loans relating to an unintentional overstatement of interest income. The effects of these revisions, which were immaterial, are summarized below.


As of and for the three months ended March 31, 2012 (in millions, except per share data)	Previously Reported		Revised
Total loans	$	20,489.5	$	20,472.4
Other assets		607.7		613.9
Total stockholders’ equity		5,180.6		5,169.7
Total interest on loans		243.3		241.4
Total interest and dividend income		262.1		260.2
Net interest income		235.1		233.2
Net interest income after provision for loan losses		223.6		221.7
Income before income tax expense		87.4		85.5
Income tax expense		28.8		28.2
Net income		58.6		57.3

Earnings per common share:
Basic	$	0.17	$	0.17
Diluted		0.17		0.17

The revisions also resulted in a decrease of $1.9 million in net cash provided by operating activities and a corresponding increase in net cash provided by investing activities as reported in the Consolidated Statements of Cash Flows for the three months ended March 31, 2012.

NOTE 13. NEW ACCOUNTING STANDARDS

Comprehensive Income

In June 2011, the Financial Accounting Standards Board (the “FASB”) amended its standards relating to the presentation of comprehensive income to require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate consecutive statements. These amendments will make the financial statement presentation of other comprehensive income more prominent by eliminating the alternative to present comprehensive income within the statement of stockholders’ equity. In December 2011, the FASB deferred indefinitely the portion of the new guidance requiring that items reclassified out of accumulated other comprehensive income (loss) be presented on the face of the financial statements together with the related components of net income and other comprehensive income. The effective date of the deferral is consistent with the effective date of the June 2011 amendments. For public entities, these amendments, which are to be applied retrospectively, became effective January 1, 2012. The Company has presented separate Consolidated Statements of Comprehensive Income immediately following its Consolidated Statements of Income.

People’s United Financial, Inc.

Notes to Consolidated Financial Statements – (Unaudited)

In February 2013, the FASB amended its standards to provide specific requirements regarding the disclosure of amounts reclassified out of accumulated other comprehensive income (loss). The amendments require that companies separately provide information about the effects on net income of significant amounts reclassified out of each component of accumulated other comprehensive income (loss) if those amounts are, under other standards, required to be reclassified to net income in their entirety in the same reporting period. An entity shall provide this information together, in one location, either (i) on the face of the statement where net income is presented or (ii) as a separate disclosure in the notes to the financial statements. For any significant reclassification for which other standards do not require reclassification to net income in its entirety in the same reporting period, companies shall cross-reference to the related footnote where additional details about the effect of the reclassification are disclosed. This amendment became effective for People’s United Financial on January 1, 2013 and did not have a significant impact on the Company’s Consolidated Financial Statements. The applicable required disclosures have been provided in Note 4.

Balance Sheet Offsetting Disclosures

In December 2011, the FASB issued amendments to its standards to provide for certain additional disclosures about financial instruments and derivative instruments that are subject to netting arrangements. Specifically, entities will be required to provide information about both net and gross amounts in the notes to the financial statements for relevant assets and liabilities that are offset. In January 2013, the FASB issued amendments to its standards to clarify the scope of its December 2011 guidance, limiting the disclosure requirements to derivative instruments, repurchase agreements and securities lending transactions to the extent that they are (i) offset in the financial statements or (ii) subject to an enforceable master netting arrangement or similar agreement. This amendment became effective for People’s United Financial on January 1, 2013 and did not have a significant impact on the Company’s Consolidated Financial Statements.

Accounting for Indemnification Assets

In October 2012, the FASB amended its standards with respect to the subsequent accounting for an indemnification asset recognized in connection with a government-assisted acquisition of a financial institution. The amendment addresses diversity in practice with respect to how entities subsequently recognize decreases in expected cash flows from the indemnification asset resulting from an increase in the expected cash flows from the indemnified asset(s) by requiring that a subsequent adjustment to the indemnification asset be measured on the same basis as the underlying asset(s), taking into consideration the term of the related loss share agreement (“LSA”). Accordingly, the loss on the indemnification asset would be “amortized” over the lesser of the remaining contractual term of the LSA or the remaining life of the indemnified asset(s). This would result in a consistent recognition pattern for changes in expected cash flows for both the indemnification asset and the indemnified asset(s).

This amendment, which is to be applied prospectively to new indemnification agreements and to unamortized amounts existing at the date of adoption, became effective for People’s United Financial on January 1, 2013 and did not have a significant impact on the Company’s Consolidated Financial Statements.

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Periodic and other filings made by People’s United Financial, Inc. (“People’s United Financial” or the “Company”) with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) may, from time to time, contain information and statements that are forward-looking in nature. Such filings include the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and may include other forms such as proxy statements. Other written or oral statements made by People’s United Financial or its representatives from time to time may also contain forward-looking statements.

In general, forward-looking statements usually use words such as “expect,” “anticipate,” “believe,” “should,” and similar expressions, and include all statements about People’s United Financial’s operating results or financial position for future periods. Forward-looking statements represent management’s beliefs, based upon information available at the time the statements are made, with regard to the matters addressed; they are not guarantees of future performance.

All forward-looking statements are subject to risks and uncertainties that could cause People’s United Financial’s actual results or financial condition to differ materially from those expressed in or implied by such statements. Factors of particular importance to People’s United Financial include, but are not limited to: (1) changes in general, international, national or regional economic conditions; (2) changes in interest rates; (3) changes in loan default and charge-off rates; (4) changes in deposit levels; (5) changes in levels of income and expense in non-interest income and expense related activities; (6) residential mortgage and secondary market activity; (7) changes in accounting and regulatory guidance applicable to banks; (8) price levels and conditions in the public securities markets generally; (9) competition and its effect on pricing, spending, third-party relationships and revenues; (10) the successful integration of acquisitions; and (11) changes in regulation resulting from or relating to financial reform legislation.

All forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. People’s United Financial does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Recent Market Developments

FDIC Insurance Coverage / Assessments

The Federal Deposit Insurance Corporation (the “FDIC”) insures deposits at FDIC insured financial institutions up to certain limits (up to $250,000 per depositor through December 31, 2013), charging premiums to maintain the Deposit Insurance Fund (the “DIF”) at specified levels. Such premiums vary based on the risk profile of the insured institution.

In February 2011, the FDIC approved a final rule that: (i) changed the assessment base from adjusted domestic deposits to a bank’s average consolidated total assets minus average tangible equity (defined as Tier 1 capital); (ii) adopted a new large-bank pricing assessment scheme; and (iii) set a target size for the DIF at 2% of insured deposits. The rule, which was effective beginning with the quarterly assessment period ended June 30, 2011, also (i) implemented a lower assessment rate schedule when the DIF reaches 1.15 percent and, in lieu of dividends, provides for a lower rate schedule when the reserve ratio reaches 2 percent and 2.5 percent and (ii) created a scorecard-based assessment system for financial institutions with more than $10 billion in assets, including People’s United Bank.

One of the financial ratios used in the scorecard-based assessment system for financial institutions with more than $10 billion in assets is the ratio of “higher-risk” assets to Tier 1 capital and reserves. In October 2012, the FDIC adopted a final rule that revised the definitions of higher-risk commercial and industrial loans, securities and consumer loans and clarified when an asset must be classified as higher risk. This rule is generally effective on April 1, 2013.

The actual amount of future assessments will be dependent on several factors, including: (i) People’s United Bank’s average total assets and average tangible equity; (ii) People’s United Bank’s risk profile; and (iii) whether additional special assessments are imposed in future periods and the manner in which such assessments are determined.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

As previously disclosed in the risk factors included in People’s United Financial’s Annual Report on Form 10-K for the year ended December 31, 2012, our business is subject to risk as a result of changes in federal and state regulation. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “DFA”), which was signed into law on July 21, 2010, imposes significant changes in the financial regulatory landscape and will continue to impact all financial institutions and their holding companies, including People’s United Bank and People’s United Financial.

The DFA transferred all supervisory functions, including ongoing supervision, examination and regulation, for savings and loan holding companies and their non-depository subsidiaries to the FRB, effective July 21, 2011, and on the same day, the Office of the Comptroller of the Currency (the “OCC”) assumed responsibility for the supervision, examination and regulation of all federally-chartered savings banks. In October 2011, People’s United Bank filed an application with the OCC to convert to a national bank charter. In connection with this conversion, People’s United Financial intends to submit an application to the Federal Reserve Bank of New York (“FRB-NY”) to convert to a bank holding company.

The DFA created a new federal consumer protection agency, the Consumer Financial Protection Bureau (the “CFPB”), which is empowered to promulgate new consumer protection regulations and revise existing regulations in many areas of consumer protection. The CFPB has exclusive authority to issue regulations, orders and guidance to administer and implement the objectives of federal consumer protection laws. The CFPB also has supervision over our consumer compliance examinations. Moreover, the DFA permits states to adopt stricter consumer protection laws and authorizes state attorneys general to enforce consumer protection rules issued by the CFPB. The DFA restricts the authority of the federal banking regulators to preempt state consumer protection laws applicable to banks and limits the preemption of state laws as they affect subsidiaries and agents of federally-chartered banks.

The DFA limits the amount of interchange fee that an issuer of debit cards may charge or receive to an amount that is “reasonable and proportional” to the cost of the transaction. The DFA further provides that a debit card issuer may not restrict the number of payment card networks on which a debit card transaction may be processed to a single network or limit the ability of a merchant to direct the routing of debit card payments for processing. The interchange fee provisions became effective in the fourth quarter of 2011 (see Non-Interest Income).

All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the DFA. As of March 31, 2013, People’s United Bank’s non-interest-bearing deposits totaled $5.0 billion, or 23% of total deposits. The Company’s interest expense may increase and its net interest margin may decrease if we begin to offer higher rates of interest than we currently offer on demand deposits.

The DFA also imposes stringent capital requirements on bank holding companies by, among other things, imposing leverage ratios on holding companies and prohibiting new trust preferred issuances from counting as Tier 1 capital. The DFA also increases regulation of derivatives and hedging transactions, which could limit the ability of People’s United Financial to enter into, or increase the costs associated with, interest rate and other hedging transactions.

In January 2013, the CFPB issued a series of final rules to implement provisions in the DFA related to mortgage origination and mortgage servicing. These rules, which are scheduled to go into effect in January 2014, may increase the cost of originating and servicing residential mortgage loans.

It is anticipated that the DFA will significantly increase the Company’s regulatory compliance burden and costs and may restrict the financial products and services People’s United Financial offers to its customers.

Selected Consolidated Financial Data


	Three Months Ended
(dollars in millions, except per share data)	March 31, 2013			Dec. 31, 2012			March 31, 2012 (1)
Earnings Data:
Net interest income (fully taxable equivalent)	$	223.3		$	228.6		$	235.7
Provision for loan losses		12.4			12.0			11.5
Non-interest income		82.9			84.3			72.4
Non-interest expense		212.0			207.4			208.6
Operating non-interest expense (2)		204.0			204.5			205.6
Income before income tax expense		77.8			90.0			85.5
Net income		52.5			61.2			57.3
Operating earnings (2)		57.9			63.2			59.3


Selected Statistical Data:
Net interest margin (2)		3.38	%		3.63	%		3.97	%
Operating net interest margin (2), (3)		3.38			3.63			3.97
Return on average assets (3)		0.70			0.85			0.83
Operating return on average assets (2), (3)		0.77			0.87			0.86
Return on average tangible assets (3)		0.75			0.91			0.91
Return on average stockholders’ equity (3)		4.2			4.8			4.4
Return on average tangible stockholders’ equity (3)		7.4			8.3			7.5
Operating return on average tangible stockholders’ equity (2), (3)		8.1			8.6			7.8
Efficiency ratio (2)		64.1			63.1			63.6


Common Share Data:
Basic and diluted earnings per share	$	0.16		$	0.18		$	0.17
Operating earnings per share (2)		0.18			0.19			0.18
Dividends paid per share		0.1600			0.1600			0.1575
Dividend payout ratio		100.6	%		87.4	%		95.9	%
Operating dividend payout ratio (2)		91.2			84.8			92.6
Book value per share (end of period)	$	15.24		$	15.21		$	15.00
Tangible book value per share (end of period) (2)		8.54			8.71			8.71
Stock price:
High		13.61			12.50			13.79
Low		12.22			11.36			12.20
Close (end of period)		13.42			12.09			13.23

(1)	See Note 12 to the Consolidated Financial Statements.

(2)	See Non-GAAP Financial Measures and Reconciliation to GAAP.

(3)	Annualized.


	As of and for the Three Months Ended
(dollars in millions)	March 31, 2013			Dec. 31, 2012			Sept. 30, 2012			June 30, 2012			March 31, 2012
Financial Condition Data:
Total assets	$	30,598		$	30,324		$	28,576		$	28,137		$	27,797
Loans		22,161			21,737			21,040			20,588			20,472
Securities		4,716			4,669			3,787			3,702			2,895
Short-term investments		127			131			64			73			767
Allowance for loan losses		187			188			186			180			183
Goodwill and other acquisition-related intangible assets		2,147			2,154			2,160			2,166			2,169
Deposits		21,792			21,751			21,363			21,458			21,268
Borrowings		2,849			2,386			1,524			960			811
Notes and debentures		659			659			160			160			160
Stockholders’ equity		4,886			5,039			5,107			5,135			5,170
Non-performing assets (1)		285			290			294			295			316
Net loan charge-offs		13.1			10.0			9.4			13.5			11.2


Average Balances:
Loans	$	21,702		$	21,183		$	20,727		$	20,488		$	20,407
Securities		4,548			3,867			3,608			2,964			2,751
Short-term investments		146			128			108			562			536
Loans held for sale		25			28			31			26			39
Total earning assets		26,421			25,206			24,474			24,040			23,733
Total assets		30,178			28,991			28,234			27,753			27,463
Deposits		21,558			21,557			21,372			21,190			20,843
Total funding liabilities		24,726			23,487			22,709			22,184			21,862
Stockholders’ equity		5,005			5,107			5,161			5,188			5,217


Ratios:
Net loan charge-offs to average loans (annualized)		0.24	%		0.19	%		0.18	%		0.26	%		0.22	%
Non-performing assets to originated loans, real estate owned and repossessed assets (1)		1.42			1.48			1.59			1.67			1.85
Originated allowance for loan losses to:
Originated loans (1)		0.88			0.91			0.95			1.00			1.03
Originated non-performing loans (1)		70.6			70.3			66.0			65.6			61.5
Average stockholders’ equity to average total assets		16.6			17.6			18.3			18.7			19.0
Stockholders’ equity to total assets		16.0			16.6			17.9			18.3			18.6
Tangible stockholders’ equity to tangible assets (2)		9.6			10.2			11.2			11.4			11.7
Total risk-based capital (3)		13.7			14.7			15.6			15.6			16.0

(1)	Excludes acquired loans. See Asset Quality.

(2)	See Non-GAAP Financial Measures and Reconciliation to GAAP.

(3)	Consolidated. See Regulatory Capital Requirements.

Non-GAAP Financial Measures and Reconciliation to GAAP

In addition to evaluating People’s United Financial’s results of operations in accordance with U.S. generally accepted accounting principles (“GAAP”), management routinely supplements their evaluation with an analysis of certain non-GAAP financial measures, such as the efficiency and tangible equity ratios, tangible book value per share and operating earnings metrics. Management believes these non-GAAP financial measures provide information useful to investors in understanding People’s United Financial’s underlying operating performance and trends, and facilitates comparisons with the performance of other banks and thrifts. Further, the efficiency ratio and operating earnings metrics are used by management in its assessment of financial performance, including non-interest expense control, while the tangible equity ratio and tangible book value per share are used to analyze the relative strength of People’s United Financial’s capital position.

The efficiency ratio, which represents an approximate measure of the cost required by People’s United Financial to generate a dollar of revenue, is the ratio of (i) total non-interest expense (excluding goodwill impairment charges, amortization of other acquisition-related intangible assets, losses on real estate assets and non-recurring expenses) (the numerator) to (ii) net interest income on a fully taxable equivalent (“FTE”) basis plus total non-interest income (including the FTE adjustment on bank-owned life insurance (“BOLI”) income, and excluding gains and losses on sales of assets other than residential mortgage loans, and non-recurring income) (the denominator). People’s United Financial generally considers an item of income or expense to be non-recurring if it is not similar to an item of income or expense of a type incurred within the last two years and is not similar to an item of income or expense of a type reasonably expected to be incurred within the following two years.

Operating earnings exclude from net income those items that management considers to be of such a non-recurring or infrequent nature that, by excluding such items (net of income taxes), People’s United Financial’s results can be measured and assessed on a more consistent basis from period to period. Items excluded from operating earnings, which include, but are not limited to: (i) merger-related expenses, including acquisition integration and other costs; (ii) charges related to executive-level management separation costs; (iii) severance-related costs; and (iv) writedowns of banking house assets, are generally also excluded when calculating the efficiency ratio. Operating earnings per share is derived by determining the per share impact of the respective adjustments to arrive at operating earnings and adding (subtracting) such amounts to (from) GAAP earnings per share. Operating return on average assets is calculated by dividing operating earnings (annualized) by average assets. Operating return on average tangible stockholders’ equity is calculated by dividing operating earnings (annualized) by average tangible stockholders’ equity. The operating dividend payout ratio is calculated by dividing dividends paid by operating earnings for the respective period.

Operating net interest margin excludes from the net interest margin those items that management considers to be of such a discrete nature that, by excluding such items, People’s United Financial’s net interest margin can be measured and assessed on a more consistent basis from period to period. Excluded from operating net interest margin is cost recovery income on acquired loans. Operating net interest margin is calculated by dividing operating net interest income (annualized) by average earning assets.

The tangible equity ratio is the ratio of (i) tangible stockholders’ equity (total stockholders’ equity less goodwill and other acquisition-related intangible assets) (the numerator) to (ii) tangible assets (total assets less goodwill and other acquisition-related intangible assets) (the denominator). Tangible book value per share is calculated by dividing tangible stockholders’ equity by common shares (total common shares issued, less common shares classified as treasury shares and unallocated Employee Stock Ownership Plan (“ESOP”) common shares).

In light of diversity in presentation among financial institutions, the methodologies used by People’s United Financial for determining the non-GAAP financial measures discussed above may differ from those used by other financial institutions.

The following table summarizes People’s United Financial’s efficiency ratio derived from amounts reported in the Consolidated Statements of Income:


	Three Months Ended
(dollars in millions)	March 31, 2013			Dec. 31, 2012			March 31, 2012
Total non-interest expense	$	212.0		$	207.4		$	208.6

Adjustments to arrive at operating non-interest expense:
Writedowns of banking house assets		(6.2	)		—			—
Severance-related costs		(1.5	)		(2.9	)		(2.4	)
Acquisition integration and other costs		(0.3	)		—			(0.6	)

Total		(8.0	)		(2.9	)		(3.0	)

Operating non-interest expense		204.0			204.5			205.6

Amortization of other acquisition-related intangible assets		(6.5	)		(6.7	)		(6.6	)
Other (1)		(1.5	)		(0.6	)		(2.4	)

Total	$	196.0		$	197.2		$	196.6


Net interest income (FTE basis)	$	223.3		$	228.6		$	235.7
Total non-interest income		82.9			84.3			72.4

Total revenues		306.2			312.9			308.1
Adjustments:
BOLI FTE adjustment		0.4			0.5			0.9
Net gains on sales of acquired loans		—			(0.3	)		—
Other (2)		(0.7	)		(0.7	)		—

Total	$	305.9		$	312.4		$	309.0

Efficiency ratio		64.1	%		63.1	%		63.6	%

(1)

Items classified as “other” and deducted from non-interest expense for purposes of calculating the efficiency ratio include, as applicable, certain franchise taxes, real estate owned expenses, contract termination costs and non-recurring expenses.

(2)

Items classified as “other” and added to (deducted from) total revenues for purposes of calculating the efficiency ratio include, as applicable, asset write-offs and gains associated with the sale of branch locations.

The following table summarizes People’s United Financial’s operating earnings, operating earnings per share and operating return on average assets:


	Three Months Ended
(dollars in millions, except per share data)	March 31, 2013			Dec. 31, 2012			March 31, 2012
Net income, as reported	$	52.5		$	61.2		$	57.3

Adjustments to arrive at operating earnings:
Writedowns of banking house assets		6.2			—			—
Severance-related costs		1.5			2.9			2.4
Acquisition integration and other costs		0.3			—			0.6

Total pre-tax adjustments		8.0			2.9			3.0
Tax effect		(2.6	)		(0.9	)		(1.0	)

Total adjustments, net of tax		5.4			2.0			2.0

Operating earnings	$	57.9		$	63.2		$	59.3


Earnings per share, as reported	$	0.16		$	0.18		$	0.17

Adjustment to arrive at operating earnings per share:
Writedowns of banking house assets		0.02			—			—
Severance-related costs		—			0.01			0.01
Acquisition integration and other costs		—			—			—

Total adjustments per share		0.02			0.01			0.01

Operating earnings per share	$	0.18		$	0.19		$	0.18


Average total assets	$	30,178		$	28,991		$	27,463

Operating return on average assets (annualized)		0.77	%		0.87	%		0.86	%

The following table summarizes People’s United Financial’s operating net interest margin:


	Three Months Ended
(dollars in millions, except per share data)	March 31, 2013			Dec. 31, 2012			March 31, 2012
Net interest income (FTE basis)	$	223.3		$	228.6		$	235.7

Adjustments to arrive at operating net interest income:
Cost recovery income		—			—			—

Total adjustments		—			—			—

Operating net interest income	$	223.3		$	228.6		$	235.7


Net interest margin, as reported (annualized)		3.38	%		3.63	%		3.97	%

Adjustments to arrive at operating net interest margin (annualized):
Cost recovery income		—			—			—

Total adjustments		—			—			—

Operating net interest margin (annualized)		3.38	%		3.63	%		3.97	%

Average total earning assets	$	26,421		$	25,206		$	23,733

The following tables summarize People’s United Financial’s operating return on average tangible stockholders’ equity and operating dividend payout ratio:


	Three Months Ended
(dollars in millions)	March 31, 2013			Dec. 31, 2012			March 31, 2012
Operating earnings	$	57.9		$	63.2		$	59.3

Average stockholders’ equity	$	5,005		$	5,107		$	5,217
Less: Average goodwill and average other acquisition-related intangible assets		2,151			2,157			2,171

Average tangible stockholders’ equity	$	2,854		$	2,950		$	3,046

Operating return on average tangible stockholders’ equity (annualized)		8.1	%		8.6	%		7.8	%


	Three Months Ended
(dollars in millions)	March 31, 2013			Dec. 31, 2012			March 31, 2012
Dividends paid	$	52.8		$	53.6		$	54.9


Operating earnings	$	57.9		$	63.2		$	59.3

Operating dividend payout ratio		91.2	%		84.8	%		92.6	%

The following tables summarize People’s United Financial’s tangible equity ratio and tangible book value per share derived from amounts reported in the Consolidated Statements of Condition:


(in millions, except per share data)	March 31, 2013			Dec. 31, 2012			Sept. 30, 2012			June 30, 2012			March 31, 2012
Total stockholders’ equity	$	4,886		$	5,039		$	5,107		$	5,135		$	5,170
Less: Goodwill and other acquisition-related intangible assets		2,147			2,154			2,160			2,166			2,169

Tangible stockholders’ equity	$	2,739		$	2,885		$	2,947		$	2,969		$	3,001


Total assets	$	30,598		$	30,324		$	28,576		$	28,137		$	27,797
Less: Goodwill and other acquisition-related intangible assets		2,147			2,154			2,160			2,166			2,169

Tangible assets	$	28,451		$	28,170		$	26,416		$	25,971		$	25,628

Tangible equity ratio		9.6	%		10.2	%		11.2	%		11.4	%		11.7	%


(in millions, except per share data)	March 31, 2013			Dec. 31, 2012			Sept. 30, 2012			June 30, 2012			March 31, 2012
Tangible stockholders’ equity	$	2,739		$	2,885		$	2,947		$	2,969		$	3,001


Common shares issued		396.24			395.81			395.88			395.87			395.84
Less: Common shares classified as treasury shares		67.31			56.18			51.48			47.00			42.49
Unallocated ESOP common shares		8.28			8.36			8.45			8.54			8.62

Common shares		320.65			331.27			335.95			340.33			344.73

Tangible book value per share	$	8.54		$	8.71		$	8.77		$	8.72		$	8.71

Financial Overview

Previously reported results for the first quarter of 2012 have been revised to reflect a reduction in interest income on certain acquired loans relating to an unintentional overstatement of interest income. See Note 12 to the Consolidated Financial Statements.

People’s United Financial reported net income of $52.5 million, or $0.16 per diluted share, for the three months ended March 31, 2013, compared to $57.3 million, or $0.17 per diluted share, for the year-ago period. Operating earnings were $57.9 million, or $0.18 per share, and $59.3 million, or $0.18 per share, for the respective periods. Compared to the year-ago period, first quarter 2013 earnings reflect continued loan and deposit growth, ongoing strength in fee income businesses, meaningful cost control and the continued impact from the historically low interest rate environment.

People’s United Financial’s operating return on average assets was 0.77% for the three months ended March 31, 2013 compared to 0.86% for the year-ago period. Operating return on average tangible stockholders’ equity was 8.1% for the three months ended March 31, 2013 compared to 7.8% for the year-ago period.

FTE net interest income totaled $223.3 million for the first quarter of 2013, a $12.4 million decrease from the year-ago period and the net interest margin decreased 59 basis points from the first quarter of 2012 to 3.38%. Compared to the fourth quarter of 2012, FTE net interest income decreased $5.3 million while the net interest margin declined by 25 basis points (see Net Interest Income).

Average earning assets increased $2.7 billion compared to the first quarter of 2012, reflecting increases of $1.8 billion in average securities and $1.3 billion in average loans, partially offset by a $390 million decrease in average short-term investments. Average funding liabilities increased $2.9 billion in the first quarter of 2013 compared to the year-ago quarter, reflecting increases of $1.6 billion in average total borrowings, $715 million in average total deposits and $499 million in average notes and debentures.

Compared to the year-ago quarter, total non-interest income increased $10.5 million and total non-interest expense increased $3.4 million (see Non-Interest Income and Non-Interest Expense). The efficiency ratio was 64.1% for the first quarter of 2013 compared to 63.6% for the year-ago period.

The provision for loan losses in the first quarter of 2013 totaled $12.4 million compared to $11.5 million in the year-ago quarter. The provision for loan losses in the first quarter of 2013 reflected: (i) net loan charge-offs of $13.1 million, of which $9.6 million carried previously-established specific reserves; (ii) a $6.3 million increase in the originated allowance for loan losses due to growth in both the commercial and residential mortgage loan portfolios; and (iii) $2.6 million of loan impairment attributable to the acquired loan portfolio (see Asset Quality). The provision for loan losses in the first quarter of 2012 reflected: (i) net loan charge-offs of $11.2 million, of which $4.8 million carried previously-established specific reserves; (ii) a $4.8 million increase in the originated allowance for loan losses in response to growth in the commercial and residential mortgage loan portfolios; and (iii) $0.3 million of loan impairment attributable to the acquired loan portfolio. Net loan charge-offs as a percentage of average total loans on an annualized basis were 0.24% in the first quarter of 2013 compared to 0.22% in the year-ago quarter.

The allowance for loan losses on originated loans was $177.5 million at both March 31, 2013 and December 31, 2012. The allowance for loan losses on acquired loans was $9.8 million at March 31, 2013, a $0.7 million decrease from December 31, 2012. Non-performing assets totaled $285.1 million at March 31, 2013, a $4.5 million decrease from December 31, 2012. At March 31, 2013, the originated allowance for loan losses as a percentage of originated loans was 0.88% and as a percentage of originated non-performing loans was 70.6% (see Asset Quality).

People’s United Financial’s total stockholders’ equity was $4.9 billion at March 31, 2013 compared to $5.0 billion at December 31, 2012 and as a percentage of total assets, stockholders’ equity was 16.0% and 16.6%, respectively. Tangible stockholders’ equity as a percentage of tangible assets was 9.6% at March 31, 2013 compared to 10.2% at December 31, 2012.

People’s United Bank’s and People’s United Financial’s (consolidated) total risk-based capital ratios were 13.5% and 13.7%, respectively, at March 31, 2013 compared to 13.1% and 14.7%, respectively, at December 31, 2012 (see Regulatory Capital Requirements).

Segment Results

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 Financial’s operations are divided into three primary operating segments that represent its core businesses: Commercial Banking; Retail and Business Banking; and Wealth Management. In addition, the Treasury area manages People’s United Financial’s securities portfolio, short-term investments, wholesale borrowings and the funding center.

The Company’s operating segments have been aggregated into two reportable segments: Commercial Banking; and Retail and Business 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 Wealth Management, this presentation results in the Company’s insurance business and certain trust activities being allocated to the Commercial Banking segment, while the Company’s brokerage business and certain other trust activities are allocated to the Retail and Business Banking segment.

People’s United Financial uses an internal profitability reporting system to generate information by operating segment, which is based on a series of management estimates and allocations regarding funds transfer pricing (“FTP”), the provision for loan losses, non-interest expense and income taxes. These estimates and allocations, some of which can be subjective in nature, are continually being reviewed and refined. Any changes in estimates and allocations that may affect the reported results of any segment will not affect the consolidated financial position or results of operations of People’s United Financial as a whole.

FTP is used in the calculation of each operating segment’s net interest income, and measures the value of funds used in and provided by an operating segment. The difference between the interest income on earning assets and the interest expense on funding liabilities, and the corresponding FTP charge for interest income or credit for interest expense, results in net spread income (see Treasury).

A five-year rolling average net charge-off rate is used as the basis for the provision for loan losses for the respective operating segment in order to present a level of portfolio credit cost that is representative of the Company’s historical experience, without presenting the potential volatility from year-to-year changes in credit conditions. While this method of allocation allows management to more effectively assess the longer-term profitability of a segment, it may result in a measure of segment provision for loan losses that does not reflect actual incurred losses for the periods presented.

People’s United Financial allocates a majority of non-interest expenses to each operating segment using a full-absorption costing process (i.e. all expenses are fully-allocated to the segments). Direct and indirect costs are analyzed and pooled by process and assigned to the appropriate operating segment and corporate overhead costs are allocated to the operating segments. Income tax expense is allocated to each operating segment using a constant rate, based on an estimate of the consolidated effective income tax rate for the year. Total average assets and total average liabilities are presented for each reportable segment due to management’s reliance, in part, on such average balances for purposes of assessing segment performance.

The average assets of each reportable segment include allocated goodwill and intangible assets, both of which are reviewed for impairment at least annually. Goodwill is evaluated for impairment at the reporting unit level and involves a two-step test. For the purpose of goodwill impairment evaluations, management has identified reporting units based upon the Company’s three operating segments: Commercial Banking, Retail and Business 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.

In September 2011, the Financial Accounting Standards Board amended its standards to provide an 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 impairment test. People’s United Financial elected to perform this optional qualitative assessment in its evaluation of goodwill impairment as of October 1, 2012 (the annual impairment evaluation date) and concluded that performance of the two-step test was not required.

When performed, the goodwill impairment analysis is a two-step test. 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. None of the Company’s identified reporting units are at risk of failing the Step 1 goodwill impairment test at this time.

Segment Performance Summary


Three months ended March 31, 2013 (in millions)	Commercial Banking		Retail and Business Banking		Total Reportable Segments		Treasury			Other			Total Consolidated
Net interest income (loss)	$	117.0	$	118.8	$	235.8	$	(16.9	)	$	0.4		$	219.3
Provision for loan losses		11.2		3.7		14.9		—			(2.5	)		12.4
Total non-interest income		33.6		45.9		79.5		2.3			1.1			82.9
Total non-interest expense		61.0		137.6		198.6		(3.2	)		16.6			212.0

Income (loss) before income tax expense (benefit)		78.4		23.4		101.8		(11.4	)		(12.6	)		77.8
Income tax expense (benefit)		25.4		7.6		33.0		(3.7	)		(4.0	)		25.3

Net income (loss)	$	53.0	$	15.8	$	68.8	$	(7.7	)	$	(8.6	)	$	52.5


Total average assets	$	16,045.7	$	8,338.2	$	24,383.9	$	5,181.5		$	612.6		$	30,178.0
Total average liabilities		3,199.2		18,877.4		22,076.6		2,686.2			410.7			25,173.5


Three months ended March 31, 2012 (in millions)	Commercial Banking		Retail and Business Banking		Total Reportable Segments		Treasury			Other			Total Consolidated
Net interest income (loss)	$	114.9	$	131.2	$	246.1	$	(16.6	)	$	3.7		$	233.2
Provision for loan losses		10.5		3.5		14.0		—			(2.5	)		11.5
Total non-interest income		25.7		43.1		68.8		2.7			0.9			72.4
Total non-interest expense		58.5		134.8		193.3		1.5			13.8			208.6

Income (loss) before income tax expense (benefit)		71.6		36.0		107.6		(15.4	)		(6.7	)		85.5
Income tax expense (benefit)		23.7		11.9		35.6		(5.1	)		(2.3	)		28.2

Net income (loss)	$	47.9	$	24.1	$	72.0	$	(10.3	)	$	(4.4	)	$	57.3


Total average assets	$	14,859.2	$	8,257.8	$	23,117.0	$	3,727.1		$	618.4		$	27,462.5
Total average liabilities		2,827.3		18,531.7		21,359.0		593.6			292.9			22,245.5

Commercial Banking consists principally of commercial real estate lending, commercial and industrial lending, and commercial deposit gathering activities. This segment also includes the equipment financing operations of People’s Capital and Leasing Corp. (“PCLC”) and People’s United Equipment Finance Corp., as well as cash management, correspondent banking and municipal banking. In addition, Commercial Banking consists of institutional trust services, corporate trust, insurance services provided through People’s United Insurance Agency, Inc. and private banking.


	Three Months Ended
(in millions)	March 31, 2013		March 31, 2012
Net interest income	$	117.0	$	114.9
Provision for loan losses		11.2		10.5
Total non-interest income		33.6		25.7
Total non-interest expense		61.0		58.5

Income before income tax expense		78.4		71.6
Income tax expense		25.4		23.7

Net income	$	53.0	$	47.9


Total average assets	$	16,045.7	$	14,859.2
Total average liabilities		3,199.2		2,827.3

Commercial Banking net income increased $5.1 million in the first quarter of 2013 compared to the first quarter of 2012. The increase in net interest income reflects continued loan growth and improved spreads on certain commercial deposits, partially offset by the continued negative impact of the low interest rate environment. The increase in non-interest income from the year-ago quarter primarily reflects increases in commercial banking fees and operating lease income resulting from a higher level of equipment leased to PCLC customers. The increase in non-interest expense reflects a higher level of allocated expenses, partially offset by lower direct expenses. Average assets increased $1.2 billion and average liabilities increased $372 million in the first quarter of 2013 compared to the first quarter of 2012, reflecting loan and deposit growth.

Retail and Business Banking includes, as its principal business lines, business lending, consumer and business deposit gathering activities, consumer lending (including residential mortgage and home equity lending) and merchant services. In addition, Retail and Business Banking consists of brokerage, financial advisory services, investment management services and life insurance provided by People’s Securities, Inc. and non-institutional trust services.


	Three Months Ended
(in millions)	March 31, 2013		March 31, 2012
Net interest income	$	118.8	$	131.2
Provision for loan losses		3.7		3.5
Total non-interest income		45.9		43.1
Total non-interest expense		137.6		134.8

Income before income tax expense		23.4		36.0
Income tax expense		7.6		11.9

Net income	$	15.8	$	24.1


Total average assets	$	8,338.2	$	8,257.8
Total average liabilities		18,877.4		18,531.7

Retail and Business Banking net income decreased $8.3 million in the first quarter of 2013 compared to the first quarter of 2012. The decrease in net interest income primarily reflects continued repricing pressure within the loan portfolio, including the pay-off of higher yielding loans and new loan originations at lower yields and the run-off of fair value amortization on acquired deposits, partially offset by lower funding costs. The increase in non-interest income primarily reflects an increase in gains on sales of residential mortgage loans. The increase in non-interest expense reflects a higher level of direct and allocated expenses in 2013 compared to 2012 primarily as a result of the acquisition of 57 branches late in the second quarter of 2012.

Average assets increased $80 million and average liabilities increased $346 million in the first quarter of 2013 compared to the first quarter of 2012, reflecting loan and deposit growth, and the assumption of approximately $324 million in deposits in connection with the acquisition of 57 branches late in the second quarter of 2012.

Treasury encompasses the securities portfolio, short-term investments, wholesale borrowings, and the funding center, which includes the impact of derivative financial instruments used for risk management purposes.

The income or loss for the funding center represents the interest rate risk component of People’s United Financial’s net interest income as calculated by its FTP model in deriving each operating segment’s net interest income. Under this process, the funding center buys funds from liability-generating business lines, such as consumer deposits, and sells funds to asset-generating business lines, such as commercial lending. The price at which funds are bought and sold on any given day is set by People’s United Financial’s Treasury group and is based on the wholesale cost to People’s United Financial of assets and liabilities with similar maturities. Liability-generating businesses sell newly-originated liabilities to the funding center and recognize a funding credit, while asset-generating businesses buy funding for newly-originated assets from the funding center and recognize a funding charge. Once funding for an asset is purchased from or a liability is sold to the funding center, the price that is set by the Treasury group will remain with that asset or liability until it matures or reprices, which effectively transfers responsibility for managing interest rate risk to the Treasury group.


	Three Months Ended
(in millions)	March 31, 2013			March 31, 2012
Net interest loss	$	(16.9	)	$	(16.6	)
Total non-interest income		2.3			2.7
Total non-interest expense		(3.2	)		1.5

Loss before income tax benefit		(11.4	)		(15.4	)
Income tax benefit		(3.7	)		(5.1	)

Net loss	$	(7.7	)	$	(10.3	)


Total average assets	$	5,181.5		$	3,727.1
Total average liabilities		2,686.2			593.6

The decrease in Treasury’s net loss in the first quarter of 2013 compared to the first quarter of 2012 primarily reflects a lower level of allocated expenses in 2013. Total average assets increased $1.5 billion in the first quarter of 2013 compared to the first quarter of 2012, reflecting an increase in average securities partially offset by a decline in average short-term investments. The $2.1 billion increase in total average liabilities in the first quarter of 2013 compared to the first quarter of 2012 primarily reflects increases in average total borrowings and average notes and debentures.

Other 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; 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 non-recurring items, such as one-time charges totaling $8.0 million in the first quarter of 2013 and $3.0 million in the first quarter of 2012 (included in total non-interest expense). Included in “Other” are assets such as cash, premises and equipment, and other assets.


	Three Months Ended
(in millions)	March 31, 2013			March 31, 2012
Net interest income	$	0.4		$	3.7
Provision for loan losses		(2.5	)		(2.5	)
Total non-interest income		1.1			0.9
Total non-interest expense		16.6			13.8

Loss before income tax benefit		(12.6	)		(6.7	)
Income tax benefit		(4.0	)		(2.3	)

Net loss	$	(8.6	)	$	(4.4	)


Total average assets	$	612.6		$	618.4
Total average liabilities		410.7			292.9

Net Interest Income

Net interest income and net interest margin are affected by many factors, including changes in average balances; interest rate fluctuations and the slope of the yield curve; sales of loans and securities; residential mortgage loan and mortgage-backed security prepayment rates; product pricing; competitive forces; the relative mix, repricing characteristics and maturity of earning assets and interest-bearing liabilities; non-interest-bearing sources of funds; hedging activities; and asset quality.

Since December 2008, the Federal Reserve Board has not changed its targeted range for the federal funds rate of 0 to 0.25%. The net interest margin was 3.38% in the first quarter of 2013 compared to 3.63% in the fourth quarter of 2012 and 3.97% in the first quarter of 2012. The decline in the net interest margin from the fourth quarter of 2012 reflects higher average securities balances, continued repricing pressure within the loan portfolio, including the pay-off of higher yielding loans and new loan originations at lower yields, lower interest income on acquired loans and the impact from a full quarter of interest expense on the senior notes issued in December 2012. The net interest margin continues to be impacted by the historically low interest rate environment where loan repricings are outpacing the Company’s ability to lower deposit costs as well as the continued investment of a portion of the Company’s excess capital in low-yielding short-term investments.

First Quarter 2013 Compared to First Quarter 2012

FTE net interest income decreased $12.4 million compared to the first quarter of 2012, reflecting a $10.0 million decrease in total interest and dividend income and a $2.4 million increase in total interest expense, and the net interest margin decreased 59 basis points to 3.38%.

Average earning assets totaled $26.4 billion in the first quarter of 2013, a $2.7 billion increase from the first quarter of 2012, reflecting increases of $1.8 billion in average securities and $1.3 billion in average loans, partially offset by a $390 million decrease in average short-term investments. Average loans, average securities, and average short-term investments comprised 82%, 17% and 1%, respectively, of average earning assets in the first quarter of 2013 compared to 86%, 12% and 2%, respectively, in the 2012 period. In the current quarter, the yield earned on the total loan portfolio was 4.20% and the yield earned on securities and short-term investments was 2.10%, compared to 4.77% and 2.31%, respectively, in the year-ago quarter. Excluding adjustable-rate residential mortgage loans, which are mostly of the hybrid variety, approximately 46% of the loan portfolio had floating interest rates at March 31, 2013 compared to approximately 47% at December 31, 2012.

The average total commercial banking loan and residential mortgage portfolios increased $1.2 billion and $197 million, respectively, compared to the year-ago quarter, reflecting growth. Average consumer loans decreased $53 million compared to the year-ago quarter, primarily reflecting a $55 million decrease in average indirect auto loans.

Average funding liabilities totaled $24.7 billion in the first quarter of 2013, a $2.9 billion increase from the year-ago period, reflecting increases of $1.6 billion in average total borrowings, $715 million in average total deposits and $499 million in notes and debentures. The increase in average total deposits reflects deposit growth and deposits (approximately $324 million) assumed in connection with the acquisition of 57 branches late in the second quarter of 2012. Average savings and money market deposits and average non-interest-bearing deposits increased $856 million and $472 million, respectively, while average time deposits decreased $613 million. Average deposits comprised 87% and 95% of average funding liabilities in the first quarter of 2013 and the year-ago period, respectively. The increase in average total borrowings reflects the partial funding used to support loan growth and securities purchases. The increase in average notes and debentures reflects the issuance of $500 million of senior notes in December 2012.

The one basis point decrease to 0.48% from 0.49% in the rate paid on average funding liabilities primarily reflects the decrease in market interest rates and the shift in deposit mix as well as continued repricing of higher-yielding deposits assumed in acquisitions, partially offset by the impact from a full quarter of interest expense on the senior notes issued in December 2012. The rate paid on average deposits decreased 5 basis points from the first quarter of 2012, as the 12 basis point decrease in savings and money market deposits more than offset the 18 basis point increase in time deposits. The increase in the rate paid on time deposits primarily reflects the run-off in fair value amortization on acquired deposits. Average savings and money market deposits and average time deposits comprised 56% and 22%, respectively, of average total deposits in the first quarter of 2013 compared to 54% and 25%, respectively, in the comparable 2012 period.

First Quarter 2013 Compared to Fourth Quarter 2012

FTE net interest income decreased $5.3 million compared to the fourth quarter of 2012, reflecting a $2.8 million decrease in total interest and dividend income and a $2.5 million increase in total interest expense, and the net interest margin decreased 25 basis points to 3.38%. The decline in the net interest margin primarily reflects the effects of higher average securities balances in the first quarter of 2013 (which reduced the net interest margin by seven basis points), two less calendar days in the first quarter of 2013 (which adversely affected the net interest margin by five basis points), the issuance of the senior notes in December 2012 (which reduced the net interest margin by five basis points) and lower loan yields, repricing and amortization (which reduced the net interest margin by six basis points).

Average earning assets increased $1.2 billion, reflecting increases of $681 million in average securities, $518 million in average loans and $19 million in average short-term investments. Average funding liabilities increased $1.2 billion, reflecting increases of $880 million in average borrowings and $358 million in average notes and debentures. The increase in average total borrowings reflects the partial funding used to support loan growth and securities purchases. The increase in average notes and debentures reflects the issuance of $500 million of senior notes in December 2012.

The following table presents average balance sheets, FTE-basis interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended March 31, 2013, December 31, 2012 and March 31, 2012. The average balances are principally daily averages and, for loans, include both performing and non-performing balances. Interest income on loans includes the effect of deferred loan fees and costs accounted for as yield adjustments, but does not include interest on loans for which People’s United Financial has ceased to accrue interest. Premium amortization and discount accretion (including amounts attributable to purchase accounting adjustments) are also included in the respective interest income and interest expense amounts. The impact of People’s United Financial’s use of derivative instruments in managing interest rate risk is also reflected in the table, classified according to the instrument hedged and the related risk management objective.

Average Balance Sheet, Interest and Yield/Rate Analysis (1)


	March 31, 2013							December 31, 2012							March 31, 2012 (2)
Three months ended (dollars in millions)	Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate
Assets:
Short-term investments	$	146.3	$	0.1		0.21	%	$	127.5	$	0.1		0.22	%	$	535.9	$	0.3		0.24	%
Securities (3)		4,548.2		24.5		2.15			3,866.8		22.2		2.29			2,750.7		18.7		2.72
Loans held for sale		24.7		0.4		7.00			28.2		0.4		6.40			39.1		0.5		4.96
Loans:
Commercial (4)		8,244.1		88.9		4.31			8,081.5		92.7		4.59			7,373.6		94.6		5.14
Commercial real estate		7,399.5		85.5		4.62			7,043.8		86.0		4.89			7,118.7		91.7		5.15
Residential mortgage		3,909.8		34.5		3.53			3,898.5		34.6		3.55			3,713.1		36.2		3.89
Consumer		2,148.1		18.8		3.50			2,159.3		19.5		3.61			2,201.5		20.7		3.77

Total loans		21,701.5		227.7		4.20			21,183.1		232.8		4.40			20,406.9		243.2		4.77

Total earning assets		26,420.7	$	252.7		3.83	%		25,205.6	$	255.5		4.05	%		23,732.6	$	262.7		4.43	%

Other assets		3,757.3							3,785.2							3,729.9

Total assets	$	30,178.0						$	28,990.8						$	27,462.5

Liabilities and stockholders’ equity:
Deposits:
Non-interest-bearing	$	4,879.0	$	—		—	%	$	4,895.7	$	—		—	%	$	4,406.8	$	—		—	%
Savings, interest-bearing checking and money market		12,042.2		8.0		0.27			11,863.1		8.6		0.29			11,186.5		11.0		0.39
Time		4,637.2		12.8		1.10			4,798.2		13.3		1.11			5,250.0		12.1		0.92

Total deposits		21,558.4		20.8		0.39			21,557.0		21.9		0.41			20,843.3		23.1		0.44

Borrowings:
FHLB advances		1,344.0		1.7		0.52			622.8		1.4		0.91			331.9		1.2		1.48
Federal funds purchased		603.3		0.3		0.20			465.2		0.3		0.24			5.3		—		0.15
Retail repurchase agreements		559.6		0.3		0.20			539.3		0.3		0.23			494.6		0.4		0.30
Other borrowings		1.1		—		1.60			1.1		—		1.53			26.9		0.1		0.97

Total borrowings		2,508.0		2.3		0.37			1,628.4		2.0		0.50			858.7		1.7		0.78

Notes and debentures		659.1		6.3		3.81			301.4		3.0		3.89			159.7		2.2		5.47

Total funding liabilities		24,725.5	$	29.4		0.48	%		23,486.8	$	26.9		0.45	%		21,861.7	$	27.0		0.49	%

Other liabilities		448.0							397.3							383.8

Total liabilities		25,173.5							23,884.1							22,245.5
Stockholders’ equity		5,004.5							5,106.7							5,217.0

Total liabilities and stockholders’ equity	$	30,178.0						$	28,990.8						$	27,462.5

Net interest income/spread (5)			$	223.3		3.35	%			$	228.6		3.60	%			$	235.7		3.94	%

Net interest margin						3.38	%						3.63	%						3.97	%

Operating net interest margin (6)						3.38	%						3.63	%						3.97	%

(1)	Average yields earned and rates paid are annualized.

(2)	Previously reported amounts have been revised to reflect a $1.9 million reduction in both commercial loan interest income and net interest income. As a result, the yield on commercial loans and the net interest margin were reduced by 10 basis points and 4 basis points, respectively.

(3)	Average balances and yields for securities available for sale are based on amortized cost.

(4)	Includes commercial and industrial loans and equipment financing loans.

(5)	The FTE adjustment was $4.0 million, $3.5 million and $2.5 million for the three months ended March 31, 2013, December 31, 2012 and March 31, 2012, respectively.

(6)	See Non-GAAP financial measures and reconciliation to GAAP.

Volume and Rate Analysis

The following table shows the extent to which changes in interest rates and changes in the volume of average earning assets and average interest-bearing liabilities have affected People’s United Financial’s net interest income. For each category of earning assets and interest-bearing liabilities, information is provided relating to: changes in volume (changes in average balances multiplied by the prior year’s average interest rates); changes in rates (changes in average interest rates multiplied by the prior year’s average balances); and the total change. Changes attributable to both volume and rate have been allocated proportionately.


	Three Months Ended March 31, 2013 Compared To
	December 31, 2012									March 31, 2012
	Increase (Decrease)									Increase (Decrease)
(in millions)	Volume			Rate			Total			Volume			Rate			Total
Interest and dividend income:
Short-term investments	$	—		$	—		$	—		$	(0.2	)	$	—		$	(0.2	)
Securities		3.7			(1.4	)		2.3			10.3			(4.5	)		5.8
Loans held for sale		(0.1	)		0.1			—			(0.2	)		0.1			(0.1	)
Loans:
Commercial		1.9			(5.7	)		(3.8	)		10.4			(16.1	)		(5.7	)
Commercial real estate		4.2			(4.7	)		(0.5	)		3.5			(9.7	)		(6.2	)
Residential mortgage		0.1			(0.2	)		(0.1	)		1.8			(3.5	)		(1.7	)
Consumer		(0.1	)		(0.6	)		(0.7	)		(0.5	)		(1.4	)		(1.9	)

Total loans		6.1			(11.2	)		(5.1	)		15.2			(30.7	)		(15.5	)

Total change in interest and dividend income		9.7			(12.5	)		(2.8	)		25.1			(35.1	)		(10.0	)

Interest expense:
Deposits:
Savings, interest-bearing checking and money market		0.1			(0.7	)		(0.6	)		0.8			(3.8	)		(3.0	)
Time		(0.4	)		(0.1	)		(0.5	)		(1.5	)		2.2			0.7

Total deposits		(0.3	)		(0.8	)		(1.1	)		(0.7	)		(1.6	)		(2.3	)

Borrowings:
FHLB advances		1.1			(0.8	)		0.3			1.7			(1.2	)		0.5
Federal funds purchased		0.1			(0.1	)		—			0.3			—			0.3
Retail repurchase agreements		—			—			—			—			(0.1	)		(0.1	)
Other borrowings		—			—			—			(0.1	)		—			(0.1	)

Total borrowings		1.2			(0.9	)		0.3			1.9			(1.3	)		0.6

Notes and debentures		3.4			(0.1	)		3.3			4.9			(0.8	)		4.1

Total change in interest expense		4.3			(1.8	)		2.5			6.1			(3.7	)		2.4

Change in net interest income	$	5.4		$	(10.7	)	$	(5.3	)	$	19.0		$	(31.4	)	$	(12.4	)

Non-Interest Income


	Three Months Ended
(in millions)	March 31, 2013		Dec. 31, 2012		March 31, 2012
Bank service charges	$	30.1	$	31.4	$	30.3
Investment management fees		9.0		8.9		8.6
Insurance revenue		8.3		6.7		8.4
Brokerage commissions		3.3		2.9		3.1
Operating lease income		8.3		8.5		6.7
Net gains on sales of residential mortgage loans		5.7		6.1		3.6
Net gains on sales of acquired loans		—		0.3		—
Other non-interest income:
Commercial banking fees		11.3		12.3		4.8
Bank-owned life insurance		0.9		1.1		1.8
Merchant services income, net		1.2		1.3		1.1
Other		4.8		4.8		4.0

Total other non-interest income		18.2		19.5		11.7

Total non-interest income	$	82.9	$	84.3	$	72.4

Total non-interest income increased $10.5 million compared to the first quarter of 2012 and decreased $1.4 million compared to the fourth quarter of 2012. The improvement in non-interest income compared to the first quarter of 2012 primarily reflects increases in commercial banking fees and gains on sales of residential mortgage loans. The decrease in non-interest income compared to the fourth quarter of 2012 primarily reflects lower bank service charges and commercial banking fees, partially offset by the seasonal nature of insurance revenue, which is generally highest in the first and third quarters of the year.

The decline in bank service charges from the fourth quarter of 2012 primarily reflects the seasonal nature of certain fee categories. Bank service charges continue to be impacted as a result of certain provisions of the DFA (see Recent Market Developments). The increase in insurance revenue from the fourth quarter of 2012 reflects the seasonal nature of insurance renewals.

The improvement in brokerage commissions compared to the fourth quarter of 2012 reflects higher levels of mutual fund commission income and additional customers added in our newer markets.

The increase in net gains on sales of residential mortgage loans from the first quarter of 2012 reflects improved “pricing” on residential mortgage loans sold directly to a government sponsored enterprise (“GSE”) as well as a 4% increase in the volume of residential mortgage loan sales.

BOLI income totaled $0.9 million ($1.3 million on a taxable-equivalent basis) in the first quarter of 2013, compared to $1.8 million ($2.7 million on a taxable-equivalent basis) in the year-ago quarter and $1.1 million ($1.6 million on a taxable-equivalent basis) in the fourth quarter of 2012. The decrease in BOLI income primarily reflects a lower crediting rate due to the continued low interest rate environment.

Compared to the first quarter of 2012, the increase in operating lease income reflects higher levels of equipment leased to PCLC customers while the increase in commercial banking fees primarily reflects higher prepayment fees.

Assets under administration and those under full discretionary management, neither of which are reported as assets of People’s United Financial, totaled $10.7 billion and $4.7 billion, respectively, at March 31, 2013 compared to $11.4 billion and $4.5 billion, respectively, at December 31, 2012.

In June 2005, a group of U.S. merchants filed a class action lawsuit against VISA and MasterCard claiming that the way VISA and MasterCard set interchange rates was a violation of anti-trust laws. In July 2012, the parties signed a memorandum of understanding to enter into a settlement to the lawsuit in which VISA and MasterCard proposed to pay $7.25 billion to the merchants ($6.05 billion in cash and $1.2 billion from an eight month reduction in credit card interchange). The proposed settlement is not expected to have a significant impact on the Company’s financial results.

Non-Interest Expense


	Three Months Ended
	March 31,			Dec. 31,			March 31,
(dollars in millions)	2013			2012			2012
Compensation and benefits	$	108.2		$	97.4		$	110.3
Occupancy and equipment		37.9			37.9			33.4
Professional and outside service fees		13.9			16.8			15.3
Operating lease expense		7.5			7.5			5.6
Amortization of other acquisition-related intangible assets		6.5			6.7			6.6
Other non-interest expense:
Regulatory		8.1			8.2			7.8
Stationery, printing, postage and telephone		5.2			5.5			5.7
Advertising and promotion		2.7			4.3			4.4
Other		22.0			23.1			19.5

Total other non-interest expense		38.0			41.1			37.4

Total non-interest expense		212.0			207.4			208.6

Efficiency ratio		64.1	%		63.1	%		63.6	%

Total non-interest expense in the first quarter of 2013 increased $3.4 million compared to the first quarter of 2012 and increased $4.6 million compared to the fourth quarter of 2012. Total non-interest expense includes non-operating expenses (see below) totaling $8.0 million in the first quarter of 2013, $3.0 million in the first quarter of 2012 and $2.9 million in the fourth quarter of 2012.

The increase in the efficiency ratio in the first quarter of 2013 compared to both the first and fourth quarters of 2012 primarily reflects the decrease in net interest income (see Non-GAAP Financial Measures and Reconciliation to GAAP).

Compensation and benefits decreased $2.1 million compared to the year-ago quarter and increased $10.8 million compared to the fourth quarter of 2012. The year-over-year decrease primarily reflects the lower level of incentive accruals in the first quarter of 2013 and the benefit from cost-saving initiatives, partially offset by normal merit increases. The increase from the fourth quarter of 2012 primarily reflects higher payroll-related costs in the first quarter of 2013 and lower incentive costs in the fourth quarter of 2012.

The increase in occupancy and equipment compared to the first quarter of 2012 primarily reflects the incremental costs associated with the continued geographic expansion of the Company’s franchise, including the purchase of 57 branches late in the second quarter of 2012. The increase in operating lease expense compared to the first quarter of 2012 relates to the higher level of equipment leased to PCLC customers.

Scheduled amortization expense attributable to other acquisition-related intangible assets for the full-year of 2013 and each of the next five years is as follows: $26.2 million in 2013; $24.8 million in 2014; $23.8 million in 2015; $22.7 million in 2016; $21.6 million in 2017; and $10.2 million in 2018.

Other non-interest expense in the first quarter of 2013 includes a $6.2 million charge associated with the writedown of certain banking house assets.

Income Taxes

People’s United Financial’s effective income tax rate was 32.5% for the three months ended March 31, 2013, which approximates the expected income tax rate for the full-year of 2013, compared to 32.4% for the full-year of 2012. The difference between People’s United Financial’s effective income tax rate for the three months ended March 31, 2013 and the U.S. federal statutory rate of 35% is primarily attributable to: (i) federal income tax credits associated with the Company’s investment in affordable housing limited partnerships; (ii) tax-exempt interest earned on certain investments; (iii) tax-exempt income from bank-owned life insurance; and (iv) state income taxes.

FINANCIAL CONDITION

General

Total assets at March 31, 2013 were $30.6 billion, a $274 million increase from December 31, 2012, reflecting increases of $424 million in total loans and $47 million in total securities, partially offset by a $154 million decrease in cash and cash equivalents.

At March 31, 2013, liabilities totaled $25.7 billion, a $427 million increase from December 31, 2012, reflecting increases of $463 million in total borrowings and $41 million in total deposits, partially offset by a $78 million decrease in other liabilities.

The increase in total loans from December 31, 2012 to March 31, 2013 reflects increases of $305 million in commercial real estate loans, $73 million in residential mortgage loans, $39 million in commercial and industrial loans, and $30 million in equipment financing loans, partially offset by a $23 million decrease in consumer loans. Originated loans increased $579 million from December 31, 2012 (commercial banking loans increased $498 million and retail loans increased $81 million) and acquired loans decreased $155 million.

Non-performing assets (excluding acquired non-performing loans) totaled $285.1 million at March 31, 2013, a $4.5 million decrease from year-end 2012, reflecting decreases in non-performing commercial and industrial loans of $3.9 million, non-performing equipment financing loans of $2.4 million, REO of $2.1 million and repossessed assets of $1.1 million, partially offset by increases in non-performing commercial real estate loans of $2.1 million, non-performing residential mortgage loans of $1.8 million and non-performing consumer loans of $1.1 million. The allowance for loan losses was $187.3 million ($177.5 million on originated loans and $9.8 million on acquired loans) at March 31, 2013 compared to $188.0 million ($177.5 million on originated loans and $10.5 million on acquired loans) at December 31, 2012. At March 31, 2013, the originated allowance for loan losses as a percent of originated loans was 0.88% and as a percent of originated non-performing loans was 70.6%, compared to 0.91% and 70.3%, respectively, at December 31, 2012.

People’s United Financial’s total stockholders’ equity was $4.9 billion at March 31, 2013, a $153 million decrease from December 31, 2012. This decrease primarily reflects open market repurchases of 11.1 million shares of common stock at a total cost of $144.2 million and dividends paid of $52.8 million, partially offset by net income of $52.5 million. As a percentage of total assets, stockholders’ equity was 16.0% at March 31, 2013 compared to 16.6% at December 31, 2012. Tangible stockholders’ equity as a percentage of tangible assets was 9.6% at March 31, 2013 compared to 10.2% at December 31, 2012.

People’s United Financial’s (consolidated) tier 1 common and tier 1 and total risk-based capital ratios were 12.0%, 12.5% and 13.7%, respectively, at March 31, 2013, compared to 12.7%, 13.2% and 14.7%, respectively, at December 31, 2012. People’s United Bank’s leverage (core) capital ratio, and tier 1 and total risk-based capital ratios were 9.7%, 12.1% and 13.5%, respectively, at March 31, 2013, compared to 9.8%, 12.2% and 13.1%, respectively, at December 31, 2012 (see Regulatory Capital Requirements).

Loans

People’s United Financial’s lending activities consist of originating loans secured by commercial and residential properties, and extending secured and unsecured loans to commercial and consumer customers. The following tables summarize People’s United Financial’s loan portfolios.

Commercial Real Estate


(in millions)	March 31, 2013		December 31, 2012
Property Type:
Office buildings	$	2,250.8	$	2,208.8
Residential (multi-family)		1,984.3		1,762.7
Retail		1,929.7		1,873.0
Industrial/manufacturing		534.4		543.9
Hospitality and entertainment		373.9		342.8
Mixed/special use		181.6		210.0
Self storage		108.3		107.8
Land		105.6		109.4
Health care		74.4		84.2
Other properties		56.2		51.6

Total commercial real estate	$	7,599.2	$	7,294.2

Commercial and Industrial


(in millions)	March 31, 2013		December 31, 2012
Industry:
Finance, insurance and real estate	$	1,684.4	$	1,730.9
Service		1,103.0		1,111.5
Manufacturing		864.4		816.5
Health services		614.3		592.2
Wholesale distribution		565.9		561.9
Retail sales		543.0		531.7
Construction		185.0		184.9
Arts/entertainment/recreation		160.7		156.4
Transportation/utility		147.8		144.7
Public administration		69.7		69.4
Agriculture		21.3		21.9
Other		127.2		125.7

Total commercial & industrial	$	6,086.7	$	6,047.7

Equipment Financing


(in millions)	March 31, 2013		December 31, 2012 (1)
Industry:
Transportation/utility	$	770.9	$	753.3
Construction		320.9		317.1
Printing		269.6		276.3
Finance, insurance and real estate		216.9		212.1
Waste		175.1		167.2
Packaging		138.1		144.7
General manufacturing		135.3		132.4
Wholesale distribution		117.3		115.3
Health services		58.1		54.0
Service		57.6		59.7
Food services		25.7		26.1
Retail sales		17.7		18.9
Other		79.6		75.2

Total equipment financing	$	2,382.8	$	2,352.3

(1)

Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

Residential Mortgage


(in millions)	March 31, 2013		December 31, 2012
Adjustable-rate	$	3,429.8	$	3,335.2
Fixed-rate		529.0		550.9

Total residential mortgage	$	3,958.8	$	3,886.1

Consumer


(in millions)	March 31, 2013		December 31, 2012
Home equity lines of credit	$	1,856.2	$	1,865.6
Home equity loans		186.4		185.9
Indirect auto		48.4		58.5
Other		42.4		46.3

Total consumer	$	2,133.4	$	2,156.3

Asset Quality

Recent Trends

The past several years have been marked by significant volatility in the financial and capital markets initially brought about by the fallout associated with the subprime mortgage market. This disruption led to significant credit and liquidity concerns, which resulted in government intervention within the banking sector and a substantial decline in activity within the secondary mortgage market. All of these issues were further exacerbated by an accelerated softening of the real estate market, a worsening recessionary economic environment and, in turn, weakness within the commercial sector.

While People’s United Financial continues to adhere to prudent underwriting standards, the loan portfolio is not immune to potential negative consequences arising as a result of general economic weakness and, in particular, a prolonged downturn in the housing market on a national scale. Decreases in real estate values could adversely affect the value of property used as collateral for loans. In addition, adverse changes in the economy could have a negative effect on the ability of borrowers to make scheduled loan payments, which would likely have an adverse impact on earnings. Further, an increase in loan delinquencies may serve to decrease net interest income and adversely impact loan loss experience, resulting in an increased provision and allowance for loan losses.

People’s United Financial actively manages asset quality through its underwriting practices and collection operations. Underwriting practices tend to focus on optimizing the return of a given risk classification while collection operations focus on minimizing losses once an account becomes delinquent. People’s United Financial attempts to minimize losses associated with commercial banking loans by requiring borrowers to pledge adequate collateral and/or provide for third-party guarantees. Loss mitigation within the residential mortgage loan portfolio is highly dependent on the value of the underlying real estate.

During the recent credit cycle, People’s United Financial has experienced an increase in the number of loan modification requests. Certain originated loans whose terms have been modified are considered troubled debt restructurings (“TDRs”). Acquired loans that are modified are not considered for TDR classification provided they are evaluated for impairment on a pool basis. Originated loans are considered TDRs if the borrower is experiencing financial difficulty and is afforded a concession by People’s United Financial, 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.

In June 2012, the OCC issued clarifying regulatory guidance requiring loans subject to a borrower’s discharge from personal liability following a Chapter 7 bankruptcy to be treated as TDRs, included in non-performing loans and written down to the estimated collateral value, regardless of delinquency status. Included in TDRs at March 31, 2013 are $29.3 million of such loans. Of this amount, $17.8 million, or 61%, were less than 90 days past due on their payments as of that date.

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. Loans may continue to be reported as TDRs after they are returned to accrual status.

During the three months ended March 31, 2013, we performed 18 loan modifications that were not classified as TDRs. In each case, we concluded that the modification did not result in the granting of a concession based on one or more of the following considerations: (i) the receipt of additional collateral (the nature and amount of which was deemed to serve as adequate compensation for other terms of the restructuring) and/or guarantees; (ii) the borrower having access to funds at a market rate for debt with similar risk characteristics as the restructured debt; and (iii) the restructuring resulting in a delay in payment that is insignificant in relation to the other terms of the obligation. See Note 3 to the Consolidated Financial Statements for additional disclosures relating to TDRs.

Portfolio Risk Elements—Residential Mortgage Lending

People’s United Financial does not actively engage in subprime mortgage lending, which has been the riskiest sector of the residential housing market. People’s United Financial has virtually no exposure to subprime loans, or to similarly high-risk Alt-A loans and structured investment vehicles. While no standard definition of “subprime” currently exists within the industry, the Company has generally defined subprime as borrowers with credit scores of 660 or less, either at or subsequent to origination.

At March 31, 2013, the loan portfolio included $759 million of interest-only residential mortgage loans, of which $8 million are stated income loans. People’s United Financial began originating interest-only residential mortgage loans in March 2003. The underwriting guidelines and requirements for such loans are generally more restrictive than those applied to other types of residential mortgage loans. In general, People’s United Financial’s underwriting guidelines for residential mortgage loans require the following: (i) properties must be single-family and owner-occupied primary residences; (ii) lower loan-to-value (“LTV”) ratios (less than 60% on average); (iii) higher credit scores (greater than 700 on average); and (iv) sufficient post-closing reserves. People’s United Financial has not originated interest-only residential mortgage loans that permit negative amortization or optional payment amounts. Amortization of an interest-only residential mortgage loan begins after the initial interest rate changes (e.g. after 5 years for a 5/1 adjustable-rate mortgage).

Stated income loans, which People’s United Financial has not offered since mid-2007, represent a form of reduced documentation loan that requires a potential borrower to complete a standard mortgage application with full verification of the borrower’s asset information as contained in the loan application, but no verification of the provided income information. As with interest-only loans, underwriting guidelines for stated income loans require properties to be single-family and owner-occupied primary residences with lower LTV ratios and higher credit scores. In addition, stated income loans require the receipt of an appraisal for the real estate used as collateral and a credit report on the prospective borrower.

Updated property values are obtained from an independent third-party for residential mortgage loans 90 days past due. At March 31, 2013, non-performing residential mortgage loans totaling $4.9 million had current LTV ratios of more than 100%. At March 31, 2013, the weighted average LTV ratio and FICO score for the residential mortgage loan portfolio were approximately 62% and 742, respectively.

The Company continues to review its foreclosure policies and procedures and has found no systemic concerns or instances of “robo-signing” (signing foreclosure affidavits without an appropriate review) with respect to its loan servicing activities. We believe that our established procedures for reviewing foreclosure affidavits and validating information contained in related loan documentation are sound and consistently applied, and that our foreclosure affidavits are accurate. As a result, People’s United Bank has not found it necessary to interrupt or suspend foreclosure proceedings. We have also considered the effect of representations and warranties that we made to third-party investors in connection with whole loan sales, and believe our representations and warranties were true and correct and do not expose People’s United Bank to any material loss.

During the three months ended March 31, 2013, the Company repurchased from GSEs and other parties a total of 3 residential mortgage loans that we had previously sold to the GSEs and other parties. The balances of the loans at the time of the respective repurchases totaled $0.6 million and related fees and expenses incurred totaled less than $0.1 million. During that same time period, the Company issued 4 investor refunds, totaling $0.2 million, under contractual obligations as a result of early payoffs, make whole payments, sales and settlement differences and underwriting non-compliance. Based on the limited number of repurchase requests the Company has historically received, the immaterial cost associated with such repurchase requests and management’s view that this past experience is consistent with our current and near-term estimate of such exposure, the Company has established a reserve for such repurchase requests, which totaled $0.9 million as of March 31, 2013.

The aforementioned foreclosure issues and the potential for additional legal and regulatory action could impact future foreclosure activities, including lengthening the time required for residential mortgage lenders, including People’s United Bank, to initiate and complete the foreclosure process. In recent years, foreclosure timelines have increased as a result of, among other reasons: (i) delays associated with the significant increase in the number of foreclosure cases as a result of the economic crisis; (ii) additional consumer protection initiatives related to the foreclosure process; and (iii) voluntary and/or mandatory programs intended to permit or require lenders to consider loan modifications or other alternatives to foreclosure. Further increases in the foreclosure timeline may have an adverse effect on collateral values and our ability to minimize losses.

Portfolio Risk Elements—Home Equity Lending

The majority of our home equity lines of credit (“HELOCs”) have an initial draw period of 9 1/2 years followed by a 20-year repayment phase. During the initial draw period, interest-only payments are required, after which the disbursed balance is fully amortized over a 20-year repayment term. HELOCs carry variable rates indexed to the Prime Rate with a lifetime interest rate ceiling and floor, and are secured by first or second liens on the borrower’s primary residence. The rate used to qualify borrowers is the Prime Rate plus 5.00%, even though the initial rate may be substantially lower. The maximum LTV ratio is 80% on a single-family property, 70% on a two-family property and 65% on a condominium. Lower LTV ratios are required on larger line amounts. The minimum FICO credit score is 680. The borrower has the ability to convert the entire balance or a portion of the balance to a fixed-rate term loan during the draw period. There is a limit of three term loans that must be fully amortized over a term not to exceed the original HELOC maturity date.

A smaller portion of our HELOC portfolio has an initial draw period of 10 years with a variable-rate interest-only payment, after which there is a 5-year amortization period. An additional small portion of our HELOC portfolio has a 5-year draw period which, at our discretion, may be renewed for an additional 5-year interest-only draw period.

The following table sets forth, as of March 31, 2013, the amount of HELOCs scheduled to have the draw period end during the years shown:


December 31, (in millions)	Credit Lines
2013	$	150.7
2014		284.8
2015		323.1
2016		329.8
2017		427.8
2018		441.3
Later years		1,646.7

Total	$	3,604.2

Essentially all of our HELOCs (96%) are presently in their draw period. Although converted amortizing payment loans represent only a small portion of the portfolio, our default and delinquency statistics indicate a higher level of occurrence for such loans when compared to HELOCs that are still in the draw period.

Delinquency statistics for the HELOC portfolio at March 31, 2013 are as follows:


	Portfolio Balance		Delinquencies
(dollars in millions)	Portfolio Balance		Amount		Percent
HELOC status:
Still in draw period	$	1,790.0	$	25.9		1.45	%
Amortizing payment		66.2		4.6		6.96

For the three months ended March 31, 2013, approximately 35% of our borrowers with balances outstanding under HELOCs paid only the minimum amount due.

The majority of the home equity loan (“HEL”) portfolio fully amortizes over terms ranging from 5 to 20 years. HELs are limited to first or second liens on a borrower’s primary residence. The maximum LTV ratio is 80% on a single-family property, 70% on a two-family property and 65% on a condominium. Lower LTV ratios are required on larger line amounts.

We are not able, at this time, to develop statistics for the entire home equity portfolio (both HELOCs and HELs) with respect to first liens serviced by third parties that have priority over our junior liens, as lien position data has not historically been captured on our loan servicing systems. As of March 31, 2013, full and complete first lien position data was not readily available for approximately 71% of the home equity portfolio. Effective January 2011, we began tracking lien position data for all new originations and our collections department continues to add lien position data once a loan reaches 75 days past due in connection with our updated assessment of combined loan-to-value (“CLTV”) exposure, which takes place for loans 90 days past due. In addition, when we are notified that the holder of a superior lien has commenced a foreclosure action, our home equity account is identified in the collections system for ongoing monitoring of the legal action. As of March 31, 2013, the portion of the home equity portfolio more than 90 days past due with a CLTV greater than 80% was $9.8 million.

As of March 31, 2013, full and complete first lien position data was readily available for approximately 29%, or $596 million, of the home equity portfolio. Of that total, approximately 37%, or $221 million, are in a junior lien position. We estimate that of those junior liens, 40%, or $88 million, are held or serviced by others.

When the first lien is held by a third party, we can, in some cases, obtain an indication that a first lien is in default through information reported to credit bureaus. However, because more than one mortgage may be reported in a borrower’s credit report and there may not be a corresponding property address associated with reported mortgages, we are often unable to associate a specific first lien with our junior lien. As of March 31, 2013, there were 30 loans totaling $2.3 million for which we have received notification that the holder of a superior lien has commenced foreclosure action. For 19 of the loans (totaling $1.0 million), our second lien position was performing at the time such foreclosure action was commenced. The total estimated loss related to those 19 loans was $0.6 million as of March 31, 2013. It is important to note that the percentage of new home equity originations for which we hold the first lien has increased steadily from approximately 40% in 2009 to approximately 65% as of March 31, 2013.

We believe there are several factors that serve to mitigate the potential risk associated with the limitations on available first lien data. Most importantly, our underwriting guidelines for home equity loans, which have been, and continue to be, consistently applied, generally require the following: (i) properties located within our geographic footprint; (ii) lower LTV ratios; and (iii) higher credit scores. Notwithstanding the maximum LTV ratios and minimum FICO scores discussed previously, actual LTV ratios at origination were less than 60% on average and current FICO scores of our borrowers are greater than 750 on average. In addition, as of March 31, 2013, approximately 78% of the portfolio balance relates to originations that occurred since 2005, which is generally recognized as the peak of the recent housing bubble. We believe these factors are a primary reason for the portfolio’s relatively low level of non-performing loans and net loan charge-offs, both in terms of absolute dollars and as a percentage of average loans.

Each month, all home equity and second mortgage loans greater than 180 days past due (regardless of our lien position) are analyzed in order to determine the amount by which the balance outstanding (including any amount subject to a first lien) exceeds the underlying collateral value. To the extent a shortfall exists, a charge-off is recognized. This charge-off activity is reflected in our established allowance for loan losses for home equity and second mortgage loans as part of the component attributable to historical portfolio loss experience, which considers losses incurred over the most recent 12-month period. While the limitations on available first lien data could impact the accuracy of our loan loss estimates, we believe that our methodology results in an allowance for loan losses that appropriately estimates the inherent probable losses within the portfolio, including those loans originated prior to January 2011 for which certain lien position data is not available.

At March 31, 2013, the weighted average CLTV ratio and FICO score for the home equity portfolio were approximately 63% and 840, respectively.

Portfolio Risk Elements—Commercial Real Estate Lending

In general, construction loans originated by People’s United Financial are used to finance improvements to commercial, industrial or residential property. Repayment is typically derived from the sale of the property as a whole, the sale of smaller individual units, or by a take-out from a permanent mortgage. The term of the construction period generally does not exceed two years. Loan commitments are based on established construction budgets which represent an estimate of total costs to complete the proposed project, including both hard (direct) costs (building materials, labor, etc.) and soft (indirect) costs (legal and architectural fees, etc.). In addition, project costs may include an appropriate level of interest reserve to carry the project through to completion. If established, such interest reserves are determined based on: (i) a percentage of the committed loan amount; (ii) the loan term; and (iii) the applicable interest rate. Regardless of whether a loan contains an interest reserve, the total project cost statement serves as the basis for underwriting and determining which items will be funded by the loan and which items will be funded through borrower equity.

Construction loans are funded, at the request of the borrower, not more than once per month, based on the extent of work completed, and are monitored, throughout the life of the project, by an independent professional construction engineer and the Company’s commercial real estate lending department. Interest is advanced to the borrower upon request, based upon the progress of the project toward completion. The amount of interest advanced is added to the total outstanding principal under the loan commitment. Should the project not progress as scheduled, the adequacy of the interest reserve necessary to carry the project through to completion is subject to close monitoring by management. Should the interest reserve be deemed to be inadequate, the borrower is required to fund the deficiency. Similarly, once a loan is fully funded, the borrower is required to fund all interest payments.

People’s United Financial’s construction loan portfolio totaled $531 million (approximately 2% of total loans) at March 31, 2013. The total committed amount at that date, including both the outstanding balance and the unadvanced portion of such loans, totaled $911 million. In some cases, a portion of the total committed amount includes an accompanying interest reserve. At March 31, 2013, construction loans totaling $177 million had remaining available interest reserves totaling $41 million. At that date, the Company had construction loans with interest reserves totaling $0.8 million that were on non-accrual status and included in non-performing loans.

The recent economic downturn has resulted in an increase in the number of extension requests for commercial real estate and construction loans, some of which have related repayment guarantees. Modifications of originated commercial real estate loans involving maturity extensions are evaluated according to the Company’s normal underwriting standards and are classified as TDRs if the borrower is experiencing financial difficulty and is afforded a concession by People’s United Financial similar to those discussed previously. People’s United Financial had approximately $18 million of restructured construction loans as of March 31, 2013.

An extension may be granted to allow for the completion of the project, marketing or sales of completed units, or to provide for permanent financing, and is based on a re-underwriting of the loan and management’s assessment of the borrower’s ability to perform according to the agreed-upon terms. Typically, at the time of an extension, borrowers are performing in accordance with contractual loan terms. Extension terms generally do not exceed 12 to 18 months and typically require that the borrower provide additional economic support in the form of partial repayment, additional collateral or guarantees. In cases where the fair value of the collateral or the financial resources of the borrower are deemed insufficient to repay the loan, reliance may be placed on the support of a guarantee, if applicable. However, such guarantees are never considered the sole source of repayment.

People’s United Financial evaluates the financial condition of guarantors based on the most current financial information available. Most often, such information takes the form of (i) personal financial statements of net worth, cash flow statements and tax returns (for individual guarantors) and (ii) financial and operating statements, tax returns and financial projections (for legal entity guarantors). The Company’s evaluation is primarily focused on various key financial metrics, including net worth, leverage ratios and liquidity. It is the Company’s policy to update such information annually, or more frequently as warranted, over the life of the loan.

While People’s United Financial does not specifically track the frequency with which it has pursued guarantor performance under a guarantee, the Company’s underwriting process, both at origination and upon extension, as applicable, includes an assessment of the guarantor’s reputation, creditworthiness and willingness to perform. Historically, when the Company has found it necessary to seek performance under a guarantee, it has been able to effectively mitigate its losses.

In considering the impairment status of such loans, an evaluation is made of the collateral and future cash flow of the borrower as well as the anticipated support of any repayment guarantor. In the event that the guarantor is unwilling or unable to perform, a legal remedy is pursued. When performance under the loan terms is deemed to be uncertain, including performance of the guarantor, all or a portion of the loan may be charged-off, typically based on the fair value of the collateral securing the loan.

Allowance and Provision for Loan Losses

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 Financial 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 Financial’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 Financial’s independent loan review function; (iii) an evaluation of delinquent and non-performing loans and related collateral values; (iv) the probability of loss in view of geographic and industry concentrations and other portfolio risk characteristics; (v) the present financial condition of borrowers; and (vi) current economic conditions.

The Company’s allowance for loan losses consists of three elements: (i) an allowance for larger-balance, non-homogeneous loans that are evaluated on an individual (loan-by-loan) basis; (ii) an allowance for smaller-balance homogeneous loans that are evaluated on a collective basis; and (iii) a specific allowance for individual loans deemed to be impaired, including originated loans classified as TDRs.

Larger-balance, Non-homogeneous Loans. The Company establishes a loan loss allowance for its larger-balance, non-homogeneous loans using a methodology that incorporates (i) the probability of default for a given loan risk rating and (ii) historical default data over a multi-year period. In accordance with the Company’s loan risk rating system, each loan, with the exception of those included in large groups of smaller-balance homogeneous loans, is assigned a risk rating (using a nine-grade scale) by the originating loan officer, credit management, internal loan review or loan committee. Loans rated one represent those loans least likely to default while loans rated nine represent a loss. The probability of loans defaulting for each risk rating, referred to as default factors, is estimated based on the frequency with which loans migrate from one risk rating to another and to default status over time. Estimated loan default factors are multiplied by loan balances within each risk-rating category and again multiplied by an historical loss-given-default estimate for each loan type to determine an appropriate level of allowance by loan type. The historical loss-given-default estimates are updated annually (or more frequently, if necessary) based on actual charge-off experience. This approach is applied to the commercial, commercial real estate and equipment financing components of the loan portfolio.

In developing the allowance for loan losses for larger-balance, non-homogeneous loans, the Company also gives consideration to certain qualitative factors, including the macroeconomic environment and any potential imprecision inherent in its loan loss model that may result from having limited historical loan loss data which, in turn, may result in inaccurate probability of default and loss-given-default factors. In consideration of these factors, the Company may adjust the allowance for loan losses upward or downward based on current economic conditions and portfolio trends. In determining the extent of any such adjustment, the Company considers both economic and portfolio-specific data that correlates with loan losses. The Company annually reviews this data to determine that such a correlation continues to exist. Additionally, at interim dates between annual reviews, these factors are evaluated in order to conclude that they continue to be adequate based on current economic conditions.

Smaller-balance, Homogeneous Loans. 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, delinquency trends and portfolio-specific risk characteristics, the combination of which determines whether a loan is classified as “High”, “Moderate” or “Low” risk.

The allowance for loan losses for these smaller-balance, homogeneous portfolios is developed using a “build-up” approach that includes components attributable to: (i) historical portfolio loss experience; (ii) portfolio-specific risk elements; and (iii) other qualitative factors.

The 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 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.

In establishing the allowance for loan losses for residential mortgage loans, the Company principally considers historical portfolio loss experience of the most recent 1- and 3-year periods, as management believes this provides a reasonable basis for estimating the inherent probable losses within the residential mortgage portfolio. In establishing the allowance for loan losses for home equity loans, the Company principally considers historical portfolio loss experience of the most recent 12-month period.

With respect to portfolio stratification based on the aforementioned portfolio-specific risk characteristics, each risk category is currently assigned an applicable reserve factor. For residential mortgage loans, the “Moderate” (or baseline) reserve factor represents the portfolio’s net charge-off rate for the preceding fiscal year. For home equity loans, the “Moderate” (or baseline) reserve factor represents an average of the portfolio’s monthly net charge-off rates for the preceding three months. This component of the allowance employs a shorter look-back period as it is intended to identify emerging portfolio trends in credit quality as determined by reference to a loan’s initial underwriting as well as subsequent changes in property values and borrower credit scores. Accordingly, the shorter look-back period is deemed to provide a better basis on which to analyze such trends.

Within each respective portfolio, the loan population deemed to be “High” risk is subject to a reserve factor equal to two times that of the applicable baseline factor, while the loan population deemed to be “Low” risk is subject to a reserve factor equal to one-third of the applicable baseline factor. These adjustments around the baseline factor are intended to reflect the higher or lower probability of loss inherent in the corresponding portfolio stratification. The reserve factor multiples for the “High” and “Low” risk categories were determined by reference to actual historical portfolio loss experience and are generally reflective of the range of losses incurred over each portfolio’s respective look-back period. As such, management believes that these multiples, which are reassessed annually (or more frequently, if necessary), provide a reasonable basis for estimating the inherent probable losses within each risk classification category.

In addition to the portfolio-specific quantitative measures described above, the Company considers a variety of qualitative factors in establishing its allowance for loan losses that, generally, are based on management’s assessment of economic, market and industry conditions. Such qualitative factors include, but are not limited to: (i) present and forecasted economic conditions, including unemployment rates, new jobs creation and consumer confidence levels; (ii) changes in industry trends, including the impact of new regulations, the origination market, the U.S. homeownership rate and potential homebuyer levels; and (iii) trends in property values, including housing market indicators, foreclosure activity, housing inventory and distressed sale levels, and median sales prices/average market time.

In completing the “build-up” approach to the allowance for loan losses for smaller-balance, homogeneous loans, the amount reflecting the Company’s consideration of these various qualitative factors is added to the amounts attributable to historical portfolio loss experience and portfolio-specific risk elements. In this manner, historical charge-off data (whether periods or amounts) is not adjusted and the allowance for loan losses always includes a component attributable to qualitative factors, the degree of which may change from period to period as such qualitative factors indicate improving or worsening trends. There were no significant changes in the qualitative factor component of the related allowance for loan losses during the three months ended March 31, 2013.

Individually Impaired Loans. The allowance for loan losses also includes specific allowances for individually impaired loans. Generally, the Company’s impaired loans consist of (i) classified commercial loans in excess of $750,000 that have been placed on non-accrual status and (ii) originated loans classified as TDRs. Individually impaired loans are measured based upon observable market prices; the present value of expected future cash flows discounted at the loan’s original effective interest rate; or, in the case of collateral dependent loans, fair value of the collateral (based on appraisals and other market information) less cost to sell. If the recorded investment in a loan exceeds the amount measured as described in the preceding sentence, a specific allowance for loan losses would be established as a component of the overall allowance for loan losses or, in the case of a collateral dependent loan, a charge-off would be recorded for the difference between the loan’s recorded investment and management’s estimate of the fair value of the collateral (less cost to sell). It would be rare for the Company to identify a loan that meets the criteria stated above and requires a specific allowance or a charge-off and not deem it impaired solely as a result of the existence of a guarantee.

People’s United Financial 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 residential mortgage loans is to receive updated appraisals upon the loan being classified as non-performing (typically upon becoming 90 days past due).

In determining the allowance for loan losses, People’s United Financial 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 portfolio 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 commercial real estate portfolios.

People’s United Financial did not change its methodologies with respect to determining the allowance for loan losses during the first three months of 2013. While People’s United Financial 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 Loans

Selected asset quality metrics presented below distinguish between the ‘originated’ portfolio and the ‘acquired’ portfolio. All loans acquired in connection with acquisitions beginning in 2010 comprise the acquired loan portfolio; all other loans of the Company comprise the originated portfolio, including originations subsequent to the respective acquisition dates.

Provision and Allowance for Loan Losses


	Three Months Ended
(dollars in millions)	March 31, 2013			Dec. 31, 2012			March 31, 2012
Allowance for loan losses on originated loans:
Balance at beginning of period	$	177.5		$	175.5		$	175.5
Charge-offs		(11.2	)		(11.6	)		(12.9	)
Recoveries		1.4			1.6			1.7

Net loan charge-offs		(9.8	)		(10.0	)		(11.2	)
Provision for loan losses		9.8			12.0			11.2

Balance at end of period	$	177.5		$	177.5		$	175.5


Allowance for loan losses on acquired loans:
Balance at beginning of period	$	10.5		$	10.5		$	7.4
Charge-offs		(3.3	)		—			—
Provision for loan losses		2.6			—			0.3

Balance at end of period	$	9.8		$	10.5		$	7.7


Originated allowance for loan losses as a percentage of:
Originated loans		0.88	%		0.91	%		1.03	%
Originated non-performing loans		70.6			70.3			61.5
Commercial banking originated allowance for loan losses as a percentage of originated commercial banking loans		1.11			1.13			1.34
Retail originated allowance for loan losses as a percentage of originated retail loans		0.32			0.36			0.34

The provision for loan losses on originated loans in the first quarter of 2013 totaled $9.8 million, reflecting $9.8 million in net loan charge-offs (including $6.3 million against previously-established specific reserves) and a $6.3 million increase in the originated allowance for loan losses in response to loan growth in the commercial and residential mortgage loan portfolios. The provision for loan losses on originated loans in the first quarter of 2012 totaled $11.2 million, reflecting $11.2 million in net loan charge-offs (including $4.8 million against previously-established specific reserves) and a $4.8 million increase in the originated allowance for loan losses in response to loan growth in the commercial and residential mortgage loan portfolios. The provision for loan losses on acquired loans in the first quarter of 2013 reflects loan impairment primarily attributable to a single acquired loan. Management believes that the level of the allowance for loan losses at March 31, 2013 is appropriate to cover probable losses.

Loan Charge-Offs

The Company’s charge-off policies, which comply with standards established by banking regulators, are consistently applied from period to period. Charge-offs are recorded on a monthly basis. Partially charged-off loans continue to be evaluated on a monthly basis and additional charge-offs or loan loss provisions may be recorded on the remaining loan balance based on the same criteria.

For unsecured consumer loans, charge-offs are generally recorded when the loan is deemed to be uncollectible or 120 days past due, whichever occurs first. For consumer loans secured by real estate, including residential mortgage loans, charge-offs are generally recorded when the loan is deemed to be uncollectible or 180 days past due, whichever occurs first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Factors that demonstrate an ability to repay may include: (i) a loan that is secured by adequate collateral and is in the process of collection; (ii) a loan supported by a valid guarantee or insurance; or (iii) a loan supported by a valid claim against a solvent estate.

For commercial banking loans, a charge-off is recorded when the Company determines that it will not collect all amounts contractually due based on the fair value of the collateral less cost to sell, or the present value of expected future cash flows.

The decision whether to charge-off all or a portion of a loan rather than to record a specific or general loss allowance is based on an assessment of all available information that aids in determining the loan’s net realizable value. Typically this involves consideration of both (i) the fair value of any collateral securing the loan, including whether the estimate of fair value has been derived from an appraisal or other market information and (ii) other factors affecting the likelihood of repayment, including the existence of guarantees and insurance. If the amount by which the Company’s recorded investment in the loan exceeds its net realizable value is deemed to be a confirmed loss, a charge-off is recorded. Otherwise, a specific or general reserve is established, as applicable.

Net Loan Charge-Offs (Recoveries)


	Three Months Ended
(in millions)	March 31, 2013			Dec. 31, 2012		March 31, 2012
Commercial Banking:
Commercial real estate	$	6.1		$	2.5	$	5.0
Commercial and industrial		3.7			2.7		1.6
Equipment financing		(0.4	)		1.0		0.6

Total		9.4			6.2		7.2

Retail:
Residential mortgage		1.9			1.7		2.0
Home equity		1.5			1.7		1.7
Other consumer		0.3			0.4		0.3

Total		3.7			3.8		4.0

Total	$	13.1		$	10.0	$	11.2

Net Loan Charge-Offs (Recoveries) as a Percentage of Average Total Loans (Annualized)


	Three Months Ended
	March 31, 2013			Dec. 31, 2012			March 31, 2012
Commercial Banking:
Commercial real estate		0.33	%		0.14	%		0.28	%
Commercial and industrial		0.25			0.18			0.12
Equipment financing		(0.07	)		0.19			0.12
Retail:
Residential mortgage		0.19			0.18			0.22
Home equity		0.30			0.32			0.33
Other consumer		1.36			1.47			0.70
Total portfolio		0.24	%		0.19	%		0.22	%

Net loan charge-offs in the first quarter of 2013 include $3.3 million of acquired loan charge-offs (primarily commercial real estate acquired loans). Excluding acquired loan charge-offs, net loan charge-offs as a percentage of average total loans (annualized) were 0.18%. The comparatively low level of net loan charge-offs in recent periods, in terms of absolute dollars and as a percentage of average loans, may not be sustainable in the future.

Non-Performing Assets

All previously accrued but unpaid interest on non-accrual loans is reversed from interest income in the period in which the accrual of interest is discontinued. Interest payments received on non-accrual loans (including impaired loans) are generally applied as a reduction of principal if future collections are doubtful, although such interest payments may be recognized as income. A loan remains on non-accrual status until the factors that indicated doubtful collectibility no longer exist or until a loan is determined to be uncollectible and is charged off against the allowance for loan losses. There were no loans past due 90 days or more and still accruing interest at March 31, 2013 or December 31, 2012.

Non-Performing Assets


(dollars in millions)	March 31, 2013			Dec. 31, 2012			Sept. 30, 2012			June 30, 2012			March 31, 2012
Originated non-performing loans:
Commercial Banking:
Commercial real estate	$	86.5		$	84.4		$	88.5		$	90.5		$	97.3
Commercial and industrial		50.9			54.8			64.6			62.2			63.0
Equipment financing		24.8			27.2			37.4			37.3			39.6

Total		162.2			166.4			190.5			190.0			199.9

Retail:
Residential mortgage		66.8			65.0			60.6			63.7			70.0
Home equity		22.2			21.0			14.6			13.7			15.3
Other consumer		0.2			0.3			0.3			0.2			0.2

Total		89.2			86.3			75.5			77.6			85.5

Total originated non-performing loans (1)		251.4			252.7			266.0			267.6			285.4
REO		26.5			28.6			19.8			19.7			21.9
Repossessed assets		7.2			8.3			8.2			7.2			9.1

Total non-performing assets	$	285.1		$	289.6		$	294.0		$	294.5		$	316.4


Originated non-performing loans as a percentage of originated loans		1.25	%		1.30	%		1.45	%		1.52	%		1.67	%
Non-performing assets as a percentage of:
Originated loans, REO and repossessed assets		1.42			1.48			1.59			1.67			1.85
Tangible stockholders’ equity and originated allowance for loan losses		9.78			9.45			9.41			9.37			9.96

(1)

Reported net of government guarantees totaling $9.9 million at March 31, 2012, $9.7 million at Dec. 31, 2012, $14.1 million at Sept. 30, 2012, $14.8 million at June 30, 2012 and $15.6 million at March 31, 2012. 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 March 31, 2013, the principal loan classes to which these government guarantees relate are commercial and industrial loans (approximately 90%) and commercial real estate loans (approximately 10%).

The preceding table excludes acquired loans that are (i) accounted for as purchased credit impaired loans or (ii) covered by an FDIC loss-share agreement totaling $174 million and $7 million, respectively, at March 31, 2013; $174 million and $8 million, respectively, at December 31, 2012; $191 million and $11 million, respectively, at September 30, 2012; $225 million and $11 million, respectively, at June 30, 2012; and $234 million and $13 million, respectively, at March 31, 2012. Such loans otherwise meet People’s United Financial’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 loss-share agreement. 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.

Total non-performing assets decreased $4.5 million from December 31, 2012 and equaled 1.42% of originated loans, REO and repossessed assets at March 31, 2013. The decrease in total non-performing assets from December 31, 2012 reflects decreases in non-performing commercial and industrial loans of $3.9 million, non-performing equipment financing loans of $2.4 million, REO of $2.1 million and repossessed assets of $1.1 million, partially offset by increases in non-performing commercial real estate loans of $2.1 million, non-performing residential mortgage loans of $1.8 million and non-performing consumer loans of $1.1 million.

All loans and REO acquired in the Butler Bank acquisition are subject to an FDIC loss-share agreement. The loss-share agreement provides for coverage by the FDIC, up to certain limits, on all such ‘covered assets’. The FDIC is obligated to reimburse the Company for 80% of any future losses on covered assets up to $34.0 million. The Company will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Company 80% reimbursement under the loss-sharing coverage.

In addition to the originated non-performing loans discussed above, People’s United Financial has also identified approximately $539 million in originated potential problem loans at March 31, 2013. Originated potential problem loans represent loans that are currently performing, but for which known information about possible credit deterioration on the part of the related borrowers causes management to have concerns as to the ability of such borrowers to comply with contractual loan repayment terms and which may result in the disclosure of such loans as non-performing at some time in the future. The originated potential problem loans are generally loans that, although performing, have been classified as “substandard” in accordance with People’s United Financial’s loan rating system, which is consistent with guidelines established by banking regulators.

At March 31, 2013, originated potential problem loans consisted of $299 million of commercial and industrial loans, $135 million of commercial real estate loans and $105 million of equipment financing loans. Such loans are closely monitored by management and have remained in performing status for a variety of reasons including, but not limited to, delinquency status, borrower payment history and fair value of the underlying collateral. Management cannot predict the extent to which economic conditions may worsen or whether other factors may adversely impact the ability of these borrowers to make payments. Accordingly, there can be no assurance that originated potential problem loans will not become 90 days or more past due, be placed on non-accrual status, be restructured, or require additional provisions for loan losses.

The levels of non-performing assets and potential problem loans are expected to fluctuate in response to changing economic and market conditions, and the relative sizes of the respective loan portfolios, along with management’s degree of success in resolving problem assets. Management takes a proactive approach with respect to the identification and resolution of problem loans. However, given the current state of the U.S. economy and, more specifically, the real estate market, the level of non-performing assets may increase in 2013.

Liquidity

Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs. Liquidity management addresses People’s United Financial’s and People’s United Bank’s ability to fund new loans and investments as opportunities arise, to meet customer deposit withdrawals, and to repay borrowings and subordinated notes as they mature. People’s United Financial’s, as well as People’s United Bank’s, liquidity positions are monitored daily by management. The Asset and Liability Management Committee (“ALCO”) of People’s United Bank has been authorized by the Board of Directors of People’s United Financial to set guidelines to ensure maintenance of prudent levels of liquidity for People’s United Financial as well as for People’s United Bank. ALCO reports to the Treasury and Finance Committee of the Board of Directors of People’s United Financial.

Asset liquidity is provided by: cash; short-term investments and securities purchased under agreements to resell; proceeds from security sales, maturities and principal repayments; and proceeds from scheduled principal collections, prepayments and sales of loans. In addition, certain securities may be used to collateralize borrowings under repurchase agreements. The Consolidated Statements of Cash Flows presents data on cash provided by and used in People’s United Financial’s operating, investing and financing activities. At March 31, 2013, People’s United Financial (parent company) liquid assets included $3 million in debt securities available for sale. People’s United Bank’s liquid assets included $448 million in cash and cash equivalents, $4.6 billion in debt securities available for sale and $6 million in trading account securities. Securities available for sale with a fair value of $1.36 billion at March 31, 2013 were pledged as collateral for public deposits and for other purposes.

Liability liquidity is measured by People’s United Financial’s and People’s United Bank’s ability to obtain deposits and borrowings at cost-effective rates that are diversified with respect to markets and maturities. Deposits, which are considered the most stable source of liability liquidity, totaled $21.8 billion at March 31, 2013 and represented 72% of total funding (the sum of total deposits, total borrowings, notes and debentures, and stockholders’ equity). Borrowings are used to diversify People’s United Financial’s funding mix and to support asset growth. Borrowings and notes and debentures totaled $2.8 billion and $659 million, respectively, at March 31, 2013, representing 9% and 2%, respectively, of total funding at that date.

People’s United Bank’s current available sources of borrowings include: federal funds purchased, advances from the FHLB of Boston and the FRB-NY, and repurchase agreements. At March 31, 2013, People’s United Bank’s total borrowing limit from the FHLB of Boston and the FRB-NY for advances, and repurchase agreements, was $4.7 billion, based on the level of qualifying collateral available for these borrowings. In addition, People’s United Bank had unsecured borrowing capacity of $1.2 billion at that date.

At March 31, 2013, People’s United Bank had outstanding commitments to originate loans totaling $1.1 billion and approved, but unused, lines of credit extended to customers totaling $5.0 billion (including $1.9 billion of home equity lines of credit).

The sources of liquidity discussed above are deemed by management to be sufficient to fund outstanding loan commitments and to meet People’s United Financial’s and People’s United Bank’s other obligations.

Stockholders’ Equity and Dividends

People’s United Financial’s total stockholders’ equity was $4.89 billion at March 31, 2013, a $153 million decrease from December 31, 2012. This decrease primarily reflects open market repurchases of 11.1 million shares of common stock at a total cost of $144.2 million and dividends paid of $52.8 million, partially offset by net income of $52.5 million.

Stockholders’ equity equaled 16.0% of total assets at March 31, 2013 compared to 16.6% at December 31, 2012. Tangible stockholders’ equity equaled 9.6% of tangible assets at March 31, 2013 compared to 10.2% at December 31, 2012.

In November 2012, People’s United Financial’s Board of Directors authorized the repurchase of common stock. Under the repurchase authorization, up to 10% of the Company’s common stock outstanding, or 33.6 million shares, may be repurchased, either directly or through agents, in the open market at prices and terms satisfactory to management. During the three months ended March 31, 2013, the Company repurchased 11.1 million shares of People’s United Financial common stock under this authorization at a total cost of $144.2 million. Through May 6, 2013, an additional 3.2 million shares of People’s United Financial’s common stock had been repurchased under this authorization at a total cost of $42.1 million.

In April 2013, People’s United Financial’s Board of Directors voted to increase the common dividend on common stock to an annual rate of $0.65 per share. The quarterly dividend of $0.1625 per share is payable on May 15, 2013 to shareholders of record on May 1, 2013.

In March 2013, People’s United Bank paid a cash dividend of $60 million to People’s United Financial.

Regulatory Capital Requirements

People’s United Bank’s tangible capital ratio was 9.7% at March 31, 2013, compared to the minimum ratio of 1.5% generally required by its regulator, the OCC.

People’s United Bank is also subject to the OCC’s risk-based capital regulations, which require minimum ratios of leverage capital and total risk-based capital of 4.0% and 8.0%, respectively. People’s United Bank satisfied these requirements at March 31, 2013 with ratios of 9.7% and 13.5%, respectively, compared to 9.8% and 13.1%, respectively, at December 31, 2012. People’s United Bank’s regulatory capital ratios exceeded the OCC’s numeric criteria for classification as a “well capitalized” institution at March 31, 2013.

The following summary compares People’s United Bank’s regulatory capital amounts and ratios as of March 31, 2013 to the OCC’s requirements. At March 31, 2013, People’s United Bank’s adjusted total assets, as defined, were $28.5 billion and its total risk-weighted assets, as defined, were $22.9 billion. At March 31, 2013, People’s United Bank exceeded each of its regulatory capital requirements.


							OCC Requirements
As of March 31, 2013 (dollars in millions)	People’s United Bank						Classification as Well-Capitalized					Minimum Capital Adequacy
As of March 31, 2013 (dollars in millions)	Amount			Ratio			Amount		Ratio			Amount		Ratio
Tangible capital	$	2,776.4	(1)		9.7	%		n/a		n/a		$	427.8		1.5	%
Leverage (core) capital		2,776.4	(1)		9.7		$	1,426.1		5.0	%		1,140.9		4.0
Risk-based capital:
Tier 1		2,776.4	(1)		12.1			1,374.8		6.0			916.5		4.0
Total		3,085.3	(2)		13.5			2,291.3		10.0			1,833.1		8.0

(1)

Represents People’s United Bank’s total equity, excluding: (i) after-tax net unrealized gains and losses on certain securities classified as available for sale; (ii) after-tax unrealized gains and losses on derivatives accounted for as cash flow hedges; (iii) certain assets not recognized for regulatory capital purposes (principally goodwill and other acquisition-related intangible assets); and (iv) the amount recorded in accumulated other comprehensive income (loss) relating to pension and other postretirement benefits.

(2)

Represents Tier 1 capital plus qualifying subordinated notes and debentures, up to certain limits, and the allowance for loan losses up to 1.25% of total risk-weighted assets.

The following table summarizes People’s United Financial’s capital ratios on a consolidated basis:


	March 31, 2013			December 31, 2012
Tangible equity to tangible assets		9.6	%		10.2	%
Leverage (Tier 1 capital to adjusted total assets)		10.0			10.6
Tier 1 common equity to total risk-weighted assets (1)		12.0			12.7
Tier 1 risk-based capital to total risk-weighted assets		12.5			13.2
Total risk-based capital to total risk-weighted assets		13.7			14.7

(1)

Tier 1 common equity represents total stockholders’ equity, excluding goodwill and other acquisition-related intangible assets.

In December 2010, the Basel Committee on Banking Supervision released its final framework for capital requirements (the “Basel framework” or “Basel III”). When implemented by the U.S. banking agencies and fully phased-in, Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity.

In June 2012, the U.S. banking agencies issued proposed rules to address implementation of the Basel III framework for U.S. financial institutions. The proposed rules set forth changes in the calculation of risk-weighted assets and introduce limitations on what is permissible for inclusion as Tier 1 capital. In August 2012, the comment period for the proposed rules, which was originally scheduled to end in early September 2012, was extended to late October 2012. The implementation of the Basel III final framework was scheduled to commence on January 1, 2013, however final rules have not been issued by U.S. banking agencies and, therefore, Basel III is not yet applicable to the Company or People’s United Bank.

While the regulations ultimately applicable to U.S. financial institutions may be substantially different from the Basel III final framework as published in December 2010 and the proposed rules issued in June 2012, management currently estimates that the Company’s and the Bank’s risk-based capital ratios could be negatively impacted by as much as 50-100 basis points on an “as proposed” and “fully phased-in” basis. Management will continue to monitor these and future proposed regulations.

Market Risk Management

Market risk represents the risk of loss to earnings, capital and the economic values of certain assets and liabilities resulting from changes in interest rates, equity prices and foreign currency exchange rates. The only significant market risk exposure for People’s United Financial at this time is interest rate risk (“IRR”), which is a result of the Company’s core business activities of making loans and accepting deposits.

Interest Rate Risk

The effective management of IRR is essential to achieving the Company’s financial objectives. This responsibility is carried out by ALCO. The goal of ALCO is to generate a stable net interest margin over entire interest rate cycles regardless of changes in either short- or long-term interest rates. Generating earnings by taking excessive IRR is prohibited by the IRR limits established by the Company’s Board of Directors. ALCO manages IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are complementary and provide both short-term and long-term risk profiles of the Company.

Net Interest Income at Risk Simulation is used to measure the sensitivity of net interest income to changes in market rates over a forward twelve-month period. This simulation captures underlying product behaviors, such as asset and liability re-pricing dates, balloon dates, interest rate indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as: (i) future balance sheet volume and mix assumptions that are management judgments based on estimates and historical experience; (ii) prepayment projections for loans and securities that are projected under each interest rate scenario using internal and external mortgage analytics; (iii) new business loan rates that are based on recent new business origination experience; and (iv) deposit pricing assumptions that are based on historical regression models and management judgment. Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from simulation forecasts due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies.

The Company uses two sets of standard scenarios to measure net interest income at risk. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Yield curve twist scenarios assume the shape of the curve flattens or steepens instantaneously centered around the 18-month point of the curve, thereby segmenting the yield curve into a “short end” and a “long end”. Internal policy regarding IRR simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than: 7% for a 100 basis point shift; 10% for a 200 basis point shift; and 15% for a 300 basis point shift. Current policy does not specify limits for yield curve twist simulations.

The following tables set forth the estimated percentage change in the Company’s net interest income at risk over one-year simulation periods beginning March 31, 2013 and December 31, 2012. Given the interest rate environment at those dates, simulations for interest rate declines of more than 25 basis points were not deemed to be meaningful.


Parallel Shock Rate Change (basis points)	Estimated Percent Change in Net Interest Income
Parallel Shock Rate Change (basis points)	As of March 31, 2013			As of December 31, 2012
+300		17.0	%		17.9	%
+200		11.0			11.6
+100		4.9			5.1
-25		(0.9	)		(1.0	)


Yield Curve Twist Rate Change (basis points)	Estimated Percent Change in Net Interest Income
Yield Curve Twist Rate Change (basis points)	As of March 31, 2013			As of December 31, 2012
Long End +100		3.6	%		3.5	%
Long End +50		1.9			1.8
Long End -50		(1.8	)		(1.7	)
Long End -100		(3.3	)		(3.0	)
Short End +100		1.4			1.8
Short End +50		0.4			0.6
Short End -25		0.1			(0.1	)

The net interest income at risk simulation results indicate that at both March 31, 2013 and December 31, 2012, the Company is asset sensitive over the twelve-month forecast horizon (i.e. net interest income will increase if market rates rise). This is primarily due to approximately one-third of the Company’s loan portfolio being comprised of Prime and one-month Libor-based loans that are primarily funded by less rate-sensitive core deposits.

Asset sensitivity decreased slightly from December 31, 2012, as a result of loan growth being funded primarily by short-term borrowings. The Company is less asset sensitive when the “short-end” rises as a result of the increase in short-term borrowings. Based on the Company’s interest rate position at March 31, 2013, an immediate 100 basis point increase in interest rates translates to an approximate $45 million increase in net interest income on an annualized basis.

Economic Value of Equity at Risk Simulation is conducted in tandem with net interest income simulations, to ascertain a longer term view of the Company’s IRR position by capturing longer-term re-pricing risk and options risk embedded in the balance sheet. It measures the sensitivity of economic value of equity to changes in interest rates. Economic value of equity at risk simulation values only the current balance sheet and does not incorporate the growth assumptions used in income simulation. As with the net interest income simulation, this simulation captures product characteristics such as loan resets, re-pricing terms, maturity dates, rate caps and floors. Key assumptions include loan prepayment speeds, deposit pricing elasticity and non-maturity deposit attrition rates. These assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire life of each asset and liability. The Company conducts non-maturity deposit behavior studies on a periodic basis to support deposit assumptions used in the valuation process. All key assumptions are subject to a periodic review.

Base case economic value of equity at risk is calculated by estimating the net present value of all future cash flows from existing assets and liabilities using current interest rates. The base case scenario assumes that future interest rates remain unchanged. Internal policy currently limits the exposure to a decrease in economic value of equity at risk resulting from instantaneous parallel shifts of the yield curve in the following manner: 5% for a 100 basis point shift; 10% for a 200 basis point shift; and 15% for a 300 basis point shift.

The following table sets forth the estimated percentage change in the Company’s economic value of equity at risk, assuming various shifts in interest rates. Given the interest rate environment at both March 31, 2013 and December 31, 2012, simulations for interest rate declines of more than 25 basis points were not deemed to be meaningful.


Parallel Shock Rate Change (basis points)	Estimated Percent Change in Economic Value of Equity
Parallel Shock Rate Change (basis points)	As of March 31, 2013			As of December 31, 2012
+300		(3.0	)%		(1.4	)%
+200		(0.2	)		0.7
+100		0.5			0.9
-25		(0.2	)		(0.3	)

The Company’s economic value of equity at risk profile was also impacted by loan growth being funded primarily by short-term borrowings. As a result, the Company is less asset sensitive in a shock up 100 basis points scenario, is risk neutral in the up 200 basis points scenario and more liability sensitive in the up 300 basis points scenario compared to results at December 31, 2012.

People’s United Financial’s IRR position at March 31, 2013, as set forth in the net interest income at risk and economic value of equity at risk tables above, reflects an asset sensitive net interest income at risk position and a neutral economic value of equity at risk position at that date. Asset sensitivity over the next twelve months is primarily attributable to the effect of the substantial Prime and Libor-based loan balances that are primarily funded by less rate sensitive core deposits. From a longer-term perspective, these core deposits are supporting longer duration loan assets serving to create a neutral risk position. Given the uncertainty of the magnitude, timing and direction of future interest rate movements and the shape of the yield curve, actual results may vary from those predicted by the Company’s models.

Management has established procedures to be followed in the event of a breach in policy limits, or if those limits are approached. As of March 31, 2013, there were no breaches of the Company’s internal policy limits with respect to either IRR measure. Management utilizes both interest rate measures in the normal course of measuring and managing IRR and believes that each measure is valuable in understanding the Company’s IRR position.

People’s United Financial uses derivative financial instruments, including interest rate swaps, primarily for market risk management purposes (principally IRR). Certain other derivatives are entered into in connection with transactions with commercial customers. Derivatives are not used for speculative purposes. At March 31, 2013, People’s United Financial used interest rate swaps on a limited basis to manage IRR associated with the Company’s $125 million subordinated notes. People’s United Financial has entered into an interest rate swap to hedge the LIBOR-based floating interest rate payments on these subordinated notes (such payments began in February 2012). The subordinated notes had a fixed interest rate of 5.80% until February 2012, at which time the interest rate converted to the three month LIBOR plus 68.5 basis points. People’s United Financial has agreed with the swap counterparty to exchange, at specified intervals, the difference between fixed-rate (1.99%) and floating-rate interest amounts calculated based on a notional amount of $125 million. The floating rate interest amounts received under the interest rate swap are calculated using the same floating rate paid on the subordinated notes. The interest rate swap effectively converts the variable rate subordinated notes to a fixed interest rate and consequently reduces People’s United Financial’s exposure to increases in interest rates. This interest rate swap is accounted for as a cash flow hedge.

People’s United Financial has written guidelines that have been approved by its Board of Directors and ALCO governing the use of derivative financial instruments, including approved counterparties and credit limits. Credit risk associated with these instruments is controlled and monitored through policies and procedures governing collateral management and credit approval.

By using derivatives, People’s United Financial is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s counterparty credit risk is equal to the amount reported as a derivative asset in the Consolidated Statements of Condition, less any posted collateral. Amounts reported as derivative assets represent derivative contracts in a gain position, net of derivatives in a loss position with the same counterparty (to the extent subject to master netting arrangements). People’s United Financial seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, execution of master netting arrangements and obtaining collateral, where appropriate. Counterparties to People’s United Financial’s derivatives include major financial institutions with investment grade credit ratings from the major rating agencies. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote and losses, if any, would be immaterial.

Foreign Currency Risk

Derivative Financial Instruments

The following table summarizes certain information concerning derivative financial instruments utilized by People’s United Financial in its management of IRR and foreign currency risk:


As of March 31, 2013 (dollars in millions)	Interest Rate Swaps		Foreign Exchange Contracts
Notional principal amounts	$	125.0	$	4.4
Weighted average interest rates:
Pay fixed		1.99%		N/A
(Receive floating)		(Libor + 0.685%)		N/A
Weighted average remaining term to maturity (in months)		47		2
Fair value:
Recognized as an asset	$	—	$	0.1
Recognized as a liability		3.1		—

People’s United Financial has entered into interest rate swaps with certain of its commercial customers. In order to minimize its risk, these customer derivatives (pay floating/receive fixed) have been offset with essentially matching interest rate swaps with People’s United Financial’s counterparties (pay fixed/receive floating). Hedge accounting has not been applied for these derivatives. Accordingly, changes in the fair value of all such interest rate swaps are recognized in current earnings.

The following table summarizes certain information concerning these interest rate swaps:


	Interest Rate Swaps
As of March 31, 2013 (dollars in millions)	Commercial Customers		Other Counterparties
Notional principal amounts	$	1,385.6	$	1,385.6
Weighted average interest rates:
Pay floating (receive fixed)		0.23%(2.13%)		—
Pay fixed (receive floating)		—		2.03%(0.23%)
Weighted average remaining term to maturity (in months)		91		91
Fair value:
Recognized as an asset	$	66.4	$	4.4
Recognized as a liability		2.7		59.2

See Note 11 to the Consolidated Financial Statements for further information relating to derivatives.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

The information required by this item appears on pages 80 through 84 of this report.

Item 4 – Controls and Procedures

People’s United Financial’s management, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of People’s United Financial’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that People’s United Financial’s disclosure controls and procedures are effective, as of March 31, 2013, to ensure that information relating to People’s United Financial, which is required to be disclosed in the reports People’s United Financial files with the Securities and Exchange Commission under the Exchange Act, is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

During the quarter ended March 31, 2013, there has not been any change in People’s United Financial’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, People’s United Financial’s internal control over financial reporting.

Part II – Other Information

Item 1 – Legal Proceedings

In the normal course of business, People’s United Financial is subject to various legal proceedings. Management has discussed with legal counsel the nature of these legal proceedings. In the opinion of management, People’s United Financial’s financial condition, results of operations or liquidity will not be affected materially as a result of the eventual outcome of these legal proceedings. See Note 8 to the Consolidated Financial Statements for a further discussion of legal proceedings.

Item 1A – Risk Factors

There have been no material changes in risk factors since December 31, 2012.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table provides information with respect to purchases made by People’s United Financial of its common stock during the three months ended March 31, 2013.

Issuer Purchases of Equity Securities


Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs
January 1 - 31, 2013:
Tendered by employees (1)		36,947	$	12.57		—		—
Publicly announced program (2)		2,128,298	$	12.45		2,128,298		31,258,102
February 1 - 28, 2013:
Tendered by employees (1)		29,062	$	12.64		—		—
Publicly announced program (2)		4,189,268	$	12.82		4,189,268		27,068,834
March 1 - 31, 2013:
Tendered by employees (1)		68,143	$	13.15		—		—
Publicly announced program (2)		4,811,234	$	13.31		4,811,234		22,257,600

Total:
Tendered by employees (1)		134,152	$	12.88		—		—
Publicly announced program (2)		11,128,800	$	12.96		11,128,800		22,257,600

(1)

All shares listed were tendered by employees of People’s United Financial in satisfaction of their related minimum tax withholding obligations upon the vesting of restricted stock awards granted in prior periods and/or in payment of the exercise price and satisfaction of their related minimum tax withholding obligations upon the exercise of stock options granted in prior periods. The average price paid per share is equal to the average of the high and low trading price of People’s United Financial’s common stock on The NASDAQ Stock Market on the vesting or exercise date or, if no trades took place on that date, the most recent day for which trading data was available. There is no limit on the number of shares that may be tendered by employees of People’s United Financial in the future for these purposes. Shares acquired in payment of the option exercise price or in satisfaction of minimum tax withholding obligations are not eligible for reissuance in connection with any subsequent grants made pursuant to equity compensation plans maintained by People’s United Financial. All shares acquired in this manner are retired by People’s United Financial, resuming the status of authorized but unissued shares of People’s United Financial’s common stock.

(2)

In November 2012, People’s United Financial’s Board of Directors authorized the repurchase of up to 10% of People’s United Financial’s outstanding common stock, or 33.6 million shares. Such shares may be repurchased, either directly or through agents, in the open market at prices and terms satisfactory to management. Through May 6, 2013, 14.5 million shares of People’s United Financial’s common stock had been repurchased under this program at a total cost of $189.0 million. Shares acquired in this manner have not been retired by People’s United Financial and, as a result, remain available for issuance in the future.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

None.

Item 5 – Other Information

None.

Item 6 – Exhibits

The following Exhibits are filed herewith:


Designation		Description

3.1		Third Amended and Restated Certificate of Incorporation of People’s United Financial, Inc.

3.2		Seventh Amended and Restated Bylaws of People’s United Financial, Inc.

31.1		Rule 13a-14(a)/15d-14(a) Certifications

31.2		Rule 13a-14(a)/15d-14(a) Certifications

32		Section 1350 Certifications

101.1		The following financial information from People’s United Financial, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 formatted in XBRL: (i) Consolidated Statements of Condition as of March 31, 2013 and December 31, 2012; (ii) Consolidated Statements of Income for the three months ended March 31, 2013 and 2012; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2013 and 2012; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012; and (vi) Notes to Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, People’s United Financial, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		PEOPLE’S UNITED FINANCIAL, INC.

Date: May 10, 2013	By:	/s/ John P. Barnes
		John P. Barnes
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: May 10, 2013	By:	/s/ Kirk W. Walters
		Kirk W. Walters
		Senior Executive Vice President
		and Chief Financial Officer
		(Principal Financial Officer)

Date: May 10, 2013	By:	/s/ Jeffrey Hoyt
		Jeffrey Hoyt
		Senior Vice President and Controller
		(Principal Accounting Officer)

INDEX TO EXHIBITS


Designation		Description

3.1		Third Amended and Restated Certificate of Incorporation of People’s United Financial, Inc.

3.2		Seventh Amended and Restated Bylaws of People’s United Financial, Inc.

31.1		Rule 13a-14(a)/15d-14(a) Certifications

31.2		Rule 13a-14(a)/15d-14(a) Certifications

32		Section 1350 Certifications

101.1		The following financial information from People’s United Financial, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 formatted in XBRL: (i) Consolidated Statements of Condition as of March 31, 2013 and December 31, 2012; (ii) Consolidated Statements of Income for the three months ended March 31, 2013 and 2012; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2013 and 2012; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012; and (vi) Notes to Consolidated Financial Statements.

Exhibit 3.1

THIRD AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

PEOPLE’S UNITED FINANCIAL, INC.

PURSUANT TO SECTIONS 242 AND 245 OF THE GENERAL CORPORATION LAWS OF THE STATE OF DELAWARE

People’s United Financial, Inc., incorporated in the State of Delaware on November 2, 2006, hereby amends and restates its Certificate of Incorporation as follows:

ARTICLE I

NAME

The name of the corporation is People’s United Financial, Inc. (the “Corporation”).

ARTICLE II

REGISTERED OFFICE AND AGENT

The address of the registered office of the Corporation in the State of Delaware is National Corporate Research, Ltd., 615 South DuPont Highway, Dover, DE 19901. The name of its registered agent at such address is National Corporate Research, Ltd.

ARTICLE III

PURPOSE

The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware (the “GCL”).

ARTICLE IV

CAPITAL STOCK

SECTION 4.01—SHARES, CLASSES AND SERIES AUTHORIZED . The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is Two Billion (2,000,000,000) shares, of which Fifty Million (50,000,000) shares shall be preferred stock, par value $0.01 per share, (the “Preferred Stock”), and One Billion Nine Hundred Fifty Million (1,950,000,000) shares shall be common stock, par value $0.01 per share, (the “Common Stock”). The Preferred Stock and Common Stock are sometimes hereinafter collectively referred to as the “Capital Stock.”

SECTION 4.02—DESIGNATIONS, POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS RELATING TO THE CAPITAL STOCK. The following is a statement of the designations, powers, preferences and rights in respect of the classes of the Capital Stock, and the qualifications, limitations or restrictions thereof, and of the authority with respect thereto expressly vested in the Board of Directors of the Corporation (the “Board of Directors”):

(a) Preferred Stock . The Preferred Stock may be issued from time to time in one or more series, the number of shares and any designation of each series and the powers, preferences and rights of the shares of each series, and the qualifications, limitations or restrictions thereof, to be as stated and expressed in a resolution or resolutions providing for the issue of such series adopted by the Board of Directors, subject to the limitations prescribed by law. The Board of Directors in any such resolution or resolutions is expressly authorized to state for each such series:

(i) the voting powers, if any, of the holders of shares of such series in addition to any voting rights affirmatively required by law;

(ii) the rights of shareholders in respect of dividends, including, without limitation, the rate or rates per annum and the time or times at which (or the formula or other method pursuant to which such rate or rates and such time or times may be determined) and conditions upon which the holders of shares of such series shall be entitled to receive dividends and other distributions, and whether any such dividends shall be cumulative or non-cumulative and, if cumulative, the terms upon which such dividends shall be cumulative;

(iii) whether any shares of the stock of each such series shall be redeemable by the Corporation at the option of the Corporation or the holder thereof and, if redeemable, the terms and conditions upon which any shares of the stock of such series may be redeemed;

(iv) the amount payable and the rights or preferences to which the holders of the stock of such series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation;

(v) the terms, if any, upon which shares of stock of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes or of any other series of the same or any other class or classes, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and


		2		Effective 04-18-2013

(vi) any other powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, so far as they are not inconsistent with the provisions of this Certificate of Incorporation and to the full extent now or hereafter permitted by the GCL.

Subject to any limitations or restrictions stated in the resolution or resolutions of the Board of Directors originally fixing the number of shares constituting a series, the Board of Directors may by resolution or resolutions likewise adopted increase (but not above the total number of authorized shares of Preferred Stock) or decrease (but not below the number of shares of the series then outstanding) the number of shares of the series subsequent to the issue of shares of that series; and, in case the number of shares of any series shall be so decreased, the shares constituting the decrease shall resume that status that they had prior to the adoption of the resolution originally fixing the number of shares constituting such series.

(b) Common Stock . Except as otherwise provided for by law, the shares of Common Stock shall entitle the holders thereof to one vote for each share on all matters on which shareholders have the right to vote. Notwithstanding the foregoing, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any Certificate of Designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Certificate of Designations relating to any series of Preferred Stock) or pursuant to the GCL.

Subject to the preferences, privileges and powers with respect to each class or series of Preferred Stock having any priority over the Common Stock, and the qualifications, limitations or restrictions thereof, the holders of the Common Stock shall have and possess all rights pertaining to the Capital Stock; provided however, that in the event of any liquidation, dissolution, or winding up of the Corporation, the holders of the Common Stock (and the holders of any class or series of stock entitled to participate with the Common Stock in the distribution of assets) shall be entitled to receive, in cash or in kind, the assets of the Corporation available for distribution remaining after:

(i) payment or provision for payment of the Corporation’s debts and liabilities;


		3		Effective 04-18-2013

(ii) distributions or provision for distributions in settlement of the liquidation account, if any, established by People’s United Bank, (which at the time such liquidation account was established in 2007 was known as People’s Bank and was a savings bank organized under the laws of the United States) (together with any successor thereto, the “Bank”); and

(iii) distributions or provisions for distributions to holders of any class or series of Capital Stock having preference over the Common Stock in the liquidation, dissolution, or winding up of the Corporation.

(c) No Class Vote On Changes In Authorized Number Of Shares Of Preferred Stock . Subject to the rights of the holders of any series of Preferred Stock pursuant to the terms of this Certificate of Incorporation or any resolution or resolutions providing for the issuance of such series of stock adopted by the Board of Directors, the number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the capital stock of the Corporation entitled to vote generally in the election of directors irrespective of the provisions of Section 242(b)(2) of the GCL.

ARTICLE V

BOARD OF DIRECTORS

SECTION 5.01—NUMBER OF DIRECTORS . The number of directors of the Corporation shall be as determined only by resolution of the Board of Directors, but shall not be fewer than five (5) nor more than fifteen (15) (other than directors elected by holders of shares of one or more series of Preferred Stock). No decrease in the number of directors shall affect the term of any director then in office.

SECTION 5.02—TERMS OF OFFICE . Subject to the rights of any holders of shares of any series of Preferred Stock that may be issued by the Corporation pursuant to a resolution or resolutions of the Board of Directors providing for such issuance, and subject to the provisions hereof, commencing with the 2013 annual meeting of shareholders, directors shall be elected annually for terms of one year and shall hold office until the next annual meeting of shareholders. Directors elected at the 2011 annual meeting of shareholders shall hold office until the 2014 annual meeting of shareholders; and directors elected at the 2012 annual meeting of shareholders shall hold office until the 2015 annual meeting of shareholders. In all cases, directors shall hold office until their respective successors are elected by the shareholders and have been qualified.

Unless and to the extent that the Bylaws so provide, elections of directors need not be by written ballot.


		4		Effective 04-18-2013

SECTION 5.03—VACANCIES . Subject to the limitations prescribed by law and this Certificate of Incorporation, all vacancies on the Board of Directors, including vacancies created by newly created directorships resulting from an increase in the number of directors (subject to the provisions of Section 5.04 relating to directors elected by holders of shares of one or more series of Preferred Stock), shall be filled only by a vote of a majority of the directors then holding office, whether or not a quorum, and any director so elected shall serve until the next annual meeting of shareholders and until such director’s successor shall be elected and qualified.

SECTION 5.04—DIRECTORS ELECTED BY PREFERRED SHAREHOLDERS . Notwithstanding anything set forth in this Certificate of Incorporation to the contrary, the qualifications, term of office and provisions governing vacancies, removal and other matters pertaining to directors elected by holders of shares of one or more series of Preferred Stock shall be as set forth in a resolution or resolutions adopted by the Board of Directors setting forth the designations, preferences and rights relating to any such series of Preferred Stock pursuant to Section 4.02 hereof.

SECTION 5.05—EVALUATION OF ACQUISITION PROPOSALS . The Board of Directors of the Corporation, when evaluating any offer to the Corporation or to the shareholders of the Corporation from another party to (a) purchase for cash, or exchange any securities or property for, any outstanding equity securities of the Corporation, (b) merge or consolidate the Corporation with another entity or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, in connection with the exercise of its judgment in determining what is in the best interests of the Corporation and its shareholders, may give due consideration to the extent permitted by law not only to the price or other consideration being offered, but also to all other relevant factors, including, without limitation, the financial and managerial resources and future prospects of the other party, the possible effects on the business of the Corporation and its subsidiaries and on the employees, customers, suppliers and creditors of the Corporation and its subsidiaries and the effects on the communities in which the Corporation’s and its subsidiaries’ facilities are located.

SECTION 5.06—NOMINATIONS TO BOARD OF DIRECTORS . Nominations of candidates for election as directors may be made only by the Board of Directors or by a record owner of Common Stock. Any such holder of Common Stock, however, may nominate one or more persons for election as director at a meeting only if written notice of such holder’s intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid to the Secretary of the Corporation not later than: (a) with respect to an election to be held at an annual meeting of shareholders, one hundred twenty (120) days in advance of such meeting; and (b) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the seventh day following the earlier of: (i) the date on which notice of such meeting is first given to shareholders; or (ii) the date on which a public announcement of such meeting is first made. Each such notice shall include: (1) the name and address of each shareholder of record who intends to appear in person or by proxy to make the nomination and of the person or persons to be nominated; (2) a description of all arrangements or understandings between the shareholder and each nominee and any other person or


		5		Effective 04-18-2013

persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (3) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (4) the consent of each nominee to serve as a director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.

SECTION 5.07. REMOVAL OF DIRECTORS . Any or all of the directors (subject to the provisions of Section 5.04 of this Certificate of Incorporation relating to directors elected by holders of shares of one or more series of Preferred Stock) may be removed at any time, but only for cause, and any such removal shall require the vote, in addition to any vote required by law, of not less than two thirds (66.67%) of the total votes eligible to be cast by the holders of all of the outstanding shares of Capital Stock entitled to vote generally in the election of directors at a meeting of shareholders expressly called for that purpose, voting together as a single class. For purposes of this Section 5.07, conduct worthy of removal for “cause” shall include, but not be limited to (a) conduct as a director of the Corporation or any subsidiary of the Corporation that involves willful material misconduct, breach of fiduciary duty involving personal pecuniary gain or gross negligence in the performance of duties, (b) conduct, whether or not as a director of the Corporation or a subsidiary of the Corporation that involves dishonesty or breach of fiduciary duty and is punishable by imprisonment for a term exceeding one year under state or federal law or (c) removal of such person from the Board of Directors of the Bank, if such person is so serving, in accordance with the Certificate of Incorporation and Bylaws of the Bank.

ARTICLE VI

ACTION BY SHAREHOLDERS WITHOUT A MEETING

Except as otherwise provided for or fixed pursuant to the provisions of Article IV of this Certificate of Incorporation relating to the rights of holders of shares of any series of Preferred Stock, no action that is required or permitted to be taken by the shareholders of the Corporation at any annual or special meeting of shareholders may be effected by written consent of shareholders in lieu of a meeting of shareholders.

ARTICLE VII

CERTAIN BUSINESS COMBINATIONS

SECTION 7.01—HIGHER VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS . In addition to any affirmative vote required by law, this Certificate of Incorporation or by the provisions of any series of Preferred Stock that may at the time be outstanding, and except as otherwise expressly provided for in Section 7.02, any Business Combination, as hereinafter defined, shall require the affirmative vote of not


		6		Effective 04-18-2013

less than two thirds (66.67%) (to the extent permitted by law) of the total number of votes eligible to be cast by the holders of all outstanding shares of Voting Stock, voting together as a single class (it being understood, that for purposes of this Article VII, each share of Voting Stock shall have the number of votes granted to it pursuant to Article IV of this Certificate of Incorporation or in any resolution or resolutions of the Board of Directors for issuance of shares of Preferred Stock), together (to the extent permitted by law) with the affirmative vote of at least fifty percent (50%) of the total number of votes eligible to be cast by the holders of all outstanding shares of Voting Stock not beneficially owned by the Interested Shareholder involved or any Affiliate or Associate thereof, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise.

SECTION 7.02—WHEN HIGHER VOTE IS NOT REQUIRED . The provisions of Section 7.01 shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law or any other provision of this Certificate of Incorporation, if either (i) the Business Combination shall have been approved by a majority of the Disinterested Directors then in office or (ii) all of the conditions specified in the following subsections (a) through (g) are met:

(a) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following:

(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes, soliciting dealers’ fees, dealer-management compensation and other expenses, including, but not limited to, costs of newspaper advertisements, printing expenses and attorneys’ fees and expenses) paid by the Interested Shareholder for any shares of Common Stock acquired by it (A) within the two-year period immediately prior to the Announcement Date, or (B) in the transaction in which it became an Interested Shareholder, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of Citibank, N.A. (or other major bank headquartered in New York City selected by a majority of the Disinterested Directors then in office) from time to time in effect in New York City, less the aggregate amount of any cash dividends paid and the Fair Market Value of any dividends paid, other than in cash, per share of Common Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of Common Stock; or

(ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher.


		7		Effective 04-18-2013

(b) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of consideration other than cash to be received per share by holders of shares of any class or series of outstanding Voting Stock, other than Common Stock, in such Business Combination shall be at least equal to the highest of the following (such requirement being applicable to each such class or series of outstanding Voting Stock, whether or not the Interested Shareholder has previously acquired any shares of such class or series of Voting Stock):

(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes, soliciting dealers’ fees, dealer-management compensation, and other expenses, including, but not limited to, costs of newspaper advertisements, printing expenses and attorneys’ fees and expenses) paid by the Interested Shareholder for any shares of such class or series of Voting. Stock acquired by it (A) within the two-year period immediately prior to the Announcement Date, or (B) in the transaction in which it became an Interested Shareholder, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of Citibank, N.A. (or other major bank headquartered in New York City selected by a majority of the Disinterested Directors then in office) from time to time in effect in New York City, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid other than in cash, per share of such class or series of Voting Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of such class or series of Voting Stock;

(ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; or

(iii) the Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

(c) The consideration to be received by holders of any particular class or series of outstanding Voting Stock (including Common Stock) in such Business Combination shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of such class or series of Voting Stock. If the Interested Shareholder has paid for shares of any class or series of Voting Stock with varying forms of consideration, the form of consideration for such class or series of Voting Stock in such Business Combination shall be either cash or the form used to acquire the largest number of shares of such class or series of Voting Stock previously acquired by it.


		8		Effective 04-18-2013

(d) The holders of all outstanding shares of Voting Stock not beneficially owned by the Interested Shareholder immediately prior to the Consummation Date shall be entitled to receive in such Business Combination cash or other consideration for their shares in compliance with subsections (a), (b) and (c) of this Section 7.02.

(e) After the Determination Date and prior to the Consummation Date:

(i) except as approved by a majority of the Disinterested Directors then in office, there shall have been no failure to declare and pay, or set aside for payment, at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock;

(ii) there shall have been (A) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors then in office, and (B) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors then in office; and

(iii) such Interested Shareholder shall not have become the beneficial owner of any additional shares of Voting Stock except (A) as part of the transaction that results in such Interested Shareholder becoming an Interested Shareholder, (B) as the result of a stock dividend paid by the Corporation or (C) upon the exercise or conversion of securities of the Corporation issued pro rata to all holders of Common Stock which are exercisable for or convertible into shares of Voting Stock.

(f) After the Determination Date, the Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by or through the Corporation or an Affiliate of the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

(g) A proxy or information statement describing the proposed Business Combination in accordance with the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Corporation is then subject to such requirements, and the rules and regulations thereunder (or any subsequent provisions replacing such Exchange Act, rules or regulations) shall be mailed to shareholders of the Corporation at least thirty (30) days prior to the


		9		Effective 04-18-2013

consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Exchange Act or subsequent provisions). The first page of such proxy or information statement shall prominently display the recommendation, if any, that a majority of the Disinterested Directors then in office may choose to make to the holders of Voting Stock regarding the proposed Business Combination. Such proxy or information statement shall also contain, if a majority of the Disinterested Directors then in office so requests, an opinion of a reputable investment banking firm (which firm shall be engaged solely on behalf of the shareholders of the Corporation other than the Interested Shareholder and shall be selected by a majority of the Disinterested Directors then in office, furnished with all information it reasonably requests and paid a reasonable fee for its services by the Corporation upon the Corporation’s receipt of such Opinion) as to the fairness (or lack of fairness) of the terms of the proposed Business Combination from the point of view of the holders of Voting Stock other than the Interested Shareholder.

SECTION 7.03—DEFINITIONS . For purposes of this Article VII, the following terms shall have the following meanings:

(a) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of filing by the Secretary of State of the State of Delaware of this Certificate of Incorporation, whether or not the Corporation was then subject to such rule.

(b) “Announcement Date” shall mean the date of the first public announcement of the proposal of the Business Combination.

(c) A Person shall be deemed the “beneficial owner,” or to have “beneficial ownership,” of any shares of Voting Stock that:

(i) such Person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or

(ii) such Person or any or its Affiliates or Associates, directly or indirectly, has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (but a Person shall not be deemed to be the beneficial owner of any Voting Stock solely by reason of an agreement, arrangement or understanding with the Corporation to effect a Business Combination) or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote, or to direct the vote of, pursuant to any agreement, arrangement or understanding (but neither such Person nor any Affiliate or Associate shall be deemed to be the beneficial owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of shareholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which shares neither such Person nor any Affiliate or Associate is otherwise deemed the beneficial owner); or


		10		Effective 04-18-2013

(iii) is beneficially owned, directly or indirectly, by any other Person with which such first mentioned Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except to the extent contemplated by the parenthetical clause of Section 7.03(c)(ii)(B)) or disposing of any shares of Voting Stock; provided, however, that no director or officer of the Corporation (nor any Affiliate or Associate of any such director or officer) (A) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Voting Stock of the Corporation beneficially owned by any other such director or officer (or any Affiliate or Associate thereof) or (B) shall be deemed to beneficially own any Voting Stock of the Corporation owned by any pension, profit-sharing, stock bonus or other compensation plan maintained by the Corporation or by a member of a controlled group of corporations or trades or businesses of which the Corporation is a member for the benefit of employees of the Corporation and/or any Subsidiary, or any trust or custodial arrangement established in connection with any such plan, not specifically allocated to such Person’s personal account.

(d) The term “Business Combination” shall mean any transaction that is referred to in any one or more of the following paragraphs (i) through (vi):

(i) any merger or consolidation of the Corporation or any Subsidiary (other than a merger pursuant to Section 253 of the GCL) with (A) any Interested Shareholder or (B) any other entity (whether or not such other entity is itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of any Interested Shareholder; or

(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value equal to ten percent (10%) or more of the total assets of the Corporation or the Subsidiary in question, as of the end of its most recent fiscal year ending prior to the time the determination is being made; or


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(iii) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder other than (A) on a pro rata basis to all holders of Voting Stock, (B) in connection with the exercise or conversion of securities issued pro rata that are exercisable for, or convertible into, securities of the Corporation or any Subsidiary or (C) the issuance or transfer of such securities having an aggregate Fair Market Value equal to less than one percent (1%) of the aggregate Fair Market Value of all of the outstanding Capital Stock; or

(iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder; or

(v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of equity or convertible securities of the Corporation or any Subsidiary that is directly or indirectly owned by any Interested Shareholder or any Affiliate or Associate of any Interested Shareholder, except as a result of immaterial changes due to fractional share adjustments, which changes do not exceed, in the aggregate, 1% of the issued and outstanding shares of such class or series of equity or convertible securities; or

(vi) the acquisition by the Corporation or a Subsidiary of any securities of an Interested Shareholder or its Affiliates or Associates.

(e) “Consummation Date” shall mean the date of the consummation of the Business Combination.

(f) “Determination Date” shall mean the date on which the Interested Shareholder became an Interested Shareholder.

(g) “Disinterested Director” shall mean any member of the Board of Directors of the Corporation who is not an Affiliate or Associate of, or otherwise affiliated with, the Interested Shareholder and who either was a member of the Board of Directors prior to the Determination Date, or was recommended for election by a majority of the Disinterested Directors in office at the time such director was nominated for election. If there is no Interested Shareholder, each member of the Board of Directors shall be a Disinterested Director.


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(h) “Fair Market Value” shall mean:

(i) in the case of stock, the highest closing price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange listed stocks or, if such stock is not quoted on such Composite Tape, or if such stock is not listed on such Exchange, then on the principal United States securities exchange registered under the Exchange Act, on which such stock is listed, or, if such stock is not listed on any such exchange, then the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the NASDAQ Stock Market or any system then in use, or, if no such quotation is available, then the fair market value on the date in question of a share of such stock as determined in good faith by a majority of the Disinterested Directors then in office, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock; and

(ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Disinterested Directors then in office.

(i) References to “highest per share price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.

(j) “Interested Shareholder” shall mean any Person (other than the Corporation, any Subsidiary or any pension, profit-sharing, stock bonus or other compensation or employee benefit plan maintained by the Corporation or by a member of a controlled group of corporations or trades or businesses of which the Corporation is a member for the benefit of employees of the Corporation and/or any Subsidiary, or any trust or custodial arrangement established in connection with any such plan or holding Voting Stock for the purpose of funding any such plan or funding employee lending for employees of the Corporation or any Subsidiary) who or which:

(i) is the beneficial owner of fifteen percent (15%) or more of the Voting Stock; or

(ii) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of fifteen percent (15%) or more of the then outstanding shares of Voting Stock; or


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(iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock that were at any time within the two-year period immediately prior to the date in question beneficially owned by any other Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended, and not executed on any exchange or in the over-the-counter market through a registered broker or dealer.

In determining whether a Person is an Interested Shareholder pursuant to this subsection (j), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subsection (c) of this Section 7.03 but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

(k) “Person” shall mean any corporation, partnership, trust, unincorporated organization or association, syndicate, any other entity or a natural person, together with any Affiliate or Associate of such Person or any other Person acting in concert with such Person.

(l) “Subsidiary” shall mean any corporation or entity of which a majority of any class or series of equity securities is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in subsection (j) of this Section 7.03, the term “Subsidiary” shall mean only a corporation or entity of which a majority of each class or series of outstanding voting securities is owned, directly or indirectly, by the Corporation.

(m) “Voting Stock” shall mean all of the outstanding shares of Capital Stock entitled to vote generally in the election of directors.

SECTION 7.04—POWERS OF THE DISINTERESTED DIRECTORS . When it appears that a particular Person may be an Interested Shareholder and that the provisions of this Article VII need to be applied or interpreted, then a majority of the directors of the Corporation who would qualify as Disinterested Directors shall have the power and duty to interpret all of the terms and provisions of this Article VII, and to determine on the basis of information known to them after reasonable inquiry of all facts necessary to ascertain compliance with this Article VII, including, without limitation, (a) whether a Person is an Interested Shareholder; (b) the number of shares of Voting Stock beneficially owned by any Person; (c) whether a Person is an Affiliate or Associate of another; (d) the Fair Market Value of: (i) the assets that are the subject of any Business Combination, (ii) the securities to be issued or transferred by the Corporation or any Subsidiary in any Business Combination, (iii) the consideration other than cash to be received by holders of shares of any class or series of Common Stock or Voting Stock other than Common Stock in any Business Combination, (iv) the outstanding Capital Stock or (v) any other item the Fair Market Value of which requires determination pursuant to this Article VII; and (e) whether all of the applicable conditions set forth in Section 7.02 have been met with respect to any Business Combination.


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Any construction, application or determination made by the Board of Directors or the Disinterested Directors pursuant to this Article VII, in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its shareholders, and neither the Corporation nor any of its shareholders shall have the right to challenge any such construction, application or determination.

SECTION 7.05—EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS . Nothing contained in this Article VII shall be construed to relieve any Interested Shareholder from any fiduciary obligations imposed by law.

SECTION 7.06—AMENDMENT, REPEAL, ETC. Notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the Bylaws of the Corporation), in addition to any affirmative vote required by applicable law and any voting rights granted to or held by holders of Preferred Stock, any amendment, alteration, repeal or rescission of any provision of this Article VII must also be approved by either (a) a majority of the Disinterested Directors or (b) the affirmative vote of not less than two thirds (66.67%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock, voting together as a single class, together with the affirmative vote of not less than fifty percent (50%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock not beneficially owned by any Interested Shareholder or Affiliate or Associate thereof, voting together as a single class.

ARTICLE VIII

LIMITATION OF DIRECTOR LIABILITY

A director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is expressly prohibited by the GCL as the same exists or may hereafter be amended.


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ARTICLE IX

INDEMNIFICATION

SECTION 9.01—ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION . To the fullest extent permitted by the GCL, the Corporation shall indemnify any person who is or was or has agreed to become a director or officer of the Corporation who was or is made a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, and the Corporation may indemnify any other person who is or was or has agreed to become an employee or agent of the Corporation who was or is made a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges, expenses (including attorneys’ fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. Notwithstanding anything contained in this Article IX, but subject to Section 9.07, the Corporation shall not be obligated to indemnify any director or officer in connection with an action, suit or proceeding, or part thereof, initiated by such person against the Corporation unless such action, suit or proceeding, or part thereof, was authorized or consented to by the Board of Directors.

SECTION 9.02—ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION . To the fullest extent permitted by the GCL, the Corporation shall indemnify any person who is or was or has agreed to become a director or officer of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a


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judgment in its favor by reason of the fact that he or she is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, and the Corporation may indemnify any other person who is or was or has agreed to become an employee or agent of the Corporation who was or is made a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges and expenses (including attorneys’ fees and expenses) actually and reasonably incurred by him or her or on his or her behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, except no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery or such other court shall deem proper. Notwithstanding anything contained in this Article IX, but subject to Section 9.07, the Corporation shall not be obligated to indemnify any director or officer in connection with an action or suit, or part thereof, initiated by such person against the Corporation unless such action or suit or part thereof, was authorized or consented to by the Board of Directors.

SECTION 9.03—INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF A SUCCESSFUL PARTY . To the extent that a present or former director or officer of the Corporation has been successful, on the merits or otherwise (including, without limitation, the dismissal of an action without prejudice), in defense of any action, suit or proceeding referred to in Section 9.01 or 9.02, or in defense of any claim, issue or matter therein, such person shall be indemnified against all costs, charges and expenses (including attorneys’ fees and expenses) actually and reasonably incurred by such person or on such person’s behalf in connection therewith.

SECTION 9.04—INDEMNIFICATION FOR EXPENSES OF A WITNESS . To the extent that any person who is or was or has agreed to become a director or officer of the Corporation is made a witness to any action, suit or proceeding to which he or she is not a party by reason of the fact that he or she was, is or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the request of the Corporation, such person shall be indemnified against all costs, charges and expenses actually and reasonably incurred by such person or on such person’s behalf in connection therewith.


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To the extent that any person who is or was or has agreed to become an employee or agent of the Corporation is made a witness to any action, suit or proceeding to which he or she is not a party by reason of the fact that he or she was, is or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the request of the Corporation, such person may be indemnified against all costs, charges and expenses actually and reasonably incurred by such person or on such person’s behalf in connection therewith.

SECTION 9.05—DETERMINATION OF RIGHT TO INDEMNIFICATION . Any indemnification under Section 9.01 or 9.02 (unless ordered by a court) shall be made, if at all, by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper under the circumstances because he or she has met the applicable standard of conduct set forth in Section 9.01 or 9.02. Any indemnification under Section 9.04 (unless ordered by a court) shall be made, if at all, by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper under the circumstances. Such determinations shall be made with respect to a person who is a director or officer at the time of such determination (a) by a majority vote of directors who were not parties to such action, suit or proceeding even though less than a quorum of the Board of Directors, (b) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, (c) if there are no such directors, or if such directors so direct, by independent counsel in a written opinion or (d) by the shareholders of the Corporation. To obtain indemnification under this Article IX, any person referred to in Section 9.01, 9.02, 9.03 or 9.04 shall submit to the Corporation a written request, including therewith such documents as are reasonably available to such person and are reasonably necessary to determine whether and to what extent such person is entitled to indemnification.

SECTION 9.06—ADVANCEMENT OF COSTS, CHARGES AND EXPENSES . Costs, charges and expenses (including attorneys’ fees and expenses) incurred by or on behalf of a director or officer in defending a civil or criminal action, suit or proceeding referred to in Section 9.01 or 9.02 shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding; provided, however, that the payment of such costs, charges and expenses incurred by or on behalf of a director or officer in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of a written undertaking by or on behalf of the director or officer to repay all amounts so advanced in the event that it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Corporation as authorized in this Article IX or by law. No security shall be required for such undertaking and such undertaking shall be accepted without reference to the recipient’s financial ability to make repayment. The majority of the directors who were not parties to such action, suit or proceeding may, upon approval of such director or officer of the Corporation, authorize the Corporation’s counsel to represent such person, in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding.


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SECTION 9.07—PROCEDURE FOR INDEMNIFICATION . Any indemnification under Section 9.01, 9.02, 9.03 or 9.04 or advancement of costs, charges and expenses under Section 9.06 shall be made promptly, and in any event within sixty (60) days (except indemnification to be determined by shareholders which will be determined at the next annual or special meeting of shareholders), upon the written request of the director or officer. The right to indemnification or advancement of expenses as granted by this Article IX shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction in the event the Corporation denies such request, in whole or in part, or if no disposition of such request is made within sixty (60) days of the request. Such person’s costs, charges and expenses incurred in connection with successfully establishing his or her right to indemnification or advancement, to the extent successful, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advancement of costs, charges and expenses under Section 9.06 where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Section 9.01 or 9.02, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its directors, its independent counsel and its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 9.01 or 9.02, nor the fact that there has been an actual determination by the Corporation (including its directors, its independent counsel and its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

SECTION 9.08—SETTLEMENT . The Corporation shall not be obligated to reimburse the costs, charges and expenses of any settlement to which it has not agreed. If, in any action, suit or proceeding (including any appeal) within the scope of Section 9.01 or 9.02, the person to be indemnified shall have unreasonably failed to enter into a settlement thereof offered or assented to by the opposing party or parties in such action, suit or proceeding, then, notwithstanding any other provision of this Article IX, the indemnification obligation of the Corporation to such person in connection with such action, suit or proceeding shall not exceed the total of the amount at which settlement could have been made and the expenses incurred by or on behalf of such person prior to the time such settlement could reasonably have been effected.

SECTION 9.09—OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION; INDIVIDUAL CONTRACTS . The indemnification and advancement of costs, charges and expenses provided by or granted pursuant to this Article IX shall not be deemed exclusive of any other rights to which any person seeking


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indemnification or advancement of costs, charges and expenses may be entitled under law (common or statutory) or any Bylaw, agreement, policy of indemnification insurance or vote of shareholders or directors or otherwise, both as to action in his or her official capacity and as to action in any other capacity while holding office, and shall continue as to any person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the legatees, heirs, distributees, executors and administrators of any such person. Nothing contained in this Article IX shall be deemed to prohibit the Corporation from entering into, and the Corporation is specifically authorized to enter into, agreements with directors, officers, employees and agents providing indemnification rights and procedures different from those set forth herein. All rights to indemnification under this Article IX shall be deemed to be a contract between the Corporation and each director, officer, employee or agent of the Corporation who serves or served in such capacity (or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) at any time while this Article IX is in effect.

SECTION 9.10—SAVINGS CLAUSE . If this Article IX or any portion shall be invalidated on any ground by any court of competent jurisdiction, the Corporation shall nevertheless indemnify each director or officer, and may indemnify each employee or agent, of the Corporation as to any costs, charges, expenses (including attorneys’ fees and expenses), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative (including any action by or in the right of the Corporation), to the full extent permitted by any applicable portion of this Article IX that shall not have been invalidated and to the fullest extent permitted by applicable law.

SECTION 9.11—INSURANCE . The Corporation may purchase and maintain insurance, at its expense, to protect itself and any person who is or was a director, officer, employee or agent of the Corporation or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any costs, charges or expenses, liability or loss incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the Corporation would have the power to indemnify such person against such costs, charges or expenses, liability or loss under the Certificate of Incorporation or applicable law; provided, however, that such insurance is available on acceptable terms as determined by a vote of the Board of Directors. To the extent that any director, officer, employee or agent is reimbursed by an insurance company under an indemnification insurance policy for any costs, charges, expenses (including attorneys’ fees and expenses), judgments, fines and amounts paid in settlement to the fullest extent permitted by any applicable portion of this Article IX, the Bylaws, any agreement, the policy of indemnification insurance or otherwise, the Corporation shall not be obligated to reimburse the person to be indemnified in connection with such proceeding.


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SECTION 9.12—DEFINITIONS . For purposes of this Article IX, the following terms shall have the following meanings:

(a) The “Corporation” shall include, in addition to the resulting corporation, any constituent corporation or entity (including any constituent of a constituent) absorbed by way of an acquisition, consolidation, merger or otherwise, which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents so that any person who is or was a director, officer, employee or agent of such constituent corporation or entity, or is or was serving at the written request of such constituent corporation or entity as a director or officer of another corporation, entity, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation or entity as such person would have with respect to such constituent corporation or entity if its separate existence had continued;

(b) “Other enterprises” shall include employee benefit plans, including, but not limited to, any employee benefit plan of the Corporation;

(c) “Director or officer” of the Corporation shall include any director or officer of the Corporation who is or was or has agreed to serve at the request of the Corporation as a director, officer, partner or trustee of another corporation, partnership, joint venture, trust or other enterprise;

(d) “Serving at the request of the Corporation” shall include any service that imposes duties on, or involves services by a director, officer, employee or agent of the Corporation with respect to an employee benefit plan, its participants or beneficiaries, including acting as a fiduciary thereof;

(e) “Fines” shall include any penalties and any excise or similar taxes assessed on a person with respect to an employee benefit plan;

(f) To the fullest extent permitted by law, a person shall be deemed to have acted in “good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful,” if his or her action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him or her by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise; and

(g) A person shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation,” as referred to in Sections 9.01 and 9.02 if such person acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan.


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SECTION 9.13—SUBSEQUENT AMENDMENT AND SUBSEQUENT LEGISLATION . Neither the amendment, termination nor repeal of this Article IX or of relevant provisions of the GCL or any other applicable laws, nor the adoption of any provision of this Certificate of Incorporation or the Bylaws of the Corporation or of any statute inconsistent with this Article IX shall eliminate, affect or diminish in any way the rights of any director, officer, employee or agent of the Corporation to indemnification under the provisions of this Article IX with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of any such amendment, termination, repeal, provision or statute.

If the GCL is amended to expand further the indemnification permitted to directors and officers of the Corporation, then the Corporation shall indemnify such persons to the fullest extent permitted by the GCL, as so amended.

ARTICLE X

AMENDMENTS

SECTION 10.01—AMENDMENTS OF CERTIFICATE OF INCORPORATION . In addition to any affirmative vote required by applicable law and any voting rights granted to or held by holders of shares of any series of Preferred Stock, any alteration, amendment, repeal or rescission (collectively, any “Change”) of any provision of this Certificate of Incorporation must be approved by the Board of Directors and by the affirmative vote of the holders of a majority (or such greater proportion as may otherwise be required pursuant to any specific provision of this Certificate of Incorporation) of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote thereon; provided, however, that if any such Change relates to Section 9.13 or Articles V, VI or X of this Certificate of Incorporation, such Change must also be approved either by (a) not less than a majority of the authorized number of directors and, if one or more Interested Shareholders (as defined in Article VII hereof) exists, by not less than a majority of the Disinterested Directors (as defined in Article VII hereof), or (b) the affirmative vote of the holders of not less than two-thirds of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote thereon and, if the Change is proposed by or on behalf of an Interested Shareholder or a director who is an Affiliate or Associate (as such terms are defined in Article VII hereof) of an Interested Shareholder, by the affirmative vote of the holders of not less than a majority of the total votes eligible to be cast by holders of all outstanding shares of Capital Stock entitled to vote thereon not beneficially owned by an Interested Shareholder or an Affiliate or Associate thereof. Subject to the foregoing, the Corporation reserves the right to amend this Certificate of Incorporation from time to time in any and as many respects as may be desired and as may be lawfully contained in an original certificate of incorporation filed at the time of making such amendment.


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Except as may otherwise be provided in this Certificate of Incorporation, the Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation and to add or insert herein any other provisions authorized by the laws of the State of Delaware at the time in force, in the manner now or hereafter prescribed by law, and all rights, preferences and privileges of any nature conferred upon shareholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Section 10.01.

SECTION 10.02—AMENDMENTS OF BYLAWS . In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation, upon the vote of two-thirds of the members of the entire Board, is expressly authorized to make, alter, amend, rescind or repeal from time to time any of the Bylaws of the Corporation in accordance with the terms thereof; provided, however, that any Bylaw made by the Board of Directors may be altered, amended, rescinded or repealed in accordance with the terms thereof by the holders of two-thirds of the shares of Capital Stock entitled to vote thereon at any annual meeting or at any special meeting called for that purpose. Notwithstanding the foregoing, any provision of the Bylaws that contains a supermajority voting requirement shall only be altered, amended, rescinded or repealed by a vote of the Board of Directors or holders of shares of Capital Stock entitled to vote thereon that is not less than the supermajority specified in such provision.

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		23		Effective 04-18-2013

Exhibit 3.2

SEVENTH AMENDED AND RESTATED BYLAWS

PEOPLE’S UNITED FINANCIAL, INC.

ARTICLE I

OFFICES

Section 1.01. Registered Office . The registered office of People’s United Financial, Inc. (the “Corporation”) in the State of Delaware shall be in the City of Dover, County of Kent.

Section 1.02. Principal Place of Business . The principal place of business of the Corporation shall be located in Bridgeport, Connecticut.

Section 1.03. Additional Offices . The Corporation may also have offices and places of business at such other places as the Board of Directors (the “Board”) may from time to time designate or the business of the Corporation may require.

ARTICLE II

SHAREHOLDERS

Section 2.01. Place of Meetings . Meetings of shareholders of the Corporation shall be held at such place as may be fixed by the Board and designated in the notice of meeting. If no place is so fixed, such meetings shall be held at the principal place of business of the Corporation.

Section 2.02. Annual Meetings . The annual meeting of shareholders of the Corporation for the election of directors and the transaction of any other business which may properly come before such meeting shall be held each year on a date and at a time to be designated by the Board.

Section 2.03. Special Meetings . Special meetings of shareholders, for any purpose or purposes, may be called at any time only by the Chief Executive Officer or the President or by resolution of at least three-fourths of the directors then in office. Special meetings shall be held on the date and at the time and place as may be designated by the Board. At a special meeting, no business shall be transacted and no corporate action shall be taken other than that stated in the notice of meeting.

Section 2.04. Notice of Meetings . Except as otherwise required by law, written notice stating the place, date and hour of any meeting of shareholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each shareholder of record entitled to vote at such meeting, either personally, electronically or by mail, not less than ten (10) nor more than sixty (60) days before the date of such meeting. If given electronically, such notice shall be deemed given (a) if by electronic mail, when directed to an electronic mail address at which the shareholder has consented to receive notice; (b) if by a posting on an electronic network together with a


Effective April 18, 2013

separate notice to the shareholder of such specific posting, upon the later of (i) such posting and (ii) the giving of such separate notice; and (c) if by any other form of electronic transmission, when directed to the shareholder. If mailed, such notice shall be deemed to be given when deposited in the U.S. mail, with postage thereon prepaid, addressed to the shareholder at his or her address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 2.06, or at such other address as the shareholder shall have furnished in writing to the Secretary. Notice of any special meeting shall indicate that the notice is being issued by or at the direction of the person or persons calling such meeting. When any meeting of shareholders, either annual or special, is adjourned to another time or place, no notice of the adjourned meeting need be given, other than an announcement at the meeting at which such adjournment is taken giving the time and place to which the meeting is adjourned; provided, however , that if the adjournment is for more than thirty (30) days, or, if after adjournment, the Board fixes a new record date for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.

Section 2.05. Waiver of Notice . Notice of any annual or special meeting need not be given to any shareholder who submits a signed waiver of notice of any meeting, in person or by proxy or by his or her duly authorized attorney-in-fact, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, shall constitute a waiver of notice by such shareholder, except where a shareholder attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.

Section 2.06. Fixing of Record Date . For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or in order to make a determination of shareholders for any other proper purpose, the Board shall fix a date as the record date for any such determination of shareholders, which date shall not precede the date upon which the resolution fixing the record date is adopted by the Board. Such date in any case shall be not more than sixty (60) days and, in the case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 2.06, such determination shall, unless otherwise provided by the Board, also apply to any adjournment thereof. If no record date is fixed, (a) the record date for determining shareholders entitled to notice of or vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which the notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and (b) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.


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Section 2.07. Quorum . The holders of record of a majority of the total number of votes eligible to be cast in the election of directors, represented in person or by proxy, shall constitute a quorum for the transaction of business at a meeting of shareholders, except as otherwise provided by law, these Bylaws or the Certificate of Incorporation. If less than a majority of such total number of votes is represented at a meeting, a majority of the number of votes so represented may adjourn the meeting from time to time without further notice, provided , that if such adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called. When a quorum is once present to organize a meeting of shareholders, such quorum is not broken by the subsequent withdrawal of any shareholders.

Section 2.08. Conduct of Meetings . The Chief Executive Officer shall serve as chairman at all meetings of the shareholders or, if the Chief Executive Officer is absent or otherwise unable to so serve, the President shall serve as chairman. If the President is absent or otherwise unable to so serve, such other person as shall be appointed by a majority of the entire Board shall serve as chairman at any meeting of shareholders. The Secretary or, in his or her absence, such other person as the chairman of the meeting shall appoint, shall serve as secretary of the meeting. The chairman of the meeting shall conduct all meetings of the shareholders in accordance with the best interests of the Corporation and shall have the authority and discretion to establish reasonable procedural rules for the conduct of such meetings, including such regulation of the manner of voting and the conduct of discussion as he or she shall deem appropriate. The chairman of the meeting shall also have the authority to adjourn the meeting from time to time and from place to place as he or she may deem necessary and in the best interests of the Corporation.

Section 2.09. Voting; Voting of Shares in the Name of Two or More Persons . Except for the election of directors or as otherwise provided by applicable law or regulation, the Certificate of Incorporation or these Bylaws, at all meetings of shareholders, all matters shall be determined by a vote of the holders of a majority of the number of votes eligible to be cast by the holders of the outstanding shares of capital stock of the Corporation present and entitled to vote thereat.

A nominee for director shall be elected to the Board if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election; provided, however, that directors shall be elected by a plurality of the votes cast at any meeting of shareholders for which (i) the Secretary of the Corporation receives a notice that a shareholder has nominated a person for election to the Board in compliance with the advance notice provisions for shareholder nominees for director set forth in Section 5.06 of the Certificate of Incorporation and Section 2.12 of these Bylaws and (ii) such nomination has not been withdrawn by such shareholder on or before the record date for such meeting. If directors are to be elected by a plurality of the votes cast, shareholders shall not be permitted to vote against a nominee.


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If ownership of a share of voting stock of the Corporation stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. If an attempt is made to cast conflicting votes by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such stock and present, in person or by proxy, at such meeting. If such conflicting votes are evenly split on any particular matter, each faction may vote the securities in question proportionally, or any person voting the shares, or a beneficiary, if any, may apply to the Court of Chancery of Delaware or such other court as may have jurisdiction to appoint an additional person to act with the persons so voting the shares, which shall then be voted as determined by a majority of such persons and the person appointed by the court.

Section 2.10. Proxies . Each shareholder entitled to vote at any meeting may vote either in person or by proxy. Unless otherwise specified in the Certificate of Incorporation or in a resolution, or resolutions, of the Board providing for the issuance of preferred stock, each shareholder entitled to vote shall be entitled to one vote for each share of capital stock registered in his or her name on the transfer books or records of the Corporation. Each shareholder entitled to vote may authorize another person or persons to act for him or her by proxy. All proxies shall by written instrument, signed by the shareholder or by his or her attorney-in-fact, or by electronic transmission as permitted by law; provided , that such electronic transmission either sets forth or is submitted with information from which it can be determined that such electronic transmission was authorized by such shareholder. All proxies shall be filed with the Secretary before being voted. No proxy shall be valid after three (3) years from the date of its execution unless otherwise provided in the proxy. The attendance at any meeting by a shareholder who shall have previously given a proxy applicable thereto shall not, as such, have the effect of revoking the proxy. The Corporation may treat any duly executed proxy as not revoked and in full force and effect until it receives a duly executed instrument revoking it, or a duly executed proxy bearing a later date.

Section 2.11. Inspectors of Election . In advance of any meeting of shareholders, the Board shall, to the extent required by applicable law, appoint one or more persons, other than officers, directors or nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. Such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the meeting shall make such appointment at the meeting. If any person appointed as inspector fails to appear or fails or refuses to act at the meeting, the vacancy so created may be filled by appointment by the Board in advance of the meeting or at the meeting by the chairman of the meeting. The duties of the inspectors of election shall include determining the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, receiving votes, ballots or consents, hearing and deciding all challenges and questions arising in connection with the right to vote, counting and tabulating all votes, ballots or consents, determining the results and doing such acts as are proper to the conduct of the election or the vote with fairness to all shareholders. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. Each inspector shall be entitled to a reasonable compensation for his or her services, to be paid by the Corporation.


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Section 2.12. Procedure for Nominations . Only persons who are nominated in accordance with the procedures set forth in Section 5.06 of the Certificate of Incorporation (and, in the case of a nomination submitted by a shareholder, in accordance with the provisions of this Section 2.12) shall be eligible for election as Directors. Subject to the provisions thereof, the committee appointed by the Board with authority to exercise the powers of a nominating committee (the “Nominating Committee”) shall select, and recommend to the Board for its approval, nominees for election as directors. Except in the case of a nominee substituted as a result of the death, incapacity, withdrawal or other inability to serve of a nominee, the Nominating Committee shall, upon the approval of the Board, deliver written nominations to the Secretary at least one-hundred twenty (120) days prior to the date of the annual meeting. No nominations for directors except those made by the Nominating Committee and approved by the Board shall be voted upon at the annual meeting of shareholders, unless other nominations by shareholders are made in accordance with the provisions of Section 5.06 of the Certificate of Incorporation. In the event the Board has not appointed a Nominating Committee, the Board shall exercise the powers and fulfill the duties described in this Section 2.12 that would otherwise be exercised and fulfilled by such committee.

The written notice of a shareholder’s intent to make a nomination pursuant to the provisions of Section 5.06 of the Certificate of Incorporation shall include, in addition to the information required by such section, a statement whether the person to be nominated, if elected, intends to tender, promptly following such person’s election or re-election, an irrevocable resignation effective upon such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election and upon acceptance of such resignation by the Board, in accordance with the Corporation’s Board Policy on Director Elections.

Section 2.13. Substitution of Nominees . In the event that a person validly designated as a nominee in accordance with Section 5.06 of the Certificate of Incorporation shall thereafter become unwilling or unable to stand for election to the Board, the Board, upon recommendation by the Nominating Committee (if such a committee has been appointed), may designate a substitute nominee upon delivery, not fewer than five (5) days prior to the date of the meeting for the election of such nominee, of a written notice to the Secretary. Such notice shall include a signed consent to serve as a director of the Corporation, if elected, of each such substituted nominee.

Section 2.14. New Business . Any new business to be taken up at the annual meeting at the request of the Chief Executive Officer or by resolution of at least three-fourths of the directors then in office shall be stated in writing and filed with the Secretary at least fifteen (15) days before the date of the annual meeting, and all business so stated, proposed and filed shall be considered at the annual meeting, but, except as provided in this Section 2.14, no other proposal shall be acted upon at the annual meeting.


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Any proposal offered by any shareholder may be made at the annual meeting and the same may be discussed and considered, but unless properly brought before the meeting such proposal shall not be acted upon at the meeting. For a proposal to be properly brought before an annual meeting by a shareholder, the shareholder must be a shareholder of record and have given timely notice thereof in writing to the Secretary. To be timely, a shareholder’s notice must be delivered to or received by the Secretary not later than the following dates: (i) with respect to an annual meeting of shareholders, ninety (90) days in advance of the anniversary of the previous year’s annual meeting if the current year’s meeting is to be held within 30 days prior to, on the anniversary date of, or after the anniversary of the previous year’s annual meeting; and (ii) with respect to an annual meeting of shareholders held at a time other than within the time periods set forth in the immediately preceding clause (i), the close of business on the tenth (10th) day following the date on which notice of such meeting is first given to shareholders. For purposes of this Section 2.14, notice shall be deemed to first be given to shareholders when disclosure of such date of the meeting of shareholders is first made in a press release reported to Dow Jones News Services, Associated Press or comparable national news service, or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. A shareholder’s notice to the Secretary shall set forth as to the matter the shareholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; (b) the name and address of the shareholder proposing such business; (c) the class and number of shares of the Corporation which are owned of record by the shareholder and the dates upon which he or she acquired such shares; (d) the identification of any person employed, retained, or to be compensated by the shareholder submitting the proposal, or any person acting on his or her behalf, to make solicitations or recommendations to shareholders for the purpose of assisting in the passage of such proposal, and a brief description of the terms of such employment, retainer or arrangement for compensation; (e) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such new business; (f) a representation whether the shareholder intends or is part of a group which intends to (1) deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal and/or (2) otherwise solicit proxies from shareholders in support of such proposal; and (g) all such other information regarding such proposal as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission or required to be delivered to the Corporation pursuant to the proxy rules of the Securities and Exchange Commission (whether or not the Corporation is then subject to such rules). This provision shall not prevent the consideration and approval or disapproval at an annual meeting of reports of officers, directors and committees of the Board or the management of the Corporation, but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated and filed as herein provided. This provision shall not constitute a waiver of any right of the Corporation under the proxy rules of the Securities and Exchange Commission or any other rule or regulation to omit a shareholder’s proposal from the Corporation’s proxy


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materials. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that any new business was not properly brought before the meeting in accordance with the provisions hereof, and, if the chairman should so determine, the chairman shall declare to the meeting that such new business was not properly brought before the meeting and shall not be considered.

ARTICLE III

SHARES AND THEIR TRANSFER

Section 3.01. Certificates of Stock . Shares of the Corporation may but need not be represented by certificates. Upon request every holder of uncertificated shares shall be entitled to have a certificate. When shares are represented by certificates, the Corporation shall issue such certificates in such form as shall be required by the General Corporation Law of the State of Delaware (the “GCL”) and as determined by the Board to every shareholder for the fully paid shares owned by such shareholder. Each certificate shall state the registered holder’s name and the number and class of shares and shall be signed by the Chairman, the Chief Executive Officer or the President and the Secretary or any Assistant Secretary, and may, but need not, bear the seal of the Corporation or a facsimile thereof. Any or all of the signatures on the certificates may be facsimiles. In case the Chairman or any officer or officers who shall have signed any such certificate shall cease to serve in such capacity with the Corporation, whether because of death, resignation or otherwise, before such certificate shall have been delivered by the Corporation, such certificate may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates had not ceased to serve in such capacity with the Corporation.

Section 3.02. Book Entry Shares . The Corporation may by resolution provide for the issuance of shares of its capital stock in book-entry (uncertificated) form. In such event, all references in these Bylaws to the delivery of stock certificates shall be inapplicable. The Corporation’s Transfer Agent shall keep appropriate records indicating the number of shares of capital stock owned by each person to whom shares are issued, any restrictions applicable to such shares of capital stock and the duration thereof, and other relevant information. Upon expiration of any applicable restrictions for any reason, the Transfer Agent shall effect delivery of such shares of capital stock by adjusting its records to reflect the expiration of such restrictions, and by notifying the person in whose name such shares were issued that such restrictions have lapsed.

Section 3.03. Transfer Agent and Registrar . The Board shall have the power to appoint one or more Transfer Agents and Registrars for the transfer and registration of shares of stock of any class and may require that stock certificates be countersigned and registered by one or more of such Transfer Agents and Registrars.

Section 3.04. Registration and Transfer of Shares . Subject to the provisions of the Certificate of Incorporation, the name of each person owning shares of the capital stock of the Corporation shall be entered on the books of the Corporation together with the number of shares held by him or her, and for shares held in certificated form, the numbers of the certificates representing such shares and the dates of issue of


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such certificates. Subject to the provisions of the Certificate of Incorporation, the shares of stock of the Corporation shall be transferable on the books of the Corporation by the holders thereof in person, or by their duly authorized attorneys or legal representatives, on surrender and cancellation of certificates for a like number of shares, accompanied by an assignment or power of transfer endorsed thereon or attached thereto, duly executed, with such guarantee or proof of the authenticity of the signature as the Corporation or its agents may reasonably require and with proper evidence of payment of any applicable transfer taxes. In the case of book entry shares, compliance with applicable transfer procedures prescribed by the Transfer Agent shall suffice in lieu of the surrender of stock certificates. Subject to the provisions of the Certificate of Incorporation, a record shall be made of each transfer.

Section 3.05. Lost, Destroyed and Mutilated Certificates . The holder of any shares of stock of the Corporation held in certificated form shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the certificates representing such shares. The Corporation may issue, or cause to be issued, a new certificate of stock in the place of any certificate theretofore issued by it alleged to have been lost, stolen or destroyed upon evidence satisfactory to the Corporation of the loss, theft or destruction of the certificate and, in the case of mutilation, the surrender of the mutilated certificate. The Corporation may, in its discretion, require the owner of the lost, stolen or destroyed certificate, or his or her legal representatives, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft, destruction or mutilation of any such certificate and the issuance of such new certificate, or may refer such owner to such remedy or remedies as he or she may have under the laws of the State of Delaware.

Section 3.06. Holder of Record . Subject to the provisions of the Certificate of Incorporation, the Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law.

ARTICLE IV

BOARD OF DIRECTORS

Section 4.01. Responsibilities; Number of Directors . The business and affairs of the Corporation shall be under the direction of the Board. The Board shall consist of not less than five (5) nor more than fifteen (15) directors (other than directors elected by the holders of shares of any series of preferred stock). Within the foregoing limits, the number of directors shall be determined only by resolution of the Board.

Section 4.02. Qualifications . Each director shall be at least eighteen (18) years of age. No director shall be or become affiliated with any other depository institution while a member of the Board if such affiliation would violate the Depository Institution Management Interlocks Act, any regulation promulgated thereunder, or any other applicable law or regulation.


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Section 4.03. Chairman . The Board shall, at each annual meeting, elect a Chairman. The Chairman of the Board shall be an independent director and shall perform such duties as the Board may from time to time assign to him or her, including but not limited to presiding at all meetings of the Board. The Chairman of the Board shall also have such powers and duties as are generally incident to the position of a non-executive Chairman.

Section 4.04. Vice Chairman . The Board may appoint from among its members a Vice Chairman, who shall perform such duties as may be assigned to him or her from time to time by the Board.

Section 4.05. Age Limitation of Directors . With the exception of the Chairman of the Board, a director shall retire from service as a director of the Corporation at the expiration of the term of office during which such Director has reached the age of seventy-six. The Chairman of the Board shall retire from service as a director of the Corporation at the expiration of the term of office during which the Chairman of the Board reaches the age of eighty.

Section 4.06. Regular and Annual Meetings . An annual meeting of the Board for the election of officers shall be held, without notice other than these Bylaws, immediately after, and at the same place as, the annual meeting of the shareholders, or at such other time or place as the Board may fix by resolution. The Board may provide, by resolution, the time and place for the holding of regular meetings of the Board without notice other than such resolution.

Section 4.07. Special Meetings . Special meetings of the Board may be called for any purpose at any time by or at the request of the Chairman or the Chief Executive Officer. Special meetings of the Board shall also be called by the Secretary upon the written request, stating the purpose or purposes of the meeting, of at least sixty percent (60%) of the directors then in office, but in any event not fewer than five (5) directors. The persons authorized to call special meetings of the Board shall give notice of such meetings in the manner prescribed by these Bylaws and may fix any place, within or without the Corporation’s regular business area, as the place for holding any special meeting of the Board called by such persons. No business shall be conducted at a special meeting other than that specified in the notice of meeting.

Section 4.08. Notice of Meetings; Waiver of Notice . Except as otherwise provided in Section 4.07, notice of each meeting shall be mailed or otherwise given to each director at least two (2) business days before the day of the meeting to his or her address (which may be an electronic mail address) shown in the records of the Corporation, except that in the case of an emergency, in the discretion of the Chairman or the Chief Executive Officer, shorter oral notice may be given. The purpose of any special meeting shall be stated in the notice. Such notice shall be deemed given when sent or given to any mail or courier service or electronic medium. Any director may waive notice of any meeting by submitting a signed waiver of notice with the Secretary, whether before or after the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.


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Section 4.09. Conduct of Meetings . Meetings of the Board shall be presided over by the Chairman or such other director or officer as the Chairman shall designate. If the Chairman is absent or otherwise unable to preside over the meeting, the presiding officer shall be the Chief Executive Officer. If the Chief Executive Officer is absent or otherwise unable to preside over the meeting, the presiding person shall be such other person as shall be appointed by a majority of the Board. The Secretary or, in his absence, a person appointed by the Chairman (or other presiding person), shall act as secretary of the meeting. The Chairman (or other person presiding) shall conduct all meetings of the Board in accordance with the best interests of the Corporation and shall have the authority and discretion to establish reasonable procedural rules for the conduct of Board meetings.

Section 4.10. Quorum and Voting Requirements . A quorum at any meeting of the Board shall consist of not less than a majority of the directors then in office or such greater number as shall be required by law, these Bylaws or the Certificate of Incorporation, but not less than one-third (1/3) of the total number of directors previously fixed by resolution of the Board. If less than a required quorum is present, the majority of those directors present shall adjourn the meeting to another time and place without further notice. At such adjourned meeting at which a quorum shall be represented, any business may be transacted that might have been transacted at the meeting as originally noticed. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, a majority vote of the directors present at a meeting, if a quorum is present, shall constitute an act of the Board.

Section 4.11. Action Without Meeting . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or such committee.

Section 4.12. Participation Other Than In Person . Members of the Board or any committee thereof may participate in a Board or committee meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 4.12 shall constitute presence in person at the meeting.

Section 4.13. Vacancies . To the extent not inconsistent with the Certificate of Incorporation and subject to the limitations prescribed by law and the rights of holders of any series of preferred stock, vacancies in the office of director, including vacancies created by newly created directorships resulting from an increase in the number of directors, shall be filled only by a vote of a majority of the directors then holding office, whether or not a quorum, at any regular or special meeting of the Board called for that


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purpose. Subject to the rights of holders of any series of preferred stock, no person shall be so elected a director unless nominated by the Nominating Committee (or by the Board if no such committee has been appointed). Subject to the rights of holders of any series of preferred stock, any director so elected shall serve until the next annual meeting of shareholders and his or her successor shall be elected and qualified.

Section 4.14. Compensation . The Board may provide for the compensation of directors for their services in such form or forms and in such amount as the Board may determine.

Section 4.15. Amendments Concerning the Board . The number and other restrictions and qualifications for directors of the Corporation as set forth in these Bylaws may be altered only by a vote, in addition to any vote required by law, of two-thirds of the entire Board or by the affirmative vote of the holders of record of not less than two thirds (66.67%) of the total votes eligible to be cast by holders of all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors at a meeting of the shareholders called for that purpose.

ARTICLE V

COMMITTEES

Section 5.01. Executive Committee . An Executive Committee of the Board may be appointed by Board resolution. If appointed, the Executive Committee shall, to the extent not inconsistent with law, these Bylaws, the Certificate of Incorporation or resolutions adopted by the Board, exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation in the intervals between the meetings of the Board. The Executive Committee shall operate pursuant to a charter approved by the Executive Committee and the entire Board. If an Executive Committee is appointed, it may subsequently be eliminated by resolution adopted by the Board.

Section 5.02. Other Committees . The Board may by resolution appoint such other committees (including, but not limited to, one or more committees authorized to exercise the powers of an audit committee, a compensation committee, and a nominating committee), as from time to time it may deem necessary or appropriate for the conduct of the business of the Corporation. Each such committee shall exercise such powers as may be assigned by the Board to the extent not inconsistent with law, these Bylaws, the Certificate of Incorporation or resolutions adopted by the Board. Each committee established by the Board pursuant to this Section 5.02 shall operate pursuant to a committee charter which shall be annually approved and adopted by the applicable committee and the Board. Any committee so appointed may subsequently be eliminated by resolution adopted by the Board.


Effective April 18, 2013		11

ARTICLE VI

OFFICERS

Section 6.01. Designation of Officers . The Board shall, at each annual meeting, elect a Chief Executive Officer, President, Treasurer and a Secretary, and may elect such other officers as the Board from time to time may deem necessary or the business of the Corporation may require. The other officers shall consist of the Controller, one or more Senior Executive Vice Presidents, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more First Vice Presidents, one or more Vice Presidents, and one or more Assistant Secretaries.

The election of such officers shall be made only by a vote of a majority of the entire Board. If such election is not held at the meeting held annually for the election of officers, such officers may be so elected at any subsequent regular meeting or at a special meeting called for that purpose, in the same manner as above provided. Each person elected shall have such authority, bear such title and perform such duties as may be provided in these Bylaws and as the Board may prescribe from time to time. Whenever a vacancy occurs among the officers, it may be filled at any regular or special meeting called for that purpose, in the same manner as above provided. All officers elected or appointed by the Board shall assume their duties immediately upon their election and shall hold office at the pleasure of the Board.

The Corporation shall have such other officers, assistant officers and agents as may be deemed necessary and appointed by the Board of Directors or the Chief Executive Officer or as may be chosen in such other manner as may be prescribed or permitted by these Bylaws, as amended from time to time.

Any number of offices may be held by the same person except that no person shall simultaneously hold the offices of President and Secretary.

Section 6.02. Term of Office and Removal . Each officer shall serve until his or her successor is elected or appointed, the office is abolished or he or she is removed. Any officer may be removed at any regular or special meeting of the Board called for that purpose, with or without cause, by an affirmative vote of a majority of the entire Board. In addition, no person shall continue to serve as an officer of the Corporation following the time at which he or she is no longer employed by the Corporation or its principal banking subsidiary, or by any of their respective affiliates.

Section 6.03. Chief Executive Officer . The Chief Executive Officer shall be so designated by the Board and may also hold the title of President. The Chief Executive Officer of the Corporation, subject to the direction of the Board, shall be responsible for assuring that the policy decisions of the Board are implemented as formulated. The Chief Executive Officer shall have such powers as may be assigned to such officer by the Board or its committees .

Section 6.04. President . The President, who may also be the Chief Executive Officer of the Corporation, shall be subject to the direction of the Board. The President shall perform such duties as from time to time may be assigned to him by these Bylaws or the Board.


Effective April 18, 2013		12

Section 6.05. Secretary . The Secretary shall record, or cause to be recorded, all votes and minutes of all proceedings of the Board and of the shareholders in a book or books to be kept for that purpose. The Secretary shall have such other powers and duties as are generally incident to the office of Secretary and as may be assigned to him or her by the Board, any committee of the Board, the Chairman, and the Chief Executive Officer.

Section 6.06. Treasurer . The Treasurer shall perform all acts and duties as are generally incident to the office of the Treasurer.

Section 6.07. Controller . The Controller shall be the chief accounting officer and shall be responsible for the maintenance of adequate internal systems and records. The Controller shall maintain the general books of the Corporation relating to all assets, liabilities, receipts, disbursements and other financial transactions, and shall see that all expenditures are made in accordance with procedures duly established from time to time. The Controller shall prepare or cause to be prepared all reports pertinent to his office as may be required by the Board or regulatory authorities.

Section 6.08. Other Officers . Other officers appointed by the Board or by the Chief Executive Officer shall have such authority and shall perform such duties as may be assigned to them, from time to time, by the Board or the Chief Executive Officer.

Section 6.09. Compensation of Officers . The compensation of the Chief Executive Officer, President any other officer designated as an “executive officer” for purposes of Section 16 of the Securities Exchange Act of 1934, as amended, or Regulation O promulgated by the Board of Governors of the Federal Reserve System shall be fixed, from time to time, by the Board of Directors. The salaries of the other officers shall be fixed, from time to time, by the Board of Directors, by a committee of the Board of Directors or by the Chief Executive Officer of the Corporation. No officer shall be prevented from receiving compensation by reason of the fact that he or she is also a director of the Corporation.

ARTICLE VII

DIVIDENDS

The Board shall have the power, subject to the provisions of law and the requirements of the Certificate of Incorporation, to declare and pay dividends out of surplus (or, if no surplus exists, out of net profits of the Corporation, for the fiscal year in which the dividend is declared and/or the preceding fiscal year, except where there is an impairment of capital stock), to pay such dividends to the shareholders in cash, in property or in shares of the capital stock of the Corporation and to fix the date or dates for the payment of such dividends.


Effective April 18, 2013		13

ARTICLE VIII

AMENDMENTS

These Bylaws, except as provided by applicable law or the Certificate of Incorporation, or as otherwise set forth in these Bylaws, may be amended or repealed at any regular or special meeting of the entire Board by the vote of two-thirds of the members of the entire Board; provided, however , that (a) a notice specifying the change or amendment shall have been given at a previous regular meeting and entered in the minutes of the Board (such prior notice being deemed waived in the absence of any objection by a director at or prior to the meeting at which such change or amendment is to be acted upon); (b) a written statement describing the change or amendment shall be made in the notice delivered to the directors of the meeting at which the change or amendment shall be acted upon; and (c) any Bylaw made by the Board may be altered, amended, rescinded or repealed by the holders of shares of capital stock entitled to vote thereon at any annual meeting or at any special meeting called for that purpose in accordance with the percentage requirements set forth in the Certificate of Incorporation and/or these Bylaws. Notwithstanding the foregoing, any provision of these Bylaws that contains a supermajority voting requirement shall only be altered, amended, rescinded or repealed by a vote of the Board or holders of capital stock entitled to vote thereon that is not less than the supermajority specified in such provision.

—ooo000ooo—


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Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certifications

CERTIFICATIONS

I, John P. Barnes, certify that:

I have reviewed this Quarterly Report on Form 10-Q of People’s United Financial, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 10, 2013				/s/ John P. Barnes
				John P. Barnes
				Principal Executive Officer

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certifications

CERTIFICATIONS

I, Kirk W. Walters, certify that:

I have reviewed this Quarterly Report on Form 10-Q of People’s United Financial, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 10, 2013				/s/ Kirk W. Walters
				Kirk W. Walters
				Principal Financial Officer

Exhibit 32

Section 1350 Certifications

Executive Certifications

pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of People’s United Financial, Inc. (the “Company”), a Delaware corporation, does hereby certify, to the best of such officer’s knowledge, that:

The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934.

Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period ended March 31, 2013.

This Certification is made effective as of the date the Report is filed with the Securities and Exchange Commission.


Date: May 10, 2013				/s/ John P. Barnes
				John P. Barnes
				Principal Executive Officer

Date: May 10, 2013				/s/ Kirk W. Walters
				Kirk W. Walters
				Principal Financial Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document.