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Rating Action:

Moody's affirms People's United Financial's ratings, maintains stable outlook

17 Aug 2018

People's United Bank's ratings were also affirmed as part of the same rating action

NOTE: On August 30, 2018, the press release was corrected as follows: In the debt list for People's United Financial Inc., “Senior Unsecured Bond/Debenture, Affirmed Baa2, stable” was removed, and the word “ stock” was removed from the Preferred Shelf and Preferred Non-cumulative Shelf. Revised release follows.

New York, August 17, 2018 -- Moody's Investors Service ("Moody's") has affirmed the ratings of People's United Financial Inc. and its bank subsidiary, People's United Bank, N.A. (together referred to as People's). People's United Bank, N.A. is rated A2/Prime-1 for long- and short-term deposits. Its standalone baseline credit assessment (BCA) is baa1, its counterparty risk assessments are A3(cr)/Prime-2(cr), and its local and foreign currency counterparty risk ratings are Baa1/Prime-2. People's United Financial Inc. has a long-term issuer rating of Baa2 and a preferred stock non-cumulative rating of Ba1(hyb). The outlook is stable on all ratings.

The rating affirmation reflects Moody's unchanged assessment of People's credit fundamentals.

In addition, Moody's has added the (hyb) indicator to People's United Financial Inc.'s non-cumulative preferred stock and removed the rating outlook. Due to an internal administrative error, the rating for People's United Financial Inc.'s non-cumulative preferred stock previously displayed an outlook and did not include the (hyb) indicator.

Affirmations:

..Issuer: People's United Bank, N.A.

.... Adjusted Baseline Credit Assessment, Affirmed baa1

.... Baseline Credit Assessment, Affirmed baa1

.... Long term Counterparty Risk Assessment, Affirmed A3(cr)

.... Short term Counterparty Risk Assessment, Affirmed P-2(cr)

.... Local Currency Long term Counterparty Risk Rating, Affirmed Baa1

.... Local Currency Short term Counterparty Risk Rating, Affirmed P-2

.... Foreign Currency Long term Counterparty Risk Rating, Affirmed Baa1

.... Foreign Currency Short term Counterparty Risk Rating, Affirmed P-2

.... Long term Deposit Rating, Affirmed A2, stable

.... Short term Deposit Rating, Affirmed P-1

.... Issuer Rating, Affirmed Baa2, stable

.... Subordinate Regular Bond/Debenture, Affirmed Baa2

..Issuer: People's United Financial Inc.

.... Long term Issuer Rating, Affirmed Baa2, stable

.... Short term Issuer Rating, Affirmed Prime-2

.... Preferred Stock Non-cumulative, Affirmed Ba1(hyb)

.... Senior Unsecured Shelf, Affirmed (P)Baa2

.... Subordinate Shelf, Affirmed (P)Baa2

.... Preferred Shelf, Affirmed (P)Baa3

.... Preferred Non-cumulative Shelf, Affirmed (P)Ba1

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2, stable

Outlook Actions:

..Issuer: People's United Bank, N.A.

....Outlook, Remains Stable

..Issuer: People's United Financial Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

The affirmation of People's baa1 BCA and all other credit ratings reflects People's sustainable regional banking franchise in the Northeast, particularly in Connecticut, as well as its strong management of its asset risk, which is evidenced by its solid asset quality over the economic cycle. The ratings affirmation also takes into consideration People's capitalization, which is weaker than many of its peers and represents its key credit challenge, in Moody's view. This accentuates the firm's sizeable commercial real estate (CRE) concentration, which accounted for 3.3 times its tangible common equity (TCE) as of 31 March 2018, one of the highest among its rated US peers. People's profitability has been improving since 2015 thanks to rising interest rates, and its liquidity profile, supported largely by deposit funding and high quality liquid resources, is a credit strength.

People's has a history of very good asset quality performance, which supports Moody's view of its strong asset risk management. Problem loans were very low at 0.85% of total loans as of 30 June 2018, better than similarly-rated peers, and performing troubled debt restructurings account for approximately one-third of problem loans. However, People's had a CRE concentration of 3.3 times its TCE as of 31 March 2018, though it has declined from its 2015 peak of 3.7 times TCE. This reduction reflected People's shift in its approach to CRE lending away from transactional loans towards relationship-driven lending. The run-off of brokered New York City multifamily loans has contributed to the decline in its CRE concentration despite both organic growth and acquired CRE loans through recent acquisitions.

People's capital levels are lower than similarly-rated peers, with its Moody's adjusted TCE as a percentage of risk-weighted assets (Moody's TCE ratio) at 9.9% as of 30 June 2018, below the similarly-rated peer median of 10.9%. Management has maintained a high dividend payout ratio to shareholders, which reduces People's capital management flexibility. Positively, improved earnings have resulted in a decline in the dividend payout ratio but it remained high in 2017 at 68%. Improved earnings generation and more modest loan growth have contributed to an improvement in its Moody's TCE ratio. However, Moody's expects a 30-basis-point decline in Moody's TCE as a percentage of risk-weighted assets ratio following the close of the acquisition of First Connecticut Bancorp, Inc. The acquisition announcement followed the enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act in May, which raised the asset threshold for systemically important financial institution (SIFI) designation to $250 billion of total consolidated assets from $50 billion, the threshold defined in the Dodd-Frank Act of 2010. With $45 billion in assets as of 30 June 2018, People's no longer has to consider the implications of crossing the $50 billion asset threshold.

People's profitability has improved since 2015, driven by rising interest rates and lower corporate taxes. Approximately 45% of People's loan portfolio is floating rate loans primarily tied to short-term rates (one-month LIBOR or Prime), which contributes to People's asset sensitivity. Furthermore, People's is highly reliant on spread income, as evidenced by net interest income consistently accounting for more than three-quarters of total net revenues. As a result, the bank's net interest margin benefits from rising interest rates. However, its net income as a percentage of tangible banking assets remains weaker than the similarly-rated peer median of 1.11%. This is partially driven by weaker operational efficiency, which has nevertheless improved to 65% in the first quarter of 2018, compared to 68% in 2016. We expect further improvements to be challenged by costs associated with acquisitions and business investments.

People's liquidity remains a key strength, driven by its low reliance on market funding, which is a function of its deposit funding thanks to its strong deposit market share in Connecticut, 13.4% as of 30 June 2017 according to FDIC data. While the bank's liquid resources accounted for only 13% of tangible banking assets at 30 June 2018, compared to its similarly-rated peer median of 20% at the same date, they consist largely of high quality US treasuries and agency mortgage backed securities.

The stable outlook on People's ratings reflects Moody's view that People's strong asset quality performance will persist while its capital ratios will not improve meaningfully and will remain weaker than peers.

What Could Change the Rating Up

A meaningful and sustained improvement in People's capital levels and a reduction in its CRE concentration would add positive rating pressure.

What Could Change the Rating Down

Significant deterioration in asset quality, pressuring profitability and capital, would add negative rating pressure.

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Megan Fox
AVP-Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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