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TEXT-Fitch Affirms People's United Financial's IDRs at 'A-/F1' Following Mid-Tier Regional Peer Review
February 14, 2013 / 11:45 PM / in 5 years

TEXT-Fitch Affirms People's United Financial's IDRs at 'A-/F1' Following Mid-Tier Regional Peer Review

NEW YORK, February 14 (Fitch) Fitch Ratings has affirmed the long-term and short-term Issuer Default Ratings (IDRs) of People’s United Financial, Inc. and its subsidiaries at ‘A-/F1’. The Rating Outlook remains Stable. A full list of ratings follows at the end of this release.

Fitch reviewed People’s United Financial, Inc. as part of a peer review that included 16 mid-tier regional banks. The banks in the peer review include: Associated Banc-Corp., Bank of Hawaii Corporation, BOK Financial Corporation, Cathay General Bancorp, Cullen/Frost Bankers, Inc., East West Bancorp, Inc., First Horizon National Corporation, First National of Nebraska, Inc., First Niagara Financial Group, Inc., Fulton Financial Corporation, Hancock Holding Company, People’s United Financial, Inc., Synovus Financial Corp., TCF Financial Corporation, UMB Financial Corp., Webster Financial Corporation.

Refer to the release titled ‘Fitch Takes Rating Actions on Its Mid-Tier Regional Bank Group Following Industry Peer Review’ for a discussion of rating actions taken on the entire mid-tier regional bank group. The mid-tier regional group is comprised of banks with total assets ranging from $10 billion to $36 billion. IDRs for this group is relatively dispersed with a low of ‘BB-’ and a high of ‘A+'.

Mid-tier regional banks typically lag their large regional bank counterparts by asset size, geographic footprint and product/revenue diversification. As such mid-tier regional banks are more susceptible to idiosyncratic risks such as geographic or single name concentrations. Fitch’s mid-tier regional bank group has fairly homogenous business strategies. The institutions are mostly reliant on spread income from loans and investments. With limited opportunity to improve fee-based income in the near term, Fitch expects that mid-tier banks will continue to face greater earnings headwinds in 2013 than larger institutions with greater revenue diversification. Share repurchases is common theme amongst the mid-tier banks. As mid-tier banks face earnings headwinds, institutions have begun repurchasing common shares to improve shareholder returns.

Fitch anticipates continued repurchase activity in 2013 as return on equity lags historical norms. In addition to share repurchases, Fitch has observed that some mid-tier banks have looked to their investment portfolio to improve returns. Most notably, CLOs and CMBS have become more popular amongst mid-tier banks. Although such securities are beneficial to yields and returns, Fitch notes that such purchases can be a negative ratings driver if the risks are not properly measured, monitored and controlled. Asset quality continues to improve throughout the banking sector. Both nonperforming assets (NPAs) and net charge-offs (NCOs) are down significantly year over year. Fitch anticipates further asset quality improvement as nonperforming loan (NPL) inflow slows. Reserve levels have also declined as asset quality improves, which has been beneficial to earnings in 2012. Fitch expects further reserve releases in 2013 but at a slower pace.

RATING ACTION AND RATIONALE People’s United Financial, Inc.’s (PBCT) ratings were affirmed at ‘A-'. The Outlook remains Stable. The affirmation of PBCT’s ratings is supported by the company’s solid capital levels, consistent earnings and a history of limited credit losses throughout the credit cycle. PBCT’s announced stock repurchase plan during the fourth quarter of 2012 was anticipated by Fitch and was already assumed in our current and prior ratings.

RATING DRIVERS AND SENSITIVITIES - IDRs and VRs Further reductions of TCE beyond median levels for mid-tier banks could result in negative ratings action. Additionally, an increasing trend to NCOs could place negative pressure on People’s ratings. PBCT’s current rating has limited upside given an earnings profile that lags its rated peers and a loan to deposit ratio that’s amongst the highest of the mid-tier group.

RATING DRIVERS AND SENSITIVITIES - Support Ratings and Support Floor Ratings:

All of the mid-tier regional banks in the peer group have Support Ratings of ‘5’ and Support Floor Ratings of ‘NF’. In Fitch’s view, the mid-tier banks are not considered systemically important and therefore, Fitch believes the probability of support is unlikely. IDRs and VRs do not incorporate any government support for any of the banks in the mid-tier regional bank peer group.

RATING DRIVERS AND SENSITIVITIES - Subordinated Debt and Other Hybrid Securities:

Subordinated debt and hybrid capital instruments issued by the banks are notched down from the issuers’ VRs in accordance with Fitch’s assessment of each instrument’s respective non-performance and relative loss severity risk profiles, which vary considerably. The ratings of subordinated debt and hybrid securities are sensitive to any change in the banks’ VRs or to changes in the banks’ propensity to make coupon payments that are permitted but not compulsory under the instruments’ documentation.

RATING DRIVERSAND SENSITIVITIES - Holding Company:

All of the entities reviewed in the mid-tier regional bank group have a bank holding company structure with the bank as the main subsidiary. All subsidiaries are considered core to parent holding company supporting equalized ratings between bank subsidiaries and bank holding companies. IDRs and VRs are equalized with those of its operating companies and banks reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

RATING DRIVERS AND SENSITIVITIES - Subsidiary and Affiliated Company Rating:

All of the entities reviewed in the mid-tier regional bank group factor in a high probability of support from parent institutions to its subsidiaries. This reflects the fact that performing parent banks have very rarely allowed subsidiaries to default. It also considers the high level of integration, brand, management, financial and reputational incentives to avoid subsidiary defaults.

Fitch has affirmed the following ratings: People’s United Financial, Inc.

--Long-term IDR at ‘A-'; Stable Outlook;

--Viability rating at ‘a-'; --Senior unsecured at ‘A-’

--Short-term IDR at ‘F1’;

--Support at ‘5’;

--Support floor at ‘NF’. People’s United Bank

--Long-term IDR at ‘A-'; Stable Outlook;

--Viability rating at ‘a-';

--Long-term deposits at ‘A’;

--Short-term IDR at ‘F1’;

--Short-term deposits at ‘F1’;

--Support at ‘5’;

--Support floor at ‘NF’. Chittenden Corporation

--Subordinated debt at ‘BBB+'.

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