People's United Financial Inc.

February 12, 2015

People's United Financial Inc.

(PBCT-NASDAQ)

Current Recommendation Prior Recommendation Date of Last Change

Current Price (02/11/15) Target Price

NEUTRAL

Underperform 07/21/2008

$14.67 $15.00

SUMMARY DATA

52-Week High 52-Week Low One-Year Return (%) Beta Average Daily Volume (sh)

Shares Outstanding (mil) Market Capitalization ($mil) Short Interest Ratio (days) Institutional Ownership (%) Insider Ownership (%)

Annual Cash Dividend Dividend Yield (%)

5-Yr. Historical Growth Rates Sales (%) Earnings Per Share (%) Dividend (%)

P/E using TTM EPS

P/E using 2015 Estimate P/E using 2016 Estimate

Zacks Rank *: Short Term 1 3 months outlook

* Definition / Disclosure on last page

$15.50 $13.61

8.91 0.83 3,785,423

308 $4,518

10.21 79 2

$0.66 4.50

5.1 24.4

1.6

17.9 17.1 15.3

4 - Sell

SUMMARY

People's United s fourth-quarter 2014 operating earnings per share beat the Zacks Consensus Estimate. Moreover, the bottom line exceeded the prior-year quarter earnings. Results reflected modest revenue growth and lower expenses. Reduced non-performing assets and impressive loan originations were the other positives. However, rising provisions continue to act as headwinds. Overall, People's United is trying to overcome the sluggish economic recovery through opportunistic acquisitions. Going forward, growth in loans and deposits are expected to boost the company s financial results. However, recent regulatory issues and a challenging economic environment continue to concern us.

Risk Level *

Type of Stock Industry Zacks Industry Rank *

Low,

Large-Value Fin-Svgs & Loan

37 out of 267

ZACKS CONSENSUS ESTIMATES

Revenue Estimates

(In millions of $)

Q1

Q2

(Mar)

(Jun)

2013 2014 2015 2016

308 A 312 A 314 E

313 A 333 A 319 E

Q3 (Sep)

314 A 317 A 326 E

Q4 (Dec)

312 A 320 A 328 E

Year (Dec)

1,247 A 1,282 A 1,287 E 1,377 E

Earnings Per Share Estimates

(EPS is operating earnings before non-recurring items, but including employee stock options expenses)

Q1

Q2

Q3

Q4

Year

(Mar)

(Jun)

(Sep)

(Dec)

(Dec)

2013 2014 2015

$0.17 A $0.19 A $0.20 E

$0.20 A $0.20 A $0.21 E

$0.20 A $0.21 A $0.22 E

$0.20 A $0.22 A $0.23 E

$0.77 A $0.82 A $0.86 E

2016

$0.96 E

Projected EPS Growth - Next 5 Years %

24.4

? 2015 Zacks Investment Research, All Rights reserved.



10 S. Riverside Plaza, Chicago IL 60606

OVERVIEW

Founded in 1842, People s United Financial Inc. is headquartered in Bridgeport, CT. It is a diversified financial services company that provides commercial banking, retail and business banking as well as wealth management services through a network of more than 410 branches comprising 140 full-service Stop & Shop supermarket branches, 628 ATMs, telephone banking and one Internet banking site across Connecticut, Vermont, New Hampshire, Maine, Massachusetts and New York. It operates as the bank holding company for People s United Bank.

Through its subsidiaries, People s United Financial provides equipment financing, asset management, brokerage and financial advisory services and insurance services. Further, it offers equipment financing through PCLC and other insurance services through R.C. Knox and Company, Inc. and Chittenden Insurance Group LLC (Chittenden Corp. was acquired in Jan 2008). As of Dec 31, 2014, assets under administration and those under full discretionary management, which are not reported as assets of People s United Financial, totaled $16.4 billion.

People s United Financial s operations were divided into 3 primary business segments that represented its core businesses: Commercial Banking, Retail and Business Banking and Wealth Management.

However, the company s operating segments have been classified into two reportable segments: Commercial Banking and Retail and Business Banking. With respect to Wealth Management, results in the company s insurance business and certain trust activities are 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.

Commercial Banking segment consists principally of commercial lending, commercial real estate lending, indirect auto lending and commercial deposit gathering activities. This segment also includes the equipment financing operations of PCLC, as well as cash management, correspondent banking and municipal banking services. Additionally, the segment consists of institutional trust services, corporate trust, insurance services provided through People s United Insurance Agency, Inc. and private banking.

Retail and Business Banking segment includes consumer and small business deposit gathering activities, consumer lending (including residential mortgage and home equity), small business lending and merchant services. Additionally, the segment consists of brokerage, financial advisory services, investment management services and life insurance provided by People s Securities, Inc. and noninstitutional trust services.

In addition, the Treasury includes People s United s securities portfolio, short-term investments and securities resale agreements as well as wholesale borrowings.

Other includes the residual financial impact from allocation of revenues and expenses, and certain revenues and expenses not attributable to a particular segment.

Since the last few years, People s United has been actively involved in expanding its foothold globally. The company has completed many acquisitions and is poised to complete more such acquisitions in the near term.

In Jun 2012, People s United Bank completed the acquisition of 57 branches in the greater New York metro area from RBS Citizens, N.A. 53 of the branches are in Stop & Shop supermarkets and 4 are traditional branches. People s United has assumed about $324 million in deposits associated with these branches and paid Citizens a 1% premium on the assumed deposits in an all-cash transaction valued at $3.24 million.

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People s United currently operates 87 Stop & Shop branch locations in Connecticut and has been enjoying a strong alliance with the supermarket company since 1995. Moreover, People s United is the exclusive provider of banking services, with the chance to work for 140 Stop & Shop stores across Long Island, southern New York State and Connecticut.

Effective Jul 2011, People s United acquired MA based Danvers for $462 million. Total amount paid for the deal was $214 million in cash and 18.5 million shares of People s United common stock with a fair value of about $248 million. At the acquisition date, Danvers operated 28 branches in the greater Boston area.

Previously, in Nov 2010, People s United completed its acquisitions of Smithtown, based in Hauppauge, NY and LSB Corporation based in North Andover, MA. In Apr 2010, People s United Bank entered into a definitive agreement with the FDIC, pursuant to which the company assumed all of the deposits, certain assets and the banking operations of Butler Bank, located in Lowell, MA. Moreover, in Feb 2010, People s United completed its acquisition of Financial Federal, a financial services company providing collateralized lending, financing and leasing services nationwide to small and medium sized businesses.

REASONS TO BUY

The company continues to benefit from a healthy business portfolio that has grown inorganically over time. It integrated 5 acquisitions since 2010 and met expected cost cuts at the time of each transaction. People s United recently formed a joint venture People's United Merchant Services

with Vantiv, Inc., a major provider of payment processing services and allied technology. Notably, in 2012, it completed the acquisition of 57 branches in the greater New York metro area from RBS Citizens, NA. The acquisitions had 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 through integration with the acquired entities.

We view People s United as a sound asset for yield-seeking investors. In mid-Apr 2014, the company increased its quarterly dividend to $0.1650 per share from $0.1625. Notably, in 2014, the company paid $197.3 million as common stock dividends, representing a payout ratio of 78.2%. This reflects the company s trend of returning wealth to its shareholders, backed by its strong cash generating capabilities.

The company is focused on acquiring the industry's best deposit franchise. People s United s total deposits rose at a 5-year CAGR (2010-2014) of 9.9%; while loans grew at a 5-year CAGR of 11.3%. Notably, fourth-quarter 2014 marked the 17th consecutive quarter of loan growth. Management expects loan growth in the high-single to mid-teens range in 2015. Such trend in loans and deposits should support the company s growth, going forward.

People s United has exhibited continued improvement in asset quality. Non-performing assets have declined at a 5-year CAGR of 7.3% in 2014. Further, the ratio of net loan charge-offs to average loans has also come down over the last 5 years from 0.40 in 2010 to 0.12 in 2014. Such strong improvement in asset quality can prove to be a major tailwind for the company s future performance.

REASONS TO SELL

People s United s top-line growth is expected to be sluggish in the next few quarters owing to net interest margin (NIM) contraction and pressure on fee income. In 2014, NIM declined to 3.09% from 3.31% in 2013 and 3.86% in 2012. Management anticipates NIM to fall further and scale the

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lower end of the range at 2.85 2.95% in 2015. Moreover, with the thrust of new banking regulations, there will be pressure on fees; while lower yield on new loans is likely to strain the margin.

Despite undertaking a number of expense-saving initiatives, People s United s operating expenses have been witnessing a rise with a 5-year CAGR (2010 2014) of 1.9%. Moreover, for 2015, management expects expenses to trend higher from the current level in the range of $835 $845 million. We believe such expanding cost base to negatively impact bottom-line expansion in the subsequent quarters.

While People s United continues to adhere by underwriting standards, the performance of its loan portfolio remains vulnerable to risks of deterioration in the local or regional economies, given its diversified geographical concentration. Adverse changes in the economy could negatively affect the ability of borrowers to make scheduled loan payments, which would likely have an adverse impact on the company s earnings. Further, an increase in loan delinquencies may serve to decrease net interest income and negatively affect loan loss experience, resulting in an increased provision and allowance for loan losses.

We are also concerned about the regulatory issues, which are anticipated to pose as headwinds for the company s profitability, going forward. Such regulations are likely to reduce fee-income growth prospects, increase compliance costs and subject the company to a number of restrictions. Moreover, stricter capital norms are being proposed for the banking industry. Though these measures are aimed at improving the overall health of the banking system, we believe that such stringent capital norms might somewhat limit the company s flexibility with respect to its lending volumes and investments in growth initiatives in the medium term.

RECENT NEWS

People's United Q4 Earnings Beat, Loan & Deposits Grow Jan 16, 2015

People's United s fourth-quarter 2014 operating earnings of $0.22 per share slivered past the Zacks Consensus Estimate by $0.01. Moreover, the bottom line came in 10% higher than the prior-year quarter figure of $0.20.

For 2014, operating earnings per share came in at $0.82, up 6.5% year over year. However, this lagged the Zacks Consensus Estimate by $0.01. Operating earnings for the year excluded a net after-tax gain as well as an after-tax non-operating cost.

Modest revenue generation, along with appreciable growth in loans and deposits, contributed to the better-than-expected performance. Expenses declined slightly and credit quality, with the exception of provisions, showed improvement. Provisions, however, acted as headwinds for the quarter.

Operating income was reported at $65.1 million, up 8.5% year over year. Net income grew 9.1% year over year to $64.7 million.

For 2014, operating income rose 1.4% year over year to $244.5 million. Net income for the full year climbed 8.3% year over year to $251.7 million.

Performance in Detail

Net revenue amounted to $314.9 million, up 2.4% year over year. However, it missed the Zacks Consensus Estimate of $317.0 million.

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For 2014, net revenue increased 2.6% year over year to $1.26 billion. However, it came in line with the Zacks Consensus Estimate.

Net interest income summed $228.1 million, up 1.4% year over year. This was owing to an increase in total interest and dividend income, partly mitigated by a rise in total interest expenses.

Non-interest income escalated 5.2% year over year to $86.8 million. The rise in income was primarily driven by higher investment management fees, operating lease income as well as other non-interest income. Nevertheless, this was partially offset by a reduction in commercial banking lending fees, brokerage commissions as well as net customer interest swap income.

Non-interest expenses inched down marginally year over year to $207.7 million. The decline was on account of a fall in professional & outside service fees, amortization of other acquisition-related intangible assets and other non-interest expenses. These were, however, mostly offset by higher compensation & benefits costs, regulatory assessments as well as operating lease expenses.

As of Dec 31, 2014, total loans grew 9% year over year to $26.6 billion. Moreover, total deposits rose 15.9% on a year-over-year basis to $26.1 billion.

Credit Metrics

Overall, People s United s credit quality metrics were favorable. As of Dec 31, 2014, the company s originated non-performing loans totaled $197.0 million, down 9% from the prior-year quarter. Moreover, the ratio of non-performing loans to total originated loans declined 18 basis points (bps) year over year to 0.77%.

Non-performing assets came in at $224.1 million, down 9.6% year over year. Moreover, non-performing assets, as a percentage of originated loans, REO and repossessed assets, decreased 20 bps year over year to 0.88%.

Moreover, net loan charge-offs fell 18.3% year over year to $8.5 million. Net loan charge-offs, as a percentage of average loans on an annualized basis, diminished 5 bps year over year to 0.13%. However, provision for loan losses was recorded at $11.6 million, up 14.9% from the year-ago quarter.

Profitability Ratios

People s United s profitability ratios exhibited mixed results. Operating return on average tangible stockholders equity stood at 10.1%, up from the prior-year quarter return of 9.8%. Operating return on average assets came at par with the year-ago quarter return of 0.75%.

As of Dec 31, 2014, total risk-based capital ratio climbed to 12.2% from 11.3% in the year-ago quarter. However, tangible equity ratio descended to 7.5% from the year-ago quarter ratio of 7.9%.

Dividend Update

Concurrent with the press release, the board of People's United declared a quarterly dividend of $0.1650 per share. The dividend will be paid on Feb 15, 2015 to shareholders of record as of Feb 1.

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