In the normal course of business, People’s United is a party to both on-balance-sheet and off-balance-sheet financial instruments involving, to varying degrees, elements of credit risk and IRR in addition to the amounts recognized in the Consolidated Statements of Condition. The contractual amounts of off-balance-sheet instruments reflect the extent of People’s United’s involvement in particular classes of financial instruments.


As of December 31 (in millions)	2019		2018
Lending-Related Financial Instruments: (1)
Loan origination commitments and unadvanced lines of credit:
Commercial and industrial	$	5,549.9	$	4,937.1
Home equity and other consumer	3,401.9		2,646.6
Commercial real estate	1,614.9		1,095.4
Equipment financing	471.0		459.7
Residential mortgage	54.7		78.7
Letters of credit:
Stand-by	185.2		139.4
Commercial	4.4		5.0
Derivative Financial Instruments: (2)
Interest rate swaps:
For market risk management	585.0		585.0
For commercial customers:
Customer	8,847.7		7,455.9
Institutional counterparties	8,851.8		7,161.3
Interest rate caps:
For commercial customers:
Customer	246.0		329.1
Institutional counterparties	246.0		329.1
Risk participation agreements	882.8		576.5
Foreign exchange contracts	180.4		145.2
Forward commitments to sell residential mortgage loans	23.3		9.5
Interest rate-lock commitments on residential mortgage loans	33.6		13.6

(1)The contractual amounts of these financial instruments represent People’s United’s maximum potential exposure to credit loss, assuming: (i) the instruments are fully funded at a later date; (ii) the borrower does not meet contractual repayment obligations; and (iii) any collateral or other security proves to be worthless.

The contractual amounts of People’s United’s lending-related financial instruments do not necessarily represent future cash requirements since certain of these instruments may expire without being funded and others may not be fully drawn upon. These instruments are subject to People’s United’s credit approval process, including an evaluation of the customer’s creditworthiness and related collateral requirements. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee by the customer. The geographic distribution of People’s United’s lending-related financial instruments is similar to the distribution of its loan portfolio as described in Note 5.

People’s United issues both stand-by and commercial letters of credit. Stand-by letters of credit are conditional commitments issued by People’s United to guarantee the performance of a customer to a third party. The letter of credit is generally extended for an average term of one year and is secured in a manner similar to existing extensions of credit. For each letter of credit issued, if the customer fails to perform under the terms of the agreement, People’s United would have to fulfill the terms of the letter of credit. The credit risk involved in issuing stand-by letters of credit is essentially the same as that involved in extending loan facilities to customers.

A commercial letter of credit is normally a short-term instrument issued by a financial institution on behalf of its customer. The letter of credit authorizes a beneficiary to draw drafts on the financial institution or one of its correspondent banks, provided the terms and conditions of the letter of credit have been met. In issuing a commercial letter of credit, the financial institution has substituted its credit standing for that of its customer. After drafts are paid by the financial institution, the customer is charged or an obligation is created under an existing reimbursement agreement. An advance under a reimbursement agreement is recorded as a loan by the financial institution and is subject to terms and conditions similar to other commercial obligations.

The fair value of People’s United’s obligations relating to its unfunded loan commitments and letters of credit was $5.6 million and $2.7 million at December 31, 2019 and 2018, respectively, and is included in other liabilities in the Consolidated Statements of Condition.

People’s United uses derivative financial instruments as components of its market risk management (principally to manage IRR). Certain other derivatives are entered into in connection with transactions with commercial customers. Derivatives are not used for speculative purposes.

By using derivatives, People’s United 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 balance sheet offsetting policy (see Note 1), amounts reported as derivative assets represent derivative contracts in a gain position, without consideration for derivative contracts in a loss position with the same counterparty (to the extent subject to master netting arrangements) and posted collateral. People’s United 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’s derivatives include major financial institutions and exchanges that undergo comprehensive and periodic internal credit analysis as well as maintain investment grade credit ratings from the major credit 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’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 December 31, 2019 was $0.5 million, for which People’s United had posted no collateral in the normal course of business. If the Company’s senior unsecured debt rating had fallen below investment grade as of that date, $0.5 million in additional collateral would have been required.

The Bank has entered into pay floating/receive fixed interest rate swaps to reduce its IRR exposure to the variability in interest cash flows on certain floating-rate commercial loans. The Bank has agreed with the swap counterparties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated based on notional amounts totaling $210 million. The floating-rate interest payments made under the swaps are calculated using the same floating rate received on the commercial loans. The swaps effectively convert the floating-rate one-month LIBOR interest payments received on the commercial loans to a fixed rate and consequently reduce the Bank’s exposure to variability in short-term interest rates. These swaps are accounted for as cash flow hedges.

The Bank has entered into a pay floating/receive fixed interest rate swap to hedge the change in fair value due to changes in interest rates of the Bank’s $400 million subordinated notes. The Bank has agreed with the swap counterparty to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated based on a notional amount of $375 million. The fixed-rate interest payments received on the swap will essentially offset the fixed-rate interest payments made on these notes, notwithstanding the notional difference between these notes and the swap. The floating-rate interest amounts paid under the swap are calculated based on three-month LIBOR plus 126.5 basis points. The swap effectively converts the fixed-rate subordinated notes to a floating-rate liability. This swap is accounted for as a fair value hedge.

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

Foreign exchange contracts are commitments to buy or sell foreign currency on a future date at a contractual price. People’s United uses these instruments on a limited basis to (i) eliminate its exposure to fluctuations in currency exchange rates on certain of its commercial loans that are denominated in foreign currencies and (ii) provide foreign exchange contracts on behalf of commercial customers within credit exposure limits. Gains and losses on foreign exchange contracts substantially offset the translation gains and losses on the related loans.

People’s United enters 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 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 has sold credit risk, it is a 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 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’s pro-rata share of the derivative contracts, consistent with its share of the related loans.

People’s United 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 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’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 will commit to an interest rate on a mortgage loan application at the time of application, or anytime thereafter. 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.

In connection with its planned issuance of senior notes in the fourth quarter of 2012, People’s United 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 AOCL. The gain is being recognized as a reduction of interest expense over the ten-year period during which the hedged item ($500 million senior note issuance) affects earnings. The portion of the unrecognized gain at December 31, 2019 that is expected to be recognized over the next 12 months totals approximately $0.1 million.


						Fair Values (1)
	Type of Hedge	Notional Amounts						Assets						Liabilities
As of December 31 (in millions)				2019		2018		2019		2018		2019		2018
Derivatives Not Designated as Hedging Instruments:
Interest rate swaps:
Commercial customers	N/A	$	8,847.7	$	7,455.9	$	320.5	$	76.3	$	13.9	$	102.6
Institutional counterparties	N/A	8,851.8		7,161.3		17.1		22.6		78.2		32.4
Interest rate caps:
Commercial customers	N/A	246.0		329.1		1.6		0.6		0.1		2.5
Institutional counterparties	N/A	246.0		329.1		0.1		2.5		1.6		0.6
Risk participation agreements (2)	N/A	882.8		576.5		—		—		0.1		—
Foreign exchange contracts	N/A	180.4		145.2		1.2		0.9		1.8		0.8
Forward commitments to sell residential mortgage loans	N/A	23.3		9.5		0.5		0.1		—		—
Interest rate-lock commitments on residential mortgage loans	N/A	33.6		13.6		—		—		0.5		0.1
Total						341.0		103.0		96.2		139.0
Derivatives Designated as Hedging Instruments:
Interest rate swaps:
Subordinated notes	Fair value	375.0		375.0		—		—		—		—
Loans	Cash flow	210.0		210.0		—		—		—		—
Total						—		—		—		—
Total fair value of derivatives						$	341.0	$	103.0	$	96.2	$	139.0


	Type of Hedge	Amount of Pre-Tax Gain (Loss) Recognized in Earnings (1)															Amount of Pre-Tax Gain (Loss) Recognized in AOCL
Years ended December 31 (in millions)				2019			2018			2017			2019			2018			2017
Derivatives Not Designated as Hedging Instruments:
Interest rate swaps:
Commercial customers	N/A	$	374.9		$	(3.6)		$	5.3		$	—		$	—		$	—
Institutional counterparties	N/A	(350.3)			17.1			6.1			—			—			—
Interest rate caps:
Commercial customers	N/A	1.4			1.1			0.7			—			—			—
Institutional counterparties	N/A	(1.5)			(1.0)			(0.3)			—			—			—
Foreign exchange contracts	N/A	1.0			0.9			0.5			—			—			—
Risk participation agreements	N/A	(0.4)			0.2			—			—			—			—
Forward commitments to sell residential mortgage loans	N/A	0.3			(0.1)			(0.2)			—			—			—
Interest rate-lock commitments on residential mortgage loans	N/A	(0.4)			0.1			0.3			—			—			—
Total		25.0			14.7			12.4			—			—			—
Derivatives Designated as Hedging Instruments:
Interest rate swaps	Fair value	0.3			2.1			5.9			—			—			—
Interest rate swaps	Cash flow	(1.2)			(0.6)			0.8			1.9			(1.7)			(1.0)
Interest rate locks	Cash flow	0.1			0.1			0.1			—			—			—
Total		(0.8)			1.6			6.8			1.9			(1.7)			(1.0)
Total		$	24.2		$	16.3		$	19.2		$	1.9		$	(1.7)		$	(1.0)