DBRS Confirms People’s United Financial, Inc. at A (low); Trend Stable

DBRS has today confirmed all ratings of People’s United Financial, Inc. (People’s or the Company) and its banking subsidiary, including the Company’s Issuer & Senior Debt rating at A (low). The trend for all ratings remains Stable. The ratings action follows the Company’s announced acquisition of Financial Federal Corporation (Financial Federal) in a stock and cash transaction valued at approximately $738 million.

The Company’s ratings reflect its strong New England franchise that is underpinned by significant core deposit funding and strong asset quality. The ratings also take into account limited non-interest income. The announced acquisition is immediately accretive to earnings and modestly improves the Company’s tangible common equity ratio leaving People’s with continued flexibility to pursue additional acquisitions.

Financial Federal, a $1.5 billion in assets equipment finance company, lends to middle-market businesses across 49 states with a focus on construction, road transportation and refuse industries. Outside of the transportation sector, there is very little overlap between Financial Federal and the Company’s existing equipment financing subsidiary, People’s Capital and Leasing Corporation (PCLC). The combined portfolio would rank as the 13th largest U.S. bank-owned equipment finance business.

DBRS notes that Financial Federal is a strong asset generator and can take advantage of the Company’s balance sheet, which has significant liquidity and low-cost deposit funding. The acquisition would boost the Company’s net interest margin by approximately 35 basis points. Financial Federal is a secured lender that has delivered solid risk-adjusted returns over 20+ years, which mitigates concerns over potential asset quality issues. Key personnel at Financial Federal have been retained, which should keep integration risk low.

On a pro-forma basis, the tangible common equity ratio improves to 19.0% from 18.6%, so People’s can continue to pursue other acquisitions to grow the franchise. The Company’s priority remains buying a commercially-oriented bank within the Northeast corridor that runs from Maine to Washington D.C. Additionally, management feels it has the breadth and depth to smoothly integrate and operate an FDIC-assisted deal out-of-footprint and will pursue deals that are attractive financially. Non-banks such as asset managers and finance companies remain under consideration as well. With approximately $2.5 billion in excess capital, People’s could acquire approximately $40 billion in assets, either through a large transaction or multiple smaller ones, without needing to raise additional capital.

People’s United Financial, Inc., a diversified financial services provider headquartered in Fairfield County, CT, reported $20.8 billion in assets at September 30, 2009.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.