July 21, 2005

People's Bank Second Quarter Earnings Increased 48 Percent to $37 Million Or $0.26 Per Share

BRIDGEPORT, CONN. - People's Bank (NASDAQ: PBCT), an $11 billion financial services company, today announced net income increased 48 percent to $37.0 million, or $0.26 per share, for the second quarter of 2005 compared to $25.0 million, or $0.18 per share, for the second quarter of 2004. The current quarter's results included $9.7 million from the previously announced resolution of the remaining contingencies related to the sale of People's credit card portfolio (reported in income from discontinued operations) and a $2.0 million nonrecurring goodwill impairment charge. Prior period per share information has been restated to reflect the three-for-two stock split completed in May 2005.

Income from continuing operations excluding the goodwill impairment charge would have increased 41 percent to $31.4 million, or $0.22 per share, from $22.3 million, or $0.16 per share, for the year-ago quarter.

For the second quarter of 2005 return on average assets (ROA) was 1.36 percent and return on average stockholders' equity was 12.0 percent, compared to 0.94 percent and 8.7 percent, respectively, for the year-ago quarter. ROA would have been 1.20 percent for the second quarter of 2005 after excluding the net increase in earnings from the items mentioned above.

People's Board of Directors declared a $0.22 per share quarterly dividend on People's common stock, payable August 15, 2005, to shareholders of record on August 1, 2005. People's Mutual Holdings, which owns 82.0 million shares of People's Bank common stock, will accept dividends on only 2.5 percent of its shares. Based on the closing stock price on July 20, 2005, the dividend yield on People's Bank common stock is 2.7 percent.

President and Chief Executive Officer John A. Klein stated, "People's has delivered another quarter of strengthening earnings through our continuing focus on the fundamentals, including healthy growth in our core lending businesses and yet another improvement in the net interest margin."

"We continue to generate double-digit loan growth across our commercial and consumer businesses," said Klein. "Our average commercial banking, home equity and residential mortgage loan portfolios increased a combined $983 million, or 14 percent, since the second quarter of 2004."

Klein added, "We continue to be nearly 100 percent funded by core deposits and stockholders' equity, which affords the bank substantial flexibility to fund future loan growth. On the deposit front, average core demand deposits increased $105 million, or 5 percent, on a year-over-year basis."

"Other key drivers of the bank's performance this quarter were an increase in the net interest margin and outstanding asset quality," said Philip R. Sherringham, Executive Vice President and Chief Financial Officer. "The 43 basis point improvement in the net interest margin from the second quarter of last year reflects a combination of the bank's slightly asset-sensitive position and the ongoing substitution of securities with higher-yielding loans."

Commenting on asset quality, Sherringham added, "Bankwide asset quality remains very strong, with second quarter 2005 net loan charge-offs of $0.9 million, a 63 percent improvement from the second quarter of last year. Annualized net loan charge-offs as a percent of average loans were only 4 basis points for the second consecutive quarter."

Non-performing assets declined $11.0 million, or 31 percent, since June 30, 2004 to $24.2 million and equaled 0.29 percent of total loans, REO and repossessed assets at June 30, 2005, compared to 0.48 percent a year ago. The allowance for loan losses as a percentage of non-performing loans was 312 percent at June 30, 2005, compared to 212 percent at June 30, 2004.

Sherringham continued, "The 620 basis point improvement in the efficiency ratio from the year-ago quarter reflects a significant increase in revenue and a slight decline in operating expenses." This quarter's results included a $2.0 million nonrecurring goodwill impairment charge related to the bank's asset management subsidiary, which is in the process of being combined with People's other wealth management businesses.

As part of its ongoing effort to control expenses, the bank invested $150 million in a Bank Owned Life Insurance (BOLI) program late in the second quarter of 2005. The earnings generated from the BOLI asset are expected to help defray a portion of the rising cost of employee benefits.

Selected Financial Terms
In addition to presenting financial information in accordance with generally accepted accounting principles ("GAAP"), certain non-GAAP information is also presented, such as operating revenue and the efficiency ratio. Operating revenue is based on income from continuing operations reduced by gains and losses other than from the sale of residential mortgage loans and excluding other items that may recur from time to time but that are deemed to occur irregularly or infrequently. Management considers this measure to be more representative of People's ongoing profitability, as the excluded items are generally related to external market conditions and non-routine transactions.

The efficiency ratio, which is derived in part from operating revenue and represents an approximate measure of the cost required by People's to generate a dollar of revenue, is the ratio of operating expense to operating revenue. Operating expense equals People's total non-interest expense, excluding goodwill impairment, amortization of acquisition-related intangibles, losses on real estate assets, and nonrecurring expenses. People's considers an expense to be "nonrecurring" if it is not similar to an expense of a type incurred within the last two years, and is not similar to an expense of a type reasonably expected to be incurred within the following two years.

This release contains information about People's core deposits and purchased funds (both non-GAAP measures). Core deposits, a measure of stable funding sources, equal total deposits, other than brokered certificates of deposit (acquired in the wholesale market), municipal deposits (which are seasonally variable by nature) and non-interest-bearing deposits utilized for the operation of People's businesses. Purchased funds include borrowings, brokered certificates of deposit and municipal deposits.

Conference Call
On July 22, 2005, at 11 a.m., Eastern Time, People's will host a conference call to discuss this earnings announcement. The call may be heard through www.peoples.com by selecting Investor Relations, News and Events, Conference Calls. Additional materials relating to the call may also be accessed at People's Web site. The call will be archived on the Web site and available for approximately 90 days.

2Q Financial Highlights (2Q 2005 compared with 2Q 2004 unless otherwise indicated)

Summary

• Net income totaled $37.0 million, or $0.26 per share.
• Provision for loan losses decreased $6.2 million.
• Net loan charge-offs decreased $1.5 million.
• The allowance for loan losses was increased $4.7 million in 2Q04.
• Net interest income increased $12.7 million.
• Net interest margin increased 43 basis points from 2Q04 and improved 4 basis points from 1Q05 to 3.66%.
• Non-interest income declined $0.3 million.
• Total fee-based revenues increased $2.0 million.
• Other non-interest income in 2Q04 included $2.3 million of credit card-related servicing income.
• Non-interest expense, excluding the goodwill impairment charge of $2.0 million, decreased $0.1 million.
• Compensation and benefits increased $1.9 million.
• Occupancy and equipment decreased $2.9 million.
• Effective income tax rate for 2Q05 equaled 34.4%, up from 22.6% in 2Q04.
• Income tax expense in 2Q04 was reduced by $4.0 million as a result of the completion of a federal tax audit in that quarter.
• Income from discontinued operations included $9.7 million ($6.3 million after-tax) from the resolution of the remaining contingencies related to the sold credit card portfolio.

Commercial Banking

• Average commercial banking loans grew $462 million, or 15%.
• Average commercial non-interest-bearing deposits increased $46 million, or 5%.
• The ratio of non-performing commercial banking loans to total commercial banking loans was 0.42% at June 30, 2005 compared to 0.54% at December 31, 2004.
• Net loan charge-offs were less than 1 basis point of average commercial banking loans.

Consumer Financial Services

• Average home equity loan portfolios increased $254 million, or 30%.
• Average residential mortgage loans increased $267 million, or 9%.
• Average consumer non-interest-bearing deposits grew $59 million, or 5%.

Treasury

• Average securities and short-term investments declined $658 million, or 25%.
• Securities made up 19% of average earning assets in 2Q05 compared to 22% in 2Q04.
• The debt securities portfolio totaled $1.6 billion at June 30, 2005, an $890 million, or 36%, decrease from a year ago.

People's Bank is a diversified financial services company providing consumer and commercial banking services, in addition to insurance and financial advisory services. The bank is a leader in supermarket banking, with 67 of its 154 branches located in Super Stop & Shop stores. Through its subsidiaries, People's provides brokerage and financial advisory services, asset management, equipment leasing and financing, and insurance services.