Edgar Filing: Northwest Bancshares, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2014

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-34582

NORTHWEST BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Maryland		27-0950358
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Liberty Street, Warren, Pennsylvania		16365
(Address of principal executive offices)		(Zip Code)

(814) 726-2140

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x		Accelerated Filer o

Non-Accelerated Filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a Shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock ($0.01 par value) 94,964,483 shares outstanding as of July 31, 2014

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NORTHWEST BANCSHARES, INC.

INDEX

		PAGE

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Consolidated Statements of Financial Condition as of June 30, 2014 and December 31, 2013	1

	Consolidated Statements of Income for the quarter ended and six months ended June, 2014 and 2013	2

	Consolidated Statements of Comprehensive Income for the quarter ended and six months ended June 30, 2014 and 2013	3

	Consolidated Statements of Changes in Shareholders’ Equity for the quarter ended June 30, 2014 and 2013	4

	Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2014 and 2013	5

	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	6

	Notes to Consolidated Financial Statements - Unaudited	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	64

Item 4.	Controls and Procedures	65

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	66

Item 1A.	Risk Factors	66

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66

Item 3.	Defaults Upon Senior Securities	67

Item 4.	Mine Safety Disclosures	67

Item 5.	Other information	67

Item 6.	Exhibits	67

	Signature	68

	Certifications

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ITEM 1. FINANCIAL STATEMENTS

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share data)

	(Unaudited)
	June 30,			December 31,
	2014			2013
Assets
Cash and due from banks	$	97,467		98,122
Interest-earning deposits in other financial institutions	287,867			293,149
Federal funds sold and other short-term investments	634			634
Marketable securities available-for-sale (amortized cost of $972,258 and $1,022,078)	977,786			1,016,767
Marketable securities held-to-maturity (fair value of $117,670 and $124,061)	114,154			121,366
Total cash and investments	1,477,908			1,530,038

Personal Banking:
Residential mortgage loans held for sale	—			221
Residential mortgage loans	2,485,740			2,482,783
Home equity loans	1,066,943			1,083,939
Other consumer loans	231,974			228,348
Total Personal Banking	3,784,657			3,795,291
Business Banking:
Commercial real estate loans	1,694,882			1,608,399
Commercial loans	406,195			402,601
Total Business Banking	2,101,077			2,011,000
Total loans	5,885,734			5,806,291
Allowance for loan losses	(71,442		)	(71,348	)
Total loans, net	5,814,292			5,734,943

Federal Home Loan Bank stock, at cost	43,986			43,715
Accrued interest receivable	21,756			21,821
Real estate owned, net	14,915			18,203
Premises and equipment, net	145,344			146,139
Bank owned life insurance	142,223			140,172
Goodwill	175,988			174,463
Other intangible assets	3,694			2,319
Other assets	62,210			69,663
Total assets	$	7,902,316		7,881,476

Liabilities and Shareholders’ equity
Liabilities:
Noninterest-bearing checking deposits	$	872,661		789,135
Interest-bearing checking deposits	901,486			852,809
Money market deposit accounts	1,183,228			1,167,954
Savings deposits	1,236,307			1,191,584
Time deposits	1,580,240			1,667,397
Total deposits	5,773,922			5,668,879

Borrowed funds	869,335			881,645
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities	103,094			103,094
Advances by borrowers for taxes and insurance	37,677			26,669
Accrued interest payable	816			888
Other liabilities	45,000			43,499
Total liabilities	6,829,844			6,724,674

Shareholders’ equity:
Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued	—			—
Common stock, $0.01 par value: 500,000,000 shares authorized, 94,949,695 and 94,243,713 shares issued, respectively	949			943
Paid-in capital	626,213			619,678
Retained earnings	472,726			571,164
Unallocated common stock of employee stock ownership plan	(22,200		)	(23,083	)
Accumulated other comprehensive loss	(5,216		)	(11,900	)
Total shareholders’ equity	1,072,472			1,156,802
Total liabilities and shareholders’ equity	$	7,902,316		7,881,476

See accompanying notes to unaudited consolidated financial statements

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NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share data)

	Quarter ended					Six months ended
	June 30,					June 30,
	2014			2013		2014		2013
Interest income:
Loans receivable	$	70,797		71,987		140,170		144,960
Mortgage-backed securities	2,666			3,308		5,459		6,749
Taxable investment securities	1,014			1,034		2,094		1,939
Tax-free investment securities	1,598			2,094		3,253		4,157
Interest-earning deposits	286			340		486		591
Total interest income	76,361			78,763		151,462		158,396

Interest expense:
Deposits	6,421			7,404		12,911		15,218
Borrowed funds	7,793			8,032		15,507		15,863
Total interest expense	14,214			15,436		28,418		31,081

Net interest income	62,147			63,327		123,044		127,315
Provision for loan losses	8,285			5,405		15,770		12,563
Net interest income after provision for loan losses	53,862			57,922		107,274		114,752

Noninterest income:
Gain on sale of investments	349			19		3,697		120
Service charges and fees	9,042			9,037		17,450		17,728
Trust and other financial services income	3,055			2,263		6,102		4,467
Insurance commission income	2,237			2,190		4,801		4,485
Loss on real estate owned, net	(562		)	(2,285	)	(697	)	(2,415	)
Income from bank owned life insurance	1,050			1,088		2,051		2,173
Mortgage banking income	265			236		514		1,192
Other operating income	1,688			865		2,863		2,041
Total noninterest income	17,124			13,413		36,781		29,791

Noninterest expense:
Compensation and employee benefits	28,543			28,156		56,515		56,086
Premises and occupancy costs	5,740			5,744		12,297		11,897
Office operations	3,868			3,866		7,625		7,134
Processing expenses	6,639			7,390		13,228		13,243
Marketing expenses	2,931			2,093		4,568		3,993
Federal deposit insurance premiums	1,338			1,424		2,635		2,862
Professional services	1,775			1,199		3,837		2,892
Amortization of other intangible assets	331			349		662		697
Real estate owned expense	459			600		1,098		1,199
Other expenses	2,182			1,985		4,504		4,274
Total noninterest expense	53,806			52,806		106,969		104,277

Income before income taxes	17,180			18,529		37,086		40,266

Federal and state income taxes	4,465			5,051		9,731		11,490

Net income	$	12,715		13,478		27,355		28,776

Basic earnings per share	$	0.14		0.15		0.30		0.32

Diluted earnings per share	$	0.14		0.15		0.30		0.32

See accompanying notes to unaudited consolidated financial statements

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NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)

	Quarter ended					Six months ended
	June 30,					June 30,
	2014			2013		2014		2013
Net Income	$	12,715		13,478		27,355		28,776
Other comprehensive income net of tax:
Net unrealized holding gains/ (losses) on marketable securities:
Unrealized holding gains/ (losses) net of tax of $(1,997), $7,276, $(5,576) and $6,841, respectively	3,123			(11,399	)	8,719		(10,729	)
Reclassification adjustment for gains included in net income, net of tax of $130, $44, $1,348 and $87 respectively	(204		)	(68	)	(2,108	)	(134	)
Net unrealized holding gains/ (losses) on marketable securities	2,919			(11,467	)	6,611		(10,863	)

Change in fair value of interest rate swaps, net of tax of $(53), $(874), $(188) and $(1,241), respectively	98			1,626		349		2,306

Defined benefit plan:
Reclassification adjustment for prior period service costs included in net income, net of tax of $74, $(123), $149 and $(246), respectively	(138		)	229		(276	)	458

Other comprehensive income/ (loss)	2,879			(9,612	)	6,684		(8,099	)

Total comprehensive income	$	15,594		3,866		34,039		20,677

See accompanying notes to unaudited consolidated financial statements

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NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, expect share data)

Quarter ended June 30, 2013

										Accumulated
										Other		Unallocated		Total
	Common Stock					Paid-in		Retained		Comprehensive		common stock		Shareholders’
	Shares		Amount			Capital		Earnings		Income/ (loss)		of ESOP		Equity
Beginning balance at March 31, 2013	93,802,335		$	938		615,160		565,594		(9,975	)	(24,137	)	1,147,580

Comprehensive income:
Net income	—		—			—		13,478		—		—		13,478

Other comprehensive loss, net of tax of $6,350	—		—			—		—		(9,612	)	—		(9,612	)

Total comprehensive income	—		—			—		13,478		(9,612	)	—		3,866

Exercise of stock options	174,992		2			1,681		—		—		—		1,683

Stock compensation expense	269,320		3			1,134		—		—		394		1,531

Share repurchases	(368,800	)	(4		)	(4,455	)	—		—		—		(4,459	)

Dividends paid ($0.24 per share)	—		—			—		(21,968	)	—		—		(21,968	)

Ending balance at June 30, 2013	93,877,847		$	939		613,520		557,104		(19,587	)	(23,743	)	1,128,233

Quarter ended June 30, 2014

										Accumulated
										Other		Unallocated		Total
	Common Stock					Paid-in		Retained		Comprehensive		common stock		Shareholders’
	Shares		Amount			Capital		Earnings		Income/ (loss)		of ESOP		Equity
Beginning balance at March 31, 2014	94,464,430		$	945		622,758		564,580		(8,095	)	(22,632	)	1,157,556

Comprehensive income:
Net income	—		—			—		12,715		—		—		12,715

Other comprehensive income, net of tax of $(1,846)	—		—			—		—		2,879		—		2,879

Total comprehensive income	—		—			—		12,715		2,879		—		15,594

Exercise of stock options	212,635		2			2,167		—		—		—		2,169

Stock compensation expense	272,630		2			1,288		—		—		432		1,722

Dividends paid ($1.13 per share)	—		—			—		(104,569	)	—		—		(104,569	)

Ending balance at June 30, 2014	94,949,695		$	949		626,213		472,726		(5,216	)	(22,200	)	1,072,472

See accompanying notes to unaudited consolidated financial statements

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NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, expect share data)

Six months ended June 30, 2013

										Accumulated
										Other		Unallocated		Total
	Common Stock					Paid-in		Retained		Comprehensive		common stock		Shareholders’
	Shares		Amount			Capital		Earnings		Income/ (loss)		of ESOP		Equity
Beginning balance at December 31, 2012	93,652,960		$	937		613,249		550,296		(11,488	)	(24,525	)	1,128,469

Comprehensive income:
Net income	—		—			—		28,776		—		—		28,776

Other comprehensive loss, net of tax of $5,441	—		—			—		—		(8,099	)	—		(8,099	)

Total comprehensive income	—		—			—		28,776		(8,099	)	—		20,677

Exercise of stock options	324,367		3			2,898		—		—		—		2,901

Stock-based compensation expense	269,320		3			1,828		—		—		782		2,613

Share repurchases	(368,800	)	(4		)	(4,455	)	—		—		—		(4,459	)

Dividends paid ($0.24 per share)	—		—			—		(21,968	)	—		—		(21,968	)

Ending balance at June 30, 2013	93,877,847		$	939		613,520		557,104		(19,587	)	(23,743	)	1,128,233

Six months ended June 30, 2014

										Accumulated
										Other		Unallocated		Total
	Common Stock					Paid-in		Retained		Comprehensive		common stock		Shareholders’
	Shares		Amount			Capital		Earnings		Income/ (loss)		of ESOP		Equity
Beginning balance at December 31, 2013	94,243,713		$	943		619,678		571,164		(11,900	)	(23,083	)	1,156,802

Comprehensive income:
Net income	—		—			—		27,355		—		—		27,355

Other comprehensive income, net of tax of $(4,267)	—		—			—		—		6,684		—		6,684

Total comprehensive income	—		—			—		27,355		6,684		—		34,039

Exercise of stock options	433,352		4			4,459		—		—		—		4,463

Stock-based compensation expense	272,630		2			2,076		—		—		883		2,961

Dividends paid ($1.36 per share)	—		—			—		(125,793	)	—		—		(125,793	)

Ending balance at June 30, 2014	94,949,695		$	949		626,213		472,726		(5,216	)	(22,200	)	1,072,472

See accompanying notes to unaudited consolidated financial statements

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NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

	Six months ended
	June 30,
	2014			2013
OPERATING ACTIVITIES:
Net Income	$	27,355		28,776
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	15,770			12,563
Net gain on sale of assets	(3,874		)	(584	)
Net depreciation, amortization and accretion	4,937			4,708
Decrease in other assets	4,591			11,200
Decrease in other liabilities	(3,531		)	(21	)
Net amortization on marketable securities	210			59
Noncash write-down of real estate owned	1,381			2,971
Origination of loans held for sale	(758		)	(35,991	)
Proceeds from sale of loans held for sale	1,023			51,673
Noncash compensation expense related to stock benefit plans	2,961			2,613
Net cash provided by operating activities	50,065			77,967

INVESTING ACTIVITIES:
Purchase of marketable securities available-for-sale	(22,805		)	(227,595	)
Proceeds from maturities and principal reductions of marketable securities available-for-sale	70,071			143,939
Proceeds from maturities and principal reductions of marketable securities held-to-maturity	7,205			21,690
Proceeds from sale of marketable securities available-for-sale	6,048			—
Loan originations	(939,594		)	(984,068	)
Proceeds from loan maturities and principal reductions	842,751			962,424
Purchase of Federal Home Loan Bank stock	(271		)	(1,406	)
Proceeds from sale of real estate owned	5,704			8,969
Sale of real estate owned for investment, net	304			228
Purchase of premises and equipment	(5,034		)	(7,895	)
Acquistions, net of cash received	(2,792		)	—
Net cash used in investing activities	(38,413		)	(83,714	)

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NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

(in thousands)

	Six months ended
	June 30,
	2014			2013
FINANCING ACTIVITIES:
Increase in deposits, net	$	105,043		18,492
Proceeds from long-term borrowings	—			30,000
Repayments of long-term borrowings	(27		)	(34	)
Net decrease in short-term borrowings	(12,283		)	(32,669	)
Increase in advances by borrowers for taxes and insurance	11,008			9,935
Cash dividends paid	(125,793		)	(21,968	)
Purchase of common stock for retirement	—			(4,459	)
Proceeds from stock options exercised	4,463			2,901
Net cash (used in)/ provided by financing activities	(17,589		)	2,198

Net decrease in cash and cash equivalents	$	(5,937	)	(3,549	)

Cash and cash equivalents at beginning of period	$	391,905		451,704
Net decrease in cash and cash equivalents	(5,937		)	(3,549	)
Cash and cash equivalents at end of period	$	385,968		448,155

Cash and cash equivalents:
Cash and due from banks	$	97,467		87,524
Interest-earning deposits in other financial institutions	287,867			359,997
Federal funds sold and other short-term investments	634			634
Total cash and cash equivalents	$	385,968		448,155

Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $11,608 and $13,707, respectively)	$	28,490		30,926
Income taxes	$	14,872		15,960

Non-cash activities:
Loans foreclosures and repossessions	$	3,707		7,019
Sale of real estate owned financed by the Company	$	330		296

See accompanying notes to unaudited consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited

(1) Basis of Presentation and Informational Disclosures

Northwest Bancshares, Inc. (the “Company”) or (“NWBI”), a Maryland corporation headquartered in Warren, Pennsylvania, is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. The Company was incorporated to be the successor to Northwest Bancorp, Inc. upon the completion of the mutual-to-stock conversion of Northwest Bancorp, MHC in December 2009. The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Savings Bank, a Pennsylvania-chartered savings bank (“Northwest”). Northwest is regulated by the FDIC and the Pennsylvania Department of Banking. At June 30, 2014, Northwest operated 165 community-banking offices throughout Pennsylvania, western New York, eastern Ohio and Maryland.

The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiary, Northwest, and Northwest’s subsidiaries Northwest Settlement Agency, LLC, Northwest Consumer Discount Company, Northwest Financial Services, Inc., Northwest Advisors, Inc., Northwest Capital Group, Inc., Allegheny Services, Inc., Great Northwest Corporation, Boetger & Associates, Inc., The Bert Company, Veracity Benefits Designs and Evans Capital Management, Inc. The unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or footnotes required for complete annual financial statements. In the opinion of management, all adjustments necessary for the fair presentation of the Company’s financial position and results of operations have been included. The consolidated statements have been prepared using the accounting policies described in the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 updated, as required, for any new pronouncements or changes.

The results of operations for the quarter and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or any other period.

Stock-Based Compensation

On May 21, 2014, we awarded employees 534,950 stock options and directors 57,600 stock options with an exercise price of $13.15 and grant date fair value of $1.45 per stock option. On May 21, 2014, we also awarded employees 251,030 restricted common shares and directors 21,600 restricted common shares with a grant date fair value of $13.22. Awarded stock options and common shares vest over a ten-year period with the first vesting occurring on the grant date. Stock-based compensation expense of $1.8 million and $1.5 million for the quarter ended June 30, 2014 and 2013, respectively, and $3.0 million and $2.6 million for the six months ended June 30, 2014 and 2013, respectively, was recognized in compensation expense relating to our stock benefit plans. At June 30, 2014 there was compensation expense of $5.5 million to be recognized for awarded but unvested stock options and $17.2 million for unvested common shares.

Income Taxes- Uncertain Tax Positions

Accounting standards prescribe a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of June 30, 2014 we had no liability for unrecognized tax benefits.

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We recognize interest accrued related to: (1) unrecognized tax benefits in federal and state income taxes and (2) refund claims in other operating income. We recognize penalties (if any) in federal and state income taxes. There is no amount accrued for the payment of interest or penalties at June 30, 2014. We are subject to audit by the Internal Revenue Service and any state in which we conduct business for the tax periods ended December 31, 2012, 2011 and 2010.

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU No. 2014-01, “Accounting for Investments in Qualified Affordable Housing Projects.” This guidance permits reporting entities to make an accounting policy election to account for investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. The proportional amortization method permits the amortization of the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. This guidance is effective retrospectively for fiscal years and interim periods within those years, beginning after December 15, 2014, and early adoption is permitted. We do not expect that this standard will have a material impact on our results of operations or financial position.

In January 2014, the FASB issued ASU No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”. This guidance clarifies that an in substance repossession or foreclosure has occurred, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure. Interim and annual disclosure is required of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. This guidance is effective using either the modified retrospective transition method or a prospective transition method for fiscal years and interim periods within those years, beginning after December 15, 2014, and early adoption is permitted. We do not expect that this standard will have a material impact on our results of operations or financial position.

In May 2014 the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. This guidance supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The core principle of this guidance requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and provides five steps to be analyzed to accomplish the core principle. This guidance is effective retrospectively for annual reporting periods beginning after December 15, 2016, including interim periods within those years and early adoption is not permitted. We are currently evaluating the impact this standard will have on our results of operations and financial position.

In June 2014 the FASB issued ASU 2014-11, “Transfers and Servicing: Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. This guidance requires repurchase-to-maturity transactions to be recorded and accounted for as secured borrowings and also requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. Additionally, an entity is required to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements, and provide increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The guidance related to repurchase-to-maturity and repurchase financing

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transactions, and disclosures for certain transactions accounted for as a sale is effective for annual reporting periods beginning after December 15, 2014, including interim periods within those years. The disclosures for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings are required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. We do not expect that this standard will have a material impact on our results of operations or financial position.

In June 2014 the FASB issued ASU 2014-12, “Compensation—Stock Compensation”. This guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Specifically, if the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. Further, the total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. This guidance is effective for annual periods beginning after December 15, 2015, including interim periods within those years and early adoption is permitted. We do not expect that this standard will have a material impact on our results of operations or financial position.

(2) Business Segments

We operate in two reportable business segments: Community Banking and Consumer Finance. The Community Banking segment provides services traditionally offered by full-service community banks, including business and personal deposit accounts and business and personal loans, as well as insurance, brokerage and investment management and trust services. The Consumer Finance segment, which is comprised of Northwest Consumer Discount Company, a subsidiary of Northwest, operates 50 offices in Pennsylvania and offers personal installment loans for a variety of consumer and real estate products. This activity is funded primarily through an intercompany borrowing relationship with Allegheny Services, Inc., a subsidiary of Northwest. Net income is the primary measure used by management to measure segment performance. The following tables provide financial information for these reportable segments. The “All Other” column represents the parent company and elimination entries necessary to reconcile to the consolidated amounts presented in the financial statements.

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At or for the quarter ended:

	Community		Consumer
June 30, 2014 ($ in 000’s)	Banking		Finance	All other (1)		Consolidated
External interest income	$	71,435	4,706	220		76,361
Intersegment interest income	591		—	(591	)	—
Interest expense	13,148		591	475		14,214
Provision for loan losses	7,500		785	—		8,285
Noninterest income	16,629		482	13		17,124
Noninterest expense	50,540		2,948	318		53,806
Income tax expense (benefit)	4,519		358	(412	)	4,465
Net income	12,948		506	(739	)	12,715
Total assets	$	7,773,965	105,909	22,442		7,902,316

	Community		Consumer
June 30, 2013 ($ in 000’s)	Banking		Finance	All other (1)		Consolidated
External interest income	$	73,236	5,218	309		78,763
Intersegment interest income	676		—	(676	)	—
Interest expense	14,162		676	598		15,436
Provision for loan losses	4,700		705	—		5,405
Noninterest income	12,986		414	13		13,413
Noninterest expense	49,447		3,144	215		52,806
Income tax expense (benefit)	5,024		459	(432	)	5,051
Net income	13,565		648	(735	)	13,478
Total assets	$	7,811,048	111,102	41,664		7,963,814

(1) Eliminations consist of intercompany loans, interest income and interest expense.

At or for the six months ended:

	Community		Consumer
June 30, 2014 ($ in 000’s)	Banking		Finance	All other (1)		Consolidated
External interest income	$	141,554	9,365	543		151,462
Intersegment interest income	1,197		—	(1,197	)	—
Interest expense	26,317		1,197	904		28,418
Provision for loan losses	14,350		1,420	—		15,770
Noninterest income	33,662		770	2,349		36,781
Noninterest expense	100,402		5,869	698		106,969
Income tax expense (benefit)	9,054		684	(7	)	9,731
Net income	26,290		965	100		27,355
Total assets	$	7,773,965	105,909	22,442		7,902,316

	Community		Consumer
June 30, 2013 ($ in 000’s)	Banking		Finance	All other (1)		Consolidated
External interest income	$	147,330	10,419	647		158,396
Intersegment interest income	1,376		—	(1,376	)	—
Interest expense	28,556		1,376	1,149		31,081
Provision for loan losses	11,006		1,557	—		12,563
Noninterest income	29,010		733	48		29,791
Noninterest expense	97,559		6,288	430		104,277
Income tax expense (benefit)	11,535		801	(846	)	11,490
Net income	29,060		1,130	(1,414	)	28,776
Total assets	$	7,811,048	111,102	41,664		7,963,814

(1) Eliminations consist of intercompany loans, interest income and interest expense.

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(3) Investment securities and impairment of investment securities

The following table shows the portfolio of investment securities available-for-sale at June 30, 2014 (in thousands):

			Gross	Gross
			unrealized	unrealized
	Amortized		holding	holding		Fair
	cost		gains	losses		value
Debt issued by the U.S. government and agencies:
Due in one year or less	$	29	—	—		29

Debt issued by government sponsored enterprises:
Due in one year - five years	265,778		358	(2,154	)	263,982
Due in five years - ten years	63,755		1	(980	)	62,776

Equity securities	2,886		1,696	(8	)	4,574

Municipal securities:
Due in one year or less	510		2	—		512
Due in one year - five years	8,297		110	—		8,407
Due in five years - ten years	11,726		282	—		12,008
Due after ten years	60,198		2,353	(9	)	62,542

Corporate debt issues:
Due after ten years	20,702		1,834	(342	)	22,194

Residential mortgage-backed securities:
Fixed rate pass-through	80,018		3,630	(224	)	83,424
Variable rate pass-through	73,024		3,387	(20	)	76,391
Fixed rate non-agency CMOs	3,520		289	—		3,809
Fixed rate agency CMOs	251,891		1,149	(6,438	)	246,602
Variable rate agency CMOs	129,924		676	(64	)	130,536
Total residential mortgage-backed securities	538,377		9,131	(6,746	)	540,762
Total marketable securities available-for-sale	$	972,258	15,767	(10,239	)	977,786

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The following table shows the portfolio of investment securities available-for-sale at December 31, 2013 (in thousands):

			Gross	Gross
			unrealized	unrealized
	Amortized		holding	holding		Fair
	cost		gains	losses		value
Debt issued by the U.S. government and agencies:
Due in one year or less	$	32	—	—		32

Debt issued by government sponsored enterprises:
Due in one year - five years	227,945		166	(4,041	)	224,070
Due in five years - ten years	94,777		72	(2,862	)	91,987

Equity securities	5,298		4,622	(70	)	9,850

Municipal securities:
Due in one year or less	710		10	—		720
Due in one year - five years	8,443		119	—		8,562
Due in five years - ten years	11,228		275	—		11,503
Due after ten years	71,068		1,111	(386	)	71,793

Corporate debt issues:
Due after ten years	21,150		475	(449	)	21,176

Residential mortgage-backed securities:
Fixed rate pass-through	85,306		3,041	(1,075	)	87,272
Variable rate pass-through	78,890		3,525	(16	)	82,399
Fixed rate non-agency CMOs	3,894		107	(3	)	3,998
Fixed rate agency CMOs	265,769		1,060	(11,436	)	255,393
Variable rate non-agency CMOs	660		—	(9	)	651
Variable rate agency CMOs	146,908		674	(221	)	147,361
Total residential mortgage-backed securities	581,427		8,407	(12,760	)	577,074
Total marketable securities available-for-sale	$	1,022,078	15,257	(20,568	)	1,016,767

The following table shows the portfolio of investment securities held-to-maturity at June 30, 2014 (in thousands):

			Gross	Gross
			unrealized	unrealized
	Amortized		holding	holding	Fair
	cost		gains	losses	value

Municipal securities:
Due in five years - ten years	$	8,006	196	—	8,202
Due after ten years	61,321		1,738	—	63,059

Residential mortgage-backed securities:
Fixed rate pass-through	9,872		631	—	10,503
Variable rate pass-through	4,680		62	—	4,742
Fixed rate agency CMOs	29,023		870	—	29,893
Variable rate agency CMOs	1,252		19	—	1,271
Total residential mortgage-backed securities	44,827		1,582	—	46,409
Total marketable securities held-to-maturity	$	114,154	3,516	—	117,670

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The following table shows the portfolio of investment securities held-to-maturity at December 31, 2013 (in thousands):

			Gross	Gross
			unrealized	unrealized
	Amortized		holding	holding		Fair
	cost		gains	losses		value

Municipal securities:
Due in five years - ten years	$	8,002	172	—		8,174
Due after ten years	61,314		1,178	(27	)	62,465

Residential mortgage-backed securities:
Fixed rate pass-through	11,101		544	—		11,645
Variable rate pass-through	5,172		71	—		5,243
Fixed rate agency CMOs	34,425		780	(33	)	35,172
Variable rate agency CMOs	1,352		10	—		1,362
Total residential mortgage-backed securities	52,050		1,405	(33	)	53,422
Total marketable securities held-to-maturity	$	121,366	2,755	(60	)	124,061

We review our investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which amortized costs have exceeded fair values, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and the intent to hold the investments for a period of time sufficient to allow for a recovery in value. Certain investments are evaluated using our best estimate of future cash flows. If the estimate of cash flows indicates that an adverse change has occurred, other-than-temporary impairment is recognized for the amount of the unrealized loss that was deemed credit related.

The following table shows the fair value of and gross unrealized losses on investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at June 30, 2014 (in thousands):

	Less than 12 months				12 months or more			Total
			Unrealized			Unrealized			Unrealized
	Fair value		loss		Fair value	loss		Fair value	loss

U.S. government and agencies	$	3,230	(2	)	262,301	(3,132	)	265,531	(3,134	)
Municipal securities	773		(9	)	—	—		773	(9	)
Corporate issues	—		—		2,078	(342	)	2,078	(342	)
Equity securities	614		(8	)	—	—		614	(8	)
Residential mortgage-backed securities - agency	44,636		(139	)	210,140	(6,607	)	254,776	(6,746	)

Total temporarily impaired securities	$	49,253	(158	)	474,519	(10,081	)	523,772	(10,239	)

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	Less than 12 months				12 months or more			Total
			Unrealized			Unrealized			Unrealized
	Fair value		loss		Fair value	loss		Fair value	loss

U.S. government and agencies	$	213,915	(4,797	)	64,635	(2,106	)	278,550	(6,903	)
Municipal securities	12,666		(413	)	—	—		12,666	(413	)
Corporate debt issues	—		—		1,970	(449	)	1,970	(449	)
Equity securities	552		(70	)	—	—		552	(70	)
Residential mortgage-backed securities - non-agency	1,210		(12	)	—	—		1,210	(12	)
Residential mortgage- backed securities - agency	224,125		(10,398	)	109,301	(2,383	)	333,426	(12,781	)

Total temporarily impaired securities	$	452,468	(15,690	)	175,906	(4,938	)	628,374	(20,628	)

Municipal Securities

We review our portfolio of municipal securities quarterly for impairment. We initially evaluate municipal securities for other-than-temporary impairment by comparing the fair value, provided to us by a third party pricing source using quoted prices for similar assets that are actively traded, to the carrying value. When an investment’s fair value is below 80% of the amortized cost we then assess the stated interest rate and compare the stated interest rate to current market interest rates to determine if the decline in fair value is considered to be attributable primarily to interest rates. If the stated interest rate approximates current interest rates for similar securities, we determine if the investment is rated and if so, if the rating has changed during the current period. If the rating has not changed during the current period, we review publicly available information to determine if there has been any negative change in the underlying municipality. As of June 30, 2014, none of the investments in our municipal securities portfolio had an amortized cost that exceeded the fair value for more than twelve months.

Credit related other-than-temporary impairment on all debt securities is recognized in earnings while noncredit related other-than-temporary impairment on available-for-sale debt securities, not expected to be sold, is recognized in other comprehensive income.

The table below shows a cumulative roll forward of credit losses recognized in earnings for debt securities held and not intended to be sold for the quarter ended (in thousands):

	2014			2013
Beginning balance at April 1, (1)	$	10,334		9,744
Credit losses on debt securities for which other-than-temporary impairment was not previously recognized	—			—
Reduction for losses realized during the quarter	(170		)	(47	)
Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized	—			—
Ending balance at June 30,	$	10,164		9,697

(1) – The beginning balance represents credit losses included in other-than-temporary impairment charges recognized on debt securities in prior periods.

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The table below shows a cumulative roll forward of credit losses recognized in earnings for debt securities held and not intended to be sold for the six months ended (in thousands):

	2014			2013
Beginning balance at Janaury 1, (1)	$	10,342		9,811
Credit losses on debt securities for which other-than-temporary impairment was not previously recognized	—			—
Reduction for losses realized during the six month period	(178		)	(114	)
Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized	—			—
Ending balance at June 30,	$	10,164		9,697

(1) – The beginning balance represents credit losses included in other-than-temporary impairment charges recognized on debt securities in prior periods.

(4) Loans receivable

The following table shows a summary of our loans receivable at June 30, 2014 and December 31, 2013 (in thousands):

	June 30,			December 31,
	2014			2013
Personal Banking:
Loans held for sale	$	—		221
Residential mortgage loans	2,493,581			2,491,917
Home equity loans	1,066,943			1,083,939
Other consumer loans	231,974			228,348
Total Personal Banking	3,792,498			3,804,425

Business Banking:
Commercial real estate	1,755,382			1,665,274
Commercial loans	433,827			437,559
Total Business Banking	2,189,209			2,102,833
Total loans receivable, gross	5,981,707			5,907,258

Deferred loan costs	4,048			2,461
Allowance for loan losses	(71,442		)	(71,348	)
Undisbursed loan proceeds:
Residential mortgage loans	(11,889		)	(11,595	)
Commercial real estate	(60,500		)	(56,875	)
Commercial loans	(27,632		)	(34,958	)
Total loans receivable, net	$	5,814,292		5,734,943

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The following table provides information related to the allowance for loan losses by portfolio segment and by class of financing receivable for the quarter ended June 30, 2014 (in thousands):

	Balance June 30, 2014		Current period provision	Charge-offs		Recoveries	Balance March 31, 2014
Personal Banking:
Residental mortgage loans	$	7,767	1,142	(883	)	41	7,467
Home equity loans	6,516		72	(593	)	79	6,958
Other consumer loans	5,626		1,495	(1,450	)	301	5,280
Total Personal Banking	19,909		2,709	(2,926	)	421	19,705

Business Banking:
Commercial real estate loans	35,081		364	(2,578	)	1,086	36,209
Commercial loans	12,106		5,017	(9,516	)	436	16,169
Total Business Banking	47,187		5,381	(12,094	)	1,522	52,378

Unallocated	4,346		195	—		—	4,151

Total	$	71,442	8,285	(15,020	)	1,943	76,234

The following table provides information related to the allowance for loan losses by portfolio segment and by class of financing receivable for the quarter ended June 30, 2013 (in thousands):

	Balance June 30, 2013		Current period provision	Charge-offs		Recoveries	Balance March 31, 2013
Personal Banking:
Residental mortgage loans	$	7,859	583	(777	)	175	7,878
Home equity loans	8,350		914	(805	)	30	8,211
Other consumer loans	4,823		963	(1,280	)	280	4,860
Total Personal Banking	21,032		2,460	(2,862	)	485	20,949

Business Banking:
Commercial real estate loans	35,558		2,500	(2,696	)	194	35,560
Commercial loans	11,786		258	(542	)	597	11,473
Total Business Banking	47,344		2,758	(3,238	)	791	47,033

Unallocated	4,214		187	—		—	4,027

Total	$	72,590	5,405	(6,100	)	1,276	72,009

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The following table provides information related to the allowance for loan losses by portfolio segment and by class of financing receivable for the six months ended June 30, 2014 (in thousands):

	Balance June 30, 2014		Current period provision		Charge-offs		Recoveries	Balance December 31, 2013
Personal Banking:
Residental mortgage loans	$	7,767	1,177		(1,342	)	57	7,875
Home equity loans	6,516		109		(965	)	127	7,245
Other consumer loans	5,626		2,679		(3,166	)	626	5,487
Total Personal Banking	19,909		3,965		(5,473	)	810	20,607

Business Banking:
Commercial real estate loans	35,081		1,915		(3,510	)	1,707	34,969
Commercial loans	12,106		10,206		(10,286	)	1,076	11,110
Total Business Banking	47,187		12,121		(13,796	)	2,783	46,079

Unallocated	4,346		(316	)	—		—	4,662

Total	$	71,442	15,770		(19,269	)	3,593	71,348

The following table provides information related to the allowance for loan losses by portfolio segment and by class of financing receivable for the six months ended June 30, 2013 (in thousands):

	Balance June 30, 2013		Current period provision	Charge-offs		Recoveries	Balance December 31, 2012
Personal Banking:
Residental mortgage loans	$	7,859	1,035	(1,456	)	278	8,002
Home equity loans	8,350		1,138	(1,175	)	93	8,294
Other consumer loans	4,823		1,759	(2,684	)	592	5,156
Total Personal Banking	21,032		3,932	(5,315	)	963	21,452

Business Banking:
Commercial real estate loans	35,558		7,357	(6,686	)	388	34,499
Commercial loans	11,786		1,086	(3,222	)	680	13,242
Total Business Banking	47,344		8,443	(9,908	)	1,068	47,741

Unallocated	4,214		188	—		—	4,026

Total	$	72,590	12,563	(15,223	)	2,031	73,219

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The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at June 30, 2014 (in thousands):

	Recorded investment in loans receivable		Allowance for loan losses	Recorded investment in loans on nonaccrual (1)	Recorded investment in loans past due 90 days or more and still accruing	TDRs	Allowance related to TDRs	Additional commitments to customers with loans classified as TDRs
Personal Banking:
Residental mortgage loans	$	2,485,740	7,767	24,149	—	5,769	1,043	—
Home equity loans	1,066,943		6,516	9,841	—	2,366	222	—
Other consumer loans	231,974		5,626	2,178	249	—	—	—
Total Personal Banking	3,784,657		19,909	36,168	249	8,135	1,265	—

Business Banking:
Commercial real estate loans	1,694,882		35,081	48,567	—	43,530	6,563	764
Commercial loans	406,195		12,106	12,022	22	12,128	1,958	633
Total Business Banking	2,101,077		47,187	60,589	22	55,658	8,521	1,397

Total	$	5,885,734	67,096	96,757	271	63,793	9,786	1,397

(1) Includes $23.9 million of nonaccrual TDRs.

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2013 (in thousands):

	Recorded investment in loans receivable		Allowance for loan losses	Recorded investment in loans on nonaccrual (1)	Recorded investment in loans past due 90 days or more and still accruing	TDRs	Allowance related to TDRs	Additional commitments to customers with loans classified as TDRs
Personal Banking:
Residental mortgage loans	$	2,483,004	7,875	27,277	—	4,004	863	—
Home equity loans	1,083,939		7,245	9,863	1	2,240	371	—
Other consumer loans	228,348		5,487	2,257	666	—	—	—
Total Personal Banking	3,795,291		20,607	39,397	667	6,244	1,234	—

Business Banking:
Commercial real estate loans	1,608,399		34,969	41,803	—	48,829	4,503	301
Commercial loans	402,601		11,110	26,021	23	24,093	2,778	454
Total Business Banking	2,011,000		46,079	67,824	23	72,922	7,281	755

Total	$	5,806,291	66,686	107,221	690	79,166	8,515	755

(1) Includes $28.9 million of nonaccrual TDRS.

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The following table provides geographical and delinquency information related to the loan portfolio by portfolio segment and class of financing receivable at June 30, 2014 (in thousands):

	Pennsylvania			New York		Ohio		Maryland		Other		Total
Recorded investment in loans receivable:
Personal Banking:
Residential mortgage loans	$	2,118,663		159,947		18,274		133,670		55,186		2,485,740
Home equity loans	910,659			115,244		9,371		26,034		5,635		1,066,943
Other consumer loans	214,313			10,387		3,100		1,175		2,999		231,974
Total Personal Banking	3,243,635			285,578		30,745		160,879		63,820		3,784,657

Business Banking:
Commercial real estate loans	932,459			544,142		23,413		134,839		60,029		1,694,882
Commercial loans	278,842			80,543		17,783		25,823		3,204		406,195
Total Business Banking	1,211,301			624,685		41,196		160,662		63,233		2,101,077

Total	$	4,454,936		910,263		71,941		321,541		127,053		5,885,734

Percentage of total loans receivable	75.6		%	15.5	%	1.2	%	5.5	%	2.2	%	100.0	%

	Pennsylvania			New York		Ohio		Maryland		Other		Total
Loans 90 or more days delinquent:
Personal Banking:
Residential mortgage loans	$	15,965		1,578		684		1,919		1,848		21,994
Home equity loans	5,772			816		74		1,077		71		7,810
Other consumer loans	1,933			31		—		—		2		1,966
Total Personal Banking	23,670			2,425		758		2,996		1,921		31,770

Business Banking:
Commercial real estate loans	13,036			1,455		—		686		113		15,290
Commercial loans	3,176			289		—		77		672		4,214
Total Business Banking	16,212			1,744		—		763		785		19,504

Total	$	39,882		4,169		758		3,759		2,706		51,274

Percentage of total loans 90 or more days delinquent	77.8		%	8.1	%	1.5	%	7.3	%	5.3	%	100.0	%

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The following table provides geographical and delinquency information related to the loan portfolio by portfolio segment and class of financing receivable at December 31, 2013 (in thousands):

	Pennsylvania			New York		Ohio		Maryland		Other		Total
Recorded investment in loans receivable:
Personal Banking:
Residential mortgage loans	$	2,108,018		160,931		19,468		140,087		54,500		2,483,004
Home equity loans	923,365			117,081		10,152		27,400		5,941		1,083,939
Other consumer loans	207,243			9,890		3,007		1,256		6,952		228,348
Total Personal Banking	3,238,626			287,902		32,627		168,743		67,393		3,795,291

Business Banking:
Commercial real estate loans	876,359			484,071		27,136		123,279		97,554		1,608,399
Commercial loans	276,469			63,689		14,645		27,496		20,302		402,601
Total Business Banking	1,152,828			547,760		41,781		150,775		117,856		2,011,000

Total	$	4,391,454		835,662		74,408		319,518		185,249		5,806,291

Percentage of total loans receivable	75.6		%	14.4	%	1.3	%	5.5	%	3.2	%	100.0	%

	Pennsylvania			New York		Ohio		Maryland		Other		Total
Loans 90 or more days delinquent:
Personal Banking:
Residential mortgage loans	$	15,995		1,184		229		3,891		3,326		24,625
Home equity loans	5,279			1,783		116		1,095		71		8,344
Other consumer loans	2,006			35		3		—		13		2,057
Total Personal Banking	23,280			3,002		348		4,986		3,410		35,026

Business Banking:
Commercial real estate loans	15,581			1,669		962		108		113		18,433
Commercial loans	3,045			645		—		314		294		4,298
Total Business Banking	18,626			2,314		962		422		407		22,731

Total	$	41,906		5,316		1,310		5,408		3,817		57,757

Percentage of total loans 90 or more days delinquent	72.5		%	9.2	%	2.3	%	9.4	%	6.6	%	100.0	%

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The following table provides information related to the composition of impaired loans by portfolio segment and by class of financing receivable at and for the six months ended June 30, 2014 (in thousands):

	Nonaccrual loans 90 or more days delinquent		Nonaccrual loans less than 90 days delinquent	Loans less than 90 days delinquent reviewed for impairment	TDRs less than 90 days delinquent not included elsewhere	Total impaired loans	Average recorded investment in impaired loans	Interest income recognized on impaired loans
Personal Banking:
Residental mortgage loans	$	21,994	2,155	—	5,174	29,323	28,903	419
Home equity loans	7,810		2,031	—	2,072	11,913	12,035	257
Other consumer loans	1,966		212	—	—	2,178	2,228	28
Total Personal Banking	31,770		4,398	—	7,246	43,414	43,166	704

Business Banking:
Commercial real estate loans	15,290		33,277	39,469	13,013	101,049	90,264	1,742
Commercial loans	4,214		7,808	4,259	3,218	19,499	30,229	461
Total Business Banking	19,504		41,085	43,728	16,231	120,548	120,493	2,203

Total	$	51,274	45,483	43,728	23,477	163,962	163,659	2,907

The following table provides information related to the composition of impaired loans by portfolio segment and by class of financing receivable at and for the year ended December 31, 2013 (in thousands):

	Nonaccrual loans 90 or more days delinquent		Nonaccrual loans less than 90 days delinquent	Loans less than 90 days delinquent reviewed for impairment	TDRs less than 90 days delinquent not included elsewhere	Total impaired loans	Average recorded investment in impaired loans	Interest income recognized on impaired loans
Personal Banking:
Residental mortgage loans	$	24,625	2,652	—	3,372	30,649	29,994	723
Home equity loans	8,344		1,519	—	1,810	11,673	10,828	383
Other consumer loans	2,057		200	—	—	2,257	1,976	44
Total Personal Banking	35,026		4,371	—	5,182	44,579	42,798	1,150

Business Banking:
Commercial real estate loans	18,433		23,370	39,199	13,060	94,062	90,912	3,678
Commercial loans	4,298		21,723	5,219	3,963	35,203	41,303	1,127
Total Business Banking	22,731		45,093	44,418	17,023	129,265	132,215	4,805

Total	$	57,757	49,464	44,418	22,205	173,844	175,013	5,955

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The following table provides information related to the evaluation of impaired loans by portfolio segment and by class of financing receivable at June 30, 2014 (in thousands):

	Loans collectively evaluated for impairment		Loans individually evaluated for impairment	Loans individually evaluated for impairment for which there is a related impairment reserve	Related impairment reserve	Loans individually evaluated for impairment for which there is no related reserve
Personal Banking:
Residental mortgage loans	$	2,479,162	6,578	6,578	1,257	—
Home equity loans	1,064,577		2,366	2,366	222	—
Other consumer loans	231,894		80	80	10	—
Total Personal Banking	3,775,633		9,024	9,024	1,489	—

Business Banking:
Commercial real estate loans	1,613,156		81,726	47,394	7,832	34,332
Commercial loans	387,532		18,663	12,000	3,259	6,663
Total Business Banking	2,000,688		100,389	59,394	11,091	40,995

Total	$	5,776,321	109,413	68,418	12,580	40,995

The following table provides information related to the evaluation of impaired loans by portfolio segment and by class of financing receivable at December 31, 2013 (in thousands):

	Loans collectively evaluated for impairment		Loans individually evaluated for impairment	Loans individually evaluated for impairment for which there is a related impairment reserve	Related impairment reserve	Loans individually evaluated for impairment for which there is no related reserve
Personal Banking:
Residental mortgage loans	$	2,477,888	5,116	5,116	1,136	—
Home equity loans	1,081,699		2,240	2,240	333	—
Other consumer loans	228,227		121	121	1	—
Total Personal Banking	3,787,814		7,477	7,477	1,470	—

Business Banking:
Commercial real estate loans	1,532,117		76,282	45,761	6,300	30,521
Commercial loans	371,287		31,314	21,395	4,133	9,919
Total Business Banking	1,903,404		107,596	67,156	10,433	40,440

Total	$	5,691,218	115,073	74,633	11,903	40,440

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Our loan portfolios include loans that have been modified in a troubled debt restructuring (TDR), where concessions have been granted to borrowers who have experienced financial difficulties. These concessions typically result from our loss mitigation activities and could include: extending the note’s maturity date, permitting interest only payments, reducing the interest rate to a rate lower than current market rates for new debt with similar risk, reducing the principal payment, principal forbearance or other actions. These concessions are applicable to all loan segments and classes. Certain TDRs are classified as nonperforming at the time of restructuring and may be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period of at least six months.

When we modify loans in a TDR, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, the loan’s observable market price or the current fair value of the collateral, less selling costs, for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, we evaluate all TDRs, including those that have payment defaults, for possible impairment, using ASC 310-10. As a result, loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan.

Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, we evaluate the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, partial charge-offs may be taken to further write-down the carrying value of the loan, or the loan may be charged-off completely.

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The following table provides a roll forward of troubled debt restructurings for the periods indicated (in thousands):

	For the quarters ended June 30,
	2014				2013
	Number of contracts				Number of contracts
Beginning TDR balance:	276	$	74,511		269	$	91,365
New TDRs	6	1,343			6	3,722
Net paydowns		(2,526		)		(5,569		)
Charge-offs:
Residential mortgage loans	—	—			2	(172		)
Home equity loans	1	(130		)	3	(76		)
Commercial real estate loans	—	—			2	(413		)
Commercial loans	7	(8,244		)	—	—
Paid-off loans:
Residential mortgage loans	—	—			1	(109		)
Home equity loans	1	(39		)	2	(7		)
Commercial real estate loans	4	(561		)	4	(541		)
Commercial loans	3	(561		)	2	(1,683		)
Ending TDR balance:	266	$	63,793		259	$	86,517

Accruing TDRs		$	39,844			$	42,043
Non-accrual TDRs		23,949				44,474

The following table provides a roll forward of troubled debt restructurings for the periods indicated (in thousands):

	For the six months ended June 30,
	2014				2013
	Number of contracts				Number of contracts
Beginning TDR balance:	276	$	79,166		225	$	89,444
New TDRs	17	2,811			65	9,333
Net paydowns		(7,020		)		(7,906		)
Charge-offs:
Residential mortgage loans	—	—			2	(172		)
Home equity loans	1	(130		)	4	(99		)
Commercial real estate loans	2	(31		)	4	(1,063		)
Commercial loans	8	(8,251		)	2	(17		)
Paid-off loans:
Residential mortgage loans	—	—			1	(109		)
Home equity loans	1	(39		)	2	(7		)
Commercial real estate loans	6	(838		)	5	(851		)
Commercial loans	9	(1,875		)	10	(2,036		)
Ending TDR balance:	266	$	63,793		260	$	86,517

Accruing TDRs		$	39,844			$	42,043
Non-accrual TDRs		23,949				44,474

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The following table provides information related to troubled debt restructurings (including re-modified TDRs) by portfolio segment and by class of financing receivable during the periods indicated (dollars in thousands):

	For the quarter ended June 30, 2014					For the six months ended June 30, 2014
	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance
Troubled debt restructurings:
Personal Banking:
Residential mortgage loans	3	$	632	575	65	9	$	1,922	1,860	184
Home equity loans	2	376		346	2	2	376		346	2
Other consumer loans	—	—		—	—	—	—		—	—
Total Personal Banking	5	1,008		921	67	11	2,298		2,206	186

Business Banking:
Commercial real estate loans	—	—		—	—	3	89		82	32
Commercial loans	1	335		331	24	3	424		446	35
Total Business Banking	1	335		331	24	6	513		528	67

Total	6	$	1,343	1,252	91	17	$	2,811	2,734	253

Troubled debt restructurings that subsequently defaulted:
Personal Banking:
Residential mortgage loans	1	$	80	68	19	3	$	339	295	82
Home equity loans	1	53		58	20	1	53		58	20
Other consumer loans	—	—		—	—	—	—		—	—
Total Personal Banking	2	133		126	39	4	392		353	102

Business Banking:
Commercial real estate loans	3	1,857		1,415	573	5	2,362		1,899	694
Commercial loans	4	9,278		783	35	6	9,605		1,110	127
Total Business Banking	7	11,135		2,198	608	11	11,967		3,009	821

Total	9	$	11,268	2,324	647	15	$	12,359	3,362	923

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	For the quarter ended June 30, 2013					For the six months ended June 30, 2013
	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance	Number of contracts	Recorded investment at the time of modification		Current recorded investment	Current allowance
Troubled debt restructurings:
Personal Banking:
Residential mortgage loans	—	$	—	—	—	2	$	179	161	26
Home equity loans	1	4		3	—	4	291		285	133
Other consumer loans	—	—		—	—	—	—		—	—
Total Personal Banking	1	4		3	—	6	470		446	159

Business Banking:
Commercial real estate loans	2	3,665		3,616	47	35	7,082		6,004	306
Commercial loans	3	53		38	5	24	1,781		1,658	220
Total Business Banking	5	3,718		3,654	52	59	8,863		7,662	526

Total	6	$	3,722	3,657	52	65	$	9,333	8,108	685

Troubled debt restructurings that subsequently defaulted:
Personal Banking:
Residential mortgage loans	1	$	60	60	16	1	$	60	60	16
Home equity loans	1	53		58	33	2	237		188	140
Other consumer loans	—	—		—	—	—	—		—	—
Total Personal Banking	2	113		118	49	3	297		248	156

Business Banking:
Commercial real estate loans	1	211		208	59	4	1,785		1,630	127
Commercial loans	2	2,487		2,636	146	6	5,413		3,713	304
Total Business Banking	3	2,698		2,844	205	10	7,198		5,343	431

Total	5	$	2,811	2,962	254	13	$	7,495	5,591	587

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The following table provides information as of June 30, 2014 for troubled debt restructurings (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended June 30, 2014 (dollars in thousands):

		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residental mortgage loans	3	$	—	—	575	—	575
Home equity loans	2	—		—	346	—	346
Other consumer loans	—	—		—	—	—	—
Total Personal Banking	5	—		—	921	—	921

Business Banking:
Commercial real estate loans	—	—		—	—	—	—
Commercial loans	1	—		—	—	331	331
Total Business Banking	1	—		—	—	331	331

Total	6	$	—	—	921	331	1,252

The following table provides information as of June 30, 2013 for troubled debt restructurings (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the quarter ended June 30, 2013 (dollars in thousands):

		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residental mortgage loans	—	$	—	—	—	—	—
Home equity loans	1	—		—	3	—	3
Other consumer loans	—	—		—	—	—	—
Total Personal Banking	1	—		—	3	—	3

Business Banking:
Commercial real estate loans	2	—		—	3,591	25	3,616
Commercial loans	3	—		—	30	8	38
Total Business Banking	5	—		—	3,621	33	3,654

Total	6	$	—	—	3,624	33	3,657

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The following table provides information as of June 30, 2014 for troubled debt restructurings (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the six months ended June 30, 2014 (dollars in thousands):

		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residental mortgage loans	9	$	—	—	1,860	—	1,860
Home equity loans	2	—		—	346	—	346
Other consumer loans	—	—		—	—	—	—
Total Personal Banking	11	—		—	2,206	—	2,206

Business Banking:
Commercial real estate loans	3	—		—	58	24	82
Commercial loans	3	—		110	—	336	446
Total Business Banking	6	—		110	58	360	528

Total	17	$	—	110	2,264	360	2,734

The following table provides information as of June 30, 2013 for troubled debt restructurings (including re-modified TDRs) by type of modification, by portfolio segment and class of financing receivable for modifications during the six months ended June 30, 2013 (dollars in thousands):

		Type of modification
	Number of contracts	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residental mortgage loans	2	$	—	—	161	—	161
Home equity loans	4	—		—	285	—	285
Other consumer loans	—	—		—	—	—	—
Total Personal Banking	6	—		—	446	—	446

Business Banking:
Commercial real estate loans	35	774		447	3,980	803	6,004
Commercial loans	24	135		445	859	219	1,658
Total Business Banking	59	909		892	4,839	1,022	7,662

Total	65	$	909	892	5,285	1,022	8,108

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No TDRs were re-modified during the quarter ended June 30, 2014.

The following table provides information related to re-modified troubled debt restructurings by portfolio segment and by class of financing receivable for the quarter ended June 30, 2013 (dollars in thousands):

	Number of re-	Type of re-modification
	modified TDRs	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residental mortgage loans	—	$	—	—	—	—	—
Home equity loans	—	—		—	—	—	—
Other consumer loans	—	—		—	—	—	—
Total Personal Banking	—	—		—	—	—	—

Business Banking:
Commercial real estate loans	2	—		—	3,591	25	3,616
Commercial loans	1	—		—	—	10	10
Total Business Banking	3	—		—	3,591	35	3,626

Total	3	$	—	—	3,591	35	3,626

The following table provides information related to re-modified troubled debt restructurings by portfolio segment and by class of financing receivable for the six months ended June 30, 2014 (dollars in thousands):

	Number of re-	Type of re-modification
	modified TDRs	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residental mortgage loans	1	$	—	—	77	—	77
Home equity loans	—	—		—	—	—	—
Other consumer loans	—	—		—	—	—	—
Total Personal Banking	1	—		—	77	—	77

Business Banking:
Commercial real estate loans	2	—		—	58	18	76
Commercial loans	1	—		—	—	5	5
Total Business Banking	3	—		—	58	23	81

Total	4	$	—	—	135	23	158

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	Number of re-	Type of re-modification
	modified TDRs	Rate		Payment	Maturity date	Other	Total
Personal Banking:
Residental mortgage loans	—	$	—	—	—	—	—
Home equity loans	—	—		—	—	—	—
Other consumer loans	—	—		—	—	—	—
Total Personal Banking	—	—		—	—	—	—

Business Banking:
Commercial real estate loans	2	—		—	3,591	25	3,616
Commercial loans	1	—		—	—	10	10
Total Business Banking	3	—		—	3,591	35	3,626

Total	3	$	—	—	3,591	35	3,626

The following table provides information related to loan payment delinquencies at June 30, 2014 (in thousands):

	30-59 Days delinquent		60-89 Days delinquent	90 Days or greater delinquent	Total delinquency	Current	Recorded investment in loans receivable
Personal Banking:
Residential mortgage loans	$	3,842	6,024	21,994	31,860	2,453,880	2,485,740
Home equity loans	4,193		1,210	7,810	13,213	1,053,730	1,066,943
Other consumer loans	4,355		1,454	1,966	7,775	224,199	231,974
Total Personal Banking	12,390		8,688	31,770	52,848	3,731,809	3,784,657

Business Banking:
Commercial real estate loans	8,247		2,267	15,290	25,804	1,669,078	1,694,882
Commercial loans	1,146		709	4,214	6,069	400,126	406,195
Total Business Banking	9,393		2,976	19,504	31,873	2,069,204	2,101,077

Total	$	21,783	11,664	51,274	84,721	5,801,013	5,885,734

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The following table provides information related to loan payment delinquencies at December 31, 2013 (in thousands):

	30-59 Days delinquent		60-89 Days delinquent	90 Days or greater delinquent	Total delinquency	Current	Recorded investment in loans receivable
Personal Banking:
Residential mortgage loans	$	27,486	7,568	24,625	59,679	2,423,325	2,483,004
Home equity loans	6,946		2,243	8,344	17,533	1,066,406	1,083,939
Other consumer loans	4,515		1,866	2,057	8,438	219,910	228,348
Total Personal Banking	38,947		11,677	35,026	85,650	3,709,641	3,795,291

Business Banking:
Commercial real estate loans	8,449		3,968	18,433	30,850	1,577,549	1,608,399
Commercial loans	9,243		1,555	4,298	15,096	387,505	402,601
Total Business Banking	17,692		5,523	22,731	45,946	1,965,054	2,011,000

Total	$	56,639	17,200	57,757	131,596	5,674,695	5,806,291

Credit quality indicators: We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans by credit risk. Credit relationships greater than or equal to $1.0 million classified as special mention or substandard are reviewed quarterly for deterioration or improvement to determine if the loan is appropriately classified. We use the following definitions for risk ratings other than pass:

Special mention — Loans designated as special mention have specific, well-defined risk issues, which create a high level of uncertainty regarding the long-term viability of the business. Loans in this class are considered to have high-risk characteristics. A special mention loan exhibits material negative financial trends due to company-specific or systemic conditions. If these potential weaknesses are not mitigated, they threaten the borrower’s capacity to meet its debt obligations. Special mention loans still demonstrate sufficient financial flexibility to react to and positively address the root cause of the adverse financial trends without significant deviations from their current business strategy. Their potential weaknesses deserve our close attention and warrant enhanced monitoring.

Substandard — Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in those classified as substandard. In addition, those weaknesses make collection or liquidation in full highly questionable and improbable. A loan classified as doubtful exhibits discernible loss potential, but a complete loss seems very unlikely. The possibility of a loss on a doubtful loan is high, but because of certain important and reasonably specific pending factors that may strengthen the loan, its classification as an estimated loss is deferred until a more exact status can be determined.

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Loss — Loans classified as loss are considered uncollectible and of such value that the continuance as a loan is not warranted. A loss classification does not mean that the loan has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off all or a portion of a basically worthless loan even though partial recovery may be possible in the future.

The following table sets forth information about credit quality indicators, which were updated during the quarter ended June 30, 2014 (in thousands):

	Pass		Special mention	Substandard	Doubtful	Loss	Recorded investment in loans receivable
Personal Banking:
Residential mortgage loans	$	2,468,039	—	16,313	—	1,388	2,485,740
Home equity loans	1,059,133		—	7,810	—	—	1,066,943
Other consumer loans	230,707		—	1,267	—	—	231,974
Total Personal Banking	3,757,879		—	25,390	—	1,388	3,784,657

Business Banking:
Commercial real estate loans	1,489,428		56,711	145,622	3,121	—	1,694,882
Commercial loans	354,424		16,588	31,432	3,751	—	406,195
Total Business Banking	1,843,852		73,299	177,054	6,872	—	2,101,077

Total	$	5,601,731	73,299	202,444	6,872	1,388	5,885,734

The following table sets forth information about credit quality indicators, which were updated during the year ended December 31, 2013 (in thousands):

	Pass		Special mention	Substandard	Doubtful	Loss	Recorded investment in loans receivable
Personal Banking:
Residential mortgage loans	$	2,464,057	—	17,626	—	1,321	2,483,004
Home equity loans	1,075,595		—	8,344	—	—	1,083,939
Other consumer loans	226,922		—	1,426	—	—	228,348
Total Personal Banking	3,766,574		—	27,396	—	1,321	3,795,291

Business Banking:
Commercial real estate loans	1,398,652		46,557	161,906	1,284	—	1,608,399
Commercial loans	345,612		12,045	43,040	1,904	—	402,601
Total Business Banking	1,744,264		58,602	204,946	3,188	—	2,011,000

Total	$	5,510,838	58,602	232,342	3,188	1,321	5,806,291

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(5) Goodwill and Other Intangible Assets

The following table provides information for intangible assets subject to amortization at the dates indicated (in thousands):

	June 30,			December 31,
	2014			2013
Amortizable intangible assets:
Core deposit intangibles – gross	$	30,578		30,578
Acquisitions	—			—
Less: accumulated amortization	(30,535		)	(30,491	)
Core deposit intangibles – net	43			87
Customer and Contract intangible assets – gross	6,197			6,197
Acquisitions	2,037			—
Less: accumulated amortization	(4,583		)	(3,965	)
Customer and Contract intangible assets – net	$	3,651		2,232

The following table shows the actual aggregate amortization expense for the quarters ended March 31, 2014 and 2013, as well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for the current fiscal year and each of the five succeeding fiscal years (in thousands):

For the quarter ended June 30, 2014	$	331
For the quarter ended June 30, 2013	349
For the six months ended June 30, 2014	662
For the six months ended June 30, 2013	697
For the year ending December 31, 2014	1,323
For the year ending December 31, 2015	1,008
For the year ending December 31, 2016	779
For the year ending December 31, 2017	550
For the year ending December 31, 2018	391
For the year ending December 31, 2019	232

The following table provides information for the changes in the carrying amount of goodwill (in thousands):

	Community		Consumer
	Banks		Finance	Total
Balance at December 31, 2012	$	172,848	1,613	174,461
Goodwill acquired	2		—	2
Impairment losses	—		—	—
Balance at December 31, 2013	172,850		1,613	174,463
Goodwill acquired	1,525		—	1,525
Impairment losses	—		—	—
Balance at June 30, 2014	$	174,375	1,613	175,988

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We are in the process of performing our annual goodwill impairment test as of June 30, 2014 and do not anticipate that goodwill will be impaired. See the Overview of Critical Accounting Policies Involving Estimates section for a description of our testing procedures.

(6) Guarantees

We issue standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. We are required to perform under a standby letter of credit when drawn upon by the guaranteed third party in the case of nonperformance by our customer. The credit risk associated with standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal loan underwriting procedures. Collateral may be obtained based on management’s credit assessment of the customer. At June 30, 2014, the maximum potential amount of future payments we could be required to make under these standby letters of credit was $23.6 million, of which $22.5 million is fully collateralized. At June 30, 2014, we had a liability, which represents deferred income, of $962,000 related to the standby letters of credit. There are no recourse provisions that would enable us to recover any amounts from third parties.

(7) Earnings Per Share

Basic earnings per common share (EPS) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, without considering any dilutive items. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. All stock options outstanding during the quarter and six months ended June 30, 2014 were included in the computation of diluted earnings per share because the stock options’ exercise price was less than the average market price of the common shares of $13.72 and $14.09, respectively. All stock options outstanding during the quarter and six months ended June 30, 2013 were included in the computation of diluted earnings per share because the stock options’ exercise price was less than the average market price of the common shares of $12.45 and $12.51, respectively.

The computation of basic and diluted earnings per share follows (in thousands, except share data and per share amounts):

	Quarter ended			Six months ended
	June 30,			June 30,
	2014		2013	2014	2013
Reported net income	$	12,715	13,478	27,355	28,776

Weighted average common shares outstanding	91,491,654		90,423,717	91,324,169	90,413,780
Dilutive potential shares due to effect of stock options	1,039,488		493,419	1,118,462	484,258
Total weighted average common shares and dilutive potential shares	92,531,142		90,917,136	92,442,631	90,898,038

Basic earnings per share:	$	0.14	0.15	0.30	0.32

Diluted earnings per share:	$	0.14	0.15	0.30	0.32

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(8) Pension and Other Post-retirement Benefits

During 2013, the defined benefit pension plan was amended to lock-in all benefits earned through March 31, 2013 based on the plan formula using years of service and average monthly compensation as of March 31, 2013 and provide that, for service commencing January 1, 2013, additional benefits will be earned equal to 1% of career average pay for each year that a participant completes at least 1,000 hours of service. Also, effective April 1, 2013, participants who are eligible to receive required minimum distributions due to attaining age 70 ½ will be required to begin payment of benefits even though they may remain employed by us.

The following table sets forth the net periodic costs for the defined benefit pension plans and post retirement healthcare plans for the periods indicated (in thousands):

Components of net periodic benefit cost

	Quarter ended June 30,
	Pension benefits					Other post-retirement benefits
	2014			2013		2014	2013
Service cost	$	1,035		1,138		—	—
Interest cost	1,457			1,301		17	16
Expected return on plan assets	(2,416		)	(2,138	)	—	—
Amortization of prior service cost	(581		)	(580	)	—	—
Amortization of the net loss	357			919		12	13
Net periodic (benefit)/ cost	$	(148	)	640		29	29

Components of net periodic benefit cost

	Six months ended June 30,
	Pension benefits					Other post-retirement benefits
	2014			2013		2014	2013
Service cost	$	2,070		2,276		—	—
Interest cost	2,914			2,602		33	33
Expected return on plan assets	(4,832		)	(4,276	)	—	—
Amortization of prior service cost	(1,162		)	(1,160	)	—	—
Amortization of the net loss	713			1,838		24	25
Net periodic benefit cost	$	(297	)	1,280		57	58

We made no contribution to our pension or other post-retirement benefit plans during the six months ended June 30, 2014 and do not anticipate the need to make a contribution to our defined benefit pension plan during the year ending December 31, 2014.

(9) Disclosures About Fair Value of Financial Instruments

Fair value information about financial instruments, whether or not recognized in the consolidated statement of financial condition, is required to be disclosed. These requirements exclude certain financial instruments and all nonfinancial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Financial assets and liabilities recognized or disclosed at fair value on a recurring basis and certain financial assets and liabilities on a non-recurring basis are accounted for using a three-level hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. This hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable

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market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest level input that has a significant impact on fair value measurement is used.

Financial assets and liabilities are categorized based upon the following characteristics or inputs to the valuation techniques:

· Level 1 — Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical assets or liabilities in actively traded markets. This is the most reliable fair value measurement and includes, for example, active exchange-traded equity securities.

· Level 2 — Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which values are based on similar assets or liabilities that are actively traded. Level 2 also includes pricing models in which the inputs are corroborated by market data, for example, matrix pricing.

· Level 3 — Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include the following:

· Quotes from brokers or other external sources that are not considered binding;

· Quotes from brokers or other external sources where it cannot be determined that market participants would in fact transact for the asset or liability at the quoted price;

· Quotes and other information from brokers or other external sources where the inputs are not deemed observable.

We are responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value. We perform due diligence to understand the inputs used or how the data was calculated or derived. We also corroborate the reasonableness of external inputs in the valuation process.

The carrying amounts reported in the consolidated statement of financial condition approximate fair value for the following financial instruments: cash on hand, interest-earning deposits in other institutions, federal funds sold and other short-term investments, accrued interest receivable, accrued interest payable, and marketable securities available-for-sale.

Marketable Securities

Where available, market values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services.

Debt securities — available for sale - Generally, debt securities are valued using pricing for similar securities, recently executed transactions and other pricing models utilizing observable inputs. The valuation for most debt securities is classified as Level 2. Securities within Level 2 include corporate bonds, municipal bonds, mortgage-backed securities and US government obligations. Certain corporate debt securities do not have an active market and as such the broker pricing received uses alternative methods. The fair value of these corporate debt securities is determined by using a discounted cash flow model using market assumptions, which generally include cash flow, collateral and other market assumptions. As such, these securities are included herein as Level 3 assets.

Equity securities — available for sale - Level 1 securities include publicly traded securities valued using quoted market prices. We consider the financial condition of the issuer to determine if the securities have indicators of impairment.

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Debt securities — held to maturity - The fair value of debt securities held to maturity is determined in the same manner as debt securities available for sale.

Loans Receivable

Loans with comparable characteristics including collateral and re-pricing structures are segregated for valuation purposes. Characteristics include remaining term, coupon interest, and estimated prepayment speeds. Delinquent loans are separately evaluated given the impact delinquency has on the projected future cash flow of the loan and the approximate discount or market rate. Each loan pool is separately valued utilizing a discounted cash flow analysis. Projected monthly cash flows are discounted to present value using a market rate for comparable loans, which is not considered an exit price.

FHLB Stock

Due to the restrictions placed on the transferability of FHLB stock it is not practical to determine the fair value.

Deposit Liabilities

The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market, and other savings accounts, is the amount payable on demand. Although market premiums paid for depository institutions reflect an additional value for these low-cost deposits, adjusting fair value for any value expected to be derived from retaining those deposits for a future period of time or from the benefit that results from the ability to fund interest-earning assets with these deposit liabilities is prohibited. The fair value estimates of deposit liabilities do not include the benefit that results from the low-cost funding provided by these deposits compared to the cost of borrowing funds in the market. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual cost currently being offered in the existing portfolio to current market rates being offered locally for deposits of similar remaining maturities. The valuation adjustment for the portfolio consists of the present value of the difference of these two cash flows, discounted at the assumed market rate of the corresponding maturity.

Borrowed Funds

Fixed rate advances are valued by comparing their contractual cost to the prevailing market cost. The carrying amount of collateralized borrowings approximates the fair value.

Junior Subordinated Debentures

The fair value of junior subordinated debentures is calculated using the discounted cash flows at the prevailing rate of interest.

Cash flow hedges — Interest rate swap agreements (“swaps”)

The fair value of the swaps is the amount we would expect to pay to terminate the agreements and is based upon the present value of the expected future cash flows using the LIBOR swap curve, the basis for the underlying interest rate.

Off-Balance Sheet Financial Instruments

These financial instruments generally are not sold or traded, and estimated fair values are not readily available. However, the fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. Commitments to extend credit are generally short-term in nature and, if drawn upon, are issued under current market terms. At June 30, 2014 and December 31, 2013, there was no significant unrealized appreciation or depreciation on these financial instruments.

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The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the consolidated statement of financial condition at June 30, 2014:

	Carrying		Estimated
	amount		fair value	Level 1	Level 2	Level 3
Financial assets:
Cash and cash equivalents	$	385,968	385,968	385,968	—	—
Securities available-for-sale	977,786		977,786	4,574	960,669	12,543
Securities held-to-maturity	114,154		117,670	—	117,670	—
Loans receivable, net	5,814,292		6,061,623	—	—	6,061,623
Accrued interest receivable	21,756		21,756	21,756	—	—
FHLB Stock	43,986		43,986	—	—	—
Total financial assets	$	7,357,942	7,608,789	412,298	1,078,339	6,074,166

Financial liabilities:
Savings and checking deposits	$	4,193,682	4,193,682	4,193,682	—	—
Time deposits	1,580,240		1,605,982	—	—	1,605,982
Borrowed funds	869,335		900,905	143,915	—	756,990
Junior subordinated debentures	103,094		110,653	—	—	110,653
Cash flow hedges - swaps	7,500		7,500	—	7,500	—
Accrued interest payable	816		816	816	—	—
Total financial liabilities	$	6,754,667	6,819,538	4,338,413	7,500	2,473,625

The following table sets forth the carrying amount and estimated fair value of our financial instruments included in the consolidated statement of financial condition at December 31, 2013:

	Carrying		Estimated
	amount		fair value	Level 1	Level 2	Level 3
Financial assets:
Cash and cash equivalents	$	391,905	391,905	391,905	—	—
Securities available-for-sale	1,016,767		1,016,767	9,850	994,666	12,251
Securities held-to-maturity	121,366		124,061	—	124,061	—
Loans receivable, net	5,734,943		6,026,711	221	—	6,026,490
Accrued interest receivable	21,821		21,821	21,821	—	—
FHLB Stock	43,715		43,715	—	—	—
Total financial assets	$	7,330,517	7,624,980	423,797	1,118,727	6,038,741

Financial liabilities:
Savings and checking accounts	$	4,001,482	4,001,482	4,001,482	—	—
Time deposits	1,667,397		1,699,937	—	—	1,699,937
Borrowed funds	881,645		896,408	156,198	—	740,210
Junior subordinated debentures	103,094		111,220	—	—	111,220
Cash flow hedges - swaps	8,037		8,037	—	8,037	—
Accrued interest payable	888		888	888	—	—
Total financial liabilities	$	6,662,543	6,717,972	4,158,568	8,037	2,551,367

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Fair value estimates are made at a point-in-time, based on relevant market data and information about the instrument. The methods and assumptions detailed above were used in estimating the fair value of financial instruments at both June 30, 2014 and December 31, 2013. There were no transfers of financial instruments between Level 1 and Level 2 during the six months ended June 30, 2014.

The following table represents assets and liabilities measured at fair value on a recurring basis at June 30, 2014 (in thousands):

						Total
						assets at
	Level 1		Level 2		Level 3	fair value

Equity securities	$	4,574	—		—	4,574

Debt securities:
U.S. government and agencies	—		29		—	29
Government sponsored enterprises	—		326,758		—	326,758
States and political subdivisions	—		83,469		—	83,469
Corporate	—		9,651		12,543	22,194
Total debt securities	—		419,907		12,543	432,450

Residential mortgage-backed securities:
GNMA	—		30,252		—	30,252
FNMA	—		81,851		—	81,851
FHLMC	—		47,058		—	47,058
Non-agency	—		654		—	654
Collateralized mortgage obligations:
GNMA	—		10,023		—	10,023
FNMA	—		154,204		—	154,204
FHLMC	—		201,484		—	201,484
SBA	—		11,427		—	11,427
Non-agency	—		3,809		—	3,809
Total mortgage-backed securities	—		540,762		—	540,762

Interest rate swaps	—		(7,500	)	—	(7,500	)

Total assets and liabilities	$	4,574	953,169		12,543	970,286

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The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2013 (in thousands):

						Total
						assets at
	Level 1		Level 2		Level 3	fair value

Equity securities	$	9,850	—		—	9,850

Debt securities:
U.S. government and agencies	—		32		—	32
Government sponsored enterprises	—		316,057		—	316,057
States and political subdivisions	—		92,578		—	92,578
Corporate	—		8,925		12,251	21,176
Total debt securities	—		417,592		12,251	429,843

Residential mortgage-backed securities:
GNMA	—		32,263		—	32,263
FNMA	—		85,665		—	85,665
FHLMC	—		51,076		—	51,076
Non-agency	—		667		—	667
Collateralized mortgage obligations:
GNMA	—		11,494		—	11,494
FNMA	—		168,661		—	168,661
FHLMC			210,029			210,029
SBA	—		12,569		—	12,569
Non-agency	—		4,650		—	4,650
Total mortgage-backed securities	—		577,074		—	577,074

Interest rate swaps	—		(8,037	)	—	(8,037	)

Total assets and liabilities	$	9,850	986,629		12,251	1,008,730

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The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the periods indicated (in thousands):

	Quarter ended			Six months ended
	June 30, 2014		June 30, 2013	June 30, 2014	June 30, 2013

Beginning balance	$	12,391	11,070	12,251	11,119

Total net realized investment gains/ (losses) and net change in unrealized appreciation/(depreciation):
Included in net income as OTTI	—		—	—	—
Included in other comprehensive income	152		275	292	226

Purchases	—		—	—	—
Sales	—		—	—	—
Transfers in to Level 3	—		—	—	—
Transfers out of Level 3	—		—	—	—

Ending balance	$	12,543	11,345	12,543	11,345

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans measured for impairment and real estate owned. The following table represents the fair value measurement for nonrecurring assets at June 30, 2014 (in thousands):

					Total
					assets at
	Level 1		Level 2	Level 3	fair value

Loans measured for impairment	$	—	—	55,838	55,838

Real estate owned	—		—	14,915	14,915

Total assets	$	—	—	70,753	70,753

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					Total
					assets at
	Level 1		Level 2	Level 3	fair value

Loans measured for impairment	$	—	—	62,730	62,730

Real estate owned	—		—	18,203	18,203

Total assets	$	—	—	80,933	80,933

Impaired loans — A loan is considered to be impaired as described in the Overview of Critical Accounting Policies Involving Estimates, Allowance for Loan Losses section. We classify loans individually evaluated for impairment that require a specific or TDR reserve as nonrecurring Level 3.

Real Estate Owned — Real estate owned is comprised of property acquired through foreclosure or voluntarily conveyed by delinquent borrowers. These assets are recorded on the date acquired at the lower of the related loan balance or fair value, less estimated disposition costs, with the fair value being determined by appraisal. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or fair value, less estimated disposition costs. We classify all real estate owned as nonrecurring Level 3.

The table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at June 30, 2014 (dollar amounts in thousands):

	Fair value		Valuation techniques	Significant unobservable inputs	Range (weighted average)

Debt securities	$	12,543	Discounted cash flow	Discount margin	0.35% to 2.1% (0.69)%
				Default rates	1.00%
				Prepayment speeds	1.00% annually

Loans measured for impairment	55,838		Appraisal value (1)	Estimated cost to sell	10%

Real estate owned	14,915		Appraisal value (1)	Estimated cost to sell	10%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which may include level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not collateral dependent.

The significant unobservable inputs used in the fair value measurement of our debt securities are discount margins, default rates and prepayment speeds. Significant increases in any of those rates would result in a significantly lower fair value measurement.

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(10) Guaranteed Preferred Beneficial Interests in the Company’s Junior Subordinated Deferrable Interest Debentures (Trust Preferred Securities) and Interest Rate Swaps

We have two statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust and Northwest Bancorp Statutory Trust IV, a Connecticut statutory business trust (“Trusts”). These trusts exist solely to issue preferred securities to third parties for cash, issue common securities to the Company in exchange for capitalization of the Trusts, invest the proceeds from the sale of the trust securities in an equivalent amount of debentures of the Company, and engage in other activities that are incidental to those previously listed.

Northwest Bancorp Capital Trust III (Trust III) issued 50,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on December 5, 2006 (liquidation value of $1,000 per preferred security or $50,000,000) with a stated maturity of December 30, 2035. These securities carry a floating interest rate, which is reset quarterly, equal to three-month LIBOR plus 1.38%. Northwest Bancorp Statutory Trust IV (Trust IV) issued 50,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on December 15, 2006 (liquidation value of $1,000 per preferred security or $50,000,000) with a stated maturity of December 15, 2035. These securities carry a floating interest rate, which is reset quarterly, equal to three-month LIBOR plus 1.38%. The Trusts have invested the proceeds of the offerings in junior subordinated deferrable interest debentures issued by the Company. The structure of these debentures mirrors the structure of the trust-preferred securities. Trust III holds $51,547,000 of the Company’s junior subordinated debentures and Trust IV holds $51,547,000 of the Company’s junior subordinated debentures. These subordinated debentures are the sole assets of the Trusts. Cash distri-butions on the trust securities are made on a quarterly basis to the extent interest on the debentures is received by the Trusts. We have the right to defer payment of interest on the subordinated debentures at any time, or from time-to-time, for periods not exceeding five years. If interest payments on the subordinated debentures are deferred, the distributions on the trust preferred securities are also deferred. Interest on the subordinated debentures and distributions on the trust securities is cumulative. To date, there have been no interest deferrals. Our obligation constitutes a full, irrevocable, and unconditional guarantee on a subordinated basis of the obligations of the trust under the preferred securities.

We are currently a counterparty to three interest rate swap agreements (swaps), designating the swaps as cash flow hedges. The swaps are intended to protect against the variability of cash flows associated with Trust III and Trust IV. The first swap modifies the re-pricing characteristics of Trust III, wherein for a ten year period expiring in September 2018, the Company receives interest of three-month LIBOR from a counterparty and pays a fixed rate of 4.61% to the same counterparty calculated on a notional amount of $25.0 million. The other two swaps modify the re-pricing characteristics of Trust IV, wherein (i) for a seven year period expiring in September 2015, the Company receives interest of three-month LIBOR from a counterparty and pays a fixed rate of 3.85% to the same counterparty calculated on a notional amount of $25.0 million and (ii) for a ten year period expiring in September 2018, the Company receives interest of three-month LIBOR from a counterparty and pays a fixed rate of 4.09% to the same counterparty calculated on a notional amount of $25.0 million. The swap agreements were entered into with a counterparty that met our credit standards and the agreements contain collateral provisions protecting the at-risk party. We believe that the credit risk inherent in the contracts is not significant. At June 30, 2014, $7.8 million of cash was pledged as collateral to the counterparty.

At June 30, 2014, the fair value of the swap agreements was $(7.5) million and was the amount we would have expected to pay if the contracts were terminated. There was no material hedge ineffectiveness for these swaps.

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The following table shows liability derivatives, included in other liabilities, at June 30, 2014 and December 31, 2013 (in thousands):

	June 30,		December 31,
	2014		2013
Fair value	$	7,500	8,037
Notional amount	75,000		75,000
Collateral posted	7,805		8,405

(11) Legal Proceedings

We establish accruals for legal proceedings when information related to the loss contingencies represented by those matters indicates both that a loss is probable and that the amount of loss can be reasonably estimated. As of June 30, 2014 we have accrued $2.4 million. This amount is based on our analysis of currently available information and is subject to significant judgment and a variety of assumptions and uncertainties. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances. Due to the inherent subjectivity of assessments and unpredictability of outcomes of legal proceedings, any amounts accrued may not represent the ultimate loss to us from legal proceedings.

Toth v. Northwest Savings Bank

On May 7, 2012, Ashley Toth (“Plaintiff”) filed a putative class action complaint in the Court of Common Pleas of Allegheny County, Pennsylvania against Northwest Savings Bank (“Northwest”). Plaintiff’s complaint alleged state law claims related to Northwest’s order of posting ATM and debit card transactions and the assessment of overdraft fees on deposit customer accounts. Northwest filed preliminary objections to the putative class action complaint on June 29, 2012. On September 6, 2012, Plaintiff filed an amended putative class action complaint containing substantially the same allegations as the initial putative class action complaint. On November 5, 2012, Northwest filed preliminary objections to the amended putative class action complaint. Plaintiff filed her opposition to Northwest’s preliminary objections on December 6, 2012, and Northwest filed its reply in support of the preliminary objections on January 3, 2013. On June 25, 2013, the court entered an order, granting in part and overruling in part, Northwest’s preliminary objections.

On November 18, 2013, the parties participated in a mediation and reached an agreement in principle, subject to the preparation and execution of a mutually acceptable settlement agreement and release, to fully, finally and completely settle, resolve, discharge and release all claims that have been or could have been asserted in the action on a class-wide basis. The proposed settlement contemplates that, in return for a full and complete release of claims by Plaintiff and the settlement class members, Northwest will create a settlement fund for distribution to the settlement class members after certain court-approved reductions, including for attorney’s fees and expenses. The proposed settlement is subject to preliminary and final court approval.

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(12) Changes in Accumulated Other Comprehensive Income

The following table shows the changes in accumulated other comprehensive income by component for the periods indicated (in thousands):

	For the quarter ended June 30, 2014
	Unrealized gains and (losses) on securities available- for-sale			Change in fair value of interest rate swaps		Change in defined benefit pension plans		Total
Balance as of March 31, 2014	$	459		(4,973	)	(3,581	)	(8,095	)
Other comprehensive income before reclassification adjustments	3,123			98		—		3,221
Amounts reclassified from accumulated other comprehensive income (1), (2)	(204		)	—		(138	)	(342	)

Net other comprehensive income	2,919			98		(138	)	2,879

Balance as of June 30, 2014	$	3,378		(4,875	)	(3,719	)	(5,216	)

	For the quarter ended June 30, 2013
	Unrealized gains and (losses) on securities available- for-sale			Change in fair value of interest rate swaps		Change in defined benefit pension plans		Total
Balance as of March 31, 2013	$	16,457		(7,725	)	(18,707	)	(9,975	)

Other comprehensive income before reclassification adjustments	(11,399		)	1,626		—		(9,773	)
Amounts reclassified from accumulated other comprehensive income (3), (4)	(68		)	—		229		161

Net other comprehensive income	(11,467		)	1,626		229		(9,612	)

Balance as of June 30, 2013	$	4,990		(6,099	)	(18,478	)	(19,587	)

(1) Consists of realized gains on securities (gain on sales of investments, net) of $334, net of tax (income tax expense) of $(130).

(2) Consists of amortization of prior service cost (compensation and employee benefits) of $581 and amortization of net loss (compensation and employee benefits) of $(369), net of tax (income tax expense) of $(74). See note 8.

(3) Consists of realized gains on securities (gain on sales of investments, net) of $112, net of tax (income tax expense) of $(44).

(4) Consists of amortization of prior service cost (compensation and employee benefits) of $580 and amortization of net loss (compensation and employee benefits) of $(932), net of tax (income tax expense) of $123. See note 8.

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The following table shows the changes in accumulated other comprehensive income by component for the periods indicated (in thousands):

	For the six months ended June 30, 2014
	Unrealized gains and (losses) on securities available- for-sale			Change in fair value of interest rate swaps		Change in defined benefit pension plans		Total
Balance as of December 31, 2013	$	(3,233	)	(5,224	)	(3,443	)	(11,900	)
Other comprehensive income before reclassification adjustments	8,719			349		—		9,068
Amounts reclassified from accumulated other comprehensive income (1), (2)	(2,108		)	—		(276	)	(2,384	)

Net other comprehensive income	6,611			349		(276	)	6,684

Balance as of June 30, 2014	$	3,378		(4,875	)	(3,719	)	(5,216	)

	For the six months ended June 30, 2013
	Unrealized gains and (losses) on securities available- for-sale			Change in fair value of interest rate swaps		Change in defined benefit pension plans		Total
Balance as of December 31, 2012	$	15,853		(8,405	)	(18,936	)	(11,488	)

Other comprehensive income before reclassification adjustments	(10,729		)	2,306		—		(8,423	)
Amounts reclassified from accumulated other comprehensive income (3), (4)	(134		)	—		458		324

Net other comprehensive income	(10,863		)	2,306		458		(8,099	)

Balance as of June 30, 2013	$	4,990		(6,099	)	(18,478	)	(19,587	)

(1) Consists of realized gains on securities (gain on sales of investments, net) of $3,456, net of tax (income tax expense) of $(1,348).

(2) Consists of amortization of prior service cost (compensation and employee benefits) of $1,162 and amortization of net loss (compensation and employee benefits) of $(737), net of tax (income tax expense) of $(149). See note 8.

(3) Consists of realized gains on securities (gain on sales of investments, net) of $221, net of tax (income tax expense) of $(87).

(4) Consists of amortization of prior service cost (compensation and employee benefits) of $1,160 and amortization of net loss (compensation and employee benefits) of $(1,864), net of tax (income tax expense) of $246. See note 8.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements:

In addition to historical information, this document may contain certain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, as they reflect management’s analysis only as of the date of this report. We have no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report.

Important factors that might cause such a difference include, but are not limited to:

· changes in laws, government regulations or policies affecting financial institutions, including regulatory fees and capital requirements;

· general economic conditions, either nationally or in our market areas, that are worse than expected;

· competition among depository and other financial institutions;

· inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

· adverse changes in the securities markets;

· our ability to enter new markets successfully, capitalize on growth opportunities and our ability to successfully integrate acquired entities, if any;

· changes in consumer spending, borrowing and savings habits;

· our ability to continue to increase and manage our business and personal loans;

· possible impairments of securities held by us, including those issued by government entities and government sponsored enterprises;

· the impact of the economy on our loan portfolio (including cash flow and collateral values), investment portfolio, customers and capital market activities;

· the impact of the current governmental effort to restructure the U.S. financial and regulatory system;

· changes in the financial performance and/or condition of our borrowers; and

· the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

Overview of Critical Accounting Policies Involving Estimates

Refer to Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of our 2013 Annual Report on Form 10-K.

Executive Summary and Comparison of Financial Condition

Total assets at June 30, 2014 were $7.902 billion, an increase of $20.8 million, or 0.3%, from $7.881 billion at December 31, 2013. This increase in assets was due to an increase in net loans receivable of $79.3 million, which was partially offset by a decrease in marketable securities of $46.2 million. The net increase in total assets was funded by increases in deposits and advances from borrowers for taxes and insurance of $105.0 million and $11.0 million, respectively, as well as net income of $27.4 million year-to-date. Partially offsetting these funding increases was a decrease in retained earnings of $98.4 million due primarily to the payment of dividends of $1.36 per share which includes the special $1.00 per share dividend declared and paid in the second quarter this year.

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Total loans receivable increased by $79.4 million, or 1.4%, to $5.886 billion at June 30, 2014, from $5.806 billion at December 31, 2013. Loans funded during the six months ended June 30, 2014, of $940.4 million exceeded loan maturities and principal repayments of $842.8 million and mortgage loan sales of $1.0 million. Our business banking loan portfolio increased by $90.1 million, or 4.5%, to $2.101 billion at June 30, 2014 from $2.011 billion at December 31, 2013, as we continue to emphasize the origination and retention of commercial and commercial real estate loans. Our personal banking loan portfolio decreased by $10.6 million, or 0.3%, to $3.785 billion at June 30, 2014 from $3.795 billion at December 31, 2013. This decrease is primarily attributable to a $17.0 million decrease in home equity loans. As growth in the first half of the year was hampered by the wet Spring conditions.

Total deposits increased by $105.0 million, or 1.9%, to $5.774 billion at June 30, 2014 from $5.669 billion at December 31, 2013. All deposit account types, with the exception of time deposits, increased during the six months ended June 30, 2014. Noninterest-bearing demand deposits increased by $83.6 million, or 10.6%, to $872.7 million at June 30, 2014 from $789.1 million at December 31, 2013. Interest-bearing demand deposits increased by $48.7 million, or 5.7%, to $901.5 million at June 30, 2014 from $852.8 million at December 31, 2013. Money market deposit accounts increased by $15.3 million, or 1.3%, to $1.183 billion at June 30, 2014 from $1.168 billion at December 31, 2013. Savings deposits increased by $44.7 million, or 3.8%, to $1.236 billion at June 30, 2014 from $1.192 billion at December 31, 2013. Time deposits, however, decreased by $87.2 million, or 5.2%, to $1.580 billion at June 30, 2014 from $1.667 billion at December 31, 2013. We believe the increase in more liquid types of deposit accounts is due primarily to customers’ reluctance to lock in time deposits at these historically low rates as well as our new marketing campaign which started during March 2014 to attract demand deposit customers.

Borrowed funds decreased by $12.3 million, or 1.4%, to $869.3 million at June 30, 2014, from $881.6 million at December 31, 2013. This decrease is the result of a $12.3 million decrease in collateralized borrowings. None of our FHLB advances matured during the quarter and the next scheduled maturity is in February 2015.

Total shareholders’ equity at June 30, 2014 was $1.072 billion, or $11.30 per share, a decrease of $84.3 million, or 7.3%, from $1.157 billion, or $12.27 per share, at December 31, 2013. This decrease was the result of cash dividend payments during the six months ended June 30, 2014 of $125.8 million. Partially offsetting this decrease was year-to-date net income of $27.4 million, an increase in paid-in-capital of $6.5 million related to employee incentive stock option exercises and a decrease in accumulated other comprehensive loss of $6.7 million due to an improvement in the unrealized gain position of the investment securities portfolio.

Financial institutions and their holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on a company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting guidelines. Capital amounts and classifications are also subject to qualitative judgments made by the regulators about components, risk-weighting and other factors.

Quantitative measures, established by regulation to ensure capital adequacy, require financial institutions to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to total

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assets (as defined). Capital ratios are presented in the tables below. Dollar amounts in the accompanying tables are in thousands.

	At June 30, 2014
					Minimum capital			Well capitalized
	Actual				requirements (1)			requirements (1)
	Amount		Ratio		Amount	Ratio		Amount	Ratio
Total capital (to risk weighted assts)
Northwest Bancshares, Inc.	$	1,052,813	20.30	%	—	—		—	—
Northwest Savings Bank	907,333		17.55	%	413,700	8.00	%	517,125	10.00	%

Tier I capital (to risk weighted assets)
Northwest Bancshares, Inc.	987,164		19.03	%	—	—		—	—
Northwest Savings Bank	842,439		16.29	%	206,850	4.00	%	310,275	6.00	%

Tier I capital (leverage) (to average assets)
Northwest Bancshares, Inc.	987,164		12.86	%	—	—		—	—
Northwest Savings Bank	842,439		10.85	%	310,504	4.00	%	388,130	5.00	%

	At December 31, 2013
					Minimum capital			Well capitalized
	Actual				requirements (1)			requirements (1)
	Amount		Ratio		Amount	Ratio		Amount	Ratio
Total capital (to risk weighted assts)
Northwest Bancshares, Inc.	$	1,147,027	22.46	%	—	—		—	—
Northwest Savings Bank	946,531		18.60	%	407,062	8.00	%	508,828	10.00	%

Tier I capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,081,060		21.17	%	—	—		—	—
Northwest Savings Bank	882,234		17.34	%	203,531	4.00	%	305,297	6.00	%

Tier I capital (leverage) (to average assets)
Northwest Bancshares, Inc.	1,081,060		13.87	%	—	—		—	—
Northwest Savings Bank	882,234		11.42	%	309,127	4.00	%	386,408	5.00	%

(1) The Federal Reserve does not yet have formal capital requirements established for savings and loan holding companies.

In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

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The final rule becomes effective for Northwest on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. The final rule also officially implements these consolidated capital requirements for savings and loan holding companies, such as the Company, effective January 1, 2015.

The following table shows the Basel III regulatory capital levels that must be maintained to avoid limitations on capital distributions and discretionary bonus payments for the periods indicated:

			Basel III Regulatory Capital Requirements
			January 1,		January 1,		January 1,		January 1,		January 1,
	Current		2015		2016		2017		2018		2019
New common equity tier 1 ratio plus capital conservation buffer	—		4.50	%	5.125	%	5.75	%	6.375	%	7.00	%
Tier 1 risk-based capital ratio	4.00	%	—		—		—		—		—
Tier 1 risk-based capital ratio plus capital conservation buffer	—		6.00	%	6.625	%	7.25	%	7.875	%	8.50	%
Total risk-based capital ratio	8.00	%	—		—		—		—		—
Total risk-based capital ratio plus capital conservation buffer	—		8.00	%	8.625	%	9.25	%	9.875	%	10.50	%

We are required to maintain a sufficient level of liquid assets, as determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of Banking during their regular examinations. Northwest monitors its liquidity position primarily using the ratio of unencumbered available-for-sale liquid assets as a percentage of deposits and borrowings (“liquidity ratio”). Northwest’s liquidity ratio at June 30, 2014 was 11.7%. We adjust liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes and insurance on mortgage loan escrow accounts, repayment of borrowings and loan commitments. At June 30, 2014 Northwest had $2.082 billion of additional borrowing capacity available with the FHLB, including $150.0 million on an overnight line of credit, as well as $192.7 million of borrowing capacity available with the Federal Reserve Bank and $80.0 million with two correspondent banks.

We paid $104.6 million and $22.0 million in cash dividends during the quarters ended June 30, 2014 and 2013, respectively, and $125.8 million and $22.0 million for the six months ended June 30, 2014 and 2013, respectively. As was previously announced, we paid a regular dividend of $0.13 per share and a special dividend of $1.00 per share in the second quarter of 2014. The common stock dividend payout ratio (dividends declared per share divided by net income per share) was 807.1% and 160.0% for the quarters ended June 30, 2014 and 2013, respectively, on dividends of $1.13 per share and $0.24 per share, respectively. The common stock dividend payout ratio for the six-month periods ended June 30, 2014 and 2013 was 453.3% and 75.0%, respectively, on dividends of $1.36 and $0.24 per share, respectively. On July 16, 2014, the Board of Directors declared a dividend of $0.13 per share payable on August 14, 2014 to shareholders of record as of July 31, 2014. This represents the 79th consecutive quarter we have paid a cash dividend.

Nonperforming Assets

The following table sets forth information with respect to nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Generally, when a loan is 90 days past due, we fully reverse all accrued interest thereon and cease to accrue interest thereafter. Exceptions are made for loans that have contractually matured, are in the process of being modified to extend the maturity date and are otherwise current as to principal and interest, and well secured loans that are in process of collection. Loans may also be placed on nonaccrual before they reach 90 days past due if conditions exist that call into question our ability to collect all contractual interest. Other nonperforming assets represent property acquired through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell, or the principal balance of the related loan.

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	June 30,			December 31,
	2014			2013
	(Dollars in thousands)
Loans 90 days or more delinquent:
Residential mortgage loans	$	21,994		$	24,625
Home equity loans	7,810			8,344
Other consumer loans	1,966			2,057
Commercial real estate loans	15,290			18,433
Commercial loans	4,214			4,298
Total loans 90 days or delinquent	$	51,274		$	57,757

Total real estate owned (REO)	14,915			18,203

Total loans 90 days or more delinquent and REO	66,189			75,960

Total loans 90 days or more delinquent to net loans receivable	0.88		%	1.01		%

Total loans 90 days or more delinquent and REO to total assets	0.84		%	0.96		%
Nonperforming assets:
Nonaccrual loans - loans 90 days or more delinquent	$	51,274		57,757
Nonaccrual loans — loans less than 90 days delinquent	45,483			49,464
Loans 90 days or more past maturity and still accruing	271			690
Total nonperforming loans	97,028			107,911
Total nonperforming assets	$	111,943		126,114

Nonaccrual troubled debt restructured loans *	$	23,949		28,889
Accruing troubled debt restructured loans	39,844			50,277
Total troubled debt restructured loans	$	63,793		79,166

* Included in nonaccurual loans above.

A loan is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement including both contractual principal and interest payments. The amount of impairment is required to be measured using one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, a specific allowance is allocated for the impairment. Impaired loans at June 30, 2014 and December 31, 2013 were $164.0 million and $173.8 million, respectively.

Allowance for Loan Losses

Our Board of Directors has adopted an “Allowance for Loan and Lease Losses” (“ALL”) policy designed to provide management with a systematic methodology for determining and documenting the ALL each reporting period. This methodology was developed to provide a consistent process and review procedure to ensure that the ALL is in conformity with GAAP, our policies and procedures and other supervisory and regulatory guidelines.

On an ongoing basis, the Credit Administration department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans. This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis. In addition, a meeting is held every quarter with each region to monitor the performance and status of loans on an internal watch list. On an on-going basis the loan officer in conjunction with a portfolio manager grades or classifies problem loans or potential problem loans based upon their knowledge of the lending relationship and other information previously accumulated. This rating is also

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reviewed independently by our Loan Review department on a periodic basis. Our loan grading system for problem loans is consistent with industry regulatory guidelines which classify loans as “substandard”, “doubtful” or “loss.” Loans that do not expose us to risk sufficient to warrant classification in one of the previous categories, but which possess some weaknesses, are designated as “special mention”. A “substandard” loan is any loan that is 90 days or more contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable. Loans classified as “loss” are considered uncollectible so that their continuance as assets without the establishment of a specific loss allowance is not warranted.

Credit relationships that have been classified as substandard or doubtful and are greater than or equal to $1.0 million are reviewed by the Credit Administration department for possible impairment. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, including both contractual principal and interest payments.

If an individual loan is deemed to be impaired, the Credit Administration department determines the proper measure of impairment for each loan based on one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. If the measurement of the impaired loan is more or less than the recorded investment in the loan, the Credit Administration department adjusts the specific allowance associated with that individual loan accordingly.

If a substandard or doubtful loan is not considered individually for impairment, it is grouped with other loans that possess common characteristics for impairment evaluation and analysis. This segmentation is accomplished by grouping loans of similar product types, risk characteristics and industry concentration into homogeneous pools. Historical loss ratios are analyzed and adjusted based on delinquency trends as well as the current economic, political, regulatory and interest rate environment and used to estimate the current measure of impairment.

The individual impairment measures along with the estimated loss for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to management’s Credit Committee on a quarterly basis. The Credit Committee reviews the processes and documentation presented, reviews the concentration of credit by industry and customer, lending products and activity, competition and collateral values, as well as economic conditions in general and in each of our market areas. Based on this review and discussion, the appropriate amount of ALL is estimated and any adjustments to reconcile the actual ALL with this estimate are determined. In addition, the Credit Committee considers if any changes to the methodology are needed. The Credit Committee also reviews and discusses delinquency trends, nonperforming asset amounts and ALL levels and ratios compared to our peer group as well as state and national statistics. Similarly, following the Credit Committee’s review and approval, a review is performed by the Risk Management Committee of the Board of Directors on a quarterly basis.

In addition to the reviews by management’s Credit Committee and the Board of Directors’ Risk Management Committee, regulators from either the FDIC or the Pennsylvania Department of Banking perform an extensive review on an annual basis for the adequacy of the ALL and its conformity with regulatory guidelines and pronouncements. Any recommendations or enhancements from these

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independent parties are considered by management and the Credit Committee and implemented accordingly.

We acknowledge that this is a dynamic process and consists of factors, many of which are external and out of our control that can change often, rapidly and substantially. The adequacy of the ALL is based upon estimates using all the information previously discussed as well as current and known circumstances and events. There is no assurance that actual portfolio losses will not be substantially different than those that were estimated.

We utilize a consistent methodology each period when analyzing the adequacy of the allowance for loan losses and the related provision for loan losses. As part of the analysis as of June 30, 2014, we considered the economic conditions in our markets, such as unemployment and bankruptcy levels as well as changes in real estate collateral values. In addition, we considered the overall trends in asset quality, specific reserves already established for criticized loans, historical loss rates and collateral valuations. As a result of this analysis, the allowance for loan losses increased by $94,000, or 0.1%, to $71.4 million, or 1.21% of total loans, at June 30, 2014 from $71.3 million, or 1.23% of total loans, at December 31, 2013. This increase is primarily attributable to seven business banking loans requiring additional reserves totaling $12.2 million. Partially offsetting these factors was the continued improvement in overall asset quality as classified loans, TDRs and non-accrual loans delinquent 90 days or more decreased by $26.1 million, $15.4 million and $6.5 million, respectively, compared to December 31, 2013.

We also consider how the level of non-accrual loans and historical charge-offs have influenced the required amount of allowance for loan losses. Non-accrual loans of $96.8 million or 1.64% of total loans receivable, at June 30, 2014 decreased by $10.4 million, or 9.8%, from $107.2 million, or 1.85% of total loans receivable, at December 31, 2013. As a percentage of average loans, annualized net charge-offs increased to 0.54% for the six months ended June 30, 2014 compared to 0.36% for the year ended December 31, 2013, as the result of the charge-off of two commercial loans totaling $8.1 million.

Comparison of Operating Results for the Quarters Ended June 30, 2014 and 2013

Net income for the quarter ended June 30, 2014 was $12.7 million, or $0.14 per diluted share, a decrease of $763,000, or 5.7%, from $13.5 million, or $0.15 per diluted share, for the quarter ended June 30, 2013. The decrease in net income resulted from a decrease in net interest income of $1.2 million, or 1.9%, and increases in the provision for loan losses of $2.9 million, or 53.3% and in noninterest expense of $1.0 million, or 1.9%. Partially offsetting these factors was an increase in noninterest income of $3.7 million, or 27.7%, and a decrease in income tax expense of $586,000, or 11.6%. Annualized, net income for the quarter ended June 30, 2014 represents a 4.77% and 0.64% return on average equity and return on average assets, respectively, compared to 4.79% and 0.68% for the same quarter last year. A discussion of significant changes follows.

Interest Income

Total interest income decreased by $2.4 million, or 3.0%, to $76.4 million for the quarter ended June 30, 2014 due primarily to a decrease in the average yield earned on interest earning assets to 4.17% for the quarter ended June 30, 2014 from 4.23% for the quarter ended June 30, 2013. The average yield on all categories of interest earning assets decreased when compared to the prior year period, with the exception of Federal Home Loan Bank of Pittsburgh stock (“FHLB”) and other interest earning deposits. Additionally, the average balance of interest earning assets decreased by $33.9 million, or 0.5%, to $7.410 billion for the quarter ended June 30, 2014 from $7.444 billion for the quarter ended June 30, 2013.

Interest income on loans receivable decreased by $1.2 million, or 1.7%, to $70.8 million for the quarter ended June 30, 2014 from to $72.0 million for the quarter ended June 30, 2013. This decrease in interest income on loans receivable can be attributed to a decline in the average yield which decreased to

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4.87% for the quarter ended June 30, 2014 from 5.12% for the quarter ended June 30, 2013. The continued decline in average yield is due primarily to the historically low level of market interest rates in general and continued competitive pricing pressure for new, as well as existing, credit relationships. Partially offsetting this decrease was an increase in the average balance of loans receivable which increased by $209.8 million, or 3.7%, to $5.834 billion for the quarter ended June 30, 2014 from $5.624 billion for the quarter ended June 30, 2013. This increase is due to continued success in increasing market share and the retention of most of the residential mortgage loans originated by our wholesale lending function rather than selling a portion of these originations in the secondary market.

Interest income on mortgage-backed securities decreased by $642,000, or 19.4%, to $2.7 million for the quarter ended June 30, 2014 from $3.3 million for the quarter ended June 30, 2013. This decrease is the result of decreases in both the average balance and average yield. The average balance of mortgage-backed securities decreased by $125.5 million, or 17.3%, to $601.1 million for the quarter ended June 30, 2014 from $726.6 for the quarter ended June 30, 2013 due primarily to redirecting cash flows from these securities to fund loan growth as well as the payment of cash dividends. The average yield on mortgage-backed securities decreased to 1.77% for the quarter ended June 30, 2014 from 1.82% for the quarter ended June 30, 2013. The decrease in average yield resulted primarily from the purchase of mortgage-backed securities at generally lower interest rates than the existing portfolio.

Interest income on investment securities decreased by $516,000, or 16.5%, to $2.6 million for the quarter ended June 30, 2014 from $3.1 million for the quarter ended June 30, 2013. This decrease is the result of decreases in both the average balance and average yield. The average balance of investment securities decreased by $24.5 million, or 4.6%, to $507.3 million for the quarter ended June 30, 2014 from $531.8 million for the quarter ended June 30, 2013. This decrease is due primarily to the maturity or call of municipal and government bonds and the use of these proceeds to fund loan growth. The average yield of investment securities decreased to 2.06% for the quarter ended June 30, 2014 from 2.35% for the quarter ended June 30, 2013. This decrease is primarily the result of higher rate, tax-free, municipal securities maturing or being called and being replaced by lower yielding, shorter duration government agency securities.

For the quarter ended June 30, 2014 we received dividends on FHLB stock of $697,000 on an average balance of $43.9 million, resulting in a yield of 6.34%, compared to dividends of $34,000 on an average balance of $48.1 million, resulting in a yield of 0.28% for the quarter ended June 30, 2013. As a result of the improved financial condition of the FHLB of Pittsburgh, they have been able to increase their dividends to member financial institutions. These dividends are reported as other operating income on our Consolidated Statements of Income.

Interest income on interest-earning deposits decreased by $54,000, or 15.9%, to $286,000 for the quarter ended June 30, 2014 from $340,000 for the quarter ended June 30, 2013. This decrease is due to a decrease in the average balance which decreased by $89.5 million, or 17.4%, to $424.4 million for the quarter ended June 30, 2014 from $513.9 million for the quarter ended June 30, 2013, due to the utilization of cash to fund loan growth and the payment of dividends over the past year.

Interest Expense

Interest expense decreased by $1.2 million, or 7.9%, to $14.2 million for the quarter ended June 30, 2014 from $15.4 million for the quarter ended June 30, 2013. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities, which decreased to 0.97% for the quarter ended June 30, 2014 from 1.04% for the quarter ended June 30, 2013, as well as a decrease in the average balance of interest-bearing liabilities, which decreased by $73.4 million, or 1.2%, to $5.892 billion for the quarter ended June 30, 2014 from $5.966 billion for the quarter ended June 30, 2013. The decrease in the

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cost of funds resulted primarily from the current level of market interest rates which enabled us to reduce the rate of interest paid on time deposit products. Also contributing to the decrease was the maturity of an interest rate swap used to hedge the interest rate on our junior subordinated debentures. The decrease in average interest-bearing liabilities resulted from a reduction in average time deposits of $192.5 million, or 10.7%, compared to last year, as consumers continue to shift investment priorities to shorter duration or demand products as well as to utilize funds for living expenses. The decrease in time deposits was partially offset by a combined increase in the average balance of interest-bearing demand deposits, savings deposits and money market deposit accounts of $113.0 million, or 3.5%, compared to the average balance for the quarter ended June 30, 2013.

Net Interest Income

Net interest income decreased by $1.2 million, or 1.9%, to $62.1 million for the quarter ended June 30, 2014 from $63.3 million for the quarter ended June 30, 2013. This decrease is attributable to the factors discussed above. Loan growth enabled us to redirect cash flows from lower yielding securities which helped offset overall lower market interest rates and maintain our net interest spread and margin. Our net interest rate spread increased to 3.20% for the quarter ended June 30, 2014 from 3.19% for the quarter ended June 30, 2013 and our net interest margin decreased just one basis point to 3.39% for the quarter ended June 30, 2014 from 3.40% for the quarter ended June 30, 2013.

Provision for Loan Losses

The provision for loan losses increased by $2.9 million, or 53.3%, to $8.3 million for the quarter ended June 30, 2014 from $5.4 million for the quarter ended June 30, 2013. This increase is due primarily to six business banking loans requiring combined provisions of $5.9 million during the 2014 period. Improvements in overall asset quality helped to mitigate these increases as classified loans decreased by $19.8 million, or 8.6%, to $210.7 million at June 30, 2014 from $230.5 million at June 30, 2013. In addition, TDRs decreased by $22.7 million, or 26.3%, to $63.8 million at June 30, 2014 from $86.5 million at June 30, 2013 and loans 90 days or more delinquent decreased by $12.2 million, or 19.3%, to $51.3 million at June 30, 2014 from $63.5 million at June 30, 2013.

In determining the amount of the current period provision, we considered current economic conditions, including unemployment levels and bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss factors. Net charge-offs for the quarter ended June 30, 2014 were $13.1 million compared to $4.8 million for the quarter ended June 30, 2013, however it was the result of the charge-off of just two commercial loans totaling $8.1 million. Annualized net charge-offs to average loans increased to 0.90% for the quarter ended June 30, 2014 from 0.34% for the quarter ended June 30, 2013. We analyze the allowance for loan losses as described in the section entitled “Allowance for Loan Losses.” The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the losses inherent in our loan portfolio relative to loan mix, economic conditions and historical loss experience.

Noninterest Income

Noninterest income increased by $3.7 million, or 27.7%, to $17.1 million for the quarter ended June 30, 2014 from $13.4 million for the quarter ended June 30, 2013. The increase is primarily attributable to a decrease in loss on real estate owned and increases in trust and other financial services income as well as other operating income. Loss on real estate owned decreased by $1.7 million, or 75.4%, to $562,000 for the quarter ended June 30, 2014 from $2.3 million for the quarter ended June 30, 2013, as a result of a write-down of our largest REO property during the quarter ended June 30, 2013. Trust and other financial services income increased by $792,000, or 35.0% to $3.1 million for the quarter ended June 30, 2014 from $2.3 million for the quarter ended June 30, 2013. This increase is due to our acquisition of Evans Capital Management, Inc. as of January 1, 2014 as well as increases in the amount of assets under management.

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Other operating income increased by $823,000, or 95.1%, to $1.7 million for the quarter ended June 30, 2014 from $865,000 for the quarter ended June, 2013, due primarily to the increase in dividends received on FHLB stock.

Noninterest Expense

Noninterest expense increased by $1.0 million, or 1.9%, to $53.8 million for the quarter ended June 30, 2014 from $52.8 million for the quarter ended June 30, 2013. This increase is primarily the result of increases in marketing expenses, professional services and compensation and employee benefits. Marketing expenses increased by $838,000, or 40.0%, to $2.9 million for the quarter ended June 30, 2014 from $2.1 million for the quarter ended June 30, 2013. This increase is primarily the result of ongoing loan and demand deposit marketing campaigns as well as the promotion of our recent awards from J.D. Power & Associates, Forbes and Keefe, Bruyette & Woods. Professional services increased by $576,000, or 48.0%, to $1.8 million for the quarter ended June 30, 2014 from $1.2 million for the quarter ended June 30, 2013, due primarily to consulting engagements to continued enhancement of our regulatory compliance management system. Compensation and employee benefits increased by $387,000, or 1.4% to $28.5 million for the quarter ended June 30, 2014 from $28.2 million for the quarter ended June 30, 2013. This increase is primarily the result of our acquisition of Evans Capital Management, Inc. These increases were partially offset by a decrease in processing expenses of $751,000, or 10.2%, to $6.6 million for the quarter ended June 30, 2014 from $7.4 million for the quarter ended June 30, 2013 due primarily to the timing of software and infrastructure upgrades.

Income Taxes

The provision for income taxes decreased by $586,000, or 11.6%, to $4.5 million for the quarter ended June 30, 2014 from $5.1 million for the quarter ended June 30, 2013. This decrease in income tax expense is primarily a result of the decrease in income before income taxes of $1.3 million, or 7.3%. In addition, the $1.00 per share special dividend paid on May 15, 2014 is deductible on the Company’s common stock held in our Employee Stock Ownership Plan and 401(k) plan. Our effective tax rate for the quarter ended June 30, 2014 was 26.0% compared to 27.3% for the quarter ended June 30, 2013. We anticipate our effective tax rate to be between 26.0% and 27.0% for the year.

Comparison of operating results for the six months ended June 30, 2014 and 2013

Net income for the six months ended June 30, 2014 was $27.4 million, or $0.30 per diluted share, a decrease of $1.4 million, or 4.9%, from $28.8 million, or $0.32 per diluted share, for the same period last year. The decrease in net income resulted primarily from a decrease in net interest income of $4.3 million as well as an increase in the provision for loan losses of $3.2 million and an increase in the noninterest expense of $2.7 million. These changes were partially offset by an increase in noninterest income of $7.0 million and a decrease in income tax expense of $1.8 million. Annualized, net income for the six months ended June 30, 2014 represents a 4.97% and 0.70% return on average equity and return on average assets, respectively, compared to 5.12% and 0.73% for the same period last year. A discussion of significant changes follows.

Interest Income

Total interest income decreased by $6.9 million, or 4.4%, to $151.5 million for the six months ended June 30, 2014 from $158.4 million for the six months ended June 30, 2013, due to both a decrease in the average yield earned on interest earning assets and a slight decrease in the average balance of interest earning assets. The average yield on interest earning assets decreased to 4.17% for the six months ended June 30, 2014 from 4.30% for the six months ended June 30, 2013. The average yield on all categories of interest earning assets decreased compared to the same period last year with the exception of interest-earning deposits and dividends on FHLB stock. Average interest earning assets decreased by $2.4 million to

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$7.361 billion for the six months ended June 30, 2014 from $7.363 billion for the six months ended June 30, 2013.

Interest income on loans receivable decreased by $4.8 million, or 3.3%, to $140.2 million for the six months ended June 30, 2014 from $145.0 million for the six months ended June 30, 2013. The average yield on loans receivable decreased to 4.85% for the six months ended June 30, 2014 from 5.15% for the six months ended June 30, 2013. The decrease in average yield is primarily attributable to the origination of new loans and rate reductions for existing variable rate loans in this historically low interest rate and highly competitive environment. This decrease was partially offset by an increase in the average balance of loans receivable of $197.4 million, or 3.5%, to $5.829 billion at June 30, 2014 from $5.631 billion at June 30, 2013. This increase is primarily attributable to our continued emphasis on building business banking loan relationships.

Interest income on mortgage-backed securities decreased by $1.2 million, or 19.1%, to $5.5 million for the six months ended June 30, 2014 from $6.7 million for the six months ended June 30, 2013. This decrease is the result of decreases in both the average balance and average yield. The average balance of mortgage-backed securities decreased by $115.0 million, or 15.8%, to $611.1 million for the six months ended June 30, 2014 from $726.1 for the six months ended June 30, 2013 due primarily to redirecting cash flows to fund loan growth and the payment of dividends. The average yield on mortgage-backed securities decreased to 1.79% for the six months ended June 30, 2014 from 1.86% for the six months ended June 30, 2013. The decrease in average yield resulted from the purchase of mortgage-backed securities during this period of historically low market interest rates.

Interest income on investment securities decreased by $749,000, or 12.3%, to $5.3 million for the six months ended June 30, 2014 from $6.1 million for the six months ended June 30, 2013. This decrease was the result of a decrease in the average yield on investment securities to 2.11% for the six months ended June 30, 2014 from 2.43% for the six months ended June 30, 2013, as a result of higher rate municipal bonds maturing or being called and replaced with lower yielding shorter duration government agency bonds. Partially offsetting this decrease was an increase in the average balance of investment securities of $6.4 million, or 1.3%, to $507.3 million for the six months ended June 30, 2014 from $500.9 million for the six months ended June 30, 2013, due to deploying excess cash flow in a manner to minimize net interest margin compression and extension risk.

For the six months ended June 30, 2014 we received dividends on FHLB stock of $973,000 on an average balance of $43.8 million, resulting in a yield of 4.44%, compared to dividends of $71,000 on an average balance of $47.5 million, resulting in a yield of 0.30% for the six months ended June 30, 2013. These dividends are reported as other operating income on our Consolidated Statements of Income.

Interest income on interest-earning deposits decreased by $105,000, or 17.8%, to $486,000 for the six months ended June 30, 2014 from $591,000 for the six months ended June 30, 2013. This decrease is due to the average balance decreasing by $87.6 million, or 19.1%, to $370.3 million for the six months ended June 30, 2014 from $457.9 million for the six months ended June 30, 2013. The average balance decreased due to common stock dividend payments and loan growth. The average yield on interest-earning deposits remained unchanged at 0.26% for the six months ended June 30, 2014 compared to the same period last year.

Interest Expense

Interest expense decreased by $2.7 million, or 8.6%, to $28.4 million for the six months ended June 30, 2014 from $31.1 million for the six months ended June 30, 2013. This decrease in interest expense was due to a decrease in the average balance of interest-bearing liabilities of $72.3 million, or 1.2%, to $5.878

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billion for the six months ended June 30, 2014 from $5.950 billion for the six months ended June 30, 2013. In addition, the average cost of interest-bearing liabilities decreased by eight basis points to 0.97% for the six months ended June 30, 2014 from 1.05% for the six months ended June 30, 2013. The decrease in interest-bearing liabilities is the result of a decrease in the average balance of time deposits of $198.5 million, or 10.9%, as we believe consumers continue to prefer more liquid deposit accounts as protection against possible higher interest rates in the future. Partially offsetting this decrease was an increase of $109.3 million, or 3.5% in all other deposit products. The decrease in the cost of funds was due primarily to a reduction in the rates paid on all deposit products and the maturity of an interest rate swap on our junior subordinated debentures.

Net Interest Income

Net interest income decreased by $4.3 million, or 3.4%, to $123.0 million for the six months ended June 30, 2014 from $127.3 million for the six months ended June 30, 2013. This decrease in net interest income was attributable to the factors discussed above. Our net interest rate spread decreased to 3.20% for the six months ended June 30, 2014 from 3.25% for the six months ended June 30, 2013, and our net interest margin decreased to 3.37% for the six months ended June 30, 2014 from 3.46% for the six months ended June 30, 2013.

Provision for Loan Losses

The provision for loan losses increased by $3.2 million, or 25.5%, to $15.8 million for the six months ended June 30, 2014 from $12.6 million for the six months ended June 30, 2013. This increase is due primarily to seven business banking loans requiring combined provisions of $12.2 million during the 2014 period. Improvements in overall asset quality partially offset these increases. Classified loans decreased by $19.8 million, or 8.6%, to $210.7 million at June 30, 2014 from $230.5 million at June 30, 2013. In addition, total nonaccrual loans decreased by $23.8 million, or 19.7%, to $96.8 million at June 30, 2014 from $120.6 million at June 30, 2013 and loans 90 days or more delinquent decreased by $12.2 million, or 19.3%, to $51.3 million at June 30, 2014 from $63.5 million at June 30, 2013.

In determining the amount of the current period provision, we considered current economic conditions, including unemployment levels and bankruptcy filings, and changes in real estate values and the impact of these factors on the quality of our loan portfolio and historical loss factors. Net charge-offs for the six months ended June 30, 2014 were $15.7 million compared to $13.2 million for the six months ended June 30, 2013. Annualized net charge-offs to average loans increased to 0.54% for the six months ended June 30, 2014 from 0.47% for the six months ended June 30, 2013. We analyze the allowance for loan losses as described in the section entitled “Allowance for Loan Losses.” The provision that is recorded is sufficient, in our judgment, to bring this reserve to a level that reflects the losses inherent in our loan portfolio relative to loan mix, economic conditions and historical loss experience.

Noninterest Income

Noninterest income increased by $7.0 million, or 23.5%, to $36.8 million for the six months ended June 30, 2014 from $29.8 million for the six months ended June 30, 2013. The increase is primarily attributable to increases in gain on sale of investments and trust and other financial services income and a decrease in loss on real estate owned. Gain on sale of investments increased by $3.6 million to $3.7 million for the six months ended June 30, 2014 from $120,000 for the six months ended June 30, 2013, due to the sale of equity securities during the current year. Trust and other financial services income increased by $1.6 million, or 36.6% to $6.1 million for the six months ended June 30, 2014 from $4.5 million for the six months ended June 30, 2013. This increase is due to our acquisition of Evans Capital Management, Inc. as of January 1, 2014 as well as increases in the amount of assets under management. Loss on real estate owned decreased by $1.7 million, or 71.1%, to $697,000 for the six months ended June 30, 2014 from $2.4 million for the six months ended June 30, 2013, as a result of a write-down of our largest REO property

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during 2013. Partially offsetting these favorable variances was a decrease in mortgage banking income of $678,000, or 56.9%, to $514,000 for the six months ended June 30, 2014 from $1.2 million for the six months ended June 30, 2013. This decrease resulted from fewer sales of residential mortgage loans into the secondary market during the current year compared to the same period last year.

Noninterest Expense

Noninterest expense increased by $2.7 million, or 2.6%, to $107.0 million for the six months ended June 30, 2014 from $104.3 million for the six months ended June 30, 2013. This increase is primarily the result of increases in professional services, marketing expenses, office operations and compensation and employee benefits. Professional services increased by $954,000, or 32.7%, to $3.8 million for the six months ended June 30, 2014 from $2.9 million for the six months ended June 30, 2013, due primarily to consulting engagements to test and refine our regulatory compliance management system. Marketing expenses increased by $575,000, or 14.4%, to $4.6 million for the six months ended June 30, 2014 from $4.0 million for the six months ended June 30, 2013. This increase is primarily the result of loan and demand deposit marketing campaigns which started during March 2014. Office operations increased by $491,000, or 6.9%, to $7.6 million for the six months ended June 30, 2014 from $7.1 million for the six months ended June 30, 2013, due primarily to increased collections costs. Compensation and employee benefits increased by $429,000, or 0.8% to $56.5 million for the six months ended June 30, 2014 from $56.1 million for the six months ended June 30, 2013. This increase is primarily the result of our acquisition of Evans Capital Management, Inc. These increases were partially offset by a decrease in federal deposit insurance premiums of $227,000, or 7.9%, to $2.6 million for the six months ended June 30, 2014 from $2.9 million for the six months ended June 30, 2013.

Income Taxes

The provision for income taxes decreased by $1.8 million, or 15.3%, to $9.7 million for the six months ended June 30, 2014 from $11.5 million for the six months ended June 30, 2013. This decrease in income tax expense is primarily a result of the decrease in income before income taxes of $3.2 million, or 7.9%. In addition, the $1.00 per share special dividend paid on May 15, 2014 is deductible on the Company’s common stock held in our Employee Stock Ownership Plan and 401(k) plan. Our effective tax rate for the six months ended June 30, 2014 was 26.2% compared to 28.5% for the six months ended June 30, 2013. We anticipate our effective tax rate to be between 26.0% and 27.0% for the year.

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Average Balance Sheet

(Dollars in thousands)

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are calculated using daily averages.

	Quarter ended June 30,
	2014					2013
				Avg.				Avg.
	Average			yield/		Average		yield/
	balance		Interest	cost (f)		balance	Interest	cost (f)
Assets:
Interest-earning assets:
Loans receivable (a) (b) (includes FTE adjustments of $540 and $561, respectively)	$	5,833,540	71,337	4.90	%	5,623,784	72,548	5.16	%
Mortgage-backed securities (c)	601,066		2,666	1.77	%	726,583	3,308	1.82	%
Investment securities (c) (includes FTE adjustments of $860 and $1,127, respectively)	507,315		3,472	2.74	%	531,802	4,255	3.20	%
FHLB stock	43,944		697	6.34	%	48,110	34	0.28	%
Other interest-earning deposits	424,434		286	0.27	%	513,930	340	0.26	%

Total interest-earning assets (includes FTE adjustments of $1,400 and $1,688, respectively)	7,410,299		78,458	4.24	%	7,444,209	80,485	4.32	%

Noninterest earning assets (d)	530,582					531,771

Total assets	$	7,940,881				7,975,980

Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Savings deposits	$	1,239,563	821	0.27	%	1,209,783	900	0.30	%
Interest-bearing checking deposits	896,014		149	0.07	%	873,804	149	0.07	%
Money market deposit accounts	1,182,542		792	0.27	%	1,121,579	748	0.27	%
Time deposits	1,598,523		4,659	1.17	%	1,791,030	5,607	1.26	%
Borrowed funds (e)	872,653		6,623	3.04	%	866,476	6,612	3.06	%
Junior subordinated debentures	103,094		1,170	4.49	%	103,094	1,420	5.45	%

Total interest-bearing liabilities	5,892,389		14,214	0.97	%	5,965,766	15,436	1.04	%

Noninterest-bearing checking deposits	852,253					778,468
Noninterest-bearing liabilities	128,072					102,191

Total liabilities	6,872,714					6,846,425

Shareholders’ equity	1,068,167					1,129,555

Total liabilities and shareholders’ equity	$	7,940,881				7,975,980

Net interest income/ Interest rate spread			64,244	3.27	%		65,049	3.28	%

Net interest-earning assets/ Net interest margin	$	1,517,910		3.47	%	1,478,443		3.50	%

Ratio of interest-earning assets to interest-bearing liabilities	1.26X					1.25X

(a) Average gross loans includes loans held as available-for-sale and loans placed on nonaccrual status.

(b) Interest income includes accretion/ amortization of deferred loan fees/ expenses, which were not material.

(d) Average balances include the effect of unrealized gains or losses on securities held as available-for-sale.

(e) Average balances include FHLB borrowings and collateralized borrowings.

(f) Annualized. Shown on a fully tax-equivalent basis (“FTE”). The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: Loans – 4.87% and 5.12%, respectively; Investment securities – 2.06% and 2.35%, respectively; interest-earning assets – 4.17% and 4.23%, respectively. GAAP basis net interest rate spreads were 3.20% and 3.19%, respectively; and GAAP basis net interest margins were 3.39% and 3.40%, respectively.

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Rate/ Volume Analysis

(Dollars in Thousands)

The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change. Changes that cannot be attributed to either rate or volume have been allocated to both rate and volume.

Quarters ended June 30, 2014 and 2013

						Net
	Rate			Volume		Change
Interest earning assets:
Loans receivable	$	(3,917	)	2,706		(1,211	)
Mortgage-backed securities	(85		)	(557	)	(642	)
Investment securities	(615		)	(168	)	(783	)
FHLB stock	666			(3	)	663
Other interest-earning deposits	5			(59	)	(54	)
Total interest-earning assets	(3,946		)	1,919		(2,027	)

Interest-bearing liabilities:
Savings deposits	(99		)	20		(79	)
Interest-bearing checking deposits	(4		)	4		—
Money market deposit accounts	3			41		44
Time deposits	(345		)	(603	)	(948	)
Borrowed funds	(36		)	47		11
Junior subordinated debentures	(250		)	—		(250	)
Total interest-bearing liabilities	(731		)	(491	)	(1,222	)

Net change in net interest income	$	(3,215	)	2,410		(805	)

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Average Balance Sheet

(Dollars in thousands)

	Six months ended June 30,
	2014					2013
				Avg.					Avg.
	Average			yield/		Average			yield/
	balance		Interest	cost (f)		balance		Interest	cost (f)
Assets:
Interest-earning assets:
Loans receivable (a) (b) (includes FTE adjustments of $1,084 and $1,115, respectively)	$	5,828,500	141,254	4.89	%	$	5,631,110	146,075	5.19	%
Mortgage-backed securities (c)	611,050		5,459	1.79	%	726,057		6,749	1.86	%
Investment securities (c) (includes FTE adjustments of $1,752 and $2,238, respectively)	507,334		7,099	2.80	%	500,881		8,334	3.33	%
FHLB stock	43,830		973	4.44	%	47,492		71	0.30	%
Other interest-earning deposits	370,292		486	0.26	%	457,871		591	0.26	%

Total interest-earning assets (includes FTE adjustments of $2,836 and $3,353, respectively)	7,361,006		155,271	4.25	%	7,363,411		161,820	4.40	%

Noninterest earning assets (d)	575,490					584,030

Total assets	$	7,936,496				7,947,441

Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Savings deposits	$	1,224,042	1,624	0.27	%	$	1,195,216	1,794	0.30	%
Interest-bearing checking deposits	873,972		288	0.07	%	857,121		289	0.07	%
Money market deposit accounts	1,178,202		1,574	0.27	%	1,114,553		1,490	0.27	%
Time deposits	1,621,745		9,425	1.17	%	1,820,244		11,645	1.29	%
Borrowed funds (e)	876,897		13,180	3.03	%	860,017		13,038	3.06	%
Junior subordinated debentures	103,094		2,327	4.49	%	103,094		2,825	5.45	%

Total interest-bearing liabilities	5,877,952		28,418	0.97	%	5,950,245		31,081	1.05	%

Noninterest-bearing checking deposits	833,750					766,578
Noninterest-bearing liabilities	114,994					96,297

Total liabilities	6,826,696					6,813,120

Shareholders’ equity	1,109,800					1,134,321

Total liabilities and shareholders’ equity	$	7,936,496				7,947,441

Net interest income/ Interest rate spread			126,853	3.28	%			130,739	3.35	%

Net interest-earning assets/ Net interest margin	$	1,483,054		3.45	%	1,413,166			3.55	%

Ratio of interest-earning assets to interest-bearing liabilities	1.25X					1.24X

(a) Average gross loans includes loans held as available-for-sale and loans placed on nonaccrual status.

(b) Interest income includes accretion/ amortization of deferred loan fees/ expenses, which were not material.

(d) Average balances include the effect of unrealized gains or losses on securities held as available-for-sale.

(e) Average balances include FHLB borrowings and collateralized borrowings.

(f) Annualized. Shown on a fully tax-equivalent basis (“FTE”). The FTE basis adjusts for the tax benefit of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: Loans – 4.85% and 5.15%, respectively; Investment securities – 2.11% and 2.43%, respectively; interest-earning assets – 4.17% and 4.30%, respectively. GAAP basis net interest rate spreads were 3.20% and 3.25%, respectively; and GAAP basis net interest margins were 3.37% and 3.46%, respectively.

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Rate/ Volume Analysis

(Dollars in Thousands)

Six months ended June 30, 2014 and 2013

						Net
	Rate			Volume		Change
Interest earning assets:
Loans receivable	$	(9,941	)	5,120		(4,821	)
Mortgage-backed securities	(263		)	(1,027	)	(1,290	)
Investment securities	(1,342		)	107		(1,235	)
FHLB stock	907			(5	)	902
Other interest-earning deposits	8			(113	)	(105	)
Total interest-earning assets	(10,631		)	4,082		(6,549	)

Interest-bearing liabilities:
Savings deposits	(213		)	43		(170	)
Interest-bearing checking deposits	(7		)	6		(1	)
Money market deposit accounts	(1		)	85		84
Time deposits	(950		)	(1,270	)	(2,220	)
Borrowed funds	(112		)	254		142
Junior subordinated debentures	(498		)	—		(498	)
Total interest-bearing liabilities	(1,781		)	(882	)	(2,663	)

Net change in net interest income	$	(8,850	)	4,964		(3,886	)

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As the holding company for a savings bank, one of our primary market risks is interest rate risk. Interest rate risk is the sensitivity of net interest income to variations in interest rates over a specified time period. The sensitivity results from differences in the time periods in which interest rate sensitive assets and liabilities mature or re-price. We attempt to control interest rate risk by matching, within acceptable limits, the re-pricing periods of assets and liabilities. We have attempted to limit our exposure to interest sensitivity by increasing core deposits, enticing customers to extend certificates of deposit maturities, borrowing funds with fixed-rates and longer maturities and by shortening the maturities of our assets by emphasizing the origination of more short-term fixed rate loans and adjustable rate loans. We also continue to sell a portion of the long-term, fixed-rate mortgage loans that we originate. In addition, we purchase shorter term or adjustable-rate investment securities and mortgage-backed securities.

We have an Asset/ Liability Committee consisting of several members of management which meets monthly to review market interest rates, economic conditions, the pricing of interest-earning assets and

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interest-bearing liabilities and the balance sheet structure. On a quarterly basis, this Committee also reviews the interest rate risk position and cash flow projections.

The Board of Directors has a Risk Management Committee which meets quarterly and reviews interest rate risk and trends, our interest sensitivity position, the liquidity position and the market risk inherent in the investment portfolio.

In an effort to assess interest rate risk and market risk, we utilize a simulation model to determine the effect of immediate incremental increases and decreases in interest rates on net income and the market value of equity. Certain assumptions are made regarding loan prepayments and decay rates of savings and interest-bearing demand accounts. Because it is difficult to accurately project the market reaction of depositors and borrowers, the effect of actual changes in interest rates on these assumptions may differ from simulated results. We have established the following guidelines for assessing interest rate risk:

Net income simulation. Given a non-parallel shift of 100 basis points (“bps”), 200 bps and 300 bps in interest rates, the estimated net income may not decrease by more than 10%, 20% and 30%, respectively, within a one-year period.

Market value of equity simulation. The market value of equity is the present value of assets and liabilities. Given a non-parallel shift of 100 bps, 200 bps and 300 bps in interest rates, the market value of equity may not decrease by more than 15%, 30% and 35%, respectively, from the computed economic value at current interest rate levels.

The following table illustrates the simulated impact of a 100 bps, 200 bps or 300 bps upward or a 100 bps downward movement in interest rates on net income, return on average equity, earnings per share and market value of equity. This analysis was prepared assuming that interest-earning asset and interest-bearing liability levels at June 30, 2014 remain constant. The impact of the rate movements was computed by simulating the effect of an immediate and sustained shift in interest rates over a twelve-month period from June 30, 2014 levels.

	Increase									Decrease
Non-parallel shift in interest rates over the next 12 months	100 bps			200 bps			300 bps			100 bps
Projected percentage increase/ (decrease) in net income	0.4		%	2.0		%	2.6		%	(12.6		)%
Projected increase/ (decrease) in return on average equity	0.5		%	2.0		%	2.5		%	(12.2		)%
Projected increase/ (decrease) in earnings per share	$	0.00		$	0.01		$	0.01		$	(0.08	)
Projected percentage increase/ (decrease) in market value of equity	(5.1		)%	(15.1		)%	(23.4		)%	(0.1		)%

The figures included in the table above represent projections that were computed based upon certain assumptions including prepayment rates and decay rates. These assumptions are inherently uncertain and, as a result, cannot precisely predict the impact of changes in interest rates. Actual results may differ significantly due to timing, magnitude and frequency of interest rate changes and changes in market conditions.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision of and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the

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end of the period covered by this quarterly report (the “Evaluation Date”). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, these disclosure controls and procedures were effective.

There were no changes in the internal controls over financial reporting during the period covered by this report or in other factors that have materially affected, or are reasonably likely to materially affect the internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to a number of asserted and unasserted claims encountered in the normal course of business. We believe that any additional liability, other than that which has already been accrued, that may result from such potential litigation will not have a material adverse effect on the financial statements. However, we cannot presently determine whether or not any claims against us will have a material adverse effect on our results of operations in any future reporting period. See note 11.

Item 1A. Risk Factors

There are no material changes to the risk factors as previously discussed in Item 1A, to Part I of our 2013 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

a.) Not applicable.

b.) Not applicable.

c.) The following table discloses information regarding the repurchase of shares of common stock during the quarter ending June 30, 2014:

Month	Number of shares purchased	Average price paid per share		Total number of shares purchased as part of a publicly announced repurchase plan (1)	Maximum number of shares yet to be purchased under the plan (1)
April	—	$	—	—	1,049,189
May	—	—		—	1,049,189
June	—	—		—	1,049,189
	—	$	—

Month	Number of shares purchased	Average price paid per share		Total number of shares purchased as part of a publicly announced repurchase plan (2)	Maximum number of shares yet to be purchased under the plan (2)
April	—	$	—	—	5,000,000
May	—	—		—	5,000,000
June	—	—		—	5,000,000
	—	$	—

(1) Reflects the program for 4,750,000 shares announced September 26, 2011.

(2) Reflects the program for 5,000,000 shares announced December 13, 2012.

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Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.

		NORTHWEST BANCSHARES, INC.
		(Registrant)


Date:	August 8, 2014	By:	/s/ William J. Wagner
			William J. Wagner
			President and Chief Executive Officer
			(Duly Authorized Officer)


Date:	August 8, 2014	By:	/s/ Gerald J. Ritzert
			Gerald J. Ritzert
			Controller
			(Principal Accounting Officer of the Registrant)