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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, 2016

 

or

 

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) 102,518,588 shares outstanding as of July 31, 2016

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NORTHWEST BANCSHARES, INC.

INDEX

 

				PAGE
PART I		FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Statements of Financial Condition as of June 30, 2016 and December 31, 2015 (Unaudited)		1
		Consolidated Statements of Income for the quarter and six months ended June 30, 2016 and 2015 (Unaudited)		2
		Consolidated Statements of Comprehensive Income for the quarter and six months ended June 30, 2016 and 2015 (Unaudited)		3
		Consolidated Statements of Changes in Shareholders’ Equity for the quarter ended June 30, 2016 and 2015 (Unaudited)		4
		Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2016 and 2015 (Unaudited)		5
		Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (Unaudited)		6
		Notes to Consolidated Financial Statements (Unaudited)		8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		47
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		61
Item 4.		Controls and Procedures		62
PART II		OTHER INFORMATION
Item 1.		Legal Proceedings		62
Item 1A.		Risk Factors		63
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		63
Item 3.		Defaults Upon Senior Securities		63
Item 4.		Mine Safety Disclosures		63
Item 5.		Other information		63
Item 6.		Exhibits		64
		Signature		65
		Certifications

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ITEM 1. FINANCIAL STATEMENTS

 

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(in thousands, except share data)

	June 30, 2016				December 31, 2015
Assets
Cash and due from banks	$	87,711			92,263
Interest-earning deposits in other financial institutions	223,084				74,510
Federal funds sold and other short-term investments	636				635
Marketable securities available-for-sale (amortized cost of $692,403 and $868,956)	705,297				874,405
Marketable securities held-to-maturity (fair value of $25,978 and $32,552)	25,144				31,689
Total cash and investments	1,041,872				1,073,502
Personal Banking loans:
Residential mortgage loans held for sale	39,942				—
Residential mortgage loans	2,717,656				2,750,564
Home equity loans	1,162,174				1,187,106
Consumer loans	546,550				510,617
Total Personal Banking loans	4,466,322				4,448,287
Commercial Banking loans:
Commercial real estate loans	2,363,376				2,351,434
Commercial loans	465,223				422,400
Total Business Banking loans	2,828,599				2,773,834
Total loans	7,294,921				7,222,121
Allowance for loan losses	(60,781		)		(62,672	)
Total loans, net	7,234,140				7,159,449
Federal Home Loan Bank stock, at cost	40,321				40,903
Accrued interest receivable	20,713				21,072
Real estate owned, net	4,950				8,725
Premises and equipment, net	151,643				154,351
Bank owned life insurance	169,616				168,509
Goodwill	262,140				261,736
Other intangible assets	8,095				8,982
Other assets	30,485				54,670
Total assets	$	8,963,975			8,951,899
Liabilities and Shareholders’ Equity
Liabilities:
Noninterest-bearing checking deposits	$	1,189,032			1,177,256
Interest-bearing checking deposits	1,110,607				1,080,086
Money market deposit accounts	1,295,127				1,274,504
Savings deposits	1,444,947				1,386,017
Time deposits	1,596,288				1,694,718
Total deposits	6,636,001				6,612,581
Borrowed funds	959,969				975,007
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities	111,213				111,213
Advances by borrowers for taxes and insurance	45,288				33,735
Accrued interest payable	737				1,993
Other liabilities	55,312				54,207
Total liabilities	7,808,520				7,788,736
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, 102,472,947 and 101,871,737 shares issued, respectively	1,025				1,019
Paid-in capital	722,980				717,603
Retained earnings	470,337				489,292
Unallocated common stock of employee stock ownership plan	(19,370		)		(20,216	)
Accumulated other comprehensive loss	(19,517		)		(24,535	)
Total shareholders’ equity	1,155,455				1,163,163
Total liabilities and shareholders’ equity	$	8,963,975			8,951,899

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 June 30,							Six months ended June 30,
	2016				2015			2016			2015
Interest income:
Loans receivable	$	82,645			70,985			163,426			141,696
Mortgage-backed securities	2,115				2,058			4,344			4,292
Taxable investment securities	756				1,129			1,794			2,174
Tax-free investment securities	707				1,143			1,431			2,491
FHLB dividends	401				475			868			1,878
Interest-earning deposits	70				180			129			319
Total interest income	86,694				75,970			171,992			152,850
Interest expense:
Deposits	5,865				5,691			11,953			11,457
Borrowed funds	4,143				8,101			11,801			16,234
Total interest expense	10,008				13,792			23,754			27,691
Net interest income	76,686				62,178			148,238			125,159
Provision for loan losses	4,199				1,050			5,859			1,950
Net interest income after provision for loan losses	72,487				61,128			142,379			123,209
Noninterest income:
Gain on sale/ call of investments	227				566			354			661
Service charges and fees	10,630				9,228			20,695			17,887
Trust and other financial services income	3,277				3,094			6,538			5,870
Insurance commission income	2,768				2,210			5,482			4,638
Gain/ (loss) on real estate owned, net	111				(541	)		360			(1,587	)
Income from bank owned life insurance	1,105				1,008			2,700			1,921
Mortgage banking income	446				218			664			458
Other operating income	1,711				742			2,930			1,302
Total noninterest income	20,275				16,525			39,723			31,150
Noninterest expense:
Compensation and employee benefits	34,349				28,920			67,382			56,815
Premises and occupancy costs	6,275				5,899			12,812			12,166
Office operations	3,343				2,905			6,803			5,817
Collections expense	729				603			1,405			1,371
Processing expenses	8,172				7,392			16,586			14,597
Marketing expenses	2,541				3,190			4,432			5,166
Federal deposit insurance premiums	1,442				1,286			2,945			2,633
Professional services	2,129				1,652			3,962			3,444
Amortization of intangible assets	710				269			1,385			537
Real estate owned expense	295				514			606			1,206
Restructuring/ acquisition expense	3,386				467			4,021			814
FHLB prepayment penalty	36,978				—			36,978			—
Other expenses	2,912				2,038			7,219			4,280
Total noninterest expense	103,261				55,135			166,536			108,846
Income/ (loss) before income taxes	(10,499		)		22,518			15,566			45,513
Federal and state income taxes expense/ (benefit)	(3,491		)		7,213			4,590			14,038
Net income/ (loss)	$	(7,008	)		15,305			10,976			31,475
Basic earnings/ (loss) per share	$	(0.07	)		0.17			0.11			0.34
Diluted earnings per share	$	(0.07	)		0.17			0.11			0.34

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 June 30,							Six months ended June 30,
	2016				2015			2016			2015
Net income/ (loss)	$	(7,008	)		15,305			10,976			31,475
Other comprehensive income net of tax:
Net unrealized holding gains/ (losses) on marketable securities:
Unrealized holding gains/ (losses) net of tax of $(659), $1,139, $(2,879) and $(746), respectively	1,027				(1,788	)		4,502			1,164
Reclassification adjustment for (gains)/ losses included in net income, net of tax of $(14), $179, $(25) and $222 respectively	22				(279	)		39			(347	)
Net unrealized holding gains on marketable securities	1,049				(2,067	)		4,541			817
Change in fair value of interest rate swaps, net of tax of $(90), $(263), $(14) and $(287), respectively	166				488			26			532
Defined benefit plan:
Reclassification adjustments for prior period service costs and net losses included in net income, net of tax of $(144), $(140), $(288) and $(280), respectively	226				219			451			438
Other comprehensive income/ (loss)	1,441				(1,360	)		5,018			1,787
Total comprehensive income/ (loss)	$	(5,567	)		13,945			15,994			33,262

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, 2015

 

														Accumulated Other			Unallocated			Total
	Common Stock							Paid-in			Retained			Comprehensive			common stock			Shareholders’
	Shares			Amount				Capital			Earnings			Loss			of ESOP			Equity
Beginning balance at March 31, 2015	94,553,350			$	946			624,584			484,774			(21,223	)		(21,565	)		1,067,516
Comprehensive income:
Net income	—			—				—			15,305			—			—			15,305
Other comprehensive loss, net of tax of $915	—			—				—			—			(1,360	)		—			(1,360	)
Total comprehensive income/ (loss)	—			—				—			15,305			(1,360	)		—			13,945
Exercise of stock options	60,849			—				632			—			—			—			632
Stock-based compensation expense, including tax benefit of $6	306,350			3				1,316			—			—			80			1,399
Share repurchases	(179,800	)		(2		)		(2,211	)		—			—			—			(2,213	)
Dividends paid ($0.14 per share)	—			—				—			(12,929	)		—			—			(12,929	)
Ending balance at June 30, 2015	94,740,749			$	947			624,321			487,150			(22,583	)		(21,485	)		1,068,350

 

Quarter ended June 30, 2016

 

														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, 2016	101,848,509			$	1,018			718,027			492,316			(20,958	)		(19,815	)		1,170,588
Comprehensive income:
Net loss	—			—				—			(7,008	)		—			—			(7,008	)
Other comprehensive income, net of tax of $(907)	—			—				—			—			1,441			—			1,441
Total comprehensive income/ (loss)	—			—				—			(7,008	)		1,441			—			(5,567	)
Exercise of stock options	300,721			4				3,262			—			—			—			3,266
Stock-based compensation expense, including tax benefit of $187	323,717			3				1,691			—			—			445			2,139
Dividends paid ($0.15 per share)	—			—				—			(14,971	)		—			—			(14,971	)
Ending Balance at June 30, 2016	102,472,947			$	1,025			722,980			470,337			(19,517	)		(19,370	)		1,155,455

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, 2015

 

														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, 2014	94,721,453			$	947			626,134			481,577			(24,370	)		(21,641	)		1,062,647
Comprehensive income:
Net income	—			—				—			31,475			—			—			31,475
Other comprehensive income, net of tax of $(1,091)	—			—				—			—			1,787			—			1,787
Total comprehensive income	—			—				—			31,475			1,787			—			33,262
Exercise of stock options	210,746			2				2,065			—			—			—			2,067
Stock-based compensation expense, including tax benefit of $23	306,350			3				2,120			—			—			156			2,279
Share repurchases	(497,800	)		(5		)		(5,998	)		—			—			—			(6,003	)
Dividends paid ($0.28 per share)	—			—				—			(25,902	)		—			—			(25,902	)
Ending balance at June 30, 2015	94,740,749			$	947			624,321			487,150			(22,583	)		(21,485	)		1,068,350

 

Six months ended June 30, 2016

 

														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, 2015	101,871,737			$	1,019			717,603			489,292			(24,535	)		(20,216	)		1,163,163
Comprehensive income:
Net income	—			—				—			10,976			—			—			10,976
Other comprehensive income, net of tax of $(3,206)	—			—				—			—			5,018			—			5,018
Total comprehensive income	—			—				—			10,976			5,018			—			15,994
Exercise of stock options	423,393			5				4,578			—			—			—			4,583
Stock-based compensation expense, including tax benefit of $206	323,717			3				2,549			—			—			846			3,398
Share repurchases	(145,900	)		(2		)		(1,750	)		—			—			—			(1,752	)
Dividends paid ($0.30 per share)	—			—				—			(29,931	)		—			—			(29,931	)
Ending balance at June 30, 2016	102,472,947			$	1,025			722,980			470,337			(19,517	)		(19,370	)		1,155,455

 

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,
	2016				2015
OPERATING ACTIVITIES:
Net Income	$	10,976			31,475
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	5,859				1,950
Net gain on sale of assets	(2,127		)		(311	)
Net depreciation, amortization and accretion	5,332				2,571
Decrease in other assets	23,505				11,233
Increase in other liabilities	2,284				1,169
Net amortization on marketable securities	1,035				173
Noncash write-down of real estate owned	927				1,927
FHLB prepayment penalty	24,520				—
Deferred income tax benefit	(650		)		—
Origination of loans held for sale	(114,140		)		(221	)
Proceeds from sale of loans held for sale	74,042				224
Noncash compensation expense related to stock benefit plans	3,192				2,256
Net cash provided by operating activities	34,755				52,446
INVESTING ACTIVITIES:
Purchase of marketable securities available-for-sale	(2,000		)		(59,980	)
Proceeds from maturities and principal reductions of marketable securities held-to-maturity	6,544				42,409
Proceeds from maturities and principal reductions of marketable securities available-for-sale	177,781				111,630
Proceeds from sale of marketable securities available-for-sale	91				1,214
Loan originations	(1,221,930		)		(996,253	)
Proceeds from loan maturities and principal reductions	1,182,305				850,823
Net sale/ (purchase) of Federal Home Loan Bank stock	582				(4,773	)
Proceeds from sale of real estate owned	5,989				5,704
Sale of real estate owned for investment, net	304				304
Purchase of premises and equipment	(8,235		)		(5,172	)
Acquisitions, net of cash received	(684		)		(438	)
Net cash provided by/ (used in) investing activities	140,747				(54,532	)

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NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

(in thousands)

 

 

	Six months ended June 30,
	2016				2015
FINANCING ACTIVITIES:
Increase in deposits, net	$	23,420			61,940
Proceeds from long-term borrowings	—				85,000
Repayments of long-term borrowings, including prepayment penalty	(774,546		)		(50,026	)
Net increase/ (decrease) in short-term borrowings	734,988				(24,027	)
Increase in advances by borrowers for taxes and insurance	11,553				11,256
Cash dividends paid	(29,931		)		(25,902	)
Purchase of common stock for retirement	(1,752		)		(6,003	)
Proceeds from stock options exercised	4,583				2,067
Excess tax benefit from stock-based compensation	206				23
Net cash provided by/ (used in) financing activities	(31,479		)		54,328
Net increase in cash and cash equivalents	$	144,023			52,242
Cash and cash equivalents at beginning of period	$	167,408			240,706
Net increase in cash and cash equivalents	144,023				52,242
Cash and cash equivalents at end of period	$	311,431			292,948
Cash and cash equivalents:
Cash and due from banks	$	87,711			84,000
Interest-earning deposits in other financial institutions	223,084				208,311
Federal funds sold and other short-term investments	636				637
Total cash and cash equivalents	$	311,431			292,948
Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $11,335 and $10,508, respectively)	$	25,010			27,325
Income taxes	$	1,502			4,823
Business acquisitions:
Fair value of assets acquired	$	810			438
Cash paid, net	(684		)		(438	)
Liabilities assumed	$	126			—
Non-cash activities:
Loans foreclosures and repossessions	$	1,854			5,012
Sale of real estate owned financed by the Company	$	1,260			174

 

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 primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Bank, a Pennsylvania-chartered savings bank (“Northwest”).  Northwest is regulated by the FDIC and the Pennsylvania Department of Banking. Northwest operates 157 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. and The Bert Company. 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, 2015 updated, as required, for any new pronouncements or changes.

 

Certain items previously reported have been reclassified to conform to the current year’s reporting format.

During the quarter ended June 30, 2016, we identified and corrected an error that arose in prior periods related to the amortization of certain deferred loan fees related to letters of credit, which had the impact of understating our interest income. We have assessed the materiality of these corrections of errors and concluded, based on qualitative and quantitative considerations, that the adjustments are not material to the financial statements as a whole. As a result, $1.1 million of deferred loan fees were recognized in loan interest income for the quarter and six months ended June 30, 2016. For the quarter and six months ended June 30, 2015 loan interest income would have increased by $53,000 and $98,000, respectively, income tax expense would have increased by $21,000 and $38,000, respectively, and net income would have increased by $32,000 and $60,000, respectively.

 

The results of operations for the quarter and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, or any other period.

 

Stock-Based Compensation

 

On May 18, 2016, we awarded employees 660,600 stock options and directors 64,800 stock options with an exercise price of $14.15 and grant date fair value of $1.52 per stock option.  On May 18, 2016, we also awarded employees 310,160 restricted common shares and directors 24,300 restricted common shares with a grant date fair value of $14.51.  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 $1.9 million and $1.4 million for the quarters ended June 30, 2016 and 2015, and $3.2 million and $2.3 million for the six months ended June 30, 2016 and 2015, respectively, was recognized in compensation expense relating to our stock benefit plans.  At June 30, 2016 there was compensation expense of $4.6 million to be recognized for awarded but unvested stock options and $17.0 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.  At June 30, 2016 we had no liability for unrecognized tax benefits.

 

We recognize interest accrued related to: (1) unrecognized tax benefits in other expenses and (2) refund claims in other operating income.  We recognize penalties (if any) in other expenses. 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, 2015, 2014, 2013 and 2012.  We are currently under

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audit by the state of New York for the tax periods ended December 31, 2014, 2013, 2012 and 2011. At June 30, 2016 we have accrued $219,000 for the payment of interest and penalties related to this audit.

 

Impact of New Accounting Standards

 

In May 2014 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-9, “Revenue from Contracts with Customers (Topic 606)”. 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, 2017, 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 January 2016 the FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10)”. This guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. Additionally, this guidance requires entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating the impact this standard will have on our results of operations and financial position.

In February 2016 the FASB issued ASU 2016-2, “Leases”. This guidance requires a lessee to recognize in the statement of financial condition a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the term of the lease. Optional periods should only be recognized if the lessee is reasonably certain to exercise the option. For leases with a term of twelve months or less, the lessee is permitted not to recognize lease assets and lease liabilities and should recognize lease expense for such leases generally on a straight-line basis over the term of the lease. This guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those years and early adoption is permitted. We are currently evaluating the impact this standard will have on our results of operations and financial position.

 

In March 2016 the FASB issued ASU 2016-08, “Principal Versus Agent Considerations”. This guidance clarifies the implementation guidance on principal versus agent considerations of ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)". When another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (that is, the entity is an agent). When (or as) an entity that is a principal satisfies a performance obligation, the entity recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer. When (or as) an entity that is an agent satisfies a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified good or service to be provided by the other party. This guidance is effective retrospectively for annual reporting periods beginning after December 15, 2017, 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 March 2016 the FASB issued ASU 2016-09, “Improvements to Employee Share-based Payment Accounting”. This guidance is part of the FASB's Simplification Initiative and simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance is effective for annual periods beginning after December 15, 2016, 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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments, which eliminates the probable initial recognition threshold for credit losses requiring, instead, that all financial assets (or group of financial assets) measured at amortized cost be presented at the net amount expected to be collected inclusive of the entity’s current estimate of all lifetime expected credit losses. This guidance also applies to certain off-balance-sheet credit exposures such as unfunded commitments and non-derivative financial guarantees. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) in order to present the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The income statement under this guidance will reflect the initial

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recognition of current expected credit losses for newly recognized assets, as well as any increases or decreases of expected credit losses that have occurred during the period. This guidance retains many currently-existing disclosures related to the credit quality of an entity’s assets and the related allowance for credit losses amended to reflect the change to an expected credit loss methodology, as well as enhanced disclosures to provide information to users at a more disaggregated level. Upon adoption, ASU 2016-13 provides for a modified retrospective transition by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is effective, except for debt securities for which an other-than-temporary impairment has previously been recognized. For these debt securities, a prospective transition is provided in order to maintain the same amortized cost prior to and subsequent to the effective date of the ASU. This guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. We are currently evaluating the impact this standard will have on our results of operations and 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 51 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.

At or for the quarter ended (in thousands): 

		Community				Consumer
June 30, 2016		Banking				Finance			All other (1)			Consolidated
External interest income		$	82,137			4,324			233			86,694
Intersegment interest income/ expense		631				—			(631	)		—
Interest expense		8,924				631			453			10,008
Provision for loan losses		3,365				834			—			4,199
Noninterest income		19,848				400			27			20,275
Noninterest expense		100,079				2,878			304			103,261
Income tax expense (benefit)		(3,245		)		158			(404	)		(3,491	)
Net income		$	(6,507	)		223			(724	)		(7,008	)
Total assets		$	8,839,334			108,282			16,359			8,963,975

 

		Community				Consumer
June 30, 2015		Banking				Finance			All other (1)			Consolidated
External interest income		$	71,273			4,492			205			75,970
Intersegment interest income/ expense		582				—			(582	)		—
Interest expense		12,781				582			429			13,792
Provision for loan losses		850				200			—			1,050
Noninterest income		16,080				411			34			16,525
Noninterest expense		51,682				3,081			372			55,135
Income tax expense (benefit)		7,183				434			(404	)		7,213
Net income		$	15,439			606			(740	)		15,305
Total assets		$	7,740,273			108,348			15,889			7,864,510

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

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At or for the six months ended (in thousands): 

		Community				Consumer
June 30, 2016		Banking				Finance			All other (1)			Consolidated
External interest income		$	162,975			8,567			450			171,992
Intersegment interest income		1,273				—			(1,273	)		—
Interest expense		21,605				1,273			876			23,754
Provision for loan losses		4,578				1,281			—			5,859
Noninterest income		38,854				780			89			39,723
Noninterest expense		160,051				5,807			678			166,536
Income tax expense (benefit)		4,997				409			(816	)		4,590
Net income		$	11,871			577			(1,472	)		10,976
Total assets		$	8,839,334			108,282			16,359			8,963,975

		Community				Consumer
June 30, 2015		Banking				Finance			All other (1)			Consolidated
External interest income		$	143,604			8,822			424			152,850
Intersegment interest income		1,157				—			(1,157	)		—
Interest expense		25,669				1,157			865			27,691
Provision for loan losses		1,100				850			—			1,950
Noninterest income		30,406				681			63			31,150
Noninterest expense		102,122				6,034			690			108,846
Income tax expense (benefit)		14,218				609			(789	)		14,038
Net income		$	32,058			853			(1,436	)		31,475
Total assets		$	7,740,273			108,348			15,889			7,864,510

(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, 2016 (in thousands):

	Amortized cost				Gross unrealized holding gains			Gross unrealized holding losses			Fair value
Debt issued by the U.S. government and agencies:
Due in one year or less	$	9			—			—			9
Debt issued by government sponsored enterprises:
Due in one year or less	15,000				—			(1	)		14,999
Due after one year through five years	163,440				830			(51	)		164,219
Due after five years through ten years	670				5			—			675
Due after ten years	—				—			—			—
Equity securities	3,351				459			(87	)		3,723
Municipal securities:
Due in one year or less	1,035				3			—			1,038
Due after one year through five years	13,666				167			(1	)		13,832
Due after five years through ten years	12,067				432			—			12,499
Due after ten years	47,985				1,989			—			49,974
Corporate debt issues:
Due after ten years	14,432				2,890			(469	)		16,853
Residential mortgage-backed securities:
Fixed rate pass-through	104,094				3,587			(26	)		107,655
Variable rate pass-through	48,949				2,336			(5	)		51,280
Fixed rate non-agency CMOs	2,022				181			—			2,203
Fixed rate agency CMOs	190,336				1,226			(777	)		190,785
Variable rate agency CMOs	75,347				341			(135	)		75,553
Total residential mortgage-backed securities	420,748				7,671			(943	)		427,476
Total marketable securities available-for-sale	$	692,403			14,446			(1,552	)		705,297

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The following table shows the portfolio of investment securities available-for-sale at December 31, 2015 (in thousands): 

	Amortized cost				Gross unrealized holding gains			Gross unrealized holding losses			Fair value
Debt issued by the U.S. government and agencies:
Due in one year or less	$	11			—			—			11
Debt issued by government sponsored enterprises:
Due in one year or less	15,500				3			(48	)		15,455
Due after one year through five years	257,463				298			(1,395	)		256,366
Due after five years through ten years	12,721				14			(23	)		12,712
Due after ten years	9,815				135			(43	)		9,907
Equity securities	1,400				500			(6	)		1,894
Municipal securities:
Due in one year or less	1,684				8			—			1,692
Due after one year through five years	14,327				117			(4	)		14,440
Due after five years through ten years	12,400				323			—			12,723
Due after ten years	52,286				1,727			—			54,013
Corporate debt issues:
Due after ten years	14,463				2,417			(405	)		16,475
Residential mortgage-backed securities:
Fixed rate pass-through	118,266				2,480			(420	)		120,326
Variable rate pass-through	54,292				2,616			(7	)		56,901
Fixed rate non-agency CMOs	2,519				230			—			2,749
Fixed rate agency CMOs	215,719				389			(3,881	)		212,227
Variable rate agency CMOs	86,090				476			(52	)		86,514
Total residential mortgage-backed securities	476,886				6,191			(4,360	)		478,717
Total marketable securities available-for-sale	$	868,956			11,733			(6,284	)		874,405

 

The following table shows the portfolio of investment securities held-to-maturity at June 30, 2016 (in thousands):

	Amortized cost				Gross unrealized holding gains			Gross unrealized holding losses			Fair value
Municipal securities:
Due after five years through ten years	$	274			1			—			275
Due after ten years	4,805				159			—			4,964
Residential mortgage-backed securities:
Fixed rate pass-through	5,785				368			—			6,153
Variable rate pass-through	3,213				76			—			3,289
Fixed rate agency CMOs	10,182				217			—			10,399
Variable rate agency CMOs	885				13			—			898
Total residential mortgage-backed securities	20,065				674			—			20,739
Total marketable securities held-to-maturity	$	25,144			834			—			25,978

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The following table shows the portfolio of investment securities held-to-maturity at December 31, 2015 (in thousands): 

	Amortized cost				Gross unrealized holding gains			Gross unrealized holding losses			Fair value
Municipal securities:
Due after five years through ten years	$	274			1			—			275
Due after ten years	6,336				239			—			6,575
Residential mortgage-backed securities:
Fixed rate pass-through	6,458				351			—			6,809
Variable rate pass-through	3,618				41			—			3,659
Fixed rate agency CMOs	14,033				219			—			14,252
Variable rate agency CMOs	970				12			—			982
Total residential mortgage-backed securities	25,079				623			—			25,702
Total marketable securities held-to-maturity	$	31,689			863			—			32,552

 

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, 2016 (in thousands):

	Less than 12 months							12 months or more						Total
	Fair value				Unrealized loss			Fair value			Unrealized loss			Fair value			Unrealized loss
U.S. government sponsored enterprises	$	14,999			(1	)		11,570			(51	)		26,569			(52	)
Municipal securities	2,188				(1	)		—			—			2,188			(1	)
Corporate issues	—				—			1,958			(469	)		1,958			(469	)
Equity securities	2,463				(87	)		—			—			2,463			(87	)
Residential mortgage-backed securities - agency	27,425				(70	)		88,558			(873	)		115,983			(943	)
Total temporarily impaired securities	$	47,075			(159	)		102,086			(1,393	)		149,161			(1,552	)

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 December 31, 2015 (in thousands):

	Less than 12 months							12 months or more						Total
	Fair value				Unrealized loss			Fair value			Unrealized loss			Fair value			Unrealized loss
U.S. government sponsored enterprises	$	143,751			(723	)		92,961			(786	)		236,712			(1,509	)
Municipal securities	7,505				(4	)		—			—			7,505			(4	)
Corporate debt issues	—				—			2,021			(405	)		2,021			(405	)
Equity securities	544				(6	)		—			—			544			(6	)
Residential mortgage-backed securities - agency	122,109				(598	)		149,889			(3,762	)		271,998			(4,360	)
Total temporarily impaired securities	$	273,909			(1,331	)		244,871			(4,953	)		518,780			(6,284	)

 

We review our investment portfolio 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.

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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.

 

Credit related impairment on all debt securities is recognized in earnings while noncredit related 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 and six months ended (in thousands):

	2016				2015
Beginning balance at April 1, (1)	$	8,424			8,865
Credit losses on debt securities for which other-than-temporary impairment was not previously recognized	—				—
Reduction for losses realized during the quarter	(16		)		(16		)
Reduction for securities called realized during the quarter	—				(360		)
Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized	—				—
Ending balance at June 30,	$	8,408			$	8,489

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

	2016				2015
Beginning balance at January 1, (1)	$	8,436			8,894
Credit losses on debt securities for which other-than-temporary impairment was not previously recognized	—				—
Reduction for losses realized during the six months	(28		)		(45	)
Reduction for securities called realized during the nine months	—				(360	)
Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized	—				—
Ending balance at June 30,	$	8,408			8,489

(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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(4)	Loans receivable

 

The following table shows a summary of our loans receivable at June 30, 2016 and December 31, 2015 (in thousands): 

	June 30, 2016										December 31,  2015
	Originated				Acquired			Total			Originated			Acquired			Total
Personal Banking:
Residential mortgage loans (1)	$	2,714,268			42,304			2,756,572			2,695,561			45,716			2,741,277
Home equity loans	1,039,457				122,717			1,162,174			1,055,907			131,199			1,187,106
Consumer loans	381,677				154,321			535,998			307,961			202,656			510,617
Total Personal Banking	4,135,402				319,342			4,454,744			4,059,429			379,571			4,439,000
Commercial Banking:
Commercial real estate loans	2,173,571				387,131			2,560,702			2,094,710			429,564			2,524,274
Commercial loans	440,785				50,814			491,599			372,540			65,175			437,715
Total Commercial Banking	2,614,356				437,945			3,052,301			2,467,250			494,739			2,961,989
Total loans receivable, gross	6,749,758				757,287			7,507,045			6,526,679			874,310			7,400,989
Deferred loan costs	18,530				4,116			22,646			14,806			5,259			20,065
Allowance for loan losses	(55,323		)		(5,458	)		(60,781	)		(60,970	)		(1,702	)		(62,672	)
Undisbursed loan proceeds:
Residential mortgage loans	(11,068		)		—			(11,068	)		(10,778	)		—			(10,778	)
Commercial real estate loans	(193,808		)		(3,518	)		(197,326	)		(159,553	)		(13,287	)		(172,840	)
Commercial loans	(24,281		)		(2,095	)		(26,376	)		(11,132	)		(4,183	)		(15,315	)
Total loans receivable, net	$	6,483,808			750,332			7,234,140			6,299,052			860,397			7,159,449

(1) Includes $39.9 million of loans held for sale at June 30, 2016.

Acquired loans were initially measured at fair value and subsequently accounted for under either Accounting Standards Codification (“ASC”) Topic 310-30 or ASC Topic 310-20. The following table provides information related to the outstanding principal balance and related carrying value of acquired loans for the dates indicated (in thousands): 

	June 30, 2016				December 31, 2015
Acquired loans evaluated individually for future credit losses:
Outstanding principal balance	$	17,719			$	21,069
Carrying value	14,043				16,867
Acquired loans evaluated collectively for future credit losses:
Outstanding principal balance	749,206				848,194
Carrying value	741,747				839,973
Total acquired loans:
Outstanding principal balance	766,925				869,263
Carrying value	755,790				856,840

 

The following table provides information related to the changes in the accretable discount, which includes income recognized from contractual cash flows for the dates indicated (in thousands): 

	Total
Balance at December 31, 2014	$	—
LNB Bancorp, Inc. acquisition	1,672
Accretion	(377		)
Net reclassification from nonaccretable yield	724
Balance at December 31, 2015	2,019
Accretion	(628		)
Net reclassification from nonaccretable yield	628
Balance at June 30, 2016	$	2,019

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The following table provides information related to acquired impaired loans by portfolio segment and by class of financing receivable at and for the six months ended June 30, 2016 (in thousands):

	Carrying value				Outstanding principal balance			Related impairment reserve			Average recorded investment in impaired loans			Interest income recognized
Personal Banking:
Residential mortgage loans	$	1,446			2,248			21			1,546			103
Home equity loans	1,515				2,868			6			1,586			108
Consumer loans	201				399			2			216			20
Total Personal Banking	3,162				5,515			29			3,348			231
Commercial Banking:
Commercial real estate loans	10,631				11,938			353			10,675			391
Commercial loans	250				266			—			250			6
Total Commercial Banking	10,881				12,204			353			10,925			397
Total	$	14,043			17,719			382			14,273			628

     

The following table provides information related to acquired impaired loans by portfolio segment and by class of financing receivable at and for the year ended December 31, 2015 (in thousands):

	Carrying value				Outstanding principal balance			Related impairment reserve			Average recorded investment in impaired loans			Interest income recognized
Personal Banking:
Residential mortgage loans	$	1,981			2,910			14			2,083			41
Home equity loans	2,084				3,455			6			2,222			51
Consumer loans	267				492			2			305			18
Total Personal Banking	4,332				6,857			22			4,610			110
Commercial Banking:
Commercial real estate loans	12,288				13,946			353			12,867			249
Commercial loans	247				266			—			335			18
Total Commercial Banking	12,535				14,212			353			13,202			267
Total	$	16,867			21,069			375			17,812			377

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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, 2016 (in thousands):               

	Balance June 30, 2016				Current period provision			Charge-offs			Recoveries			Balance March 31, 2016
Originated loans:
Personal Banking:
Residential mortgage loans	$	3,022			501			(1,803	)		67			4,257
Home equity loans	3,335				230			(439	)		135			3,409
Consumer loans	7,924				2,382			(2,146	)		394			7,294
Total Personal Banking	14,281				3,113			(4,388	)		596			14,960
Commercial Banking:
Commercial real estate loans	25,686				(3,509	)		(1,317	)		645			29,867
Commercial loans	15,356				901			(885	)		417			14,923
Total Commercial Banking	41,042				(2,608	)		(2,202	)		1,062			44,790
Total originated loans	55,323				505			(6,590	)		1,658			59,750
Acquired loans:
Personal Banking:
Residential mortgage loans	61				35			(49	)		67			8
Home equity loans	1,128				1,217			(507	)		120			298
Consumer loans	552				501			(186	)		38			199
Total Personal Banking	1,741				1,753			(742	)		225			505
Commercial Banking:
Commercial real estate loans	3,165				1,660			(414	)		184			1,735
Commercial loans	552				281			(18	)		1			288
Total Commercial Banking	3,717				1,941			(432	)		185			2,023
Total acquired loans	5,458				3,694			(1,174	)		410			2,528
Total	$	60,781			4,199			(7,764	)		2,068			62,278

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, 2015 (in thousands):

	Balance June 30, 2015				Current period provision			Charge-offs			Recoveries			Balance March 31, 2015
Personal Banking:
Residential mortgage loans	$	4,892			76			(278	)		17			5,077
Home equity loans	3,445				(187	)		(542	)		131			4,043
Consumer loans	6,244				1,865			(1,759	)		303			5,835
Total Personal Banking	14,581				1,754			(2,579	)		451			14,955
Commercial Banking:
Commercial real estate loans	30,163				(1,558	)		(3,439	)		1,908			33,252
Commercial loans	14,313				4,832			(6,356	)		724			15,113
Total Commercial Banking	44,476				3,274			(9,795	)		2,632			48,365
Unallocated	—				(3,978	)		—			—			3,978
Total	$	59,057			1,050			(12,374	)		3,083			67,298

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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, 2016 (in thousands):

	Balance June 30, 2016				Current period provision			Charge-offs			Recoveries			Balance December 31, 2015
Originated loans:
Personal Banking:
Residential mortgage loans	$	3,022			504			(2,292	)		118			4,692
Home equity loans	3,335				(43	)		(737	)		174			3,941
Other consumer loans	7,924				4,027			(4,373	)		782			7,488
Total Personal Banking	14,281				4,488			(7,402	)		1,074			16,121
Commercial Banking:
Commercial real estate loans	25,686				(7,715	)		(1,500	)		2,553			32,348
Commercial loans	15,356				3,340			(996	)		511			12,501
Total Commercial Banking	41,042				(4,375	)		(2,496	)		3,064			44,849
Total originated loans	55,323				113			(9,898	)		4,138			60,970
Acquired loans:
Personal Banking:
Residential mortgage loans	61				72			(124	)		95			18
Home equity loans	1,128				1,955			(1,193	)		265			101
Other consumer loans	552				709			(362	)		95			110
Total Personal Banking	1,741				2,736			(1,679	)		455			229
Commercial Banking:
Commercial real estate loans	3,165				2,474			(1,128	)		380			1,439
Commercial loans	552				536			(24	)		6			34
Total Commercial Banking	3,717				3,010			(1,152	)		386			1,473
Total acquired loans	5,458				5,746			(2,831	)		841			1,702
Total	$	60,781			5,859			(12,729	)		4,979			62,672

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, 2015 (in thousands):

	Balance June 30, 2015				Current period provision			Charge-offs			Recoveries			Balance December 31, 2014
Personal Banking:
Residential mortgage loans	$	4,892			(206	)		(613	)		130			5,581
Home equity loans	3,445				(400	)		(884	)		179			4,550
Other consumer loans	6,244				3,135			(3,699	)		690			6,118
Total Personal Banking	14,581				2,529			(5,196	)		999			16,249
Commercial Banking:
Commercial real estate loans	30,163				(1,316	)		(4,552	)		2,642			33,389
Commercial loans	14,313				5,102			(7,080	)		2,776			13,515
Total Commercial Banking	44,476				3,786			(11,632	)		5,418			46,904
Unallocated	—				(4,365	)		—			—			4,365
Total	$	59,057			1,950			(16,828	)		6,417			67,518

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At June 30, 2016, we expect to fully collect the carrying value of our acquired loans and have determined that we can reasonably estimate their future cash flows including those loans that are 90 days or more delinquent.  As a result, we do not consider our acquired loans that are 90 days or more delinquent to be nonaccrual or impaired and continue to recognize interest income on these loans, including the loans’ accretable discount.

 

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at June 30, 2016 (in thousands):

	Total loans receivable				Allowance for loan losses			Nonaccrual loans (1)			Loans past due 90 days or more and still accruing (2)			TDRs			Allowance related to TDRs			Additional commitments to customers with loans classified as TDRs
Personal Banking:
Residential mortgage loans	$	2,757,598			3,083			18,370			2			7,340			251			—
Home equity loans	1,162,174				4,463			6,733			—			2,205			405			—
Consumer loans	546,550				8,476			2,903			171			—			—			—
Total Personal Banking	4,466,322				16,022			28,006			173			9,545			656			—
Commercial Banking:
Commercial real estate loans	2,363,376				28,851			37,080			—			27,999			2,028			203
Commercial loans	465,223				15,908			10,792			299			11,569			1,256			131
Total Commercial Banking	2,828,599				44,759			47,872			299			39,568			3,284			334
Total	$	7,294,921			60,781			75,878			472			49,113			3,940			334

(1)	Includes $18.1 million of nonaccrual TDRs.

(2)	Represents loans 90 days past maturity and still accruing.

The following table provides information related to the loan portfolio by portfolio segment and by class of financing receivable at December 31, 2015 (in thousands): 

	Total loans receivable				Allowance for loan losses			Nonaccrual loans (1)			Loans past due 90 days or more and still accruing (2)			TDRs			Allowance related to TDRs			Additional commitments to customers with loans classified as TDRs
Personal Banking:
Residential mortgage loans	$	2,740,892			4,710			19,772			4			6,360			1,189			—
Home equity loans	1,187,106				4,042			7,522			—			2,298			605			—
Consumer loans	520,289				7,598			3,452			976			—			—			—
Total Personal Banking	4,448,287				16,350			30,746			980			8,658			1,794			—
Commercial Banking:
Commercial real estate loans	2,351,434				33,787			33,421			206			31,970			2,257			241
Commercial loans	422,400				12,535			7,495			148			10,487			631			79
Total Commercial Banking	2,773,834				46,322			40,916			354			42,457			2,888			320
Total	$	7,222,121			62,672			71,662			1,334			51,115			4,682			320

(1)	Includes $21.1 million of nonaccrual TDRs.

(2)	Represents loans 90 days past maturity and still accruing.

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The following table provides geographical information related to the loan portfolio by portfolio segment and class of financing receivable at June 30, 2016 (in thousands): 

	Pennsylvania				New York			Ohio			Maryland			Other			Total
Loans receivable:
Personal Banking:
Residential mortgage loans	$	2,324,087			181,713			71,305			124,887			55,606			2,757,598
Home equity loans	859,960				125,112			148,757			24,316			4,029			1,162,174
Consumer loans	263,384				12,555			107,267			1,942			161,402			546,550
Total Personal Banking	3,447,431				319,380			327,329			151,145			221,037			4,466,322
Commercial Banking:
Commercial real estate loans	954,237				795,715			454,354			115,546			43,524			2,363,376
Commercial loans	329,151				56,340			64,018			5,641			10,073			465,223
Total Commercial Banking	1,283,388				852,055			518,372			121,187			53,597			2,828,599
Total	$	4,730,819			1,171,435			845,701			272,332			274,634			7,294,921
Percentage of total loans receivable	64.9		%		16.0	%		11.6	%		3.7	%		3.8	%		100.0	%

     

The following table provides delinquency information related to the loan portfolio by portfolio segment and class of financing receivable at June 30, 2016 (in thousands): 

	Pennsylvania				New York			Ohio			Maryland			Other			Total
Loans 90 or more days delinquent: (1)
Personal Banking:
Residential mortgage loans	$	9,914			2,168			1,094			1,222			648			15,046
Home equity loans	2,784				872			1,296			470			—			5,422
Consumer loans	2,097				59			19			—			224			2,399
Total Personal Banking	14,795				3,099			2,409			1,692			872			22,867
Commercial Banking:
Commercial real estate loans	6,957				2,402			5,632			110			143			15,244
Commercial loans	3,229				795			565			120			—			4,709
Total Commercial Banking	10,186				3,197			6,197			230			143			19,953
Total	$	24,981			6,296			8,606			1,922			1,015			42,820
Percentage of total loans 90 or more days delinquent	58.3		%		14.7	%		20.1	%		4.5	%		2.4	%		100.0	%

(1)	Includes $2.9 million of acquired loans considered accruing.

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The following table provides geographical information related to the loan portfolio by portfolio segment and class of financing receivable at December 31, 2015 (in thousands):

	Pennsylvania				New York			Ohio			Maryland			Other			Total
Loans receivable:
Personal Banking:
Residential mortgage loans	$	2,310,860			171,790			70,209			129,129			58,904			2,740,892
Home equity loans	879,447				124,291			154,003			24,458			4,907			1,187,106
Consumer loans	260,170				12,244			102,034			1,870			143,971			520,289
Total Personal Banking	3,450,477				308,325			326,246			155,457			207,782			4,448,287
Commercial Banking:
Commercial real estate loans	965,090				749,435			453,180			122,775			60,954			2,351,434
Commercial loans	284,611				53,420			68,327			5,662			10,380			422,400
Total Commercial Banking	1,249,701				802,855			521,507			128,437			71,334			2,773,834
Total	$	4,700,178			1,111,180			847,753			283,894			279,116			7,222,121
Percentage of total loans receivable	65.1		%		15.4	%		11.7	%		3.9	%		3.9	%		100.0	%

     

The following table provides delinquency information related to the loan portfolio by portfolio segment and class of financing receivable at December 31, 2015 (in thousands):

	Pennsylvania				New York			Ohio			Maryland			Other			Total
Loans 90 or more days delinquent: (1)
Personal Banking:
Residential mortgage loans	$	10,998			1,801			1,308			1,341			902			16,350
Home equity loans	3,204				639			1,294			975			—			6,112
Consumer loans	2,780				90			24			—			32			2,926
Total Personal Banking	16,982				2,530			2,626			2,316			934			25,388
Commercial Banking:
Commercial real estate loans	10,439				3,012			4,823			251			506			19,031
Commercial loans	1,582				859			158			—			—			2,599
Total Commercial Banking	12,021				3,871			4,981			251			506			21,630
Total	$	29,003			6,401			7,607			2,567			1,440			47,018
Percentage of total loans 90 or more days delinquent	61.6		%		13.6	%		16.2	%		5.5	%		3.1	%		100.0	%

(1)	Includes $3.8 million of acquired loans considered accruing.

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The following table provides information related to the composition of originated impaired loans by portfolio segment and by class of financing receivable at and for the six months ended June 30, 2016 (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:
Residential mortgage loans	$	14,829			3,541			—			6,165			24,535			24,219			549
Home equity loans	5,226				1,507			—			1,737			8,470			9,096			237
Consumer loans	2,374				529			—			—			2,903			3,065			73
Total Personal Banking	22,429				5,577			—			7,902			35,908			36,380			859
Commercial Banking:
Commercial real estate loans	12,960				24,120			4,443			13,982			55,505			69,232			1,647
Commercial loans	4,566				6,226			2,843			3,942			17,577			15,896			465
Total Commercial Banking	17,526				30,346			7,286			17,924			73,082			85,128			2,112
Total	$	39,955			35,923			7,286			25,826			108,990			121,508			2,971

 

The following table provides information related to the composition of originated impaired loans by portfolio segment and by class of financing receivable at and for the year ended December 31, 2015 (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:
Residential mortgage loans	$	15,810			3,962			—			5,086			24,858			24,554			944
Home equity loans	5,650				1,872			—			1,847			9,369			9,644			497
Consumer loans	2,900				552			—			—			3,452			2,977			101
Total Personal Banking	24,360				6,386			—			6,933			37,679			37,175			1,542
Commercial Banking:
Commercial real estate loans	16,449				16,972			16,121			16,467			66,009			77,166			3,226
Commercial loans	2,459				5,036			2,014			4,654			14,163			16,187			694
Total Commercial Banking	18,908				22,008			18,135			21,121			80,172			93,353			3,920
Total	$	43,268			28,394			18,135			28,054			117,851			130,528			5,462

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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, 2016 (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:
Residential mortgage loans	$	2,749,415			8,183			8,183			251			—
Home equity loans	1,159,969				2,205			2,205			405			—
Consumer loans	546,469				81			81			18			—
Total Personal Banking	4,455,853				10,469			10,469			674			—
Commercial Banking:
Commercial real estate loans	2,329,716				33,660			33,284			2,402			376
Commercial loans	453,046				12,177			12,177			1,159			—
Total Commercial Banking	2,782,762				45,837			45,461			3,561			376
Total	$	7,238,615			56,306			55,930			4,235			376

 

The following table provides information related to the evaluation of impaired loans by portfolio segment and by class of financing receivable at December 31, 2015 (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:
Residential mortgage loans	$	2,733,741			7,151			7,151			1,189			—
Home equity loans	1,184,808				2,298			2,298			605			—
Consumer loans	520,159				130			130			50			—
Total Personal Banking	4,438,708				9,579			9,579			1,844			—
Commercial Banking:
Commercial real estate loans	2,297,599				53,835			35,937			2,675			17,898
Commercial loans	411,342				11,058			7,673			489			3,385
Total Commercial Banking	2,708,941				64,893			43,610			3,164			21,283
Total	$	7,147,649			74,472			53,189			5,008			21,283

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.

 

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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.

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

	For the quarters ended June 30,
	2016							2015
	Number of contracts			Amount				Number of contracts			Amount
Beginning TDR balance:	227			$	48,248			242			$	60,645
New TDRs	9			1,662				4			386
Re-modified TDRs	3			863				1			45
Net paydowns				(1,421		)					(3,617		)
Charge-offs:
Residential mortgage loans	—			—				—			—
Home equity loans	—			—				1			(68		)
Commercial real estate loans	—			—				1			(9		)
Commercial loans	—			—				—			—
Paid-off loans:
Residential mortgage loans	—			—				1			(53		)
Home equity loans	1			(1		)		—			—
Commercial real estate loans	4			(41		)		6			(926		)
Commercial loans	1			(197		)		6			(219		)
Ending TDR balance:	230			$	49,113			231			$	56,184
Accruing TDRs				$	31,015						$	40,741
Non-accrual TDRs				18,098							15,443

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

	For the six months ended June 30,
	2016							2015
	Number of contracts							Number of contracts
Beginning TDR balance:	227			$	51,115			248			$	61,788
New TDRs	18			5,011				6			498
Re-modified TDRs	4			1,063				2			130
Net paydowns				(2,904		)					(4,440		)
Charge-offs:
Residential mortgage loans	—			—				—			—
Home equity loans	—			—				3			(99		)
Commercial real estate loans	—			—				2			(23		)
Commercial loans	1			(43		)		2			(387		)
Paid-off loans:
Residential mortgage loans	—			—				1			(53		)
Home equity loans	3			(232		)		1			(6		)
Commercial real estate loans	8			(4,562		)		8			(1,005		)
Commercial loans	3			(335		)		6			(219		)
Ending TDR balance:	230			$	49,113			231			$	56,184
Accruing TDRs				$	31,015						$	40,741
Non-accrual TDRs				18,098							15,443

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, 2016													For the six months ended June 30, 2016
	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			$	526			525			17			5			$	1,033			1,028			49
Home equity loans	4			224				191			47			5			280				246			60
Consumer loans	—			—				—			—			—			—				—			—
Total Personal Banking	6			750				716			64			10			1,313				1,274			109
Commercial Banking:
Commercial real estate loans	2			812				807			31			4			2,096				2,076			297
Commercial loans	4			963				963			481			8			2,665				1,751			575
Total Commercial Banking	6			1,775				1,770			512			12			4,761				3,827			872
Total	12			$	2,525			2,486			576			22			$	6,074			5,101			981

At June 30, 2016, no TDRs modified within the previous twelve months have subsequently defaulted.

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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, 2015													For the six months ended June 30, 2015
	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			$	120			119			—			4			$	232			230			1
Home equity loans	1			2				2			—			2			87				85			17
Consumer loans	—			—				—			—			—			—				—			—
Total Personal Banking	3			122				121			—			6			319				315			18
Commercial Banking:
Commercial real estate loans	1			12				12			1			1			12				12			1
Commercial loans	1			297				294			29			1			297				294			29
Total Commercial Banking	2			309				306			30			2			309				306			30
Total	5			$	431			427			30			8			$	628			621			48
Troubled debt restructurings modified within the previous twelve months that have subsequently defaulted:
Personal Banking:
Residential mortgage loans	1			$	251			250			—			1			$	251			250			—
Home equity loans	1			23				21			—			1			23				21			—
Consumer loans	—			—				—			—			—			—				—			—
Total Personal Banking	2			274				271			—			2			274				271			—
Commercial Banking:
Commercial real estate loans	—			—				—			—			—			—				—			—
Commercial loans	—			—				—			—			1			50				—			—
Total Commercial Banking	—			—				—			—			1			50				—			—
Total	2			$	274			271			—			3			$	324			271			—

The following table provides information as of June 30, 2016 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, 2016 (dollars in thousands):

				Type of modification
	Number of contracts			Rate				Payment			Maturity date			Other			Total
Personal Banking:
Residential mortgage loans	2			$	—			—			525			—			525
Home equity loans	4			68				—			—			123			191
Consumer loans	—			—				—			—			—			—
Total Personal Banking	6			68				—			525			123			716
Commercial Banking:
Commercial real estate loans	2			—				429			378			—			807
Commercial loans	4			—				963			—			—			963
Total Commercial Banking	6			—				1,392			378			—			1,770
Total	12			$	68			1,392			903			123			2,486

 

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The following table provides information as of June 30, 2015 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, 2015 (dollars in thousands): 

				Type of modification
	Number of contracts			Rate				Payment			Maturity date			Other			Total
Personal Banking:
Residential mortgage loans	2			$	74			—			—			45			119
Home equity loans	1			—				—			2			—			2
Consumer loans	—			—				—			—			—			—
Total Personal Banking	3			74				—			2			45			121
Commercial Banking:
Commercial real estate loans	1			—				—			12			—			12
Commercial loans	1			—				—			294			—			294
Total Commercial Banking	2			—				—			306			—			306
Total	5			$	74			—			308			45			427

The following table provides information as of June 30, 2016 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, 2016 (dollars in thousands): 

				Type of modification
	Number of contracts			Rate				Payment			Maturity date			Other			Total
Personal Banking:
Residential mortgage loans	5			$	363			—			617			48			1,028
Home equity loans	5			123				—			—			123			246
Other consumer loans	—			—				—			—			—			—
Total Personal Banking	10			486				—			617			171			1,274
Commercial Banking:
Commercial real estate loans	4			—				429			378			1,269			2,076
Commercial loans	8			—				—			963			788			1,751
Total Commercial Banking	12			—				429			1,341			2,057			3,827
Total	22			$	486			429			1,958			2,228			5,101

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The following table provides information as of June 30, 2015 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, 2015 (dollars in thousands): 

				Type of modification
	Number of contracts			Rate				Payment			Maturity date			Other			Total
Personal Banking:
Residential mortgage loans	4			$	74			—			111			45			230
Home equity loans	2			83				—			2			—			85
Other consumer loans	—			—				—			—			—			—
Total Personal Banking	6			157				—			113			45			315
Commercial Banking:
Commercial real estate loans	1			—				—			12			—			12
Commercial loans	1			—				—			294			—			294
Total Commercial Banking	2			—				—			306			—			306
Total	8			$	157			—			419			45			621

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, 2016 (dollars in thousands): 

	Number of			Type of re-modification
	re-modified TDRs			Rate				Payment			Maturity date			Other			Total
Personal Banking:
Residential mortgage loans	—			$	—			—			—			—			—
Home equity loans	—			—				—			—			—			—
Consumer loans	—			—				—			—			—			—
Total Personal Banking	—			—				—			—			—			—
Commercial Banking:
Commercial real estate loans	—			—				—			—			—			—
Commercial loans	3			—				863			—			—			863
Total Commercial Banking	3			—				863			—			—			863
Total	3			$	—			863			—			—			863

 

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, 2015 (dollars in thousands): 

	Number of			Type of re-modification
	re-modified TDRs			Rate				Payment			Maturity date			Other			Total
Personal Banking:
Residential mortgage loans	1			$	—			—			—			45			45
Home equity loans	—			—				—			—			—			—
Consumer loans	—			—				—			—			—			—
Total Personal Banking	1			—				—			—			45			45
Commercial Banking:
Commercial real estate loans	—			—				—			—			—			—
Commercial loans	—			—				—			—			—			—
Total Commercial Banking	—			—				—			—			—			—
Total	1			$	—			—			—			45			45

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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, 2016 (dollars in thousands): 

	Number of			Type of re-modification
	re-modified TDRs			Rate				Payment			Maturity date			Other			Total
Personal Banking:
Residential mortgage loans	—			$	—			—			—			—			—
Home equity loans	—			—				—			—			—			—
Other consumer loans	—			—				—			—			—			—
Total Personal Banking	—			—				—			—			—			—
Commercial Banking:
Commercial real estate loans	1			—				—			—			191			191
Commercial loans	3			—				863			—			—			863
Total Commercial Banking	4			—				863			—			191			1,054
Total	4			$	—			863			—			191			1,054

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, 2015 (dollars in thousands): 

	Number of			Type of re-modification
	re-modified TDRs			Rate				Payment			Maturity date			Other			Total
Personal Banking:
Residential mortgage loans	1			$	—			—			—			45			45
Home equity loans	1			83				—			—			—			83
Other consumer loans	—			—				—			—			—			—
Total Personal Banking	2			83				—			—			45			128
Commercial Banking:
Commercial real estate loans	—			—				—			—			—			—
Commercial loans	—			—				—			—			—			—
Total Commercial Banking	—			—				—			—			—			—
Total	2			$	83			—			—			45			128

    

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The following table provides information related to loan payment delinquencies at June 30, 2016 (in thousands):

	30-59 Days delinquent				60-89 Days delinquent			90 Days or greater delinquent			Total delinquency			Current			Total loans receivable			90 Days or greater delinquent and accruing (1)
Originated loans:
Personal Banking:
Residential mortgage loans	$	2,468			5,360			14,492			22,320			2,692,974			2,715,294			—
Home equity loans	4,617				1,291			4,545			10,453			1,029,004			1,039,457			—
Consumer loans	6,032				2,068			2,224			10,324			377,789			388,113			—
Total Personal Banking	13,117				8,719			21,261			43,097			4,099,767			4,142,864			—
Commercial Banking:
Commercial real estate loans	3,824				5,623			10,018			19,465			1,960,298			1,979,763			—
Commercial loans	402				2,076			4,566			7,044			409,460			416,504			—
Total Commercial Banking	4,226				7,699			14,584			26,509			2,369,758			2,396,267			—
Total originated loans	17,343				16,418			35,845			69,606			6,469,525			6,539,131			—
Acquired loans:
Personal Banking:
Residential mortgage loans	885				273			554			1,712			40,592			42,304			217
Home equity loans	371				144			877			1,392			121,325			122,717			196
Consumer loans	693				179			175			1,047			157,390			158,437			25
Total Personal Banking	1,949				596			1,606			4,151			319,307			323,458			438
Commercial Banking:
Commercial real estate loans	1,004				3,142			5,226			9,372			374,241			383,613			2,284
Commercial loans	131				353			143			627			48,092			48,719			143
Total Commercial Banking	1,135				3,495			5,369			9,999			422,333			432,332			2,427
Total acquired loans	3,084				4,091			6,975			14,150			741,640			755,790			2,865
Total loans	$	20,427			20,509			42,820			83,756			7,211,165			7,294,921			2,865

(1)	Represents acquired loans that were originally recorded at fair value upon acquisition. These loans are considered to be accruing because we can reasonably estimate future cash flows on and expect to fully collect the carrying value of these loans. Therefore, we are accreting the difference between the carrying value and their expected cash flows into interest income.

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The following table provides information related to loan payment delinquencies at December 31, 2015 (in thousands): 

	30-59 Days delinquent				60-89 Days delinquent			90 Days or greater delinquent			Total delinquency			Current			Total loans receivable			90 Days or greater delinquent and accruing (1)
Originated loans:
Personal Banking:
Residential mortgage loans	$	25,503			7,541			15,564			48,608			2,646,568			2,695,176			—
Home equity loans	4,870				1,836			5,251			11,957			1,043,950			1,055,907			—
Consumer loans	6,092				2,340			2,857			11,289			301,085			312,374			—
Total Personal Banking	36,465				11,717			23,672			71,854			3,991,603			4,063,457			—
Commercial Banking:
Commercial real estate loans	22,212				6,875			14,942			44,029			1,891,128			1,935,157			—
Commercial loans	1,703				598			2,449			4,750			356,658			361,408			—
Total Commercial Banking	23,915				7,473			17,391			48,779			2,247,786			2,296,565			—
Total originated loan	60,380				19,190			41,063			120,633			6,239,389			6,360,022			—
Acquired loans:
Personal Banking:
Residential mortgage loans	440				249			786			1,475			44,241			45,716			540
Home equity loans	936				642			861			2,439			128,760			131,199			462
Consumer loans	1,009				181			69			1,259			206,656			207,915			26
Total Personal Banking	2,385				1,072			1,716			5,173			379,657			384,830			1,028
Commercial Banking:
Commercial real estate loans	2,665				1,353			4,089			8,107			408,170			416,277			2,582
Commercial loans	1,165				—			150			1,315			59,677			60,992			140
Total Commercial Banking	3,830				1,353			4,239			9,422			467,847			477,269			2,722
Total acquired loan	6,215				2,425			5,955			14,595			847,504			862,099			3,750
Total	$	66,595			21,615			47,018			135,228			7,086,893			7,222,121			3,750

(1) Represents acquired loans that were originally recorded at fair value upon acquisition. These loans are considered to be accruing because we can reasonably estimate future cash flows on and expect to fully collect the carrying value of these loans. Therefore, we are accreting the difference between the carrying value and their expected cash flows into interest income.

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

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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.

 

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 updated during the quarter ended June 30, 2016 (in thousands): 

	Pass				Special mention			Substandard			Doubtful			Loss			Total loans receivable
Originated loans:
Personal Banking:
Residential mortgage loans	$	2,700,637			—			14,657			—			—			2,715,294
Home equity loans	1,032,759				—			6,698			—			—			1,039,457
Consumer loans	386,208				—			1,905			—			—			388,113
Total Personal Banking	4,119,604				—			23,260			—			—			4,142,864
Commercial Banking:
Commercial real estate loans	1,813,712				56,459			109,578			14			—			1,979,763
Commercial loans	361,002				14,725			37,713			3,064			—			416,504
Total Commercial Banking	2,174,714				71,184			147,291			3,078			—			2,396,267
Total originated loans	6,294,318				71,184			170,551			3,078			—			6,539,131
Acquired loans:
Personal Banking:
Residential mortgage loans	40,464				—			1,840			—			—			42,304
Home equity loans	120,251				—			2,466			—			—			122,717
Consumer loans	157,966				—			471			—			—			158,437
Total Personal Banking	318,681				—			4,777			—			—			323,458
Commercial Banking:
Commercial real estate loans	356,871				6,892			19,850			—			—			383,613
Commercial loans	47,176				710			833			—			—			48,719
Total Commercial Banking	404,047				7,602			20,683			—			—			432,332
Total acquired loans	722,728				7,602			25,460			—			—			755,790
Total loans	$	7,017,046			78,786			196,011			3,078			—			7,294,921

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The following table sets forth information about credit quality indicators, which were updated during the year ended December 31, 2015 (in thousands):

	Pass				Special mention			Substandard			Doubtful			Loss			Total loans receivable
Originated loans:
Personal Banking:
Residential mortgage loans	$	2,680,562			—			13,274			—			1,340			2,695,176
Home equity loans	1,048,397				—			7,510			—			—			1,055,907
Consumer loans	309,900				—			2,474			—			—			312,374
Total Personal Banking	4,038,859				—			23,258			—			1,340			4,063,457
Commercial Banking:
Commercial real estate loans	1,778,140				46,518			110,384			115			—			1,935,157
Commercial loans	299,455				23,023			37,820			1,110			—			361,408
Total Commercial Banking	2,077,595				69,541			148,204			1,225			—			2,296,565
Total originated loans	6,116,454				69,541			171,462			1,225			1,340			6,360,022
Acquired loans:
Personal Banking:
Residential mortgage loans	44,930				—			786			—			—			45,716
Home equity loans	130,338				—			861			—			—			131,199
Consumer loans	207,846				—			69			—			—			207,915
Total Personal Banking	383,114				—			1,716			—			—			384,830
Commercial Banking:
Commercial real estate loans	392,811				6,872			16,594			—			—			416,277
Commercial loans	59,948				707			337			—			—			60,992
Total Commercial Banking	452,759				7,579			16,931			—			—			477,269
Total acquired loans	835,873				7,579			18,647			—			—			862,099
Total	$	6,952,327			77,120			190,109			1,225			1,340			7,222,121

 

(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, 2016				December 31, 2015
Amortizable intangible assets:
Core deposit intangibles — gross	$	37,953			30,578
Acquisitions	—				7,375
Less: accumulated amortization	(32,114		)		(31,192	)
Core deposit intangibles — net	5,839				6,761
Customer and Contract intangible assets — gross	8,496				8,234
Acquisitions	498				262
Less: accumulated amortization	(6,738		)		(6,275	)
Customer and Contract intangible assets — net	$	2,256			2,221

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The following table shows the actual aggregate amortization expense for the quarters ended June 30, 2016 and 2015, 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, 2016	$	710
For the quarter ended June 30, 2015	269
For the six months ended June 30, 2016	1,385
For the six months ended June 30, 2015	537
For the year ending December 31, 2016	2,716
For the year ending December 31, 2017	2,224
For the year ending December 31, 2018	1,762
For the year ending December 31, 2019	1,300
For the year ending December 31, 2020	837
For the year ending December 31, 2021	462

 

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

	Community Banking				Consumer Finance			Total
Balance at December 31, 2014	$	173,710			1,613			175,323
Goodwill acquired	86,413				—			86,413
Impairment losses	—				—			—
Balance at December 31, 2015	260,123				1,613			261,736
Goodwill acquired	404				—			404
Impairment losses	—				—			—
Balance at June 30, 2016	$	260,527			1,613			262,140

 

We are in the process of performing our annual goodwill impairment test as of June 30, 2016 and do not anticipate that goodwill will be impaired. See Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of our 2015 Annual Report on Form 10-K 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, 2016, the maximum potential amount of future payments we could be required to make under these standby letters of credit was $33.4 million, of which $24.7 million is fully collateralized.  At June 30, 2016, we had a liability, which represents deferred income, of $301,000 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 ended June 30, 2016 were included in the computation of diluted earnings per share because the options’ exercise price was less than the average market price of the common shares of $14.15. Stock options to purchase 1,711,080 shares of common stock with a weighted average exercise price of $12.64 per share were outstanding during the quarter ended June 30, 2015 but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares of $12.32. Stock options to purchase 723,459 shares of common stock with a weighted average exercise price of $14.15 per share were outstanding during the six months ended June 30, 2016 but were

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not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares of $13.43. Stock options to purchase 4,344,225 shares of common stock with a weighted average exercise price of $12.42 per share were outstanding during the six months ended June 30, 2015 but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares of $12.11.

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

	Quarter ended June 30,							Six months ended June 30,
	2016				2015			2016			2015
Reported net income/ (loss)	$	(7,008	)		15,305			10,976			31,475
Weighted average common shares outstanding	99,177,609				91,538,172			99,033,676			91,585,766
Dilutive potential shares due to effect of stock options	1,065,833				459,833			778,049			364,450
Total weighted average common shares and dilutive potential shares	100,243,442				91,998,005			99,811,725			91,950,216
Basic earnings/ (loss) per share:	$	(0.07	)		0.17			0.11			0.34
Diluted earnings/ (loss) per share:	$	(0.07	)		0.17			0.11			0.34

(8)	Pension and Other Post-retirement Benefits

 

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
	2016				2015			2016			2015
Service cost	$	1,374			1,430			—			—
Interest cost	1,695				1,531			18			15
Expected return on plan assets	(2,475		)		(2,593	)		—			—
Amortization of prior service cost	(580		)		(581	)		—			—
Amortization of the net loss	928				925			22			15
Net periodic (benefit)/ cost	$	942			712			40			30

	Six months ended June 30,
	Pension benefits							Other post-retirement benefits
	2016				2015			2016			2015
Service cost	$	2,748			2,860			—			—
Interest cost	3,391				3,062			35			30
Expected return on plan assets	(4,949		)		(5,186	)		—			—
Amortization of prior service cost	(1,161		)		(1,162	)		—			—
Amortization of the net loss	1,855				1,850			45			30
Net periodic (benefit)/ cost	$	1,884			1,424			80			60

We anticipate making a contribution to our defined benefit pension plan of $4.0 million to $8.0 million during the year ending December 31, 2016.

 

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(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 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.

 

Federal Home Loan Bank (“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, 2016 and December 31, 2015, 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, 2016 (in thousands): 

	Carrying amount				Estimated fair value			Level 1			Level 2			Level 3
Financial assets:
Cash and cash equivalents	$	311,431			311,431			311,431			—			—
Securities available-for-sale	705,297				705,297			3,723			692,855			8,719
Securities held-to-maturity	25,144				25,978			—			25,978			—
Loans receivable, net	7,234,140				7,634,998			39,942			—			7,595,056
Accrued interest receivable	20,713				20,713			20,713			—			—
FHLB Stock	40,321				40,321			—			—			—
Total financial assets	$	8,337,046			8,738,738			375,809			718,833			7,603,775
Financial liabilities:
Savings and checking deposits	$	5,039,713			5,039,713			5,039,713			—			—
Time deposits	1,596,288				1,613,089			—			—			1,613,089
Borrowed funds	959,969				959,838			139,652			—			820,186
Junior subordinated debentures	111,213				114,577			—			—			114,577
Cash flow hedges - swaps	4,236				4,236			—			4,236			—
Accrued interest payable	737				737			737			—			—
Total financial liabilities	$	7,712,156			7,732,190			5,180,102			4,236			2,547,852

 

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, 2015 (in thousands): 

	Carrying amount				Estimated fair value			Level 1			Level 2			Level 3
Financial assets:
Cash and cash equivalents	$	167,408			167,408			167,408			—			—
Securities available-for-sale	874,405				874,405			1,894			863,556			8,955
Securities held-to-maturity	31,689				32,552			—			32,552			—
Loans receivable, net	7,159,449				7,482,431			—			—			7,482,431
Accrued interest receivable	21,072				21,072			21,072			—			—
FHLB Stock	40,903				40,903			—			—			—
Total financial assets	$	8,294,926			8,618,771			190,374			896,108			7,491,386
Financial liabilities:
Savings and checking accounts	$	4,917,863			4,917,863			4,917,863			—			—
Time deposits	1,694,718				1,710,388			—			—			1,710,388
Borrowed funds	975,007				998,527			118,664			—			879,863
Junior subordinated debentures	111,213				115,268			—			—			115,268
Cash flow hedges - swaps	4,276				4,276			—			4,276			—
Accrued interest payable	1,993				1,993			1,993			—			—
Total financial liabilities	$	7,705,070			7,748,315			5,038,520			4,276			2,705,519

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, 2016 and December 31, 2015.  There were no transfers of financial instruments between Level 1 and Level 2 during the nine months ended June 30, 2016.

 

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The following table represents assets and liabilities measured at fair value on a recurring basis at June 30, 2016 (in thousands): 

	Level 1				Level 2			Level 3			Total assets at fair value
Equity securities	$	3,723			—			—			3,723
Debt securities:
U.S. government and agencies	—				9			—			9
Government sponsored enterprises	—				179,893			—			179,893
States and political subdivisions	—				77,343			—			77,343
Corporate	—				8,134			8,719			16,853
Total debt securities	—				265,379			8,719			274,098
Residential mortgage-backed securities:
GNMA	—				24,935			—			24,935
FNMA	—				88,878			—			88,878
FHLMC	—				44,528			—			44,528
Non-agency	—				594			—			594
Collateralized mortgage obligations:
GNMA	—				8,561			—			8,561
FNMA	—				110,365			—			110,365
FHLMC	—				140,047			—			140,047
SBA	—				7,365			—			7,365
Non-agency	—				2,203			—			2,203
Total mortgage-backed securities	—				427,476			—			427,476
Interest rate swaps	—				(4,236	)		—			(4,236	)
Total assets and liabilities	$	3,723			688,619			8,719			701,061

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The following table represents assets and liabilities measured at fair value on a recurring basis at December 31, 2015 (in thousands):

	Level 1				Level 2			Level 3			Total assets at fair value
Equity securities	$	1,894			—			—			1,894
Debt securities:
U.S. government and agencies	—				11			—			11
Government sponsored enterprises	—				294,440			—			294,440
States and political subdivisions	—				82,868			—			82,868
Corporate	—				7,520			8,955			16,475
Total debt securities	—				384,839			8,955			393,794
Residential mortgage-backed securities:
GNMA	—				27,082			—			27,082
FNMA	—				99,170			—			99,170
FHLMC	—				50,369			—			50,369
Non-agency	—				606			—			606
Collateralized mortgage obligations:
GNMA	—				10,669			—			10,669
FNMA	—				122,528			—			122,528
FHLMC	—				157,378			—			157,378
SBA	—				8,166			—			8,166
Non-agency	—				2,749			—			2,749
Total mortgage-backed securities	—				478,717			—			478,717
Interest rate swaps	—				(4,276	)		—			(4,276	)
Total assets and liabilities	$	1,894			859,280			8,955			870,129

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, 2016				June 30, 2015			June 30, 2016			June 30, 2015
Beginning balance	$	8,590			10,306			8,955			10,597
Total net realized investment gains/ (losses) and net change in unrealized appreciation/ (depreciation):
Included in net income as OTTI	—				—			—			—
Included in other comprehensive income	129				(1,083	)		(236	)		(1,374	)
Purchases	—				—			—			—
Sales	—				—			—			—
Transfers in to Level 3	—				—			—			—
Transfers out of Level 3	—				—			—			—
Ending balance	$	8,719			9,223			8,719			9,223

 

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Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans measured for impairment, mortgage servicing rights, and real estate owned.  The following table represents the fair value measurement for nonrecurring assets at June 30, 2016 (in thousands):

	Level 1				Level 2			Level 3			Total assets at fair value
Loans measured for impairment	$	—			—			51,695			51,695
Mortgage servicing rights	$	—			—			40			40
Real estate owned	—				—			4,950			4,950
Total assets	$	—			—			56,685			56,685

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 December 31, 2015 (in thousands): 

	Level 1				Level 2			Level 3			Total assets at fair value
Loans measured for impairment	$	—			—			48,181			48,181
Real estate owned	—				—			8,725			8,725
Total assets	$	—			—			56,906			56,906

 

Impaired loans — A loan is considered to be impaired as described in Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of our 2015 Annual Report on Form 10-K. We classify loans individually evaluated for impairment that require a specific reserve as nonrecurring Level 3.

Mortgage servicing rights - Mortgage servicing rights represent the value of servicing residential mortgage loans, when the mortgage loans have been sold into the secondary market and the associated servicing has been retained. The value is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management judgment. Servicing rights and the related mortgage loans are segregated into categories or homogeneous pools based upon common characteristics. Adjustments are only made when the estimated discounted future cash flows are less than the carrying value, as determined by individual pool. As such, mortgage servicing rights are classified 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.

 

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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, 2016 (dollar amounts in thousands): 

	Fair value				Valuation techniques		Significant unobservable inputs		Range (weighted average)
Debt securities	$	8,719			Discounted cash		Discount margin		0.4% to 2.1% (0.7%)
					flow		Default rates		1.0%
							Prepayment speeds		1.0 annually
Loans measured for impairment	51,695				Appraisal value (1)		Estimated cost to sell		10.0%
					Discounted cash flow		Discount rate		3.8% to 20.0% (11.0%)
Mortgage servicing rights	40				Discounted cash		Annual service cost		$80
					flow		Prepayment rates		7.3% to 8.4% (7.9%)
							Expected life (months)		64.2 to 67.3 (65.5)
							Option adjusted spread		800 basis points
							Forward yield curve		0.5% to 1.7% (1.0%)
Real estate owned	4,950				Appraisal value (1)		Estimated cost to sell		10.0%

(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.

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

 

We have two legacy 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 distributions 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.

 

As a result of the LNB acquisition we acquired two statutory business trusts: LNB Trust I and LNB Trust II; both are Delaware statutory business trusts.  The outstanding stock issued by LNB Trust I was redeemed on December 15, 2015. At June 30, 2016, LNB Trust II had 7,875 cumulative trust preferred securities outstanding (liquidation value of $1,000 per preferred security or $7,875,000) with a stated maturity of June 15, 2037. These securities carry a fixed interest rate of 6.64% through June 15, 2017,

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then becomes a floating interest rate, which is reset quarterly, equal to three-month LIBOR plus 1.48%.  LNB Trust II invested the proceeds of the offerings in junior subordinated deferrable interest debentures acquired by the Company.  The structure of these debentures mirrors the structure of the trust-preferred securities. LNB Trust II holds $8,119,000 of junior subordinated debentures. The subordinated debentures are the sole assets of the Trusts. Cash distributions on the trust securities are made on a quarterly basis to the extent interest on the debentures is received by the Trusts.

 

We are currently a counterparty to two 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 swap modifies the re-pricing characteristics of Trust IV, wherein for a ten year period expiring in December 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, 2016, $4.7 million of cash was pledged as collateral to the counterparty.

 

At June 30, 2016, the fair value of the swap agreements was $(4.2) 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.

 

The following table shows liability derivatives, included in other liabilities, at June 30, 2016 and December 31, 2015 (in thousands): 

	June 30, 2016				December 31, 2015
Fair value	$	4,236			4,276
Notional amount	50,000				50,000
Collateral posted	4,705				4,705

 

(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, 2016 we have not accrued for any legal proceedings based on our analysis of currently available information which 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.

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(12)	Changes in Accumulated Other Comprehensive Income/ (Loss)

 

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, 2016
	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, 2016	$	6,817			(2,919	)		(24,856	)		(20,958	)
Other comprehensive income before reclassification adjustments	1,027				166			—			1,193
Amounts reclassified from accumulated other comprehensive income (1), (2)	22				—			226			248
Net other comprehensive income	1,049				166			226			1,441
Balance as of June 30, 2016	$	7,866			(2,753	)		(24,630	)		(19,517	)

 

	For the quarter ended June 30, 2015
	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, 2015	$	6,345			(4,034	)		(23,534	)		(21,223	)
Other comprehensive income before reclassification adjustments	(1,788		)		488			—			(1,300	)
Amounts reclassified from accumulated other comprehensive income (3), (4)	(279		)		—			219			(60	)
Net other comprehensive income/ (loss)	(2,067		)		488			219			(1,360	)
Balance as of June 30, 2015	$	4,278			(3,546	)		(23,315	)		(22,583	)

(1)	Consists of realized loss on securities (gain on sales of investments, net) of $(36), net of tax (income tax expense) of $14.

(2)	Consists of amortization of prior service cost (compensation and employee benefits) of $580 and amortization of net loss (compensation and employee benefits) of $(950), net of tax (income tax expense) of $144.  See note 8.

(3)	Consists of realized gains on securities (gain on sales of investments, net) of $458, net of tax (income tax expense) of $(179).

(4)	Consists of amortization of prior service cost (compensation and employee benefits) of $581 and amortization of net loss (compensation and employee benefits) of $(940), net of tax (income tax expense) of $140.  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, 2016
	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, 2015	$	3,325			(2,779	)		(25,081	)		(24,535	)
Other comprehensive income before reclassification adjustments	4,502				26			—			4,528
Amounts reclassified from accumulated other comprehensive income (1), (2)	39				—			451			490
Net other comprehensive income	4,541				26			451			5,018
Balance as of June 30, 2016	$	7,866			(2,753	)		(24,630	)		(19,517	)

 

	For the six months ended June 30, 2015
	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, 2014	$	3,461			(4,078	)		(23,753	)		(24,370	)
Other comprehensive income before reclassification adjustments	1,164				532			—			1,696
Amounts reclassified from accumulated other comprehensive income (3), (4)	(347		)		—			438			91
Net other comprehensive income	817				532			438			1,787
Balance as of June 30, 2015	$	4,278			(3,546	)		(23,315	)		(22,583	)

(1)	Consists of realized gains on securities (gain on sales of investments, net) of $(64), net of tax (income tax expense) of $25.

(2)	Consists of amortization of prior service cost (compensation and employee benefits) of $1,161 and amortization of net loss (compensation and employee benefits) of $(1,900), net of tax (income tax expense) of $288. See note 8.

(3)	Consists of realized gains on securities (gain on sales of investments, net) of $569, net of tax (income tax expense) of $(222).

(4)	Consists of amortization of prior service cost (compensation and employee benefits) of $1,162 and amortization of net loss (compensation and employee benefits) of $(1,880), net of tax (income tax expense) of $280. See note 8.

(13)    Subsequent events

As was previously announced, on April 28, 2016, Northwest signed a definitive agreement to acquire 18 Western New York bank branches with deposits of approximately $1.700 billion from First Niagara Bank N.A., subject to the closing of the KeyCorp/First Niagara Financial Group, Inc. merger. First Niagara Bank N.A., will be a wholly owned subsidiary of KeyCorp at the time of closing. The premium to be paid on the deposits to be transferred is 4.5%. In addition to receiving approximately $1.000 billion in cash from the transaction, Northwest will acquire approximately $511.0 million of performing business and personal loans.

The First Niagara branches are being sold in connection with First Niagara Financial Group, Inc pending acquisition by KeyCorp. The divestitures have been approved by the United States Department of Justice and the Federal Reserve Board following a customary anti-trust review. The transaction has received approvals from each party’s board of directors and the necessary regulatory approval and remains subject to other customary closing conditions. Pending such completion, the transaction is expected to close on September 9, 2016.

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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 different than expected;

•	competition among other financial institutions and non-depository entities;

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

•	adverse changes in the securities markets;

•	cyber security concerns, including an interruption or breach in the security of our information systems;

•	our ability to enter new markets successfully, capitalize on growth opportunities;

•	managing our internal growth and our ability to successfully integrate acquired entities, businesses and branch offices;

•	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;

•	our ability to receive regulatory approvals for proposed transactions or new lines of business:

•	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

 

Please refer to Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of our 2015 Annual Report on Form 10-K.

 

Executive Summary and Comparison of Financial Condition

 

Total assets at June 30, 2016 were $8.964 billion, an increase of $12.1 million, or 0.1%, from $8.952 billion at December 31, 2015.  This increase in assets was due primarily to increases in interest-earning deposits in other financial institutions of $148.6 million, or 199.4%, and net loans receivable of $74.7 million, or 1.0%. Partially offsetting these increases was a $175.7 million, or 19.4%, decrease in marketable securities.

 

Total loans receivable increased by $72.8 million, or 1.0%, to $7.295 billion at June 30, 2016, from $7.222 billion at December 31, 2015. Loans funded during the six months ended June 30, 2016, of $1.336 billion exceeded loan maturities, principal repayments and mortgage loan sales of $1.256 billion. Our commercial banking loan portfolio increased by $54.8 million, or 2.0%, to $2.829 billion at June 30, 2016 from $2.774 billion at December 31, 2015, as we continue to emphasize the origination of commercial and commercial real estate loans. Additionally, our personal banking loan portfolio increased by $18.0 million, or

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0.4%, to $4.466 billion at June 30, 2016 from $4.448 billion at December 31, 2015.  This increase is primarily attributable to an increase in consumer loans of $26.3 million as a result of the success of our indirect automobile lending division.

 

Total deposits increased by $23.4 million, or 0.4%, to $6.636 billion at June 30, 2016 from $6.613 billion at December 31, 2015. All deposit types increased with the exception of time deposits. Noninterest-bearing demand deposits increased by $11.8 million, or 1.0%, to $1.189 billion at June 30, 2016 from $1.177 billion at December 31, 2015. Interest-bearing demand deposits increased by $30.5 million, or 2.8%, to $1.111 billion at June 30, 2016 from $1.080 billion at December 31, 2015. Savings deposits increased by $58.9 million, or 4.3%, to $1.445 billion at June 30, 2016 from $1.386 billion at December 31, 2015.  Money market demand accounts increased by $20.6 million, or 1.6%, to $1.295 billion at June 30, 2016 from $1.275 billion at December 31, 2015. Partially offsetting these increases was a decrease in time deposits of $98.4 million, or 5.8%, to $1.596 billion at June 30, 2016 from $1.695 billion at December 31, 2015. We believe the increase in more liquid deposit accounts is due primarily to customers’ continued reluctance to lock in time deposits at these historically low rates and our emphasis on attracting low-cost fee-based deposits.

 

Borrowed funds decreased by $15.0 million, or 1.5%, to $960.0 million at June 30, 2016, from $975.0 million at December 31, 2015. This decrease is due to the repayment and maturity of $750.0 million of FHLB long-term borrowings. These long-term borrowings were refinanced with lower cost short-term borrowings, in anticipation of the pending acquisition of 18 community banking offices from First Niagara, which lead to an increase of $670.0 million and $44.0 million in FHLB short-term and overnight advances, respectively. Also offsetting this decrease was an increase of $20.4 million in collateralized borrowings.

 

Total shareholders’ equity at June 30, 2016 was $1.155 billion, or $11.28 per share, a decrease of $7.7 million, or 0.7%, from $1.163 billion, or $11.42 per share, at December 31, 2015.  This decrease in equity was primarily the result of the payment of cash dividends of $29.9 million and the repurchase of 145,900 shares of common stock for $1.8 million during the six months ended June 30, 2016. Partially offsetting these decreases were net income of $11.0 million and a decrease in accumulated other comprehensive loss of $5.0 million due to an improvement in the net unrealized gain of the investment securities portfolio during the quarter ended June 30, 2016.

Regulatory Capital

 

Financial institutions and their holding companies are subject to various regulatory capital requirements.  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.

 

In July 2013, the FDIC and the other federal regulatory agencies issued a final rule that revised 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 (“CET1”) minimum capital requirement (4.5% of risk-weighted assets) and increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets). The rule limits an organization’s capital distributions and certain discretionary bonus payments if the organization does not hold a “capital conservation buffer” consisting of 2.5% of CET1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

 

The final rule became effective for Northwest on January 1, 2015.  The capital conservation buffer requirement is being phased in beginning on January 1, 2016 and ending on January 1, 2019, when the full capital conservation buffer requirement will be effective.

 

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, CET1 and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined).  Capital ratios are presented in the tables below.  Dollar amounts in the accompanying tables are in thousands.

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	At June 30, 2016
								Minimum capital						Well capitalized
	Actual							requirements (1)						requirements (1)
	Amount				Ratio			Amount			Ratio			Amount			Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc.	$	1,086,090			16.325	%		573,820			8.625	%		706,880			10.625	%
Northwest Bank	1,017,718				15.324	%		572,805			8.625	%		705,629			10.625	%
Tier 1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,025,142				15.409	%		440,760			6.625	%		573,820			8.625	%
Northwest Bank	956,931				14.409	%		439,980			6.625	%		572,805			8.625	%
CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	917,267				13.787	%		340,966			5.125	%		474,025			7.125	%
Northwest Bank	956,931				14.409	%		340,362			5.125	%		473,186			7.125	%
Tier 1 capital (leverage) (to average assets)
Northwest Bancshares, Inc.	1,025,142				11.844	%		346,206			4.000	%		432,757			5.000	%
Northwest Bank	956,931				11.045	%		346,571			4.000	%		433,214			5.000	%

(1) Amounts and ratios include the current capital conservation buffer of 0.625%, with the exception of Tier 1 capital to average assets.

 

	At December 31, 2015
								Minimum capital						Well capitalized
	Actual							requirements						requirements
	Amount				Ratio			Amount			Ratio			Amount			Ratio
Total capital (to risk weighted assets)
Northwest Bancshares, Inc.	$	1,102,468			16.63	%		530,257			8.00	%		662,821			10.00	%
Northwest Bank	1,006,230				15.20	%		529,498			8.00	%		661,872			10.00	%
Tier I capital (to risk weighted assets)
Northwest Bancshares, Inc.	1,039,574				15.68	%		397,693			6.00	%		530,257			8.00	%
Northwest Bank	943,554				14.26	%		397,123			6.00	%		529,498			8.00	%
CET1 capital (to risk weighted assets)
Northwest Bancshares, Inc.	931,699				14.06	%		298,269			4.50	%		430,834			6.50	%
Northwest Bank	943,554				14.26	%		297,843			4.50	%		430,217			6.50	%
Tier I capital (leverage) (to average assets)
Northwest Bancshares, Inc.	1,039,574				11.96	%		347,582			4.00	%		434,477			5.00	%
Northwest Bank	943,554				10.87	%		347,063			4.00	%		433,829			5.00	%

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Liquidity

 

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, 2016 was 11.1%. 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, 2016 Northwest had $2.224 billion of additional borrowing capacity available with the FHLB, including $150.0 million on an overnight line of credit, which is fully utilized at June 30, 2016, as well as $117.2 million of borrowing capacity available with the Federal Reserve Bank and $80.0 million with two correspondent banks.

 

Dividends

 

We paid $15.0 million and $12.9 million in cash dividends during the quarters ended June 30, 2016 and 2015, respectively.  The common stock dividend payout ratio (dividends declared per share divided by net income/ (loss) per share) was (214.3%) and 82.4% for the quarters ended June 30, 2016 and 2015, respectively, on regular dividends of $0.15 per share for the quarter ended June 30, 2016 and on regular dividends of $0.14 per share for the quarter ended June 30, 2015. We paid $29.9 million and $25.9 million in cash dividends during the quarters ended June 30, 2016 and 2015, respectively.  The common stock dividend payout ratio (dividends declared per share divided by net income per share) was 272.7% and 82.4% for the quarters ended June 30, 2016 and 2015, respectively, on regular dividends of $0.30 per share for the quarter ended June 30, 2016 and on regular dividends of $0.28 per share for the quarter ended June 30, 2015. On July 20, 2016, the Board of Directors declared a dividend of $0.15 per share payable on August 18, 2016 to shareholders of record as of August 4, 2016.  This represents the 87th 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.

 

	June 30, 2016				December 31, 2015
	(Dollars in thousands)
Nonaccrual loans 90 days or more delinquent:
Residential mortgage loans	$	14,829			$	15,810
Home equity loans	5,226				5,650
Consumer loans	2,374				2,900
Commercial real estate loans	12,960				16,449
Commercial loans	4,566				2,459
Total loans 90 days or more delinquent	$	39,955			$	43,268
Total real estate owned (REO)	4,950				8,725
Total nonaccrual loans 90 days or more delinquent and REO	44,905				51,993
Total nonaccrual loans 90 days or more delinquent to net loans receivable	0.55		%		0.60		%
Total nonaccrual loans 90 days or more delinquent and REO to total assets	0.50		%		0.58		%
Nonperforming assets:
Nonaccrual loans - loans 90 days or more delinquent	39,955				43,268
Nonaccrual loans - loans less than 90 days delinquent	35,923				28,394
Loans 90 days or more past maturity and still accruing	472				1,334
Total nonperforming loans	76,350				72,996
Total nonperforming assets	$	81,300			81,721
Nonaccrual troubled debt restructured loans (1)	$	18,098			21,118
Accruing troubled debt restructured loans	31,015				29,997
Total troubled debt restructured loans	$	49,113			51,115

(1)	Included in nonaccurual loans above.

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At June 30, 2016, we expect to fully collect the carrying value of our purchased credit impaired loans and have determined that we can reasonably estimate their future cash flows including those loans that are 90 days or more delinquent. As a result, we do not consider these loans that are 90 days or more delinquent to be nonaccrual or impaired and continue to recognize interest income on these loans, including the loans’ accretable discount, which total $2.9 million at June 30, 2016.

 

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, 2016 and December 31, 2015 were $109.0 million and $117.9 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 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, less costs of sale or disposal.  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

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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 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 structured methodology each period when analyzing the adequacy of the allowance for loan losses and the related provision for loan losses, which the Credit Committee assesses regularly for appropriateness.  As part of the analysis as of June 30, 2016, we considered the economic conditions in our markets, such as unemployment and bankruptcy levels as well as changes in estimates of 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 decreased by $1.9 million, or 3.0%, to $60.8 million, or 0.83% of total loans at June 30, 2016 from $62.7 million, or 0.87% of total loans, at December 31, 2015.  This decrease is primarily attributable to the charge-off of $1.4 million of residential mortgage loans that were fully reserved.

 

We also consider how the levels of non-accrual loans and historical charge-offs have influenced the required amount of allowance for loan losses.  Nonaccrual loans of $75.9 million or 1.05% of total loans receivable at June 30, 2016 increased by $4.2 million, or 5.9%, from $71.7 million, or 1.01% of total loans receivable, at December 31, 2015. As a percentage of average loans, annualized net charge-offs decreased to 0.21% for the six months ended June 30, 2016 compared to 0.23% for the year ended December 31, 2015.

Comparison of Operating Results for the Quarters Ended June 30, 2016 and 2015

 

The Company experienced a net loss for the quarter ended June 30, 2016 of $7.0 million, or $0.07 per diluted share, due primarily to a $37.0 million prepayment penalty for strategically refinancing $715.0 million of term FHLB borrowings with short-term advances in anticipation of the funds to be received from the acquisition of 18 First Niagara offices and $1.700 billion of deposits in the third quarter of 2016. This loss was a decrease of $22.3 million, or 145.8%, from net income of $15.3 million, or $0.17 per diluted share, for the quarter ended June 30, 2015.  The decrease in net income also resulted from an increase in noninterest expense of $48.2 million, or 87.3% and an increase in the provision for loan losses of $3.1 million or 299.9%. Partially offsetting these factors were increases in net interest income of $14.5 million, or 23.3%, noninterest income of $3.8 million, or 22.7%, and a decrease in income tax expense of $10.7million, or 148.4%.  Annualized, net income/ (loss) for the quarter ended June 30, 2016 represents returns on average equity and average assets of (2.44%) and (0.32%), respectively, compared to 5.77% and 0.78% for the same quarter last year.  A further discussion of significant changes follows.

 

Interest Income

 

Total interest income increased by $10.7 million, or 14.1%, to $86.7 million for the quarter ended June 30, 2016 from $76.0 million for the quarter ended June 30, 2015. This increase is the result of an increase in the average balance of interest earning assets of $783.7 million, or 10.7%, to $8.126 billion for the quarter ended June 30, 2016 from $7.343 billion for the quarter ended June 30, 2015 and an increase in the average yield earned on interest earning assets to 4.29% for the quarter ended June 30, 2016 from 4.15% for the quarter ended June 30, 2015.

Interest income on loans receivable increased by $11.6 million, or 16.4%, to $82.6 million for the quarter ended June 30, 2016 from $71.0 million for the quarter ended June 30, 2015.  This increase in interest income on loans receivable can be attributed to an increase in the average balance of loans receivable of $1.200 billion, or 19.5%, to $7.257 billion for the quarter ended June 30, 2016 from $6.074 billion for the quarter ended June 30, 2015.  This increase is due primarily to the addition of $928.1 million of loan balances, at fair value, from the LNB acquisition. Also contributing to this increase was internal loan growth of $415.0 million

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during the past year due to continued success in growing commercial banking relationships and our indirect automobile lending portfolio. Partially offsetting this increase was a decline in the average yield on loans receivable which decreased to 4.58% for the quarter ended June 30, 2016 from 4.69% for the quarter ended June 30, 2015.  The decline in average yield is due primarily to the historically low level of market interest rates, as well as the overall lower average yield from the LNB portfolio.

 

Interest income on mortgage-backed securities remained flat at $2.1 million for the quarters ended June 30, 2016 and 2015.  The average yield of mortgage-backed securities increased to 1.85% for the quarter ended June 30, 2016 from 1.72% for the quarter ended June 30, 2015 due to the LNB portfolio having higher yields than our existing portfolio. Offsetting this increase was a decrease in the average balance of mortgage-backed securities of $19.4 million, or 4.1%, to $458.4 million for the quarter ended June 30, 2016 from $477.8 million for the quarter ended June 30, 2015 despite the addition of $109.4 million, at fair value, of mortgage-backed security balances from the LNB acquisition. The cash flows from our existing portfolio were redirected to fund loan growth.

 

Interest income on investment securities decreased by $809,000, or 35.6%, to $1.5 million for the quarter ended June 30, 2016 from $2.3 million for the quarter ended June 30, 2015. This decrease is the result of decreases in both the average balance and average yield.  The average balance of investment securities decreased by $169.1 million, or 35.0%, to $313.6 million for the quarter ended June 30, 2016 from $482.7 million for the quarter ended June 30, 2015.  This decrease is due primarily to the maturity or call of municipal and government agency securities. The cash flows from our existing portfolio were redirected to fund loan growth and payoff FHLB advances. Partially offsetting this decrease was the addition of $74.7 million, at fair value, of municipal and government agency security balances from the LNB acquisition. The average yield of investment securities decreased slightly to 1.87% for the quarter ended June 30, 2016 from 1.88% for the quarter ended June 30, 2015. 

 

Dividends on FHLB stock decreased by $74,000, or 15.6%, to $401,000 for the quarter ended June 30, 2016 from $475,000 for the quarter ended June 30, 2015. This decrease is attributable to decreases in both the average balance and average yield. The average yield of FHLB stock decreased to 4.84% for the quarter ended June 30, 2016 from 5.35% for the quarter ended June 30, 2015. Additionally, the average balance of FHLB stock decreased by $2.3 million, or 6.5% to $33.3 million for the quarter ended June 30, 2016 from $35.6 million for the quarter ended June 30, 2015. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

 

Interest income on interest-earning deposits decreased by $110,000, or 61.1%, to $70,000 for the quarter ended June 30, 2016 from $180,000 for the quarter ended June 30, 2015.  This decrease is due to a decrease in the average balance of $208.7 million, or 76.5%, to $64.0 million for the quarter ended June 30, 2016 from $272.7 million for the quarter ended June 30, 2015, due to the utilization of cash to payoff FHLB advances, fund loan growth, and fund the purchase of LNB. Partially offsetting this decrease was an increase in the average yield on interest-earning deposits to 0.43% for the quarter ended June 30, 2016 from 0.26% for the quarter ended June 30, 2015, as a result of the 25 basis point increase in December 2015 of the Federal Funds rate targeted by the Federal Reserve Bank.

Interest Expense

 

Interest expense decreased by $3.8 million, or 27.4%, to $10.0 million for the quarter ended June 30, 2016 from $13.8 million for the quarter ended June 30, 2015.  This decrease in interest expense was due primarily to a decrease in the average cost of interest-bearing liabilities, which decreased to 0.63% for the quarter ended June 30, 2016 from 0.96% for the quarter ended June 30, 2015. This decrease is due primarily to the replacement of approximately $715.0 million of long-term FHLB advances with lower cost short-term FHLB advances in anticipation of the pending acquisition of 18 First Niagara community banking offices scheduled to close in the third quarter of 2016. Additionally, the average cost of each deposit type declined from the prior year in this low interest rate environment. Partially offsetting the decrease in cost was an increase in the average balance of $591.6 million, or 10.2%, to $6.365 billion for the quarter ended June 30, 2016 from $5.773 billion for the quarter ended June 30, 2015. This increase was due primarily to the addition of $1.017 billion, at fair value, of deposit balances from the LNB acquisition.

 

Net Interest Income

 

Net interest income increased by $14.5 million, or 23.3%, to $76.7 million for the quarter ended June 30, 2016 from $62.2 million for the quarter ended June 30, 2015.  This increase is attributable to the factors discussed above. Redirecting existing funds and cash flow from investment securities to fund the LNB acquisition, which provided $1.140 billion of interest-earning assets, fund loan growth, and the repayment/ refinance long-term FHLB borrowings, improved our net interest spread and margin.  Our net interest rate spread increased to 3.66% for the quarter ended June 30, 2016 from 3.19% for the quarter ended June 30, 2015 and our net interest margin increased to 3.77% for the quarter ended June 30, 2016 from 3.39% for the quarter ended June 30, 2015.

 

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Provision for Loan Losses

 

The provision for loan losses increased by $3.1 million, or 299.9%, to $4.2 million for the quarter ended June 30, 2016 from $1.1 million for the quarter ended June 30, 2015.  This increase is due primarily to the downgrade of three commercial loans requiring an additional $1.7 million of combined reserves. However, the percentage of classified loans to total loans decreased to 2.73% at June 30, 2016 from 3.12% million at June 30, 2015.  In addition, annualized net charge-offs decreased for the quarter ended June 30, 2016 to 0.31% of total loans compared to 0.61% for the quarter ended June 30, 2015.

 

In determining the amount of the current period provision, we considered current economic conditions, including but not limited to 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.  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 $3.8 million, or 22.7%, to $20.3 million for the quarter ended June 30, 2016 from $16.5 million for the quarter ended June 30, 2015. The increase is primarily attributable to increases in service charges and fees, gain on sale of real estate owned, and insurance commission income. Service charges and fees increased by $1.4 million, or 15.2%, to $10.6 million for the quarter ended June 30, 2016 from $9.2 million for the quarter ended June 30, 2015 due primarily to the growth in checking accounts from both the LNB acquisition and the successful execution of internal growth initiatives. Also contributing to the increase in noninterest income was an increase in gain on sale of real estate owned of $652,000, as we recognized a net gain of $111,000 for the quarter ended June 30, 2016 compared to a net loss of $541,000 for the same quarter last year. Additionally, insurance commission income increased by $558,000, or 25.2%, for the quarter ended June 30, 2016 compared to the same quarter last year as acquired companies and commercial banking referrals continue to generate additional revenue.

 

Noninterest Expense

 

Noninterest expense increased by $48.2 million, or 87.3%, to $103.3 million for the quarter ended June 30, 2016 from $55.1 million for the quarter ended June 30, 2015.  This increase is primarily the result of the FHLB prepayment penalty and, to a lesser extent, increases in compensation and employee benefits, restructuring and acquisition expense, and processing expenses. During the quarter ended June 30, 2016, we replaced long-term FHLB advances with lower cost short-term advances incurring a $37.0 million prepayment penalty. This refinancing was done in anticipation of the pending acquisition of 18 First Niagara community banking offices with deposits of approximately $1.700 billion. Compensation and employee benefits increased by $5.4 million, or 18.8%, to $34.3 million for the quarter ended June 30, 2016 from $28.9 million for the quarter ended June 30, 2015.  This increase is due primarily to the addition of lending and credit staff and the employees retained from the LNB acquisition. Restructuring and acquisition expense increased by $2.9 million to $3.4 million for the quarter ended June 30, 2016 from $467,000 for the quarter ended June 30, 2015. This increase is due primarily to restructuring costs of $2.8 million associated with the consolidation of 24 community banking offices. Processing expenses increased by $780,000, or 10.6%, to $8.2 million for the quarter ended June 30, 2016 from $7.4 million for the quarter ended June 30, 2015, due primarily to the acquisition of LNB, as well as technology upgrades. Also contributing to the increase in noninterest expense was an increase in office operations of $438,000, or 15.1%, and occupancy costs of $376,000, or 6.4%, for the quarter ended June 30, 2016, due primarily to the acquisition of LNB.

 

Income Taxes

 

The provision for income taxes decreased by $10.7 million, or 148.4%, to ($3.5) million for the quarter ended June 30, 2016 from $7.2 million for the quarter ended June 30, 2015.  This decrease in income tax expense is primarily the result of a decrease in pretax income of $33.0 million, or 146.6%. We anticipate our effective tax rate to be between 28.0% and 30.0% for all of 2016.

 

Comparison of Operating Results for the Six Months Ended June 30, 2016 and 2015

 

Net income for the six months ended June 30, 2016 was $11.0 million, or $0.11 per diluted share, a decrease of $20.5 million, or 65.1%, from $31.5 million, or $0.34 per diluted share, for the six months ended June 30, 2015.  The decrease in net income resulted from increases in noninterest expense of $57.7 million, or 53.0%, and provision for loan losses of $3.9 million, or 200.5%. Partially offsetting these factors were increases in net interest income of $23.1 million, or 18.4%, and noninterest income of $8.6 million, or 27.5%, as well as a decrease in income tax expense of of $9.4 million, or 67.3%. Annualized, net income

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for the six months ended June 30, 2016 represents returns on average equity and average assets of 1.90% and 0.25%, respectively, compared to 5.97% and 0.81% for the six months ended June 30, 2015.  A discussion of significant changes follows.

 

Interest Income

 

Total interest income increased by $19.1 million, or 12.5%, to $172.0 million for the six months ended June 30, 2016 from $152.9 million for the six months ended June 30, 2015. This increase is the result of increases in both the average balance of and average yield earned on interest earning assets. The average balance of interest earning assets increased by $831.7 million, or 11.4%, to $8.143 billion for the six months ended June 30, 2016 from $7.311 billion for the six months ended June 30, 2015. Additionally, the average yield on interest-earning assets increased to 4.25% for the six months ended June 30, 2016 from 4.18% for the six months ended June 30, 2015.

 

Interest income on loans receivable increased by $21.7 million, or 15.3%, to $163.4 million for the six months ended June 30, 2016 from $141.7 million for the six months ended June 30, 2015.  This increase in interest income on loans receivable can be attributed to an increase in the average balance of loans receivable of $1.191 billion, or 19.7%, to $7.238 billion for the six months ended June 30, 2016 from $6.047 billion for the six months ended June 30, 2015. This increase is due primarily to the addition of $928.1 million of loan balances, at fair value, from the LNB acquisition. Also contributing to this increase was internal loan growth of $415.0 million during the past year due to continued success in growing commercial banking relationships and our indirect automobile lending portfolio. Partially offsetting this increase was a decline in the average yield on loans receivable which decreased to 4.54% for the six months ended June 30, 2016 from 4.73% for the six months ended June 30, 2015. The decline in average yield is due primarily to the continued historically low level of market interest rates, as well as the overall lower yield of the LNB portfolio.

 

Interest income on mortgage-backed securities remained flat at $4.3 million for the six months ended June 30, 2016 and 2015. The average balance of mortgage-backed securities decreased by $18.9 million, or 3.8%, to $473.3 million for the six months ended June 30, 2016 from $492.2 million for the six months ended June 30, 2015 despite the addition of $109.4 million, at fair value, of mortgage-backed security balances from the LNB acquisition. The cash flow from these securities was redirected to fund the LNB acquisition, payoff FHLB advances, and fund loan growth.  Partially offsetting this decrease was an increase in the average yield on mortgage-backed securities to 1.84% for the six months ended June 30, 2016 from 1.74% for the six months ended June 30, 2015 due to the acquisition of the higher yielding LNB portfolio.

 

Interest income on investment securities decreased by $1.5 million, or 30.9%, to $3.2 million for the six months ended June 30, 2016 from $4.7 million for the six months ended June 30, 2015. This decrease is the result of decreases in both the average balance and average yield. The average balance of investment securities decreased by $133.8 million, or 27.6%, to $350.6 million for the six months ended June 30, 2016 from $484.4 million for the six months ended June 30, 2015.  This decrease is due primarily to the maturity or call of municipal and government agency securities and the use of these proceeds to fund the LNB acquisition, pay off FHLB advances, and fund loan growth. The average yield on investment securities decreased to 1.84% for the six months ended June 30, 2016 from 1.93% for the six months ended June 30, 2015.  This decrease is primarily the result of higher rate, tax-free, municipal securities maturing or being called and, if replaced, being replaced by lower yielding, shorter duration government agency securities. 

 

Dividends on FHLB stock decreased by $1.0 million, or 53.8%, to $868,000 for the six months ended June 30, 2016 from $1.9 million for the six months ended June 30, 2015. This decrease is due a $1.0 million special dividend paid in the first quarter of 2015.  Additionally, the average balance decreased by $672,000, or 1.9%, to $35.2 million for the six months ended June 30, 2016 from $35.9 million for the six months ended June 30, 2015. Partially offsetting these factors was an increase in the average yield, exclusive of the special dividend, to 4.96% for the six months ended June 30, 2016 from 4.71% for the six months ended June 30, 2015. Required FHLB stock holdings fluctuate with, among other things, the utilization of our borrowing capacity as well as capital requirements established by the FHLB.

Interest income on interest-earning deposits decreased by $190,000, or 59.6%, to $129,000 for the six months ended June 30, 2016 from $319,000 for the six months ended June 30, 2015.  This decrease is due to a decrease in the average balance of $206.3 million, or 81.8%, to $45.9 million for the six months ended June 30, 2016 from $252.2 million for the six months ended June 30, 2015, due to the utilization of cash for the LNB acquisition, to pay off FHLB advances, and fund loan growth.  Partially offsetting this decrease was an increase in the average yield on interest-earning deposits to 0.56% for the six months ended June 30, 2016 from 0.25% for the six months ended June 30, 2015, as a result of the 25 basis point increase in December 2015 of the Federal Funds rate targeted by the Federal Reserve Bank.

 

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Interest Expense

 

Interest expense decreased by $3.9 million, or 14.2%, to $23.8 million for the six months ended June 30, 2016 from $27.7 million for the six months ended June 30, 2015.  This decrease in interest expense was due to a decline in the average cost of interest-bearing liabilities which decreased to 0.74% for the six months ended June 30, 2016 from 0.97% for the six months ended June 30, 2015. This decrease is due primarily to the replacement of long-term FHLB borrowings with lower cost short-term FHLB advances in anticipation of the pending acquisition of 18 First Niagara community banking offices. Additionally, the average cost of each deposit type declined from the prior year in this low interest rate environment. Partially offsetting this decrease was an increase in the average balance of interest-bearing liabilities, which increased by $631.6 million, or 10.9%, to $6.414 billion for the six months ended June 30, 2016 from $5.782 billion for the six months ended June 30, 2015. This increase was due primarily to the addition of $1.017 billion, at fair value, of deposit balances from the LNB acquisition.

 

Net Interest Income

 

Net interest income increased by $23.0 million, or 18.4%, to $148.2 million for the six months ended June 30, 2016 from $125.2 million for the six months ended June 30, 2015.  This increase is attributable to the factors discussed above. Redirecting existing funds and cash flow from investment securities to fund the LNB acquisition, which provided $1.140 billion of interest-earning assets, and to fund loan growth, as well as the repayment/ refinance of FHLB long-term borrowings, improved our net interest spread and margin. Our net interest rate spread increased to 3.51% for the six months ended June 30, 2016 from 3.21% for the six months ended June 30, 2015 and our net interest margin increased to 3.64% for the six months ended June 30, 2016 from 3.40% for the six months ended June 30, 2015.

 

Provision for Loan Losses

 

The provision for loan losses increased by $3.9 million, or 200.5%, to $5.9 million for the six months ended June 30, 2016 from $2.0 million for the six months ended June 30, 2015.  This increase is due primarily to the downgrading of five commercial loans requiring an additional $2.5 million in combined reserves and increases in reserves for the oil and gas industry and indirect auto loans. However, the percentage of classified loans to total loans decreased to 2.73% at June 30, 2016 from 3.12% at June 30, 2015. In addition, annualized net charge-offs decreased for the six months ended ended June 30, 2016 to 0.21% of total loans compared to 0.34% for the six months ended ended June 30, 2015.

 

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.  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 $8.5 million, or 27.5%, to $39.7 million for the six months ended June 30, 2015 from $31.2 million for the six months ended June 30, 2015. The increase is primarily attributable to an increase in service charges and fees and a decrease in loss on real estate owned.  Service charges and fees increased by $2.8 million, or 15.7%, to $20.7 million for the six months ended June 30, 2016 from $17.9 million for the six months ended June 30, 2015 due primarily to the growth in checking accounts from both the LNB acquisition and the successful execution of internal growth initiatives. Also contributing to the increase in noninterest income was an increase in gain on sale of real estate owned of $1.9 million, as we recognized a net gain of $360,000 for the six months ended June 30, 2016 compared to a net loss of $1.6 million for the same period last year. Other operating income increased by $1.6 million, or 125.0%, to $2.9 million for the six months ended June 30, 2016 from $1.3 million for the six months ended June 30, 2015 due primarily to income on paid-off purchased credit impaired loans. Additionally, insurance commission income and trust and other financial services income increased by $844,000 and $668,000, respectively, for the six months ended June 30, 2016 compared to the same period last year.

 

Noninterest Expense

 

Noninterest expense increased by $57.7 million, or 53.0%, to $166.5 million for the six months ended June 30, 2016 from $108.8 million for the six months ended June 30, 2015.  This increase is primarily the result of a FHLB prepayment penalty and, to a lesser extent, increases in compensation and employee benefits, restructuring and acquisition expense, other expense, and processing expenses. During the six months ended June 30, 2016, we replaced long-term FHLB borrowings with lower cost short-term advances incurring a $37.0 million prepayment penalty. This refinancing occurred in anticipation of the pending acquisition of 18 First Niagara community banking offices with deposits of approximately $1.700 billion. Compensation and

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employee benefits increased by $10.6 million, or 18.6%, to $67.4 million for the six months ended June 30, 2016 from $56.8 million for the six months ended June 30, 2015.  This increase is the result of the employees retained from LNB acquisition, the addition of lending and credit staff, and higher healthcare and stock benefit costs. Additionally, expenses totaling $4.0 million were incurred during the six months ended June 30, 2016 related to the consolidation of 24 community banking offices into existing offices and the aforementioned First Niagara acquisition. Also contributing to this increase in noninterest expense was an increase in other expense of $2.9 million, or 68.7%, as a result of an increase in charitable contributions made to utilize Pennsylvania Education Improvement Tax Credits. Processing expense increased by $2.0 million, or 13.6%, to $16.6 million for the six months ended June 30, 2016 from $14.6 million for the six months ended June 30, 2015, due primarily to technology upgrades, the additional maintenance costs attributable to the addition of the LNB operations, and the replacement of debit cards in an effort to enhance customer security. 

 

Income Taxes

 

The provision for income taxes decreased by $9.4 million, or 67.3%, to $4.6 million for the six months ended June 30, 2016 from $14.0 million for the six months ended June 30, 2015.  This decrease in income tax expense is primarily the result of a decrease in pretax income of $29.9 million, or 65.8%. Our effective tax rate for the six months ended June 30, 2016 was 29.5% compared to 30.8% for the six months ended June 30, 2015.  We anticipate our effective tax rate to be between 28.0% and 30.0% for all of 2016.

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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,
	2016										2015
	Average balance				Interest			Avg. yield/ cost (g)			Average balance			Interest			Avg. yield/ cost (g)
Assets:
Interest-earning assets:
Residential mortgage loans	$	2,751,601			30,228			4.39	%		2,546,712			28,395			4.46	%
Home equity loans	1,163,900				12,701			4.39	%		1,054,508			11,402			4.34	%
Consumer loans	522,745				8,697			6.69	%		245,832			6,529			10.65	%
Commercial real estate loans	2,356,994				26,691			4.48	%		1,859,790			21,257			4.52	%
Commercial loans	461,808				4,902			4.20	%		367,069			3,862			4.16	%
Loans receivable (a) (b) (includes FTE adjustments of $574 and $460, respectively)	7,257,048				83,219			4.61	%		6,073,911			71,445			4.72	%
Mortgage-backed securities (c)	458,398				2,115			1.85	%		477,800			2,058			1.72	%
Investment securities (c) (includes FTE adjustments of $381 and $615, respectively)	313,647				1,844			2.35	%		482,670			2,887			2.39	%
FHLB stock	33,302				401			4.84	%		35,608			475			5.35	%
Other interest-earning deposits	63,950				70			0.43	%		272,691			180			0.26	%
Total interest-earning assets (includes FTE adjustments of $955 and $1,075, respectively)	8,126,345				87,649			4.34	%		7,342,680			77,045			4.21	%
Noninterest earning assets (d)	755,713										529,528
Total assets	$	8,882,058									7,872,208
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Savings deposits	$	1,440,886			837			0.23	%		1,263,785			838			0.27	%
Interest-bearing checking deposits	1,130,122				144			0.05	%		920,071			131			0.06	%
Money market deposit accounts	1,294,381				829			0.26	%		1,147,017			759			0.27	%
Time deposits	1,616,260				4,055			1.01	%		1,409,740			3,963			1.13	%
Borrowed funds (e)	772,225				3,017			1.57	%		929,744			6,929			2.99	%
Junior subordinated debentures	111,213				1,126			4.01	%		103,094			1,172			4.49	%
Total interest-bearing liabilities	6,365,087				10,008			0.63	%		5,773,451			13,792			0.96	%
Noninterest-bearing checking deposits (f)	1,184,786										957,912
Noninterest-bearing liabilities	177,300										77,075
Total liabilities	7,727,173										6,808,438
Shareholders’ equity	1,154,885										1,063,770
Total liabilities and shareholders’ equity	$	8,882,058									7,872,208
Net interest income/ Interest rate spread					77,641			3.71	%					63,253			3.25	%
Net interest-earning assets/ Net interest margin	$	1,761,258						3.82	%		1,569,229						3.45	%
Ratio of interest-earning assets to interest-bearing liabilities	1.28		X								1.27	X

(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.

(c)	Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.

(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)	Average cost of deposits were 0.35% and 0.40%, respectively.

(g)

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 — 4.58% and 4.69%, respectively; Investment securities — 1.87% and 1.88%, respectively; interest-earning assets — 4.29% and 4.15%, respectively. GAAP basis net interest rate spreads were 3.66% and 3.19%, respectively; and GAAP basis net interest margins were 3.77% and 3.39%, 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, 2016 and 2015

 

	Rate				Volume			Net Change
Interest earning assets:
Loans receivable	$	(5,676	)		17,450			11,774
Mortgage-backed securities	147				(90	)		57
Investment securities	(49		)		(994	)		(1,043	)
FHLB stock	(42		)		(31	)		(73	)
Other interest-earning deposits	118				(228	)		(110	)
Total interest-earning assets	(5,502		)		16,107			10,605
Interest-bearing liabilities:
Savings deposits	(118		)		117			(1	)
Interest-bearing checking deposits	(17		)		30			13
Money market deposit accounts	(28		)		98			70
Time deposits	(489		)		581			92
Borrowed funds	(2,738		)		(1,174	)		(3,912	)
Junior subordinated debentures	(137		)		92			(45	)
Total interest-bearing liabilities	(3,527		)		(256	)		(3,783	)
Net change in net interest income	$	(1,975	)		16,363			14,388

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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.

	Six months ended June 30,
	2016										2015
	Average balance				Interest			Avg. yield/ cost (g)			Average balance				Interest			Avg. yield/ cost (g)
Assets:
Interest-earning assets:
Residential mortgage loans	$	2,745,695			60,013			4.37	%		$	2,529,553			56,650			4.48	%
Home equity loans	1,170,653				25,243			4.34	%		1,056,813				22,875			4.39	%
Consumer loans	516,419				16,916			6.59	%		242,896				12,819			10.64	%
Commercial real estate loans	2,353,371				52,684			4.43	%		1,829,724				42,184			4.59	%
Commercial loans	451,893				9,625			4.21	%		387,755				8,099			4.15	%
Loans receivable (a) (b) (includes FTE adjustments of $1,055 and $931, respectively)	7,238,031				164,481			4.57	%		6,046,741				142,627			4.76	%
Mortgage-backed securities (c)	473,346				4,344			1.84	%		492,209				4,292			1.74	%
Investment securities (c) (includes FTE adjustments of $770 and $1,341, respectively)	350,553				3,995			2.28	%		484,366				6,006			2.48	%
FHLB stock (h)	35,200				868			4.96	%		35,872				1,878			4.71	%
Other interest-earning deposits	45,926				129			0.56	%		252,210				319			0.25	%
Total interest-earning assets (includes FTE adjustments of $1,825 and $2,272, respectively)	8,143,056				173,817			4.29	%		7,311,398				155,122			4.24	%
Noninterest earning assets (d)	753,474										569,689
Total assets	$	8,896,530									7,881,087
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Savings deposits	$	1,423,343			1,702			0.24	%		1,247,854				1,651			0.27	%
Interest-bearing checking deposits	1,111,981				300			0.05	%		899,260				262			0.06	%
Money market deposit accounts	1,291,457				1,694			0.26	%		1,156,079				1,524			0.27	%
Time deposits	1,640,291				8,257			1.01	%		1,430,989				8,020			1.13	%
Borrowed funds (e)	835,832				9,556			2.30	%		945,192				13,904			2.97	%
Junior subordinated debentures	111,213				2,245			3.99	%		103,094				2,330			4.50	%
Total interest-bearing liabilities	6,414,117				23,754			0.74	%		5,782,468				27,691			0.97	%
Noninterest-bearing checking deposits	1,109,662										936,090
Noninterest-bearing liabilities	213,301										98,992
Total liabilities	7,737,080										6,817,550
Shareholders’ equity	1,159,450										1,063,537
Total liabilities and shareholders’ equity	$	8,896,530									7,881,087
Net interest income/ Interest rate spread					150,063			3.55	%						127,431			3.27	%
Net interest-earning assets/ Net interest margin	$	1,728,939						3.69	%		1,528,930							3.46	%
Ratio of interest-earning assets to interest-bearing liabilities	1.27		X								1.26		X

(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.

(c)	Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.

(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)	Average cost of deposits were 0.37% and 0.41%, respectively.

(g)

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  – 4.54% and 4.73%, respectively; Investment securities  – 1.84% and 1.93%, respectively; interest-earning assets  – 4.25% and 4.18%, respectively. GAAP basis net interest rate spreads were 3.51% and 3.21%, respectively; and GAAP basis net interest margins were 3.64% and 3.40%, respectively.

(h)	The average yield calculation excludes the $1.0 million special dividend paid in February 2015, the average yield was 10.59% with the special dividend included.

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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. 

 

Six months ended June 30, 2016 and 2015

 

	Rate				Volume			Net Change
Interest earning assets:
Loans receivable	$	(13,364	)		35,218			21,854
Mortgage-backed securities	225				(173	)		52
Investment securities	(352		)		(1,659	)		(2,011	)
FHLB stock	(995		)		(15	)		(1,010	)
Other interest-earning deposits	386				(576	)		(190	)
Total interest-earning assets	(14,100		)		32,795			18,695
Interest-bearing liabilities:
Savings deposits	(182		)		233			51
Interest-bearing checking deposits	(24		)		62			38
Money market deposit accounts	(9		)		179			170
Time deposits	(939		)		1,176			237
Borrowed funds	(2,735		)		(1,613	)		(4,348	)
Junior subordinated debentures	(270		)		185			(85	)
Total interest-bearing liabilities	(4,159		)		222			(3,937	)
Net change in net interest income	$	(9,941	)		32,573			22,632

 

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 members of management which meets monthly to review market interest rates, economic conditions, the pricing of interest-earning assets and 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

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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 interest 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 5%, 10% and 15%, respectively, within a one-year period.

 

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, 2016 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, 2016 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 interest income		(2.5		)%		(4.9		)%		(7.1		)%		(3.1		)%
Projected percentage increase/ (decrease) in net income		(5.4		)%		(10.6		)%		(15.4		)%		(9.8		)%
Projected increase/ (decrease) in return on average equity		(5.2		)%		(10.3		)%		(15.0		)%		(9.5		)%
Projected increase/ (decrease) in earnings per share		$	(0.04	)		$	(0.08	)		$	(0.11	)		$	(0.07	)
Projected percentage increase/ (decrease) in market value of equity		(4.9		)%		(9.3		)%		(14.2		)%		0.6		%

 

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 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.

 

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Item 1A.  Risk Factors

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

A new accounting standard will likely require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations

The FASB has adopted a new accounting standard that will be effective for our first fiscal year after December 15, 2019. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and to greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses. We are currently evaluating the impact this standard will have on our results of operations and financial position.

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, 2016: 

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		—			$	—			—			4,834,089
May		—			—				—			4,834,089
June		—			—				—			4,834,089
		—			$	—

(1)	Reflects the program for 5,000,000 shares announced December 13, 2012. This program does not have an expiration date.

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

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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 9, 2016	By:	/s/ William J. Wagner
			William J. Wagner
			President and Chief Executive Officer
			(Duly Authorized Officer)
Date:	August 9, 2016	By:	/s/ Gerald J. Ritzert
			Gerald J. Ritzert
			Controller
			(Principal Accounting Officer)

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