- Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2009


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 0-23817

Northwest Bancorp, Inc.

(Exact name of registrant as specified in its charter)


United States of America		23-2900888

(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 þ 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 o 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 o

Accelerated Filer þ

Non-Accelerated Filer o
(Do not check if a smaller reporting company)

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 þ

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

Common Stock ($0.10 par value) 48,607,046 shares outstanding as of October 31, 2009

NORTHWEST BANCORP, INC.
INDEX


PART I FINANCIAL INFORMATION			PAGE

Item 1.		Financial Statements (unaudited)

		Consolidated Statements of Financial Condition as of September 30, 2009 and December 31, 2008	1

		Consolidated Statements of Income for the three and nine months ended September 30, 2009 and 2008	2

		Consolidated Statements of Changes in Shareholders’ Equity for the three months ended September 30, 2009 and 2008	3

		Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2009 and 2008	4

		Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008	5

		Notes to Consolidated Financial Statements — Unaudited	7

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.		Quantitative and Qualitative Disclosures about Market Risk	46

Item 4.		Controls and Procedures	47

PART II	OTHER INFORMATION

Item 1.		Legal Proceedings	47

Item 1A.		Risk Factors	48

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.		Defaults Upon Senior Securities	50

Item 4.		Submission of Matters to a Vote of Security Holders	50

Item 5.		Other Information	50

Item 6.		Exhibits	50

		Signatures	51

		Certifications
EX-31.1
EX-31.2
EX-32.1

ITEM 1. FINANCIAL STATEMENTS

NORTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)


	(Unaudited)
	September 30,			December 31,
	2009			2008
Assets
Cash and due from banks	$	60,308			55,815
Interest-earning deposits in other financial institutions		219,227			16,795
Federal funds sold and other short-term investments		631			7,312
Marketable securities available-for-sale (amortized cost of $1,111,234 and $1,144,435)		1,126,430			1,139,170

Total cash and investments		1,406,596			1,219,092

Loans held for sale		17,871			18,738

Mortgage loans — one- to four- family		2,308,948			2,447,506
Home equity loans		1,041,912			1,013,876
Consumer loans		291,015			289,602
Commercial real estate loans		1,177,722			1,071,182
Commercial business loans		380,128			355,917

Total loans		5,217,596			5,196,821
Allowance for loan losses		(67,775	)		(54,929	)

Total loans, net		5,149,821			5,141,892

Federal Home Loan Bank stock, at cost		63,143			63,143
Accrued interest receivable		26,508			27,252
Real estate owned, net		19,838			16,844
Premises and equipment, net		123,511			115,842
Bank owned life insurance		127,075			123,479
Goodwill		171,363			171,363
Mortgage servicing assets		8,201			6,280
Other intangible assets		5,024			7,395
Other assets		30,961			37,659

Total assets	$	7,132,041			6,930,241


Liabilities and Shareholders’ equity
Liabilities:
Noninterest-bearing demand deposits	$	448,853			394,011
Interest-bearing demand deposits		744,596			706,120
Savings deposits		1,609,404			1,480,620
Time deposits		2,584,979			2,457,460

Total deposits		5,387,832			5,038,211

Borrowed funds		896,644			1,067,945
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities		103,094			108,254
Advances by borrowers for taxes and insurance		13,140			26,190
Accrued interest payable		4,627			5,194
Other liabilities		73,784			70,663

Total liabilities		6,479,121			6,316,457

Shareholders’ equity:
Preferred stock, $0.10 par value: 50,000,000 authorized, no shares issued		—			—
Common stock, $0.10 par value: 500,000,000 shares authorized, 51,266,340 and 51,244,974 issued, respectively		5,127			5,124
Paid-in capital		219,831			218,332
Retained earnings		511,792			490,326
Accumulated other comprehensive loss		(14,407	)		(30,575	)
Treasury stock, at cost, 2,742,800 shares		(69,423	)		(69,423	)

		652,920			613,784

Total liabilities and shareholders’ equity	$	7,132,041			6,930,241

See accompanying notes to consolidated financial statements — unaudited

NORTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share amounts)


	Three months ended						Nine months ended
	September 30,						September 30,
	2009			2008			2009			2008
Interest income:
Loans receivable	$	79,637			82,113			240,400			243,522
Mortgage-backed securities		6,580			9,180			20,858			25,864
Taxable investment securities		1,242			2,660			4,138			9,726
Tax-free investment securities		2,716			3,200			8,376			9,221
Interest-earning deposits		253			208			415			2,714

Total interest income		90,428			97,361			274,187			291,047

Interest expense:
Deposits		23,472			30,521			72,555			109,802
Borrowed funds		10,114			9,298			30,418			21,827

Total interest expense		33,586			39,819			102,973			131,629

Net interest income		56,842			57,542			171,214			159,418
Provision for loan losses		9,830			6,950			27,347			12,639

Net interest income after provision for loan losses		47,012			50,592			143,867			146,779

Noninterest income:
Impairment losses on securities		(3,727	)		(10,879	)		(12,417	)		(12,351	)
Noncredit related losses on securities not expected to be sold (recognized in other comprehensive income)		2,836			—			7,236			—

Net impairment losses		(891	)		(10,879	)		(5,181	)		(12,351	)
Gain on sale of investments, net		97			2,867			377			3,838
Service charges and fees		8,883			8,749			24,867			24,540
Trust and other financial services income		1,496			1,696			4,349			5,227
Insurance commission income		731			594			2,039			1,757
Loss on real estate owned, net		(62	)		(98	)		(3,934	)		(439	)
Income from bank owned life insurance		1,208			1,215			3,596			3,584
Mortgage banking income		1,168			147			4,892			818
Non-cash recovery of servicing assets		160			—			1,550			—
Other operating income		1,195			819			2,886			2,958

Total noninterest income		13,985			5,110			35,441			29,932

Noninterest expense:
Compensation and employee benefits		23,292			22,755			69,957			67,721
Premises and occupancy costs		5,319			5,481			16,521			16,524
Office operations		3,270			3,532			9,575			10,052
Processing expenses		5,221			4,872			15,483			13,791
Advertising		2,102			1,176			5,046			3,585
Federal deposit insurance premiums		2,381			1,020			6,161			2,864
FDIC special assessment		—			—			3,288			—
Professional services		668			584			1,899			1,914
Amortization of other intangible assets		701			953			2,371			3,539
Loss on early extinguishment of debt		—			—			—			705
Other expenses		2,033			2,366			5,956			5,959

Total noninterest expense		44,987			42,739			136,257			126,654


Income before income taxes		16,010			12,963			43,051			50,057

Federal and state income taxes		3,956			3,140			11,404			13,170


Net income	$	12,054			9,823			31,647			36,887


Basic earnings per share	$	0.25			0.20			0.65			0.76


Diluted earnings per share	$	0.25			0.20			0.65			0.76

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(dollars in thousands)


										Accumulated
										Other						Total
	Common Stock				Paid-in		Retained			Comprehensive			Treasury			Shareholders’
Three months ended September 30, 2008	Shares		Amount		Capital		Earnings			Income/ (loss)			Stock			Equity
Beginning balance at June 30, 2008		48,467,950	$	5,121		216,142		477,110			(6,199	)		(69,423	)		622,751

Comprehensive income:
Net income		—		—		—		9,823			—			—			9,823
Change in fair value of interest rate swaps, net of tax of $228		—		—		—		—			584			—			584
Change in unrealized loss on securities, net of tax of ($4,575)		—		—		—		—			(7,156	)		—			(7,156	)

Total comprehensive income		—		—		—		9,823			(6,572	)		—			3,251

Exercise of stock options		20,036		2		264		—			—			—			266

Stock-based compensation expense		—		—		461		—			—			—			461

Dividends paid ($0.22 per share)		—		—		—		(3,943	)		—			—			(3,943	)


Ending balance at September 30, 2008		48,487,986	$	5,123		216,867		482,990			(12,771	)		(69,423	)		622,786


										Accumulated
										Other						Total
	Common Stock				Paid-in		Retained			Comprehensive			Treasury			Shareholders’
Three months ended September 30, 2009	Shares		Amount		Capital		Earnings			Income/ (loss)			Stock			Equity
Beginning balance at June 30, 2009		48,516,887	$	5,126		219,335		503,692			(26,195	)		(69,423	)		632,535

Comprehensive income:
Net income		—		—		—		12,054			—			—			12,054
Change in fair value of interest rate swaps, net of tax of $755		—		—		—		—			(1,401	)		—			(1,401	)
Change in unrealized loss on securities, net of tax of $(8,094)		—		—		—		—			15,032			—			15,032
Other-than-temporary impairment on securities recorded in other comprehensive income, net of tax of $993		—		—		—		—			(1,843	)		—			(1,843	)

Total comprehensive income		—		—		—		12,054			11,788			—			23,842

Exercise of stock options		6,653		1		47		—			—			—			48

Stock-based compensation expense		—		—		449		—			—			—			449

Dividends paid ($0.22 per share)		—		—		—		(3,954	)		—			—			(3,954	)


Ending balance at September 30, 2009		48,523,540	$	5,127		219,831		511,792			(14,407	)		(69,423	)		652,920

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(dollars in thousands)


											Accumulated
											Other						Total
	Common Stock					Paid-in		Retained			Comprehensive			Treasury			Shareholders’
Nine months ended September 30, 2008	Shares			Amount		Capital		Earnings			Income/ (loss)			Stock			Equity
Beginning balance at December 31, 2007		48,580,309		$	5,119		214,606		458,425			816			(66,088	)		612,878

Effects of changing pension plan measurement date pursuant to new accounting standards		—			—		—		(499	)		572			—			73

December 31, 2007 balance, as adjusted		48,580,309			5,119		214,606		457,926			1,388			(66,088	)		612,951

Comprehensive income:
Net income		—			—		—		36,887			—			—			36,887
Change in fair value of interest rate swaps, net of tax of $228		—			—		—		—			584			—			584
Change in unrealized loss on securities, net of tax of ($9,426)		—			—		—		—			(14,743	)		—			(14,743	)

Total comprehensive income		—			—		—		36,887			(14,159	)		—			22,728

Exercise of stock options		39,677			4		505		—			—			—			509

Stock-based compensation expense		—			—		1,756		—			—			—			1,756

Purchase of treasury stock		(132,000	)		—		—		—			—			(3,335	)		(3,335	)

Dividends paid ($0.66 per share)		—			—		—		(11,823	)		—			—			(11,823	)


Ending balance at September 30, 2008		48,487,986		$	5,123		216,867		482,990			(12,771	)		(69,423	)		622,786


										Accumulated
										Other						Total
	Common Stock				Paid-in		Retained			Comprehensive			Treasury			Shareholders’
Nine months ended September 30, 2009	Shares		Amount		Capital		Earnings			Income/ (loss)			Stock			Equity
Beginning balance at December 31, 2008		48,502,174	$	5,124		218,332		490,326			(30,575	)		(69,423	)		613,784

Cumulative effect of change in accounting principle		—		—		—		1,676			(1,676	)		—			—

Comprehensive income:
Net income		—		—		—		31,647			—			—			31,647
Change in fair value of interest rate swaps, net of tax of $(1,962)		—		—		—		—			3,644			—			3,644
Change in unrealized loss on securities, net of tax of $(10,179)		—		—		—		—			18,903			—			18,903
Other-than-temporary impairment on securities recorded in other comprehensive income, net of tax of $2,533		—		—		—		—			(4,703	)		—			(4,703	)

Total comprehensive income		—		—		—		31,647			17,844			—			49,491

Exercise of stock options		21,366		3		161		—			—			—			164

Stock-based compensation expense		—		—		1,338		—			—			—			1,338

Dividends paid ($0.66 per share)		—		—		—		(11,857	)		—			—			(11,857	)


Ending balance at September 30, 2009		48,523,540	$	5,127		219,831		511,792			(14,407	)		(69,423	)		652,920

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)


	Nine months ended
	September 30,
	2009			2008
OPERATING ACTIVITIES:
Net Income	$	31,647			36,887
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		27,347			12,639
Net (gain)/ loss on sale of assets		(4,877	)		(1,497	)
Net gain on Visa Inc. share redemption		—			(672	)
Net depreciation, amortization and accretion		13,029			12,173
Increase in other assets		(7,110	)		(9,301	)
Increase in other liabilities		8,161			12,882
Net amortization of premium/ (discount) on marketable securities		(2,922	)		(5,279	)
Deferred income tax expense		399			116
Noncash impairment losses on investment securities		5,181			12,351
Noncash impairment of REO		3,862			—
Origination of loans held for sale		(507,373	)		(171,267	)
Proceeds from sale of loans held for sale		512,927			159,637
Noncash compensation expense related to stock benefit plans		1,338			1,756

Net cash provided by operating activities		81,609			60,425

INVESTING ACTIVITIES:
Purchase of marketable securities available-for-sale		(213,789	)		(422,964	)
Proceeds from maturities and principal reductions of marketable securities available-for-sale		225,342			283,446
Proceeds from sale of marketable securities available-for-sale		22,346			49,172
Loan originations		(1,294,614	)		(1,268,196	)
Proceeds from loan maturities and principal reductions		1,243,032			972,882
Net purchase of FHLB stock		—			(25,967	)
Proceeds from sale of real estate owned		4,740			5,418
Sale of real estate owned for investment, net		(247	)		116
Purchase of premises and equipment		(16,760	)		(12,289	)

Net cash used in investing activities		(29,950	)		(418,382	)

NORTHWEST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
(in thousands)


	Nine months ended
	September 30,
	2009			2008
FINANCING ACTIVITIES:
Increase/ (decrease) in deposits, net	$	349,621			(403,881	)
Proceeds from long-term borrowings		—			645,000
Repayments of long-term borrowings		(29,582	)		(84,202	)
Repayment of debentures		(5,155	)		—
Net (decrease) /increase in short-term borrowings		(141,556	)		60,209
Decrease in advances by borrowers for taxes and insurance		(13,050	)		(7,249	)
Cash dividends paid		(11,857	)		(11,823	)
Purchase of treasury stock		—			(3,335	)
Proceeds from stock options exercised		164			509

Net cash provided by financing activities		148,585			195,228


Net increase/ (decrease) in cash and cash equivalents	$	200,244			(162,729	)


Cash and cash equivalents at beginning of period	$	79,922			230,616
Net increase/ (decrease) in cash and cash equivalents		200,244			(162,729	)

Cash and cash equivalents at end of period	$	280,166			67,887


Cash and cash equivalents:
Cash and due from banks	$	60,308			63,290
Interest-earning deposits in other financial institutions		219,227			1,104
Federal funds sold and other short-term investments		631			3,493

Total cash and cash equivalents	$	280,166			67,887


Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $61,279 and $105,566, respectively)	$	103,540			130,257

Income taxes	$	17,304			17,313


Non-cash activities:
Loans transferred to real estate owned	$	11,668			5,887

Sale of real estate owned financed by the Company	$	639			260

Loans transferred to held for investment from loans held for sale	$	—			24,827

See accompanying notes to unaudited consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Unaudited

(1) Basis of Presentation and Informational Disclosures

The Northwest group of companies, headquartered in Warren, Pennsylvania, is organized in a two-tier holding company structure. Northwest Bancorp, MHC, a federal mutual holding company regulated by the Office of Thrift Supervision (“OTS”), owns approximately 63% of the outstanding shares of common stock of Northwest Bancorp, Inc. (the “Company”). The Company, a federally-chartered savings and loan holding company, is also regulated by the OTS. The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Savings Bank, a Pennsylvania-chartered savings bank (“Northwest”). Northwest is regulated by the FDIC and the Pennsylvania Department of Banking. At September 30, 2009, Northwest operated 170 community-banking offices throughout Pennsylvania, western New York, eastern Ohio, Maryland and southern Florida.

On August 27, 2009, the Company announced that the Boards of Directors of Northwest Bancorp, MHC, the Company and Northwest Savings Bank have unanimously adopted a Plan of Conversion and Reorganization pursuant to which the Company will reorganize from two-tier mutual holding Company to the stock holding company structure and will undertake a “second-step” stock offering of new shares of Common Stock.

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 Capital Group, Inc., Boetger & Associates, Inc., Allegheny Services, Inc. and Great Northwest Corporation. The unaudited consolidated financial statements of the Company 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 and 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, 2008 updated, as required, for any new pronouncements or changes.

The Company implemented the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”) as of September 30, 2009 and authoritative accounting literature referencing has been updated to conform to the Codification. All of the content included in the Codification is considered authoritative. The Codification is not intended to amend Generally Accepted Accounting Principles in the United States (“GAAP”), but codifies previous accounting literature.

Certain items previously reported have been reclassified to conform to the current period’s format. The reclassifications had no material effect on the Company’s financial condition or results of operations.

The results of operations for the three months and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

Stock-Based Compensation

On February 18, 2009, the Company awarded employees 195,759 stock options and directors 24,000 stock options with an exercise price of $16.84 and a grant date fair value of $1.46 per stock option. Awarded stock options vest over a seven-year period beginning with the date of issuance. Stock-based compensation expense of $449,000 and $461,000 for the three months ended September 30, 2009 and 2008, respectively, and $1.3 million and $1.8 million for the nine months ended September 30, 2009 and 2008, respectively, was recognized in compensation expense relating to the Company’s Recognition and Retention Plan (“RRP”) and stock option plans. At September 30, 2009 there was compensation expense of $1.4 million and $632,000 pertaining to awarded but unvested stock options and RRP stock awards, respectively, remaining to be recognized.

Income Taxes- Uncertain Tax Positions

Accounting standards prescribe a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of September 30, 2009 the Company had no liability for unrecognized tax benefits.

The Company recognizes interest accrued related to: (1) unrecognized tax benefits in federal and state income taxes and (2) refund claims in other operating income. The Company recognizes penalties (if any) in federal and state income taxes. There is no amount accrued for the payment of interest or penalties at September 30, 2009. With few exceptions, the Company is no longer subject to examinations by the Internal Revenue Service, or the Department of Revenue and Taxation in the states in which it conducts business for the tax years ended prior to December 31, 2006. The Company is currently under a regularly scheduled examination by the Internal Revenue Service for the year ended December 31, 2007.

Recently Issued Accounting Standards to be Adopted in Future Periods

In December 2008, the FASB issued new ASC guidance included in “Compensation — Retirement Benefits” , which amends existing guidance, to require more detailed disclosures about the Company’s pension plan assets, including investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets consistent with fair value hierarchy model described in the ASC on “Fair Value Measurements and Disclosures” . The new guidance is effective for fiscal years ending after December 15, 2009 and will not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 166, “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140” . SFAS No. 166 has not been included in the ASC; however, existing ASC guidance on “Transfers and Servicing” provides accounting and financial reporting rules for sales and servicing of financial assets, and for secured borrowing and collateral transactions. Existing guidance on “Transfers and Servicing” defines the criteria for determining whether a transfer of financial assets represents a sale of the assets or a collateralized borrowing arrangement. SFAS No. 166 amends the guidance on “Transfers and Servicing” to clarify many of the requirements to account for a transfer of financial assets as a sale and include additional disclosure requirements, among other things. The Company will be required to comply with the requirements of SFAS No. 166 on January 1, 2010. The Company is currently evaluating the impact of adopting SFAS No. 166 and does not anticipate the adoption to have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).” SFAS No. 167 has not been included in the ASC and does not change many of the key principles for determining whether an entity is a variable interest entity consistent with the ASC on “Consolidation.” SFAS No. 166 does amend many important provisions of the existing guidance on “Consolidation.” This guidance will be effective as of the beginning of the first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is currently evaluating the impact of the adoption of SFAS No. 167 on the Company’s consolidated financial statements.

Subsequent Events

Management has considered subsequent events through November 9, 2009, which is the date the Company issued its financial statements.

(2)

Business Segments

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

As of or for the three months ended:


	Community		Consumer
September 30, 2009 ($ in 000’s)	Banking		Finance		All Other *			Consolidated
External interest income	$	85,227		5,197		4			90,428
Intersegment interest income		822		—		(822	)		—
Interest expense		32,163		823		600			33,586
Provision for loan losses		9,000		830		—			9,830
Noninterest income		13,421		549		15			13,985
Noninterest expense		41,964		2,904		119			44,987
Income tax expense (benefit)		3,995		494		(533	)		3,956
Net income		12,348		695		(989	)		12,054

Total assets	$	6,999,884		116,152		16,005			7,132,041


	Community		Consumer
September 30, 2008 ($ in 000’s)	Banking		Finance		All Other *			Consolidated
External interest income	$	92,346		5,014		1			97,361
Intersegment interest income		1,183		—		(1,183	)		—
Interest expense		38,669		1,239		(89	)		39,819
Provision for loan losses		6,000		950		—			6,950
Noninterest income		4,512		565		33			5,110
Noninterest expense		39,862		2,774		103			42,739
Income tax expense (benefit)		3,290		256		(406	)		3,140
Net income		10,220		360		(757	)		9,823

Total assets	$	6,776,139		115,038		3,432			6,894,609


*		Eliminations consist of intercompany loans, interest income and interest expense.

As of or for the nine months ended:


	Community		Consumer
September 30, 2009 ($ in 000’s)	Banking		Finance		All Other *			Consolidated
External interest income	$	258,895		15,277		15			274,187
Intersegment interest income		2,373		—		(2,373	)		—
Interest expense		98,558		2,449		1,966			102,973
Provision for loan losses		25,000		2,347		—			27,347
Noninterest income		33,732		1,646		63			35,441
Noninterest expense		127,116		8,775		366			136,257
Income tax expense (benefit)		11,633		1,392		(1,621	)		11,404
Net income		32,693		1,960		(3,006	)		31,647

Total assets	$	6,999,884		116,152		16,005			7,132,041


	Community		Consumer
September 30, 2008 ($ in 000’s)	Banking		Finance		All Other *			Consolidated
External interest income	$	275,806		15,238		3			291,047
Intersegment interest income		3,964		—		(3,964	)		—
Interest expense		127,673		4,134		(178	)		131,629
Provision for loan losses		10,000		2,639		—			12,639
Noninterest income		28,158		1,656		118			29,932
Noninterest expense		118,081		8,197		376			126,654
Income tax expense (benefit)		13,876		709		(1,415	)		13,170
Net income		38,298		1,215		(2,626	)		36,887

Total assets	$	6,776,139		115,038		3,432			6,894,609


*		Eliminations consist of intercompany loans, interest income and interest expense.

(3) Investment securities and impairment of investment securities

The following table shows the Company’s portfolio of investment securities at September 30, 2009 (in thousands):


			Gross		Gross
			unrealized		unrealized
	Amortized		holding		holding			Fair
	cost		gains		losses			value
Debt issued by the U.S. government and agencies:
Due in one year or less	$	78		—		(1	)		77

Debt issued by government sponsored enterprises:
Due in one year — five years		1,974		174		—			2,148
Due in five years — ten years		22,175		1,260		—			23,435
Due after ten years		52,525		3,658		(2	)		56,181

Equity securities		954		405		(77	)		1,282

Municipal securities:
Due in one year — five years		2,872		75		—			2,947
Due in five years — ten years		38,744		1,548		—			40,292
Due after ten years		208,558		6,886		(384	)		215,060

Corporate debt issues:
Due in one year — five years		500		—		—			500
Due after ten years		27,176		165		(11,430	)		15,911

Residential mortgage-backed securities:
Fixed rate pass-through		156,847		7,698		(5	)		164,540
Variable rate pass-through		233,832		7,869		(238	)		241,463
Fixed rate non-agency CMOs		20,486		—		(1,480	)		19,006
Fixed rate agency CMOs		22,264		964		(4	)		23,224
Variable rate non-agency CMOs		10,664		—		(2,284	)		8,380
Variable rate agency CMOs		311,585		1,907		(1,508	)		311,984


Total residential mortgage-backed securities		755,678		18,438		(5,519	)		768,597


Total marketable securities available-for-sale	$	1,111,234		32,609		(17,413	)		1,126,430

The following table shows the Company’s portfolio of investment securities at December 31, 2008 (in thousands):


			Gross		Gross
			unrealized		unrealized
	Amortized		holding		holding			Fair
	cost		gains		losses			value
Debt issued by the U.S. government and agencies:
Due in one year or less	$	91		—		(3	)		88

Debt issued by government sponsored enterprises:
Due in one year or less		2,985		50		—			3,035
Due in one year — five years		2,962		208		—			3,170
Due in five years — ten years		30,352		2,066		—			32,418
Due after ten years		61,494		8,712		(9	)		70,197

Equity securities		954		160		—			1,114

Municipal securities:
Due in one year — five years		460		1		—			461
Due in five years — ten years		43,160		822		(86	)		43,896
Due after ten years		224,996		2,707		(4,512	)		223,191

Corporate debt issues:
Due after ten years		25,165		214		(9,418	)		15,961

Residential mortgage-backed securities:
Fixed rate pass-through		186,659		6,447		(7	)		193,099
Variable rate pass-through		276,121		3,136		(2,074	)		277,183
Fixed rate non-agency CMOs		25,683		—		(2,938	)		22,745
Fixed rate CMOs		34,436		445		(146	)		34,735
Variable rate non-agency CMOs		17,069		—		(2,710	)		14,359
Variable rate CMOs		211,848		48		(8,378	)		203,518


Total residential mortgage-backed securities		751,816		10,076		(16,253	)		745,639


Total marketable securities available-for-sale	$	1,144,435		25,016		(30,281	)		1,139,170

The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, 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. Other investments are evaluated using the Company’s best estimate of future cash flows. If the Company’s estimate of cash flow determines that it is expected an adverse change has occurred, other-than-temporary impairment would be recognized for the credit loss.

The following table shows the fair value 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 September 30, 2009 (in thousands):


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

U.S. government and agencies	$	199		—			273		(3	)		472		(3	)
Municipal securities		1,749		(110	)		9,453		(274	)		11,202		(384	)
Corporate issues		8,488		(6,070	)		3,003		(5,360	)		11,491		(11,430	)
Equity securities		152		(77	)		—		—			152		(77	)
Residential mortgage-backed securities — non-agency		—		—			27,387		(3,764	)		27,387		(3,764	)
Residential mortgage-backed securities — agency		113,386		(1,231	)		56,423		(524	)		169,809		(1,755	)


Total temporarily impaired securities	$	123,974		(7,488	)		96,539		(9,925	)		220,513		(17,413	)


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

U.S. government and agencies	$	—		—			1,094		(12	)		1,094		(12	)
Municipal securities		109,255		(4,598	)		—		—			109,255		(4,598	)
Corporate issues		8,618		(7,055	)		2,573		(2,363	)		11,191		(9,418	)
Residential mortgage-backed securities — non-agency		15,256		(2,550	)		21,848		(3,098	)		37,104		(5,648	)
Residential mortgage-backed securities — agency		269,831		(9,075	)		58,256		(1,530	)		328,087		(10,605	)


Total temporarily impaired securities	$	402,960		(23,278	)		83,771		(7,003	)		486,731		(30,281	)

Corporate issues

As of September 30, 2009, the Company had eight investments with a total book value of $8.4 million and total fair value of $3.0 million, where the book value exceeded the carrying value for more than 12 months. These investments were four single issuer trust preferred investments and four pooled trust preferred investments. The single issuer trust preferred investments were evaluated for other-than-temporary impairment by determining the strength of the underlying issuer. In each case, the underlying issuer was “well-capitalized” for regulatory purposes and was a participant in the government’s TARP program. None of the issuers have deferred interest payments or announced the intention to defer interest payments, nor have any been downgraded. The Company believes the decline in fair value is related to the spread over three month LIBOR, on which the quarterly interest payments are based, as the spread over LIBOR is significantly lower than current market spreads. The Company concluded the impairment of these investments was considered temporary. In making that determination, the Company

also considered the duration and the severity of the losses. The pooled trust preferred investments were evaluated for other-than-temporary impairment considering duration and severity of the losses, actual cash flows, projected cash flows, performing collateral, the class of investment owned by the Company and the amount of additional defaults the structure could withstand prior to the investment experiencing a disruption in cash flows. None of these investments are projecting a cash flow disruption, nor have any of the securities experienced a cash flow disruption. One investment is projecting a decrease in cash flows from previous estimates. After evaluation, the impairment in three investments was considered temporary, while the impairment in one investment was considered other-than-temporary. Accordingly, the Company further evaluated this investment determining that $442,000 of the impairment was credit related impairment and $486,000 of the impairment was deemed non-credit related impairment.

As of September 30, 2009, the Company had two investments with a total book value of $14.6 million and total fair value of $8.5 million, where the book value exceeded the carrying value for less than 12 months. The investments were pooled trust preferred investments which were evaluated for other-than-temporary impairment considering duration and severity of the losses, actual cash flows, projected cash flows, performing collateral, the class of securities owned by the Company and the amount of additional defaults the structure could withstand prior to the security experiencing a disruption in cash flows. Neither of these investments project cash flow disruption, nor have they experienced a cash flow disruption. Neither investment was downgraded during the quarter ended September 30, 2009. The Company concluded, based on all facts evaluated, the impairment of these investments was considered temporary.

The following table provides class, book value, fair value and ratings information for the Company’s portfolio of corporate securities that have an unrealized loss as of September 30, 2009 (in thousands):


		Total
		Book		Fair		Unrealized			Moody’s/ Fitch
Description	Class	Value		Value		Losses			Ratings
North Fork Capital (1)	N/A	$	1,009		423		(586	)	Baa1/ BBB+
Bank Boston Capital Trust (2)	N/A		988		551		(437	)	A2/BB
Reliance Capital Trust	N/A		1,000		855		(145	)	Not rated
Huntington Capital Trust	N/A		1,419		582		(837	)	Baa3/ BBB
MM Community Funding I	Mezzanine		558		72		(486	)	Caa2/ CCC
MM Community Funding II	Mezzanine		389		40		(349	)	Baa2/ BBB
I-PreTSL I	Mezzanine		1,500		240		(1,260	)	Not rated/A-
I-PreTSL II	Mezzanine		1,500		239		(1,261	)	Not rated/A-
PreTSL XIX	Senior A-1		8,911		5,104		(3,807	)	A3/AAA
PreTSL XX	Senior A-1		5,647		3,385		(2,262	)	Baa1/AAA

		$	22,921		11,491		(11,430	)


(1)		— North Fork Bank was acquired by Capital One Financial Corporation.

(2)		— Bank Boston was acquired by Bank of America.

The following table provides collateral information on pooled trust preferred securities included in the previous table as of September 30, 2009 (in thousands):


							Additional
							Immediate
							defaults before
			Current				causing an
	Total		deferrals		Performing		interest
Description *	Collateral		and defaults		Collateral		shortfall
I-PreTSL I	$	192,100		17,500		174,600		50,000
I-PreTSL II		378,000		—		378,000		140,000
PreTSL XIX		700,535		103,000		597,535		248,500
PreTSL XX		604,154		105,000		499,154		196,500


*		— similar information for the MM Community Funding I and II is not available.

Mortgage-backed securities

Mortgage-backed securities include agency (FNMA, FHLMC and GNMA) mortgage-backed securities and non-agency collateralized mortgage obligations (“CMOs”). The Company reviews its portfolio of agency backed mortgage-backed securities quarterly for impairment. As of September 30, 2009, the Company believes that the impairment within its portfolio of agency mortgage-backed securities is temporary. As of September 30, 2009, the Company had 12 non-agency CMOs with a total book value of $31.2 million and a total fair value of $27.4 million. During the quarter ended September 30, 2009, the Company recognized other-than-temporary impairment of $449,000 related to two of these investments. After recognizing the other-than-temporary impairment, the Company’s book value on these investments was $9.0 million, with a fair value of $6.7 million. The Company determined how much of the impairment was credit related and noncredit related by analyzing cash flow estimates, estimated prepayment speeds, loss severity and conditional default rates. The Company considers the discounted cash flow analysis to be our primary evidence when determining whether credit related other-than-temporary impairment exists. The impairment on the other ten non-agency CMOs, with book value of $22.1 million and fair value of $20.7 million, were also reviewed considering the severity and length of impairment. After this review, the Company determined that the impairment on these securities was temporary.

The following table shows issuer specific information, book value, fair value, unrealized losses and other-than-temporary impairment recorded in earnings for the Company’s portfolio of non-agency CMOs as of September 30, 2009 (in thousands):


	Total							Impairment
	Book		Fair		Unrealized			recorded in
Description	Value		Value		Losses			earnings
AMAC 2003-6 2A2	$	1,133		1,127		(6	)		—
AMAC 2003-6 2A8		2,344		2,338		(6	)		—
AMAC 2003-7 A3		1,301		1,282		(19	)		—
BOAMS 2005-11 1A8		5,780		5,517		(263	)		—
CWALT 2005-J14 A3		6,659		5,502		(1,157	)		(349	)
CFSB 2003-17 2A2		1,793		1,765		(28	)		—
WAMU 2003-S2 A4		1,475		1,474		(1	)		—
CMLTI 2005-10 1A5B		2,382		1,188		(1,194	)		(2,167	)
CSFB 2003-21 1A13		250		244		(6	)		—
FHASI 2003-8 1A24		3,928		3,695		(233	)		—
SARM 2005-21 4A2		2,526		1,803		(723	)		(2,223	)
WFMBS 2003-B A2		1,579		1,451		(128	)		—

	$	31,150		27,386		(3,764	)		(4,739	)

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

Effective April 1, 2009, the Company adopted revised accounting standards that require credit related other-than-temporary impairment on debt securities to be recognized in earnings while noncredit related other-than-temporary impairment on debt securities, not expected to be sold, to be recognized in other comprehensive income. The following table shows the effect on the financial statements at adoption (in thousands):


	Prior to			After			Effect of
	Adoption			Adoption			Adoption
Impairment losses on securities	$	(8,690	)		(4,290	)		4,400
Noncredit related losses on securities not expected to be sold (recognized in other comprehensive income)		—			4,400			4,400
Net income		4,431			7,291			2,860
Basic earnings per share		0.35			0.40			0.05
Diluted earnings per share		0.34			0.40			0.06
Accumulated other comprehensive loss		(23,335	)		(26,195	)		(2,860	)

In accordance with the adoption, noncredit related other-than-temporary impairment losses recognized in prior periods have been reclassified as a cumulative effect adjustment that increased retained earnings and increased accumulated other comprehensive loss as of April 1, 2009. In 2008, $16.0 million in other-than-temporary impairment charges were recognized, of which $2.6 million related to noncredit impairment on debt securities. Therefore, the cumulative effect adjustment to retained earnings totaled $1.7 million after tax.

The table below shows a cumulative roll forward of credit losses recognized in earnings for debt securities held as of September 30, 2009 and not intended to be sold (in thousands):


Beginning balance as of Janaury 1, 2009 (a)	$	7,902
Credit losses on debt securities for which other-than-temporary impairment was not perviously recognized		5,181
Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized		—

Ending balance as of September 30, 2009	$	13,083


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

(4) Goodwill and Other Intangible Assets

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


	September 30, 2009			December 31, 2008
Amortizable intangible assets:
Core deposit intangibles — gross	$	30,275			30,275
Less: accumulated amortization		(25,480	)		(23,172	)

Core deposit intangibles — net		4,795			7,103

Customer and Contract intangible assets — gross		1,731			1,731
Less: accumulated amortization		(1,502	)		(1,439	)

Customer and Contract intangible assets — net	$	229			292

The following table shows the actual aggregate amortization expense for the current quarter and prior year’s same quarter, current nine-month period and prior year nine-month period 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 three months ended September 30, 2009	$	701
For the three months ended September 30, 2008		953
For the nine months ended Septemer 30, 2009		2,371
For the nine months ended September 30, 2008		3,539
For the year ending December 31, 2009		2,847
For the year ending December 31, 2010		1,896
For the year ending December 31, 2011		1,445
For the year ending December 31, 2012		693
For the year ending December 31, 2013		355
For the year ending December 31, 2014		104

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


	Community Banks			Consumer Finance		Total
Balance at December 31, 2007	$	170,301			1,313		171,614
Adjustment to purchase price allocation		(251	)		—		(251	)
Goodwill acquired		—			—		—
Impairment losses		—			—		—

Balance at December 31, 2008		170,050			1,313		171,363
Goodwill acquired		—			—		—
Impairment losses		—			—		—

Balance at September 30, 2009	$	170,050			1,313		171,363

The Company performed its annual goodwill impairment test as of June 30, 2009 and concluded that the Company’s goodwill was not impaired.

(5) Borrowed Funds

The following table provides the detail of the Company’s borrowings at September 30, 2009 and December 31, 2008 (in thousands):


	September 30, 2009					December 31, 2008
			Average					Average
	Amount		rate			Amount		rate
Term notes payable to the FHLB of Pittsburgh:
Due within one year	$	46,533		4.57	%		43,708		3.87	%
Due between one and two years		160,000		4.11	%		36,532		4.36	%
Due between two and three years		145,000		3.90	%		160,000		4.11	%
Due between three and four years		125,000		3.85	%		145,000		3.90	%
Due between four and five years		125,090		4.03	%		125,000		3.85	%
Due between five and ten years		190,641		4.17	%		315,778		4.11	%

		792,264					826,018

Revolving line of credit, FHLB of Pittsburgh		—		—			146,000		0.59	%
Investor notes payable, due various dates through 2009		—		—			4,491		4.99	%
Securities sold under agreement to repurchase, due within one year		104,380		1.52	%		91,436		1.02	%

Total borrowed funds	$	896,644					1,067,945

Borrowings from the FHLB of Pittsburgh are secured by the Company’s qualifying loan portfolio. Certain of these borrowings are subject to restrictions or penalties in the event of prepayment. The revolving line of credit with the FHLB of Pittsburgh carries a commitment of $150.0 million maturing on December 7, 2011. The rate is adjusted daily and any borrowings on this line may be repaid at any time without penalty.

(6) Guarantees

The Company issues 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. The Company is required to perform under a standby letter of credit when drawn upon by the guaranteed third party in the case of nonperformance by the Company’s 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 September 30, 2009, the maximum potential amount of future payments the Company could be required to make under these standby letters of credit was $34.2 million, of which $31.6 million is fully collateralized. At September 30, 2009, the Company had a liability, which represents deferred income, of $295,000 related to the standby letters of credit. There are no recourse provisions that would enable the Company 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. Stock options to purchase 1,189,999 shares of common stock with a weighted average exercise price of $23.91 per share were outstanding during the three and nine months ended September 30, 2009 but were not included in the computation of diluted earnings per share for this period because the options’ exercise price was greater than the average market price of the common shares. Stock options to purchase 2,000 shares of common stock with a weighted average exercise price of $28.09 per share were outstanding during the three and nine months ended September 30, 2008 but were not included in the computation of diluted earnings per share for these periods because the options’ exercise price was greater than the average market price of the common shares.

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


	Three months ended				Nine months ended
	Septmber 30,				September 30,
	2009		2008		2009		2008
Reported net income	$	12,054		9,823		31,647		36,887

Weighted average common shares outstanding		48,469,337		48,372,190		48,447,944		48,353,864
Dilutive potential shares due to effect of stock options		202,996		256,586		147,939		244,543


Total weighted average common shares and dilutive potential shares		48,672,333		48,628,776		48,595,883		48,598,407


Basic earnings per share:	$	0.25		0.20		0.65		0.76


Diluted earnings per share:	$	0.25		0.20		0.65		0.76

(8) Pension and Other Post-retirement Benefits (in thousands):

Components of Net Periodic Benefit Cost


	Three months ended September 30,
	Pension Benefits						Other Post-retirement Benefits
	2009			2008			2009		2008
Service cost	$	1,323			1,255			—		—
Interest cost		1,198			1,140			25		24
Expected return on plan assets		(967	)		(1,247	)		—		—
Amortization of prior service cost		(27	)		13			—		—
Amortization of the net loss		458			31			14		11

Net periodic benefit cost	$	1,985			1,192			39		35

Components of Net Periodic Benefit Cost


	Nine months ended September 30,
	Pension Benefits						Other Post-retirement Benefits
	2009			2008			2009		2008
Service cost	$	3,969			3,765			—		—
Interest cost		3,594			3,420			75		72
Expected return on plan assets		(2,901	)		(3,741	)		—		—
Amortization of prior service cost		(105	)		39			—		—
Amortization of the net loss		1,374			93			42		33

Net periodic benefit cost	$	5,931			3,576			117		105

The Company made no contribution to its pension or other post-retirement benefit plans during the nine-month period ended September 30, 2009. Once determined, the Company anticipates making a tax-deductible contribution to its defined benefit pension plan for the year ending December 31, 2009.

( 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. 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.

The following table sets forth the carrying amount and estimated fair value of the Company’s financial instruments included in the consolidated statement of financial condition as of September 30, 2009 and December 31, 2008:


	September 30, 2009				December 31, 2008
	Carrying		Estimated		Carrying		Estimated
	amount		fair value		amount		fair value
Financial assets:
Cash and cash equivalents		280,166		280,166		79,922		79,922
Securities available-for-sale		1,126,430		1,126,430		1,139,170		1,139,170
Loans receivable, net		5,149,821		5,428,731		5,141,892		5,446,835
Accrued interest receivable		26,508		26,508		27,252		27,252
FHLB Stock		63,143		63,143		63,143		63,143

Total financial assets		6,646,068		6,924,978		6,451,379		6,756,322


Financial liabilities:
Savings and checking accounts		2,802,853		2,802,853		2,580,751		2,580,751
Time deposits		2,584,979		2,647,918		2,457,460		2,500,410
Borrowed funds		896,644		902,231		1,067,945		1,049,399
Junior subordinated debentures		103,094		108,445		108,254		116,783
Cash flow hedges — swaps		7,508		7,508		13,114		13,114
Accrued interest payable		4,627		4,627		5,194		5,194

Total financial liabilities		6,399,705		6,473,582		6,232,718		6,265,651

Fair value estimates are made at a point-in-time, based on relevant market data and information about the instrument. The following methods and assumptions were used in estimating the fair value of financial instruments at September 30, 2009 and December 31, 2008.

Marketable Securities

Where available, market values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services. See the Fair Value Measurements section of this footnote for further detail on how fair values of marketable securities are determined.

Loans Receivable

Loans with comparable characteristics including collateral and repricing structures were segregated for valuation purposes. Each loan pool was separately valued utilizing a discounted cash flow analysis. Projected monthly cash flows were discounted to present value using a market rate for comparable loans. Characteristics of comparable loans included remaining term, coupon interest, and estimated prepayment

speeds. Delinquent loans were separately evaluated given the impact delinquency has on the projected future cash flow of the loan and the approximate discount or market rate.

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

The fixed rate advances were valued by comparing their contractual cost to the prevailing market cost.

Trust-Preferred Securities

The fair value of trust-preferred investments is calculated using the discounted cash flows at the prevailing rate of interest.

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

The fair values of the swaps is the amount the Company would have expected 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 issued by the Company are generally short-term in nature and, if drawn upon, are issued under current market terms. At September 30, 2009 and December 31, 2008, there was no significant unrealized appreciation or depreciation on these financial instruments.

Fair Value Measurements

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 can not 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.

The Company is responsible for the valuation process and as part of this process may use data from outside sources in establishing fair value. The Company performs due diligence to understand the inputs used or how the data was calculated or derived. The Company corroborates the reasonableness of external inputs in the valuation process. The following table represents assets measured at fair value on a recurring basis as of September 30, 2009 (in thousands):


								Total
								assets at
	Level 1		Level 2			Level 3		fair value

Equity securities — available for sale	$	1,062		—			220		1,282

Debt securities — available for sale		—		1,118,120			7,028		1,125,148

Derivative fair value of interest rate swap		—		(7,508	)		—		(7,508	)


Total assets	$	1,062		1,110,612			7,248		1,118,922

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 debt securities do not have an active market and as such the broker pricing received by the Company uses alternative methods, including use of cash flow estimates. Accordingly, these securities are included herein as level 3 assets. The fair value of other debt securities are determined by the Company 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. Level 3 securities include investments in two financial institutions that provide financial services only to investor banks received as part of previous acquisitions without observable market

data to determine the investments fair values. These securities can only be sold back to the issuing financial institution at cost. The Company considers the financial condition of the issuer to determine if the securities have indicators of impairment.

Interest rate swap agreements (Swaps) — The fair value of the swaps was the amount the Company would have expected to pay to terminate the agreements and was based upon the present value of the expected future cash flows using the LIBOR swap curve, the basis for the underlying interest rate.

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 nine-month period ended September 30, 2009 (in thousands):


	Equity		Debt
	securities		securities

Balance at December 31, 2008	$	220		5,937

Total net realized investment gains/(losses) and net change in unrealized appreciation/ (depreciation):
Included in net income		—		(442	)
Included in other comprehensive income		—		1,033

Purchases and sales		—		500
Net transfers in (out) of Level 3		—		—


Balance at September 30, 2009	$	220		7,028

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans held for sale, loans measured for impairment and mortgage servicing rights. The following table represents the fair value measurement for nonrecurring assets as of September 30, 2009 (in thousands):


							Total
							assets at
	Level 1		Level 2		Level 3		fair value

Loans held for sale	$	17,871		—		—		17,871
Loans measured for impairment	$	—		—		37,071		37,071
Real estate owned	$	—		—		19,838		19,838
Mortgage servicing rights	$	—		—		3,082		3,082

Total assets	$	17,871		—		59,991		77,862

Loans held for sale — Mortgage loans held for sale are recorded at the lower of carrying value or market value. The fair value of mortgage loans held for sale is based on what secondary markets are currently offering. As the fair value is determined by a quoted price from Freddie Mac, and the Company has open delivery contracts with Freddie Mac, the Company classifies loans held for sale as nonrecurring Level 1.

Impaired loans — A loan is considered to be impaired when it is probable that all of the principal and interest due under the original terms of the loan may not be collected. Impairment is measured based on the fair value of the underlying collateral or discounted cash flows when collateral does not exist. The Company measures impairment on all nonaccrual commercial and commercial real estate loans for which it has established specific reserves as part of the specific allocated allowance component of the allowance for loan losses. The Company classifies impaired loans 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. The Company classifies Real estate owned 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 by the Company. 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.

(11) Mortgage Loan Servicing

Mortgage servicing assets are recognized as separate assets when servicing rights are acquired through loan originations when the underlying loan is sold. Upon sale, the mortgage servicing right (“MSR”) is established, which represents the then-fair value of future net cash flows expected to be realized for performing the servicing activities. The fair value of the MSRs are estimated by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors , which are determined based on current market conditions. In determining the fair value of the MSRs, mortgage interest rates, which are used to determine prepayment rates and discount rates, are held constant over the estimated life of the portfolio. MSRs are amortized into mortgage banking income in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans.

Capitalized MSRs are evaluated for impairment based on the estimated fair value of those rights. The MSRs are stratified by certain risk characteristics, primarily loan term and note rate. If temporary impairment exists within a risk stratification tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the fair value. If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced.

The following table shows changes in MSRs as of and for the nine months ended September 30, 2009 (in thousands):


							Net
	Servicing			Valuation			Carrying Value
	Rights			Allowance			and Fair Value

Balance at December 31, 2008		8,660			(2,380	)		6,280
Additions/ (reductions)		4,160			1,550			5,710
Amortization		(3,789	)		—			(3,789	)

Balance at September 30, 2009		9,031			(830	)		8,201


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

The Company has two statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust and Northwest Bancorp Statutory Trust IV, a Connecticut statutory business trust (“Trusts”). During the quarter ended September 30, 2009 the Company redeemed, at par, a statutory business trust that was acquired with a previous acquisition, Penn Laurel Financial Corp. Trust I, a Delaware statutory business trust. 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%.

Prior to redemption at par, Penn Laurel Financial Corp. Trust I issued 5,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on January 23, 2004 (liquidation value of $1,000 per preferred security or $5,000,000) with a stated maturity of January 23, 2034. These securities carried a floating interest rate, which was reset quarterly, equal to three-month LIBOR plus 2.80%. This trust was assumed by the Company with the acquisition of Penn Laurel Financial Corporation in June 2007.

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. The Company has 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 are also deferred. Interest on the subordinated debentures and distributions on the trust securities is cumulative. The Company’s obligation constitutes a full, irrevocable, and unconditional guarantee on a subordinated basis of the obligations of the trust under the preferred securities.

The Company entered into four 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 two swaps modify the repricing characteristics of Trust III, wherein (i) the Company receives interest of LIBOR from a counterparty and pays a fixed rate of 4.20% to the same counterparty calculated on a notional amount of $25.0 million and (ii) the Company receives interest of 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 terms of these two swaps are five years and ten years, respectively. The second two swaps modify the repricing characteristics of Trust IV, wherein (i) the Company receives interest of LIBOR from a counterparty and pays a fixed rate of 3.85% to the same counterparty calculated on a notional amount of $25.0 million and (ii) the Company receives interest of 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 terms of these two swaps are seven years and ten years, respectively. The swap agreements were entered into with a counterparty that met the Company’s credit standards and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in the contracts is not significant. At September 30, 2009, $7.5 million was pledged as collateral to the counterparty.

At September 30, 2009, the fair value of the swap agreements was $(7.5) million and was the amount the Company would have expected to pay if the contracts were terminated. There was no material hedge ineffectiveness for these swaps.

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. The Company has 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 interest rates which could impact our net interest margin;

	•		Adverse changes in our loan portfolio or investment securities portfolio and the resulting credit risk-related losses and/ or market value adjustments;

	•		The impact of the current financial crisis on our loan portfolio (including cash flow and collateral values), investment portfolio, customers and capital market activities;

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

	•		Our ability to continue to increase and manage our commercial and residential real estate, multifamily and commercial and industrial loans;

	•		The adequacy of the allowance for loan losses;

	•		Changes in the financial performance and/ or condition of the Company’s borrowers;

	•		Changes in general economic or business conditions resulting in changes in demand for credit and other services, among other things;

	•		Changes in consumer confidence, spending and savings habits relative to the bank and non-bank financial services we provide;

	•		Compliance with laws and regulatory requirements of federal and state agencies;

	•		New legislation affecting the financial services industry;

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

	•		The level of future deposit premium assessments;

	•		Competition from other financial institutions in originating loans and attracting deposits;

	•		The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the SEC, Public Company Oversight Board, the Financial Accounting Standards Board and other accounting standards setters;

	•		Our ability to effectively implement technology driven products and services;

	•		Sources of liquidity; and

	•		Our success in managing the risks involved in the foregoing.

Overview of Critical Accounting Policies Involving Estimates

The Company’s critical accounting policies involve accounting estimates that: a) require assumptions about highly uncertain matters, and b) could vary sufficiently enough to have a material effect on the Company’s financial condition and/ or results of operations.

Allowance for Loan Losses. The Company recognizes that losses will be experienced on loans and that the risk of loss will vary with, among other things, the type of loan, the creditworthiness of the borrower, general economic conditions and the quality of the collateral for the loan. The Company maintains an allowance for loan losses for losses inherent in the loan portfolio. The allowance for loan

losses represents management’s estimate of probable losses based on all available information. The allowance for loan losses is based on management’s evaluation of the collectibility of the loan portfolio, including past loan loss experience, known and inherent losses, information about specific borrower situations and estimated collateral values, and current economic conditions. The loan portfolio and other credit exposures are regularly reviewed by management in its determination of the allowance for loan losses. The methodology for assessing the appropriateness of the allowance includes a review of historical losses, peer group comparisons, industry data and economic conditions. As an integral part of their examination process, regulatory agencies periodically review the Company’s allowance for loan losses and may require the Company to make additional provisions for estimated losses based upon judgments different from those of management. In establishing the allowance for loan losses, loss factors are applied to various pools of outstanding loans. Loss factors are derived using the Company’s historical loss experience and may be adjusted for factors that affect the collectibility of the portfolio as of the evaluation date. Commercial loans that are criticized are evaluated individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans. Although management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of loans deteriorate as a result of the factors discussed previously. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition and results of operations. The allowance is based on information known at the time of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results. Management believes, to the best of their knowledge, that all known losses as of the balance sheet date have been recorded.

Valuation of Investment Securities. All of the Company’s investment securities are classified as available for sale and recorded at current fair value on the Consolidated Statement of Financial Condition. Unrealized gains or losses, net of deferred taxes, are reported in other comprehensive income as a separate component of shareholders’ equity. In general, fair value is based upon quoted market prices of identical assets, when available. If quoted market prices are not available, fair value is based upon valuation models that use cash flow, security structure and other observable information. Where sufficient data is not available to produce a fair valuation, fair value is based on broker quotes for similar assets. Broker quotes may be adjusted to ensure that financial instruments are recorded at fair value. Adjustments may include unobservable parameters, among other things.

The Company conducts a quarterly review and evaluation of our investment securities to determine if any declines in fair value are other than temporary. In making this determination, we consider the period of time the securities were in a loss position, the percentage decline in comparison to the securities’ amortized cost, the financial condition of the issuer, if applicable, and the delinquency or default rates of underlying collateral. In addition, we consider our intent to sell the investment securities currently in an unrealized loss position and whether it is more likely than not that the Company will be required to sell the security before recovery of its cost basis. Any valuation decline that we determine to be other than temporary would require us to write down the security to fair value through a charge to earnings for the credit loss component.

Goodwill. Goodwill is not subject to amortization but must be tested for impairment at least annually, and possibly more frequently if certain events or changes in circumstances arise. Impairment testing requires that the fair value of each reporting unit be compared to its carrying amount, including

goodwill. Reporting units are identified based upon analyzing each of the Company’s individual operating segments. A reporting unit is defined as any distinct, separately identifiable component of an operating segment for which complete, discrete financial information is available that management regularly reviews. Determining the fair value of a reporting unit requires a high degree of subjective management judgment. The Company has established June 30 ^th of each year as the date for conducting its annual goodwill impairment assessment. As of June 30, 2009, the Company, through the assistance of an external third party, performed an impairment test on the Company’s goodwill. The external specialist valued each reporting unit by using a weighted average of four valuation methodologies; comparable transaction approach, control premium approach, public market peers approach and discounted cash flow approach. Declines in fair value could result in impairment being identified. At June 30, 2009, the Company did not identify any individual reporting unit where the fair value was less than the carrying value. Future changes in the economic environment or the operations of the operating units could cause changes to the variables used, which could give rise to declines in the estimated fair value of the reporting units.

Deferred Income Taxes. The Company uses the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates the Company makes in determining our deferred tax assets, which are inherently subjective, are reviewed on an ongoing basis as regulatory and business factors change. A reduction in estimated future taxable income could require the Company to record a valuation allowance. Changes in levels of valuation allowances could result in increased income tax expense, and could negatively affect earnings.

Other Intangible Assets. Using the purchase method of accounting for acquisitions, the Company is required to record the assets acquired, including identified intangible assets, and liabilities assumed at their fair values. These fair values often involve estimates based on third party valuations, including appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques, which are inherently subjective. Core deposit and other intangible assets are recorded in purchase accounting when a premium is paid to acquire other entities or deposits. Other intangible assets, which are determined to have finite lives, are amortized based on the period of estimated economic benefits received, primarily on an accelerated basis.

Executive Summary and Comparison of Financial Condition

The Company’s total assets at September 30, 2009 were $7.132 billion, an increase of $201.8 million, or 2.9%, from $6.930 billion at December 31, 2008. This increase in assets is primarily attributed to an increase in cash and cash equivalents of $200.2 million and an increase in loans receivable of $20.8 million, which were partially offset by a decrease in investments of $12.7 million and an increase in the allowance for loan losses of $12.8 million. The net increase in total assets was funded by an increase in deposits of $349.6 million, partially offset by a decrease in borrowed funds of $171.3 million.

Total cash and investments increased by $187.5 million, or 15.4%, to $1.407 billion at September 30, 2009, from $1.219 billion at December 31, 2008. This increase is a result of strong deposit growth while the Company evaluates investment alternatives and maintains liquidity to repay $46.5 million of long-term borrowings due within a year.

Loans receivable increased by $20.8 million, or 0.4%, to $5.218 billion at September 30, 2009, from $5.197 billion at December 31, 2008. Loan demand continues to be strong throughout the Company’s market area. During the nine months ended September 30, 2009 commercial loans increased by $130.8 million, or 9.2%, and consumer and home equity loans increased by $29.4 million, or 2.3%. Partially offsetting these increases was a decrease of $139.4 million, or 5.7%, in one- to four-family residential loans as the Company sold most of its current year production in this lower interest rate environment.

Deposit balances increased across all of our products and all of our regions. Deposits increased by $349.6 million, or 6.9%, to $5.388 billion at September 30, 2009 from $5.038 billion at December 31, 2008. Noninterest-bearing demand deposits increased by $54.9 million, or 13.9%, to $448.9 million at September 30, 2009 from $394.0 million at December 31, 2008, interest-bearing demand deposits increased by $38.5 million, or 5.4%, to $744.6 million at September 30, 2009 from $706.1 million at December 31, 2008, savings deposits increased by $128.8 million, or 8.7%, to $1.609 billion at September 30, 2009 from $1.481 billion at December 31, 2008 and time deposits increased by $127.5 million, or 5.2%, to $2.585 billion at September 30, 2009 from $2.457 billion at December 31, 2008.

Borrowings decreased by $171.3 million, or 16.0%, to $896.6 million at September 30, 2009 from $1.068 billion at December 31, 2008. This decrease is a result of the Company using funds received from deposit growth to extinguish all short-term borrowings and repay the long-term borrowings that matured during the period.

Total shareholders’ equity at September 30, 2009 was $652.9 million, or $13.46 per share, an increase of $39.1 million, or 6.4%, from $613.8 million, or $12.65 per share, at December 31, 2008. This increase was primarily attributable to net income of $31.6 million and an increase of $16.2 million in other comprehensive income. The increase in other comprehensive income was primarily due to the change in fair value of interest rate swaps and an unrealized gain on available-for-sale securities for the nine-month period ended September 30, 2009, which were partially offset by cash dividends of $11.9 million.

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

Quantitative measures, established by regulation to ensure capital adequacy, require Northwest to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Dollar amounts in the accompanying tables are in thousands.

September 30, 2009


						Minimum Capital					Well Capitalized
	Actual					Requirements					Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk weighted assets)	$	633,952		13.93	%		364,197		8.00	%		455,246		10.00	%

Tier I Capital (to risk weighted assets)		576,765		12.67	%		182,098		4.00	%		273,148		6.00	%

Tier I Capital (leverage) (to average assets)		576,765		8.27	%		209,221		3.00	%*		348,702		5.00	%

December 31, 2008


						Minimum Capital					Well Capitalized
	Actual					Requirements					Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk weighted assets)	$	604,067		13.95	%		346,354		8.00	%		432,943		10.00	%

Tier I Capital (to risk weighted assets)		549,869		12.70	%		173,177		4.00	%		259,766		6.00	%

Tier I Capital (leverage) (to average assets)		549,869		8.05	%		204,887		3.00	%*		341,478		5.00	%


*		The FDIC has indicated that the most highly rated institutions which meet certain criteria will be required to maintain a ratio of 3%, and all other institutions will be required to maintain an additional capital cushion of 100 to 200 basis points. As of September 30, 2009, the Company had not been advised of any additional requirements in this regard.

Northwest is 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 liquid assets as a percentage of deposits and borrowings (“liquidity ratio”). Northwest’s liquidity ratio at September 30, 2009 was 16.8%. The Company and Northwest 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. As of September 30, 2009 the Bank had $1.5 billion of additional borrowing capacity available with the FHLB, including $150.0 million on an overnight line of credit, as well as $148.9 million of borrowing capacity available with the Federal Reserve Bank and $75.0 million with a correspondent bank.

The Company paid $4.0 million and $3.9 million in cash dividends during the quarters ended September 30, 2009 and 2008, respectively and $11.9 million and $11.8 million during the nine-month periods ended September 30, 2009 and 2008, respectively. Annually, Northwest Bancorp, MHC requests the non-objection of the OTS to waive its receipt of dividends from the Company when such dividends are not needed for regulatory capital, working capital or other purposes. The common stock dividend payout ratio (dividends declared per share divided by net income per share) was 88.0% and 110.0% for the quarters ended September 30, 2009 and 2008, respectively, on dividends of $0.22 per share for each period, and 101.5% and 86.8% for the nine-month periods ended September 30, 2009 and 2008, respectively, on dividends of $0.66 per share. As a result of Northwest Bancorp, MHC waiving its receipt of dividend payments, actual dividends paid to minority shareholders represented 32.8% and 40.1% of net income for the quarters ended September 30, 2009 and 2008, respectively and 37.5% and 32.1% of net income for the nine-month periods ended September 30, 2009 and 2008, respectively. The Company has declared a dividend of $0.22 per share payable on November 12, 2009 to shareholders of record as of November 2, 2009. This represents the 60 ^th consecutive quarter the Company has paid a cash dividend.

Nonperforming Assets

The following table sets forth information with respect to the Company’s nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Loans are automatically placed on nonaccrual status when they are 90 days or more contractually delinquent and may also be placed on nonaccrual status even if not 90 days or more delinquent but other conditions exist. Other nonperforming assets represent property acquired by the Company 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.


	September 30, 2009			December 31, 2008
	(Dollars in Thousands)
Loans accounted for on a nonaccrual basis:
One- to four-family residential loans	$	30,846			20,435
Multifamily and commercial real estate loans		49,336			43,828
Consumer loans		11,551			9,756
Commercial business loans		25,405			25,184

Total		117,138			99,203

Total nonperforming loans as a percentage of loans		2.25	%		1.91	%
Total real estate acquired through foreclosure and other real estate owned (“REO”)		19,838			16,844

Total nonperforming assets	$	136,976			116,047

Total nonperforming assets as a percentage of total assets		1.92	%		1.67	%

A loan is considered to be impaired, when, based on current information and events it is probable that the Company 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 September 30, 2009 and December 31, 2008 were $117.1 million and $99.2 million, respectively. Specific allowances allocated to impaired loans were $20.7 million and $17.3 million at September 30, 2009 and December 31, 2008, respectively.

Allowance for Loan Losses

The Company’s Board of Directors has adopted an “Allowance for Loan 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, the Company’s policies and procedures and other supervisory and regulatory guidelines.

On an ongoing basis, the Credit Review 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. On an on-going basis the loan officer along with the Credit Review department grades or classifies problem loans or potential problem loans based upon their knowledge of the lending relationship and other information previously accumulated. The Company’s 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 the Company to risk sufficient to warrant classification in one of the subsequent categories,

but which possess some weaknesses, are designated as “special mention”. A “substandard” loan is any loan that is more than 90 days 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.

The loans that have been classified as substandard or doubtful are reviewed by the Credit Review department for possible impairment. A loan is considered impaired when, based on current information and events, it is probable that the Company 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 Review department determines the proper measure of impairment for each loan based on one of three methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. If the measurement of the impaired loan is more or less than the recorded investment in the loan, the Credit Review 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 the 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, activity, competition and collateral values, as well as economic conditions in general and in each market area of the Company. Based on this review and discussion the appropriate amount of ALL is estimated and any adjustments to reconcile the actual ALL with this estimate are determined. In addition, the Credit Committee considers if any changes to the methodology are needed. The Credit Committee also reviews and discusses the Company’s delinquency trends, nonperforming asset amounts and ALL levels and ratios compared to its 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.

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.

Management acknowledges that this is a dynamic process and consists of factors, many of which are external and out of management’s 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.

Management utilizes a consistent methodology each period when analyzing the adequacy of the allowance for loan losses and the related provision for loan losses. As part of the analysis as of September 30, 2009, management considered the deteriorating economic data in our markets such as the continued increases in unemployment and bankruptcies as well as the declines in real estate collateral values. In addition, management considered the negative trend in asset quality, loan charge-offs and the allowance for loan losses as a percentage of nonperforming loans. As a result, the Company increased the allowance for loan losses during the nine months by $12.9 million, or 23.4%, to $67.8 million, or 1.30% of total loans, at September 30, 2009 from $54.9 million, or 1.06% of total loans, at December 31, 2008. The increase in the allowance for loan losses and the related provision for loan losses is partially attributed to the deterioration of a loan to a moving and storage company/ new car dealer in our Pennsylvania market requiring an additional reserve of $1.8 million, deterioration of a loan secured by a strip mall in the state of Indiana requiring an allowance allocation of $1.0 million, additional deterioration of loans secured by real estate located in Florida requiring additional allowance allocation of $700,000, deterioration of a loan to a recycling company in northwestern Pennsylvania requiring an allowance allocation of $1.1 million and deterioration in loans secured by real estate in Maryland requiring allowance allocations of $1.4 million. In addition, management considered how the continued increase in nonperforming loans and historical charge-offs have influenced the required amount of allowance for loan losses. Nonperforming loans of $117.1 million, or 2.25% of total loans, at September 30, 2009 increased by $17.9 million, or 18.1%, from $99.2 million, or 1.91% of total loans, at December 31, 2008 and increased $22.2 million, or 23.4%, from $94.9 million, or 1.85% of total loans, at September 30, 2008. As a percentage of average loans, annualized net charge-offs increased to 0.68% for the quarter ended September 30, 2009 compared to 0.18% for the quarter ended September 30, 2008. As a percentage of average loans, annualized net charge-offs increased to 0.37% for the nine-month period ended September 30, 2009 from 0.17% for the nine-month period ended September 30, 2008.

In addition, the increase in the allowance for loan losses is related to the growth in the loan portfolio and in particular the increase in commercial loans. The commercial loan portfolio increased $130.8 million, or 9.2%, during the nine-month period ended September 30, 2009 to $1.558 billion, from $1.427 billion at December 31, 2008. Commercial loans tend to be larger in size and generally more vulnerable to economic slowdowns. Nonperforming commercial loans increased $5.7 million, or 8.3%, to $74.7 million, or 4.8% of commercial loans at September 30, 2009 from $69.0 million, or 4.8% of commercial loans at December 31, 2008.

When determining the adequacy of the allowance for loan losses, historical loss experience is adjusted for certain qualitative factors. During 2009, the estimate for losses was increased to account for the deterioration of economic factors such as the increase in unemployment and bankruptcies in our markets as well as a decrease in consumer spending, consumer confidence, collateral values and increasing delinquency trends. After reviewing the historical loss experience as adjusted for the qualitative factors mentioned, an additional allowance for loan losses of $5.5 million was provided during the first nine months of 2009.

Management believes all known losses as of the balance sheet dates have been recorded.

Comparison of Operating Results for the Quarter Ended September 30, 2009 and 2008

Net income for the quarter ended September 30, 2009 was $12.1 million, or $0.25 per diluted share, an increase of $2.2 million, or 22.7%, from $9.8 million, or $0.20 per diluted share, for the same quarter last year. The increase in net income resulted primarily from an increase in noninterest income of

$8.9 million. This increase was partially offset by an increase in the provision for loan losses of $2.9 million, an increase in noninterest expense of $2.2 million and a decrease in net interest income of $700,000. A discussion of significant changes follows.

Annualized, net income for the quarter ended September 30, 2009 represents a 7.48% and 0.68% return on average equity and return on average assets, respectively, compared to 6.31% and 0.57% for the same quarter last year.

Interest Income

Total interest income decreased by $6.9 million, or 7.1%, to $90.4 million for the quarter ended September 30, 2009 due to a decrease in the average yield earned on interest earning assets, which was partially offset by an increase in the average balance of interest earning assets. The average yield on interest earning assets decreased to 5.42% for the quarter ended September 30, 2009 from 6.00% for the quarter ended September 30, 2008. The average yield on all categories of interest earning assets decreased from the previous period, except for the yield on investment securities, which increased slightly. Average interest earning assets increased by $181.1 million, or 2.8%, to $6.626 billion for the quarter ended September 30, 2009 from $6.445 billion for the quarter ended September 30, 2008.

Interest income on loans decreased by $2.5 million, or 3.0%, to $79.6 million for the quarter ended September 30, 2009, from $82.1 million for the quarter ended September 30, 2008. The average yield on loans receivable decreased to 6.12% for the quarter ended September 30, 2009 from 6.41% for the quarter ended September 30, 2008. The decrease in average yield is primarily attributable to the Company’s variable rate loans adjusting downward as prime and short-term interest rates decreased as well as the origination of new loans in a generally lower interest rate environment. This decrease in average yield was partially offset by an increase in the average balance of loans receivable. Average loans receivable increased by $85.9 million, or 1.7%, to $5.168 billion for the quarter ended September 30, 2009 from $5.082 billion for the quarter ended September 30, 2008. This increase is primarily attributable to continued loan demand throughout the Company’s market area.

Interest income on mortgage-backed securities decreased by $2.6 million, or 28.3%, to $6.6 million for the quarter ended September 30, 2009 from $9.2 million for the quarter ended September 30, 2008. This decrease is the result of decreases in the average balance, which decreased by $74.6 million, or 9.5%, to $714.5 million for the quarter ended September 30, 2009 from $789.1 million for the quarter ended September 30, 2008, and in the average yield, which decreased to 3.68% for the quarter ended September 30, 2009 from 4.65% for the quarter ended September 30, 2008. The decrease in average balance is a result of reinvesting the funds received from the principal and interest payments on mortgage-backed securities into loans and other investments. The decrease in average yield resulted from the reduction in interest rates for variable rate securities during this period of generally lower interest rates.

Interest income on investment securities decreased by $1.5 million, or 27.5%, to $4.0 million for the quarter ended September 30, 2009 from $5.5 million for the quarter ended September 30, 2008. This decrease is due to a decrease in the average balance which was partially offset by an increase in the average yield. The average balance decreased by $138.4 million, or 28.2%, to $351.7 million for the quarter ended September 30, 2009 from $490.1 million for the quarter ended September 30, 2008. The decrease in average balance is primarily attributable to the Company investing cash flows from investment securities into loans and interest-earning deposits. The average yield increased to 4.50% for the quarter ended September 30, 2009 from 4.46% for the quarter ended September 30, 2008.

Interest income on interest-earning deposits increased by $45,000, or 21.6%, to $253,000 for the quarter ended September 30, 2009 from $208,000 for the quarter ended September 30, 2008. This

increase is due to the average balance increasing by $298.2 million, or 986.3%, to $328.4 million for the quarter ended September 30, 2009 from $30.2 million for the quarter ended September 30, 2008. The average balance increased due to the Company temporarily holding deposit inflows in overnight deposits while we evaluate alternative investment options, including agency mortgage-backed securities and commercial loans, and the scheduled pay down of FHLB borrowings. The increase in average balance was partially offset by a decrease in the average yield, which decreased to 0.30% for the quarter ended September 30, 2009 from 2.69% for the quarter ended September 30, 2008.

Interest Expense

Interest expense decreased by $6.2 million, or 15.7%, to $33.6 million for the quarter ended September 30, 2009 from $39.8 million for the quarter ended September 30, 2008. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities to 2.25% from 2.72%, which was partially offset by an increase in the average balance of interest-bearing liabilities. Average interest-bearing liabilities increased by $112.0 million, or 1.9%, to $5.928 billion for the quarter ended September 30, 2009 from $5.816 billion for the quarter ended September 30, 2008. The decrease in the cost of funds resulted primarily from a decrease in the level of market interest rates which enabled the Company to reduce the rate of interest paid on all deposit products. The increase in liabilities resulted primarily from deposit growth in all of our markets and in all types of deposits.

Net Interest Income

Net interest income decreased by $700,000, or 1.2%, to $56.8 million for the quarter ended September 30, 2009 from $57.5 million for the quarter ended September 30, 2008. This decrease in net interest income was attributable to the factors discussed above. The Company’s net interest rate spread decreased to 3.17% for the quarter ended September 30, 2009 from 3.28% for the quarter ended September 30, 2008, and the Company’s net interest margin decreased to 3.43% for the quarter ended September 30, 2009 from 3.57% for the quarter ended September 30, 2008.

Provision for Loan Losses

The provision for loan losses increased by $2.8 million, or 41.4%, to $9.8 million for the quarter ended September 30, 2009 from $7.0 million for the quarter ended September 30, 2008. This increase is primarily a result of an increase in delinquencies and classified assets, net of current period charge-offs. Charge-offs for the quarter ended September 30, 2009 were $9.3 million compared to $3.1 million for the quarter ended September 30, 2008. Loans with payments 90 days or more delinquent increased to $117.1 million at September 30, 2009 from $85.0 million at September 30, 2008. Also contributing to the increase in the provision for the quarter ended September 30, 2009 was a specific reserve of $1.1 million on a loan to a recycling company. During the quarter ended September 30, 2009, the Company had three significant charge-offs. The company recorded a $2.1 million charge-off related to a marina in Florida, a $1.8 million charge-off related to a moving, storage and automobile sales company in central Pennsylvania and a $1.8 million charge-off related to a land development in Delaware.

In determining the amount of the current period provision, the Company considered the deteriorating economic conditions, including increases in unemployment and bankruptcy filings, and declines in real estate values and how these factors impact the quality of our loan portfolio. Net loan charge-offs increased by $6.5 million, or 280.1%, to $8.8 million for the quarter ended September 30, 2009 from $2.3 million for the quarter ended September 30, 2008. Annualized net charge-offs to average loans increased to 0.68% for the quarter ended September 30, 2009 from 0.18% for the quarter ended September 30, 2008. Management analyzes the allowance for loan losses as described in the section entitled “Allowance for Loan Losses.” The provision that is recorded is sufficient, in management’s judgment, to bring this reserve to a level that reflects the losses inherent in the Company’s loan portfolio

relative to loan mix, economic conditions and historical loss experience. Management believes, to the best of their knowledge, that all known losses as of the balance sheet dates have been recorded.

Noninterest Income

Noninterest income increased by $8.9 million, or 173.7%, to $14.0 million for the quarter ended September 30, 2009 from $5.1 million for the quarter ended September 30, 2008. Gains and losses on the sale of investment securities and impairment losses on the investment portfolio improved by $7.2 million, or 90.0%, with a net loss of $794,000 for the quarter ended September 30, 2009 from a net loss of $8.0 million for the quarter ended September 30, 2008. This increase is primarily attributable to a decrease in other-than-temporary credit related losses recognized in the current quarter compared to the prior year quarter. Also contributing to the increase in noninterest income were increases in mortgage banking income and a recovery of impairment losses previously recorded on mortgage servicing assets. Mortgage banking income increased by $1.0 million to $1.2 million for the quarter ended September 30, 2009 from $147,000 for the quarter ended September 30, 2008 and we recorded a recovery of $160,000 in the fair value of mortgage servicing assets.

Noninterest Expense

Noninterest expense increased by $2.3 million, or 5.3%, to $45.0 million for the quarter ended September 30, 2009 from $42.7 million for the same quarter in the prior year. The largest increases were in marketing expense and FDIC insurance premiums, while amortization of intangibles decreased. Marketing expense increased by $926,000, or 78.7%, to $2.1 million for the quarter ended September 30, 2009 from $1.2 million for the quarter ended September 30, 2008. This increase is primarily a result of the Company’s marketing campaign focused on the acquisition of checking account relationships. FDIC insurance premiums increased by $1.4 million, or 133.4%, to $2.4 million for the quarter ended September 30, 2009 from $1.0 million for the quarter ended September 30, 2008. This increase is a result of the Company offsetting additional FDIC insurance premiums with available credits in the prior year.

Income Taxes

The provision for income taxes for the quarter ended September 30, 2009 increased by $816,000, or 26.0%, compared to the same period last year. This increase in income tax is primarily a result of an increase in income before income taxes of $3.0 million, or 23.5%. The Company’s effective tax rate for the quarter ended September 30, 2009 was 24.7% compared to 24.2% experienced in the same quarter last year.

Comparison of Operating Results for the Nine Months Ended September 30, 2009 and 2008

Net income for the nine months ended September 30, 2009 was $31.6 million, or $0.65 per diluted share, a decrease of $5.3 million, or 14.2%, from $36.9 million, or $0.76 per diluted share, for the same period last year. The decrease in net income resulted primarily from an increase in the provision for loan losses of $14.7 million, an increase in FDIC insurance of $6.6 million, a write-down of an REO property located in Florida of $3.9 million, an increase in compensation and employee benefits of $2.2 million, an increase in marketing expense of $1.5 million and an increase in processing expenses of $1.7 million. These items were partially offset by an increase in net interest income of $11.8 million, a decrease in investment impairment, net of the related gain on sale of investment securities, of $3.7 million, an increase in mortgage banking income of $4.1 million, a recovery of previously written down servicing assets on one-to four-family residential mortgage loans of $1.6 million, a decrease in amortization of intangible assets of $1.2 million, and a decrease in loss on early extinguishment of debt of $705,000. A discussion of each significant change follows.

Annualized, net income for the nine months ended September 30, 2009 represents a 6.68% and 0.60% return on average equity and return on average assets, respectively, compared to 7.92% and 0.72% for the same period last year.

Interest Income

Total interest income decreased by $16.9 million, or 5.8%, to $274.2 million due to a decrease in the average yield earned on interest earning assets, which was partially offset by an increase in the average balance of interest earning assets. The average yield on interest earning assets decreased to 5.56% for the nine-month period ended September 30, 2009 from 6.07% for the nine-month period ended September 30, 2008. The average yield on all categories of interest earning assets decreased from the previous period. Average interest earning assets increased by $193.8 million, or 3.0%, to $6.558 billion for the nine-month period ended September 30, 2009 from $6.365 billion for the nine-month period ended September 30, 2008.

Interest income on loans decreased by $3.1 million, or 1.3%, to $240.4 million for the nine-month period ended September 30, 2009, from $243.5 million for the nine-month period ended September 30, 2008. The average yield on loans receivable decreased to 6.16% for the nine-month period ended September 30, 2009 from 6.50% for the nine-month period ended September 30, 2008. The decrease in average yield is primarily attributable to the Company’s variable rate loans adjusting downward as prime and short-term interest rates decreased as well as the origination of new loans in a generally lower interest rate environment. This decrease in average yield was partially offset by an increase in the average balance of loans receivable. Average loans receivable increased by $219.1 million, or 4.4%, to $5.185 billion for the nine-month period ended September 30, 2009 from $4.966 billion for the nine-month period ended September 30, 2008. This increase is primarily attributable to continued strong loan demand throughout the Company’s market area.

Interest income on mortgage-backed securities decreased by $5.0 million, or 19.4%, to $20.9 million for the nine-month period ended September 30, 2009 from $25.9 million for the nine-month period ended September 30, 2008. This decrease is primarily the result of a decrease in the average yield earned, which decreased to 3.90% for the nine-month period ended September 30, 2009 from 4.77% for the nine-month period ended September 30, 2008 as variable rate investments adjusted downward. Also contributing to the decrease in interest income was a slight decline in the average balance, which decreased by $10.0 million, or 1.4%, to $712.6 million for the nine-month period ended September 30, 2009 from $722.6 million for the nine-month period ended September 30, 2008.

Interest income on investment securities decreased by $5.3 million, or 29.8%, to $12.5 million for the nine-month period ended September 30, 2009 from $17.8 million for the nine-month period ended September 30, 2008. This decrease is due to a decrease in the average balance, which decreased by $133.9 million, or 26.9%, to $364.4 million for the nine-month period ended September 30, 2009 from $498.3 million for the nine-month period ended September 30, 2008 and a decrease in the average yield, which decreased to 4.58% for the nine-month period ended September 30, 2009 from 4.77% for the nine-month period ended September 30, 2008. The average balance and average yield decreased for the same reasons discussed during the quarterly change analysis.

During the fourth quarter of 2008, the FHLB of Pittsburgh suspended the dividends paid on member owned stock. This suspension was due to concern over the FHLB of Pittsburgh’s capital position as a result of possible impairment on certain non-agency mortgage-backed securities. As a result, dividends on FHLB of Pittsburgh stock decreased to zero for the nine-month period ended September 30, 2009 from $1.1 million for the nine-month period ended September 30, 2008.

Interest income on interest-earning deposits decreased by $2.3 million, or 84.7%, to $415,000 for the nine-month period ended September 30, 2009 from $2.7 million for the nine-month period ended September 30, 2008. The average yield decreased to 0.24% from 2.68% as a result of decreases in the overnight federal funds rate. The average balance increased by $99.3 million, or 74.3%, to $232.9 million for the nine-month period ended September 30, 2009 from $133.6 million for the nine-month period ended September 30, 2008 as we experienced considerable deposit growth that was invested in overnight deposits until it could be deployed into higher yielding assets.

Interest Expense

Interest expense decreased by $28.6 million, or 21.8%, to $103.0 million for the nine-month period ended September 30, 2009 from $131.6 million for the nine-month period ended September 30, 2008. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities to 2.34% from 3.06%, which was partially offset by an increase in the average balance of interest-bearing liabilities. Average interest-bearing liabilities increased by $99.3 million, or 1.7%, to $5.872 billion for the nine-month period ended September 30, 2009 from $5.773 billion for the nine-month period ended September 30, 2008. The decrease in the cost of funds resulted primarily from a decrease in the level of market interest rates which enabled the Company to reduce the rate of interest paid on all deposit products. The increase in liabilities resulted from an increase in deposits as the national savings rate increased in response to deteriorating economic conditions.

Net Interest Income

Net interest income increased by $11.8 million, or 7.4%, to $171.2 million for the nine-month period ended September 30, 2009 from $159.4 million for the nine-month period ended September 30, 2008. This increase in net interest income was attributable to the factors discussed above. The Company’s net interest rate spread increased to 3.21% for the nine-month period ended September 30, 2009 from 3.01% for the nine-month period ended September 30, 2008, and the Company’s net interest margin increased to 3.48% for the nine-month period ended September 30, 2009 from 3.34% for the nine-month period ended September 30, 2008.

Provision for Loan Losses

The provision for loan losses increased by $14.7 million, or 116.4%, to $27.3 million for the nine-month period ended September 30, 2009 from $12.6 million for the nine-month period ended September 30, 2008. The increase in the provision over the previous year is primarily attributed to increasing the reserve percentages used to calculate the provision for losses due to deteriorating economic factors and the specific reserves on seven loans to different borrowers along with an increase in troubled loans. Increasing the reserve percentages resulted in an increase in the provision for loan losses of $5.2 million. The increases were made based on historical loss history, delinquency trends and geographical loan stratification. A specific reserve was increased by $764,000, resulting in reserves of $951,000 for a loan secured by a strip mall in the state of Indiana. A specific reserve was increased by $855,000, resulting in reserves of $1.8 million for a loan secured by a housing development in Delaware. A specific reserve was increased by $1.8 million, resulting in reserves of $2.4 million to a moving, storage and automobile sales company in central Pennsylvania. A specific reserve of $1.1 million was established for a loan to a recycling company in northwestern Pennsylvania. A specific reserve was increased by $317,000 resulting in a specific reserve of $477,000 for a property taken into REO located in northern Virginia. Specific reserves of $696,000 were established for two real estate properties located in northern Florida. Loans with payments 90 days or more delinquent have increased to $117.1 million at September 30, 2009 from $85.0 million at September 30, 2008.

In determining the amount of the current period provision, the Company considered the deteriorating economic conditions in our markets, including increases in unemployment and bankruptcy filings, and declines in real estate values. Net loan charge-offs increased by $8.0 million, or 123.1%, to

$14.5 million for the nine-month period ended September 30, 2009 from $6.5 million for the nine-month period ended September 30, 2008. Annualized net charge-offs to average loans increased to 0.37% for the nine-month period ended September 30, 2009 from 0.17% for the nine-month period ended September 30, 2008. Management analyzes the allowance for loan losses as described in the section entitled “Allowance for Loan Losses.” The provision that is recorded is sufficient, in management’s judgment, to bring this reserve to a level that reflects the losses inherent in the Company’s loan portfolio relative to loan mix, economic conditions and historical loss experience. Management believes, to the best of their knowledge, that all known losses as of the balance sheet dates have been recorded.

Noninterest Income

Noninterest income increased by $5.5 million, or 18.4%, to $35.4 million for the nine-month period ended September 30, 2009 from $29.9 million for the nine-month period ended September 30, 2008. Impairment losses, net of a related gain on the sale of investment securities, decreased by $3.7 million, or 43.6%, to a loss of $4.8 million for the nine-month period ended September 30, 2009 from a loss of $8.5 million for the nine-month period ended September 30, 2008. Mortgage banking income increased by $4.1 million, or 498.0%, to $4.9 million for the nine-month period ended September 30, 2009 from $818,000 for the nine-month period ended September 30, 2008 and the non-cash fair value of servicing assets increased by $1.6 million for the nine-month period ended September 30, 2009. Partially offsetting these increases, trust and other financial services income decreased by $878,000, or 16.8%, to $4.3 million for the nine-month period ended September 30, 2009 from $5.2 million for the nine-month period ended September 30, 2008 and REO write-downs increased by $3.5 million, to $3.9 million for the nine-month period ended September 30, 2009 from $439,000 for the nine-month period ended September 30, 2008.

Noninterest Expense

Noninterest expense increased by $9.6 million, or 7.6%, to $136.3 million for the nine-month period ended September 30, 2009 from $126.7 million for the same period in the prior year. The largest increases were in compensation and employee benefits, processing expenses, marketing expense and FDIC insurance premiums, while amortization of intangibles and loss on early extinguishment of debt decreased. Compensation and employee benefits increased by $2.3 million, or 3.3%, to $70.0 million for the nine-month period ended September 30, 2009 from $67.7 million for the nine-month period ended September 30, 2008. This increase is primarily a result of increased pension expense. Processing expenses increased by $1.7 million, or 12.3%, to $15.5 million for the nine-month period ended September 30, 2009 from $13.8 million for the nine-month period ended September 30, 2008. This increase is primarily a result of the Company’s continued implementation of new technology, including the deployment of a new customer service platform. Marketing expense increased by $1.4 million, or 40.8%, to $5.0 million for the nine-month period ended September 30, 2009 from $3.6 million for the nine-month period ended September 30, 2008. This increase is a result of publicizing the Company’s recognition as one of Forbes.com’s 100 Most Trustworthy Companies and the Company’s marketing campaign focused on the acquisition of checking account relationships. FDIC insurance premiums increased by $6.5 million, or 229.9%, to $9.4 million for the nine-month period ended September 30, 2009 from $2.9 million for the nine-month period ended September 30, 2008. This increase is a result of the Company offsetting 2008 FDIC insurance premiums with available credits and the FDIC’s special assessment levied on all banks as of June 30, 2009. The Company’s FDIC’s special assessment was $3.3 million.

Income Taxes

The provision for income taxes for the nine-month period ended September 30, 2009 decreased by $1.8 million, or 13.4%, compared to the same period last year. This decrease in income tax is primarily a result of a decrease in income before income taxes of $7.0 million, or 14.0%. The Company’s effective tax rate for the nine-month period ended September 30, 2009 was 26.5% compared to 26.3% experienced in the same period last year.

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 assets and average cost of 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.


	Three months ended September 30,
	2009							2008
					Avg.							Avg.
	Average				Yield/			Average				Yield/
	Balance		Interest		Cost (g)			Balance		Interest		Cost (g)
ASSETS:
Interest earning assets:
Loans (a) (b) (includes FTE adjustments of $369 and $542, respectively)	$	5,168,204		80,006		6.15	%		5,082,312		82,655		6.44	%
Mortgage-backed securities (c)		714,548		6,580		3.68	%		789,144		9,180		4.65	%
Investment securities (c) (d) (includes FTE adjustments of $1,464 and $1,724, respectively)		351,741		5,422		6.17	%		490,107		7,187		5.87	%
FHLB stock		63,143		—		0.00	%		53,187		397		2.99	%
Other interest earning deposits		328,447		253		0.30	%		30,234		208		2.69	%

Total interest earning assets (includes FTE adjustments of $1,833 and $2,266, respectively)		6,626,083		92,261		5.54	%		6,444,984		99,627		6.14	%
Noninterest earning assets (e)		512,804							486,381


TOTAL ASSETS		7,138,887							6,931,365


LIABILITIES AND SHAREHOLDERS’ EQUITY:
Interest bearing liabilities:
Savings accounts		842,069		1,591		0.75	%		798,662		2,358		1.17	%
Now accounts		746,125		555		0.30	%		731,459		1,415		0.77	%
Money market demand accounts		766,742		1,908		0.99	%		730,993		3,122		1.70	%
Certificate accounts		2,578,266		19,418		2.99	%		2,592,183		23,626		3.63	%
Borrowed funds (f)		892,081		8,665		3.85	%		854,809		8,140		3.79	%
Debentures		103,094		1,449		5.50	%		108,279		1,158		4.18	%


Total interest bearing liabilities		5,928,377		33,586		2.25	%		5,816,385		39,819		2.72	%
Noninterest bearing liabilities		566,250							492,265

Total liabilities		6,494,627							6,308,650
Shareholders’ equity		644,260							622,715


TOTAL LIABILITIES AND EQUITY	$	7,138,887							6,931,365


Net interest income/ Interest rate spread				58,675		3.29	%				59,808		3.42	%

Net interest earning assets/ Net interest margin	$	697,706				3.54	%		628,599				3.71	%

Ratio of interest earning assets to interest bearing liabilities		1.12X							1.11X


(a)		Average gross loans include 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 Fannie Mae and FHLMC stock.

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

(f)		Average balances include FHLB borrowings, securities sold under agreements to repurchase and other borrowings.

(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. The Company believes 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 — 6.12% and 6.41%; respectively, Investment securities — 4.50% and 4.46%; respectively, interest-earning assets — 5.42% and 6.00%; respectively. GAAP basis net interest rate spreads were 3.17% and 3.28%, respectively and GAAP basis net interest margins were 3.43% and 3.57%, respectively.

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 affect the Company’s 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.

Three months ended September 30, 2009 and 2008


							Net
	Rate			Volume			Change
Interest earning assets:
Loans	$	(4,032	)		1,383			(2,649	)
Mortgage-backed securities		(1,822	)		(778	)		(2,600	)
Investment securities		368			(2,133	)		(1,765	)
FHLB stock		(397	)		—			(397	)
Other interest-earning deposits		(2,007	)		2,052			45

Total interest-earning assets		(7,890	)		524			(7,366	)

Interest-bearing liabilities:
Savings accounts		(896	)		129			(767	)
Now accounts		(888	)		28			(860	)
Money market demand accounts		(1,367	)		153			(1,214	)
Certificate accounts		(4,124	)		(84	)		(4,208	)
Borrowed funds		155			370			525
Debentures		364			(73	)		291

Total interest-bearing liabilities		(6,756	)		523			(6,233	)


Net change in net interest income	$	(1,134	)		1			(1,133	)

Average Balance Sheet
(Dollars in Thousands)


	Nine months ended September 30,
	2009							2008
					Avg.							Avg.
	Average				Yield/			Average				Yield/
	Balance		Interest		Cost (g)			Balance		Interest		Cost (g)
ASSETS:
Interest earning assets:
Loans (a) (b) (includes FTE adjustments of $1,204 and $1,611, respectively)	$	5,185,359		241,604		6.19	%		4,966,252		245,133		6.53	%
Mortgage-backed securities (c)		712,593		20,858		3.90	%		722,598		25,864		4.77	%
Investment securities (c) (d) (includes FTE adjustments of $4,511 and $4,965, respectively)		364,437		17,025		6.23	%		498,280		22,798		6.10	%
FHLB stock		63,143		—		0.00	%		43,869		1,114		3.39	%
Other interest earning deposits		232,852		415		0.24	%		133,582		2,714		2.68	%

Total interest earning assets (includes FTE adjustments of $5,715 and $6,576, respectively)		6,558,384		279,902		5.67	%		6,364,581		297,623		6.20	%
Noninterest earning assets (e)		491,480							489,750


TOTAL ASSETS		7,049,864							6,854,331


LIABILITIES AND SHAREHOLDERS’ EQUITY:
Interest bearing liabilities:
Savings accounts		822,401		4,649		0.76	%		778,024		6,887		1.19	%
Now accounts		733,714		2,102		0.38	%		735,217		5,129		0.94	%
Money market demand accounts		733,956		6,703		1.22	%		724,775		11,750		2.17	%
Certificate accounts		2,526,660		59,101		3.13	%		2,805,665		86,036		4.11	%
Borrowed funds (f)		948,981		26,020		3.67	%		620,970		17,880		3.86	%
Debentures		106,531		4,398		5.44	%		108,295		3,947		4.81	%


Total interest bearing liabilities		5,872,243		102,973		2.34	%		5,772,946		131,629		3.06	%
Noninterest bearing liabilities		545,623							460,172

Total liabilities		6,417,866							6,233,118
Shareholders’ equity		631,998							621,213


TOTAL LIABILITIES AND EQUITY	$	7,049,864							6,854,331


Net interest income/ Interest rate spread				176,929		3.33	%				165,994		3.14	%

Net interest earning assets/ Net interest margin	$	686,141				3.60	%		591,635				3.48	%

Ratio of interest earning assets to interest bearing liabilities		1.12X							1.10X


(a)		Average gross loans include 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 Fannie Mae and FHLMC stock.

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

(f)		Average balances include FHLB borrowings, securities sold under agreements to repurchase and other borrowings.

(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. The Company believes 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 — 6.16% and 6.50%; respectively, Investment securities — 4.58% and 4.77%; respectively, interest-earning assets — 5.56% and 6.07%; respectively. GAAP basis net interest rate spreads were 3.21% and 3.01%, respectively and GAAP basis net interest margins were 3.48% and 3.34%, respectively.

Rate/ Volume Analysis
(Dollars in Thousands)

Nine months ended September 30, 2009 and 2008


							Net
	Rate			Volume			Change
Interest earning assets:
Loans	$	(14,260	)		10,731			(3,529	)
Mortgage-backed securities		(4,680	)		(326	)		(5,006	)
Investment securities		480			(6,253	)		(5,773	)
FHLB stock		(1,114	)		—			(1,114	)
Other interest-earning deposits		(4,316	)		2,017			(2,299	)

Total interest-earning assets		(23,890	)		6,169			(17,721	)

Interest-bearing liabilities:
Savings accounts		(2,632	)		394			(2,238	)
Now accounts		(3,017	)		(10	)		(3,027	)
Money market demand accounts		(5,196	)		149			(5,047	)
Certificate accounts		(19,500	)		(7,435	)		(26,935	)
Borrowed funds		(1,331	)		9,471			8,140
Debentures		524			(73	)		451

Total interest-bearing liabilities		(31,152	)		2,496			(28,656	)


Net change in net interest income	$	7,262			3,673			10,935

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As the holding company for a savings bank, one of the Company’s 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 reprice. The Company attempts to control interest rate risk by matching, within acceptable limits, the repricing periods of its assets and liabilities. Because the Company’s interest sensitive deposits typically have repricing periods or maturities of short duration, the Company has attempted to limit its exposure to interest sensitivity by borrowing funds with fixed-rates and longer maturities and by shortening the maturities of its assets by emphasizing the origination of more short-term fixed rate loans and adjustable rate loans. The Company also continues to sell a portion of the long-term, fixed-rate mortgage loans that we originate. In addition, the Company purchases shorter term or adjustable-rate investment securities and adjustable-rate mortgage-backed securities.

The Company has an Asset/ Liability Committee consisting of several members of management which meets monthly to review market interest rates, economic conditions, the pricing of interest earning assets and interest bearing liabilities and the Company’s balance sheet structure. On a quarterly basis, this Committee also reviews the Company’s interest rate risk position and the Bank’s cash flow projections.

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

In an effort to assess market risk, the Company utilizes a simulation model to determine the effect of immediate incremental increases and decreases in interest rates on net income and the market value of the Company’s equity. Certain assumptions are made regarding loan prepayments and decay rates of passbook and NOW accounts. Because it is difficult to accurately project the market reaction of depositors and borrowers, the effect of actual changes in interest on these assumptions may differ from simulated results. The Company has established the following guidelines for assessing interest rate risk:

Net income simulation . Given a parallel shift of 2% in interest rates, the estimated net income may not decrease by more than 20% within a one-year period.

Market value of equity simulation . The market value of the Company’s equity is the present value of the Company’s assets and liabilities. Given a parallel shift of 2% in interest rates, the market value of equity may not decrease by more than 35% of total shareholders’ equity.

The following table illustrates the simulated impact of a 1% or 2% upward or 1% or 2% 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 levels at September 30, 2009 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 September 30, 2009 levels.


	Increase						Decrease
Parallel shift in interest rates over the next 12 months	1.0%			2.0%			1.0%			2.0%
Projected percentage increase/ (decrease) in net income		4.0	%		4.5	%		(7.5	)%		(17.4	)%
Projected increase/ (decrease) in return on average equity		0.3	%		0.3	%		(0.6	)%		(1.3	)%
Projected increase/ (decrease) in earnings per share	$	0.04		$	0.05		$	(0.08	)	$	(0.18	)
Projected percentage increase/ (decrease) in market value of equity		(1.9	)%		(8.0	)%		(4.8	)%		(11.4	)%

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, the Company 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 the Company’s management, including the Principal Executive Officer and Principal Financial Officer, the Company 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 in timely alerting them to the material information relating to the Company (or the consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiaries are subject to a number of asserted and unasserted claims encountered in the normal course of business. Management believes that the aggregate liability, if any, that may result from such potential litigation will not have a material adverse effect on the Company’s financial statements.

Item 1A. Risk Factors

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factors represent material updates and additions to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2008, 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 factors set forth below also are cautionary statements 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.

Any Future FDIC Insurance Premiums Will Adversely Impact Our Earnings

On May 22, 2009, the FDIC adopted a final rule levying a five basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. The special assessment was payable on September 30, 2009. We recorded an expense of $3.3 million during the quarter ended June 30, 2009, to reflect the special assessment. The final rule permits the FDIC’s Board of Directors to levy additional special assessments if the FDIC estimates that the Deposit Insurance Fund reserve ratio will fall to a level that the FDIC’s Board of Directors believes would adversely affect public confidence or to a level that will be close to or below zero. Any further special assessments that the FDIC levies will be recorded as an expense during the appropriate period. In addition, the FDIC may materially increase the general assessment rate and, therefore, our FDIC general insurance premium expense may increase substantially in future periods.

On September 29, 2009, the FDIC issued a proposed rule pursuant to which all insured depository institutions would be required to prepay their estimated assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. Under the proposed rule, this pre-payment would be due on December 30, 2009. Under the proposed rule, the assessment rate for the fourth quarter of 2009 and for 2010 would be based on each institution’s total base assessment rate for the third quarter of 2009, modified to assume that the assessment rate in effect on September 30, 2009 had been in effect for the entire third quarter, and the assessment rate for 2011 and 2012 would be equal to the modified third quarter assessment rate plus an additional 3 basis points. In addition, each institution’s base assessment rate for each period would be calculated using its third quarter assessment base, adjusted quarterly for an estimated 5% annual growth rate in the assessment base through the end of 2012. If the proposed rule is passed, we would be required to make a payment of approximately $32.0 million to the FDIC on December 30, 2009, and to record the payment as a prepaid expense, which will be amortized to expense over three years.

We Hold Certain Intangible Assets that Could be Classified as Impaired in the Future. If These Assets Are Considered To Be Either Partially or Fully Impaired in the Future, Our Earnings and the Book Values of these Assets Would Decrease

We are required to test our goodwill and core deposit intangible assets for impairment on a periodic basis. The impairment testing process considers a variety of factors, including the current market price of our common shares, the estimated net present value of our assets and liabilities and information concerning the terminal valuation of similarly situated insured depository institutions. It is possible that future impairment testing could result in a partial or full impairment of the value of our goodwill or core deposit intangible assets, or both. If an impairment determination is made in a future reporting period, the earnings from, and the book value of, these intangible assets will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our shares of common stock or our regulatory capital levels.

A Legislative Proposal Has Been Introduced That Would Eliminate our Primary Federal Regulator, Require the Association to Convert to a National Bank or State Bank, and Require Northwest Bancorp, MHC and the Company to Become Bank Holding Companies

The U.S. Treasury Department recently released a legislative proposal that would implement sweeping changes to the current bank regulatory structure. The proposal would create a new federal banking regulator, the National Bank Supervisor, and merge the Office of Thrift Supervision and the Office of the Comptroller of the Currency (the primary federal regulator for national banks) into this new federal bank regulator.

If this proposal is enacted, Northwest Bancorp, MHC and the Company would become bank holding companies subject to supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) as opposed to the Office of Thrift Supervision. The Federal Reserve has historically looked to the Office of Thrift Supervision regulations in its regulation of mutual holding companies and processing of mutual holding company applications; however, it is not obligated to follow such regulations. One important Office of Thrift Supervision regulation that the Federal Reserve does not follow relates to the ability of mutual holding companies to waive the receipt of dividends declared on the common stock of their stock holding company or savings bank subsidiaries. While Office of Thrift Supervision regulations permit mutual holding companies to waive the receipt of dividends, subject to filing a notice with the Office of Thrift Supervision and receiving its non-objection, the Federal Reserve’s current policy is to prohibit mutual holding companies from waiving the receipt of dividends so long as the subsidiary savings bank is well capitalized. Moreover, Office of Thrift Supervision regulations provide that it will not take into account the amount of waived dividends in determining an appropriate exchange ratio for minority shares in the event of the conversion of a mutual holding company to stock form. If the Office of Thrift Supervision is eliminated, the Federal Reserve becomes the exclusive regulator of mutual holding companies, and the Federal Reserve retains its current policy regarding dividend waivers by mutual holding companies, Northwest Bancorp, MHC would not be permitted to waive the receipt of dividends declared by the Company. This may have an adverse impact on our ability to pay dividends to our minority shareholders and, consequently, it could impact the market value of our common stock.

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 Company’s repurchases of shares of common stock during the quarter ending September 30, 2009:


					Total number of		Maximum number
					shares purchased		of shares yet
	Number of		Average		as part of a		to be purchased
	shares		price paid		publicly announced		under the
Month	purchased		per share		repurchase plan(1)		plan (1)


April		—	$	—		—		1,273,600
May		—		—		—		1,273,600
June		—		—		—		1,273,600


		—	$	—


(1)		Includes programs announced in June 2007 (273,600 shares remaining) and April 20, 2009 (1,000,000 shares remaining). Neither plan has an expiration date.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits


31.1		Certification of the Company’s 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 Company’s 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 Company’s 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.

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 BANCORP, INC. (Registrant)
Date: November 9, 2009	By:	/s/ Gerald J. Ritzert
		Gerald J. Ritzert
		Controller ( Duly Authorized Officer and Principal Accounting Officer of the Registrant)

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