<PAGE>
 
                                     1998
                                ANNUAL REPORT 
                                TO STOCKHOLDERS

                       [LOGO OF NORTHWEST APPEARS HERE]

                                   NORTHWEST
                                 BANCORP, INC.
<PAGE>
 
Selected Financial and Other Data

        Set forth below are selected consolidated financial and other data of
Northwest Bancorp, Inc. (the "Company"), or, prior to February 17, 1998,
Northwest Savings Bank (the "Bank"). For additional information about the
Company, please refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and related notes included elsewhere herein.
<TABLE> 
<CAPTION> 

                                                                                                At June 30,
                                                                   -----------------------------------------------------------------
                                                                       1998          1997         1996         1995         1994
                                                                   ------------  -----------  -----------  -----------  ------------
Selected Consolidated Financial Condition Data:                                                 (In Thousands)
<S>                                                                <C>           <C>          <C>          <C>           <C> 
Total assets..................................................     $  2,562,584  $ 2,091,363  $ 1,877,925  $ 1,591,894   $ 1,430,284
Interest-bearing deposits at other financial institutions.....           42,403       57,765       30,498       59,930        85,705
Investment securities held-to-maturity........................           83,021       43,419       54,086       65,470        33,180
Investment securities available for sale......................          121,192       78,684       51,961        1,414            --
Mortgage-backed securities held-to-maturity...................          110,241      110,561      101,932      204,841       199,165
Mortgage-backed securities available for sale.................          195,523      181,036      189,514       38,343           200
Loans receivable net:
   Real estate................................................        1,449,428    1,156,160    1,066,887      906,276       864,448
   Consumer...................................................          348,096      306,228      249,051      202,630       179,765
   Commercial.................................................          109,765       74,110       59,017       55,829        18,320
     Total loans receivable, net..............................        1,907,289    1,536,498    1,374,955    1,164,735     1,062,533
Deposits......................................................        2,022,503    1,640,815    1,450,047    1,283,935     1,235,401
Advances from FHLB and other borrowed funds...................          289,706      223,458      211,761      103,439        71,203
Shareholders' equity and retained earnings....................          217,879      198,494      190,651      178,690 (1)   102,319

<CAPTION> 
------------------------------------
footnote below

                                                                                          Years Ended June 30,
                                                                   -----------------------------------------------------------------
                                                                       1998         1997         1996         1995         1994
                                                                   ------------  -----------  -----------  -----------  ------------
Selected Consolidated Operating Data:                                                        (In Thousands)
<S>                                                                <C>           <C>          <C>          <C>           <C> 
Total interest income.........................................     $    174,892  $   153,518  $   135,130  $   118,158   $   106,492
Total interest expense........................................           95,203       81,424       68,637       58,126        51,256
                                                                   ------------  -----------  -----------  -----------  ------------
   Net interest income........................................           79,689       72,094       66,493       60,032        55,236
Provision for loan losses.....................................            4,072        2,491        1,502        1,098         1,728
                                                                   ------------  -----------  -----------  -----------  ------------
   Net interest income after provision for loan losses........           75,617       69,603       64,991       58,934        53,508
                                                                   ------------  -----------  -----------  -----------  ------------

Noninterest income............................................            8,817        6,736        4,125        4,512         7,811

Noninterest expense...........................................           50,318       54,203       40,827       36,971        34,130
                                                                   ------------  -----------  -----------  -----------  ------------

Income before income tax expense and cumulative effect
   of accounting change.......................................           34,116       22,136       28,289       26,475        27,189
Income tax expense............................................           12,995        8,472       10,803       10,181        11,191
                                                                   ------------  -----------  -----------  -----------  ------------

Income before cumulative effect of accounting change..........           21,121       13,664       17,486       16,294        15,998

Minority interest in net loss of subsidiary...................              201           --           --           --            --

Cumulative effect of change in accounting
   for income taxes...........................................               --           --           --           --         2,070
                                                                   ------------  -----------  -----------  -----------  ------------
     Net income...............................................     $     21,322  $    13,664  $    17,486  $    16,294  $     18,068
                                                                   ============  ===========  ===========  ===========  ============

Basic earnings per share......................................     $       0.46  $      0.30  $      0.38  $      0.23           N/A
Diluted earnings per share....................................     $       0.45  $      0.30  $      0.38  $      0.23           N/A
</TABLE> 

----------------------------------------------

(1) Reflects net proceeds of $67 million from the Bank's public offering which
was completed on November 4, 1994.

<PAGE>
 
<TABLE> 
<CAPTION> 

                                                                        At or for the Year Ended June 30,
                                                            -----------------------------------------------------------     
                                                              1998         1997          1996        1995         1994
                                                            ---------    ---------    ---------    ---------     ------ 
<S>                                                         <C>          <C>          <C>          <C>           <C> 
Key Financial Ratios and Other Data:

Return on average assets (net income divided
   by average total assets)(1)...........................     0.94%        0.70%        1.05%        1.09%        1.33%
Return on average equity (net income divided by
   average equity)(1)....................................    10.29         7.12         9.48        11.00        19.25
Average capital to average assets........................     9.14         9.84        11.03         9.87         6.93
Capital to total assets..................................     8.50         9.49        10.15        11.22         7.15
Net interest rate spread (average yield on
interest-earning assets less average cost
  of interest-bearing liabilities) ......................     3.37         3.53         3.72         3.81         4.00
Net interest margin (net interest income as a
   percentage of average interest-earning assets)........     3.67         3.87         4.15         4.15         4.22
Noninterest expense to average assets ...................     2.22         2.78         2.44         2.46         2.52
Net interest income to noninterest expenses(1)...........     1.58x        1.33x        1.63x        1.62x        1.62x
Nonperforming loans to net loans receivable..............     0.45         0.68         0.69         0.89         1.33
Nonperforming assets to total assets.....................     0.47         0.72         0.81         1.03         1.53
Allowance for loan losses to nonperforming loans.........   183.10       130.50       138.49       113.52        79.40
Allowance for loan losses to net loans receivable........     0.83         0.89         0.95         1.02         1.06
Average interest-bearing assets to average
   interest-bearing liabilities..........................     1.07x        1.08x        1.10x        1.08x        1.06x
Number of:
   Full-service offices..................................       71           57           54           45           45
   Consumer finance offices..............................       34           30           29           28           26
   Mortgage loan production offices......................        5            7            8            8            6
</TABLE> 
-------------------------
(1)  For the year ended June 30, 1997, return on average assets, return on
     average equity, and net interest income to noninterest expense would have
     been .96%, 9.80%, and 1.58x without the one-time charge of $8.6 million (or
     $5.1 million, after adjusted for taxes) to recapitalize the Savings
     Association Insurance Fund. See "Management's Discussion and
     Analysis--Deposit Insurance Premiums."


<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATION

Forward-Looking Statements

         In addition to historical information, this document contains
forward-looking statements. The forward looking statements contained in the
following sections are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected in the
forward-looking statements. Important factors that might cause such a difference
include, but are not limited to, those discussed. Readers should not place undue
reliance on these forward-looking statements, as they reflect management's
analysis as of the date of this report. The Company has no obligation to update
or revise these forward-looking statements to reflect events or circumstances
that occur after the date of this report. Readers should carefully review the
risk factors described in other documents the Company files from time to time
with the Securities and Exchange Commission, including quarterly reports on Form
10-Q and current reports filed on Form 8-K.

Financial Condition

         General. Total assets increased by $471.2 million, or 22.5%, to $2.563
billion at June 30, 1998 from $2.091 billion at June 30, 1997. This increase was
funded primarily by a $381.7 million increase in deposits, a $66.2 million
increase in borrowed funds and net income of $21.3 million. The Company's assets
increased by $213.4 million, or 11.4%, to $2.091 billion at June 30, 1997 from
$1.878 billion at June 30, 1996. This increase was funded primarily by a $190.8
million increase in deposits, an $11.7 million increase in borrowed funds and
net income of $13.7 million. The additional funds received in both fiscal years
1998 and 1997 were utilized to increase investments in loans receivable,
mortgage-backed securities and other investment securities.

         Interest-bearing deposits in other financial institutions.
Interest-bearing deposits in other financial institutions decreased by $15.4
million, or 26.6%, to $42.4 million at June 30, 1998 from $57.8 million at June
30, 1997 primarily as a result of the Company receiving a large governmental
deposit on the last day of the prior fiscal year which temporarily inflated the
ending balance at June 30, 1997. Interest-bearing deposits in other financial
institutions increased by $27.3 million, or 89.5%, to $57.8 million at June 30,
1997 from $30.5 million at June 30, 1996 primarily as a result of the
aforementioned governmental deposit.

         Investment securities. Investment securities increased by $82.1
million, or 67.2%, to $204.2 million at June 30, 1998 from $122.1 million at
June 30, 1997. Investment securities increased by $16.1 million, or 15.2%, to
$122.1 million at June 30, 1997 from $106.0 million at June 30, 1996. In
addition to receiving approximately $17.1 million from the acquisition of 64.3%
of Jamestown Savings Bank ("Jamestown") from Northwest Bancorp, M.H.C. on March
24, 1998, the Company continued to increase its portfolio of long-term municipal
securities and high-yielding debt obligations in an effort to improve net
interest income.

         Mortgage-backed securities. Mortgage-backed securities increased by
$14.2 million, or 4.9%, to $305.8 million at June 30, 1998 from $291.6 million
at June 30, 1997. This increase resulted from the purchase of approximately
$62.4 million of mortgage-backed securities during the fiscal year which was
offset by the sale of approximately $28.0 million of mortgage-backed securities
and the accelerated receipt of principal payments due to an interest rate
environment that promoted the refinancing of mortgage loans. Mortgage-backed
securities remained relatively unchanged at $291.6 million at June 30, 1997
compared to $291.4 million at June 30, 1996. The slight increase in
mortgage-backed securities from June 30, 1996 to June 30, 1997 resulted
primarily from the acquisition of Bridgeville Savings Bank ("Bridgeville"),
which held mortgage-backed securities of $18.8 million, and was partially offset
by the sale of approximately $14.5 million of mortgage-backed securities and the
receipt of normal principal payments.


<PAGE>
 
         Loans receivable. Net loans receivable increased by $370.8 million, or
24.1%, to $1.907 billion at June 30, 1998 from $1.536 billion at June 30, 1997.
This increase resulted primarily from strong loan demand in all of the Company's
market areas and was assisted in part by the receipt of $30.8 million of net
loans receivable from the Jamestown acquisition. Net loans receivable increased
by $161.5 million, or 11.7%, to $1.536 billion at June 30, 1997 from $1.375
billion at June 30, 1996. This increase resulted primarily from strong loan
demand in all of the Company's market areas and was assisted in part by the
receipt of $20.0 of mortgage loans from the Bridgeville acquisition.

         Deposits. Deposits increased by $381.7 million, or 23.3%, to $2.023
billion at June 30, 1998 from $1.641 billion at June 30, 1997. This increase
resulted primarily from the acquisition of ten branch offices located in
northwestern Pennsylvania with deposits of $166.1 million. In addition, the
acquisition of Jamestown accounted for approximately $54.3 million of the
increase in deposits. Normal deposit growth in existing offices as well as the
successful integration and growth of new offices accounted for the remaining
increase of $161.3 million. Deposits increased by $190.8 million, or 13.2%, to
$1.641 billion at June 30, 1997 from $1.450 billion at June 30, 1996. This
increase in deposits was primarily the result of the Company's promotion of
certificates of deposit in an effort to increase market share. In addition, the
Bridgeville acquisition contributed deposits of $34.6 million.

         Borrowings. Borrowings increased by $66.2 million, or 29.6%, to $289.7
million from $223.5 million at June 30, 1997. Borrowings increased by $11.8
million, or 5.6%, to $223.5 million at June 30, 1997 from $211.7 million at June
30, 1996. In both years the Company increased its borrowed funds and invested
the proceeds in loans, investment securities and mortgage-backed securities in
an effort to improve net interest income.

         Shareholders' equity. Shareholders' equity increased by $19.4 million,
or 9.8%, to $217.9 million at June 30, 1998 from $198.5 million at June 30,
1997. This increase was primarily due to net income of $21.3 million which was
partially offset by the declaration of common stock dividends in the amount of
$7.5 million. The remaining increase was primarily due to the Jamestown
acquisition, the release of earned shares of common stock by the Company's
employee stock benefit plans and an increase in the unrealized gain on
investment securities available for sale. Shareholders' equity increased by $7.8
million, or 4.1%, to $198.5 million at June 30, 1997 from $190.7 million at June
30, 1996. This increase was primarily the result of net income of $13.7 million
which was partially offset by the declaration of common stock dividends in the
amount of $7.5 million. The remaining increase was primarily due to the release
of earned shares of common stock by the Company's employee stock benefit plans.

Results of Operations

         General. The earnings of the Company depend primarily on its level of
net interest income, which is the difference between interest earned on the
Company's interest-earning assets, consisting primarily of loans,
mortgage-backed securities and other investment securities, and the interest
paid on interest-bearing liabilities, consisting primarily of deposits and
borrowed funds. Net interest income is a function of the Company's interest rate
spread, which is the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities, as well as a function of the average balance of interest-earning
assets as compared to interest-bearing liabilities. The Company's earnings also
are affected by its level of service charges, and gains on sale of assets, as
well as its level of general administrative and other expenses, including
employee compensation and benefits, occupancy and equipment costs, and deposit
insurance premiums.

         Net Income. Net income totaled $21.3 million, $13.7 million and $17.5
million for fiscal years ended June 30, 1998, 1997 and 1996, respectively. The
$7.6 million, or 55.5% increase in net income for the fiscal year ended June 30,
1998 as compared to the fiscal year ended June 30, 1997 resulted primarily from
a one-time special assessment of $8.6 million ($5.1 million, after tax) in the
prior year to recapitalize the Savings Association Insurance Fund (the "SAIF")
of the Federal Deposit Insurance Corporation (the "FDIC"). See "--Deposit
Insurance Premiums." Also contributing to the increase in net income was a $7.6
million increase in net interest income and a $2.1 million increase in
noninterest income. Offsetting these increases in net income was a $1.6 million
increase in the provision for loan losses and a $4.7 million increase in
noninterest expense, excluding the effect of the prior year SAIF assessment. The

<PAGE>
 
$3.8 million, or 21.7%, decrease in net income for the fiscal year ended June
30, 1997 as compared to the fiscal year ended June 30, 1996 resulted primarily
from the special SAIF assessment mentioned above. Also contributing to the
decrease in net income was a $1.0 million increase in the provision for loan
losses and a $4.8 million increase (exclusive of the SAIF assessment) in
noninterest expense. Offsetting these decreases in net income were a $5.6
million increase in net interest income and a $2.6 million increase in
noninterest income.

         Interest Income. Interest income increased by $21.4 million, or 13.9%,
to $174.9 million for the fiscal year ended June 30, 1998 from $153.5 million
for the fiscal year ended June 30, 1997. The increase in interest income was
primarily attributable to a $307.2 million, or 16.5%, increase in the balance of
average interest-earning assets to $2.170 billion from $1.863 billion. Partially
offsetting this increase was a decrease in the yield on average interest-earning
assets to 8.06% from 8.24%. The increase in the balance of average
interest-earning assets was primarily the result of growth in the Company's loan
portfolio due to strong loan demand and the Company's attempt to deploy funds
received from deposit growth. The decrease in the yield on average
interest-earning assets is reflective of market interest rates generally being
lower.

         Interest income on loans receivable increased by $17.4 million, or
13.7%, to $144.4 million for the year ended June 30, 1998 from $127.0 million
for the year ended June 30, 1997. This increase primarily resulted from a $223.8
million, or 15.4%, increase in average loans receivable to $1.674 billion for
the year ended June 30, 1998 compared to $1.450 billion for the year ended June
30, 1997. Partially offsetting this increase was a decrease in the yield on
average loans receivable to 8.63% from 8.76%. The increase in average loans
receivable primarily resulted from strong loan demand throughout the Company's
market areas and the acquisition of Jamestown which contributed net loans of
approximately $30.8 million. The decrease in the yield on average loans
receivable for the fiscal year ended June 30, 1998 compared to the fiscal year
ended June 30, 1997 was primarily a result of mortgage loan prepayments, the
proceeds from which were used to fund additional loans at lower rates of
interest.

         Interest income on mortgage-backed securities increased by $406,000, or
2.1%, to $19.5 million for the year ended June 30, 1998 from $19.1 million for
the year ended June 30, 1997. This increase resulted primarily from a $23.4
million, or 8.4%, increase in the average balance of mortgage-backed securities
to $302.2 million for the year ended June 30, 1998 from $278.8 million for the
year ended June 30, 1997. Partially offsetting this increase in average balance
was a decrease in the average yield to 6.47% from 6.87%. The average balance
increased primarily because of the purchase of mortgage-backed securities during
the fiscal year, utilizing funds received from the aforementioned branch
acquisitions. In addition, the Jamestown acquisition contributed approximately
$5.4 million of mortgage-backed securities. The average yield on mortgage-backed
securities declined as a result of a large percentage of the portfolio having
variable interest rates which repriced at lower market rates.

         Interest income on investment securities increased by $3.4 million, or
49.3%, to $10.3 million for the year ended June 30, 1998 from $6.9 million for
the year ended June 30, 1997. This increase resulted primarily from a $55.0
million, or 51.4%, increase in the average balance of investment securities to
$161.9 million for the year ended June 30, 1998 from $106.9 million for the year
ended June 30, 1997. Partially offsetting the increase in average balance was a
decrease in the average yield to 6.37% from 6.48%. The increase in average
balance was primarily due to the investment of the proceeds received from the
aforementioned branch acquisitions as well as approximately $17.1 million from
the addition of Jamestown's investment portfolio. The decrease in the average
yield was primarily the result of lower nominal interest received on tax exempt
securities, as the Company purchased approximately $30 million of such
securities during the fiscal year. Partially offsetting the lower yields
received from the tax exempt obligations was the higher yields received from the
purchase of approximately $30 million of fixed-rate trust preferred securities.

         Interest income on interest-earning deposits increased by $242,000, or
55.9%, to $675,000 for the year ended June 30, 1998 from $433,000 for the year
ended June 30, 1997. This increase resulted primarily from an increase in the
average yield to 2.10% from 1.60%. In addition, the average balance of
interest-earning deposits increased by $5.0 million, or 18.5%, to $32.1 million
for the year ended June 30, 1998 from $27.1 million for the year ended June 30,

<PAGE>
 
1997. The increase in average yield and average balance is principally the
result of the timing as to when the Company is credited for these deposits and
the period in which they begin to earn interest.

         Interest income increased by $18.4 million, or 13.6%, to $153.5 million
for the fiscal year ended June 30, 1997 from $135.1 million for the fiscal year
ended June 30, 1996. The increase in interest income was primarily attributable
to a $258.6 million, or 16.1%, increase in the balance of average
interest-earning assets to $1.863 billion from $1.604 billion. Partially
offsetting this increase was a decrease in the yield on average interest-earning
assets to 8.24% from 8.42%. The increase in the balance of average
interest-earning assets was primarily the result of growth of $206.0 million in
the average balance of the Company's loan portfolio due primarily to the
Company's attempt to aggressively deploy funds received from deposit growth to
the loan portfolio in an attempt to improve net interest income. The decrease in
the yield on average interest-earning assets was primarily a result of the
prepayment of higher interest rate loans, the proceeds from which were invested
in loans with lower interest rates.

         Interest income on loans receivable increased by $15.1 million, or
13.5%, to $127.0 million for the year ended June 30, 1997 compared to $111.9
million for the year ended June 30, 1996. This increase primarily resulted from
a $206.0 million, or 16.6%, increase in average loans receivable to $1.450
billion for the year ended June 30, 1997 compared to $1.244 billion for the year
ended June 30, 1996. Partially offsetting this increase was a decrease in the
yield on average loans receivable to 8.76% from 9.00%. The increase in average
loans receivable primarily resulted from strong loan demand throughout the
Company's market areas and the acquisition of Bridgeville, which contributed net
loans of approximately $20.3 million on February 21, 1997. The decrease in the
yield on average loans receivable for the fiscal year ended June 30, 1997
compared to the same period in 1996 was primarily a result of the prepayment of
higher interest rate loans, the proceeds from which were invested in loans with
lower interest rates. Interest income on mortgage-backed securities increased by
$1.8 million, or 10.4%, to $19.1 million for the year ended June 30, 1997 from
$17.3 for the year ended June 30, 1996. This increase resulted primarily from a
$19.7 million, or 7.6%, increase in the average balance of mortgage-backed
securities to $278.8 million for the year ended June 30, 1997 from $259.1
million for the year ended June 30, 1996. Also contributing to the increase in
interest income on mortgage-backed securities was an increase in the average
yield to 6.87% from 6.69%. The increase in the average balance of
mortgage-backed securities was primarily due to the Bridgeville acquisition
which contributed securities of $20.6 million in the third quarter of fiscal
1997. The higher average yield on mortgage-backed securities resulted primarily
from adding the securities acquired from Bridgeville which had higher yields
than the Company's existing portfolio. Interest income on investment securities
increased by $1.8 million, or 35.3%, to $6.9 million for the year ended June 30,
1997 from $5.1 million for the year ended June 30, 1996. This increase resulted
primarily from a $31.0 million, or 40.8%, increase in the average balance of
investment securities to $106.9 million for the year ended June 30, 1997 from
$75.9 million for the year ended June 30, 1996. Partially offsetting this
increase was a decrease in the average yield to 6.48% from 6.70%. The increase
in the average balance of investment securities resulted primarily from the
Company utilizing the proceeds from deposit inflows to purchase additional
securities for the investment portfolio and was assisted in part by the
acquisition of Bridgeville, which added approximately $9.0 million of
securities. The decrease in the average yield was primarily the result of adding
the aforementioned securities which had interest rates that were generally lower
than the existing portfolio yield.

         Interest income on interest earning deposits decreased by $309,000, or
41.6%, to $433,000 for the year ended June 30, 1997 from $742,000 for the year
ended June 30, 1996. This decrease was primarily the result of a decrease in the
average yield to 1.60% for the year ended June 30, 1997 from 2.94% for the year
ended June 30, 1996, and was partially offset by a $1.9 million, or 7.5%,
increase in the average balance of interest-earning deposits to $27.1 million
from $25.2 million. The decrease in the average yield and the relatively low
yield experienced in both periods resulted from the delay in which the Company's
deposits begin to earn interest.

         Interest Expense. Interest expenses increased by $13.8 million, or
17.0%, to $95.2 million for the year ended June 30, 1998 from $81.4 million for
the year ended June 30, 1997. This increase resulted primarily from a $300.8
million, or 17.4%, increase in average balance of interest-bearing liabilities
to $2.028 billion for the year ended June 30, 1998 from $1.727 billion for the
year ended June 30, 1997. Partially offsetting the increase in deposit balance
was

<PAGE>
 
a decrease in the average cost of funds to 4.69% from 4.71%. The increase in
average interest-bearing labilities resulted primarily form the increase in
deposits from the aforementioned branch acquisitions with deposits of $166.1
million and the acquisition of Jamestown with deposits of $54.3 million. In
addition, above average internal growth and new office openings accounted for
the remaining increase in deposits. Also contributing to the increase in
interest expense was a $26.5 million, or 15.8%, increase in average borrowed
funds to $194.3 million at June 30, 1998 from $167.8 million at June 30, 1997.
Borrowings increased in order to fund growing loan demand and to fund the
purchase of marketable securities in order to enhance the Company's net interest
income. The decrease in the average cost of funds was primarily the result of
lower market rates on deposit accounts and borrowed funds.

         Interest expense increased by $12.8 million, or 18.7%, to $81.4 million
for the year ended June 30, 1997 from $68.6 million for the year ended June 30,
1996. This increase resulted primarily from a $265.7 million, or 18.2%, increase
in average interest-bearing liabilities to $1.727 billion for the year ended
June 30, 1997 from $1.462 billion for the year ended June 30, 1996. This
increase in average interest-bearing liabilities resulted primarily from above
average deposit growth combined with the acquisition of Bridgeville with
deposits of $34.6 million, as the average cost of funds remained relatively
consistent at 4.71% for the year ended June 30, 1997 compared to 4.70% the
previous year. Also contributing to the increase in interest expense was a $37.5
million, or 28.8%, increase in average borrowed funds to $167.8 million for the
year ended June 30, 1997 from $130.3 million for the year ended June 30, 1996.
These additional borrowings consisted primarily of funds borrowed from the
Federal Home Loan Bank which were used to increase the Company's portfolio of
loans and marketable securities in an effort to increase the Company's net
interest income.

         Net Interest Income. Net interest income increased by $7.6 million, or
10.5%, to $79.7 million for the year ended June 30, 1998 from $72.1 million for
the year ended June 30, 1997. This increase resulted primarily from a $307.2
million, or 16.5%, increase in average interest-earning assets, the effect of
which was partially offset by a $300.8 million, or 17.4%, increase in average
interest-bearing liabilities and a decrease in the Company's net interest spread
to 3.37% for the year ended June 30, 1998 from 3.53% for the year ended June 30,
1997.

         Net interest income increased $5.6 million, or 8.4%, to $72.1 million
for the year ended June 30, 1997 from $66.5 million for the year ended June 30,
1996. This increase primarily resulted from a $258.6 million, or 16.1%, increase
in average interest-earning assets, the effect of which was partially offset by
a $265.7 million, or 18.2%, increase in average interest-bearing liabilities and
a decrease in the Company's net interest spread to 3.53% for the year ended June
30, 1997 from 3.72% for the year ended June 30, 1996.

         Provision for Loan Losses. The Company establishes general valuation
allowances, which represent possible, but not yet identified losses inherent in
the Company's loan portfolio. In providing such allowances, management of the
Company considers, among other factors, economic trends within its market area,
concentrations of credit risk and trends affecting the valuation of collateral
for the Company's loans. The Company provided $4.1 million, $2.5 million and
$1.5 million in loan loss provisions for the fiscal years ended June 30, 1998,
1997 and 1996 with the annual increases resulting from the significant increase
in the Company's loan portfolio over the past two fiscal years.

         The allowance for loan losses is based on management's estimate of the
fair value of collateral, the Company's actual loss experience, as well as
standards applied by the State Department of Banking and the FDIC in their
regulatory examinations of the Company. The Company provides both general
valuation allowances and specific valuation allowances with respect to its loan
portfolio. General valuation allowances are included, subject to limitation, in
the Company's regulatory capital for purposes of computing the Company's
regulatory risk-based capital. The Company regularly reviews its loan portfolio,
including problem loans, to determine whether any loans require classification
or the establishment of appropriate valuation allowances.

         Noninterest Income. Noninterest income increased $2.1 million, or
31.3%, to $8.8 million for the year ended June 30, 1998 from $6.7 million for
the year ended June 30, 1997. This increase resulted primarily from a gain of
$1.5

<PAGE>
 
million, before income tax, from the sale of long-term, fixed-rate
mortgage-backed securities in anticipation of these securities being prepaid in
a falling interest rate environment and a nonrecurring gain of $339,000, before
income tax, from the sale of other property held for investment. In addition,
fee income increased approximately $1.0 million, or 42.4%, primarily as a result
of the introduction of a debit card program with related transaction fee income.
Partially offsetting these increases in noninterest income was a $332,000
decrease in the gain on sale of real estate owned.

         Noninterest income increased $2.6 million, or 63.4%, to $6.7 million
for the year ended June 30, 1997 from $4.1 million for the year ended June 30,
1996. This increase in noninterest income resulted primarily from a gain of
$901,000 from the sale of approximately $14.5 million of long-term, fixed rate
mortgage-backed securities in an effort to reduce the Company's exposure to
increases in interest rates. Also contributing to the increase in noninterest
income was a $602,000, or 58.9%, decline in the net losses incurred from the
origination and sale of loans to $420,000 for the year ended June 30, 1997
compared to $1.0 million for the year ended June 30, 1996. This reduction in
loss resulted from the Company's improved efficiencies in its mortgage banking
operation. All other components of the Company's noninterest income also
improved primarily as a result of the expansion of the Company's business
activities.

         Noninterest Expense. Excluding the one-time assessment of $8.6 million
in the prior year to recapitalize the SAIF, noninterest expense increased by
$4.7 million, or 10.3%, to $50.3 million for the year ended June 30, 1998 from
$45.6 million for the year ended June 30, 1997. This increase was primarily
attributable to increases in compensation and benefits of $2.3 million, or 8.8%,
primarily as a result of adding employees to support the Company's growth. Also
contributing to the increase in compensation expense was an increase in employee
stock ownership plan ("ESOP") expense resulting from the significant increase in
the average market price of the Company's stock. Other increases related to
inflation and growth were experienced in premises and occupancy costs which
increased $694,000, or 13.4%, check processing expense which increased $483,000,
or 31.3% and other (miscellaneous) operating expenses which increased $1.1
million, or 14.7%. Data processing expense increased $498,000, or 43.9%, which
was primarily attributable to the purchase of new core application hardware and
software with the conversion scheduled for November 1998. In addition,
amortization of intangibles expense increased $427,000, or 30.9%, due to the
aforementioned current year acquisitions. Partially offsetting these increases
in noninterest expense were decreases in federal deposit insurance expense of
$529,000, or 40.6%, due to a decrease in premiums as a result of the SAIF
recapitalization and a decrease in advertising expense of $323,000, or 20.1%, as
the prior year expense included higher advertising costs related to the
Company's centennial anniversary celebration.

         Noninterest expense increased $13.4 million, or 32.8%, to $54.2 million
for the year ended June 30, 1997 from $40.8 million for the year ended June 30,
1996. The primary reason for this increase was the one-time assessment of $8.6
million to recapitalize the SAIF. Also contributing to the increase were
increases in compensation and employee benefits of $4.2 million, premises and
occupancy costs of $627,000 and advertising expense of $409,000. These increases
resulted primarily from the continued expansion of the Company's retail network
and from inflationary increases. Amortization of intangibles expense increased
by $821,000 due to the acquisitions of First Federal Savings Bank of Kane
("Kane"), First National Bank of Centre Hall ("Centre Hall") and Bridgeville. In
addition, a one-time charge of $350,000 was recorded to write-off an intangible
expense relating to the restructuring of the Company's mortgage banking
operations. Partially offsetting these increases in noninterest expense was a
decrease in federal insurance premiums of $1.7 million resulting from the SAIF
resolution.

         Income Taxes. Income tax expense increased by $4.5 million, or 52.9% to
$13.0 million for the year ended June 30, 1998 from $8.5 million for the year
ended June 30, 1997. This increase was a direct result of the increase in income
subject to tax, as the effective tax rate remained constant at approximately
38%.

         Income tax expense decreased by $2.3 million, or 21.3%, to $8.5 million
for the year ended June 30, 1997 from $10.8 million for the year ended June 30,
1996. This decrease resulted primarily from a $6.2 million decrease in income
before income taxes which resulted primarily from the aforementioned one-time
SAIF assessment of $8.6 million recorded in the first quarter of fiscal 1997.


<PAGE>
 
         Deposit Insurance Premiums. The deposits of the Company are presently
insured by the SAIF, which along with the Bank Insurance Fund (the "BIF"), is
one of the two insurance funds administered by the FDIC. In September 1996,
Congress enacted legislation to recapitalize the SAIF by a one-time assessment
on all SAIF-insured deposits held as of March 31, 1995. The assessment was 65.7
basis points per $100 in deposits, payable on November 30, 1996. For the
Company, the assessment amounted to $8.6 million (or $5.1 million when adjusted
for taxes), based on the Company's SAIF-insured deposits, including the March
31, 1995 deposits of all SAIF insured institutions acquired by Northwest after
March 31, 1995, of $1.304 billion. In addition pursuant to the legislation,
interest payments on FICO bonds issued in the late 1980's by the Financing
Corporation to recapitalize the now defunct Federal Savings and Loan Insurance
Corporation are now paid jointly by BIF-insured institutions and SAIF-insured
institutions. The FICO assessment is 1.29 basis points per $100 of BIF deposits
and 6.44 basis points per $100 of SAIF deposits. Beginning January 1, 2000, the
FICO interest payments will be paid pro-rata by banks and thrifts based on
deposits (approximately 2.4 basis points per $100 in deposits). The BIF and SAIF
will be merged on January 1, 1999, provided the bank and saving association
charters are merged by that date. In that event, pro-rata FICO sharing will
begin on January 1, 1999.

<PAGE>
 
         Average Balance Sheet. 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 and the average yields earned and rates paid. 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
derived from month-end balances.

<TABLE>
<CAPTION>
                                                                          Years Ended June 30
                                                1998                             1997                             1996
                                  --------------------------------  -------------------------------  -------------------------------
                                                           Average                          Average                          Average
                                    Average                 Yield/    Average                Yield/    Average               Yield/
                                    Balance     Interest     Cost     Balance     Interest    Cost     Balance     Interest    Cost
                                  -----------  -----------  ------  -----------  -----------  -----  -----------  ----------  ------
                                                                         (Dollars in Thousands)
<S>                               <C>          <C>          <C>     <C>          <C>          <C>    <C>          <C>         <C>
Interest-earning assets:
 Loans receivable(1)(2)..........  $1,673,599    144,354     8.63%   $1,449,807    127,019    8.76%   $1,243,758 $  111,957    9.00%
 Mortgage-backed securities
  (3)(4).........................     302,220     19,547     6.47       278,801     19,141    6.87       259,090     17,342    6.69
 Investment securities(2)(3)(4)
  (5)............................     161,860     10,316     6.37       106,945      6,925    6.48        75,911      5,089    6.70
 Interest-earning deposits.......      32,091        675     2.10        27,064        433    1.60        25,220        742    2.94
                                   ---------- ----------             ----------  ---------    ----    ---------- ----------    ---- 
   Total interest-earning assets.   2,169,770    174,892     8.06     1,862,617    153,518    8.24     1,603,979    135,130    8.42
Noninterest-earning assets.......      96,666                            87,740                           69,150
                                   ----------                        ----------                       ----------
     Total assets................  $2,266,436                        $1,950,357                       $1,673,129
                                   ==========                        ==========                       ==========

Interest-bearing liabilities:
 Passbook and statement savings..  $  302,281     10,201     3.37    $  276,659      9,490    3.43    $  277,339      9,322    3.36
 Checking accounts...............     264,086      4,469     1.69       207,140      3,992    1.93       170,514      3,396    1.99
Money market demand accounts.....      96,558      3,395     3.52        81,902      2,735    3.34        78,024      2,595    3.33
Certificate accounts.............   1,171,009     66,981     5.72       994,028     56,410    5.67       805,558     46,348    5.75
FHLB advances and other
 borrowed money(6)...............     194,282     10,157     5.23       167,761      8,797    5.24       130,337      6,976    5.35
                                   ---------- ----------             ----------  ---------    ----    ---------- ----------    
   Total interest-bearing
       liabilities...............   2,028,316     95,203     4.69     1,727,490     81,424    4.71     1,461,772     68,637    4.70
Noninterest-bearing liabilities..      30,314                            31,046                           26,826
                                   ----------                        ----------                       ----------
   Total liabilities.............   2,058,630                         1,758,536                        1,488,598
Minority interest in subsidiary..         623                                --                               --
Retained income..................     207,183                           191,821                          184,531
                                   ----------                        ----------                       ----------
   Total liabilities and
     retained income.............  $2,266,436                        $1,950,357                       $1,673,129
                                   ==========                        ==========                       ==========
Net interest income..............             $   79,689                         $  72,094                        $  66,493
                                              ==========                         =========                        =========
Net interest rate spread (7).....                            3.37%                            3.53%                            3.72%
                                                             ====                             ====                             ====
Net interest earning assets......  $  141,454                        $  135,127                       $  142,207
                                   ==========                        ==========                       ==========
Net interest margin (8)..........                            3.67%                            3.87%                            4.15%
                                                             ====                             ====                             ====
Ratio of average interest-
 earning assets to average
 interest-bearing liabilities....       1.07x                             1.08x                            1.10x
                                   ==========                        ==========                       ==========
</TABLE>

-----------------------------------------
(1) Average loans receivable includes loans held as available for sale and loans
placed on nonaccrual status. (2) Interest income on tax-free loans and
investment securities is not presented on a taxable equivalent basis. (3)
Average balances include the effect of unrealized gains or losses on securities
held as available for sale. (4) Interest income on marketable securities does
not include market value adjustments for securities available for sale.
(5) Average balances include FNMA and FHLMC stock.
(6) Average balances include FHLB advances, securities sold under agreements to
repurchase and other borrowings.
(7) Net interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing liabilities.
(8) Net interest margin represents net interest income as a percentage of
average interest-earning assets.

<PAGE>
 
         Rate/Volume Analysis. Net interest income can also be analyzed in terms
of the impact of changes in interest rates on interest-earning assets and
interest-bearing liabilities and changes in the volume or amount of these assets
and liabilities. The following table represents the extent to which changes in
interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected 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 (change
in volume multiplied by prior rate), (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume), (iii) changes in rate-volume
(changes in rate multiplied by changes in volume), and (iv) the net change.

<TABLE> 
<CAPTION> 


                                                                           Years Ended June 30,                                 
                                          ------------------------------------------------------------------------------------- 
                                                         1998 vs. 1997                               1997 vs. 1996              
                                          ------------------------------------------   ---------------------------------------- 
                                                  Increase/(Decrease)                         Increase/(Decrease)               
                                                       Due to                                      Due to                       
                                          ---------------------------------- Total      ------------------------------   Total  
                                                                  Rate/     Increase                           Rate/    Increase
                                            Rate      Volume     Volume    (Decrease)    Rate      Volume     Volume   (Decrease)
                                           -----     -------    --------  -----------   -----     -------    -------- -----------
                                                                      (In Thousands)                                            
<S>                                        <C>          <C>          <C>      <C>        <C>         <C>         <C>      <C>   
Interest-earning assets:                                                                                                        
 Loans receivable.......................   $(1,986)   $19,607    $  (304)   $17,335    $(2,990)   $18,548    $  (495)   $15,062 
 Mortgage-backed securities.............    (1,109)     1,608        (93)       406        446      1,319         34      1,799 
 Investment securities..................      (109)     3,556        (56)     3,391       (174)     2,080        (71)     1,836 
 Interest-earning deposits..............       136         80         26        242       (339)        54        (25)      (309)
                                           -------    -------    -------    -------    -------    -------    -------    ------- 
   Total interest-earning assets........    (3,050)    24,851       (427)    21,374     (3,056)    22,002       (557)    18,388 
                                                                                                                                
Interest-bearing liabilities:                                                                                                   
 Passbook and statement savings.........      (157)       882        (14)       711        191        (23)        --        168 
 Checking accounts......................      (487)     1,097       (133)       477       (110)       729        (24)       596 
 Money market demand accounts...........       145        489         26        660         10        129          1        140 
 Certificate accounts...................       448     10,043         80     10,571       (663)    10,844       (148)    10,062 
 FHLB advances and other                                                                                                        
  borrowed money........................       (27)     1,391         (4)     1,360       (141)     2,003        (41)     1,821 
                                            -------    -------    --------   -------    -------    -------    -------    -------
   Total interest-bearing liabilities...       (78)    13,902        (45)    13,779       (683)    13,682       (212)    12,787 
                                                                                                                        ------- 
                                                                                                                                
   Net change in net interest income....   $(2,972)   $10,949    $  (382)   $ 7,595    $(2,374)   $ 8,319    $  (345)   $ 5,601 
                                           =======    =======    ========   =======    =======    =======    =======    =======  
</TABLE> 

         Asset and Liability Management-Interest Rate Sensitivity Analysis. The
matching of assets and liabilities may be analyzed by examining the extent to
which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to positively affect net interest income. Similarly,
during a period of falling interest rates, a negative gap would tend to
positively affect net interest income while a positive gap would tend to
adversely affect net interest income.

         The Company's policy in recent years has been to reduce its exposure to
interest rate risk generally by better matching the maturities of its interest
rate sensitive assets and liabilities and by increasing the interest rate
sensitivity of its interest-earning assets. The Company (i) emphasizes the
origination of short-term, fixed-rate consumer loans, and at June 30, 1998, such
loans constituted $259.3 million, or 13.20%, of the Company's total loan
portfolio; (ii) emphasizes the origination of one- to four-family residential
mortgage loans with terms of 15 years or less, and purchases shorter term or
adjustable-rate investment securities and mortgage-backed securities; and (iii)
originates adjustable-rate mortgage loans, adjustable-rate consumer loans, and
adjustable-rate commercial loans, which at June 30, 1998, totalled $170.6
million or 8.64% of the Company's total loan portfolio. Of the Company's $2.562
billion of interest-earning assets at June 30, 1998, $503.1 million, or 19.91%,
consisted of assets with adjustable-rates of interest.

<PAGE>
 
However, because of the general reduction in the level of market interest rates
the origination of adjustable-rate loans was limited during the fiscal year
ended June 30, 1998. The Company also attempts to reduce interest rate risk by
lengthening the maturities of its interest-bearing liabilities by using FHLB
advances as a source of long-term fixed-rate funds, and by promoting longer term
certificates of deposit.

         At June 30, 1998, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing in the same period by $288.4 million, representing a cumulative
negative one-year gap ratio of`11.25%. The Company has a Risk Management
Committee comprised of certain members of the Board of Directors which is
responsible for reviewing the Company's asset and liability management policies.
The Committee meets quarterly and, as part of their risk management assessment,
reviews interest rate risks and trends, the Company's interest sensitivity
position and the liquidity and market value of the Company's investment
portfolio.

         The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1998, which are
expected to reprice or mature, based upon certain assumptions, in each of the
future time periods shown. Except as stated below, the amounts of assets and
liabilities shown that reprice or mature during a particular period were
determined in accordance with the earlier of the term of repricing or the
contractual term of the asset or liability. Management believes that these
assumptions approximate the standards used in the savings industry and considers
them appropriate and reasonable. For information regarding the contractual
maturities of the Company's loans, investments and deposits, see "Business of
the Company--Lending Activities," "--Investment Activities" and "--Sources of
Funds."

<TABLE> 
<CAPTION> 

                                                             Amounts Maturing or Repricing
                                       --------------------------------------------------------------------------
                                       Within        1-3         3-5       5-10       10-20    Over 20
                                       1 Year       Years       Years      Years      Years      Years      Total
                                      --------     ------      ------     ------     ------   --------     ------  
                                                                    (Dollars in Thousands)
<S>                                  <C>          <C>         <C>        <C>        <C>       <C>         <C>  
Rate-sensitive assets:                                      
 Interest-earning deposits.......... $   42,403  $      --    $     --   $     --   $     --  $      --   $   42,403
 Mortgage-backed securities:                                                                                       
  Fixed.............................      3,916      7,832       3,919         --         --         --       15,667
  Variable..........................    290,097         --          --         --         --         --      290,097
 Investment securities..............     14,665     81,553      13,600     47,198     47,197         --      204,213
 Real estate loans:                                                                                                
  Adjustable-rate...................     47,975      7,518          --         --         --         --       55,493
  Fixed-rate........................    213,158    345,967    2 48,990    374,881    172,719     86,359    1,442,074
 Home equity and home improvement...     33,963         --          --         --         --         --       33,963
 Education loans....................     59,791         --          --         --         --         --       59,791
 Other consumer loans...............    115,914    107,245      36,182         --         --         --      259,341
 Commercial loans...................     59,985     23,404      12,785     22,004      5,010         --      123,188
                                     ----------  ---------    --------   --------   --------  ---------   ----------
   Total rate-sensitive assets...... $  881,867  $ 573,519    $315,476   $444,083   $224,926  $  86,359   $2,526,230
                                     ==========  =========    ========   ========   ========  =========   ==========
                                                            
Rate-sensitive liabilities:                                 
 Fixed maturity deposits............ $  771,665  $ 404,175    $ 47,842   $ 28,182   $    320  $      --   $1,252,184
 Money market deposit accounts......     38,062     38,062      38,063         --         --         --      114,187
 Passbook accounts..................    130,000     70,125      70,125     70,127         --         --      340,377
 Checking accounts..................     26,000         --          --         --         --    295,755      315,755
 FHLB advances......................    153,000     10,000      17,200     50,150      1,811         --      232,161
 Other borrowings...................     57,545         --          --         --         --         --       57,545
                                     ----------  ---------    --------   --------   --------  ---------   ----------
   Total rate-sensitive liabilities. $1,170,272  $ 522,362    $173,230   $148,459   $  2,131  $ 295,755   $2,312,209
                                     ==========  =========    ========   ========   ========  =========   ==========
                                                                                                                    
Interest sensitivity gap per period. $ (288,405) $  51,157    $142,246   $295,624   $222,795  $(209,396)  $  214,021
                                     ==========  =========    ========   ========   ========  =========   ==========
                                                                                                                    
Cumulative interest sensitivity gap. $ (288,405) $(237,248)   $(95,002)  $200,622   $423,417  $ 214,021   $  214,021
                                     ==========  =========    ========   ========   ========  =========   ========== 

Cumulative interest sensitivity
  gap as a percentage of total 
  assets............................    (11.25%)     (9.26%)     (3.71%)     7.83%     16.53%      8.36%        8.36%
Cumulative interest-earning assets 
 as a percent of cumulative 
 interest-bearing liabilities.......     75.36%      85.98%      94.91%    109.96%    121.00%    109.26%      109.26%
</TABLE> 

         In preparing the table above, it has been assumed, in assessing the
interest rate sensitivity of the Company that: (i) adjustable-rate mortgage
loans will prepay at an annual rate of 10.0%; (ii) fixed-rate mortgage loans
will prepay at

<PAGE>
 
an annual rate of 20.0%; (iii) commercial loans will prepay at an annual rate of
10.0%; (iv) consumer loans will prepay at an annual rate of 20.0%; (v) fixed
maturity deposits will not be withdrawn prior to maturity; (vi) money market
accounts will gradually reprice over the next five years; and (vii) passbook and
checking accounts will reprice either when the rates on such accounts reprice as
interest rate levels change, or when deposit holders withdraw funds from such
accounts and select other types of deposit accounts, such as certificate
accounts, which may have higher interest rates. For purposes of this analysis,
management has estimated, based on historical trends, that only $26 million of
the Company's checking accounts and $130 million of the Company's passbook
accounts are interest sensitive and will reprice in one year or less, and that
the remainder will reprice over longer time periods.

         The above assumptions utilized by management are annual percentages
based on remaining balances and should not be regarded as indicative of the
actual prepayments and withdrawals that may be experienced by the Company.
Moreover, certain shortcomings are inherent in the analysis presented by the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, interest rates on certain types of
assets and liabilities may fluctuate in advance of or lag behind changes in
market interest rates. Additionally, certain assets, such as some
adjustable-rate loans, have features that restrict changes in interest rates on
a short-term basis and over the life of the asset. Moreover, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table.

         In an effort to assess the market risk, the Company utilizes a
simulation model to determine the effect of immediate incremental increases or
decreases in interest rates on net interest 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 effects of actual
changes in interest on these assumptions may differ from simulated results.

         The Company has established the following guidelines for assuming
interest rate risk:

                  .        Net interest margin simulation. Given a parallel
                           shift of 2% in interest rates, the estimated net
                           interest margin may not change by more than 30%
                           within a one-year period.

                  .        Market value of equity simulation. The market value
                           of the Company's equity is the net present value of
                           the Company's assets and liabilities. Given a
                           parallel shift of 2% in interest rates, equity may
                           not decrease by more than 50% of total shareholder'
                           equity.

         The following table illustrates the simulated impact of a 1% or 2%
upward or downward movement in interest rates on net interest income, return on
average equity, earnings per share and market value of equity. This analysis was
prepared assuming that interest-earning asset levels at June 30, 1998 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 the June 30, 1998 levels.

<PAGE>
 
<TABLE> 
<CAPTION> 

                                                                    Movements in interest rates from
                                                                           June 30, 1997 rates
                                                        ---------------------------------------------------------
                                                                 Increase                      Decrease
                                                        -------------------------      --------------------------
<S>                                                      <C>             <C>             <C>             <C>   
Simulated impact over the next 12 months
   compared with June 30, 1998:......................            1%              2%             1%              2%
Percentage increase/(decrease) in net income.........       (12.90%)        (18.70%)        (3.87%)            --

Increase/(decrease) in return on average equity......        (1.24%)        (1.80%)         (0.37%)            --
Increase/(decrease) in earnings per share............        ($0.06)        ($0.09)         ($0.02)            --
Percentage increase/(decrease) in market value
 of equity...........................................       (16.22%)       (37.24%)         17.32%          20.95%
</TABLE> 

         Regulatory Capital Requirements. The Company is subject to minimum
capital standards which are similar to those applicable to the Bank. The FDIC
has promulgated regulations and adopted a statement of policy regarding the
capital adequacy of state-chartered banks. The FDIC's capital regulations
establish a minimum 3.0% Tier I leverage capital requirement for the most
highly-rated state-chartered, non-member banks, with an additional cushion of at
least 100 to 200 basis points for all other state-chartered, non-member banks,
which effectively will increase the minimum Tier I leverage ratio for such other
banks to 4.0% to 5.0% or more. Under the FDIC's regulation, highest-rated banks
are those that the FDIC determines are not anticipating or experiencing
significant growth and have well diversified risk, including no undue interest
rate risk exposure, excellent asset quality, high liquidity, good earnings and,
in general, which are considered a strong banking organization, rated composite
1 under the Uniform Financial Institutions Rating System. Leverage or core
capital is defined as the sum of common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, and
minority interests in consolidated subsidiaries, minus all intangible assets
other than certain qualifying supervisory goodwill, and certain purchased
mortgage servicing rights and purchased credit card relationships.

         The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital which is defined as Tier I capital and
supplementary (Tier 2 capital) to risk weighted assets of 8%. In determining the
amount of risk-weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item.

         The components of Tier I capital are equivalent to those discussed
above under the 3% leverage standard. The components of supplementary (Tier 2)
capital include certain perpetual preferred stock, certain mandatory convertible
securities, certain subordinated debt and intermediate preferred stock and
general allowances for loan and lease losses. Allowance for loan and lease
losses includable in supplementary capital is limited to a maximum of 1.25% of
risk- weighted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of core capital. At June 30, 1998, the
Company exceeded each of its capital requirements.

         A bank which has less than the minimum leverage capital requirement
shall, within 60 days of the date as of which it fails to comply with such
requirement, submit to its FDIC regional director for review and approval a
reasonable plan describing the means and timing by which the bank shall achieve
its minimum leverage capital requirement. A bank which fails to file such plan
with the FDIC is deemed to be operating in an unsafe and unsound manner, and
could be subject to a cease-and-desist order from the FDIC. The FDIC's
regulation also provides that any insured depository institution with a ratio of
Tier I capital to total assets that is less than 2.0% is deemed to be operating
in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA and is
subject to potential termination of deposit insurance. However, such an
institution will not be subject to an enforcement proceeding thereunder solely
on account of its capital ratios if it has entered into and is in compliance
with a written agreement with the FDIC to increase its Tier I leverage capital
ratio to such level as the FDIC deems appropriate and to take such other action
as may be necessary for the institution to be operated in a safe and sound
manner. The FDIC capital regulation also provides, among other

<PAGE>
 
things, for the issuance by the FDIC or its designee(s) of a capital directive,
which is a final order issued to a bank that fails to maintain minimum capital
to restore its capital to the minimum leverage capital requirement within a
specified time period. Such directive is enforceable in the same manner as a
final cease-and-desist order.

         The following table summarizes the Company's total stockholders'
equity, regulatory capital, total risk-based assets including off-balance sheet
items, leverage and risk-based regulatory ratios at June 30, 1998.

<TABLE> 
<CAPTION> 
                                                                               June 30, 1998     
                                                                              --------------- 
                  <S>                                                         <C>  
                  Total shareholders' equity or GAAP capital..................  $    217,879     
                  Add: Minority interest in subsidiary........................         1,913     
                  Less: unrealized gain on securities available for sale......        (3,371)    
                  Less: nonqualifying intangible assets.......................       (21,707)    
                  Leverage capital............................................       194,714     
                  Plus: Tier 2 capital (1)....................................        15,769     
                                                                                ------------     
                  Total risk-based capital....................................  $    210,483     
                                                                                ============     
                                                                                                 
                  Quarterly average total assets for leverage ratio...........  $  2,488,554     
                                                                                ============     
                  Net risk-weighted assets including                                             
                    off-balance sheet items...................................  $  1,355,866     
                                                                                ============     
                                                                                                 
                  Leverage capital ratio......................................          7.82%    
                  Minimum requirement.........................................  3.00 to 5.00% (2)
                                                                                                 
                  Risk-based capital ratio....................................         15.52%    
                  Minimum requirement.........................................          8.00%    
</TABLE> 
                  -----------------------------      
                  (1)  Tier 2 capital consists entirely of the allowance for
                       loan losses, which is limited to 1.25% of total risk-
                       weighted assets as detailed under regulations of the
                       FDIC.                               

                  (2)  The FDIC has indicated that the most highly rated
                       institutions which meet certain criteria will be required
                       to maintain a ratio of 3.00%, and all other institutions
                       will be required to maintain an additional cushion of 100
                       to 200 basis points. As of June 30, 1998, the Company had
                       not been advised of any additional requirements in this
                       regard.

         The Company is also subject to Pennsylvania Department of Banking
("Department") capital guidelines. Although not adopted in regulation form, the
Department utilizes capital standards requiring a minimum of 6% leverage capital
and 10% risk-based capital. The components of leverage and risk-based capital
are substantially the same as those defined by the FDIC.

         Liquidity and Capital Resources. The Company is required to maintain a
sufficient level of liquid assets, as determined by management and defined and
reviewed for adequacy by the FDIC during their regular examinations. The FDIC,
however, does not prescribe by regulation a minimum amount or percentage of
liquid assets. The FDIC allows any marketable security, whose sale would not
impair the capital adequacy of the Company, to be eligible for liquidity. The
Company's liquidity is quantified through the use of a standard liquidity ratio
of liquid assets to short-term borrowings plus deposits. Using this formula, the
Company's liquidity ratio was 23.0% as of June 30, 1998. The Company adjusts its
liquidity levels in order to meet funding needs of deposit outflows, repayment
of borrowings and loan commitments. The Company also adjusts liquidity as
appropriate to meet its asset and liability management objectives.

         The Company's primary sources of funds are the amortization and
repayment of loans and mortgage-backed securities, maturities of investment
securities and other short-term investments, and earnings and funds provided
from

<PAGE>
 
operations. While scheduled principal repayments on loans and mortgage-backed
securities are a relatively predictable source of funds, deposit flows and loan
prepayments are greatly influenced by general interest rate levels, economic
conditions, and competition. The Company manages the pricing of its deposits to
maintain a desired deposit balance. In addition, the Company invests excess
funds in short-term interest-earning and other assets, which provide liquidity
to meet lending requirements. Short-term interest-earning deposits with the FHLB
of Pittsburgh amounted to $42.4 million at June 30, 1998. Other assets
qualifying for liquidity outstanding at June 30, 1998, amounted to $478.2
million. For additional information about cash flows from the Company's
operating, financing, and investing activities, see Statements of Cash Flows
included in the Consolidated Financial Statements.

         A major portion of the Company's liquidity consists of cash and cash
equivalents, which are a product of its operating, investing, and financing
activities. The primary sources of cash were net income, principal repayments on
loans and mortgage-backed securities, and increases in deposit accounts.

         Liquidity management is both a daily and long-term function of business
management. If the Company requires funds beyond its ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. At June 30, 1998, the Company had $232.2 million in advances
from the FHLB. The Company borrows from the FHLB to reduce interest rate risk
and to provide liquidity when necessary.

         At June 30, 1998, the Company's customers had $66.5 million of unused
lines of credit available. This amount does not include the unfunded portion of
loans in process. Certificates of deposit scheduled to mature in less than one
year at June 30, 1998, totaled $771.7 million. Based on prior experience,
management believes that a significant portion of such deposits will remain with
the Company.

         The major sources of the Company's cash flows are the areas of loans,
marketable securities, deposits and borrowed funds.

         Deposits are the Company's primary source of externally generated
funds. The level of deposit inflows during any given period is heavily
influenced by factors outside of management's control, such as the general level
of short-term and long-term interest rates in the economy, as well as higher
alternative yields that investors may obtain on competing investments such as
money market mutual funds. Financial institutions, such as the Company, are also
subject to deposit outflows. The Company's net deposits excluding interest
credits and acquisitions, increased by $97.0 million, $103.5 million and $26.1
million for the fiscal years ended June 30, 1998, 1997 and 1996, respectively.

         Similarly, the amount of principal repayments on loans and the amount
of new loan originations is heavily influenced by the general level of interest
rates in the economy. Funds received from principal payments on loans for the
fiscal years ended in June 30, 1998, 1997 and 1996 were $425.3 million, $371.3
million and $316.6 million, respectively. Loan originations for the years ended
June 30, 1998, 1997 and 1996 were $802.1 million, $563.2 million and $564.4
million, respectively. The Company also sells a portion of the loans it
originates and the cash flows from such sales for the fiscal years ended June
30, 1998, 1997 and 1996 were $30.1 million, $47.9 million and $99.1 million,
respectively.

         The Company also experiences significant cash flows from its portfolio
of marketable securities as principal payments are received on mortgage-backed
securities and investment securities, which generally are of short duration,
mature. During recent years, the Company has utilized cash to increase its
portfolio of investment securities. Cash flow from the repayment of principal
and the maturity of marketable securities for the fiscal years ended June 30,
1998, 1997 and 1996 were $59.6 million, $27.0 million and $26.5 million ,
respectively. During the fiscal years ended June 30, 1998, 1997 and 1996, the
bank utilized cash to purchase marketable securities in the amount of $167.4
million, $30.0 million and $99.2 million, respectively.

         The Company utilizes borrowings as a source of liquidity, when
necessary, and as a source of funds for long term investment when market
conditions permit. The net cash flow from the receipt and repayment of
borrowings were

<PAGE>
 
net increases of $66.2 million, $6.6 million and $105.2 million for the fiscal
years ended June 30, 1998, 1997 and 1996, respectively.

         Other activity with respect to cash flow was the payment of cash
dividends on common stock in the amount of $7.5 million, $7.5 million and $9.0
million for the fiscal years ended June 30 1998, 1997 and 1996 respectively.

         Impact of Inflation and Changing Prices. The Consolidated Financial
Statements of the Company and notes thereto, presented elsewhere herein, have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
monetary. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.

         Capability of the Company's Data Processing to Accommodate the Year
2000. The Company has devoted substantial resources to address the possible
impact of issues relating to the year 2000 ("Year 2000") on the Company and its
operations. After several years of assessing the potential problems, the Company
adopted a formal plan addressing the Year 2000 issue in 1997.

         The Company's biggest area of concern is its core application
processing and the Company plans to eliminate this concern by converting to a
new core application processing system in the fourth quarter of 1998. Although
the system's Year 2000 capabilities have already been tested by other users,
on-site testing of the computer system's Year 2000 readiness as well as all
mission critical processes are expected to be completed by the Company by June
30, 1999. The approximate cost of this conversion is $2,000,000, which will be
capitalized and expensed over various periods ranging from five to ten years.

         Other than the core application conversion, costs relating to Year 2000
issues are not expected to be material and are not expected to have a material
effect on the results of operations of the Company.

         The Company is continuously monitoring relationships with material
third parties, including large deposit and loan customers, to ensure that their
Year 2000 efforts are progressing appropriately. However, it is possible that
the Company could be negatively impacted in the Year 2000 because external
parties have not successfully addressed their Year 2000 issues. Although the
effects of such third party problems are not known, the Company does not foresee
any problems which will be material in nature. To mitigate its exposure to the
failure of third parties, the Company is actively designing a contingency plan
which will allow it to continue services in the event unforeseeable external
factors disrupt normal operations in the Year 2000. However, there can be no
assurance that any contingency plans will completely mitigate the effects of any
such failure.

         Impact of New Accounting Standards. In October 1995, the FASB released
SFAS 123, "Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123
establishes a fair value based method for stock-based compensation plans. SFAS
123 permits entities to expense an estimated fair value of employee stock
options or to continue to measure compensation cost for these plans using the
intrinsic value accounting method contained in APB Opinion No. 25. Entities that
elect to continue to use the intrinsic value method must provide pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been applied. For fiscal years 1998, 1997 and 1996 the Company
has elected to continue to use the intrinsic value method under APB Opinion No.
25 and has disclosed the pro forma effects of SFAS 123 in the footnotes to the
financial statements.

         In June 1996, the FASB released SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125").
SFAS 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishment of liabilities and distinguishes
transfers of financial assets that are sales

<PAGE>
 
from transfers that are secured borrowings. Under SFAS 125, an entity recognizes
all financial and servicing assets it controls and liabilities it has incurred
and does not recognize financial assets it no longer controls and liabilities
that have been extinguished. This financial-components approach focuses on the
assets and liabilities that exist after the transfer. SFAS 125 also extends the
"available-for-sale" or "trading" approach in SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," to non-security financial assets
that can contractually be prepaid or otherwise settled in such a way that the
holder of the asset would not recover substantially all of its recorded
investment. Thus, non-security financial assets that are subject to prepayment
risk that could prevent recovery of substantially all of the recorded amount are
to be reported at fair value with the change in fair value accounted for
depending on the asset's classification as "available-for-sale" or "trading."
SFAS 125 is generally effective for transfers and servicing of financial assets
and extinguishment of liabilities occurring after December 31, 1996, with
certain provisions having been delayed until after December 31, 1997 by SFAS
127, "Deferral of Effective Date of Certain Provisions of FASB Statement No.
125, an amendment of Statement No. 125." Also, the extension of SFAS 115
approach to certain non- security financial assets and the amendment to SFAS 115
is effective for financial assets held on or acquired after January 1, 1997. The
adoption of SFAS 125 did not have a material impact on the consolidated
financial statements of the Company.

         Effective December 31, 1997, the Company adopted SFAS 128 "Earnings Per
Share" ("SFAS 128"). SFAS 128 supercedes APB Opinion No. 15 "Earnings Per Share"
and specifies the computation, presentation and disclosure requirements for
earnings per share (EPS) for entities with publicly held stock or potential
common stock. Essentially, this promulgation replaces the primary EPS and fully
diluted EPS presentations under APB Opinion No. 15 with a basic EPS and diluted
EPS presentation. It also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with a complex capital
structure and requires a reconciliation of the components of basic and diluted
EPS. Basic EPS excludes common stock equivalents and dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. 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. SFAS 128 also
required restatement of all prior period EPS data presented.

         In February 1997, the FASB released SFAS 129 "Disclosure of Information
about Capital Structure" ("SFAS 129") effective for financial statements for
periods ending after December 15, 1997. SFAS 129 summarizes previously issued
disclosure guidance contained within APB Opinion Nos. 10 and 15 as well as SFAS
47, and, as such, there were no material changes to the Company's disclosures
pursuant to the adoption of SFAS 129.

         In June 1997, the FASB released SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as "the change in equity
of a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners." The comprehensive income and related cumulative equity impact of
comprehensive income items will be required to be disclosed prominently as part
of the notes to the financial statements. Only the impact of unrealized gains or
losses on securities available for sale is expected to be disclosed as an
additional component of the Company's income under the requirements of SFAS 130.
This statement is effective for fiscal years beginning after December 15, 1997.

         In June 1997, the FASB released SFAS 131 "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for reporting financial information from operating segments in annual
and interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 131 uses a "management approach" concept as the basis for identifying
reportable segments which focuses on financial information as used internally by
an enterprise's decision makers. This statement is effective for periods
beginning after December 15, 1997 and will not have a material impact on the
consolidated financial statements of the Company.


<PAGE>
 
         In February 1998, the FASB released SFAS 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits, an amendment of FASB
Statements No. 87, 88, and 106" ("SFAS 132"). SFAS 132 standardizes disclosure
requirements for pensions and postretirement benefits where applicable and
suggests a combined format for presentation purposes, requires additional
information on changes in the benefit obligations and fair values of plan
assets, and eliminates certain disclosures that are no longer useful. This
statement, however, does not change the measurement or recognition requirements
of pension or postretirement benefit plans. SFAS 132 is effective for fiscal
years beginning after December 15, 1997 and requires restatement of earlier
periods if the information is readily available. The impact of this statement is
not expected to have a material effect on the Company's financial statements.

         In June 1998, the FASB released SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Earlier
application is encouraged, however, this statement should not be applied
retroactively to financial statements of prior periods. The Company does not
currently participate in any activity that qualifies as derivative or hedging
and, therefore, does not expect this statement to have a material effect on the
financial statements.

                   MARKET FOR COMMON STOCK AND RELATED MATTERS

         The Company's common stock is listed on the Nasdaq National Market
under the symbol "NWSB." As of June 30, 1998, the Company had 16 registered
market makers, 4,468 stockholders of record (excluding the number of persons or
entities holding stock in street name through various brokerage firms), and
46,840,970 shares outstanding. As of such date, Northwest Bancorp, M.H.C. (the
"Mutual Holding Company"), the Company's mutual holding company, held 32,400,000
shares of common stock and stockholders other than the Mutual Holding Company
held 14,440,970 shares. The following table sets forth market price and dividend
information for the common stock or, prior to the completion of the Bank's
reorganization into the two-tier mutual holding company structure, which was
completed on February 17, 1998, the Bank's common stock. Information is
presented for each quarter of the previous two fiscal years, adjusted for the 2
for 1 stock split completed on November 14, 1997.

<TABLE> 
<CAPTION> 

                   Fiscal Year Ended                                                        Cash Dividends
                     June 30, 1997                            High               Low           Declared
                  ------------------                      -------------    -------------      ----------
                  <S>                                   <C>             <C>                <C>      
                  First quarter                           $  6.125         $   5.375          $  .040
                  Second quarter                             6.875             5.938             .040
                  Third quarter                              7.875             6.563             .040
                  Fourth quarter                             7.875             7.125             .040

<CAPTION> 
                   Fiscal Year Ended                                                        Cash Dividends
                     June 30, 1998                            High              Low            Declared
                  ------------------                      -------------    -------------      ----------
                  <S>                                   <C>             <C>                <C>      
                  First quarter                             13.125             7.813             .040
                  Second quarter                            16.375            13.625             .040
                  Third quarter                             17.188            13.000             .040
                  Fourth quarter                            18.000            14.875             .040
</TABLE> 

         Payment of dividends on the Common Stock is subject to determination
and declaration by the Board of Directors and will depend upon a number of
factors, including capital requirements, regulatory limitations on the

<PAGE>
 
payment of dividends, the Company's results of operations and financial
condition, tax considerations and general economic conditions. No assurance can
be given that dividends will be declared or, if declared, what the amount of
dividends will be, or whether such dividends, once declared, will continue.

         Although mutual holding companies frequently waive dividends declared
by their majority-owned savings institution subsidiaries, the Holding Company
has not waived dividends paid by the Company. The Holding Company has made
certain commitments to the Federal Reserve Board ("FRB") that restrict its
ability to waive dividends and that require it to obtain prior FRB approval of
any waiver of dividends.

         There can be no assurance (i) that in the future the Mutual Holding
Company will file applications to the FRB requesting approval to waive dividends
paid by the Company, (ii) that the FRB will approve any dividend waiver
application by the Mutual Holding Company should such application be filed,
(iii) as to the terms that may be imposed by the FRB on any future waiver, and
(iv) that the Mutual Holding Company will waive dividends paid by the Company.

<PAGE>
 
                         Independent Auditors' Report
                         ----------------------------

The Board of Directors
Northwest Bancorp, Inc.:


We have audited the accompanying consolidated statements of financial condition
of Northwest Bancorp, Inc. and subsidiaries as of June 30, 1998 and 1997, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended June 30,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Northwest Bancorp,
Inc. and subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1998, in conformity with generally accepted accounting
principles.

/s/ KPMG PEAT MARWICK LLP

Pittsburgh, Pennsylvania
August 14, 1998
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                 Consolidated Statements of Financial Condition

                             June 30, 1998 and 1997

                          (Dollar amounts in thousands)

<TABLE> 
<CAPTION> 
                                                                                                                   
                                                                                        1998               1997 
                             Assets                                                     ----               ---- 
                             ------   
<S>                                                                                 <C>               <C>                      
Cash and cash equivalents                                                           $     16,992            13,747
Interest-bearing deposits in other financial institutions                                 42,403            57,765
Marketable securities available-for-sale (notes 4 and 11)                                316,715           259,720
Marketable securities held-to-maturity (market value of
     $192,817 and $152,744) (notes 4 and 11)                                             193,262           153,980
Loans receivable, net of allowance for estimated
     losses of $15,769 and $13,611 (notes 5, 7 and 11)                                 1,907,289         1,536,498
Accrued interest receivable (note 6)                                                      13,254            11,027
Real estate owned, net                                                                     3,506             4,549
Federal Home Loan Bank stock, at cost (notes 8 and 11)                                    13,444            12,144
Premises and equipment, net (note 9)                                                      26,239            21,481
Goodwill and other intangibles                                                            22,065            11,586
Other assets                                                                               7,415             8,866
                                                                                    ------------      ------------ 
                  Total assets                                                      $  2,562,584         2,091,363
                                                                                    ============      ============

<CAPTION> 
                     Liabilities and Shareholders' Equity
                     ------------------------------------
<S>                                                                               <C>                   <C>                      
Liabilities:
     Deposits (note 10)                                                                2,022,503         1,640,815
     Borrowed funds (note 11)                                                            289,706           223,458
     Advances by borrowers for taxes and insurance                                        15,348            12,985
     Accrued interest payable                                                              2,932             4,312
     Other liabilities                                                                    12,303            11,299
                                                                                    ------------      ------------ 
                  Total liabilities                                                    2,342,792         1,892,869

Minority interest in subsidiary                                                            1,913                 -

Shareholders' equity (notes 13 and 17):
     Common stock, $.10 par value, authorized 100,000,000
        shares; 46,840,970 and 46,752,000 issued and
        outstanding at June 30, 1998 and 1997, respectively                                4,684             2,338
     Paid-in capital                                                                      67,248            67,854
     Retained earnings, substantially restricted (note 13)                               145,259           131,423
     Unrealized gain on securities available-for-sale,
        net of income taxes                                                                3,371             1,026
     Unearned employee stock ownership plan shares (note 15)                              (1,412)           (2,358)
     Unearned recognition and retention plan shares (note 15)                             (1,271)           (1,789)
                                                                                    ------------      ------------ 
                  Total shareholders' equity                                             217,879           198,494
                                                                                    ------------      ------------ 
                  Total liabilities and shareholders' equity                        $  2,562,584         2,091,363
                                                                                    ============      ============
</TABLE> 

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                        Consolidated Statements of Income

                For the Years Ended June 30, 1998, 1997 and 1996

                             (Amounts in thousands)

<TABLE>
<CAPTION>


                                                                       1998             1997              1996
                                                                       ----             ----              ----
<S>                                                                 <C>               <C>              <C>  
Interest income:
     Loans receivable                                               $  144,354           127,019          111,957
     Mortgage-backed securities                                         19,547            19,141           17,342
     Investment securities                                              10,316             6,925            5,089
     Interest-bearing deposits                                             675               433              742
                                                                    ----------        ----------       ---------- 
                  Total interest income                                174,892           153,518          135,130
                                                                    ----------        ----------       ---------- 

Interest expense:
     Deposits (note 10)                                                 85,046            72,627           61,661
     Borrowed funds                                                     10,157             8,797            6,976
                                                                    ----------        ----------       ---------- 
                  Total interest expense                                95,203            81,424           68,637
                                                                    ----------        ----------       ---------- 

                  Net interest income                                   79,689            72,094           66,493

Provision for possible loan losses (note 7)                              4,072             2,491            1,502
                                                                    ----------        ----------       ---------- 
                  Net interest income after provision
                     for possible loan losses                           75,617            69,603           64,991
                                                                    ----------        ----------       ---------- 

Noninterest income:
     Loan fees and service charges                                       3,347             2,351            1,952
     Gain on sales of marketable securities, net                         1,500               901                -
     Loss on sale of loans                                                (369)             (420)          (1,022)
     Gain on sale of real estate owned                                     164               496              274
     Gain on sale of real estate owned for investment                      339                 -                -
     Other operating income                                              3,836             3,408            2,921
                                                                    ----------        ----------       ---------- 
                  Total noninterest income                               8,817             6,736            4,125
</TABLE>

                                                                     (Continued)

                                       4
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                  Consolidated Statements of Income, Continued

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                        1998              1997              1996
                                                                       -------           -------          -------    
<S>                                                                  <C>                <C>               <C> 
Noninterest expense:
     Compensation and employee benefits (note 15)                    $  28,326            25,990           21,756
     Premises and occupancy costs                                        5,857             5,163            4,536
     SAIF recapitalization assessment (note 18)                              -             8,565                -
     Federal insurance premiums                                            773             1,302            3,019
     Data processing                                                     1,633             1,135            1,170
     Check processing                                                    2,026             1,543            1,391
     Advertising                                                         1,283             1,606            1,197
     Amortization of intangibles                                         1,808             1,381              560
     Other expenses                                                      8,612             7,518            7,198
                                                                       -------           -------          ------- 
                  Total noninterest expense                             50,318            54,203           40,827
                                                                       -------           -------          ------- 
                  Income before income taxes                            34,116            22,136           28,289

Income taxes (note 12):
     Federal                                                            11,232             7,076            8,855
     State                                                               1,763             1,396            1,948
                                                                       -------           -------          ------- 
                  Total income taxes                                    12,995             8,472           10,803

Minority interest in net loss of subsidiary                                201                 -                -
                                                                       -------           -------          ------- 
                  Net income                                         $  21,322            13,664           17,486
                                                                       -------           -------          ------- 
Basic earnings per share (note 14)                                    $  .46                 .30              .38
                                                                         ===                 ===              ===
Diluted earnings per share (note 14)                                  $  .45                 .30              .38
                                                                         ===                 ===              ===
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

           Consolidated Statements of Changes in Shareholders' Equity

                For the Years Ended June 30, 1998, 1997 and 1996

                             (Amounts in thousands)

<TABLE> 
<CAPTION> 
                                                                         1998             1997             1996
                                                                       -------           -------          ------- 
<S>                                                                 <C>                <C>              <C>   
Common stock:
     Balance at beginning of fiscal year                            $    2,338             2,338            1,155
     Exercise of stock options                                               8                 -                -
     Issuance of recognition and retention plan shares                       -                 -               14
     Adjustment resulting from two-for-one stock split                   2,338                 -            1,169
                                                                       -------           -------          ------- 
                      Balance at June 30                                 4,684             2,338            2,338
Paid-in capital:
     Balance at beginning of fiscal year                                67,854            67,671           65,596
     Exercise of stock options                                             401                 -                -
     Issuance of recognition and retention plan shares                       -                 -            3,229
     Adjustment resulting from two-for-one stock split                  (2,338)                -           (1,169)
     Tax benefit for excess of fair value above cost
        of stock option and recognition and retention plans                449                 -                -
     Excess of fair value above cost of employee
        stock ownership plan (ESOP) shares released                        882               183               15
                                                                       -------           -------          -------    
                      Balance at June 30                                67,248            67,854           67,671

Retained earnings:
     Balance at beginning of fiscal year                               131,423           125,239          114,724
     Net income                                                         21,322            13,664           17,486
     Dividends ($.16 per share in 1998, $.16 per
        share in 1997 and $.15 per share in 1996)                       (7,486)           (7,480)          (6,971)
                                                                       -------           -------          ------- 
                      Balance at June 30                               145,259           131,423          125,239
</TABLE> 

                                                                    (Continued)

                                       6
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

      Consolidated Statements of Changes in Shareholders' Equity, Continued

                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                         1998             1997              1996
                                                                         ----             ----              ----
<S>                                                                 <C>                <C>              <C>
Unrealized gain on securities available-for-sale:
     Balance at beginning of fiscal year                             $   1,026             1,325            1,527
     Net change in unrealized gain on securities,
        net of deferred taxes                                            2,345              (299)            (202)
                                                                     ---------         ---------        ---------
                      Balance at June 30                                 3,371             1,026            1,325

Unearned ESOP shares:
     Balance at beginning of fiscal year                                (2,358)           (3,328)          (4,312)
     ESOP shares released                                                  946               970              984
                                                                     ---------         ---------        ---------
                      Balance at June 30                                (1,412)           (2,358)          (3,328)
                                                                     ---------         ---------        ---------
Unearned recognition and retention plan (RRP) shares:
        Balance at beginning of fiscal year                             (1,789)           (2,594)               -
        Common shares acquired by RRP                                        -                 -           (3,243)
        RRP shares released                                                518               805              649
                                                                     ---------         ---------        ---------
                      Balance at June 30                                (1,271)           (1,789)          (2,594)
                                                                     ---------         ---------        ---------
                      Total shareholders' equity                    $  217,879           198,494          190,651
                                                                     =========         =========        =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       7
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                For the Years Ended June 30, 1998, 1997 and 1996

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                             1998              1997            1996
                                                                          ---------         ---------       --------- 
<S>                                                                      <C>                 <C>            <C>
Operating activities:
     Net income                                                          $   21,322            13,664          17,486
     Adjustments to reconcile net income to net
        cash provided by operating activities:
           Provision for possible loan losses                                 4,072             2,491           1,502
           Net loss (gain) on sales of assets                                (1,634)             (977)            748
           Purchase of marketable securities, trading                       (36,061)                -               -
           Proceeds from sale of marketable securities,
               trading                                                       36,151                 -               -
           Depreciation and amortization                                      4,122             3,260           2,205
           Accretion of deferred loan fees                                     (725)             (715)         (1,297)
           Increase in other assets                                          (1,373)             (897)         (1,098)
           Increase (decrease) in other liabilities                          (3,022)            1,625             413
           Accretion of discounts on marketable securities                     (316)             (431)           (421)
           Noncash compensation expense related to
               stock benefit plans                                            3,200             2,212           1,648
           Other                                                                  -                 -             163
                                                                          ---------         ---------       ---------   
                      Net cash provided by operating activities              25,736            20,232          21,349

Investing activities:
     Purchase of marketable securities held-to-maturity                     (66,692)                -         (18,684)
     Purchase of marketable securities available-for-sale                  (100,707)          (29,992)        (80,504)
     Proceeds from maturities and principal reductions
        of marketable securities held-to-maturity                            27,611            18,315          16,663
     Proceeds from maturities and principal reductions
        of marketable securities available-for-sale                          32,012             8,692           9,881
     Proceeds from sales of marketable securities available-
        for-sale                                                             39,437            15,496               -
     Loan originations                                                     (802,145)         (563,188)       (564,380)
     Proceeds from loan maturities and principal reductions                 425,325           371,295         316,574
     Proceeds from loan sales                                                30,094            47,985          99,062
     Purchase of Federal Home Loan Bank stock                                (1,300)             (973)         (1,142)
     Proceeds from sale of real estate owned                                  3,196             1,978           2,169
     Net (purchase) sale of real estate owned for investment                    162              (391)           (358)
     Purchase of premises and equipment                                      (4,276)           (4,153)         (3,928)
     Acquisitions, net of cash received                                     151,935           (13,959)         11,182
                                                                          ---------         ---------       --------- 
                      Net cash used by investing activities                (265,348)         (148,895)       (213,465)
</TABLE>
                                                                   (Continued)

                                       8
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, Continued

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                             1998              1997              1996
                                                                          ---------         ---------        ---------  
<S>                                                                      <C>               <C>             <C>
Financing activities:
     Increase in deposits, net                                           $  166,024           156,174           70,118
     Proceeds from long-term borrowings                                     136,622            63,136           18,269
     Repayments of long-term borrowings                                     (70,544)          (75,260)         (28,108)
     Net increase in short-term borrowings                                      168            18,821          115,000
     Increase in advances by borrowers for
        taxes and insurance                                                   2,302               480               76
     Cash dividends paid                                                     (7,486)           (7,480)          (8,996)
     Proceeds from options exercised                                            409                 -                -
                                                                          ---------         ---------        ---------  
                  Net cash provided by financing activities                 227,495           155,871          166,359
                                                                          ---------         ---------        ---------  

                  Net increase (decrease) in cash and
                     cash equivalents                                    $  (12,117)           27,208          (25,757)
                                                                          =========         =========        =========   

Cash and cash equivalents at beginning of period                             71,512            44,304           70,061
Net increase (decrease) in cash and cash equivalents                        (12,117)           27,208          (25,757)
                                                                          ---------         ---------        ---------  
Cash and cash equivalents at end of period                               $   59,395            71,512           44,304
                                                                          =========         =========        =========   
     Cash paid during the year for:
        Interest on deposits and borrowings (including
           interest credited to deposit accounts of
           $64,476, $52,665 and $47,385, respectively)                  $    97,425            81,240           68,218
                                                                          =========         =========        =========   
        Income taxes                                                    $    12,215             8,531           11,408
                                                                          =========         =========        =========   

     Noncash activities:
        Business acquisitions:
           Fair value of assets acquired                                     69,992            59,560          115,220
           Cash received (paid)                                             148,751           (18,772)         (15,028)
           Minority interest                                                 (2,060)                -                -
                                                                          ---------         ---------        ---------  
                  Liabilities assumed                                   $   216,683            40,788          100,192
                                                                          =========         =========        =========   
        Loan foreclosures and repossessions                             $     2,839             1,654            2,072
                                                                          =========         =========        =========   
        Sale of real estate owned financed by the Company               $       147               108              700
                                                                          =========         =========        =========   
</TABLE>

See accompanying notes to consolidated financial statements.

                                       9
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1998, 1997 and 1996

            (All dollar amounts presented in tables are in thousands)


(1)   Summary of Significant Accounting Policies
      ------------------------------------------

      Nature of Operations
      --------------------

      Northwest Bancorp, Inc. (the "Company") headquartered in Warren,
          Pennsylvania, is a Bank Holding Company for its wholly owned
          subsidiary Northwest Savings Bank ("Northwest") and its majority owned
          subsidiary Jamestown Savings Bank ("Jamestown"). These retail oriented
          financial institutions offer traditional deposit and loan products
          through their 68 banking locations in Pennsylvania and three banking
          locations in Jamestown, New York. The Company and its subsidiaries
          also offer consumer finance products through 33 consumer finance
          offices in Pennsylvania and one in New York. The Company maintains
          geographic diversification in its real estate loan portfolio by
          operating, through a subsidiary, four mortgage production offices in
          New York and one in Pennsylvania.

      Consolidation
      -------------

      The consolidated financial statements include the accounts of the Company
          and its wholly and majority owned subsidiaries after elimination of
          all significant intercompany accounts and transactions.

      Cash and Cash Equivalents
      -------------------------

      For purposes of the statement of cash flows, cash and cash equivalents
          include cash and amounts due from depository institutions and
          interest-bearing deposits in other financial institutions.

                                                                    (Continued)

                                       10
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)


      Marketable Securities
      ---------------------

      The Company classifies marketable securities at the time of their purchase
          as either held-to-maturity, available-for-sale or trading securities.
          Securities for which management has the intent and the Company has the
          ability to hold until their maturity are classified as
          held-to-maturity and are carried on the Company's books at cost,
          adjusted for amortization of premium and accretion of discount on a
          level yield basis. If it is management's intent at the time of
          purchase to hold securities for an indefinite period of time and/or to
          use such securities as part of its asset/liability management
          strategy, the securities are classified as available-for-sale and are
          carried at fair value, with unrealized gains and losses excluded from
          net earnings and reported as a separate component of shareholders'
          equity, net of tax. Securities available-for-sale include securities
          which may be sold in response to changes in interest rates, resultant
          prepayment risk or other market factors. Securities that are bought
          and held principally for the purpose of selling them in the near term
          are classified as trading and are reported at fair value, with
          unrealized gains and losses included in earnings. The Company has no
          securities classified as trading as of June 30, 1998 or 1997. The cost
          of securities sold is determined on a specific identification basis.

      Federal law requires a member institution of the Federal Home Loan Bank
          ("FHLB") system to hold stock of its district FHLB according to a
          predetermined formula. This stock is recorded at cost and may be
          pledged to secure FHLB advances.

      Loans Receivable
      ----------------

      Loans are stated at their unpaid principal balance net of any deferred
          origination fees or costs and the allowance for estimated loan losses.
          Interest income on loans is credited to income as earned. Interest
          earned on loans for which no payments were received during the month
          is accrued at month end. Interest accrued on loans more than ninety
          days delinquent is offset by a reserve for uncollected interest, and
          such loans are placed on nonaccrual status.

      The Company has identified certain residential loans which will be sold
          prior to maturity. These loans are recorded at the lower of amortized
          cost or market value and are not significant as of June 30, 1998 and
          1997.

                                                                    (Continued)

                                       11
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

      Loan fees and certain direct loan origination costs are deferred, and the
          net deferred fee or cost is then recognized using the level-yield
          method over the contractual life of the loans, adjusted for estimated
          prepayments.

      Real Estate
      -----------

      Real estate owned (acquired by foreclosure or voluntarily conveyed by
          delinquent borrowers) is initially recorded at fair value at the time
          of acquisition and subsequently reported at the lower of its new cost
          basis or fair value less estimated costs to sell. Gains and losses on
          real estate owned are credited or charged to operations.

      Provision for Loan Losses
      -------------------------

      Provisions for estimated losses on the loan portfolios, other than those
          specifically identified, are charged to earnings in an amount that
          results in a general loss allowance sufficient, in management's
          judgment, to cover anticipated losses based on past and expected
          future loss experience and economic conditions. Provisions for
          estimated losses on specific loans are charged to the allowance for
          loan losses when, in the opinion of management, a significant decline
          reduces the estimated fair value of the underlying collateral to less
          than its current carrying value.

      The Company adopted the provisions of SFAS No. 114, "Accounting by
          Creditors for Impairment of a Loan," as amended by SFAS No. 118,
          "Accounting by Creditors for Impairment of a Loan - Income Recognition
          and Disclosure," on July 1, 1995. Management considers a loan to be
          impaired when it is probable that the Company will be unable to
          collect all amounts due according to the contractual terms of the loan
          agreement. Generally, all nonaccrual loans are deemed to be impaired.
          In evaluating whether a loan is impaired, management considers not
          only the amount that the Company expects to collect but also the
          timing of collection. Generally, if a delay in payment is
          insignificant (e.g., less than 30 days), a loan is not deemed to be
          impaired.

                                                                   (Continued)

                                       12
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

      When a loan is considered to be impaired, the amount of impairment is
          measured based on the present value of expected future cash flows
          discounted at the loan's effective interest rate or at the loan's
          market price or fair value of the collateral if the loan is collateral
          dependent. The majority of loans deemed to be impaired by management
          are collateral dependent. Loans are evaluated individually for
          impairment. Smaller balance, homogeneous loans (e.g., primarily
          consumer and residential mortgages) are evaluated collectively for
          impairment. Impairment losses are included in the allowance for
          possible loan losses. Impaired loans are charged off when management
          believes that the ultimate collectibility of a loan is not likely.

      Interest income on impaired loans is recognized using the cash basis
          method. Interest on impaired loans that are contractually past due
          ninety days and over is reserved.

      Goodwill and Identified Intangibles
      -----------------------------------
  
      Intangible assets are reviewed for possible impairment when events or
          changed circumstances may affect the underlying basis of the asset.

      Premises and Equipment
      ----------------------
  
      Premises and equipment are stated at cost less accumulated depreciation
          and amortization. Depreciation is accumulated on a straight-line basis
          over the estimated useful lives of the related assets. Estimated lives
          are forty to fifty years for buildings, five years for automobiles and
          five to twenty years for furniture and other equipment. Amortization
          of leasehold improvements is accumulated on a straight-line basis over
          the terms of the related leases or the useful lives of the related
          assets, whichever is shorter.

      Savings Deposits
      ----------------
  
      Interest on savings deposits is accrued and charged to expense monthly and
          is paid or credited in accordance with the terms of the accounts.

                                                                   (Continued)

                                       13
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

      Income Taxes
      ------------
  
      Income tax expense is recognized after giving effect to special rules
          applicable to thrift institutions. The Company joins with its wholly
          owned subsidiary, Northwest, in filing a consolidated federal income
          tax return. Jamestown files a separate federal income tax return.

      The Company accounts for income taxes using the asset and liability
          method. The objective of the asset and liability method is to
          establish deferred tax assets and liabilities for temporary
          differences between the financial reporting and tax basis of the
          Company's assets and liabilities based on enacted tax rates expected
          to be in effect when such amounts are realized or settled.

      Pension Plan
      ------------
  
      The Company has noncontributory defined benefit pension plans. The net
          periodic pension cost has been calculated in accordance with Statement
          of Financial Accounting Standards No. 87, "Employers' Accounting for
          Pension."

      Reclassification of Prior Years' Statements
      -------------------------------------------
  
      Certain items previously reported have been reclassified to conform with
          the current year's reporting format.

      The number of shares and related earnings per share have been restated to
          reflect two-for-one stock splits in fiscal years 1998 and 1996 (see
          notes 13 and 14).

      Derivative Financial Instruments
      --------------------------------
  
      The Company has no involvement with financial instruments that meet the
          definition of a derivative as defined by SFAS 119, "Disclosures About
          Derivative Financial Instruments and Fair Value of Financial
          Instruments."

                                                                    (Continued)

                                       14
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

      Use of Estimates
      ----------------
  
      The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities, disclosure of contingent assets and liabilities at the
          date of the financial statements and the reported amount of revenues
          and expenses during the reporting period. Actual results could differ
          from these estimates.

(2)   Corporate Reorganization
      ------------------------
  
      On February 17, 1998, Northwest reorganized into a two-tier holding
          company structure. Northwest formed a new, state chartered stock
          holding company, Northwest Bancorp, Inc., which is 69.2% owned by
          Northwest Bancorp MHC. As a result of this reorganization, Northwest
          Bancorp, Inc. became the parent company of Northwest and owns 100% of
          Northwest's common stock. The previous shareholders of Northwest stock
          received an equivalent number of shares of the new publicly traded
          entity, Northwest Bancorp, Inc. Aside from this two-tier holding
          company structure giving the Company greater flexibility by
          maintaining the benefits of the mutual holding company while
          capitalizing on the additional opportunities available to stock
          holding companies, the operations remain unchanged.

      The reorganization was accounted for in a manner similar to a pooling of
          interests. Accordingly, the prior years' consolidated financial
          statements of the Company are identical to the prior periods'
          consolidated financial statements of Northwest.

(3)   Business Combinations
      ---------------------
  
      During fiscal 1998, the Company purchased 10 retail office facilities from
          two financial institutions and assumed deposits of $166,000,000. The
          resulting intangible asset of approximately $12,125,000 is being
          amortized over a 10-year period on a straight-line basis. In addition,
          the Company purchased, from Northwest Bancorp MHC, 64.3% of the common
          stock of Jamestown, which had assets of approximately $56,000,000, for
          cash of $3,920,000.

                                                                  (Continued)

                                       15
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)


      During fiscal 1997, Northwest completed the acquisition of a savings bank
          and a consumer discount company: The savings bank had assets of
          approximately $56,000,000 and was purchased for cash of $17,986,000,
          and the consumer discount company had assets of approximately
          $1,050,000 and was purchased for cash of $786,000. The acquisitions
          were recorded using the purchase method of accounting resulting in
          goodwill of approximately $3,000,000 which is being amortized over a
          10-year period on a straight-line basis.

      During fiscal 1996, Northwest completed the acquisition of two financial
          institutions: a commercial bank with assets of approximately
          $39,300,000 for $7,798,000 in cash and a savings bank with assets of
          approximately $45,600,000 for $7,230,000 in cash. The acquisitions
          were recorded using the purchase method of accounting resulting in
          goodwill of approximately $6,500,000 which is being amortized over a
          10-year period on a straight-line basis. Northwest also purchased a
          retail office facility and assumed deposits of $23,800,000 from
          another financial institution. The resulting deposit premium
          intangible of approximately $1,100,000 is being amortized over a
          10-year period on a straight-line basis.

                                                                  (Continued)

                                       16
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

(4)   Marketable Securities
      ---------------------

      Marketable securities at June 30, 1998, are as follows:

<TABLE> 
<CAPTION> 
                                                                           Gross              Gross
                                                                        unrealized         unrealized
                                                        Amortized         holding            holding           Market
                                                          cost             gains             losses             value
                                                         --------        --------           --------           -------   
      Held-to-maturity
      ----------------  
      <S>                                              <C>              <C>                <C>                 <C>   
      U.S. government and agencies:
           Due in one year or less                     $    9,978              23                 -             10,001
           Due after one year - five years                 26,380             507                 -             26,887
           Due after ten years                             15,000              94                 -             15,094
      Municipal securities:
           Due after ten years                              3,811             136                 -              3,947
      Corporate debt issues:
           Due in one year or less                            100               -                 -                100
           Due in five years - ten years                    2,305              25                 -              2,330
           Due after ten years                             25,447             329              (213)            25,563
      Mortgage-backed securities:
           Fixed rate pass-through                          5,663              82                 -              5,745
           Variable rate pass-through                       9,936             260              (137)            10,059
           Fixed rate CMO                                   4,578               3               (10)             4,571
           Variable rate CMO                               90,064             692            (2,236)            88,520
                                                         --------        --------           --------           -------   
                     Total mortgage-
                        backed securities                 110,241           1,037            (2,383)           108,895
                                                         --------        --------           --------           -------   
                     Total securities
                        held-to-maturity               $  193,262           2,151            (2,596)           192,817
                                                         ========        ========           ========           =======    
</TABLE> 
                                                                   (Continued)


                                       17
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)
<TABLE> 
<CAPTION> 
                                                                           Gross             Gross
                                                                        unrealized        unrealized
                                                       Amortized          holding           holding          Market
                                                          cost              gains            losses          value
                                                        --------         --------          --------         --------     
      Available-for-sale:
      ------------------
<S>                                                   <C>               <C>               <C>               <C> 
      U.S. government and agencies:
           Due in one year or less                    $    4,587               20                 -            4,607
           Due after one year - five years                53,015            1,123                (4)          54,134
           Due after five - ten years                      5,991                9                (5)           5,995
           Due after ten years                            12,233               30                (4)          12,259
      Equity securities                                    2,229            2,694                 -            4,923
      Municipal securities:
           Due after one year - five years                 2,158               70                (2)           2,226
           Due after five years - ten years                5,304              219                 -            5,523
           Due after ten years                            29,845              696                (1)          30,540
      Corporate debt issues:
           Due after ten years                               985                -                 -              985
      Mortgage-backed securities:
           Fixed rate pass-through                         5,396               15               (20)           5,391
           Variable rate pass-through                     11,523               75               (19)          11,579
           Fixed rate CMO                                     37                -                (2)              35
           Variable rate CMO                             178,000            2,263            (1,745)         178,518
                                                        --------         --------          --------         --------    
                      Total mortgage-
                        backed securities                194,956            2,353            (1,786)         195,523
                                                        --------         --------          --------         --------    
                     Total securities
                        available-for-sale            $  311,303            7,214            (1,802)         316,715
                                                        ========         ========          ========         ========
</TABLE> 

                                                                    (Continued)

                                       18
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

      Marketable securities at June 30, 1997, are as follows:

<TABLE> 
<CAPTION> 
                                                                          Gross              Gross
                                                                       unrealized          unrealized
                                                      Amortized          holding            holding           Market
                                                        cost              gains             losses            value
                                                      ----------         --------          --------         ---------     
      Held-to-maturity:
      ----------------
<S>                                                  <C>                <C>                <C>              <C> 
      U.S. government and agencies:
           Due in one year or less                   $   12,057                47                -            12,104
           Due after one year - five years               30,811               436              (17)           31,230
      Corporate debt issues:
           Due in one year or less                          201                 -                -               201
           Due after one year - five years                  100                 -                -               100
           Due after ten years                              250                 -                -               250
      Mortgage-backed securities:
           Fixed rate pass-through                       10,853                30             (112)           10,771
           Variable rate pass-through                    13,397               335              (42)           13,690
           Fixed rate CMO                                 1,400                 2               (3)            1,399
           Variable rate CMO                             84,911               673           (2,585)           82,999
                                                      ----------         --------          --------         ---------  
                     Total mortgage-
                        backed securities               110,561             1,040           (2,742)          108,859
                                                      ----------         --------          --------         ---------     
                     Total securities
                        held-to-maturity             $  153,980             1,523           (2,759)          152,744
                                                      ==========         ========          ========         =========     
</TABLE> 

                                                                    (Continued)

                                       19
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

<TABLE> 
<CAPTION> 
                                                                         Gross             Gross
                                                                      unrealized        unrealized
                                                    Amortized           holding           holding           Market
                                                      cost               gains            losses            value
                                                    ---------          --------          --------         --------       
      Available-for-sale:
      ------------------
<S>                                                <C>                <C>               <C>              <C>         
      U.S. government and agencies:
           Due in one year or less                 $    3,197                 5                -             3,202
           Due after one year - five years             34,730               431             (100)           35,061
           Due after ten years                         25,363                11             (365)           25,009
      Equity securities                                 2,169             1,754                -             3,923
      Municipal securities:
           Due in one year - five years                 2,403                27               (9)            2,421
           Due in five years - ten years                5,824                81               (4)            5,901
           Due after ten years                          3,095                72                -             3,167
      Mortgage-backed securities:
           Fixed rate pass-through                     36,782             1,198              (84)           37,896
           Variable rate pass-through                     770                14                -               784
           Fixed rate CMO                                  99                 8                -               107
           Variable rate CMO                          143,658             1,225           (2,634)          142,249
                                                    ---------          --------          --------         --------       
                     Total mortgage-
                        backed securities             181,309             2,445           (2,718)          181,036
                                                    ---------          --------          --------         --------       
                     Total securities
                        available-for-sale         $  258,090             4,826           (3,196)          259,720
                                                    =========          ========          ========         ========       
</TABLE> 

Expected maturities for mortgage-backed securities will differ from contractual
  maturities because borrowers may have the right to call or prepay obligations.


                                                                   (Continued)

                                       20
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)


The following table presents information regarding the issuers and the carrying 
  value of the Company's mortgage-backed securities:


                                                              June 30,
                                                      -----------------------
                                                         1998         1997
                                                      ----------    ---------   
     Mortgage-backed securities:                                  
           FNMA                                       $  143,992      140,775
           GNMA                                           12,457       29,338
           FHLMC                                         138,962      120,400
           Other (nonagency)                              10,353        1,084
                                                      ----------    ---------   
                       Total mortgage-backed                      
                           securities                 $  305,764      291,597
                                                      ==========    =========   

      Marketable securities having a carrying value of $60,100,000 at June 30,
          1998, were pledged to secure public deposits. During the fiscal years
          1998 and 1997, the Company sold marketable securities classified as
          either available-for-sale or trading for $75,588,000 and $15,496,000,
          respectively, realizing a gross pretax profit of $1,500,000 in fiscal
          1998 and $901,000 in fiscal 1997. During fiscal year 1996 the Company
          did not sell any marketable securities.

                                                                   (Continued)

                                       21
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)



(5)   Loans Receivable

      Loans receivable at June 30, 1998 and 1997, are summarized in the table
below:


                                                         1998           1997
                                                         ----           ----
 Real estate loans:                                                
      One- to four-family                          $  1,368,736      1,096,315
      Multi-family and commercial                       128,831        100,912
                                                     ----------     ---------- 
                   Total real estate loans            1,497,567      1,197,227
 Consumer loans:                                                   
      Home equity and home improvement                   33,963         37,607
      Education loans                                    59,791         53,542
      Loans on savings accounts                           6,898          7,176
      Other                                             252,443        212,472
                                                     ----------     ---------- 
                   Total consumer loans                 353,095        310,797
                                                   
Commercial loans                                        123,188         86,087
                                                     ----------     ---------- 
                   Total loans receivable, gross      1,973,850      1,594,111
                                                   
 Deferred loan fees                                      (1,357)        (2,384)
 Undisbursed loan proceeds (real estate loans)          (49,435)       (41,618)
 Allowance for loan losses (real estate loans)           (8,103)        (6,898)
 Allowance for loan losses (other loans)                 (7,666)        (6,713)
                                                     ----------     ---------- 
                   Total loans receivable, net     $  1,907,289      1,536,498
                                                     ==========     ========== 

      At June 30, 1998 and 1997, the Company serviced loans for others
          approximating $90,930,000 and $97,869,000, respectively. These loans
          serviced for others are not assets of the Company and are
          appropriately excluded from the Company's financial statements.

      At June 30, 1998, approximately 90% of the Company's net loan portfolio
          was secured by properties located in Pennsylvania. The Company does
          not believe it has significant concentrations of credit risk to any
          one group of borrowers given its underwriting and collateral
          requirements.
                                                                    (Continued)

                                       22
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

      Loans receivable at June 30, 1998, include $170,562,000 of adjustable rate
          loans and $1,803,288,000 of fixed rate loans.

      In the normal course of business, the Company extends credit in the form
          of mortgage commitments, undisbursed lines of credit and standby
          letters of credit. These off-balance-sheet instruments involve, to
          various degrees, elements of credit and interest rate risk not
          reported in the consolidated statement of financial condition.

      The Company's exposure to credit loss in the event of nonperformance by
          the other party to these financial instruments is represented by the
          contract amount of the financial instrument. The Company uses the same
          credit policies in making commitments for off-balance-sheet financial
          instruments as it does for on-balance-sheet instruments. Financial
          instruments with off-balance-sheet risk as of June 30, 1998 and 1997,
          are presented in the following table:

                                                              June 30,
                                                       -----------------------
                                                        1998             1997
                                                       -----            ------

             Mortgage loan commitments             $   51,746           22,434
             Undisbursed lines of credit               66,539           57,838
             Standby letters of credit                  2,259            2,319
                                                      -------           ------
                                                   $  120,544           82,591
                                                      =======           ======

      Commitments to extend credit are agreements to lend to a customer as long
          as there is no violation of any condition established in the contract.
          Commitments generally have fixed expiration dates or other termination
          clauses and may require payment of a fee. The Company evaluates each
          customer's creditworthiness on a case-by-case basis. The amount of
          collateral obtained, if deemed necessary, by the Company upon
          extension of credit is based on management's credit evaluation of the
          counterparty. Collateral held varies but generally may include cash,
          marketable securities and property.

      Outstanding mortgage loan commitments at June 30, 1998, for fixed rate
          loans, are $51,746,000. The interest rates on these commitments
          approximate market rates at June 30, 1998. The fair value of these
          commitments are affected by fluctuations in market rates of interest.
          There were no outstanding adjustable rate mortgage loan commitments as
          of June 30, 1998.

                                                                   (Continued)

                                       23
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

      As discussed in note 1, on July 1, 1995, the Company adopted SFAS No.
          114, "Accounting by Creditors for Impairment of a Loan," and SFAS No.
          118, "Accounting by Creditors for Impairment of a Loan-Income
          Recognition and Disclosures." All of the Company's nonaccrual loans,
          which totaled $8,612,000 at June 30, 1998, and $10,430,000 at June 30,
          1997, are considered to be impaired loans. Average impaired loans
          during 1998 and 1997 were $11,204,000 and $11,818,000, respectively.
          All of the Company's impaired loans at June 30, 1998, were collateral
          dependent. Since, at June 30, 1998 and 1997, the value of the
          collateral for each impaired loan exceeded the carrying value of the
          impaired loan, no impairment reserve was established. Interest income
          on impaired loans for fiscal 1998 and 1997, recognized using a cash
          basis method of accounting, was $230,000 and $305,000, respectively.
          There was no interest income recognized on impaired loans during
          fiscal 1996.

      There were no commitments to lend additional funds to debtors on
nonaccrual status.

(6)   Accrued Interest Receivable
      ---------------------------

      Accrued interest receivable as of June 30, 1998 and 1997, is presented in
the following table:
                                                            June 30,
                                                     -----------------------   
                                                      1998             1997
                                                     ------           ------ 
                                                                             
        Investment securities                     $   2,701            2,072
        Mortgage-backed securities                    1,588            1,264
        Loans receivable                              8,965            7,691
                                                    -------          -------
                                                  $  13,254           11,027
                                                    =======          =======

(7)   Allowance for Estimated Losses
      ------------------------------

      Changes in the allowance for losses on loans receivable for the years
          ended June 30, 1998, 1997 and 1996, are presented in the following
          table:

                                                  1998        1997        1996
                                                  ----        ----        ----

        Balance, beginning of fiscal year     $  13,611      13,130      11,833
                                                                   
              Provision                           4,072       2,491       1,502
              Charge-offs                        (2,516)     (2,537)     (1,333)
              Acquisitions                          209         153         700
              Recoveries                            393         374         428
                                                 ------      ------      ------
         Balance, end of fiscal year          $  15,769      13,611      13,130
                                                 ======      ======      ======
         
                                                            (Continued)

                                       24
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

      Management believes that the allowance for estimated losses is adequate as
          of June 30, 1998. While management uses available information to
          provide for losses, future additions to the allowance may be necessary
          based on changes in economic conditions. In addition, various
          regulatory agencies, as an integral part of their examination process,
          periodically review the Company's allowance for losses. Such agencies
          may require the Company to recognize additions to the allowance based
          on their judgments about information available to them at the time of
          their examination.

(8)   Federal Home Loan Bank Stock
      ----------------------------
  
      The Company's banking subsidiaries are members of the Federal Home Loan
          Bank system. As a member, Northwest maintains an investment in the
          capital stock of the Federal Home Loan Bank of Pittsburgh, at cost, in
          an amount not less than 1% of its outstanding home loans or 1/20 of
          its outstanding notes payable to the Federal Home Loan Bank, whichever
          is greater, as calculated at December 31 of each year.

(9)   Premises and Equipment
      ----------------------
  
      Premises and equipment at June 30, 1998 and 1997, are summarized by major
          classification in the following table:

                                                         1998          1997
                                                         ----          ----
 Land and land improvements                          $   2,987         2,413
 Office buildings and improvements                      25,942        21,636
 Furniture, fixtures and equipment                      17,088        15,098
 Leasehold improvements                                  3,211         3,023
                                                       -------       -------
                   Total, at cost                       49,228        42,170
                                                                 
      Less accumulated depreciation and                          
        amortization                                    22,989        20,689
                                                       -------       -------
                   Premises and equipment, net       $  26,239        21,481
                                                       =======       =======

      Depreciation and amortization expense for the years ended June 30, 1998,
        1997 and 1996, was $2,118,000, $1,879,000, and $1,645,000, respectively.

                                                                     (Continued)

                                       25
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)


      Premises used by certain of the Company's branches and offices are
          occupied under formal operating lease arrangements. The leases expire
          on various dates through 2012. Minimum annual rentals by fiscal year
          are summarized in the following table:

                 1999                              $  1,151
                 2000                                   912
                 2001                                   611
                 2002                                   372
                 2003                                   263
                 Thereafter                             699
                                                     ------
                                   Total           $  4,008
                                                     ======

      Rental expense for the years ended June 30, 1998, 1997 and 1996, was
          $1,379,000, $1,362,000 and $1,268,000, respectively.

(10)  Savings Deposits
      ----------------

      Savings deposit balances at June 30, 1998 and 1997, are shown in the table
      below:

                                                          1998         1997
                                                          ----         ----
                                                                   
        Passbook accounts                          $     340,377      299,365
        Interest-bearing checking accounts               280,958      206,299
        Noninterest-bearing checking accounts             34,797       16,546
        Money market deposit accounts                    114,187       83,609
        Certificates of deposit                        1,252,184    1,034,996
                                                       ---------    ---------
                                                   $   2,022,503    1,640,815
                                                       =========    =========

       The aggregate amount of certificates of deposit with a minimum
           denomination of $100,000 was approximately $151,268,000 at June 30,
           1998.

                                                                  (Continued)

                                       26
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)


       The following table summarizes the contractual maturity of the
certificate accounts:

                                                     1998              1997
                                                     ----              ----
                                                               
      Due within 12 months                     $    771,665          607,421
      Due between 12 and 24 months                  347,456          264,117
      Due between 24 and 36 months                   56,719           92,953
      Due between 36 and 48 months                   24,836           22,861
      After 48 months                                51,508           47,644
                                                  ---------        ---------
                                               $  1,252,184        1,034,996
                                                  =========        =========

       The following table summarizes the interest expense incurred on the
respective savings deposits:

                                                   Year ended June 30,
                                               -----------------------------    
                                                1998        1997       1996
                                                ----        ----       ---- 
      Passbook accounts                      $ 10,227       9,490      9,322
      Interest-bearing checking accounts        4,469       3,992      3,396
      Money market deposit accounts             3,395       2,735      2,595
      Certificate accounts                     66,955      56,410     46,348
                                               ------      ------     ------
                                             $ 85,046      72,627     61,661
                                               ======      ======     ======

                                                                    (Continued)

                                       27
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)



(11)   Borrowed Funds
       --------------

       Borrowed funds at June 30, 1998 and 1997, are presented in the following
table:

       Term notes payable to the Federal Home Loan Bank of Pittsburgh:

<TABLE> 
<CAPTION> 
                                                                     1998                         1997
                                                         --------------------------     --------------------------
                                                                            Average                        Average
                                                            Amount           rate           Amount          rate
                                                            ------          -----           ------          ----   
         <S>                                              <C>              <C>            <C>              <C>    
           Due within one year                            $   43,000       %  5.86        $   11,000       % 5.86 
           Due between one and two years                       2,000          7.18            43,000         5.94 
           Due between two and three years                     8,000          6.07             2,000         7.18 
           Due between three and five years                   42,200          6.06                 -            - 
           Due between five and ten years                     25,150          6.04               350         3.43 
           Due between ten and twenty years                    1,811          3.65             1,862         3.65 
                                                           ---------                       ---------              
                                                             122,161          5.97            58,212         5.88 
                                                                                                                  
         Revolving line of credit, Federal                                                                        
           Home Loan Bank of Pittsburgh                      110,000          5.74           106,000         6.25  
                                                                                                    
         ESOP note payable, variable rate                                                           
           equal to prime, payable in five                                                          
           annual installments of $862,                                                             
           excluding interest, beginning                                                            
           January 1996 (note 14)                              1,412          8.50             2,358         8.31 
                                                                                                                  
         Investor notes payable, due                                                                              
           various dates through 2002                          6,105          6.46             6,772         6.42 
                                                                                                                  
         Securities sold under agreement to                                                                       
           repurchase, due various dates                                                                          
           through fiscal 1999                                50,028          5.48            50,116         5.60  
                                                            --------                        --------
                          Total borrowed funds            $  289,706                      $  223,458
                                                            ========                        ======== 
</TABLE> 
                                                                   (Continued)

                                       28
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

       Borrowings from the Federal Home Loan Bank of Pittsburgh are secured by
           the Company's investment securities, mortgage-backed securities and
           qualifying residential first mortgage loans, to the extent that the
           defined statutory value must be at least 120% of the amount of the
           notes outstanding. Certain of these borrowings are subject to
           restrictions or penalties in the event of prepayment.

       The revolving line of credit with the Federal Home Loan Bank of
           Pittsburgh carries a commitment of $175,000,000 maturing on June 28,
           1999. The rate is adjusted daily by the Federal Home Loan Bank and
           any borrowings on this line may be repaid at any time without
           penalty.

       The securities sold under agreements to repurchase are collateralized by
           various securities held in safekeeping by the Federal Home Loan Bank
           of Pittsburgh. The market value of such securities exceeds the value
           of the securities sold under agreements to repurchase. The average
           amount of agreements outstanding in fiscal years 1998 and 1997 was
           $41,220,000 and $16,578,000, respectively. The maximum amount of
           security repurchase agreements outstanding during fiscal years 1998
           and 1997 was $50,028,000 and $50,116,000, respectively.

(12)   Income Taxes
       ------------
 
       Total income tax expense (benefit) was allocated for the years ended June
           30, 1998, 1997 and 1996, as follows:

<TABLE> 
<CAPTION> 

                                                                        1998            1997             1996
                                                                        ----            ----             ----
<S>                                                                  <C>             <C>             <C> 
            Income before income taxes                               $ 12,995          8,472           10,803
            Shareholders' equity for unrealized gain                 
                 on securities                                          1,423           (226)            (109)
            Shareholders' equity for tax benefit for                 
                 excess of fair value above cost of                  
                 stock option and recognition and                    
                 retention plans                                         (449)             -                -
                                                                       ------          -----           ------
                                                                     $ 13,969          8,246           10,694
                                                                       ======          -----           ======
</TABLE> 
                                                                    (Continued)

                                       29
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)


       Income tax expense (benefit) applicable to income before taxes consists
of:

<TABLE> 
<CAPTION> 
                                                                              Year ended June 30,
                                                                      ----------------------------------     
                                                                      1998           1997           1996      
                                                                      ----           ----           ----     
            <S>                                                    <C>              <C>           <C>        
            Current                                                $ 13,455          9,633         10,203    
            Deferred                                                   (460)        (1,161)           600    
                                                                     ------          -----         ------    
                                                                   $ 12,995          8,472         10,803    
                                                                     ======          =====         ======    
</TABLE> 

       The significant components of deferred income tax expense (benefit) are
as follows:

<TABLE> 
<CAPTION> 
                                                                                   June 30,
                                                                      ----------------------------------
                                                                      1998           1997           1996      
                                                                      ----           ----           ----
            <S>                                                    <C>              <C>             <C>  
            Deferred income tax (benefit) expense                  $   (609)        (1,324)           571      
            NOL carryforward                                            149            163             29      
                                                                        ---          -----            ---      
                                                                    $  (460)        (1,161)           600      
                                                                        ===          =====            ===       
</TABLE> 

       A reconciliation from the expected federal statutory income tax rate to
         the effective rate, expressed as a percentage of pretax income, is as
         follows:

<TABLE> 
<CAPTION> 
                                                                                Year ended June 30, 
                                                                      ----------------------------------
                                                                      1998           1997           1996 
                                                                      ----           ----           ----
            <S>                                                     <C>              <C>            <C>  
            Expected tax rate                                       %  35.0          35.0           35.0      
            Tax-exempt interest income                                 (1.9)         (1.3)          (1.9)     
            State income tax, net of federal and                                                              
                 state taxes                                            3.4           4.1            4.7      
            Valuation allowance                                         0.6             -              -      
            Other differences, net                                      1.0            .5             .4      
                                                                       ----          ----           ----      
            Effective tax rate                                      %  38.1          38.3           38.2      
                                                                       ====          ====           ====      
</TABLE> 

                                                                 (Continued)

                                       30
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)


       The tax effects of temporary differences that give rise to significant
           portions of the deferred tax assets and deferred tax liabilities at
           June 30, 1998 and 1997, are presented below:

<TABLE> 
<CAPTION> 
                                                                                      1998              1997
                                                                                      ----              ----
            <S>                                                                     <C>               <C> 
            Deferred tax assets:
                 Deferred fee income                                                $  1,399           1,131
                 Deferred compensation expense                                           959             850
                 Net operating loss carryforwards                                        797             292
                 Bad debts                                                             2,396           1,418
                 Accrued postretirement benefit cost                                     380             395
                 Pension expense                                                         241             209
                 Other                                                                   611           1,196
                                                                                      ------           -----
                                                                                       6,783           5,491
                                                                                                      
                    Valuation allowance                                                 (807)              -
                                                                                      ------           -----
                                                                                       5,976           5,491
                                                                                                      
            Deferred tax liabilities:                                                                 
                 Marketable securities                                                 2,027             604
                 Other                                                                   301             276
                                                                                      ------           -----
                                                                                       2,328             880
                                                                                       -----           -----
                                                                                                      
                              Net deferred tax asset                                $  3,648           4,611
                                                                                       =====           =====
</TABLE> 

       The Company has recorded a full valuation reserve on the deferred tax
           assets related to Jamestown. The Company has determined that no
           valuation allowance is necessary for the remaining deferred tax
           assets because it is more likely that these assets will be realized
           through carryback to taxable income in prior years, future reversals
           of existing temporary differences and, to a lesser extent, through
           future taxable income. The Company will continue to review the
           criteria related to the recognition of deferred tax assets on a
           quarterly basis.

       Under provisions of the Internal Revenue Code, Northwest has
           approximately $408,000 of net operating losses which expire in years
           2005 through 2010. Jamestown has net operating losses of
           approximately $1,870,000 which expire in years 2011 through 2013.

                                                                  (Continued)

                                       31
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)


(13)   Shareholders' Equity
       --------------------

       The Board of Directors of Northwest authorized two-for-one common stock
           splits in the form of stock dividends in October 1997 and April 1996.
           The additional shares resulting from the splits were distributed on
           November 14, 1997, to shareholders of record on November 1, 1997, and
           on May 15, 1996, to shareholders of record on May 8, 1996,
           respectively.

       Retained earnings are partially restricted in connection with regulations
           related to the insurance of savings accounts which require Northwest
           to maintain certain statutory reserves. Northwest and Jamestown may
           not pay dividends on or repurchase any of their common stock if the
           effect thereof would reduce retained earnings below the level of
           adequate capitalization as defined by federal and state regulators.

       In tax years prior to fiscal 1997, Northwest was permitted, under the
           Internal Revenue Code (the Code), to deduct an annual addition to a
           reserve for bad debts in determining taxable income, subject to
           certain limitations. Bad debt deductions for income tax purposes are
           included in taxable income of later years only if the bad debt
           reserve is used subsequently for purposes other than to absorb bad
           debt losses. Because Northwest does not intend to use the reserve for
           purposes other than to absorb losses, no deferred income taxes have
           been provided prior to 1987. Retained earnings at June 30, 1998,
           includes approximately $27,160,000 representing such bad debt
           deductions for which no deferred income taxes have been provided.

                                                                   (Continued)

                                       32
<PAGE>
 
                   NORTHWEST BANCORP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

           (All dollar amounts presented in tables are in thousands)


(14)   Earnings Per Share
       ------------------

       Effective December 31, 1997, the Company adopted SFAS 128, "Earnings Per
           Share" ("SFAS 128"). SFAS 128 supersedes APB Opinion No. 15,
           "Earnings Per Share," and specifies the computation, presentation and
           disclosure requirements for earnings per share ("EPS") for entities
           with publicly held stock or potential common stock. Essentially, this
           promulgation replaces the primary EPS and fully diluted EPS
           presentations under APB Opinion No. 15 with a basic EPS and diluted
           EPS presentation. It also requires dual presentation of basic and
           diluted EPS on the face of the income statement for all entities with
           a complex capital structure and requires a reconciliation of the
           components of basic and diluted EPS. Basic EPS excludes common stock
           equivalents and dilution and is computed by dividing income available
           to common shareholders by the weighted-average number of common
           shares outstanding for the period. 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. Prior periods' EPS data presented have been
           restated. The computation of basic and diluted earnings per share is
           shown in the table below:

<TABLE> 
<CAPTION> 
                                                                              Year ended June 30,
                                                                   -----------------------------------------
                                                                   1998             1997              1996
                                                                   ----             ----              ----
                  <S>                                           <C>                <C>               <C> 
                  Net income applicable to                                                
                       common stock                             $ 21,322           13,664            17,486
                  Weighted-average common                                                            
                       shares outstanding                         46,405           46,150            45,708
                                                                  ------           ------            ------
                             Basic earnings per share           $    .46              .30               .38
                                                                  ======           ======            ======
                                                                                                     
                  Net income applicable to                                                           
                       common stock                             $ 21,322           13,664            17,486
                                                                  ======           ======            ======
                  Weighted-average common                                                            
                       shares outstanding                         46,405           46,150            45,708
                  Common stock equivalents due                                                       
                       to effect of stock options                    698              151                 5
                                                                  ------           ------            ------
                  Total weighted-average common                                                      
                       shares and equivalents                   $ 47,103           46,301            45,713
                                                                  ======           ======            ======
                             Diluted earnings per                                                    
                                  share                         $    .45              .30               .38
                                                                 =======           ======            ======
</TABLE> 
                                                                   (Continued)

                                       33
<PAGE>
 
                   NORTHWEST BANCORP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

           (All dollar amounts presented in tables are in thousands)



(15)   Employee Benefit Plans
       ----------------------

       Pension Plans
       -------------

       The Company maintains noncontributory defined benefit pension plans
           covering substantially all of the Company's employees and the members
           of the Board of Directors. In addition, the Company has an unfunded
           Supplemental Executive Retirement Plan (SERP) to compensate those
           executive participants eligible for the Company's defined benefit
           pension plan whose benefits are limited by section 415 of the Code of
           the Internal Revenue Service (which caps annual benefits at $150,000
           beginning in 1994).

       The Company also sponsors a retirement savings plan in which
           substantially all employees participate. The Company provides a
           matching contribution of 50% of employee contributions to a maximum
           of 6% of employee compensation.

       Total expense for all retirement plans, including defined benefit pension
           plans, was approximately $1,872,000, $1,644,000 and $1,762,000 for
           the years ended June 30, 1998, 1997 and 1996, respectively. Net
           periodic pension cost for the Company's defined benefit pension plans
           consist of the following:

<TABLE> 
<CAPTION> 
                                                                                Year ended June 30,
                                                                        ----------------------------------
                                                                         1998           1997          1996
                                                                         ----           ----          ----
              <S>                                                   <C>               <C>           <C> 
              Service cost                                          $   1,066            924           670
              Interest cost                                             1,046            896           775
              Actual return on plan assets                             (2,206)        (1,903)       (1,291)
              Net amortization and deferral                             1,346          1,206         1,076
                                                                        -----          -----         -----
              Net periodic pension cost                             $   1,252          1,123         1,230
                                                                        =====          =====         =====
</TABLE> 

                                                                    (Continued)

                                       34
<PAGE>
 
                   NORTHWEST BANCORP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

           (All dollar amounts presented in tables are in thousands)



       The following table sets forth, for the Company's defined benefit pension
           plans, the plans' funded status and amounts recognized in the
           Company's consolidated statements of financial condition at June 30,
           1998 and 1997:
<TABLE> 
<CAPTION> 
                                                                                    1998           1997
                                                                                    ----           ----
              <S>                                                                <C>              <C> 
              Actuarial present value of benefit obligations:
                   Accumulated benefit obligation,
                      including vested benefits of $12,716
                      and $11,034, respectively                                  $  (13,408)       (11,538)
                                                                                     ------         ------

                   Projected benefit obligation                                     (17,709)       (15,076)
                   Plan assets at fair value (primarily equity and
                      fixed-income securities)                                       15,986         12,911
                                                                                     ------         ------
                   Projected benefit obligation in excess
                      of plan assets                                                 (1,723)        (2,165)
                   Unrecognized transition asset                                       (379)          (419)
                   Unrecognized net loss                                                331            811
                   Unrecognized prior service cost                                      894            988
                   Adjustment to recognize minimum liability                           (343)           (96)
                                                                                     ------         ------
                   Accrued pension cost                                         $    (1,220)          (881)
                                                                                     ------         ------
</TABLE> 
       The following table sets forth the assumptions used to develop the net
pension cost:
<TABLE> 
<CAPTION> 
                                                                               Year ended June 30,
                                                                        ----------------------------------
                                                                        1998           1997           1996
                                                                        ----           ----           ----
              <S>                                                       <C>            <C>            <C> 
              Discount rate                                            %  7              7             7
              Expected long-term rate of return on assets                 7              7             7
              Rate increase in compensation levels                        4              4             4
</TABLE> 
                                                                  (Continued)

                                       35
<PAGE>
 
                   NORTHWEST BANCORP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

           (All dollar amounts presented in tables are in thousands)



       Postretirement Healthcare Plan
       ------------------------------

       In addition to pension benefits, the Company provides postretirement
           healthcare benefits for certain employees who were employed as of
           October 1, 1993, and were at least 55 years of age on that date.
           Effective July 1, 1993, the Company adopted Statement of Financial
           Accounting Standards No. 106, "Employers' Accounting for
           Postretirement Benefits Other than Pensions" (SFAS 106). SFAS 106
           requires the accrual method of accounting for postretirement benefits
           other than pensions. Previously, the Company accounted for these
           benefits on a pay-as-you-go (cash) basis.

       Net periodic cost for the Company's postretirement healthcare benefits
consist of the following:
<TABLE> 
<CAPTION> 
                                                                               Year ended June 30,
                                                                        --------------------------------
                                                                        1998          1997          1996
                                                                        ----          ----          ----
              <S>                                                   <C>               <C>           <C> 
              Service cost                                          $     41             71            71
              Interest cost                                               44             88            81
              Net amortization and deferral                             (130)             -             -
                                                                         ---            ---           ---
              Net periodic (benefit) cost                           $    (45)           159           152
                                                                         ---            ---           ---
</TABLE> 

       The following table sets forth the funded status of the Company's
           postretirement healthcare benefit plan and the amounts recognized in
           the Company's consolidated statements of financial condition at June
           30, 1998 and 1997:
<TABLE> 
<CAPTION> 
                                                                                     1998           1997
                                                                                     ----           ----
              <S>                                                                <C>             <C> 
              Accumulated benefit obligation                                     $     (837)         (639)
              Plan assets at fair value                                                   -             -
                                                                                      -----         -----
              Accumulated benefit obligation in excess
                   of plan assets                                                      (837)         (639)

              Unrecognized net gain                                                    (194)         (478)
                                                                                      -----         -----
              Accrued postretirement benefit cost                                $   (1,031)       (1,117)
                                                                                      -----         -----
</TABLE> 

                                                                   (Continued)

                                       36
<PAGE>
 
PHIL

                   NORTHWEST BANCORP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

           (All dollar amounts presented in tables are in thousands)



       The assumptions used to develop the preceding information for
           postretirement healthcare benefits are as follows:
<TABLE> 
<CAPTION> 
                                                                             Year ended June 30,
                                                                       -------------------------------
                                                                       1998          1997         1996
                                                                       ----          ----         ----
              <S>                                                  <C>             <C>          <C> 
              Discount rate                                        %      7             7            7
              Monthly cost of healthcare insurance
                   per beneficiary                                 $ 113.94         92.73       102.74
              Annual rate of increase in healthcare costs          %      4             4            8
</TABLE> 

       If the assumed rate of increase in healthcare costs was increased by one
           percentage point to 5% from the level of 4% presented above, the
           service and interest cost components of net periodic postretirement
           healthcare benefit cost would increase by $6,661, in the aggregate,
           and the accumulated postretirement benefit obligation for healthcare
           benefits would increase by $84,950.

       Employee Stock Ownership Plan
       -----------------------------

       The Company has established a leveraged employee stock ownership plan
           (ESOP) for employees who have attained age 21 and who have completed
           a 12-month period of employment with the Company during which they
           worked at least 1,000 hours. The Company makes annual contributions
           to the ESOP equal to the ESOP's debt service less the dividends
           received on unearned ESOP shares. The ESOP shares are pledged as
           collateral for its debt. As the debt is repaid, shares are released
           from collateral and become eligible for allocation to employee
           accounts. Actual ESOP share allocations to employee accounts are
           based on each employee's relative portion of the Company's total
           eligible compensation recorded during the year shares are earned.

       The Company accounts for its ESOP in accordance with AICPA Statement of
           Position 93-6. Accordingly, the debt of the ESOP is recorded as debt
           and the shares pledged as collateral are reported as unearned ESOP
           shares in the Company's consolidated statement of financial
           condition. As shares are earned, the Company reports compensation
           expense equal to the current market price of the shares, and the
           shares become outstanding for earnings-per-share computations.
           Dividends on allocated ESOP shares are recorded as a reduction of
           retained earnings; dividends on unallocated ESOP shares are paid to
           the trustee for debt service. ESOP compensation expense was
           $2,668,000, $1,437,000 and $1,359,000 for the fiscal years ended June
           30, 1998, 1997 and 1996, respectively.

                                                                   (Continued)

                                       37
<PAGE>
 
                   NORTHWEST BANCORP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

           (All dollar amounts presented in tables are in thousands)



       The ESOP shares as of June 30, 1998 and 1997, were as follows:
<TABLE> 
<CAPTION> 
                                                                                     1998            1997
                                                                                     ----            ----
              <S>                                                                <C>             <C> 
              Allocated shares                                                      818,010         626,564
              Unearned shares                                                       285,990         477,436
                                                                                  ---------      ----------
                                                                                  1,104,000       1,104,000
                                                                                  ---------      ----------

              Fair value of unearned shares at June 30                              $ 4,522           3,700
                                                                                      -----           -----
</TABLE> 

       Recognition and Retention Plan
       ------------------------------

       On November 21, 1995, the Company established a Recognition and Retention
          Plan for Employees and Outside Directors (RRP). The objective of the
          RRP is to enable the Company to provide directors, officers and
          employees with a proprietary interest in the Company as an incentive
          to contribute to its success. The number of common shares issued and
          granted under the RRP was 552,000 (total market value of $3,243,000 at
          issuance date). Shares of common stock granted pursuant to the RRP
          will be in the form of restricted stock and generally will be payable
          over a five-year period at the rate of 20% per year, commencing on the
          date of the award grant. Compensation expense, in the amount of the
          fair market value of the common stock at the date of the grant, will
          be recognized pro rata over the five years during which the shares are
          payable. A recipient will be entitled to all voting and other
          shareholder rights, except that the shares, while restricted, may not
          be sold, pledged or otherwise disposed of and are required to be held
          in a trust.

                                                                  (Continued)

                                       38
<PAGE>
 
                   NORTHWEST BANCORP, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

           (All dollar amounts presented in tables are in thousands)



       Stock Option Plan
       -----------------

       On November 21, 1995, the Company adopted the 1995 Stock Option Plan. The
          objective of the Stock Option Plan is to provide an additional
          performance incentive to the Company's employees and outside
          directors. The Stock Option Plan authorized the grant of stock options
          and limited stock appreciation rights for 1,380,000 shares of the
          Company's common stock. On December 20, 1995, the Company granted
          242,000 nonstatutory stock options to its outside directors at an
          exercise price of $5.58 per share (95% of the Company's common stock
          fair market value per share at grant date) and 923,200 incentive stock
          options to employees at an exercise price of $5.875 per share. On
          March 22, 1996, the Company granted 122,800 incentive stock options to
          employees at an exercise price of $5.625 per share. These options are
          exercisable for a period of ten years from the grant date with each
          recipient vesting at the rate of 20% per year commencing with the
          grant date. The remaining 92,000 options are to be granted to
          employees as incentive stock options at an exercise price equal to the
          Company's common stock fair value per share at grant date.

       The following table summarizes the activity in the Company's Option Plan
          during the periods ending June 30:
<TABLE> 
<CAPTION>
                                                 1998                          1997                         1996
                                      -------------------------     -------------------------    --------------------------
                                                    Weighted                      Weighted                      Weighted
                                                     average                       average                       average
                                       Number    exercise price     Number     exercise price    Number      exercise price
                                       ------    --------------     ------     --------------    ------      --------------
         <S>                           <C>       <C>               <C>         <C>              <C>          <C> 
         Balance at beginning
            of year                   1,288,000     $  5.80        1,288,000      $  5.80               -       $     -
         Granted                              -           -                -            -       1,288,000 (b)      5.80
         Exercised                      (99,520)       5.66                -            -               -             -
         Forfeited                       (2,880)       5.63                -            -               -             -
                                      ---------        ----        ---------         ----       ---------          ----
         Balance at end of year       1,185,600     $  5.81 (a)    1,288,000      $  5.80       1,288,000       $  5.80
                                      ---------        ----        ---------         ----       ---------          ----
                                                                                                                 
         Exercisable at end                                                                                      
              of year                   711,360     $  5.81          515,200      $  5.80         257,600       $  5.80
                                      ---------        ----        ---------         ----       ---------          ----
</TABLE> 

        (a) Exercise price range:  $5.58 to $5.88
        (b) Weighted average fair value of options at grant date: $1.16

                                                                  (Continued)

                                       39
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)



       The average remaining contractual life of the options as of June 30,
1998, is 7.6 years.

       The Company applies APB Opinion No. 25 and related interpretations in
           accounting for its plans. Had compensation costs for the Stock Option
           Plan been determined consistent with SFAS 123, "Accounting for
           Stock-Based Compensation," which permits entities to expense an
           estimated fair value of employee stock options granted, the Company's
           net income and earnings per share would have been reduced to the pro
           forma amounts indicated below:
<TABLE> 
<CAPTION> 
                                                              1998            1997              1996
                                                              ----            ----              ----
                   <S>                                    <C>                <C>               <C> 
                   Net income:                      
                        As reported                       $  21,322          13,664            17,486
                        Pro forma                            21,067          13,391            17,350
                                                    
                   Basic earnings per share:        
                        As reported                             .46             .30               .38
                        Pro forma                               .45             .29               .38
                                                    
                   Diluted earnings per share:      
                        As reported                             .45             .30               .38
                        Pro forma                               .45             .29               .38
</TABLE> 

       The fair value of each option grant is estimated on the date of grant
           using the Black-Scholes option-pricing model with the following
           weighted average assumptions used for grants in 1996: dividend yield
           of 2.76 percent for all years; expected volatility of 12.83 percent;
           risk-free interest rate of 5.65%; and expected lives of seven years.
           The effects of applying SFAS No. 123 may not be representative of the
           effects on reported net income in future years.

                                                                  (Continued)

                                       40
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)



(16)   Disclosures About Fair Value of Financial Instruments
       -----------------------------------------------------

       SFAS No. 107, "Disclosure about Fair Value of Financial Instruments"
           (SFAS 107), requires disclosure of fair value information about
           financial instruments whether or not recognized in the consolidated
           statement of financial condition. SFAS 107 excludes certain financial
           instruments and all nonfinancial instruments from its disclosure
           requirements. 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 and interest-earning deposits in other institutions, accrued
           interest receivable, accrued interest payable and marketable
           securities available-for-sale.

       The carrying value of marketable securities held-to-maturity exceeded
           market value by $445,000 and $1,236,000 at June 30, 1998 and 1997,
           respectively. Estimated market values are based on quoted market
           prices, dealer quotes and prices obtained from independent pricing
           services. Refer to note 4 of the consolidated financial statements
           for the detail of type of investment products.

       The net market value of loans exceeded the carrying value at June 30,
           1998 and 1997, by approximately $29,016,000 and $1,734,000,
           respectively. 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
           evaluated separately given the impact delinquency has on the
           projected future cash flow of the loan and the approximate discount
           or market rate.

                                                                 (Continued)

                                       41
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)



       The carrying amounts and estimated fair values of deposits at June 30,
1998 and 1997, are as follows:

<TABLE> 
<CAPTION> 

                                                              1998                                1997
                                                   ----------------------------         --------------------------
                                                   Carrying          Estimated          Carrying        Estimated
                                                    amount           fair value          amount         fair value
                                                   -------           ----------         -------         ----------
        <S>                                     <C>                  <C>               <C>              <C> 
        NOW and MMDA accounts                   $     429,941          429,941           306,454          306,454
        Passbook accounts                             340,378          340,378           299,365          299,365
        Time deposits                               1,252,184        1,261,350         1,034,996        1,034,712
                                                    ---------        ---------         ---------        ---------
                 Total deposits                  $  2,022,503        2,031,669         1,640,815        1,640,531
                                                    =========        =========         =========        =========

</TABLE> 

       The carrying amounts of NOW, MMDA and passbook accounts approximate their
           fair values. The fair value estimates above do not include the
           benefit that results from the low-cost funding provided by the
           deposit liabilities 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.

       The estimated fair value of borrowed funds exceeded the carrying amounts
           at June 30, 1998, by $2,109,000 and at June 30, 1997, the carrying
           value exceeded the fair value of borrowed funds by $11,000. Variable
           rate borrowings and investor notes payable were estimated to
           approximate their carrying amounts. The fixed rate advances were
           valued by comparing their contractual cost to the prevailing market
           cost.

                                                                  (Continued)

                                       42
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)





(17)   Regulatory Capital Requirements
       -------------------------------

       The Company and its subsidiaries are subject to various regulatory
           capital requirements administered by the federal and state 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,
           specific capital guidelines that involve quantitative measures of
           assets, liabilities and certain off-balance sheet items as calculated
           under regulatory accounting practices must be met. The capital
           amounts and classification are also subject to qualitative judgments
           by the regulators about components, risk weightings and other
           factors.

       Quantitative measures established by regulation to ensure capital
           adequacy require the Company and its subsidiaries 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). As of
           June 30, 1998, the Company and its subsidiaries exceed all capital
           adequacy requirements to which they are subject.

       As of March 31, 1998, the most recent notification from the FDIC
           categorized Northwest and Jamestown as "well capitalized" under the
           regulatory framework for prompt corrective action. To be categorized
           as "well capitalized," the banks must maintain minimum total
           risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
           in the table. There are no conditions or events since that
           notification that management believes have changed the banks'
           categories.

                                                                    (Continued)

                                       43
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)



      The actual, required and well capitalized levels as of June 30, 1998 and
      June 30, 1997, are as follows: (in thousands)

<TABLE> 
<CAPTION> 

                                                                          June 30, 1998
                                           --------------------------------------------------------------------------- 
                                                                                                       To be well
                                                  Actual                     Required                  capitalized
                                           --------------------        -------------------         -------------------
                                           Amount         Ratio        Amount        Ratio         Amount        Ratio
                                           ------         -----        ------        -----         ------        -----
      <S>                                <C>            <C>          <C>            <C>         <C>            <C> 
      Total capital (to risk 
          weighted assets):
            Northwest Bancorp,
               Inc.                      $  210,483     %  15.52     $  108,469     %  8.00     $  135,587     %  10.00
            Northwest Savings
               Bank                         200,669        15.12        106,182        8.00        132,728        10.00
            Jamestown Savings
               Bank                           5,520        20.70          2,133        8.00          2,667        10.00

      Tier I capital (to risk 
           weighted assets):
            Northwest Bancorp,
               Inc.                         194,714        14.36         54,235     4.00            81,352       6.00
            Northwest Savings
               Bank                         185,131        13.95         53,091     4.00            79,637       6.00
            Jamestown Savings
               Bank                           5,273        19.77          1,067     4.00             1,600       6.00

      Tier I capital (core) 
           (to average assets):
            Northwest Bancorp,
               Inc.                         194,714         7.82         74,657     3.00(*)        124,428       5.00
            Northwest Savings
               Bank                         185,131         7.63         72,763     3.00(*)        121,271       5.00
            Jamestown Savings
               Bank                           5,273         9.12          1,734     3.00(*)          2,890       5.00

</TABLE> 

                                                                    (Continued)

                                       44
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)

<TABLE> 
<CAPTION> 

                                                           June 30, 1997 (Northwest Savings Bank Only)
                                           --------------------------------------------------------------------------
                                                                                                      To be well
                                                  Actual                    Required                  capitalized
                                           --------------------       -------------------        --------------------
                                           Amount         Ratio       Amount        Ratio        Amount         Ratio
                                           ------         -----       ------        -----        ------         -----
      <S>                                <C>            <C>          <C>           <C>         <C>            <C> 
      Total capital (to risk 
         weighted assets):
      Northwest Savings Bank             $  199,795     %  18.36     $  87,071     %  8.00     $  108,839     %  10.00

      Tier I capital (to risk 
         weighted assets):
      Northwest Savings Bank                186,190        17.11        43,536        4.00         65,303         6.00

      Tier I capital (core) (to 
         average assets):
      Northwest Savings Bank                186,190         9.11        61,319        3.00(*)     102,199         5.00

</TABLE> 

      (*)  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 June 30, 1998, the
           Company had not been advised of any additional requirements in this
           regard.

(18)   Recapitalization of SAIF
       ------------------------

       On September 30, 1996, Congress enacted into law a one-time special
           assessment to recapitalize the FDIC's Savings Association Insurance
           Fund (SAIF). All institutions holding SAIF insured deposits as of
           March 31, 1995, paid a one-time assessment due November 27, 1996, of
           .657% on those deposits. The Company's SAIF assessment was $8.6
           million. Under generally accepted accounting principles, this
           assessment was required to be accrued as of September 30, 1996. The
           effect of this assessment on the net income of the Company for the
           fiscal year ended June 30, 1997, was $5.1 million after tax. As a
           result of the recapitalization of the SAIF, the Company was not
           required to pay a regular deposit insurance premium for the three
           months ended December 31, 1996. Effective January 1, 1997, as a
           result of the SAIF now being fully funded, the premium the Company
           pays for deposit insurance fell to .064% of insured deposits from the
           previous level of .23%.

                                                                     (Continued)

                                       45
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)



(19)   Contingent Liabilities
       ----------------------

       Northwest and Northwest Bancorp MHC, along with unrelated parties, have
           been named as defendants in a class action lawsuit filed in the
           Allegheny County Court of Common Pleas. This lawsuit is brought on
           behalf of purchasers of common stock in the Northwest's initial
           public offering in November 1994. It alleges that Northwest breached
           its contractual obligations and fiduciary duties by carrying out the
           offering at a price that allegedly was not justified by market and
           financial conditions. Northwest previously obtained the dismissal of
           a lawsuit brought by the same counsel in federal court making similar
           allegations under federal law. Management intends to continue to
           vigorously defend against any such proceedings. The ultimate outcome
           of this litigation cannot presently be determined; accordingly, no
           provision for liability, if any, that may result has been recorded in
           the consolidated financial statements.

       The Company and its subsidiaries are subject to a number of other
           asserted and unasserted claims encountered in the normal course of
           business. Management believes that the aggregate liability, if any,
           resulting from such pending and threatened actions and proceedings
           will not have a material adverse effect on the Company's financial
           statements.

                                                                    (Continued)

                                       46
<PAGE>
 
                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

            (All dollar amounts presented in tables are in thousands)



(20)   Selected Quarterly Financial Data (Unaudited)
       ---------------------------------------------

<TABLE> 
<CAPTION> 

                                                                           Three months ended
                                                    ---------------------------------------------------------------
                                                    September 30        December 31        March 31         June 30
                                                    ------------        -----------        --------         -------
                                                                  (in thousands, except per share data)
                                                                  -------------------------------------
       Fiscal 1998
       -----------
       <S>                                          <C>                 <C>                <C>              <C> 
       Interest income                               $  40,936             41,903           44,368           47,685
       Interest expense                                 22,164             23,118           23,782           26,139
                                                        ------             ------           ------           ------
       Net interest income                              18,772             18,785           20,586           21,546

       Provision for possible loan losses                  660                611            1,111            1,690
       Noninterest income                                1,528              1,579            2,562            3,148
       Noninterest expenses                             11,344             11,932           13,089           13,953
                                                        ------             ------           ------           ------
       Income before income taxes                        8,296              7,821            8,948            9,051

       Provision for income taxes                        3,459              2,880            3,231            3,425
       Minority interest in net loss                         -                  -                2              199
                                                        ------             ------           ------           ------
       Net income                                   $    4,837              4,941            5,719            5,825
                                                        ======             ======           ======           ======

       Basic earnings per share                         $  .10                .11              .12              .13
                                                           ===                ===              ===              ===
       Diluted earnings per share                       $  .10                .11              .12              .12
                                                           ===                ===              ===              ===

       Fiscal 1997
       -----------

       Interest income                              $   37,040             37,400           38,306           40,772
       Interest expense                                 19,641             20,087           20,203           21,493
                                                        ------             ------           ------           ------
       Net interest income                              17,399             17,313           18,103           19,279

       Provision for possible loan losses                  217                394              574            1,306
       Noninterest income                                1,603              2,221            1,485            1,427
       Noninterest expenses                             19,981             10,886           11,441           11,895
                                                        ------             ------           ------           ------
       Income before income taxes                       (1,196)             8,254            7,573            7,505

       Provision for income taxes                         (364)             3,390            2,977            2,469
                                                        ------             ------           ------           ------
       Net income (loss)                            $     (832)             4,864            4,596            5,036
                                                        ======             ======           ======           ======

       Basic earnings (loss) per share                $  (.02)               .11              .10              .11
                                                          ===                ===              ===              ===
       Diluted earnings (loss) per share              $  (.02)               .11              .10              .11
                                                          ===                ===              ===              ===

</TABLE> 

      Results for the quarter ended September 30, 1996, include expense of
          $8,600,000 ($5,100,000 after tax) for the recapitalization of the
          SAIF. See note 18.

                                       47
<PAGE>
 
             CORPORATE INFORMATION
             
             Annual Meeting
             November 18, 1998
             11:00 A.M.
             Knights of Columbus Hall
             219 Second Avenue
             Warren, Pennsylvania 16365

             
             Stock Listing: 
             Northwest Bancorp, Inc. common stock is traded in
             the NASDAQ National Stock Market under the symbol "NWSB." The stock
             is listed as "NWBcp" in the NASDAQ section in the financial pages
             of most major newspapers.
             
             Transfer and Dividend Paying Agent/Registrar 
             Shareholders wishing to change their address, transfer stock,
             report lost certificates or dividend checks may contact:

             American Stock Transfer and Trust Company
             40 Wall Street
             New York,  New York 10005
             (800) 937-5449
             
             Investor Information 
             Analysts, investors and others requesting
             additional financial information may contact: William J. Wagner
             Executive Vice President and Chief Financial Officer
              
             Northwest Bancorp, Inc.
             301 Second Avenue
             Warren, Pennsylvania 16365
             (814) 726-2140
             
             Request for Financial Information: 
             A copy of the company's 10-K and 10-Q reports, as filed with the
             Securities and Exchange Commission, are available without charge by
             writing to:
             
             Northwest Bancorp, Inc.
             Shareholder Relations
             301 Second Avenue
             Warren, Pennsylvania 16365
              
             Auditors: 
             KPMG Peat Marwick LLP
             One Mellon Bank Center
             Pittsburgh, Pennsylvania 15219
             
             Securities Counsel:
             Luse Lehman Gorman Pomerenk & Schick
             5335 Wisconsin Avenue N.W.
             Suite 400
             Washington, D.C. 20015
 
 
  
<PAGE>
 
CORPORATE INFORMATION

MARKET MAKERS

Name of Firm                                       Phone
------------                                       -----
F. J. Morrissey & Co., Inc.                        (215) 563-8500
Friedman Billings Ramsey & Co.                     (706) 312-9500
Herzog Heine Geduld, Inc.                          (800) 221-3600
Instinet Corporation                               (212) 310-9550
Island System, Inc.                                (212) 248-3700
Knight Securities, Inc.                            (800) 222-4910
Legg Mason Wood Walker, Inc.                       (212) 428-4949
Mayer & Schweitzer, Inc.                           (800) 631-3094
Parker/Hunter, Inc.                                (412) 562-8160
Ryan Beck & Co., Inc.                              (201) 325-3000
Sandler O'Neill & Partners, Inc.                   (212) 466-7744
Sherwood Securities, Corp.                         (800) 435-1235
Terra Nova Trading, L.L.C.                         (312) 849-4868
Troster Singer, Inc.                               (800) 526-3160
Tucker Anthony, Inc.                               (800) 548-3759
Wheat First Securities, Inc.                       (800) 446-1016

DIVIDEND REINVESTMENT PLAN

The Northwest Bancorp, Inc. Dividend Reinvestment Plan enables holders of common
stock to reinvest quarterly dividends toward the purchase of additional shares.
Shareholders who enroll in the Automatic Dividend Reinvestment Plan may also
elect to do optional cash investments conveniently and without paying brokerage
commissions or service charges. A prospectus and enrollment card may be obtained
by contacting:

                   American Stock Transfer and Trust Company
                   Attention: Dividend Reinvestment Department
                   (800) 278-4353 (U.S. calls only)
                   (718) 921-8283 (outside of U.S.)
                   (718) 234-1440 (Fax)

                   or:

                   Northwest Bancorp, Inc.
                   Shareholder Relations Department
                   (814) 726-2140 (Phone)
                   (814) 726-1980 (Fax)