##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the
Fiscal Year Ended December 31, 2008
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the transition period from  to
 Commission File No. 000-23817
 NORTHWEST BANCORP, INC.
  United States
    
    23-2900888(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)100 Liberty Street, Warren, Pennsylvania
    
    16365(Address of Principal Executive Offices)
    
    Zip Code
 (814) 726-2140  (Registrants telephone number)
 Securities Registered Pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.10 Par Value
    
    NASDAQ Stock Market, LLC
 Securities Registered Pursuant to Section 12(g) of the Act:  None
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
 (1)
    
    Proxy Statement for the 2009 Annual Meeting of Stockholders of the Registrant (Part III).




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL            DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED            STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR            INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEX-10.1EX-10.2EX-10.3EX-10.7EX-10.9EX-21EX-23EX-31.1EX-31.2EX-32    Table of Contents  
 PART I





ITEM 1. BUSINESS


General


Northwest Bancorp, Inc.










www.northwestsavingsbank.com


Northwest Savings Bank






2



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##### Table of Contents



Market Area
  Lending Activities
 General.
  3




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##### Table of Contents



Analysis of Loan Portfolio.
 At December 31,
    
    
    At June 30,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2004Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)
    
    
    
    
    
    
    
    
    
    
    (Dollars in Thousands)Real estate:One- to four-family
    
    $
    2,492,940
    
    
    
    47.2
    %
    
    
    2,430,117
    
    
    
    48.9
    %
    
    
    2,411,024
    
    
    
    53.5
    %
    
    
    2,805,900
    
    
    
    59.5
    %
    
    
    2,693,174
    
    
    
    60.3
    %
    
    
    2,615,328
    
    
    
    63.1
    %Home equity
    
    
    1,035,954
    
    
    
    19.6
    %
    
    
    992,335
    
    
    
    20.0
    %
    
    
    887,352
    
    
    
    19.7
    %
    
    
    780,451
    
    
    
    16.5
    %
    
    
    737,619
    
    
    
    16.5
    %
    
    
    588,192
    
    
    
    14.2
    %Multifamily and commercial
    
    
    1,100,218
    
    
    
    20.8
    %
    
    
    906,594
    
    
    
    18.3
    %
    
    
    701,951
    
    
    
    15.6
    %
    
    
    594,503
    
    
    
    12.6
    %
    
    
    534,224
    
    
    
    11.9
    %
    
    
    454,606
    
    
    
    11.0
    %Total real estate loans
    
    $
    4,629,112
    
    
    
    87.6
    %
    
    
    4,329,046
    
    
    
    87.2
    %
    
    
    4,000,327
    
    
    
    88.8
    %
    
    
    4,180,854
    
    
    
    88.6
    %
    
    
    3,965,017
    
    
    
    88.7
    %
    
    
    3,658,126
    
    
    
    88.3
    %Consumer:Automobile
    
    
    102,267
    
    
    
    2.0
    %
    
    
    125,298
    
    
    
    2.5
    %
    
    
    138,401
    
    
    
    3.1
    %
    
    
    144,519
    
    
    
    3.1
    %
    
    
    138,102
    
    
    
    3.1
    %
    
    
    120,887
    
    
    
    2.9
    %Education loans
    
    
    38,152
    
    
    
    0.7
    %
    
    
    14,551
    
    
    
    0.3
    %
    
    
    11,973
    
    
    
    0.3
    %
    
    
    120,504
    
    
    
    2.5
    %
    
    
    112,462
    
    
    
    2.5
    %
    
    
    95,599
    
    
    
    2.3
    %Loans on savings accounts
    
    
    11,191
    
    
    
    0.2
    %
    
    
    10,563
    
    
    
    0.2
    %
    
    
    10,313
    
    
    
    0.2
    %
    
    
    9,066
    
    
    
    0.2
    %
    
    
    8,500
    
    
    
    0.2
    %
    
    
    8,038
    
    
    
    0.2
    %Other (1)
    
    
    115,913
    
    
    
    2.2
    %
    
    
    117,831
    
    
    
    2.4
    %
    
    
    109,303
    
    
    
    2.4
    %
    
    
    106,390
    
    
    
    2.3
    %
    
    
    102,787
    
    
    
    2.3
    %
    
    
    112,163
    
    
    
    2.7
    %Total consumer loans
    
    $
    267,523
    
    
    
    5.1
    %
    
    
    268,243
    
    
    
    5.4
    %
    
    
    269,990
    
    
    
    6.0
    %
    
    
    380,479
    
    
    
    8.1
    %
    
    
    361,851
    
    
    
    8.1
    %
    
    
    336,687
    
    
    
    8.1
    %Commercial business
    
    
    387,145
    
    
    
    7.3
    %
    
    
    367,459
    
    
    
    7.4
    %
    
    
    235,311
    
    
    
    5.2
    %
    
    
    157,572
    
    
    
    3.3
    %
    
    
    142,391
    
    
    
    3.2
    %
    
    
    149,509
    
    
    
    3.6
    %Total loans receivable, gross
    
    $
    5,283,780
    
    
    
    100.0
    %
    
    
    4,964,748
    
    
    
    100.0
    %
    
    
    4,505,628
    
    
    
    100.0
    %
    
    
    4,718,905
    
    
    
    100.0
    %
    
    
    4,469,259
    
    
    
    100.0
    %
    
    
    4,144,322
    
    
    
    100.0
    %Deferred loan fees
    
    
    (5,041
    )
    
    
    
    
    
    
    (4,179
    )
    
    
    
    
    
    
    (3,027
    )
    
    
    
    
    
    
    (3,877
    )
    
    
    
    
    
    
    (4,257
    )
    
    
    
    
    
    
    (6,630
    )Undisbursed loan proceeds
    
    
    (81,918
    )
    
    
    
    
    
    
    (123,163
    )
    
    
    
    
    
    
    (52,505
    )
    
    
    
    
    
    
    (59,348
    )
    
    
    
    
    
    
    (56,555
    )
    
    
    
    
    
    
    (53,081
    )Allowance for loan losses
(real estate loans)
    
    
    (33,760
    )
    
    
    
    
    
    
    (28,854
    )
    
    
    
    
    
    
    (17,936
    )
    
    
    
    
    
    
    (16,875
    )
    
    
    
    
    
    
    (15,918
    )
    
    
    
    
    
    
    (15,113
    )Allowance for loan losses
(other loans)
    
    
    (21,169
    )
    
    
    
    
    
    
    (12,930
    )
    
    
    
    
    
    
    (19,719
    )
    
    
    
    
    
    
    (16,536
    )
    
    
    
    
    
    
    (15,645
    )
    
    
    
    
    
    
    (15,557
    )Total loans receivable, net
    
    $
    5,141,892
    
    
    
    
    
    
    
    4,795,622
    
    
    
    
    
    
    
    4,412,441
    
    
    
    
    
    
    
    4,622,269
    
    
    
    
    
    
    
    4,376,884
    
    
    
    
    
    
    
    4,053,941
 
 (1)
    
    Consists primarily of secured and unsecured personal loans. Loan Maturity and Repricing Schedule.
 Between
    
    
    Between
    
    
    BetweenWithin 1 Year
    
    
    1-2 Years
    
    
    2-3 Years
    
    
    3-5 Years
    
    
    Beyond 5 Years
    
    
    Total(In Thousands)Real estate loans:One- to four-family residential
    
    $
    194,953
    
    
    
    128,566
    
    
    
    117,431
    
    
    
    234,006
    
    
    
    1,817,984
    
    
    $
    2,492,940Multifamily and commercial
    
    
    374,641
    
    
    
    131,556
    
    
    
    109,381
    
    
    
    381,377
    
    
    
    103,263
    
    
    
    1,100,218Consumer loans
    
    
    382,501
    
    
    
    129,440
    
    
    
    117,265
    
    
    
    205,306
    
    
    
    468,965
    
    
    
    1,303,477Commercial business loans
    
    
    131,829
    
    
    
    46,292
    
    
    
    38,489
    
    
    
    134,199
    
    
    
    36,336
    
    
    
    387,145Total loans
    
    $
    1,083,924
    
    
    
    435,854
    
    
    
    382,566
    
    
    
    954,888
    
    
    
    2,426,548
    
    
    $
    5,283,780
 4




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##### Table of Contents



Fixed- and Adjustable-Rate Loan Schedule.
 Fixed
    
    
    Adjustable
    
    
    Total(In Thousands)Real estate loans:One- to four-family residential
    
    $
    2,296,290
    
    
    
    68,091
    
    
    $
    2,364,381Mulitfamily and commercial
    
    
    343,645
    
    
    
    608,986
    
    
    
    952,631Consumer loans
    
    
    879,576
    
    
    
    159,992
    
    
    
    1,039,568Commercial business loans
    
    
    126,324
    
    
    
    208,888
    
    
    
    335,212Total loans
    
    $
    3,645,835
    
    
    
    1,045,957
    
    
    $
    4,691,792
 One- to Four-Family Residential Real Estate Loans.
     5




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##### Table of Contents



Multifamily Residential and Commercial Real Estate Loans.
  Consumer Loans.
  6




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##### Table of Contents



Commercial Business Loans.
   Loan Originations, Solicitation, Processing, and Commitments.
  Loan Origination Fees and Other Income. Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases
 7




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##### Table of Contents



Loans-to-One Borrower.
 Delinquencies and Classified Assets
 Collection Procedures.
 Nonperforming Assets.
  8




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##### Table of Contents



Loans Past Due and Nonperforming Assets. Accounting by Debtors and Creditors for Troubled Debt Restructurings
 At December 31,
    
    
    At June 30,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2004Number
    
    
    Balance(Dollars in Thousands)Loans past due 30 days to 59 days:One- to four-family residential loans
    
    
    392
    
    
    $
    32,988
    
    
    
    27,270
    
    
    
    24,078
    
    
    
    26,290
    
    
    
    3,941
    
    
    
    5,765Multifamily and commercial RE loans
    
    
    99
    
    
    
    18,901
    
    
    
    11,331
    
    
    
    7,975
    
    
    
    4,924
    
    
    
    5,198
    
    
    
    2,201Consumer loans
    
    
    1,157
    
    
    
    11,295
    
    
    
    10,550
    
    
    
    9,096
    
    
    
    12,053
    
    
    
    5,611
    
    
    
    4,877Commercial business loans
    
    
    86
    
    
    
    7,700
    
    
    
    9,947
    
    
    
    4,325
    
    
    
    2,450
    
    
    
    1,000
    
    
    
    782Total loans past due 30 days to 59 days
    
    
    1,734
    
    
    $
    70,884
    
    
    
    59,098
    
    
    
    45,474
    
    
    
    45,717
    
    
    
    15,750
    
    
    
    13,625Loans past due 60 days to 89 days:One- to four-family residential loans
    
    
    101
    
    
    
    7,599
    
    
    
    6,077
    
    
    
    5,970
    
    
    
    9,156
    
    
    
    4,687
    
    
    
    4,925Multifamily and commercial RE loans
    
    
    54
    
    
    
    8,432
    
    
    
    4,984
    
    
    
    3,846
    
    
    
    3,399
    
    
    
    8,156
    
    
    
    1,023Consumer loans
    
    
    379
    
    
    
    2,836
    
    
    
    2,676
    
    
    
    2,833
    
    
    
    3,773
    
    
    
    3,134
    
    
    
    2,032Commercial business loans
    
    
    45
    
    
    
    3,801
    
    
    
    2,550
    
    
    
    501
    
    
    
    263
    
    
    
    279
    
    
    
    309Total loans past due 60 days to 89 days
    
    
    579
    
    
    $
    22,668
    
    
    
    16,287
    
    
    
    13,150
    
    
    
    16,591
    
    
    
    16,256
    
    
    
    8,289Loans past due 90 days or more (1):One- to four-family residential loans
    
    
    223
    
    
    
    20,435
    
    
    
    12,542
    
    
    
    10,334
    
    
    
    12,179
    
    
    
    11,507
    
    
    
    11,322Multifamily and commercial RE loans
    
    
    155
    
    
    
    43,828
    
    
    
    24,323
    
    
    
    18,982
    
    
    
    21,013
    
    
    
    15,610
    
    
    
    13,823Consumer loans
    
    
    687
    
    
    
    9,756
    
    
    
    7,582
    
    
    
    4,578
    
    
    
    8,322
    
    
    
    5,514
    
    
    
    4,536Commercial business loans
    
    
    114
    
    
    
    25,184
    
    
    
    5,163
    
    
    
    6,631
    
    
    
    1,502
    
    
    
    979
    
    
    
    2,824Total loans past due 90 days or more
    
    
    1,179
    
    
    $
    99,203
    
    
    
    49,610
    
    
    
    40,525
    
    
    
    43,016
    
    
    
    33,610
    
    
    
    32,505Total loans 30 days or more past due
    
    
    3,492
    
    
    $
    192,755
    
    
    
    124,995
    
    
    
    99,149
    
    
    
    105,324
    
    
    
    65,616
    
    
    
    54,419Total loans 90 days or more past due (1)
    
    
    1,179
    
    
    $
    99,203
    
    
    
    49,610
    
    
    
    40,525
    
    
    
    43,016
    
    
    
    33,610
    
    
    
    32,505Total REO
    
    
    109
    
    
    
    16,844
    
    
    
    8,667
    
    
    
    6,653
    
    
    
    4,872
    
    
    
    6,685
    
    
    
    3,951Total loans 90 days or more past due
and REO
    
    
    1,288
    
    
    $
    116,047
    
    
    
    58,277
    
    
    
    47,178
    
    
    
    47,888
    
    
    
    40,295
    
    
    
    36,456Total loans 90 days or more past due
to net loans receivable
    
    
    
    
    
    
    1.93
    %
    
    
    1.03
    %
    
    
    0.92
    %
    
    
    0.93
    %
    
    
    0.77
    %
    
    
    0.80
    %Total loans 90 days or more past due
and REO to total assets
    
    
    
    
    
    
    1.67
    %
    
    
    0.87
    %
    
    
    0.72
    %
    
    
    0.74
    %
    
    
    0.64
    %
    
    
    0.57
    %
 
 (1)
    
    The Company classifies as nonperforming all loans 90 days or more delinquent.  Classification of Assets.
 9




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##### Table of Contents



At December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Substandard assets
    
    $
    155,245
    
    
    
    85,526
    
    
    
    70,182Doubtful assets
    
    
    3,596
    
    
    
    4,374
    
    
    
    2,129Loss assets
    
    
    64
    
    
    
    388
    
    
    
    270Total classified assets
    
    $
    158,905
    
    
    
    90,288
    
    
    
    72,581
 Allowance for Loan Losses. Accounting by Creditors for
Impairment of a Loan
     10




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##### Table of Contents



Analysis of the Allowance For Loan Losses.
 Six MonthsEndedYears Ended December 31,
    
    
    December 31,
    
    
    Years Ended June 30,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2004(In Thousands)Net loans receivable
    
    $
    5,141,892
    
    
    
    4,795,622
    
    
    
    4,412,441
    
    
    
    4,622,269
    
    
    
    4,376,884
    
    
    
    4,053,941Average loans outstanding
    
    $
    5,016,694
    
    
    
    4,660,693
    
    
    
    4,395,274
    
    
    
    4,532,523
    
    
    
    4,234,241
    
    
    
    3,846,261Allowance for loan losses
balance at beginning of period
    
    $
    41,784
    
    
    
    37,655
    
    
    
    33,411
    
    
    
    31,563
    
    
    
    30,670
    
    
    
    27,166Provision for loan losses
    
    $
    22,851
    
    
    
    8,743
    
    
    
    8,480
    
    
    
    4,722
    
    
    
    9,566
    
    
    
    6,860Charge-offs:Real estate loans
    
    
    (3,962
    )
    
    
    (2,042
    )
    
    
    (1,148
    )
    
    
    (282
    )
    
    
    (676
    )
    
    
    (176
    )Consumer loans
    
    
    (6,290
    )
    
    
    (5,175
    )
    
    
    (5,543
    )
    
    
    (3,314
    )
    
    
    (5,726
    )
    
    
    (5,113
    )Commercial loans
    
    
    (1,358
    )
    
    
    (973
    )
    
    
    (926
    )
    
    
    (43
    )
    
    
    (3,071
    )
    
    
    (461
    )Total charge-offs
    
    
    (11,610
    )
    
    
    (8,190
    )
    
    
    (7,617
    )
    
    
    (3,639
    )
    
    
    (9,473
    )
    
    
    (5,750
    )Recoveries:Real estate loans
    
    
    140
    
    
    
    250
    
    
    
    123
    
    
    
    4
    
    
    
    1
    
    
    
    Consumer loans
    
    
    1,060
    
    
    
    1,073
    
    
    
    1,214
    
    
    
    455
    
    
    
    750
    
    
    
    562Commercial loans
    
    
    704
    
    
    
    134
    
    
    
    62
    
    
    
    51
    
    
    
    49
    
    
    
    502Total recoveries
    
    
    1,904
    
    
    
    1,457
    
    
    
    1,399
    
    
    
    510
    
    
    
    800
    
    
    
    1,064Acquired through acquistions
    
    
    
    
    
    
    2,119
    
    
    
    1,982
    
    
    
    255
    
    
    
    
    
    
    
    1,330Allowance for loan losses
balance at end of period
    
    $
    54,929
    
    
    
    41,784
    
    
    
    37,655
    
    
    
    33,411
    
    
    
    31,563
    
    
    
    30,670Allowance for loan losses as a percentage
of net loans receivable
    
    
    1.07
    %
    
    
    0.87
    %
    
    
    0.85
    %
    
    
    0.72
    %
    
    
    0.72
    %
    
    
    0.76
    %Net charge-offs as a percentage of average
loans outstanding
    
    
    0.19
    %
    
    
    0.14
    %
    
    
    0.14
    %
    
    
    0.14
    %
    
    
    0.20
    %
    
    
    0.12
    %Allowance for loan losses as a percentage
of nonperforming loans
    
    
    55.37
    %
    
    
    84.22
    %
    
    
    92.92
    %
    
    
    77.67
    %
    
    
    93.91
    %
    
    
    94.35
    %Allowance for loan losses as a percentage
of nonperforming loans and REO
    
    
    47.33
    %
    
    
    71.70
    %
    
    
    79.81
    %
    
    
    69.77
    %
    
    
    78.33
    %
    
    
    84.13
    %
 11




---



##### Table of Contents



Allocation of Allowance for Loan Losses.
 At December 31,2008
    
    
    2007
    
    
    2006% of Total
    
    
    
    
    
    
    % of Total
    
    
    
    
    
    
    % of TotalAmount
    
    
    Loans (1)
    
    
    Amount
    
    
    Loans (1)
    
    
    Amount
    
    
    Loans (1)(Dollars in Thousands)Balance at end of period
applicable to:Real estate loans
    
    $
    33,760
    
    
    
    87.6
    %
    
    
    28,854
    
    
    
    87.2
    %
    
    
    17,936
    
    
    
    88.8
    %Consumer loans
    
    
    6,125
    
    
    
    5.1
    %
    
    
    6,645
    
    
    
    5.4
    %
    
    
    16,500
    
    
    
    6.0
    %Commercial business loans
    
    
    15,044
    
    
    
    7.3
    %
    
    
    6,285
    
    
    
    7.4
    %
    
    
    3,219
    
    
    
    5.2
    %Total allowance for loan loss
    
    $
    54,929
    
    
    
    100.0
    %
    
    
    41,784
    
    
    
    100.0
    %
    
    
    37,655
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of loans in each category to total loans. At December 31,
    
    
    At June 30,2005
    
    
    2005
    
    
    2004% of Total
    
    
    
    
    
    
    % of Total
    
    
    
    
    
    
    % of TotalAmount
    
    
    Loans (1)
    
    
    Amount
    
    
    Loans (1)
    
    
    Amount
    
    
    Loans (1)(Dollars in Thousands)Balance at end of period
applicable to:Real estate loans
    
    $
    16,875
    
    
    
    88.6
    %
    
    
    15,918
    
    
    
    88.7
    %
    
    
    15,113
    
    
    
    88.3
    %Consumer loans
    
    
    13,991
    
    
    
    8.1
    %
    
    
    13,179
    
    
    
    8.1
    %
    
    
    11,790
    
    
    
    8.1
    %Commercial business loans
    
    
    2,545
    
    
    
    3.3
    %
    
    
    2,466
    
    
    
    3.2
    %
    
    
    3,767
    
    
    
    3.6
    %Total allowance for loan loss
    
    $
    33,411
    
    
    
    100.0
    %
    
    
    31,563
    
    
    
    100.0
    %
    
    
    30,670
    
    
    
    100.0
    %
 
 (1)
    
    Represents percentage of loans in each category to total loans. Investment Activities
   12




---



##### Table of Contents



Amortized Cost and Market Value of Investment and Mortgage-Backed Securities.
 At December 31,2008
    
    
    2007
    
    
    2006Amortized
    
    


    
    
    Amortized
    
    
    
    
    
    AmortizedCost
    
    
    Market Value
    
    
    Cost
    
    
    Market Value
    
    
    Cost
    
    
    Market Value(In Thousands)Mortgage-backed securities held to maturity:Fixed-rate pass through certificates
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,097
    
    
    
    8,965Variable-rate pass through certificates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188,700
    
    
    
    188,382Fixed-rate collateralized mortgage
obligations (CMOs)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,484
    
    
    
    4,249Variable-rate CMOs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,374
    
    
    
    49,335Total mortgage-backed securities held to maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251,655
    
    
    
    250,931Mortgage-backed securities available for sale:Fixed-rate pass through certificates
    
    
    186,659
    
    
    
    193,099
    
    
    
    73,284
    
    
    
    73,992
    
    
    
    68,720
    
    
    
    67,430Variable-rate pass through certificates
    
    
    276,121
    
    
    
    277,183
    
    
    
    306,885
    
    
    
    309,054
    
    
    
    199,442
    
    
    
    198,365Fixed-rate CMOs
    
    
    60,119
    
    
    
    57,480
    
    
    
    73,514
    
    
    
    71,793
    
    
    
    87,946
    
    
    
    85,402Variable-rate CMOs
    
    
    228,917
    
    
    
    217,877
    
    
    
    76,886
    
    
    
    76,908
    
    
    
    27,613
    
    
    
    27,771Total mortgage-backed securities available for sale
    
    
    751,816
    
    
    
    745,639
    
    
    
    530,569
    
    
    
    531,747
    
    
    
    383,721
    
    
    
    378,968Total mortgage-backed securities
    
    $
    751,816
    
    
    
    745,639
    
    
    
    530,569
    
    
    
    531,747
    
    
    
    635,376
    
    
    
    629,899Investment securities held to maturity:U.S. Government, agency and GSEs
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,755
    
    
    
    160,580Municipal securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269,886
    
    
    
    273,438Corporate debt issues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,671
    
    
    
    35,566Total investment securities held to maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    465,312
    
    
    
    469,584Investment securities available for sale:U.S. Government, agency and GSEs
    
    
    97,884
    
    
    
    108,908
    
    
    
    286,359
    
    
    
    292,546
    
    
    
    214,031
    
    
    
    212,525Municipal securities
    
    
    268,616
    
    
    
    267,548
    
    
    
    262,895
    
    
    
    267,120
    
    
    
    14,553
    
    
    
    14,604Corporate debt issues
    
    
    25,165
    
    
    
    15,961
    
    
    
    37,225
    
    
    
    35,075
    
    
    
    63,114
    
    
    
    60,577Equity securities and mutual funds
    
    
    954
    
    
    
    1,114
    
    
    
    6,478
    
    
    
    6,879
    
    
    
    95,548
    
    
    
    100,840Total investment securities available for sale
    
    $
    392,619
    
    
    
    393,531
    
    
    
    592,957
    
    
    
    601,620
    
    
    
    387,246
    
    
    
    388,546
 Issuers of Mortgage-Backed Securities.
 At December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Mortgage-backed securities:Fannie Mae
    
    $
    288,082
    
    
    
    165,391
    
    
    
    205,127Ginnie Mae
    
    
    99,354
    
    
    
    88,428
    
    
    
    120,799Freddie Mac
    
    
    320,297
    
    
    
    229,960
    
    
    
    249,685Other (non-agency)
    
    
    37,906
    
    
    
    47,968
    
    
    
    55,012Total mortgage-backed securities
    
    $
    745,639
    
    
    
    531,747
    
    
    
    630,623
 13




---



##### Table of Contents



Investment Portfolio Maturities.
  At December 31, 2008One Year or Less
    
    
    One to Five Years
    
    
    Five to Ten Years
    
    
    More than Ten Years
    
    
    TotalAnnualized
    
    
    
    
    
    
    Annualized
    
    
    
    
    
    
    Annualized
    
    
    
    
    
    
    Annualized
    
    
    
    
    
    
    
    
    
    
    AnnualizedAmortized
    
    
    Weighted
    
    
    Amortized
    
    
    Weighted
    
    
    Amortized
    
    
    Weighted
    
    
    Amortized
    
    
    Weighted
    
    
    Amortized
    
    
    
    
    
    
    WeightedCost
    
    
    Average Yield
    
    
    Cost
    
    
    Average Yield
    
    
    Cost
    
    
    Average Yield
    
    
    Cost
    
    
    Average Yield
    
    
    Cost
    
    
    Market Value
    
    
    Average Yield(Dollars in Thousands)Investment securities available for sale:Government sponsored entites
    
    $
    2,985
    
    
    
    5.29
    %
    
    
    2,962
    
    
    
    5.40
    %
    
    
    30,352
    
    
    
    5.32
    %
    
    
    61,494
    
    
    
    5.21
    %
    
    $
    97,793
    
    
    $
    108,820
    
    
    
    5.25
    %U.S. Government and agency obligations
    
    
    91
    
    
    
    2.60
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    88
    
    
    
    2.60
    %Municipal securities
    
    
    
    
    
    
    
    
    
    
    460
    
    
    
    4.22
    %
    
    
    43,159
    
    
    
    4.17
    %
    
    
    224,997
    
    
    
    4.52
    %
    
    
    268,616
    
    
    
    267,548
    
    
    
    4.46
    %Corporate debt issues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,165
    
    
    
    5.42
    %
    
    
    25,165
    
    
    
    15,961
    
    
    
    5.42
    %Equity securities and mutual funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    954
    
    
    
    7.06
    %
    
    
    954
    
    
    
    1,114
    
    
    
    7.06
    %Total investment securities available for sale
    
    $
    3,076
    
    
    
    5.21
    %
    
    
    3,422
    
    
    
    5.24
    %
    
    
    73,511
    
    
    
    4.64
    %
    
    
    312,610
    
    
    
    4.73
    %
    
    $
    392,619
    
    
    $
    393,531
    
    
    
    4.72
    %Mortgage-backed securities available for sale:Pass through certificates
    
    
    276,557
    
    
    
    4.96
    %
    
    
    13,912
    
    
    
    4.54
    %
    
    
    8,783
    
    
    
    4.92
    %
    
    
    163,528
    
    
    
    5.37
    %
    
    
    462,780
    
    
    
    470,282
    
    
    
    5.10
    %CMOs
    
    
    228,917
    
    
    
    1.73
    %
    
    
    
    
    
    
    
    
    
    
    22,636
    
    
    
    4.76
    %
    
    
    37,483
    
    
    
    4.50
    %
    
    
    289,036
    
    
    
    275,357
    
    
    
    2.33
    %Total mortgage-backed securities available for sale
    
    $
    505,474
    
    
    
    3.50
    %
    
    
    13,912
    
    
    
    4.54
    %
    
    
    31,419
    
    
    
    4.81
    %
    
    
    201,011
    
    
    
    5.21
    %
    
    $
    751,816
    
    
    $
    745,639
    
    
    
    4.03
    %Total investment securities and mortgage-backed
securities
    
    $
    508,550
    
    
    
    3.51
    %
    
    
    17,334
    
    
    
    4.68
    %
    
    
    104,930
    
    
    
    4.69
    %
    
    
    513,621
    
    
    
    4.92
    %
    
    $
    1,144,435
    
    
    $
    1,139,170
    
    
    
    4.27
    %
 14




---



##### Table of Contents



Sources of Funds
 General.
 Deposits.
  At December 31,2008
    
    
    2007
    
    
    2006Balance
    
    
    Percent(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Percent(1)
    
    
    Rate(2)
    
    
    Balance
    
    
    Percent(1)
    
    
    Rate(2)(Dollars in Thousands)Savings accounts
    
    $
    760,245
    
    
    
    15.1
    %
    
    
    1.14
    %
    
    $
    745,430
    
    
    
    13.4
    %
    
    
    1.20
    %
    
    $
    807,873
    
    
    
    15.1
    %
    
    
    1.44
    %Checking accounts
    
    
    1,100,131
    
    
    
    21.8
    %
    
    
    0.37
    %
    
    
    1,079,093
    
    
    
    19.5
    %
    
    
    0.85
    %
    
    
    994,783
    
    
    
    18.5
    %
    
    
    1.05
    %Money market accounts
    
    
    720,375
    
    
    
    14.3
    %
    
    
    1.58
    %
    
    
    681,115
    
    
    
    12.3
    %
    
    
    3.63
    %
    
    
    594,472
    
    
    
    11.1
    %
    
    
    3.62
    %Certificates of depositMaturing within 1 year
    
    
    1,285,695
    
    
    
    25.5
    %
    
    
    2.88
    %
    
    
    2,541,053
    
    
    
    45.9
    %
    
    
    4.70
    %
    
    
    2,024,850
    
    
    
    37.7
    %
    
    
    4.47
    %Maturing 1 to 3 years
    
    
    829,776
    
    
    
    16.5
    %
    
    
    3.74
    %
    
    
    379,183
    
    
    
    6.8
    %
    
    
    4.31
    %
    
    
    801,156
    
    
    
    14.9
    %
    
    
    4.50
    %Maturing more than 3
years
    
    
    341,989
    
    
    
    6.8
    %
    
    
    4.11
    %
    
    
    116,460
    
    
    
    2.1
    %
    
    
    4.62
    %
    
    
    143,616
    
    
    
    2.7
    %
    
    
    4.56
    %Total certificates
    
    $
    2,457,460
    
    
    
    48.8
    %
    
    
    3.34
    %
    
    
    3,036,696
    
    
    
    54.8
    %
    
    
    4.65
    %
    
    
    2,969,622
    
    
    
    55.3
    %
    
    
    4.48
    %Total deposits
    
    $
    5,038,211
    
    
    
    100.0
    %
    
    
    2.08
    %
    
    $
    5,542,334
    
    
    
    100.0
    %
    
    
    3.29
    %
    
    $
    5,366,750
    
    
    
    100.0
    %
    
    
    3.26
    %
 
 (1)
    
    Represents percentage of total deposits.(2)
    
    Represents weighted average nominal rate at fiscal year end. Large Certificates of Deposit Maturities.
 Certificates ofMaturity Period
    
    Deposits(In Thousands)Three months or less
    
    $
    109,298Over three months through six months
    
    
    82,046Over six months through twelve months
    
    
    84,492Over twelve months
    
    
    257,568Total
    
    $
    533,404
 15




---



##### Table of Contents



Borrowings
   During the Years Ended December 31,2008
    
    2007
    
    2006(Dollars in Thousands)FHLB-Pittsburgh borrowings:Average balance outstanding
    
    $
    625,706
    
    
    
    305,597
    
    
    
    352,596Maximum outstanding at end of any month during period
    
    $
    972,018
    
    
    
    332,160
    
    
    
    377,592Balance outstanding at end of period
    
    $
    972,018
    
    
    
    257,025
    
    
    
    332,196Weighted average interest rate during period
    
    
    3.89
    %
    
    
    4.59
    %
    
    
    4.62
    %Weighted average interest rate at end of period
    
    
    3.49
    %
    
    
    4.64
    %
    
    
    4.58
    %Reverse repurchase agreements:Average balance outstanding
    
    $
    88,349
    
    
    
    70,875
    
    
    
    44,860Maximum outstanding at end of any month during period
    
    $
    98,108
    
    
    
    83,432
    
    
    
    55,705Balance outstanding at end of period
    
    $
    91,436
    
    
    
    77,452
    
    
    
    55,705Weighted average interest rate during period
    
    
    1.75
    %
    
    
    4.01
    %
    
    
    4.03
    %Weighted average interest rate at end of period
    
    
    1.02
    %
    
    
    3.25
    %
    
    
    4.25
    %Other borrowings:Average balance outstanding
    
    $
    4,602
    
    
    
    4,790
    
    
    
    5,333Maximum outstanding at end of any month during period
    
    $
    4,652
    
    
    
    4,923
    
    
    
    5,660Balance outstanding at end of period
    
    $
    4,491
    
    
    
    4,638
    
    
    
    4,913Weighted average interest rate during period
    
    
    4.99
    %
    
    
    4.99
    %
    
    
    4.99
    %Weighted average interest rate at end of period
    
    
    4.99
    %
    
    
    4.99
    %
    
    
    4.99
    %Total borrowings:Average balance outstanding
    
    $
    718,657
    
    
    
    381,262
    
    
    
    402,789Maximum outstanding at end of any month during period
    
    $
    1,067,945
    
    
    
    408,596
    
    
    
    424,766Balance outstanding at end of period
    
    $
    1,067,945
    
    
    
    339,115
    
    
    
    392,814Weighted average interest rate during period
    
    
    3.74
    %
    
    
    4.52
    %
    
    
    4.59
    %Weighted average interest rate at end of period
    
    
    3.29
    %
    
    
    4.33
    %
    
    
    4.54
    %
 Competition
  16




---



##### Table of Contents



Subsidiary Activities
          17




---



##### Table of Contents



Personnel
  REGULATION
 General
   Pennsylvania Savings Bank Law
    18




---



##### Table of Contents



Insurance of Deposit Accounts.
    Temporary Liquidity Guarantee Program.
  Capital Requirements
   19




---



##### Table of Contents



Prompt Corrective Action
  Loans-to-One Borrower Limitation
  Activities and Investments of Insured State-Chartered Banks
  The USA PATRIOT Act
  Holding Company Regulation
 Generally.
 20




---



##### Table of Contents



Permitted Activities.
  Qualified Thrift Lender Test.
 Waivers of Dividends by the Mutual Holding Company.
 Conversion of the Mutual Holding Company to Stock Form.
 21




---



##### Table of Contents



Federal Securities Laws
  Sarbanes-Oxley Act of 2002
    Emergency Economic Stabilization Act of 2008
  Regulatory Enforcement Authority
  Dividends
  22




---



##### Table of Contents



FEDERAL AND STATE TAXATION
 Federal Taxation.
   State Taxation.
   
 ITEM 1A. RISK FACTORS
  Our Stock Value May be Negatively Affected by our Mutual Holding Company Structure, which May
Impede Takeovers.
 Changes in Interest Rates Could Adversely Affect the Companys Results of Operations and
Financial Condition.
 23




---



##### Table of Contents



If the Allowance for Credit Losses is Not Sufficient to Cover Actual Loan Losses, the
Companys Earnings Could Decrease.
   The Concentration of Loans in the Companys Primary Market Area May Increase Risk.
 Strong Competition May Limit Growth and Profitability.
 The Company Operates in a Highly Regulated Environment and May Be Adversely Affected by
Changes in Laws and Regulations.
 Recent negative developments in the financial industry and the domestic and international
credit markets may adversely affect our operations and results.
 24




---



##### Table of Contents



Lack of consumer confidence in financial institutions may decrease our level of deposits.
 Future legislative or regulatory actions responding to perceived financial and market problems
could impair our rights against borrowers.
 If
Our Investment in the Federal Home Loan Bank of Pittsburgh Becomes Impaired , Our Earnings and Stockholders Equity
Could Decrease
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  25




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##### Table of Contents



ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  26




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##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  Year ended
    
    
    
    
    
    
    
    
    
    Cash DividendsDecember 31, 2008
    
    High
    
    Low
    
    DeclaredFirst quarter
    
    
    $30.16
    
    
    
    23.50
    
    
    $
    0.22Second quarter
    
    
    28.10
    
    
    
    21.78
    
    
    
    0.22Third quarter
    
    
    34.34
    
    
    
    20.05
    
    
    
    0.22Fourth
quarter
    
    
    29.86
    
    
    
    18.80
    
    
    
    0.22
 Year ended
    
    
    
    
    
    
    
    
    
    Cash DividendsDecember 31, 2007
    
    High
    
    Low
    
    DeclaredFirst quarter
    
    $
    28.31
    
    
    
    25.26
    
    
    $
    0.20Second quarter
    
    
    28.99
    
    
    
    26.08
    
    
    
    0.20Third quarter
    
    
    29.75
    
    
    
    25.51
    
    
    
    0.22Fourth quarter
    
    
    30.03
    
    
    
    25.76
    
    
    
    0.22
     ISSUER PURCHASES OF EQUITY SECURITES
 (c) Total Number ofShares
    
    (d) Maximum Number of(a) Total Number
    
    (b) Average
    
    Purchased as Part of
    
    Shares that May Yetof Shares
    
    Price Paid per
    
    Publicly Announced
    
    Be Purchased Under thePeriod
    
    Purchased
    
    Share
    
    Plans or Programs (1)
    
    Plans or Programs (1)October 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273,600November 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273,600December 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273,600Total
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The Companys Board of Directors approved a repurchase program for up to 5% of publicly traded
common stock, or 1,000,000 shares. The current program has no expiration date. 27




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##### Table of Contents



Stock Performance Graph
   6/03
    
    6/04
    
    6/05
    
    12/05
    
    12/06
    
    12/07
    
    12/08Northwest Bancorp
    
    
    100.00
    
    
    
    145.76
    
    
    
    138.31
    
    
    
    140.19
    
    
    
    186.25
    
    
    
    185.80
    
    
    
    154.67NASDAQ Composite
    
    
    100.00
    
    
    
    128.19
    
    
    
    129.34
    
    
    
    140.27
    
    
    
    157.21
    
    
    
    171.64
    
    
    
    100.00NASDAQ Bank
    
    
    100.00
    
    
    
    117.32
    
    
    
    126.61
    
    
    
    128.75
    
    
    
    146.64
    
    
    
    115.80
    
    
    
    88.57
 COMPARISON OF 66 MONTH CUMULATIVE TOTAL RETURN*
 
  28




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
 Selected Financial and Other Data
  At December 31,
    
    At June 30,2008
    
    2007
    
    2006
    
    2005
    
    2005
    
    2004(In Thousands)Selected Consolidated Financial Data:Total assets
    
    $
    6,930,241
    
    
    
    6,663,516
    
    
    
    6,527,815
    
    
    
    6,447,307
    
    
    
    6,330,482
    
    
    
    6,343,248Investment securities held-to-maturity
    
    
    
    
    
    
    
    
    
    
    465,312
    
    
    
    444,407
    
    
    
    467,303
    
    
    
    209,241Investment securities available-for-sale
    
    
    393,531
    
    
    
    601,620
    
    
    
    388,546
    
    
    
    289,871
    
    
    
    290,702
    
    
    
    444,676Mortgage-backed securities held-to-maturity
    
    
    
    
    
    
    
    
    
    
    251,655
    
    
    
    189,851
    
    
    
    235,676
    
    
    
    392,301Mortgage-backed securities available-for-sale
    
    
    745,639
    
    
    
    531,747
    
    
    
    378,968
    
    
    
    323,965
    
    
    
    384,481
    
    
    
    411,003Loans receivable net:Real estate
    
    
    4,508,393
    
    
    
    4,172,850
    
    
    
    3,926,859
    
    
    
    4,100,754
    
    
    
    3,888,287
    
    
    
    3,583,302Consumer
    
    
    261,398
    
    
    
    261,598
    
    
    
    253,490
    
    
    
    366,488
    
    
    
    348,672
    
    
    
    324,897Commercial
    
    
    372,101
    
    
    
    361,174
    
    
    
    232,092
    
    
    
    155,027
    
    
    
    139,925
    
    
    
    145,742Total loans receivable, net
    
    $
    5,141,892
    
    
    
    4,795,622
    
    
    
    4,412,441
    
    
    
    4,622,269
    
    
    
    4,376,884
    
    
    
    4,053,941Deposits
    
    
    5,038,211
    
    
    
    5,542,334
    
    
    
    5,366,750
    
    
    
    5,228,479
    
    
    
    5,187,946
    
    
    
    5,191,621Advances from FHLB and other borrowed funds
    
    
    1,067,945
    
    
    
    339,115
    
    
    
    392,814
    
    
    
    417,356
    
    
    
    410,344
    
    
    
    449,147Shareholders equity
    
    $
    613,784
    
    
    
    612,878
    
    
    
    604,561
    
    
    
    585,658
    
    
    
    582,190
    
    
    
    550,472
 Six MonthsEndedYears Ended December 31,
    
    
    December 31,
    
    
    Years Ended June 30,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2004(In Thousands)Selected Consolidated Operating Data:Total interest income
    
    $
    388,659
    
    
    
    396,031
    
    
    
    368,573
    
    
    
    170,449
    
    
    
    321,824
    
    
    
    300,230Total interest expense
    
    
    169,293
    
    
    
    211,015
    
    
    
    191,109
    
    
    
    79,414
    
    
    
    138,047
    
    
    
    134,466Net interest income
    
    
    219,366
    
    
    
    185,016
    
    
    
    177,464
    
    
    
    91,035
    
    
    
    183,777
    
    
    
    165,764Provision for loan losses
    
    
    22,851
    
    
    
    8,743
    
    
    
    8,480
    
    
    
    4,722
    
    
    
    9,566
    
    
    
    6,860Net interest income after provision for
loan losses
    
    
    196,515
    
    
    
    176,273
    
    
    
    168,984
    
    
    
    86,313
    
    
    
    174,211
    
    
    
    158,904Noninterest income
    
    
    38,752
    
    
    
    43,022
    
    
    
    46,026
    
    
    
    19,851
    
    
    
    32,004
    
    
    
    31,862Noninterest expense
    
    
    170,128
    
    
    
    152,742
    
    
    
    143,682
    
    
    
    66,317
    
    
    
    128,659
    
    
    
    128,805Income before income tax expense
    
    
    65,139
    
    
    
    66,553
    
    
    
    71,328
    
    
    
    39,847
    
    
    
    77,556
    
    
    
    61,961Income tax expense
    
    
    16,968
    
    
    
    17,456
    
    
    
    19,792
    
    
    
    10,998
    
    
    
    22,741
    
    
    
    19,829Net income
    
    $
    48,171
    
    
    
    49,097
    
    
    
    51,536
    
    
    
    28,849
    
    
    
    54,815
    
    
    
    42,132Earnings per share:Basic
    
    $
    1.00
    
    
    
    1.00
    
    
    
    1.03
    
    
    
    0.57
    
    
    
    1.10
    
    
    
    0.88Diluted
    
    $
    0.99
    
    
    
    0.99
    
    
    
    1.03
    
    
    
    0.56
    
    
    
    1.09
    
    
    
    0.87
 29




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##### Table of Contents



At or forthe SixMonthsEndedAt or for the Year Ended December 31,
    
    December 31,
    
    At or for the Year Ended June 30,2008
    
    2007
    
    2006
    
    2005*
    
    2005
    
    2004Key Financial Ratios and Other Data:Return on average assets (net income
divided by average total assets)
    
    
    0.70
    %
    
    
    0.73
    %
    
    
    0.79
    %
    
    
    0.91
    %
    
    
    0.86
    %
    
    
    0.68
    %Return on average equity (net income
divided by average equity)
    
    
    7.75
    %
    
    
    8.18
    %
    
    
    8.60
    %
    
    
    9.81
    %
    
    
    9.74
    %
    
    
    8.17
    %Average capital to average assets
    
    
    9.04
    %
    
    
    8.96
    %
    
    
    9.19
    %
    
    
    9.23
    %
    
    
    8.87
    %
    
    
    8.27
    %Capital to total assets
    
    
    8.86
    %
    
    
    9.20
    %
    
    
    9.26
    %
    
    
    9.04
    %
    
    
    9.20
    %
    
    
    8.68
    %Net interest rate spread (average yield on
interest-earning assets less average cost of
interest-bearing liabilities)
    
    
    3.25
    %
    
    
    2.74
    %
    
    
    2.77
    %
    
    
    2.99
    %
    
    
    3.07
    %
    
    
    2.83
    %Net interest margin (net interest income as a
percentage of average interest-earning
assets)
    
    
    3.57
    %
    
    
    3.10
    %
    
    
    3.06
    %
    
    
    3.21
    %
    
    
    3.24
    %
    
    
    2.98
    %Noninterest expense to average assets
    
    
    2.48
    %
    
    
    2.28
    %
    
    
    2.20
    %
    
    
    2.08
    %
    
    
    2.03
    %
    
    
    2.06
    %Net interest income to noninterest expense
    
    
    1.29
    x
    
    
    1.21
    x
    
    
    1.24
    x
    
    
    1.37
    x
    
    
    1.43
    x
    
    
    1.29
    xDividend payout ratio
    
    
    88.89
    %
    
    
    84.85
    %
    
    
    67.96
    %
    
    
    53.57
    %
    
    
    44.04
    %
    
    
    45.98
    %Nonperforming loans to net loans receivable
    
    
    1.93
    %
    
    
    1.03
    %
    
    
    0.92
    %
    
    
    0.93
    %
    
    
    0.77
    %
    
    
    0.80
    %Nonperforming assets to total assets
    
    
    1.67
    %
    
    
    0.87
    %
    
    
    0.72
    %
    
    
    0.74
    %
    
    
    0.64
    %
    
    
    0.57
    %Allowance for loan losses to nonperforming
loans
    
    
    55.37
    %
    
    
    84.22
    %
    
    
    92.92
    %
    
    
    77.67
    %
    
    
    93.91
    %
    
    
    94.35
    %Allowance for loan losses to net loans
receivable
    
    
    1.07
    %
    
    
    0.87
    %
    
    
    0.85
    %
    
    
    0.72
    %
    
    
    0.72
    %
    
    
    0.76
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    1.10
    x
    
    
    1.10
    x
    
    
    1.09
    x
    
    
    1.09
    x
    
    
    1.08
    x
    
    
    1.06
    xNumber of:Full-service offices
    
    
    167
    
    
    
    166
    
    
    
    160
    
    
    
    153
    
    
    
    153
    
    
    
    152Consumer finance offices
    
    
    51
    
    
    
    51
    
    
    
    51
    
    
    
    50
    
    
    
    49
    
    
    
    49
 
 *
    
    Ratios are annualized where appropriate 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
   
    
    Changes in interest rates which could impact our net interest margin;
    
    Adverse changes in our loan portfolio or investment securities portfolio and the
resulting credit risk-related. losses and/ or market value adjustments;
    
    The adequacy of the allowance for loan losses;
    
    Changes in general economic or business conditions resulting in changes in demand for
credit and other services, among other things;
    
    Changes in consumer confidence, spending and savings habits relative to the bank and
non-bank financial services we provide;
    
    Compliance with laws and regulatory requirements of federal and state agencies;
    
    New legislation affecting the financial services industry;
    
    Competition from other financial institutions in originating loans and attracting
deposits;
    
    Our ability to effectively implement technology driven products and services;
    
    Sources of liquidity;
    
    Changes in costs and expenses; and
    
    Our success in managing the risks involved in the foregoing.
 Executive Summary
   30




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##### Table of Contents



Critical Accounting Policies and Estimates
  Allowance for Loan Losses.
 Valuation of Investment Securities.
  31




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##### Table of Contents



Goodwill.
 Deferred Income Taxes. Accounting for
Income Taxes (SFAS 109).
 Other Intangible Assets.
 Pension Benefits.
  32




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##### Table of Contents



Financial Condition
 Cash and equivalents.
 Marketable securities
 Loans receivable
  Deposits
 Shareholders equity
 Results of Operations  Year ended December 31, 2008 compared to year ended December 31, 2007
 Interest income
 33




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##### Table of Contents

\

Interest expense
 Net interest income (including GAAP reconciliation)
 34




---



##### Table of Contents



Provision for loan losses
 Noninterest income
 Noninterest expense
 Income taxes
 Results of Operations  Year ended December 31, 2007 compared to year ended December 31,
2006
 Interest income
  35




---



##### Table of Contents



Interest expense
 Net interest income (including GAAP reconciliation)
 Provision for loan losses
 36




---



##### Table of Contents



Noninterest income
 Noninterest expense
 Income taxes
 37




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##### Table of Contents



Average Balance Sheets
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    Cost(Dollars in Thousands)Interest-earning assets:Loans receivable (1)(2)(3)
    
    $
    5,016,694
    
    
    
    328,687
    
    
    
    6.50
    %
    
    
    4,660,693
    
    
    
    317,321
    
    
    
    6.78
    %
    
    
    4,395,274
    
    
    
    288,037
    
    
    
    6.59
    %Mortgage-backed securities (5)
    
    
    732,281
    
    
    
    34,694
    
    
    
    4.74
    %
    
    
    584,053
    
    
    
    29,385
    
    
    
    5.03
    %
    
    
    660,986
    
    
    
    31,523
    
    
    
    4.77
    %Investment securities (4)(5)(6)
    
    
    478,933
    
    
    
    29,250
    
    
    
    6.11
    %
    
    
    820,337
    
    
    
    47,990
    
    
    
    5.85
    %
    
    
    861,411
    
    
    
    49,450
    
    
    
    5.74
    %FHLB stock (7)
    
    
    48,167
    
    
    
    1,428
    
    
    
    2.96
    %
    
    
    33,348
    
    
    
    2,017
    
    
    
    6.05
    %
    
    
    34,292
    
    
    
    1,692
    
    
    
    4.93
    %Interest-earning deposits:
    
    
    104,895
    
    
    
    2,756
    
    
    
    2.59
    %
    
    
    150,665
    
    
    
    7,867
    
    
    
    5.15
    %
    
    
    133,218
    
    
    
    6,584
    
    
    
    4.87
    %Total interest-earnings assets:
    
    $
    6,380,970
    
    
    
    396,815
    
    
    
    6.18
    %
    
    
    6,249,096
    
    
    
    404,580
    
    
    
    6.45
    %
    
    
    6,085,181
    
    
    
    377,286
    
    
    
    6.20
    %Noninterest-earning assets (8)
    
    
    488,579
    
    
    
    
    
    
    
    
    
    
    
    453,922
    
    
    
    
    
    
    
    
    
    
    
    437,607Total assets
    
    $
    6,869,549
    
    
    
    
    
    
    
    
    
    
    
    6,703,018
    
    
    
    
    
    
    
    
    
    
    
    6,522,788Interest-bearing liabilities:Savings accounts
    
    $
    778,341
    
    
    
    9,159
    
    
    
    1.18
    %
    
    
    793,172
    
    
    
    10,909
    
    
    
    1.38
    %
    
    
    882,974
    
    
    
    12,619
    
    
    
    1.43
    %Interest-bearing demand accounts
    
    
    732,097
    
    
    
    6,434
    
    
    
    0.88
    %
    
    
    698,585
    
    
    
    11,038
    
    
    
    1.58
    %
    
    
    663,046
    
    
    
    9,396
    
    
    
    1.42
    %Money market demand accounts
    
    
    720,713
    
    
    
    14,726
    
    
    
    2.04
    %
    
    
    637,983
    
    
    
    23,551
    
    
    
    3.69
    %
    
    
    574,820
    
    
    
    19,446
    
    
    
    3.38
    %Certificate accounts
    
    
    2,716,815
    
    
    
    106,742
    
    
    
    3.93
    %
    
    
    3,076,693
    
    
    
    141,042
    
    
    
    4.58
    %
    
    
    2,850,548
    
    
    
    115,524
    
    
    
    4.05
    %Borrowed funds (9)
    
    
    718,657
    
    
    
    26,893
    
    
    
    3.74
    %
    
    
    381,262
    
    
    
    17,225
    
    
    
    4.52
    %
    
    
    402,789
    
    
    
    18,508
    
    
    
    4.59
    %Junior subordinated deferrable
interest debentures
    
    
    108,287
    
    
    
    5,339
    
    
    
    4.86
    %
    
    
    105,850
    
    
    
    7,250
    
    
    
    6.76
    %
    
    
    203,413
    
    
    
    15,616
    
    
    
    7.57
    %Total interest-bearing liabilities
    
    $
    5,774,910
    
    
    
    169,293
    
    
    
    2.93
    %
    
    
    5,693,545
    
    
    
    211,015
    
    
    
    3.71
    %
    
    
    5,577,590
    
    
    
    191,109
    
    
    
    3.43
    %Noninterest-bearing liabilities
    
    
    473,410
    
    
    
    
    
    
    
    
    
    
    
    409,096
    
    
    
    
    
    
    
    
    
    
    
    346,016Total liabilities
    
    
    6,248,320
    
    
    
    
    
    
    
    
    
    
    
    6,102,641
    
    
    
    
    
    
    
    
    
    
    
    5,923,606Shareholders equity
    
    
    621,229
    
    
    
    
    
    
    
    
    
    
    
    600,377
    
    
    
    
    
    
    
    
    
    
    
    599,182Total liabilities and equity
    
    $
    6,869,549
    
    
    
    
    
    
    
    
    
    
    
    6,703,018
    
    
    
    
    
    
    
    
    
    
    
    6,522,788Net interest income
    
    
    
    
    
    $
    227,522
    
    
    
    
    
    
    
    
    
    
    
    193,565
    
    
    
    
    
    
    
    
    
    
    
    186,177Net interest rate spread (10)
    
    
    
    
    
    
    
    
    
    
    3.25
    %
    
    
    
    
    
    
    
    
    
    
    2.74
    %
    
    
    
    
    
    
    
    
    
    
    2.77
    %Net interest-earning assets
    
    $
    606,060
    
    
    
    
    
    
    
    
    
    
    
    555,551
    
    
    
    
    
    
    
    
    
    
    
    507,591Net interest margin (11)
    
    
    
    
    
    
    
    
    
    
    3.57
    %
    
    
    
    
    
    
    
    
    
    
    3.10
    %
    
    
    
    
    
    
    
    
    
    
    3.06
    %Ratio of average interest-earning
assets to average interest-bearing
liabilities
    
    
    1.10
    x
    
    
    
    
    
    
    
    
    
    
    1.10
    x
    
    
    
    
    
    
    
    
    
    
    1.09
    x
 
 (1)
    
    Average gross loans receivable includes loans held as available-for-sale and loans placed on
nonaccrual status.(2)
    
    Interest income includes accretion/amortization of deferred loan fees/expenses, which were not
material.(3)
    
    Interest income on tax-free loans is presented on a taxable equivalent basis including
adjustments of $1,559, $1,751 and $1,721, respectively.(4)
    
    Interest income on tax-free investment securities is presented on a taxable equivalent basis
including adjustments of $6,597, $6,798 and $6,992, respectively.(5)
    
    Average balances do not include the effect of unrealized gains or losses on securities held
as available-for-sale.(6)
    
    Average balances include Fannie Mae and Freddie Mac stock.(7)
    
    The FHLB suspended dividends until further notice during the quarter ended December 31, 2008.(8)
    
    Average balances include the effect of unrealized gains or losses on securities held as
available-for-sale.(9)
    
    Average balances include FHLB advances, securities sold under agreements to repurchase and other borrowings.(10)
    
    Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.(11)
    
    Net interest margin represents net interest income as a percentage of average interest-earning assets. 38




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##### Table of Contents



Rate/Volume Analysis.
 Years Ended December 31,2008 vs. 2007
    
    
    2007 vs. 2006Increase/(Decrease) Due to
    
    
    Total Increase
    
    
    Increase/(Decrease) Due to
    
    
    Total IncreaseRate
    
    
    Volume
    
    
    (Decrease)
    
    
    Rate
    
    
    Volume
    
    
    (Decrease)(In Thousands)Interest-earning assets:Loans receivable
    
    $
    (12,864
    )
    
    
    24,230
    
    
    $
    11,366
    
    
    $
    10,072
    
    
    
    19,212
    
    
    $
    29,284Mortgage-backed securities
    
    
    (2,149
    )
    
    
    7,458
    
    
    
    5,309
    
    
    
    1,733
    
    
    
    (3,871
    )
    
    
    (2,138
    )Investment securities
    
    
    2,110
    
    
    
    (20,850
    )
    
    
    (18,740
    )
    
    
    943
    
    
    
    (2,403
    )
    
    
    (1,460
    )FHLB stock
    
    
    (1,485
    )
    
    
    896
    
    
    
    (589
    )
    
    
    382
    
    
    
    (57
    )
    
    
    325Interest-earning deposits:
    
    
    (3,314
    )
    
    
    (1,797
    )
    
    
    (5,111
    )
    
    
    396
    
    
    
    887
    
    
    
    1,283Total interest-earnings assets
    
    $
    (17,702
    )
    
    
    9,937
    
    
    $
    (7,765
    )
    
    $
    13,526
    
    
    
    13,768
    
    
    $
    27,294Interest-bearing liabilities:Savings accounts
    
    
    (1,560
    )
    
    
    (190
    )
    
    
    (1,750
    )
    
    
    (451
    )
    
    
    (1,259
    )
    
    
    (1,710
    )Interest-bearing demand accounts
    
    
    (5,134
    )
    
    
    530
    
    
    
    (4,604
    )
    
    
    1,109
    
    
    
    533
    
    
    
    1,642Money market demand
accounts
    
    
    (11,879
    )
    
    
    3,054
    
    
    
    (8,825
    )
    
    
    1,870
    
    
    
    2,235
    
    
    
    4,105Certificate accounts
    
    
    (18,981
    )
    
    
    (15,319
    )
    
    
    (34,300
    )
    
    
    15,752
    
    
    
    9,766
    
    
    
    25,518Borrowed funds
    
    
    (5,575
    )
    
    
    15,243
    
    
    
    9,668
    
    
    
    (302
    )
    
    
    (981
    )
    
    
    (1,283
    )Junior subordinated deferrable
interest debentures
    
    
    (2,078
    )
    
    
    167
    
    
    
    (1,911
    )
    
    
    (1,280
    )
    
    
    (7,086
    )
    
    
    (8,366
    )Total interest-bearing
liabilities
    
    $
    (45,207
    )
    
    
    3,485
    
    
    $
    (41,722
    )
    
    $
    16,698
    
    
    
    3,208
    
    
    $
    19,906Net change in net interest
income
    
    $
    27,505
    
    
    
    6,452
    
    
    $
    33,957
    
    
    $
    (3,172
    )
    
    
    10,560
    
    
    $
    7,388
 Regulatory Capital Requirements
   39




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##### Table of Contents



December 31, 2008
    
    
    December 31, 2007(Dollars in Thousands)Total shareholders equity (GAAP capital)
    
    $
    706,610
    
    
    
    714,160Less: accumulated other comprehensive (income)/ loss
    
    
    22,017
    
    
    
    (931
    )Less: nonqualifying intangible assets
    
    
    (178,758
    )
    
    
    (183,396
    )Leverage capital
    
    $
    549,869
    
    
    
    529,833Plus: Tier 2 capital (1)
    
    
    54,198
    
    
    
    41,952Total risk-based capital
    
    $
    604,067
    
    
    
    571,785Average total assets for leverage ratio
    
    $
    6,829,557
    
    
    
    6,454,343Net risk-weighted assets including off-balance sheet items
    
    $
    4,329,431
    
    
    
    4,053,803Leverage capital ratio
    
    
    8.05
    %
    
    
    8.21
    %Minimum requirement (2)
    
    3.00% to 5.00
    %
    
    3.00% to 5.00
    %Risk-based capital ratio
    
    
    13.95
    %
    
    
    14.10
    %Minimum requirement
    
    
    8.00
    %
    
    
    8.00
    %
 
 (1)
    
    Tier 2 capital consists of the allowance for loan losses, which is limited to 1.25% of total
risk-weighted assets as detailed under regulations of the FDIC, and 45% of pre-tax net
unrealized gains on securities available-for-sale.(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.  Liquidity and Capital Resources.
  40




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41




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##### Table of Contents



Contractual Obligations.
 Payments dueThree years toLess than one
    
    
    One year to less
    
    
    less than five
    
    
    Five years oryear
    
    
    than three years
    
    
    years
    
    
    greater
    
    
    Total(In Thousands)Contractual obligations at December 31, 2008Long-term debt (1)
    
    $
    285,635
    
    
    
    196,532
    
    
    
    270,000
    
    
    
    315,778
    
    
    $
    1,067,945Junior subordinated debentures (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,254
    
    
    
    108,254Operating leases (3)
    
    
    4,280
    
    
    
    6,931
    
    
    
    4,366
    
    
    
    10,310
    
    
    
    25,887Total
    
    $
    289,915
    
    
    
    203,463
    
    
    
    274,366
    
    
    
    434,342
    
    
    $
    1,202,086
 
 (1)
    
    See Note 11, Borrowed funds, of the Notes to Consolidated Financial
Statements for additional information.(2)
    
    See Note 22, Junior Subordinated Debentures/Trust-Preferred Securities, of the
Notes to Consolidated Financial Statements for additional information.(3)
    
    See Note 8, Premises and Equipment, of the Notes to Consolidated Financial
Statements for additional information. Impact of Inflation and Changing Prices
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Asset and Liability Management-Interest Rate Sensitivity Analysis.
   42




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##### Table of Contents



Amounts Maturing or RepricingWithin
    
    
    1-3
    
    
    3-5
    
    
    5-10
    
    
    10-20
    
    
    Over 201 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total(Dollars in Thousands)Rate-sensitive assets:Interest-earning deposits
    
    $
    24,107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,107Mortgage-backed securities:Fixed-rate
    
    
    73,941
    
    
    
    82,377
    
    
    
    43,044
    
    
    
    51,217
    
    
    
    
    
    
    
    
    
    
    
    250,579Variable-rate
    
    
    389,569
    
    
    
    51,828
    
    
    
    53,663
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    495,060Investment securities
    
    
    97,585
    
    
    
    83,178
    
    
    
    26,499
    
    
    
    186,269
    
    
    
    
    
    
    
    
    
    
    
    393,531Real estate loans:Adjustable-rate
    
    
    71,984
    
    
    
    1,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,800Fixed-rate
    
    
    308,773
    
    
    
    530,322
    
    
    
    450,161
    
    
    
    738,575
    
    
    
    367,248
    
    
    
    
    
    
    
    2,395,079Home equity lines of credit
    
    
    163,659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,659Education loans
    
    
    38,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,152Other consumer loans
    
    
    406,776
    
    
    
    440,582
    
    
    
    205,651
    
    
    
    50,950
    
    
    
    
    
    
    
    
    
    
    
    1,103,959Commercial loans
    
    
    819,855
    
    
    
    433,020
    
    
    
    172,320
    
    
    
    2,018
    
    
    
    
    
    
    
    
    
    
    
    1,427,213Total rate-sensitive assets
    
    
    2,394,401
    
    
    
    1,623,123
    
    
    
    951,338
    
    
    
    1,029,029
    
    
    
    367,248
    
    
    
    
    
    
    
    6,365,139Rate-sensitive liabilities:Fixed maturity deposits
    
    
    1,285,695
    
    
    
    829,776
    
    
    
    327,358
    
    
    
    14,367
    
    
    
    264
    
    
    
    
    
    
    
    2,457,460Money market deposit accounts
    
    
    685,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,959
    
    
    
    
    
    
    
    705,601Savings accounts
    
    
    209,000
    
    
    
    322,000
    
    
    
    
    
    
    
    
    
    
    
    244,019
    
    
    
    
    
    
    
    775,019Checking accounts
    
    
    187,000
    
    
    
    254,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    659,131
    
    
    
    1,100,131FHLB advances
    
    
    189,708
    
    
    
    196,532
    
    
    
    270,000
    
    
    
    315,778
    
    
    
    
    
    
    
    
    
    
    
    972,018Other borrowings
    
    
    92,319
    
    
    
    778
    
    
    
    1,978
    
    
    
    852
    
    
    
    
    
    
    
    
    
    
    
    95,927Trust preferred securities
    
    
    8,249
    
    
    
    
    
    
    
    25,001
    
    
    
    75,004
    
    
    
    
    
    
    
    
    
    
    
    108,254Total rate-sensitive liabilities
    
    
    2,657,613
    
    
    
    1,603,086
    
    
    
    624,337
    
    
    
    406,001
    
    
    
    264,242
    
    
    
    659,131
    
    
    
    6,214,410Interest sensitivity gap per period
    
    $
    (263,212
    )
    
    
    20,037
    
    
    
    327,001
    
    
    
    623,028
    
    
    
    103,006
    
    
    
    (659,131
    )
    
    $
    150,729Cumulative interest sensitivity gap
    
    $
    (263,212
    )
    
    
    (243,175
    )
    
    
    83,826
    
    
    
    706,854
    
    
    
    809,860
    
    
    
    150,729
    
    
    $
    150,729Cumulative interest sensitivity gap as a
percentage of total assets
    
    
    (3.80
    )%
    
    
    (3.51
    )%
    
    
    1.21
    %
    
    
    10.20
    %
    
    
    11.69
    %
    
    
    2.17
    %
    
    
    2.17
    %Cumulative interest-earning assets as a percent
of cumulative interest-bearing liabilities
    
    
    90.10
    %
    
    
    94.29
    %
    
    
    101.72
    %
    
    
    113.36
    %
    
    
    114.58
    %
    
    
    102.43
    %
    
    
    102.43
    %
  43




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##### Table of Contents




    
    Net income simulation.Given a parallel shift of 2% in interest rates, the estimated
net income may not decrease by more than 20% within a one-year period.
    
    Market value of equity simulation.The market value of the Companys equity is the
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 35% of total shareholder
equity.
  Movements in interest rates fromDecember 31, 2008 ratesIncrease
    
    Decrease1%
    
    2%
    
    1%
    
    2%Simulated impact over the next 12 months
compared with December 31, 2008:Percentage increase/(decrease) in net income
    
    
    2.3
    %
    
    
    (1.2
    )%
    
    
    5.2
    %
    
    
    5.7
    %Increase/(decrease) in return on average equity
    
    
    0.2
    %
    
    
    (0.1
    )%
    
    
    0.5
    %
    
    
    0.6
    %Increase/(decrease) in diluted earnings per share
    
    $
    0.03
    
    
    
    ($0.02
    )
    
    $
    0.07
    
    
    $
    0.08Percentage increase/(decrease) in market value of equity
    
    
    (9.6
    )%
    
    
    (17.9
    )%
    
    
    (2.3
    )%
    
    
    (7.1
    )%
 44




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Managements Report on Internal Control Over Financial Reporting
  Internal control  Integrated Framework
  /s/ William J. Wagner
    
    
    
    /s/ William W. Harvey, Jr.William J. Wagner
    
    
    
    William W. Harvey, Jr.Chief Executive Officer
    
    
    
    Chief Financial Officer
 45




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
 
 Internal Control 
Integrated Framework
    Internal Control 
Integrated Framework
   
 46




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Fair Value Measurements.
 Internal ControlIntegrated
Framework
  
 47




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
   December 312008
    
    
    2007AssetsCash and cash equivalents
    
    $
    55,815
    
    
    
    75,905Interest-earning deposits in other financial institutions
    
    
    16,795
    
    
    
    153,160Federal funds sold and other short-term investments
    
    
    7,312
    
    
    
    1,551Marketable securities available-for-sale (amortized cost
of $1,144,435 and $1,123,526)
    
    
    1,139,170
    
    
    
    1,133,367Loans receivable, net of allowance for loan
losses of $54,929 and $41,784
    
    
    5,141,892
    
    
    
    4,795,622Accrued interest receivable
    
    
    27,252
    
    
    
    27,084Real estate owned, net
    
    
    16,844
    
    
    
    8,667Federal Home Loan Bank stock, at cost
    
    
    63,143
    
    
    
    31,304Premises and equipment, net
    
    
    115,842
    
    
    
    110,894Bank owned life insurance
    
    
    123,479
    
    
    
    118,682Goodwill
    
    
    171,363
    
    
    
    171,614Other intangible assets
    
    
    7,395
    
    
    
    11,782Mortgage servicing rights
    
    
    6,280
    
    
    
    8,955Other assets
    
    
    37,659
    
    
    
    14,929Total assets
    
    $
    6,930,241
    
    
    
    6,663,516Liabilities and Shareholders EquityLiabilities:Deposits
    
    $
    5,038,211
    
    
    
    5,542,334Borrowed funds
    
    
    1,067,945
    
    
    
    339,115Advances by borrowers for taxes and insurance
    
    
    26,190
    
    
    
    24,159Accrued interest payable
    
    
    5,194
    
    
    
    4,356Other liabilities
    
    
    70,663
    
    
    
    32,354Junior subordinated deferrable interest debentures
held by trusts that issued guaranteed capital debt securities
    
    
    108,254
    
    
    
    108,320Total liabilities
    
    
    6,316,457
    
    
    
    6,050,638Shareholders equity:Preferred stock, $0.10 par value. 50,000,000 shares authorized;
no shares issued
    
    
    
    
    
    
    Common stock, $0.10 par value. 500,000,000 shares authorized;
shares issued 51,244,974 and 51,191,109, respectively
    
    
    5,124
    
    
    
    5,119Paid-in capital
    
    
    218,332
    
    
    
    214,606Retained earnings, substantially restricted
    
    
    490,326
    
    
    
    458,425Accumulated other comprehensive (loss)/ income, net
    
    
    (30,575
    )
    
    
    816Treasury stock of 2,742,800 and 2,610,800 shares,
respectively, at cost
    
    
    (69,423
    )
    
    
    (66,088
    )Total shareholders equity
    
    
    613,784
    
    
    
    612,878Total liabilities and
shareholders equity
    
    $
    6,930,241
    
    
    
    6,663,516
  48




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
   Years ended December 31,2008
    
    
    2007
    
    
    2006Interest income:Loans receivable
    
    $
    327,128
    
    
    
    315,570
    
    
    
    286,316Mortgage-backed securities
    
    
    34,694
    
    
    
    29,385
    
    
    
    31,523Taxable investment securities
    
    
    11,828
    
    
    
    30,583
    
    
    
    31,164Tax-free investment securities
    
    
    12,253
    
    
    
    12,626
    
    
    
    12,986Interest-earning deposits
    
    
    2,756
    
    
    
    7,867
    
    
    
    6,584Total interest income
    
    
    388,659
    
    
    
    396,031
    
    
    
    368,573Interest expense:Deposits
    
    
    137,061
    
    
    
    186,540
    
    
    
    156,985Borrowed funds
    
    
    32,232
    
    
    
    24,475
    
    
    
    34,124Total interest expense
    
    
    169,293
    
    
    
    211,015
    
    
    
    191,109Net interest income
    
    
    219,366
    
    
    
    185,016
    
    
    
    177,464Provision for loan losses
    
    
    22,851
    
    
    
    8,743
    
    
    
    8,480Net interest income after
provision for loan losses
    
    
    196,515
    
    
    
    176,273
    
    
    
    168,984Noninterest income:Service charges and fees
    
    
    32,432
    
    
    
    27,754
    
    
    
    24,459Trust and other financial services income
    
    
    6,718
    
    
    
    6,223
    
    
    
    5,321Insurance commission income
    
    
    2,376
    
    
    
    2,705
    
    
    
    2,550Gain on sale of marketable securities, net
    
    
    6,037
    
    
    
    4,958
    
    
    
    368Other-than-temporary impairment of investments
    
    
    (16,004
    )
    
    
    (8,412
    )
    
    
    Gain on sale of loans, net
    
    
    
    
    
    
    728
    
    
    
    4,832(Loss)/ gain on sale of real estate owned, net
    
    
    (428
    )
    
    
    (83
    )
    
    
    735Income from bank owned life insurance
    
    
    4,797
    
    
    
    4,460
    
    
    
    4,344Mortgage banking income
    
    
    665
    
    
    
    1,578
    
    
    
    684Non-cash (impairment)/ recovery of mortgage servicing asset
    
    
    (2,165
    )
    
    
    65
    
    
    
    (205
    )Other operating income
    
    
    4,324
    
    
    
    3,046
    
    
    
    2,938Total noninterest income
    
    
    38,752
    
    
    
    43,022
    
    
    
    46,026Noninterest expense:Compensation and employee benefits
    
    
    91,129
    
    
    
    84,217
    
    
    
    78,611Premises and occupancy costs
    
    
    21,924
    
    
    
    21,375
    
    
    
    20,368Office operations
    
    
    13,237
    
    
    
    12,788
    
    
    
    12,411Processing expenses
    
    
    18,652
    
    
    
    15,019
    
    
    
    12,051Professional services
    
    
    2,582
    
    
    
    2,778
    
    
    
    2,877Amortization of intangible assets
    
    
    4,387
    
    
    
    4,499
    
    
    
    3,876Advertising
    
    
    5,500
    
    
    
    3,742
    
    
    
    2,818Federal deposit insurance premiums
    
    
    3,884
    
    
    
    663
    
    
    
    685Loss on early extinguishment of debt
    
    
    705
    
    
    
    
    
    
    
    3,124Other expenses
    
    
    8,128
    
    
    
    7,661
    
    
    
    6,861Total noninterest expense
    
    
    170,128
    
    
    
    152,742
    
    
    
    143,682Income before income taxes
    
    
    65,139
    
    
    
    66,553
    
    
    
    71,328Provision for income taxes:Federal
    
    
    14,739
    
    
    
    15,597
    
    
    
    16,840State
    
    
    2,229
    
    
    
    1,859
    
    
    
    2,952Total provision for income taxes
    
    
    16,968
    
    
    
    17,456
    
    
    
    19,792Net income
    
    $
    48,171
    
    
    
    49,097
    
    
    
    51,536Basic earnings per share
    
    $
    1.00
    
    
    
    1.00
    
    
    
    1.03Diluted earnings per share
    
    $
    0.99
    
    
    
    0.99
    
    
    
    1.03
  49




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
  
 Accumulatedother
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    Treasury
    
    
    shareholdersstock
    
    
    capital
    
    
    earnings
    
    
    income (loss), net
    
    
    stock
    
    
    equityBalance at December 31, 2005
    
    $
    5,108
    
    
    
    208,132
    
    
    
    389,985
    
    
    
    (384
    )
    
    
    (17,183
    )
    
    $
    585,658Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    51,536
    
    
    
    
    
    
    
    
    
    
    
    51,536Other comprehensive loss, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (859
    )
    
    
    
    
    
    
    (859
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    51,536
    
    
    
    (859
    )
    
    
    
    
    
    
    50,677Treasury stock repurchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,080
    )
    
    
    (8,080
    )Prior period adjustments  adoption of SAB 108
    
    
    
    
    
    
    
    
    
    
    (2,770
    )
    
    
    
    
    
    
    
    
    
    
    (2,770
    )Exercise of stock options
    
    
    6
    
    
    
    867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    873Stock compensation
    
    
    
    
    
    
    2,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,296Adjustment for adoption of SFAS No. 158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,366
    )
    
    
    
    
    
    
    (10,366
    )Dividends paid ($0.70 per share)
    
    
    
    
    
    
    
    
    
    
    (13,727
    )
    
    
    
    
    
    
    
    
    
    
    (13,727
    )Balance at December 31, 2006
    
    
    5,114
    
    
    
    211,295
    
    
    
    425,024
    
    
    
    (11,609
    )
    
    
    (25,263
    )
    
    
    604,561Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    49,097
    
    
    
    
    
    
    
    
    
    
    
    49,097Other comprehensive income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,425
    
    
    
    
    
    
    
    12,425Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    49,097
    
    
    
    12,425
    
    
    
    
    
    
    
    61,522Treasury stock repurchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,825
    )
    
    
    (40,825
    )Exercise of stock options
    
    
    5
    
    
    
    857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    862Stock compensation
    
    
    
    
    
    
    2,454
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,454Dividends paid ($0.84 per share)
    
    
    
    
    
    
    
    
    
    
    (15,696
    )
    
    
    
    
    
    
    
    
    
    
    (15,696
    )Balance at December 31, 2007
    
    
    5,119
    
    
    
    214,606
    
    
    
    458,425
    
    
    
    816
    
    
    
    (66,088
    )
    
    
    612,878Effect of changing pension plan measurement date pursuant to
SFAS No. 158, net of tax of $(319) and $361, respectively
    
    
    
    
    
    
    
    
    
    
    (499
    )
    
    
    572
    
    
    
    
    
    
    
    73Beginning balance as adjusted
    
    
    5,119
    
    
    
    214,606
    
    
    
    457,926
    
    
    
    1,388
    
    
    
    (66,088
    )
    
    
    612,951Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    48,171
    
    
    
    
    
    
    
    
    
    
    
    48,171Other comprehensive loss, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,963
    )
    
    
    
    
    
    
    (31,963
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    48,171
    
    
    
    (31,963
    )
    
    
    
    
    
    
    16,208Treasury stock repurchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,335
    )
    
    
    (3,335
    )Exercise of stock options
    
    
    5
    
    
    
    995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000Stock compensation
    
    
    
    
    
    
    2,731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,731Dividends paid ($0.88 per share)
    
    
    
    
    
    
    
    
    
    
    (15,771
    )
    
    
    
    
    
    
    
    
    
    
    (15,771
    )Balance at December 31, 2008
    
    $
    5,124
    
    
    
    218,332
    
    
    
    490,326
    
    
    
    (30,575
    )
    
    
    (69,423
    )
    
    $
    613,784
  50




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
   Years ended December 31,2008
    
    
    2007
    
    
    2006Operating activities:Net income
    
    $
    48,171
    
    
    
    49,097
    
    
    
    51,536Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    22,851
    
    
    
    8,743
    
    
    
    8,480Net gain on sales of assets
    
    
    (3,468
    )
    
    
    (4,638
    )
    
    
    (4,550
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    3,124Net depreciation, amortization, and accretion
    
    
    16,222
    
    
    
    14,572
    
    
    
    10,828Increase in other assets
    
    
    (2,007
    )
    
    
    (11,119
    )
    
    
    (10,945
    )Increase in other liabilities
    
    
    3,997
    
    
    
    3,799
    
    
    
    5,353Net amortization of discounts/premiums
on marketable securities
    
    
    (6,382
    )
    
    
    (4,396
    )
    
    
    (1,334
    )Noncash compensation expense related
to stock benefit plans
    
    
    2,731
    
    
    
    2,454
    
    
    
    2,296Noncash other-than-temporary impairment of investment securities
    
    
    16,004
    
    
    
    8,412
    
    
    
    Noncash impairment/(recovery) of mortgage servicing rights
    
    
    2,165
    
    
    
    (65
    )
    
    
    205Deferred income tax expense/ (benefit)
    
    
    (6,480
    )
    
    
    (750
    )
    
    
    8,775Origination of loans held for sale
    
    
    (234,973
    )
    
    
    (252,810
    )
    
    
    (153,354
    )Proceeds from loan sales
    
    
    212,535
    
    
    
    250,295
    
    
    
    143,340Net cash provided by operating activities
    
    
    71,366
    
    
    
    63,594
    
    
    
    63,754Investing activities:Purchase of marketable securities held-to-maturity
    
    
    
    
    
    
    
    
    
    
    (201,912
    )Purchase of marketable securities available-for-sale
    
    
    (457,776
    )
    
    
    (49,102
    )
    
    
    (280,459
    )Proceeds from maturities and principal reductions
of marketable securities held-to-maturity
    
    
    
    
    
    
    151,374
    
    
    
    115,550Proceeds from maturities and principal reductions
of marketable securities available-for-sale
    
    
    319,051
    
    
    
    182,454
    
    
    
    138,640Proceeds from sales of marketable securities
available-for-sale
    
    
    113,484
    
    
    
    105,361
    
    
    
    5,333Proceeds from sales of marketable securities
held-to-maturity
    
    
    
    
    
    
    15,652
    
    
    
    Loan originations
    
    
    (1,649,652
    )
    
    
    (1,489,646
    )
    
    
    (1,334,596
    )Proceeds from loan maturities and principal
reductions
    
    
    1,283,980
    
    
    
    1,234,511
    
    
    
    1,118,372Proceeds from sale of portfolio loans
    
    
    
    
    
    
    
    
    
    
    481,301Redemption/(purchase) of Federal Home Loan
Bank stock
    
    
    (31,839
    )
    
    
    3,715
    
    
    
    (979
    )Proceeds from sale of real estate owned
    
    
    7,176
    
    
    
    5,316
    
    
    
    6,771Sale/(purchase) of real estate owned for investment
    
    
    155
    
    
    
    (101
    )
    
    
    66Purchase of premises and equipment
    
    
    (15,655
    )
    
    
    (11,411
    )
    
    
    (13,071
    )Acquisitions, net of cash received
    
    
    
    
    
    
    (25,150
    )
    
    
    (2,605
    )Net cash (used in)/ provided by
investing activities
    
    
    (431,076
    )
    
    
    122,973
    
    
    
    32,411
 51




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
   Years ended December 31,2008
    
    
    2007
    
    
    2006Financing activities:(Decrease)/ increase in deposits, net
    
    $
    (504,123
    )
    
    
    9,737
    
    
    
    54,948Proceeds from long-term borrowings
    
    
    645,000
    
    
    
    
    
    
    
    Repayments of long-term borrowings
    
    
    (84,270
    )
    
    
    (75,180
    )
    
    
    (47,759
    )Net increase in short-term borrowings
    
    
    168,484
    
    
    
    9,342
    
    
    
    24,025Increase/ (decrease) in advances by borrowers
for taxes and insurance
    
    
    2,031
    
    
    
    1,476
    
    
    
    (2,142
    )Treasury stock repurchases
    
    
    (3,335
    )
    
    
    (40,825
    )
    
    
    (8,080
    )Repayment of junior subordinated debentures
    
    
    
    
    
    
    
    
    
    
    (102,062
    )Cash dividends paid
    
    
    (15,771
    )
    
    
    (15,696
    )
    
    
    (13,727
    )Proceeds from options exercised, including
tax benefit realized
    
    
    1,000
    
    
    
    862
    
    
    
    873Net cash provided by/ (used in)
financing activities
    
    
    209,016
    
    
    
    (110,284
    )
    
    
    (93,924
    )Net (decrease)/ increase in cash and
cash equivalents
    
    $
    (150,694
    )
    
    
    76,283
    
    
    
    2,241Cash and cash equivalents at beginning of period
    
    $
    230,616
    
    
    
    154,333
    
    
    
    152,092Net (decrease)/ increase in cash and cash equivalents
    
    
    (150,694
    )
    
    
    76,283
    
    
    
    2,241Cash and cash equivalents at end of period
    
    $
    79,922
    
    
    
    230,616
    
    
    
    154,333Cash paid during the period for:Interest on deposits and borrowings (including
interest credited to deposit accounts of $129,275,
$160,291 and $136,319, respectively)
    
    $
    168,455
    
    
    
    210,697
    
    
    
    191,458Income taxes
    
    
    22,541
    
    
    
    16,684
    
    
    
    6,940Noncash activities:Business acquisitions:Fair value of assets acquired
    
    $
    
    
    
    
    211,846
    
    
    
    86,673Net cash paid
    
    
    
    
    
    
    (25,150
    )
    
    
    (2,605
    )Liabilities assumed
    
    $
    
    
    
    
    186,696
    
    
    
    84,068Loan foreclosures and repossessions
    
    $
    15,780
    
    
    
    6,975
    
    
    
    7,817Loans transferred to held for investment from loans
held for sale
    
    
    24,827
    
    
    
    
    
    
    
    Sale of real estate owned financed by the Company
    
    
    614
    
    
    
    1,013
    
    
    
    768
  52




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (1)
    
    Summary of Significant Accounting Policies
 (a)
    
    Nature of OperationsThe Northwest group of companies is organized in a two-tier holding company structure.
Northwest Bancorp, MHC (MHC) is a federal mutual holding company and, at December 31,
2008 and 2007, owned approximately 63% of the outstanding shares of common stock of
Northwest Bancorp, Inc. (the Company). Annually, the MHC applies for and, for the past
three years, has received approval from the Office of Thrift Supervision to waive its
right to receive dividends from the Company. Dividends waived by MHC during the years
ended December 31, 2008, 2007, and 2006 were $26,872,000, $25,651,000, and $21,376,000,
respectively.Northwest Bancorp, Inc., which is headquartered in Warren, Pennsylvania, is a federal
savings and loan holding company for its wholly owned subsidiary, Northwest Savings Bank
(Northwest). Northwest offers traditional deposit and loan products through its 167
banking locations in Pennsylvania, New York, Ohio, Maryland, and Florida. Northwest,
through its subsidiary Northwest Consumer Discount Company, also offers loan products
through 49 consumer finance offices in Pennsylvania.(b)
    
    Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and its wholly
owned subsidiaries after elimination of all intercompany accounts and transactions.(c)
    
    Cash and Cash EquivalentsFor purposes of the statement of cash flows, cash and cash equivalents include cash and
amounts due from depository institutions, interest-bearing deposits in other financial
institutions, federal funds sold, and other short-term investments.(d)
    
    Marketable SecuritiesThe Company classifies marketable securities at the time of purchase as
available-for-sale, or trading securities. 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 accumulated other comprehensive income,
a separate component of shareholders equity, net of tax. Securities classified as
available-for-sale include securities that 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 cost of securities sold is determined on a specific identification basis.
The Company held no securities classified as trading at or for the years ended
December 31, 2008 and 2007.The Company regularly reviews its investment securities for declines in value below
amortized cost that might be considered other than temporary. If a decline in value is
considered other than temporary, an impairment charge is recorded in the income
statement.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.
 53




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (e)
    
    Loans ReceivableLoans 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 90
days delinquent is reversed, 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 fair value and at
December 31, 2008 and 2007 were $18,738,000 and $28,412,000, respectively.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 loan as an adjustment to interest income.(f)
    
    Allowance for Loan Losses and Provision for Loan LossesProvisions for estimated loan losses and the amount of the allowance for loan losses are
based on losses inherent in the loan portfolio that are both probable and reasonably
estimable at the date of the financial statements. Management believes, to the best of
their knowledge, that all known losses as of the statement of condition dates have been
recorded.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. Nonaccrual loans are deemed to be impaired unless fully secured with liquid
collateral. 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.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. Larger 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 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. Such
interest ultimately collected is credited to income in the period of recovery or applied
to reduce principal if there is sufficient doubt about the collectibility of principal.
Interest that has been accrued on impaired loans that are contractually past due 90 days
and over is reversed.(g)
    
    Real Estate OwnedReal estate owned is comprised of property acquired through foreclosure or voluntarily
conveyed by delinquent borrowers. These assets are recorded on the date acquired at the
lower of the related loan balance or market value
of the collateral less disposition cost with the market value being determined by an
appraisal. Subsequently, foreclosed assets are valued at the lower of the amount recorded
at acquisition date or the current market value, less estimated disposition costs. Gains
or losses realized from the disposition of such property are credited or charged to
noninterest income.
 54




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (h)
    
    Premises and EquipmentPremises 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 range from three to thirty years. 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.(i)
    
    GoodwillIn accordance with Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets(SFAS 142), goodwill is allocated to various reporting units,
which are either the Companys reportable segments or one level below. Goodwill is no
longer amortized but is tested for impairment on an annual basis and between annual tests
if events occur, or if circumstances change, that would more likely than not reduce the
fair value below its carrying amount. The annual impairment test is based on discounted
cash flow models that incorporate variables including growth in net income, discount
rates, and terminal values. If the carrying amount of goodwill exceeds its fair value, an
impairment loss is recognized as a non-cash charge.(j)
    
    Core Deposit IntangiblesThe Company engages an independent third party expert to analyze and prepare a core
deposit study for all acquisitions. This study reflects the cumulative present value
benefit of acquiring deposits versus an alternative source of funding. Based upon this
analysis, the amount of the premium related to the core deposits of the business
purchased is calculated along with the estimated life of the acquired deposits. The core
deposit intangible, which is recorded in other intangible assets, is then amortized to
expense on an accelerated basis over an approximate life of seven years.(k)
    
    Bank-Owned Life InsuranceThe Company owns insurance on the lives of a certain group of key employees and
directors. The policies were purchased to help offset the increase in the costs of
various fringe benefit plans including healthcare as well as the directors deferred
compensation plan. The cash surrender value of these policies is included as an asset on
the consolidated statements of financial condition, and any increases in the cash
surrender value are recorded as noninterest income on the consolidated statements of
income. In the event of the death of an insured individual under these policies, after
distribution to the insureds beneficiaries the Company would receive a death benefit,
which would be recorded as noninterest income.(l)
    
    DepositsInterest on deposits is accrued and charged to expense monthly and is paid or credited in
accordance with the terms of the accounts.(m)
    
    Pension PlansThe 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 Pensions. In conjunction with the adoption of Statement
of Financial Accounting Standards No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, the Company changed its
measurement date to December 31 from October 31 for its defined benefit pension plans
effective December 31, 2008.(n)
    
    Income TaxesThe Company joins with its wholly owned subsidiaries in filing a consolidated federal
income tax return.
 55




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The Company accounts for income taxes using the asset and liability method prescribed by
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. 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 the tax rates expected to be in effect when
such amounts are realized or settled.(o)
    
    Stock Related CompensationThe Company accounts for its stock-based compensation plans under the provisions of
Statement of Financial Accounting Standards No. 123 (revised 2005), Share-Based Payments
(SFAS 123(r)). The Black-Scholes-Merton option-pricing model was used to determine the
fair value of each option award, estimated on the grant date. During the year ended
December 31, 2008 the Company awarded 393,777 stock options to employees and 24,000 stock
options to directors. Option awards are generally granted with an exercise price equal
to the market price of the Companys stock at the grant date and options generally vest
over a five-year to seven-year period from the grant date. Expected volatilities are
based on historical volatility of the Companys stock. The expected term of options is
based upon previous option grants. The risk-free rate is based on yields on U.S. Treasury
securities of a similar maturity to the expected term of the options. New shares are
issued when options granted from the 1995, 2000 and 2005 Stock Options Plans are
exercised and treasury shares will be issued when options granted from the 2008 Stock
Option Plan are exercised.Stock-based employee compensation expense related to the Companys recognition and
retention plan of $1,092,000, $1,251,000 and $1,176,000 was included in income before
income taxes during the years ended December 31, 2008, 2007 and 2006, respectively. The
effect on net income for the years ended December 31, 2008, 2007 and 2006 was a reduction
of $710,000, $813,000 and $765,000, respectively. The Company will recognize the
remaining expense of $1,124,000 over the next three years. Total compensation expense
for unvested stock options of $1,455,000 has yet to be recognized as of December 31,
2008. The weighted average period over which this remaining stock option expense will be
recognized is approximately 2.25 years.The fair value of each option grant is estimated on the date of grant using the
Black-Scholes-Merton option-pricing model with the following weighted average
assumptions: (1) dividend yields ranging from 1.6% to 3.9% based on historical dividends
and market prices; (2) expected volatility of 17% to 33% based on historical volatility;
(3) risk-free interest rates ranging from 2.8% to 6.5%; and (4) expected lives of seven
to eight years based on previous grants.(p)
    
    Segment ReportingStatement of Financial Accounting Standard No. 131, Disclosures about Segments of an
Enterprise and Related Information, requires that public business enterprises report
financial and descriptive information about their reportable operating segments. Based on
the guidance provided by this statement, the Company has identified two reportable
segments, Community Banks and Consumer Finance. See note 21 for related disclosures.(q)
    
    Derivative financial instruments  interest rate swapsThe Company accounts for derivative financial instruments in accordance with Statement of
Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging
Activities(SFAS 133), as amended. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure those
instruments at fair value. Pursuant to SFAS 133, the accounting for changes in the fair
value of a derivative depends on the intended use of the derivative and the resulting
designation. An entity that elects to use hedge accounting is required, at inception, to
establish the method it will use for assessing the effectiveness of hedging derivative
and the measurement approach for determining the ineffective aspect of the hedge. Those
methods must be consistent with the Companys approach to managing risk.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The Company utilizes interest rate swap agreements as part of the management of interest
rate risk to hedge the interest rate risk on the Companys Trust Preferred Debentures.
Amounts receivable or payable are recognized as accrued under the terms of the agreements
and the differential is recorded as an adjustment to interest expense. The interest rate
swaps are designated as cash flow hedges, with the effective portion of the derivatives
unrealized gain or loss is recorded as a component of other comprehensive income. The
ineffective portion of the unrealized gain or loss, if any, would be recorded in other
expense. See note 22 for related disclosures.(r)
    
    Off-Balance-Sheet InstrumentsIn the normal course of business, the Company extends credit in the form of loan
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.(s)
    
    Use of EstimatesThe preparation of financial statements, in conformity with accounting principles
generally accepted in the United States of America, 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. The estimates and
assumptions that we deem important to our financial statements relate to the allowance
for loan losses, the accounting treatment and valuation of our investment securities
portfolio, the analysis of the carrying value of goodwill and income taxes. These
estimates and assumptions are based on managements best estimates and judgment and we
evaluate them using historical experience and other factors, including the current
economic environment. We adjust our estimates and assumptions when facts and
circumstances dictate. Illiquid credit markets and current economic conditions have
increased the uncertainty inherent in our estimates and assumptions. As future events
cannot be determined, actual results could differ significantly from our estimates.(t)
    
    Reclassification of Prior Years StatementsCertain items previously reported have been reclassified to conform with the current
years reporting format.
 (2)
    
    Recent Accounting Pronouncements
 In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 141 (revised 2007), Business Combinations (SFAS
141R).SFAS 141R applies to all transactions or other events in which an entity obtains
control of one or more businesses, including those sometimes referred to as true
mergers or mergers of equals and combinations achieved without the transfer of
consideration. SFAS 141R applies to all business entities, including mutual entities
that previously used the pooling-of-interest method of accounting for some business
combinations. The objective of SFAS 141R is to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity provides in
its financial
reports about a business combination and its effects. SFAS 141R establishes principles
and requirements for how the acquirer recognizes and measures the identifiable assets
acquired and the liabilities assumed, recognizes and measures the goodwill acquired, and
determines what information to disclose to enable users of the financial statements to
evaluate the nature and financial effect of the business combination. SFAS 141R does not
apply to the acquisition of an asset or a group of assets that does not constitute a
business or a combination between entities under common control. SFAS 141R applies
prospectively to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008.
An entity may not apply it before that date.In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities  Including an
Amendment of FASB Statement No. 115 (SFAS
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    159).SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. The objective
of SFAS 159 is to improve financial reporting by providing entities with the opportunity
to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions.
SFAS 159 is expected to expand the use of fair value measurement, which is consistent
with the FASBs long-term measurement objectives for accounting for financial
instruments. SFAS 159 became effective January 1, 2008. The Company has not elected to
value any assets or liabilities (not otherwise measured at fair value) under SFAS 159.
The Company continues to evaluate the impact of SFAS 159 should we elect fair value
measurement for any asset or liability purchased or assumed in the future.In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS
158). The Company adopted the measurement date change provision of SFAS 158 effective
January 1, 2008. The measurement date change did not have a material impact on the
financial condition or operations of the Company.In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements(SFAS 157), which upon adoption will replace various
definitions of fair value in existing accounting literature with a single definition,
will establish a framework for measuring fair value, and will require additional
disclosures about fair value measurements. SFAS 157 clarifies that fair value is the
price that would be received to sell an asset or the price paid to transfer a liability
in the most advantageous market available to the Company and emphasizes that fair value
is a market-based measurement and should be based on the assumptions market participants
would use. SFAS 157 also creates a three-level hierarchy under which individual fair
value estimates are ranked based on the relative reliability of the inputs used in the
valuation. This hierarchy is the basis for the disclosure requirements, with fair value
estimates based on the least reliable inputs requiring more extensive disclosures about
the valuation method used. SFAS 157 is required to be applied whenever another financial
accounting standard requires or permits an asset or liability to be measured at fair
value. SFAS 157 does not expand the use of fair value to any new circumstances. SFAS 157
is effective for years beginning after November 15, 2007 and interim periods within those
fiscal years. In February 2008, the FASB issued FSP 157-2, Effective Date of FASB
Statement No. 157 (FSP 157-2),which delays the effective date of SFAS 157 for
non-recurring, non-financial instruments to fiscal years beginning after November 15,
2008. The Company has elected to apply this deferral to all nonfinancial assets and nonfinancial liabilities
that are measured on a nonrecurring basis. Additionally, on October 10, 2008, the FASB issued FSP 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active (FSP 157-3),
which clarifies the application of SFAS 157 in a market that is not active. FSP 157-3
was effective upon issuance, including prior periods for which financial statements had
not been issued. The Company adopted SFAS 157, January 1, 2008. See footnote 16 for further information.In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities (an amendment to FASB
Statement No. 133) (SFAS 161). SFAS 161 requires companies with derivative instruments
to disclose information that should enable financial statement
users to understand how and why a company uses derivative instruments, how derivative
instruments and related hedged items are accounted for under SFAS 133 and related
Interpretations, and how derivative instruments and related hedged items affect a
companys financial position, financial performance and cash flows. The required
disclosures include the fair value of derivative instruments and their gains and losses
in tabular format, information about credit-risk-related contingent features in
derivative agreements, counterparty credit risk and a companys strategies and objectives
for using derivative financial instruments. SFAS 161 also requires entities to disclose
information that would enable users of its financial statements to understand the volume
of its derivative activity. SFAS will be effective for the Company beginning January 1,
2009. The adoption of this standard will not have a material impact on the financial
condition or operations of the Company.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    In January 2009, the FASB issued FASB Staff Position (FSP) No. EITF 99-20-1, Amendments
to the Impairment Guidance of EITF Issue No. 99-20. Effective for interim and annual
reporting periods ending after December 15, 2008, FSP EITF 99-20-1 amended EITF 99-20,
Recognition of Interest Income and Impairment on Purchased Beneficial Interests and
Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial
Assets, to achieve a more consistent evaluation of whether there is other-than-temporary
impairment for the debt securities under the scope of EITF 99-20 and the debt securities
not within the scope of EITF 99-20 that would fall under the scope of SFAS 115,
Accounting for Certain Investments in Debt and Equity Securities. The adoption of FSP
EITF 99-20-1 did not have a material impact of the financial condition or operations of
the Company.
 (3)
    
    Marketable SecuritiesMarketable securities at December 31, 2008 are as follows:
 Gross
    
    
    Grossunrealized
    
    
    unrealizedAmortized
    
    
    holding
    
    
    holding
    
    
    Marketcost
    
    
    gains
    
    
    losses
    
    
    valueAvailable-for-sale:U.S. government and agencies:Due in one year or less
    
    $
    91
    
    
    
    
    
    
    
    (3
    )
    
    
    88Government sponsored enterprises:Due in one year or less
    
    
    2,985
    
    
    
    50
    
    
    
    
    
    
    
    3,035Due in one year  five years
    
    
    2,962
    
    
    
    208
    
    
    
    
    
    
    
    3,170Due in five years  ten years
    
    
    30,352
    
    
    
    2,066
    
    
    
    
    
    
    
    32,418Due after ten years
    
    
    61,494
    
    
    
    8,712
    
    
    
    (9
    )
    
    
    70,197Equity securities
    
    
    954
    
    
    
    160
    
    
    
    
    
    
    
    1,114Municipal securities:Due in one year  five years
    
    
    460
    
    
    
    1
    
    
    
    
    
    
    
    461Due in five years  ten years
    
    
    43,160
    
    
    
    822
    
    
    
    (86
    )
    
    
    43,896Due after ten years
    
    
    224,996
    
    
    
    2,707
    
    
    
    (4,512
    )
    
    
    223,191Corporate debt issues:Due after ten years
    
    
    25,165
    
    
    
    214
    
    
    
    (9,418
    )
    
    
    15,961Mortgage-backed securities:Fixed rate pass-through
    
    
    186,659
    
    
    
    6,447
    
    
    
    (7
    )
    
    
    193,099Variable rate pass-through
    
    
    276,121
    
    
    
    3,136
    
    
    
    (2,074
    )
    
    
    277,183Fixed rate CMO
    
    
    60,119
    
    
    
    445
    
    
    
    (3,084
    )
    
    
    57,480Variable rate CMO
    
    
    228,917
    
    
    
    48
    
    
    
    (11,088
    )
    
    
    217,877Total mortgage-
backed securities
    
    
    751,816
    
    
    
    10,076
    
    
    
    (16,253
    )
    
    
    745,639Total securities
available-for-sale
    
    $
    1,144,435
    
    
    
    25,016
    
    
    
    (30,281
    )
    
    
    1,139,170
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
     Gross
    
    
    Grossunrealized
    
    
    unrealizedAmortized
    
    
    holding
    
    
    holding
    
    
    Marketcost
    
    
    gains
    
    
    losses
    
    
    valueAvailable-for-sale:U.S. government and agencies:Due in one year or less
    
    $
    368
    
    
    
    
    
    
    
    (3
    )
    
    
    365Government sponsored enterprises:Due in one year or less
    
    
    6,959
    
    
    
    35
    
    
    
    
    
    
    
    6,994Due in one year  five years
    
    
    42,352
    
    
    
    259
    
    
    
    
    
    
    
    42,611Due in five years  ten years
    
    
    56,406
    
    
    
    194
    
    
    
    (50
    )
    
    
    56,550Due after ten years
    
    
    180,274
    
    
    
    5,945
    
    
    
    (193
    )
    
    
    186,026Equity securities
    
    
    6,478
    
    
    
    401
    
    
    
    
    
    
    
    6,879Municipal securities:Due in one year  five years
    
    
    816
    
    
    
    1
    
    
    
    
    
    
    
    817Due in five years  ten years
    
    
    33,217
    
    
    
    388
    
    
    
    (63
    )
    
    
    33,542Due after ten years
    
    
    228,862
    
    
    
    4,019
    
    
    
    (120
    )
    
    
    232,761Corporate debt issues:Due after ten years
    
    
    37,225
    
    
    
    546
    
    
    
    (2,696
    )
    
    
    35,075Mortgage-backed securities:Fixed rate pass-through
    
    
    73,284
    
    
    
    998
    
    
    
    (290
    )
    
    
    73,992Variable rate pass-through
    
    
    306,885
    
    
    
    2,263
    
    
    
    (494
    )
    
    
    309,054Fixed rate CMO
    
    
    73,514
    
    
    
    248
    
    
    
    (1,969
    )
    
    
    71,793Variable rate CMO
    
    
    76,886
    
    
    
    416
    
    
    
    (394
    )
    
    
    76,908Total mortgage-
backed securities
    
    
    530,569
    
    
    
    4,325
    
    
    
    (3,147
    )
    
    
    531,747Total securities
available-for-sale
    
    $
    1,123,526
    
    
    
    16,113
    
    
    
    (6,272
    )
    
    
    1,133,367
 60




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
     December 312008
    
    
    2007Mortgage-backed securities:FNMA
    
    $
    288,082
    
    
    
    165,391GNMA
    
    
    99,354
    
    
    
    88,428FHLMC
    
    
    320,297
    
    
    
    229,960Other (nonagency)
    
    
    37,906
    
    
    
    47,968Total mortgage-backed
securities
    
    $
    745,639
    
    
    
    531,747
  61




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
     Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair value
    
    
    losses
    
    
    Fair value
    
    
    losses
    
    
    Fair value
    
    
    lossesU.S. government and agencies
    
    $
    
    
    
    
    
    
    
    
    1,094
    
    
    
    (12
    )
    
    $
    1,094
    
    
    
    (12
    )Municipal securities
    
    
    109,255
    
    
    
    (4,598
    )
    
    
    
    
    
    
    
    
    
    
    109,255
    
    
    
    (4,598
    )Corporate issues
    
    
    8,618
    
    
    
    (7,055
    )
    
    
    2,573
    
    
    
    (2,363
    )
    
    
    11,191
    
    
    
    (9,418
    )Mortgage-backed securities
    
    
    285,087
    
    
    
    (11,625
    )
    
    
    80,104
    
    
    
    (4,628
    )
    
    
    365,191
    
    
    
    (16,253
    )Total temporarily
impaired securities
    
    $
    402,960
    
    
    
    (23,278
    )
    
    
    83,771
    
    
    
    (7,003
    )
    
    $
    486,731
    
    
    
    (30,281
    )Percentage of total
    
    
    83
    %
    
    
    
    
    
    
    17
    %
    
    
    
    
    
    
    100
    %
  Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair value
    
    
    losses
    
    
    Fair value
    
    
    losses
    
    
    Fair value
    
    
    lossesU.S. government and agencies
    
    $
    
    
    
    
    
    
    
    
    30,225
    
    
    
    (246
    )
    
    $
    30,225
    
    
    
    (246
    )Municipal securities
    
    
    24,775
    
    
    
    (96
    )
    
    
    5,928
    
    
    
    (87
    )
    
    
    30,703
    
    
    
    (183
    )Corporate issues
    
    
    24,533
    
    
    
    (2,551
    )
    
    
    847
    
    
    
    (145
    )
    
    
    25,380
    
    
    
    (2,696
    )Mortgage-backed securities
    
    
    59,032
    
    
    
    (495
    )
    
    
    130,731
    
    
    
    (2,652
    )
    
    
    189,763
    
    
    
    (3,147
    )Total temporarily
impaired securities
    
    $
    108,340
    
    
    
    (3,142
    )
    
    
    167,731
    
    
    
    (3,130
    )
    
    $
    276,071
    
    
    
    (6,272
    )Percentage of total
    
    
    39
    %
    
    
    
    
    
    
    61
    %
    
    
    
    
    
    
    100
    %
  62




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    securities and potential future other-than-temporary impairment losses.
Events that may trigger material declines in fair values for these securities in the future
would be, but are not limited to; deterioration of credit metrics, significantly higher levels
of default and severity of loss on the underlying collateral, deteriorating credit enhancement
and loss coverage ratios, or further illiquidity. Securities on which there is an unrealized
loss that is deemed to the other than temporary are written down to fair value with the
write-down recorded separately in the income statement. The Company has the ability and
intent to hold these securities until the market value recovers or maturity and the Company
believes the collection of the contractual principal and interest is probable. For these
reasons, the Company considers the unrealized losses to be temporary impairment losses. There
are approximately 355 positions that are temporarily impaired at December 31, 2008. The
aggregate carrying amount of cost-method investments at December 31, 2008 was $1,139,170,000
of which all were evaluated for impairment.(4)
    
    Loans ReceivableLoans receivable at December 31, 2008 and 2007 are summarized in the table below:
 December 312008
    
    
    2007Real estate loans:One-to-four family
    
    $
    2,492,940
    
    
    
    2,430,117Home equity
    
    
    1,035,954
    
    
    
    992,335Multi-family and commercial
    
    
    1,100,218
    
    
    
    906,594Total real estate loans
    
    
    4,629,112
    
    
    
    4,329,046Consumer loans:Automobile
    
    
    102,267
    
    
    
    125,298Education
    
    
    38,152
    
    
    
    14,551Loans on savings accounts
    
    
    11,191
    
    
    
    10,563Other
    
    
    115,913
    
    
    
    117,831Total consumer loans
    
    
    267,523
    
    
    
    268,243Commercial loans
    
    
    387,145
    
    
    
    367,459Total loans receivable,
gross
    
    
    5,283,780
    
    
    
    4,964,748Deferred loan fees
    
    
    (5,041
    )
    
    
    (4,179
    )Allowance for loan losses
    
    
    (54,929
    )
    
    
    (41,784
    )Undisbursed loan proceeds (real
estate loans)
    
    
    (81,918
    )
    
    
    (123,163
    )Toal Loans
receivable, net
    
    $
    5,141,892
    
    
    
    4,795,622
 63




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
        December 312008
    
    
    2007Loan commitments
    
    $
    116,330
    
    
    
    69,851Undisbursed lines of credit
    
    
    273,670
    
    
    
    328,373Standby letters of credit
    
    
    15,821
    
    
    
    14,955$
    405,821
    
    
    
    413,179
    64




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The Company automatically places loans on nonaccrual status when they become more than 90 days
contractually delinquent or when the paying capacity of the obligor becomes inadequate to meet
the requirements of the contract. When a loan is placed on nonaccrual, all previously accrued
and uncollected interest is reversed against current period interest income. Nonaccrual loans
at December 31, 2008, 2007 and 2006 were $99,203,000, $49,610,000, and $40,525,000,
respectively.A loan is considered to be impaired, as defined by SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, when, based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the contractual terms of the
loan agreement including both contractual principal and interest payments. The amount of
impairment is required to be measured using one of the three methods prescribed by SFAS 114:
(1) the present value of expected future cash flows discounted at the loans effective
interest rate; (2) the loans observable market price; or (3) the fair value of collateral if
the loan is collateral dependent. If the measure of the impaired loan is less than the
recorded investment in the loan, a specific reserve is allocated for the impairment. Impaired
loans at December 31, 2008, 2007 and 2006 were $99,203,000, $49,610,000 and $40,525,000,
respectively. Average impaired loans during the years ended December 31, 2008, 2007 and 2006
were $72,434,000, $41,179,000 and $41,625,000, respectively.There were no commitments to lend additional funds to debtors on nonaccrual status.(5)
    
    Accrued Interest ReceivableAccrued interest receivable as of December 31, 2008 and 2007 is presented in the following
table:
 December 312008
    
    
    2007Investment securities
    
    $
    3,672
    
    
    
    5,455Mortgage-backed securities
    
    
    2,997
    
    
    
    2,818Loans receivable
    
    
    20,583
    
    
    
    18,811$
    27,252
    
    
    
    27,084
 65




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (6)
    
    Allowance for Loan LossesChanges in the allowance for losses on loans receivable for the years ended December 31, 2008,
2007 and 2006 are presented in the following table:
 Years ended December 31,2008
    
    
    2007
    
    
    2006Balance, beginning of year
    
    $
    41,784
    
    
    
    37,655
    
    
    
    33,411Provision
    
    
    22,851
    
    
    
    8,743
    
    
    
    8,480Charge-offs
    
    
    (11,610
    )
    
    
    (8,190
    )
    
    
    (7,617
    )Acquisitions
    
    
    
    
    
    
    2,119
    
    
    
    1,982Recoveries
    
    
    1,904
    
    
    
    1,457
    
    
    
    1,399Balance, end of year
    
    $
    54,929
    
    
    
    41,784
    
    
    
    37,655
 While management uses available information to provide for losses, future additions to the
allowance may be necessary based on changes in economic conditions. Current economic
conditions have increased the uncertainty inherent in our estimates and assumptions. In
addition, various regulatory agencies, as an integral part of their examination process,
periodically review the Companys allowance for loan 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. Management believes, to the best of their
knowledge, that all known losses as of the balance sheet dates have been recorded.(7)
    
    Federal Home Loan Bank StockThe Companys banking subsidiary is a member of the Federal Home Loan Bank system. As a
member, Northwest maintains an investment in the capital stock of the FHLB, at cost, in an
amount not less than 4.75% of borrowings outstanding plus 0.75% of unused FHLB borrowing
capacity. During the quarter ended December 31, 2008, the FHLB suspended paying dividends on
its capital stock. Recent published reports indicate that the FHLB may be subject to
accounting rules and asset quality risks that could result in materially lower regulatory
capital levels. In an extreme situation, it is possible that the capitalization of the FHLB
could be substantially diminished or reduced to zero. Consequently, there is a risk that our
investment in the FHLB common stock could be deemed other-than-temporarily impaired in the
future.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (8)
    
    Premises and EquipmentPremises and equipment at December 31, 2008 and 2007 are summarized by major classification in
the following table:
 December 312008
    
    
    2007Land and land improvements
    
    $
    14,292
    
    
    
    14,139Office buildings and improvements
    
    
    106,561
    
    
    
    99,438Furniture, fixtures, and equipment
    
    
    82,574
    
    
    
    74,013Leasehold improvements
    
    
    10,990
    
    
    
    11,186Total, at cost
    
    
    214,417
    
    
    
    198,776Less accumulated depreciation and amortization
    
    
    (98,575
    )
    
    
    (87,882
    )Premises and equipment, net
    
    $
    115,842
    
    
    
    110,894
 Depreciation and amortization expense for the years ended December 31, 2008, 2007 and 2006 was
$11,984,000, $9,264,000, and $8,706,000, respectively.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 2027. Minimum annual
rentals by fiscal year are summarized in the following table:
 2009
    
    $
    4,2802010
    
    
    3,6782011
    
    
    3,2532012
    
    
    2,4382013
    
    
    1,928Thereafter
    
    
    10,310$
    25,887
 Rental expense for the years ended December 31, 2008, 2007 and 2006 was $5,017,000, $4,555,000
and $4,142,000, respectively.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (9)
    
    Goodwill and Other Intangible AssetsThe following table provides information for intangible assets subject to amortization for the
periods indicated:
 December 312008
    
    
    2007Amortized intangible assets:Core deposit intangibles  gross
    
    $
    30,275
    
    
    
    24,475Acquisitions
    
    
    
    
    
    
    5,800Less accumulated amortization
    
    
    (23,172
    )
    
    
    (19,318
    )Core deposit intangibles  net
    
    $
    7,103
    
    
    
    10,957Customer contract intangible assets  gross
    
    $
    1,731
    
    
    
    831Acquisitions
    
    
    
    
    
    
    900Less accumulated amortization
    
    
    (1,439
    )
    
    
    (906
    )Customer contract intangible assets  net
    
    $
    292
    
    
    
    825
 The following information shows the actual aggregate amortization expense for the current and
prior years as well as the estimated aggregate amortization expense, based upon current levels
of intangible assets, for each of the five succeeding fiscal years:
 For the year ended 12/31/06
    
    $
    3,876For the year ended 12/31/07
    
    
    4,499For the year ended 12/31/08
    
    
    4,387For the year ending 12/31/09
    
    
    2,847For the year ending 12/31/10
    
    
    1,896For the year ending 12/31/11
    
    
    1,445For the year ending 12/31/12
    
    
    693For the year ending 12/31/13
    
    
    355
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The following table provides information for the changes in the carrying amount of goodwill:
 Community
    
    
    Consumerbanks
    
    
    finance
    
    
    TotalBalance at December 31, 2006
    
    $
    154,458
    
    
    
    1,312
    
    
    
    155,770Goodwill acquired
    
    
    15,844
    
    
    
    
    
    
    
    15,844Impairment losses
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    170,302
    
    
    
    1,312
    
    
    
    171,614Goodwill acquired
    
    
    
    
    
    
    
    
    
    
    Tax adjustment
    
    
    (251
    )
    
    
    
    
    
    
    (251
    )Impairment losses
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    $
    170,051
    
    
    
    1,312
    
    
    
    171,363
 We have performed the required goodwill impairment tests and have determined that goodwill is
not impaired as of December 31, 2008 and 2007.(10)
    
    DepositsDeposit balances at December 31, 2008 and 2007 are shown in the table below:
 December 312008
    
    
    2007Savings accounts
    
    $
    760,245
    
    
    
    745,430Interest-bearing checking accounts
    
    
    706,120
    
    
    
    717,991Noninterest-bearing checking accounts
    
    
    394,011
    
    
    
    361,102Money market deposit accounts
    
    
    720,375
    
    
    
    681,115Certificates of deposit
    
    
    2,457,460
    
    
    
    3,036,696$
    5,038,211
    
    
    
    5,542,334
 The aggregate amount of certificates of deposit with a minimum denomination of $100,000 at
December 31, 2008 and 2007 was $533,404,000 and $681,695,000, respectively.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The following table summarizes the contractual maturity of the certificate accounts:
 December 312008
    
    
    2007Due within 12 months
    
    $
    1,285,695
    
    
    
    2,541,053Due between 12 and 24 months
    
    
    590,849
    
    
    
    253,957Due between 24 and 36 months
    
    
    238,927
    
    
    
    125,226Due between 36 and 48 months
    
    
    289,001
    
    
    
    50,759Due between 48 and 60 months
    
    
    37,905
    
    
    
    44,959After 60 months
    
    
    15,083
    
    
    
    20,742$
    2,457,460
    
    
    
    3,036,696
 The following table summarizes the interest expense incurred on the respective deposits:
 Years ended December 31,2008
    
    
    2007
    
    
    2006Savings accounts
    
    $
    9,159
    
    
    
    10,908
    
    
    
    12,619Interest-bearing checking
accounts
    
    
    6,434
    
    
    
    11,038
    
    
    
    9,396Money market deposit accounts
    
    
    14,726
    
    
    
    23,551
    
    
    
    19,446Certificate accounts
    
    
    106,742
    
    
    
    141,043
    
    
    
    115,524$
    137,061
    
    
    
    186,540
    
    
    
    156,985
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (11)
    
    Borrowed FundsBorrowed funds at December 31, 2008 and 2007 are presented in the following table:
 December 312008
    
    
    2007Average
    
    
    
    
    
    
    AverageAmount
    
    
    rate
    
    
    Amount
    
    
    rateTerm notes payable to the FHLB
of Pittsburgh:Due within one year
    
    $
    43,708
    
    
    
    3.87
    %
    
    
    84,031
    
    
    
    5.00
    %Due between one and two years
    
    
    36,532
    
    
    
    4.36
    %
    
    
    35,588
    
    
    
    4.63
    %Due between two and three years
    
    
    160,000
    
    
    
    4.11
    %
    
    
    36,567
    
    
    
    4.36
    %Due between three and four years
    
    
    145,000
    
    
    
    3.90
    %
    
    
    65,000
    
    
    
    5.02
    %Due between four and five years
    
    
    125,000
    
    
    
    3.85
    %
    
    
    35,000
    
    
    
    4.55
    %Due between five and ten years
    
    
    315,778
    
    
    
    4.11
    %
    
    
    839
    
    
    
    2.81
    %826,018
    
    
    
    
    
    
    
    257,025Revolving line of credit, Federal Home Loan Bank of Pittsburgh
    
    
    146,000
    
    
    
    0.59
    %
    
    
    
    
    
    
    Investor notes payable, due various
dates in 2009
    
    
    4,491
    
    
    
    4.99
    %
    
    
    4,638
    
    
    
    4.99
    %Securities sold under agreement to
repurchase, due within one year
    
    
    91,436
    
    
    
    1.02
    %
    
    
    77,452
    
    
    
    3.25
    %Total borrowed funds
    
    $
    1,067,945
    
    
    
    
    
    
    
    339,115
 Borrowings from the Federal Home Loan Bank of Pittsburgh are secured by the Companys
mortgage-backed securities and qualifying residential first mortgage loans. 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 $150,000,000 maturing on December 7, 2011. 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 the years ended December 31, 2008, 2007 and 2006
was $88,349,000, $70,875,000 and $44,860,000, respectively. The maximum amount of security
repurchase agreements outstanding during the years ended December 31, 2008, 2007 and 2006 was
$98,108,000, $83,432,000 and $55,705,000, respectively.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (12)
    
    Income Taxes
  Years ended December 31,2008
    
    
    2007
    
    
    2006Income before income taxes
    
    $
    16,968
    
    
    
    17,456
    
    
    
    19,792Goodwill for prior acquisition
    
    
    (251
    )
    
    
    
    
    
    
    Shareholders equity for unrealized (loss)/gain on
securities available-for-sale
    
    
    (5,916
    )
    
    
    4,672
    
    
    
    (627
    )Shareholders equity for tax
benefit for excess of fair value above cost of
stock benefit plans
    
    
    (349
    )
    
    
    (300
    )
    
    
    (305
    )Shareholders equity for pension adjustment
    
    
    (9,099
    )
    
    
    3,311
    
    
    
    (6,628
    )Shareholders equity for swap fair value
adjustment
    
    
    (4,590
    )
    
    
    
    
    
    
    Shareholders equity for prior period adjustments
    
    
    
    
    
    
    
    
    
    
    (1,492
    )$
    (3,237
    )
    
    
    25,139
    
    
    
    10,740Income tax expense (benefit) applicable to income before taxes consists of:Years ended December 31,2008
    
    
    2007
    
    
    2006Current
    
    $
    23,448
    
    
    
    18,206
    
    
    
    11,017Deferred
    
    
    (6,480
    )
    
    
    (750
    )
    
    
    8,775$
    16,968
    
    
    
    17,456
    
    
    
    19,792A reconciliation from the expected federal statutory income tax rate to the effective rate,
expressed as a percentage of pretax income, is as follows:Years ended December 31,2008
    
    
    2007
    
    
    2006Expected tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Tax-exempt interest income
    
    
    (7.4
    )      %
    
    
    (7.3
    )%
    
    
    (7.0
    )%State income tax, net of federal benefit
    
    
    2.2
    %
    
    
    1.9
    %
    
    
    2.6
    %Bank-owned life insurance
    
    
    (2.6
    )%
    
    
    (2.3
    )%
    
    
    (2.1
    )%Other
    
    
    (1.2
    )%
    
    
    (1.1
    )%
    
    
    (0.8
    )%Effective tax rate
    
    
    26.0
    %
    
    
    26.2
    %
    
    
    27.7
    %
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 are presented
below:
 December 312008
    
    
    2007Deferred tax assets:Deferred fee income
    
    $
    527
    
    
    
    499Deferred compensation expense
    
    
    2,980
    
    
    
    1,719Net operating loss carryforwards
    
    
    1,352
    
    
    
    3,716Bad debts
    
    
    14,002
    
    
    
    10,438Accrued postretirement benefit cost
    
    
    682
    
    
    
    698Stock benefit plans
    
    
    375
    
    
    
    375Marketable securities available for sale
    
    
    2,078
    
    
    
    Writedown of investment securities
    
    
    6,243
    
    
    
    665Reserve for uncollected interest
    
    
    1,894
    
    
    
    844Pension expense
    
    
    559
    
    
    
    1,013Pension and postretirement benefits
    
    
    12,060
    
    
    
    3,317Alternative minimum tax credit
carryforwards
    
    
    371
    
    
    
    1,950Unrealized loss on the fair value of derivatives
    
    
    4,590
    
    
    
    Other
    
    
    379
    
    
    
    14248,092
    
    
    
    25,376Deferred tax liabilities:Marketable securities available for sale
    
    
    
    
    
    
    3,838Purchase accounting
    
    
    2,487
    
    
    
    3,451Intangible asset
    
    
    10,952
    
    
    
    9,228Mortgage servicing rights
    
    
    2,198
    
    
    
    3,134Fixed assets
    
    
    6,630
    
    
    
    5,993Other
    
    
    621
    
    
    
    61322,888
    
    
    
    26,257Net deferred tax asset/ (liability)
    
    $
    25,204
    
    
    
    (881
    )
 The Company has determined that no valuation allowance is necessary for the deferred tax
assets because it is more likely than not that these assets will be realized through carryback
to taxable income in prior years, future reversals of existing temporary differences, and
through future taxable income. Net deferred tax assets of $877,000 were recorded in 2007
related to the acquisition of CSB Bank. The Company will continue to review the criteria
related to the recognition of deferred tax assets on a regular basis.
 73




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    Under provisions of the Internal Revenue Code (IRC), Northwest has approximately $3,863,000
of federal net operating losses, which expire in years 2009 through 2027. These net operating
losses, which were acquired as part of the First Carnegie and Maryland Permanent acquisitions,
are subject to annual carryforward limitations imposed by IRC code section 382. The Company
believes the limitations will not prevent the carryforward benefits from being utilized. In
addition, the Company has approximately $371,000 of alternative minimum tax credit
carryforwards, which can be carried forward indefinitely.The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48), on January 1, 2007.
FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present
and disclose in its financial statements uncertain tax positions that the company has taken or
expects to take on a tax return. FIN 48 also provides related guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and
transition. The adoption did not require us to recognize any increase or decrease in our
liability for unrecognized tax benefits. A reconciliation of the beginning and ending amount
of unrecognized tax benefits is as follows:
 Balance at January 1, 2008
    
    $
    967Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    (967
    )Settlements
    
    
    Balance at December 31, 2008
    
    $
    
 The balance at December 31, 2008 reflects no unrecognized tax benefits that, if recognized,
would favorably affect the effective income tax rate. The Company recognizes interest accrued
and penalties (if any) related to unrecognized tax benefits in income tax expense. During the
year ended December 31, 2008, the Company did not accrue any interest. At December 31, 2008
the Company had no amount accrued for interest or the payment of penalties.The Company is subject to routine audits of our tax returns by the Internal Revenue Service as
well as all states in which the Company conducts business. The Internal Revenue Service
commenced an examination of our federal income tax returns for the year ended June 30, 2005,
the six-month period ended December 31, 2005 and the years ended December 31, 2006 and 2007 in
January of 2008 that we anticipate will be completed during 2009. We do not anticipate a
material change to our financial position due to the settlement of this audit. The Company is
subject to audit by any state in which we conduct business for the tax periods ended June 30,
2005, December 31, 2005, December 31, 2006 and December 31, 2007.(13)
    
    Shareholders EquityRetained earnings are partially restricted in connection with regulations related to the
insurance of savings accounts, which requires Northwest to maintain certain statutory
reserves. Northwest 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 fiscal 1987. Retained earnings at December 31, 2008 include approximately
$39,107,000 representing such bad debt deductions for which no deferred income taxes have been
provided.
 74




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (14)
    
    Earnings Per ShareBasic earnings per common share (EPS) is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding for the period,
without considering any dilutive items. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared in the earnings
of the Company. For the year ended December 31, 2008, 213,686 options with a strike price of
$25.49 per share, 179,806 options with a strike price of $25.89 per share, 2,000 options with
a strike price of $28.09 per share and 191,709 options with a strike price of $25.03 per share
were excluded from the calculation of earnings per share because they were anti-dilutive.
There were no anti-dilutive options during 2007 or 2006. The computation of basic and diluted
earnings per share follows:
 Years ended December 31,2008
    
    
    2007
    
    
    2006Net income available to common shareholders
    
    $
    48,171
    
    
    
    49,097
    
    
    
    51,536Weighted average common shares outstanding
    
    
    48,363
    
    
    
    49,041
    
    
    
    49,879Dilutive potential shares due to effect of
stock options
    
    
    235
    
    
    
    313
    
    
    
    257Total weighted average common shares
and dilutive potential shares
    
    
    48,598
    
    
    
    49,354
    
    
    
    50,136Basic earnings per share
    
    $
    1.00
    
    
    
    1.00
    
    
    
    1.03Diluted earnings per share
    
    $
    0.99
    
    
    
    0.99
    
    
    
    1.03
 (15)
    
    Employee Benefit Plans
 (a)
    
    Pension PlansThe Company maintains noncontributory defined benefit pension plans covering
substantially all employees and the members of its board of directors. Retirement
benefits are based on certain compensation levels, age, and length of service.
Contributions are based on an actuarially determined amount to fund not only benefits
attributed to service to date but also for those expected to be earned in the future. 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 Internal Revenue Code.The Company also sponsors a retirement savings plan in which substantially all employees
participate. The Company provides a matching contribution of 50% of each employees
contribution to a maximum of 6% of the employees compensation.
 75




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    Total expense for all retirement plans, including defined benefit pension plans, was
approximately $5,957,000, $6,639,000 and $6,310,000, for the years ended December 31,
2008, 2007 and 2006, respectively.Components of net periodic pension cost and other amounts recognized in other
comprehensive income:The following table sets forth the net periodic pension cost for the Companys defined
benefit pension plans:
 Years ended December 31,2008
    
    
    2007
    
    
    2006Service cost
    
    $
    5,022
    
    
    
    4,958
    
    
    
    4,555Interest cost
    
    
    4,559
    
    
    
    4,094
    
    
    
    3,492Expected return on plan assets
    
    
    (4,988
    )
    
    
    (4,409
    )
    
    
    (3,601
    )Net amortization and deferral
    
    
    175
    
    
    
    825
    
    
    
    793Net periodic pension cost
    
    $
    4,768
    
    
    
    5,468
    
    
    
    5,239
 The following table sets forth other changes in the Companys defined benefit pension
plans plan assets and benefit obligations recognized in other comprehensive income:
 Years ended December 31,2008
    
    
    2007
    
    
    2006Net loss (gain)
    
    $
    25,675
    
    
    
    (8,391
    )
    
    
    Prior service cost (credit)
    
    
    (2,184
    )
    
    
    
    
    
    
    Amortization of prior sevice cost
    
    
    (51
    )
    
    
    (77
    )
    
    
    Total recognized in other
comprehensive income
    
    $
    23,440
    
    
    
    (8,468
    )
    
    
    Total recognized in net periodic pension
cost and other comprehensive income/ (loss)
    
    $
    28,208
    
    
    
    (3,000
    )
    
    
    5,239
 The estimated net loss and prior service cost for the Companys defined benefit pension
plan that will be amortized from accumulated other comprehensive income into net periodic
cost over the next year are $1,677,000 and $125,000, respectively.
 76




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The following table sets forth information for the Companys defined benefit pension
plans funded status at December 31, 2008 and 2007:
 December 312008
    
    
    2007Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    73,708
    
    
    
    71,891Service cost
    
    
    5,022
    
    
    
    4,958Interest cost
    
    
    4,559
    
    
    
    4,094Actuarial (gain) loss
    
    
    (675
    )
    
    
    (5,630
    )Benefits paid
    
    
    (1,845
    )
    
    
    (1,605
    )Benefit obligation at end of year
    
    $
    80,769
    
    
    
    73,708Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    62,943
    
    
    
    55,622Actual return on plan assets
    
    
    (18,394
    )
    
    
    6,461Employer contributions
    
    
    6,332
    
    
    
    2,465Benefits paid
    
    
    (1,845
    )
    
    
    (1,605
    )Fair value of plan assets at end of period
    
    $
    49,036
    
    
    
    62,943Funded status at end of year
    
    $
    (31,733
    )
    
    
    (10,765
    )
 The following table sets forth the assumptions used to develop the net periodic pension
cost:
 Years ended December 31,2008
    
    2007
    
    2006Discount rate
    
    
    6.25
    %
    
    
    5.75
    %
    
    
    5.75
    %Expected long-term rate of return on assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %Rate of increase in compensation levels
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
 77




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The following table sets forth the assumptions used to determine benefit obligations at
the end of each period:
 Years ended December 31,2008
    
    2007
    
    2006Discount rate
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    5.75
    %Expected long-term rate of return on assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %Rate of increase in compensation levels
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
 The expected long-term rate of return on assets is based on the expected return of each
of the asset categories, weighted based on the median of the target allocation for each
category.The accumulated benefit obligation for the funded defined benefit pension plan was
$57,146,000, $51,010,000 and $48,325,000 at December 31, 2008, 2007 and 2006,
respectively. The accumulated benefit obligation for all unfunded defined benefit plans
was $3,844,000, $3,659,000 and $4,014,000 at December 31, 2008, 2007 and 2006,
respectively.The following table sets forth information for pension plans with an accumulated benefit
obligation in excess of plan assets:
 December 31,2008
    
    2007Projected benefit obligation
    
    $
    80,769
    
    
    
    73,708Accumulated benefit obligation
    
    $
    60,990
    
    
    
    54,668Fair value of plan assets
    
    $
    49,036
    
    
    
    62,943
 The Company anticipates making contributions to its defined benefit pension plan between
$2 million and $8 million during the fiscal year ending December 31, 2009.The investment policy as established by the Plan Administrative Committee, to be followed
by the Trustee, is to invest assets based on the target allocations shown in the table
below. To meet target allocation ranges set forth by the Plan Administrative Committee,
periodically, the assets are reallocated by the Trustee. The investment policy is
reviewed periodically to determine if the policy should be changed. Pension assets are
conservatively invested with the goal of providing market or better returns with below
market risks. Assets are invested in a balanced portfolio composed primarily of equities,
fixed income, and cash or cash equivalent investments. The Trustee tries to maintain an
approximate asset mix position of 30% to 60% equities and 20% to 50% bonds.A maximum of 10% may be invested in any one stock, including the stock of Northwest
Bancorp, Inc. The objective of holding equity securities is to provide capital
appreciation consistent with the ownership of the common stocks of medium to large
companies. Acceptable bond investments are direct or agency obligations of the U.S.
Government or investment grade corporate bonds. The average maturity of the bond
portfolio shall not exceed 10 years.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The following table sets forth the weighted average asset allocation of defined benefit
plans:
 Target
    
    December 31Asset category
    
    allocation
    
    2008
    
    2007Debt securities
    
    
    20 - 50
    %
    
    
    38
    %
    
    
    39
    %Equity securities
    
    
    30 - 60
    %
    
    
    60
    %
    
    
    58
    %Other
    
    
    5 - 50
    %
    
    
    2
    %
    
    
    3
    %Total
    
    
    
    
    
    
    100
    %
    
    
    100
    %
 The benefits expected to be paid in each year from 2009 to 2013 are $1,959,000,
$2,144,000, $2,286,000, $2,517,000, and $2,933,000, respectively. The aggregate benefits
expected to be paid in the five years from 2014 to 2018 are $19,823,000. The expected
benefits to be paid are based on the same assumptions used to measure the Companys
benefit obligations at December 31, 2008 and include estimated future employee service.(b)
    
    Postretirement Healthcare PlanIn addition to pension benefits, the Company provides postretirement healthcare benefits
for certain employees who were employed by the Company as of October 1, 1993 and were at
least 55 years of age on that date. The Company accounts for these benefits in accordance
with 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.Components of net periodic benefit cost and other amounts recognized in other
comprehensive income:The following table sets forth the net periodic benefit cost for the Companys
postretirement healthcare benefits plan:
 Years ended December 31,2008
    
    
    2007
    
    
    2006Service cost
    
    $
    
    
    
    
    
    
    
    
    Interest cost
    
    
    98
    
    
    
    93
    
    
    
    91Recognized actuarial gain
    
    
    43
    
    
    
    42
    
    
    
    34Net periodic benefit cost
    
    $
    141
    
    
    
    135
    
    
    
    125
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The following table sets forth other changes in the Companys postretirement healthcare
plans plan assets and benefit obligations recognized in other comprehensive income:
 Years ended December 31,2008
    
    
    2007
    
    
    2006Net loss (gain)
    
    $
    204
    
    
    
    (22
    )
    
    
    Total recognized in other
comprehensive income
    
    $
    204
    
    
    
    (22
    )
    
    
    Total recognized in net periodic
benefit cost and other
comprehensive income
    
    $
    345
    
    
    
    113
    
    
    
    125
 The estimated net loss for the postretirement healthcare benefit plan that will be
amortized from accumulated other comprehensive income into net periodic benefit cost over
the next year is $57,000.The following table sets forth the funded status of the Companys postretirement
healthcare benefit plan at December 31, 2008 and 2007:
 December 312008
    
    
    2007Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    1,637
    
    
    
    1,701Service cost
    
    
    
    
    
    
    Interest cost
    
    
    98
    
    
    
    93Actuarial (gain) loss
    
    
    218
    
    
    
    20Benefits paid
    
    
    (186
    )
    
    
    (177
    )Benefit obligation at end of year
    
    
    1,767
    
    
    
    1,637Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    
    
    
    
    Employer contributions
    
    
    186
    
    
    
    177Benefits paid
    
    
    (186
    )
    
    
    (177
    )Fair value of plan assets at end of year
    
    $
    
    
    
    
    Funded status at year end
    
    $
    (1,767
    )
    
    
    (1,637
    )
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The assumptions used to develop the preceding information for postretirement healthcare
benefits are as follows:
 Years ended December 31,2008
    
    2007
    
    2006Discount rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    5.75
    %Monthly cost of healthcare
insurance per beneficiary (1)
    
    $
    305
    
    
    
    274
    
    
    
    257Annual rate of increase in
healthcare costs
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
 
 (1)
    
    Not in thousands 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 $12,000, in the
aggregate, and the accumulated postretirement benefit obligation for healthcare benefits
would increase by $80,000.The following table sets forth amounts recognized in accumulated other comprehensive
income:
 Years ended December 31,2008
    
    
    2007
    
    
    2006Net loss/ (gain)
    
    $
    204
    
    
    
    634
    
    
    
    656
 The accumulated benefit obligation for the Companys postretirement healthcare benefit
plan at December 31, 2008 and 2007 was $1,767,000 and $1,637,000, respectively.The following table sets forth information for plans with an accumulated benefit
obligation in excess of plan assets:
 December 31,2008
    
    2007Projected benefit obligation
    
    $
    1,767
    
    
    
    1,637Accumulated benefit obligation
    
    $
    1,767
    
    
    
    1,637Fair value of plan assets
    
    $
    
    
    
    
    
 (c)
    
    Employee Stock Ownership PlanThe Company has an 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 can make contributions to the ESOP at
the boards discretion. Company shares would then be purchased periodically in the open
market and allocated to employee accounts based on each employees relative portion of
the Companys total eligible compensation recorded during the year.No contributions were made and no expense was recognized during the years ended December
31, 2008, 2007 and 2006.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (d)
    
    Recognition and Retention PlanOn November 17, 2004, the Company established a Recognition and Retention Plan for
Employees and Outside Directors (RRP) with 290,220 shares authorized. The objective of
the RRP is to enable the Company to provide directors, officers, and employees with a
proprietary interest in the Company. On March 16, 2005, 278,231 shares were issued with
a weighted average grant date fair value per share of $21.42 (total market value of
$5,959,000 at issuance). Total common shares forfeited were 8,322, of which, 685, 3,058
and 1,644 shares were forfeited during the years ended December 31, 2008, 2007, and 2006,
respectively. During 2007, 4,300 shares were issued with a weighted average grant date
fair value per share of $27.04 (total market value of $116,000 at issuance). Shares of
common stock granted pursuant to the RRP were in the form of restricted stock and
generally vest over a five-year
period at the rate of 20% per year, commencing one year after the award date. As of
December 31, 2008, 60% of the March 16, 2005 issuance have vested and 20% of the 2007
issuances have vested. Once shares have vested, they are no longer restricted.
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. While restricted, the recipients are entitled to all voting and other
shareholder rights, except that the shares may not be sold, pledged, or otherwise
disposed of and are required to be held in a trust.(e)
    
    Stock Option PlansOn 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. On December 16, 1998, the Company granted 15,086 incentive stock
options to employees at an exercise price of $9.875 per share. On October 20, 1999, the
Company granted 2,000 nonstatutory stock options to an outside director and 57,700
incentive stock options to employees at an exercise price of $7.812 per share. On
June 21, 2000, the Company granted the remaining 17,214 incentive stock options as well
as 786 previously forfeited options at an exercise price of $6.875 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.On November 17, 2000, the Company adopted the 2000 Stock Option Plan. This Plan
authorized the grant of stock options and limited stock rights for 800,000 shares of the
Companys common stock. On October 17, 2001, the Company granted 84,000 nonstatutory
stock options to its outside directors and 143,845 incentive stock options to employees
at an exercise price of $9.780 per share. On August 21, 2002, the Company granted 162,940
incentive stock options to employees at an exercise price of $13.30 per share. On
August 20, 2003, the Company granted 182,000 incentive stock options to employees at an
exercise price of $16.59 per share. On December 15, 2004, the Company granted 220,780
incentive stock options to employees at an exercise price of $25.49 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.On November 17, 2005, the Company adopted the 2005 Stock Option Plan. This Plan
authorizes the grant of stock options and limited stock rights for 725,552 shares of the
Companys common stock. On January 19, 2005, the Company granted 70,000 nonstatutory
stock options to its outside directors and 154,546 incentive stock options to employees
at an exercise price of $22.93 per share. On January 18, 2006 the Company granted 158,333
incentive stock options to employees at an exercise price of $22.18 per share. On January
17, 2007 the Company granted 179,806 stock options to employees at an exercise price of
$25.89 per share. On June 20, 2007 the Company granted 2,000 stock options to a new
director at an exercise price of $28.09 per share. On January 16, 2008 the
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    Company
granted the remaining 160,867 incentive stock options as well as 30,842 previously
forfeited incentive stock options to employees at an exercise price of $25.03 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 one year from the grant date.On May 21, 2008, the Company adopted the 2008 Stock Option Plan. This Plan authorized the
grant of stock options and limited stock rights for 1,750,000 shares of the Companys
common stock. On November 19, 2008 the Company granted 24,000 nonstatutory stock options
to its outside directors and 202,068 incentive stock options to employees at an exercise
price of $22.03 per share. These options are exercisable for a period of ten years from
the grant date with each recipient vesting over a seven year period commencing one year
from the grant date.The following table summarizes the activity in the Companys option plans during the
years ended December 31, 2008, 2007 and 2006:
 Years Ended December 31,2008
    
    2007
    
    2006Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    average
    
    
    
    
    
    averageexercise
    
    
    
    
    
    exercise
    
    
    
    
    
    exerciseNumber
    
    price
    
    Number
    
    price
    
    Number
    
    priceBalance at beginning of year
    
    
    1,236,358
    
    
    $
    19.96
    
    
    
    1,112,858
    
    
    $
    18.65
    
    
    
    1,019,189
    
    
    $
    17.55Granted
    
    
    417,777
    
    
    
    23.41
    (a)
    
    
    181,806
    
    
    
    25.91
    (a)
    
    
    158,333
    
    
    
    22.18
    (a)Exercised
    
    
    (54,367
    )
    
    
    12.20
    (b)
    
    
    (52,572
    )
    
    
    12.66
    (b)
    
    
    (63,064
    )
    
    
    10.14
    (b)Forfeited
    
    
    
    
    
    
    0.00
    
    
    
    (5,734
    )
    
    
    22.14
    
    
    
    (1,600
    )
    
    
    5.63Balance at end of year
    
    
    1,599,768
    
    
    
    21.12
    
    
    
    1,236,358
    
    
    
    19.96
    
    
    
    1,112,858
    
    
    
    18.65Exercisable at end of year
    
    
    853,167
    
    
    
    18.88
    
    
    
    796,270
    
    
    
    17.61
    
    
    
    651,415
    
    
    
    15.78
 
 (a)
    
    Weighted average fair value of options at grant date: $3.05, $5.12, and $4.75, respectively.(b)
    
    The total intrinsic value of options exercised was $692,000, $773,000 and
$898,000, respectively. 83




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
  
 The aggregate intrinsic value of all options expected to vest and fully vested options at
December 31, 2008 is $0 and $3,429,000, respectively. The following table summarizes the
number of options outstanding, number of options exercisable, and weighted average remaining
life of all option grants:
 Exercise
    
    Exercise
    
    Exercise
    
    Exercise
    
    Exercise
    
    ExercisePrice
    
    Price
    
    Price
    
    Price
    
    Price
    
    Price$6.875
    
    $7.812
    
    $9.780
    
    $13.302
    
    $16.590
    
    $22.030Options outstanding:Number of options
    
    
    4,800
    
    
    
    16,400
    
    
    
    134,201
    
    
    
    110,054
    
    
    
    144,314
    
    
    
    226,068Weighted average
remaining contract
life (years)
    
    
    1.50
    
    
    
    1.00
    
    
    
    2.75
    
    
    
    4.00
    
    
    
    5.00
    
    
    
    9.75Options exercisable:Number of options
    
    
    4,800
    
    
    
    16,400
    
    
    
    134,201
    
    
    
    110,054
    
    
    
    144,314
    
    
    
    Weighted average
remaining term -
vested (years)
    
    
    1.50
    
    
    
    1.00
    
    
    
    2.75
    
    
    
    4.00
    
    
    
    5.00
    
    
    
    9.75
 Exercise
    
    Exercise
    
    Exercise
    
    Exercise
    
    Exercise
    
    ExercisePrice
    
    Price
    
    Price
    
    Price
    
    Price
    
    Price
    
    Total$22.180
    
    $22.930
    
    $25.030
    
    $25.490
    
    $25.890
    
    $28.090
    
    $21.120Options outstanding:Number of options
    
    
    155,801
    
    
    
    220,929
    
    
    
    191,709
    
    
    
    213,686
    
    
    
    179,806
    
    
    
    2,000
    
    
    
    1,599,768Weighted average
remaining contract
life (years)
    
    
    7.00
    
    
    
    6.00
    
    
    
    9.00
    
    
    
    6.00
    
    
    
    8.00
    
    
    
    8.00
    
    
    
    6.65Options exercisable:Number of options
    
    
    61,703
    
    
    
    131,648
    
    
    
    
    
    
    
    213,686
    
    
    
    35,961
    
    
    
    400
    
    
    
    853,167Weighted average
remaining term -
vested (years)
    
    
    7.00
    
    
    
    6.00
    
    
    
    9.00
    
    
    
    6.00
    
    
    
    8.00
    
    
    
    8.00
    
    
    
    4.19
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (16)
    
    Disclosures About Fair Value of Financial InstrumentsSFAS 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, interest-earning
deposits in other institutions, federal funds sold and other short-term investments, accrued
interest receivable, accrued interest payable, and marketable securities available-for-sale.The following table sets forth the carrying amount and estimated fair value of the Companys
financial instruments included in the consolidated statement of financial condition as of
December 31, 2008 and 2007:
 December 312008
    
    
    2007Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    Estimatedamount
    
    
    fair value
    
    
    amount
    
    
    fair valueFinancial assets:Cash and equivalents
    
    $
    79,922
    
    
    
    79,922
    
    
    
    230,616
    
    
    
    230,616Securities available-for-sale
    
    
    1,139,170
    
    
    
    1,139,170
    
    
    
    1,133,367
    
    
    
    1,133,367Loans receivable, net
    
    
    5,141,892
    
    
    
    5,446,835
    
    
    
    4,795,622
    
    
    
    4,941,215Accrued interest receivable
    
    
    27,252
    
    
    
    27,252
    
    
    
    27,084
    
    
    
    27,084FHLB stock
    
    
    63,143
    
    
    
    63,143
    
    
    
    31,304
    
    
    
    31,304Total financial assets
    
    $
    6,451,379
    
    
    
    6,756,322
    
    
    
    6,217,993
    
    
    
    6,363,586Financial liabilities:Savings and checking accounts
    
    $
    2,580,751
    
    
    
    2,580,751
    
    
    
    2,505,638
    
    
    
    2,505,638Time deposits
    
    
    2,457,460
    
    
    
    2,500,410
    
    
    
    3,036,696
    
    
    
    3,071,514Borrowed funds
    
    
    1,067,945
    
    
    
    1,049,399
    
    
    
    339,115
    
    
    
    338,671Trust-preferred securities
    
    
    108,254
    
    
    
    116,783
    
    
    
    108,320
    
    
    
    108,320Cash flow hedges  swaps
    
    
    13,114
    
    
    
    13,114
    
    
    
    
    
    
    
    Accrued interest payable
    
    
    5,194
    
    
    
    5,194
    
    
    
    4,356
    
    
    
    4,356Total financial liabilities
    
    $
    6,232,718
    
    
    
    6,265,651
    
    
    
    5,994,125
    
    
    
    6,028,499
 Fair value estimates are made at a point-in-time, based on relevant market data and
information about the instrument. The following methods and assumptions were used in
estimating the fair value of financial instruments at December 31, 2008 and 2007.Marketable SecuritiesWhere available, market values are based on quoted market prices, dealer quotes, and prices
obtained from independent pricing services. See the SFAS 157 section of this footnote for
further detail on how fair values of marketable securities are determined. Refer to note 3
for the detail of the type of investment securities.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    Loans ReceivableLoans 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.Deposit LiabilitiesSFAS 107 defines the estimated fair value of deposits with no stated maturity, which includes
demand deposits, money market, and other savings accounts, to be the amount payable on demand.
Although market premiums paid for depository institutions reflect an additional value for
these low-cost deposits, SFAS 107 prohibits adjusting fair value for any value expected to be
derived from retaining those deposits for a future period of time or from the benefit that
results from the ability to fund interest-earning assets with these deposit liabilities. The
fair value estimates of deposit liabilities do not include the benefit that results from the
low-cost funding provided by these deposits compared to the cost of borrowing funds in the
market. Fair values for time deposits are estimated using a discounted cash flow calculation
that applies contractual cost currently being offered in the existing portfolio to current
market rates being offered locally for deposits of similar remaining maturities. The valuation
adjustment for the portfolio consists of the present value of the difference of these two cash
flows, discounted at the assumed market rate of the corresponding maturity.Borrowed FundsThe fixed rate advances were valued by comparing their contractual cost to the prevailing
market cost.Trust-Preferred SecuritiesThe fair value of the trust-preferred securities are calculated using the discounted cash
flows at the prevailing rate of interest.Cash flow hedges  Interest rate swap agreements (swaps)The fair values of the swaps is the amount the Company would have expected to pay to terminate
the agreements and is based upon the present value of the expected future cash flows using the
LIBOR swap curve, the basis for the underlying interest rate.Off-Balance Sheet Financial InstrumentsThese financial instruments generally are not sold or traded, and estimated fair values are
not readily available. However, the fair value of commitments to extend credit and standby
letters of credit is estimated using the fees currently charged to enter into similar
agreements. Commitments to extend credit issued by the Company are generally short-term in
nature and, if drawn upon, are issued under current market terms. At December 31, 2008 and
2007, there was no significant unrealized appreciation or depreciation on these financial
instruments.SFAS No. 157  Fair Value MeasurementsEffective January 1, 2008, the Company adopted the provisions of SFAS 157 for all financial
assets and liabilities recognized or disclosed at fair value on a recurring basis and certain
financial assets and liabilities on a non-recurring basis. SFAS 157 establishes a three-level
hierarchy of valuation techniques based on whether the inputs to those valuation techniques
are observable or unobservable. The fair value hierarchy gives the highest priority to quoted
prices with readily available independent data in active markets for identical assets or
liabilities (Level 1) and the lowest priority to
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    unobservable market inputs (Level 3). When various inputs for measurement fall within
different levels of the fair value hierarchy, the lowest level input that has a significant
impact on fair value measurement is used.Financial assets and liabilities are categorized based upon the following characteristics or
inputs to the valuation techniques:
 
    
    Level 1  Financial assets and liabilities for which inputs are observable and are
obtained from reliable quoted prices for identical assets or liabilities in actively
traded markets. This is the most reliable fair value measurement and includes, for
example, active exchange-traded equity securities.
    
    Level 2  Financial assets and liabilities for which values are based on quoted
prices in markets that are not active or for which values are based on similar assets
or liabilities that are actively traded. Level 2 also includes pricing models in
which the inputs are corroborated by market data, for example, matrix pricing.
    
    Level 3  Financial assets and liabilities for which values are based on prices or
valuation techniques that require inputs that are both unobservable and significant to
the overall fair value measurement. Level 3 inputs include the following:
 o
    
    Quotes from brokers or other external sources that are not
considered binding;o

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

    
    Quotes and other information from brokers or other external
sources where the inputs are not deemed observable.
 The Company is responsible for the valuation process and as part of this process may use data
from outside sources in establishing fair value. The Company performs due diligence to
understand the inputs used or how the data was calculated or derived. The Company corroborates
the reasonableness of external inputs in the valuation process.The following table represents assets measured at fair value on a recurring basis as of
December 31, 2008:
 Total assets atLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    fair valueEquity securities  available for sale
    
    $
    894
    
    
    
    
    
    
    
    220
    
    
    
    1,114Debt securities  available for sale
    
    
    
    
    
    
    1,132,119
    
    
    
    5,937
    
    
    
    1,138,056Derivative fair value of interest rate swap
    
    
    
    
    
    
    (13,114
    )
    
    
    
    
    
    
    (13,114
    )Total assets
    
    $
    894
    
    
    
    1,119,005
    
    
    
    6,157
    
    
    
    1,126,056
 Debt securities  available for sale Generally, debt securities are valued using pricing for
similar securities, recently executed transactions and other pricing models utilizing
observable inputs. The valuation for most debt securities is classified as Level 2. Securities
within Level 2 include corporate bonds, municipal bonds, mortgage-backed securities and US
government obligations. Certain debt securities which were AAA rated at purchase do not have
an active market and as such the Company has used an alternative method to determine the fair
value of these securities. The fair value has been determined using a discounted cash flow
model using market assumptions, which generally include cash flow,
collateral and other market assumptions. As such, securities which otherwise would have been
classified as level 2 securities if an active market for those assets or similar assets
existed are included herein as level 3 assets. Other debt
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    securities, pooled trust preferred
securities rated below AA at purchase, have a fair value based on a discounted cash flow model
using similar assumptions to those noted above and accordingly are classified as level 3
assets.Equity securities  available for sale Level 1 securities include publicly traded securities
valued using quoted market prices. Level 3 securities include investments in two financial
institutions that provide financial services only to investor banks received as part of
previous acquisitions without observable market data to determine the investments fair values.
These securities can only be sold back to the issuing financial institution at cost.Interest rate swap agreements (Swaps) The fair value of the swaps was the amount the Company
would have expected to pay to terminate the agreements and is based upon the present value of
the expected future cash flows using the LIBOR swap curve, the basis for the underlying
interest rate.The table below presents a reconciliation of all assets and liabilities measured at fair value
on a recurring basis using significant unobservable inputs (Level 3) for the year ended
December 31, 2008:
 Equitysecurities
    
    
    Debt securitiesBalance at January 1, 2008
    
    $
    220
    
    
    
    22,369Total net realized investment gains/(losses)
and net change in unrealized appreciation/(depreciation):Included in net income as OTTI
    
    
    
    
    
    
    (9,522
    )Included in other comprehensive income
    
    
    
    
    
    
    (1,234
    )Purchases and sales
    
    
    
    
    
    
    Net transfers in (out) of Level 3
    
    
    
    
    
    
    (5,676
    )Balance at December 31, 2008
    
    $
    220
    
    
    
    5,937
 Certain assets and liabilities are measured at fair value on a nonrecurring basis after
initial recognition such as loans held for sale, loans measured for impairment and mortgage
servicing rights. The following table represents the fair market measurement for nonrecurring
assets as of December 31, 2008:
 Total assetsLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    at fair valueLoans held for sale
    
    $
    18,738
    
    
    
    
    
    
    
    
    
    
    
    18,738Loans measured for impairment
    
    
    
    
    
    
    
    
    
    
    9,130
    
    
    
    9,130Mortgage servicing rights
    
    
    
    
    
    
    
    
    
    
    5,481
    
    
    
    5,481Total assets
    
    $
    18,738
    
    
    
    
    
    
    
    14,611
    
    
    
    33,349
 Loans held for sale Mortgage loans held for sale are recorded at the lower of carrying value
or market value. The fair value of mortgage loans held for sale is based on what secondary
markets are currently offering. As the fair value is
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    determined by a quoted price from Freddie Mac, and the Company has open delivery contracts
with Freddie Mac, the Company classifies loans held for sale as nonrecurring Level 1.Impaired loans A loan is considered to be impaired when it is probable that all of the
principle and interest due under the original terms of the loan may not be collected.
Impairment is measured based on the fair value of the underlying collateral or discounted cash
flows when collateral does not exist. The Company measures impairment on all nonaccrual
commercial and commercial real estate loans for which it has established specific reserves as
part of the specific allocated allowance component of the allowance for loan losses. The
Company classifies impaired loans as nonrecurring Level 3.Mortgage servicing rights Mortgage servicing rights represent the value associated with
servicing residential mortgage loans, when the mortgage loans have been sold into the
secondary market and the related servicing has been retained by the Company. The value is
determined through a discounted cash flow analysis, which uses interest rates, prepayment
speeds and delinquency rate assumptions as inputs. All of these assumptions require a
significant degree of management judgment. Servicing rights and the related mortgage loans are
segregated into categories or homogeneous pools based upon common characteristics. Adjustments
are made when the estimated discounted future cash flows are less than the carrying value, as
determined by individual pool. As such, mortgage servicing rights are classified as
nonrecurring Level 3.(17)
    
    Regulatory Capital RequirementsThe Companys banking subsidiary is 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s banking subsidiary 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). At December 31, 2008 and 2007,
the Companys banking subsidiary exceeded all capital adequacy requirements to which they were
subject. At December 31, 2008, the maximum amount available for dividend payments by Northwest
to the Company, while maintaining its well capitalized status, was approximately
$99,600,000.As of December 15, 2008, the most recent notification from the FDIC categorized Northwest as
well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the bank must maintain 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 banks categories.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    The actual, required, and well capitalized levels as of December 31, 2008 and 2007 were as
follows:
 December 31, 2008Minimum capital
    
    Well capitalizedActual
    
    requirements
    
    requirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital (to risk
weighted assets):
    
    $
    604,067
    
    
    
    13.95
    %
    
    $
    346,354
    
    
    
    8.00
    %
    
    $
    432,943
    
    
    
    10.00
    %Tier I capital (to risk
weighted assets):
    
    
    549,869
    
    
    
    12.70
    %
    
    
    173,177
    
    
    
    4.00
    %
    
    
    259,766
    
    
    
    6.00
    %Tier I capital (leverage)
(to average assets):
    
    
    549,869
    
    
    
    8.05
    %
    
    
    204,887
    
    
    
    3.00
    %*
    
    
    341,478
    
    
    
    5.00
    %
 December 31, 2007Minimum capital
    
    Well capitalizedActual
    
    requirements
    
    requirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital (to risk
weighted assets):
    
    $
    571,785
    
    
    
    14.10
    %
    
    $
    324,304
    
    
    
    8.00
    %
    
    $
    405,380
    
    
    
    10.00
    %Tier I capital (to risk
weighted assets):
    
    
    529,833
    
    
    
    13.07
    %
    
    
    162,152
    
    
    
    4.00
    %
    
    
    243,228
    
    
    
    6.00
    %Tier I capital (leverage)
(to average assets):
    
    
    529,833
    
    
    
    8.21
    %
    
    
    193,630
    
    
    
    3.00
    %*
    
    
    322,717
    
    
    
    5.00
    %
 
 *
    
    The FDIC has indicated that the most highly rated institutions, which meet certain
criteria, will be required to maintain a ratio of 3%, and all other institutions will be
required to maintain an additional capital cushion of 100 to 200 basis points. As of
December 31, 2008, the Company had not been advised of any additional requirements in
this regard. (18)
    
    Contingent LiabilitiesThe Company and its subsidiaries are subject to a number of asserted and unasserted claims
encountered in the normal course of business. Management believes that the aggregate
liability, if any, that may result from such potential litigation will not have a material
adverse effect on the Companys financial statements.
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (19)
    
    Components of Comprehensive IncomeThe following table sets forth the components of comprehensive income for the years ended
December 31, 2008, 2007 and 2006:
 Years ended December 31,2008
    
    
    2007
    
    
    2006Unrealized (loss) gain on marketable securities available-for-sale,
net of tax of $3,809, $(6,511) and $298, respectively
    
    
    (5,957
    )
    
    
    10,184
    
    
    
    (466
    )Reclassification adjustment for gains included in net income,
net of tax of $2,035, $1,877 and $263, respectively
    
    
    (3,183
    )
    
    
    (2,938
    )
    
    
    (393
    )Change in fair value of interest rate swaps, net of tax of
$4,590, $0 and $0, respectively
    
    
    (8,524
    )
    
    
    
    
    
    
    Defined benefit plans:Net (loss)/ gain, net of tax of $9,161, $(3,281) and $0, respectively
    
    
    (14,330
    )
    
    
    5,132
    
    
    
    Amortization of prior service costs, net of
tax of $(20), $(30) and $0, respectively
    
    
    31
    
    
    
    47
    
    
    
    Other comprehensive income
    
    $
    (31,963
    )
    
    
    12,425
    
    
    
    (859
    )
 (20)
    
    Northwest Bancorp, Inc. (Parent Company Only)
  December 312008
    
    
    2007AssetsCash and cash equivalents
    
    $
    20,695
    
    
    
    3,618Marketable securities available-for-sale
    
    
    73
    
    
    
    96Investment in bank subsidiary
    
    
    706,610
    
    
    
    714,160Other assets
    
    
    8,021
    
    
    
    3,582Total assets
    
    $
    735,399
    
    
    
    721,456Liabilities and Shareholders EquityLiabilities:Debentures payable
    
    $
    108,249
    
    
    
    108,249Other liabilities
    
    
    13,366
    
    
    
    329Total liabilities
    
    
    121,615
    
    
    
    108,578Shareholders equity
    
    
    613,784
    
    
    
    612,878Total liabilities and
shareholders equity
    
    $
    735,399
    
    
    
    721,456
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
     Years ended December 31,2008
    
    
    2007
    
    
    2006Income:Interest income
    
    $
    359
    
    
    
    480
    
    
    
    3,891Dividends from bank subsidiary
    
    
    39,000
    
    
    
    49,000
    
    
    
    45,000Undistributed earnings from equity
investment in bank subsidiary
    
    
    12,722
    
    
    
    4,838
    
    
    
    16,551Total income
    
    
    52,081
    
    
    
    54,318
    
    
    
    65,442Expense:Compensation and benefits
    
    
    380
    
    
    
    366
    
    
    
    378Other expense
    
    
    105
    
    
    
    159
    
    
    
    182Loss on early extinquishment of debt
    
    
    
    
    
    
    
    
    
    
    3,124Interest expense
    
    
    5,339
    
    
    
    7,250
    
    
    
    15,616Total expense
    
    
    5,824
    
    
    
    7,775
    
    
    
    19,300Income before income taxes
    
    
    46,257
    
    
    
    46,543
    
    
    
    46,142Federal and state income taxes
    
    
    (1,914
    )
    
    
    (2,554
    )
    
    
    (5,394
    )Net income
    
    $
    48,171
    
    
    
    49,097
    
    
    
    51,536
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
     Years ended December 31,2008
    
    
    2007
    
    
    2006Operating activities:Net income
    
    $
    48,171
    
    
    
    49,097
    
    
    
    51,536Adjustments to reconcile net income to
net cash provided by operating activities:Undistributed earnings of subsidiary
    
    
    (12,722
    )
    
    
    (4,838
    )
    
    
    (16,551
    )Loss on early extinguishment
    
    
    
    
    
    
    
    
    
    
    3,124Noncash stock benfit plan compensation expense
    
    
    2,731
    
    
    
    2,454
    
    
    
    2,296Net change in other assets and liabilities
    
    
    (2,997
    )
    
    
    1,636
    
    
    
    (3,242
    )Net cash provided by operating activities
    
    
    35,183
    
    
    
    48,349
    
    
    
    37,163Investing activities:Acquisitions, net of cash received
    
    
    
    
    
    
    5,048
    
    
    
    Net cash provided by investing activities
    
    
    
    
    
    
    5,048
    
    
    
    Financing activities:Cash dividends paid
    
    
    (15,771
    )
    
    
    (15,696
    )
    
    
    (13,727
    )Treasury stock repurchases
    
    
    (3,335
    )
    
    
    (40,825
    )
    
    
    (8,080
    )Redemption of trust preferred stock
    
    
    
    
    
    
    
    
    
    
    (102,062
    )Proceeds from options exercised
    
    
    1,000
    
    
    
    862
    
    
    
    873Net cash used in financing activities
    
    
    (18,106
    )
    
    
    (55,659
    )
    
    
    (122,996
    )Net increase/ (decrease) in cash and cash equivalents
    
    $
    17,077
    
    
    
    (2,262
    )
    
    
    (85,833
    )Cash and cash equivalents at beginning of year
    
    
    3,618
    
    
    
    5,880
    
    
    
    91,713Net increase/ (decrease) in cash and cash equivalents
    
    $
    17,077
    
    
    
    (2,262
    )
    
    
    (85,833
    )Cash and cash equivalents at end of year
    
    $
    20,695
    
    
    
    3,618
    
    
    
    5,880
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (21)
    
    Business SegmentsThe Company has identified two reportable business segments based upon the operating approach
currently used by management. The Community Banking segment includes the savings bank
subsidiary of the Company, Northwest Savings Bank, as well as the subsidiaries of the savings
bank that provide similar products and services. The savings bank is a community-oriented
institution that offers a full array of traditional deposit and loan products, including
mortgage, consumer, and commercial loans as well as trust, investment management, actuarial
and benefit plan administration, and brokerage services typically offered by a full service
financial institution. The Consumer Finance segment is comprised of Northwest Consumer
Discount Company, a subsidiary of Northwest Savings Bank, which operates offices in
Pennsylvania and New York. This subsidiary compliments the services of the bank by offering
personal installment loans for a variety of consumer and real estate products. This activity
is funded primarily through its intercompany borrowing relationship with Allegheny Services,
Inc. Net income is primarily used by management to measure segment performance. The following
tables provide financial information for these segments. The All Other column represents the
parent company, other nonbank subsidiaries, and elimination entries necessary to reconcile to
the consolidated amounts presented in the financial statements.
 At or for the year ended
    
    Community
    
    
    Consumer
    
    
    AllDecember 31, 2008
    
    banking
    
    
    finance
    
    
    other*
    
    
    ConsolidatedExternal interest income
    
    $
    368,201
    
    
    
    20,452
    
    
    
    6
    
    
    $
    388,659Intersegment interest income
    
    
    4,959
    
    
    
    
    
    
    
    (4,959
    )
    
    
    Interest expense
    
    
    163,922
    
    
    
    5,186
    
    
    
    185
    
    
    
    169,293Provision for loan losses
    
    
    19,500
    
    
    
    3,351
    
    
    
    
    
    
    
    22,851Noninterest income
    
    
    36,324
    
    
    
    2,269
    
    
    
    159
    
    
    
    38,752Noninterest expense
    
    
    158,652
    
    
    
    10,990
    
    
    
    486
    
    
    
    170,128Income tax expense (benefit)
    
    
    17,646
    
    
    
    1,236
    
    
    
    (1,914
    )
    
    
    16,968Net income
    
    $
    49,764
    
    
    
    1,958
    
    
    
    (3,551
    )
    
    $
    48,171Total assets
    
    $
    6,792,735
    
    
    
    115,463
    
    
    
    22,043
    
    
    $
    6,930,241
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    At or for the year ended
    
    Community
    
    
    Consumer
    
    
    AllDecember 31, 2007
    
    banking
    
    
    finance
    
    
    other*
    
    
    ConsolidatedExternal interest income
    
    $
    375,761
    
    
    
    20,266
    
    
    
    4
    
    
    $
    396,031Intersegment interest income
    
    
    7,991
    
    
    
    
    
    
    
    (7,991
    )
    
    
    Interest expense
    
    
    195,533
    
    
    
    8,232
    
    
    
    7,250
    
    
    
    211,015Provision for loan losses
    
    
    6,000
    
    
    
    2,743
    
    
    
    
    
    
    
    8,743Noninterest income
    
    
    40,250
    
    
    
    2,552
    
    
    
    220
    
    
    
    43,022Noninterest expense
    
    
    143,878
    
    
    
    8,339
    
    
    
    525
    
    
    
    152,742Income tax expense (benefit)
    
    
    18,607
    
    
    
    1,403
    
    
    
    (2,554
    )
    
    
    17,456Net income
    
    $
    59,984
    
    
    
    2,101
    
    
    
    (12,988
    )
    
    $
    49,097Total assets
    
    $
    6,629,725
    
    
    
    122,657
    
    
    
    (88,866
    )
    
    $
    6,663,516
 At or for the year ended
    
    Community
    
    
    Consumer
    
    
    AllDecember 31, 2006
    
    banking
    
    
    finance
    
    
    other*
    
    
    ConsolidatedExternal interest income
    
    $
    349,964
    
    
    
    18,605
    
    
    
    4
    
    
    $
    368,573Intersegment interest income
    
    
    8,234
    
    
    
    
    
    
    
    (8,234
    )
    
    
    Interest expense
    
    
    178,634
    
    
    
    8,494
    
    
    
    3,981
    
    
    
    191,109Provision for loan losses
    
    
    6,000
    
    
    
    2,480
    
    
    
    
    
    
    
    8,480Noninterest income
    
    
    42,988
    
    
    
    2,515
    
    
    
    523
    
    
    
    46,026Noninterest expense
    
    
    131,847
    
    
    
    8,150
    
    
    
    3,685
    
    
    
    143,682Income tax expense (benefit)
    
    
    24,435
    
    
    
    751
    
    
    
    (5,394
    )
    
    
    19,792Net income
    
    $
    60,270
    
    
    
    1,245
    
    
    
    (9,979
    )
    
    $
    51,536Total assets
    
    $
    6,493,770
    
    
    
    124,993
    
    
    
    (90,948
    )
    
    $
    6,527,815
 
 *
    
    Eliminations consist of intercompany interest income and interest expense. (22)
    
    Guaranteed Preferred Beneficial Interests in Companys Junior Subordinated Deferrable
Interest Debentures (Trust-Preferred Securities) and Interest Rate Swap AgreementsThe Company has three statutory business trusts: Northwest Bancorp Capital Trust III, a
Delaware statutory business trust, and Northwest Bancorp Statutory Trust IV, a Connecticut
statutory business trust and Penn Laurel Financial Corp. Trust I, a Delaware statutory
business trust (the Trusts). The Penn Laurel Financial Corp, Trust I was assumed with the
acquisition of Penn Laurel Financial Corporation in June 2007. These trusts exist solely to
issue preferred securities to third parties for cash, issue common securities to the Company
in exchange for capitalization of the Trusts, invest the proceeds from the sale of trust
securities in an equivalent amount of debentures of the Company, and engage in other
activities that are incidental to those previously listed. The aforementioned trusts are not
consolidated in accordance with FIN 46 (R), Consolidation of Variable Interest Entities and
Interpretation of ARB No.51. Northwest Bancorp Capital Trust III issued 50,000 cumulative
trust preferred securities in a private transaction to a pooled investment vehicle on
December 5, 2006 (liquidation value of $1,000 per preferred security or $50,000,000) with a
stated maturity of December 30, 2035 and a floating rate of interest, which is reset
quarterly, equal to three-month LIBOR plus 1.38%. Northwest Bancorp Statutory Trust IV issued
50,000 cumulative trust preferred securities in a private transaction to a pooled investment
vehicle on December 15, 2006
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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    (liquidation value of $1,000 per preferred security or
$50,000,000) with a stated maturity of December 15, 2035 and a floating rate of interest,
which is reset quarterly, equal to three-month LIBOR plus 1.38%. Penn Laurel Financial Corp.
Trust I issued 5,000 cumulative trust preferred securities in a private transaction to a
pooled investment vehicle on January 23, 2004 (liquidation value of $1,000 per preferred
security or $5,000,000) with a stated maturity of January 23, 2034 and floating rate of
interest, which is reset quarterly, equal to three-month LIBOR plus 2.80%.The Trusts have invested the proceeds of the offerings in junior subordinated deferrable
interest debentures issued by the Company. The structure of these debentures mirrors the
structure of the trust-preferred securities. Northwest Bancorp Statutory Trust III holds
$51,547,000 of the Companys junior subordinated debentures due December 30, 2035 with a
floating rate of interest, reset quarterly, of three-month LIBOR plus 1.38%. The rate in
effect at December 31, 2008 was 2.85%. Northwest Bancorp Statutory Trust IV holds $51,547,000
of the Companys junior subordinated debentures due December 15, 2035 with a floating rate of
interest, reset quarterly, of three-month LIBOR plus 1.38%. The rate in effect at December 31,
2008 was 3.38%. Penn Laurel Financial Corp. Trust I holds $5,155,000 of the Companys junior
subordinated debentures due January 23, 2034 with a floating rate of interest, reset
quarterly, of three-month LIBOR plus 2.80%. The rate in effect at December 31, 2008 was 6.27%.
These subordinated debentures are the sole assets of the Trusts.Cash distributions on the trust securities are made on a quarterly basis to the extent
interest on the debentures is received by the Trusts. The Company has the right to defer
payment of interest on the subordinated debentures at any time, or from time-to-time, for
periods not exceeding five years. If interest payments on the subordinated debentures are
deferred, the distributions on the trust securities also are deferred. Interest on the
subordinated debentures and distributions on the trust securities is cumulative. The Company
obligation constitutes a full, irrevocable, and unconditional guarantee on a subordinated
basis of the obligations of the trust under the preferred securities.The Trusts must redeem the preferred securities when the debentures are paid at maturity or
upon an earlier redemption of the debentures to the extent the debentures are redeemed. All or
part of the debentures may be redeemed at any time on or after December 31, 2010. Also, the
debentures may be redeemed at any time if existing laws or regulations, or the interpretation
or application of these laws or regulations, change causing:
 
    
    the interest on the debentures to no longer be deductible by the Company for federal
income tax purposes;
    
    the trust to become subject to federal income tax or to certain other taxes or
governmental charges;
    
    the trust to register as an investment company; and
    
    the Company to become subject to capital requirements and the preferred securities do
not qualify as Tier I capital.
 The Company may, at any time, dissolve any of the Trusts and distribute the debentures to the
trust security holders, subject to receipt of any required regulatory approval(s).During the quarter ended September 30, 2008, the Company entered into four interest rate swap
agreements (swaps). The Company designated the swaps as a cash flow hedge and they are
intended to protect against the variability of cash flows associated with Trust III and Trust
IV. The first two swaps hedge the interest rate risk of Trust III, wherein the Company receives
interest of LIBOR from a counterparty and pays a fixed rate of 4.20% to the same counterparty
calculated on a notional amount of $25.0 million and the Company receives interest of LIBOR
from a counterparty and pays a fixed rate of 4.61% to the same counterparty calculated on a
notional amount of $25.0 million. The terms of these two swaps are five years and ten years,
respectively. The second two swaps hedge the interest rate risk of Trust IV, wherein the
Company receives interest of LIBOR from a counterparty and pays a fixed rate of 3.85% to the
same counterparty
 96




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NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    calculated on a notional amount of $25.0 million and the Company receives
interest of LIBOR from a counterparty and pays a fixed rate of 4.09% to the same counterparty
calculated on a notional amount of $25.0 million. The terms of these two swaps are seven years
and ten years, respectively. The swap agreements were entered into with a counterparty that
met the Companys credit standards and the agreements contain collateral provisions protecting
the at-risk party. The Company believes that the credit risk inherent in the contracts is not
significant.At December 31, 2008, the fair value of the swap agreements was $(13,114,000) and was the
amount the Company would have expected to pay if the contracts were terminated. There was no
material hedge ineffectiveness for this swap.(23)
    
    Selected Quarterly Financial Data (Unaudited)
 Three months endedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(In thousands, except per share data)2008:Interest income
    
    $
    96,821
    
    
    
    97,152
    
    
    
    97,519
    
    
    
    97,167Interest expense
    
    
    48,387
    
    
    
    43,423
    
    
    
    39,819
    
    
    
    37,664Net interest income
    
    
    48,434
    
    
    
    53,729
    
    
    
    57,700
    
    
    
    59,503Provision for loan losses
    
    
    2,294
    
    
    
    3,395
    
    
    
    6,950
    
    
    
    10,212Noninterest income
    
    
    12,891
    
    
    
    11,644
    
    
    
    4,952
    
    
    
    9,265Noninterest expenses
    
    
    42,427
    
    
    
    41,488
    
    
    
    42,739
    
    
    
    43,474Income before
income taxes
    
    
    16,604
    
    
    
    20,490
    
    
    
    12,963
    
    
    
    15,082Income taxes
    
    
    3,982
    
    
    
    6,048
    
    
    
    3,140
    
    
    
    3,798Net income
    
    $
    12,622
    
    
    
    14,442
    
    
    
    9,823
    
    
    
    11,284Basic earnings per share
    
    $
    0.26
    
    
    
    0.30
    
    
    
    0.20
    
    
    
    0.23Diluted earnings per share
    
    $
    0.26
    
    
    
    0.30
    
    
    
    0.20
    
    
    
    0.23
 97




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##### Table of Contents



NORTHWEST BANCORP, INC. AND SUBSIDIARIES
    Three months endedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(In thousands, except per share data)2007:Interest income
    
    $
    95,592
    
    
    
    98,827
    
    
    
    101,558
    
    
    
    100,054Interest expense
    
    
    50,857
    
    
    
    53,458
    
    
    
    54,468
    
    
    
    52,232Net interest income
    
    
    44,735
    
    
    
    45,369
    
    
    
    47,090
    
    
    
    47,822Provision for loan losses
    
    
    2,006
    
    
    
    2,066
    
    
    
    2,149
    
    
    
    2,522Noninterest income
    
    
    10,489
    
    
    
    11,366
    
    
    
    5,427
    
    
    
    15,920Noninterest expenses
    
    
    37,876
    
    
    
    37,777
    
    
    
    38,481
    
    
    
    38,608Income before
income taxes
    
    
    15,342
    
    
    
    16,892
    
    
    
    11,707
    
    
    
    22,612Income taxes
    
    
    4,045
    
    
    
    4,592
    
    
    
    2,121
    
    
    
    6,698Net income
    
    $
    11,297
    
    
    
    12,300
    
    
    
    9,586
    
    
    
    15,914Basic earnings per share
    
    $
    0.23
    
    
    
    0.25
    
    
    
    0.20
    
    
    
    0.33Diluted earnings per share
    
    $
    0.23
    
    
    
    0.25
    
    
    
    0.20
    
    
    
    0.33
 Three months endedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(In thousands, except per share data)2006:Interest income
    
    $
    89,402
    
    
    
    91,316
    
    
    
    93,365
    
    
    
    94,490Interest expense
    
    
    43,542
    
    
    
    46,532
    
    
    
    49,404
    
    
    
    51,631Net interest income
    
    
    45,860
    
    
    
    44,784
    
    
    
    43,961
    
    
    
    42,859Provision for loan losses
    
    
    2,099
    
    
    
    2,067
    
    
    
    2,237
    
    
    
    2,077Noninterest income
    
    
    13,965
    
    
    
    10,207
    
    
    
    11,372
    
    
    
    10,482Noninterest expenses
    
    
    35,203
    
    
    
    34,897
    
    
    
    35,278
    
    
    
    38,304Income before
income taxes
    
    
    22,523
    
    
    
    18,027
    
    
    
    17,818
    
    
    
    12,960Income taxes
    
    
    6,711
    
    
    
    5,000
    
    
    
    4,961
    
    
    
    3,120Net income
    
    $
    15,812
    
    
    
    13,027
    
    
    
    12,857
    
    
    
    9,840Basic earnings per share
    
    $
    0.32
    
    
    
    0.26
    
    
    
    0.26
    
    
    
    0.20Diluted earnings per share
    
    $
    0.32
    
    
    
    0.26
    
    
    
    0.26
    
    
    
    0.20
 98




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
    
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
   99




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##### Table of Contents



Number of securities tobe issued upon exercise
    
    
    
    
    
    
    Number of securitiesEquity compensation plans
    
    of outstanding options
    
    
    weighted average
    
    
    remaining available forapproved by stockholders
    
    and rights
    
    
    exercise price
    
    
    issuance under plan1995 Stock Option Plan
    
    
    21,200
    
    
    $
    7.60
    
    
    
    2000 Stock Option Plan
    
    
    602,255
    
    
    
    17.63
    
    
    
    2004 Stock Option Plan
    
    
    750,245
    
    
    
    24.03
    
    
    
    2008 Stock Option Plan
    
    
    226,068
    
    
    
    22.03
    
    
    
    1,523,932Total
    
    
    1,599,768
    
    
    $
    21.12
    
    
    
    1,523,932
 
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Financial Statements
  (A)
    
    Managements Report on Internal Control Over Financial Reporting(B)
    
    Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting(C)
    
    Report of Independent Registered Public Accounting Firm(D)
    
    Consolidated Statements of Financial Condition  at December 31, 2008 and 2007(E)
    
    Consolidated Statements of Income  Years ended December 31, 2008, 2007 and 2006(F)
    
    Consolidated Statements of Changes in Shareholders Equity  Years
ended December 31, 2008, 2007 and 2006(G)
    
    Consolidated Statements of Cash Flows  Years ended December 31,
2008, 2007 and 2006(H)
    
    Notes to Consolidated Financial Statements.
 Financial Statement Schedules
  100




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##### Table of Contents



Exhibits
 Regulation
    
    
    
    Reference to Prior FilingS-K Exhibit
    
    
    
    or Exhibit NumberNumber
    
    Document
    
    Attached Herto2
    
    Plan of acquisition, reorganization,
arrangement, liquidation or succession
    
    None3
    
    Articles of Incorporation and Bylaws
    
    ***4
    
    Instruments defining the rights of security
holders, including indentures
    
    *9
    
    Voting trust agreement
    
    None10.1
    
    Amendment and Restatement of Deferred
Compensation Plan for Outside Directors
Of Northwest Savings Bank and Eligible
Affiliates
    
    10.110.2
    
    Retirement Plan for Outside Directors of
Northwest Savings Bank and Eligible
Affiliates
    
    10.210.3
    
    Amended and Restated Northwest Savings
Bank Nonqualified Supplemental
Retirement Plan
    
    10.310.4
    
    Employee Stock Ownership Plan
    
    *10.5
    
    Northwest Bancorp, Inc. 2004 Stock
Option Plan
    
    ****10.6
    
    Northwest Bancorp, Inc. 2004
Recognition and Retention Plan
    
    ****10.7
    
    Management Bonus Plan
    
    10.710.8
    
    Northwest Bancorp, Inc. 2008 Stock
Option Plan
    
    *****10.9
    
    Amended and Restated Northwest Savings
Bank and Affiliates Upper Managers Bonus
Deferred Compensation Plan
    
    10.910.10
    
    Employment Agreement for
William J. Wagner
    
    ******10.11
    
    Employment Agreement for
William W. Harvey, Jr.
    
    ******10.12
    
    Employment Agreement for
Steven G. Fisher
    
    ******
 101




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##### Table of Contents



Regulation
    
    
    
    Reference to Prior FilingS-K Exhibit
    
    
    
    or Exhibit NumberNumber
    
    Document
    
    Attached Herto10.13
    
    Employment Agreement for
Gregory C. LaRocca
    
    ******10.14
    
    Employment Agreement for
Robert A. Ordiway
    
    ******11
    
    Statement re: computation of per share
earnings
    
    None12
    
    Statement re: computation of ratios
    
    Not required16
    
    Letter re: change in certifying accountant
    
    None18
    
    Letter re: change in accounting principles
    
    None21
    
    Subsidiaries of Registrant
    
    2122
    
    Published report regarding matters submitted to vote of security holders
    
    None23
    
    Consent of experts and counsel
    
    2324
    
    Power of Attorney
    
    Not Required28
    
    Information from reports furnished to State
insurance regulatory authorities
    
    None31.1
    
    Certification pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934, as
Amended, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
    
    31.131.2
    
    Certification pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as
Amended, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
    
    31.232
    
    Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
    
    32
 
 *
    
    Incorporated by reference to the Companys Registration Statement on Form S-4 (File No.
333-31687), originally filed with the SEC on July 21, 1997, as amended on October 9, 1997 and
November 4, 1997.***
    
    Incorporated by reference to the Definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders (File No. 000-23817), filed with the SEC on November 21, 2000.****
    
    Incorporated by reference to the Definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders (File No. 000-23817), filed with the SEC on October 6, 2004.*****
    
    Incorporated by reference to the Definitive Proxy Statement for the 2008 Annual Meeting of
Shareholders (File No. 000-23817), filed with the SEC on April 11, 2008.******
    
    Incorporated by reference to the Periodic Report or Form 8-K (File No. 000-23817), filed
with the SEC on September 19, 2007. 102




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##### Table of Contents



SIGNATURES
  NORTHWEST BANCORP, INC.Date: March 4, 2009
    By:
    /s/ William J. WagnerWilliam J. Wagner, Chairman, President andChief Executive Officer (Principal Executive Officer)  Date: March 4, 2009
    By:
    /s/ William J. WagnerWilliam J. Wagner, Chairman, President, andChief Executive Officer and DirectorDate: March 4, 2009
    By:
    /s/ William W. Harvey, Jr.William W. Harvey, Jr., Executive Vice President, Finance,Chief Financial Officer (Principal Financial Officer)Date: March 4, 2009
    By:
    /s/ Gerald J. RitzertGerald J. Ritzert, Senior Vice President,Chief Accounting Officer (Principal Accounting Officer)Date: March 4, 2009
    By:
    /s/ John M. BauerJohn M. Bauer, DirectorDate: March 4, 2009
    By:
    /s/ Richard L. CarrRichard L. Carr, DirectorDate: March 4, 2009
    By:
    /s/ Thomas K. CrealThomas K. Creal, III, DirectorDate: March 4, 2009
    By:
    /s/ Robert G. FerrierRobert G. Ferrier, DirectorDate: March 4, 2009
    By:
    /s/ A. Paul KingA. Paul King, DirectorDate: March 4, 2009
    By:
    /s/ Joseph F. LongJoseph F. Long, DirectorDate: March 4, 2009
    By:
    /s/ Richard E. McDowellRichard E. McDowell, DirectorDate: March 4, 2009
    By:
    /s/ Philip M. TredwayPhilip M. Tredway, Director 103