• 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.

Overview of Critical Accounting Policies Involving Estimates The Company's critical accounting policies involve accounting estimates that:
a) require assumptions about highly uncertain matters, and b) could vary sufficiently enough to cause a material effect on the Company's financial condition or results of operations. Allowance for Loan Losses. The Company recognizes that losses will be experienced on loans and that the risk of loss will vary with, among other things, the type of loan, the creditworthiness of the borrower, general economic conditions and the quality of the collateral for the loan. The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance for loan losses represents management's estimate of probable losses based on all available information. The allowance for loan losses is based on management's evaluation of the collectibility of the loan portfolio, including past loan loss experience, known and inherent losses, information about specific borrower situations and estimated collateral values, and current economic conditions. The loan portfolio and other credit exposures are regularly reviewed by management in its determination of the allowance for loan losses. The methodology for assessing the appropriateness of the allowance includes a review of historical losses, peer group comparisons, industry data and economic conditions. As an integral part of their

examination process, regulatory agencies periodically review the Company's allowance for loan losses and may require the Company to make additional provisions for estimated losses based upon judgments different from those of management. In establishing the allowance for loan losses, loss factors are applied to various pools of outstanding loans. Loss factors are derived using the Company's historical loss experience and may be adjusted for factors that affect the collectibility of the portfolio as of the evaluation date. Commercial loans that are criticized and are over a certain dollar amount are evaluated individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans under Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). Although management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect the Company's financial condition and results of operations. The allowance is based on information known at the time of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results. Management believes, to the best of their knowledge, that all known losses as of the balance sheet date have been recorded.
Goodwill. Goodwill is not subject to amortization but must be tested for impairment at least annually, and possibly more frequently if certain events or changes in circumstances arise. Impairment testing requires that the fair value of each reporting unit be compared to its carrying amount, including goodwill. Reporting units are identified based upon analyzing each of the Company's individual operating segments. A reporting unit is defined as any distinct, separately identifiable component of an operating segment for which complete, discrete financial information is available that management regularly reviews. Goodwill is allocated to the carrying value of each reporting unit based on its relative fair value at the time it is acquired. Determining the fair value of a reporting unit requires a high degree of subjective management judgment. A discounted cash flow valuation model is used to determine the fair value of each reporting unit. The discounted cash flow model incorporates such variables as growth of net income, interest rates and terminal values. Based upon an evaluation of key data and market factors, management selects the specific variables to be incorporated into the valuation model. Future changes in the economic environment or the operations of the operating units could cause changes to these variables, which could give rise to declines in the estimated fair value of the reporting unit. Declines in fair value could result in impairment being identified. The Company has established June 30th of each year as the date for conducting its annual goodwill impairment assessment. The variables are selected as of that date and the valuation model is run to determine the fair value of each reporting unit. At June 30, 2008, the Company did not identify any individual reporting unit where the fair value was less than the carrying value.
Deferred Income Taxes. The Company uses the asset and liability method of accounting for income taxes as prescribed in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Using this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and

estimates the Company makes in determining our deferred tax assets, which are inherently subjective, are reviewed on an ongoing basis as regulatory and business factors change. A reduction in estimated future taxable income could require the Company to record a valuation allowance. Changes in levels of valuation allowances could result in increased income tax expense, and could negatively affect earnings.
Other Intangible Assets. Using the purchase method of accounting for acquisitions, the Company is required to record the assets acquired, including identified intangible assets, and liabilities assumed at their fair values. These fair values often involve estimates based on third party valuations, including appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques, which are inherently subjective. Core deposit and other intangible assets are recorded in purchase accounting when a premium is paid to acquire other entities or deposits. Other intangible assets, which are determined to have finite lives, are amortized based on the period of estimated economic benefits received, primarily on an accelerated basis. Executive Summary
The Company's total assets at September 30, 2008 were $6.895 billion, an increase of $231.1 million, or 3.5%, from $6.664 billion at December 31, 2007. This increase in assets is primarily attributed to an increase in net loans receivable of $286.1 million, or 6.0%, funded by an increase in borrowed funds of $620.8 million, or 183.1%, partially offset by a decrease in cash and equivalents of $162.7 million, or 70.6%, and a decrease in deposits of $403.9 million, or 7.3%.
Net loans receivable increased by $286.1 million, or 6.0%, to $5.082 billion at September 30, 2008 from $4.796 billion at December 31, 2007. This loan demand was funded by additional borrowings from the Federal Home Loan Bank of Pittsburgh ("FHLB"). During the nine months ended September 30, 2008 commercial loans increased by $177.2 million, or 15.1%, mortgage loans increased by $76.5 million, or 3.2% and home equity loans increased by $37.4 million, or 3.8%.
Deposits decreased by $403.9 million, or 7.3%, to $5.138 billion at September 30, 2008 from $5.542 billion at December 31, 2007. Noninterest-bearing demand deposits increased by $42.4 million, or 11.7%, to $403.5 million at September 30, 2008 from $361.1 million at December 31, 2007, interest-bearing demand deposits increased by $17.8 million, or 2.5%, to $735.8 million at September 30, 2008 from $718.0 million at December 31, 2007 and savings deposits increased by $74.5 million, or 5.2%, to $1.501 billion at September 30, 2008 from $1.427 billion at December 31, 2007, while time deposits decreased by $538.6 million, or 17.7%, to $2.498 billion at September 30, 2008 from $3.037 billion at December 31, 2007. The decrease in time deposits was a result of the Bank becoming less aggressive in its pricing for single-service customers. This strategy allowed the bank to replace time deposits with alternative funding sources in an effort to decrease the overall cost of funds and to improve its interest-rate sensitivity position.
Borrowings increased by $620.8 million, or 183.1%, to $959.9 million at September 30, 2008 from $339.1 million at December 31, 2007. During the nine months ended September 30, 2008, the Company borrowed $645.0 million in term loans and $43.3 million in overnight borrowings from the FHLB, while pre-paying $76.0 million of higher rate FHLB advances scheduled to mature during the current year. The FHLB term advances were borrowed at a weighted average rate of 3.90% and with a weighted average maturity of 5.4 years and the cost of the overnight borrowings was 2.07% as of September 30, 2008.
Total shareholders' equity at September 30, 2008 was $622.8 million, an increase of $9.9 million, or 1.6%, from $612.9 million at December 31, 2007. This increase was primarily attributable to net income of $36.9 million for this nine month period, which was partially offset by an unrealized loss on investment

securities of $14.7 million, dividends paid of $11.8 million and the purchase of 132,000 treasury shares at a total cost of $3.3 million.
Effective January 1, 2008, the Company adopted SFAS 157, which defines fair value, establishes a consistent framework for measuring fair value and expands the disclosure requirements related to fair value measurements. SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. SFAS 157 requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The adoption of SFAS 157 did not have a material impact on the operations of the Company.
Northwest is subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Northwest must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments made by the regulators about components, risk-weighting and other factors.
Quantitative measures, established by regulation to ensure capital adequacy, require Northwest to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Dollar amounts in the accompanying tables are in thousands.

                                                    September 30, 2008
                                                                            Minimum Capital           Well Capitalized
                                                       Actual                 Requirements              Requirements
                                                 Amount        Ratio       Amount       Ratio        Amount        Ratio
Total Capital (to risk weighted assets)         $ 592,624       13.80 %     343,545       8.00 %      429,431       10.00 %

Tier I Capital (to risk weighted assets)          544,556       12.68 %     171,772       4.00 %      257,659        6.00 %

Tier I Capital (leverage) (to average assets)     544,556        8.09 %     201,888       3.00 %*     336,480        5.00 %



                                                    December 31, 2007
                                                                            Minimum Capital           Well Capitalized
                                                       Actual                 Requirements              Requirements
                                                 Amount        Ratio       Amount       Ratio        Amount        Ratio
Total 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 September 30, 2008, the Company had not been advised of any additional requirements in this regard.

Northwest is required to maintain a sufficient level of liquid assets, as determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of Banking during their regular

examinations. Northwest monitors its liquidity position primarily using the ratio of unencumbered liquid assets as a percentage of deposits and borrowings ("liquidity ratio"). Northwest's liquidity ratio at September 30, 2008 was 15.7%. The Company and Northwest adjust liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes and insurance on mortgage loan escrow accounts, repayment of borrowings, loan commitments and the repurchase of treasury shares. During the quarter ended September 30, 2008 the Company borrowed $185.0 million in term advances from the FHLB at an average rate of 4.22% with an average life of 5.2 years. Also, as of September 30, 2008 the Company had borrowed $43.3 million in overnight advances from the FHLB. The Company has continued to borrow from the FHLB as a funding alternative to renewing maturing higher cost certificates of deposits. As of September 30, 2008 the Bank had approximately $2.2 billion of additional borrowing capacity available with the FHLB, including an additional $106.7 million on its line of credit.
The Company paid $3.9 million and $4.0 million in cash dividends during the quarters ended September 30, 2008 and 2007, respectively. The Company paid $11.8 million and $11.7 million in cash dividends during the nine months ended September 30, 2008 and 2007, respectively. Annually, Northwest Bancorp, MHC requests the non-objection of the OTS to waive its receipt of dividends from the Company when such dividends are not needed for regulatory capital, working capital or other purposes. The common stock dividend payout ratio (dividends declared per share divided by net income per share) was 110.0% in the both the current quarter and the prior year quarter on dividends of $0.22 per share. The common stock dividend payout ratio was 86.8% and 92.5% for the nine months ended September 30, 2008 and 2007, respectively, on dividends of $0.66 and $0.62, respectively. As a result of Northwest Bancorp, MHC waiving its receipt of dividend payments, actual dividends paid to minority shareholders represented 40.1% and 32.1% of net income for the quarter and nine months ended September 30, 2008 compared to 42.1% and 35.3% of net income for the quarter and nine months ended September 30, 2007. The Company has declared a dividend of $0.22 per share payable on November 13, 2008 to shareholders of record as of October 30, 2008.
Nonperforming Assets
The following table sets forth information with respect to the Company's nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Loans are automatically placed on nonaccrual status when they are more than 90 days contractually delinquent and may also be placed on nonaccrual status even if not more than 90 days delinquent but other conditions exist. Other nonperforming assets represent property acquired by the Company through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell, or the principal balance of the related loan.

                                                                   September 30, 2008          December 31, 2007
                                                                              (Dollars in Thousands)
Loans accounted for on a nonaccrual basis:
One-to-four family residential loans                              $             16,361                     12,542
Multifamily and commercial real estate loans                                    36,737                     24,323
Consumer loans                                                                   7,808                      7,582
Commercial business loans                                                       34,042                      5,163
Total                                                                           94,948                     49,610
Total nonperforming loans as a percentage of loans                                1.85 %                     1.03 %
Total real estate acquired through foreclosure and other
real estate owned                                                                8,698                      8,667
Total nonperforming assets                                        $            103,646                     58,277
Total nonperforming assets as a percentage of total assets                        1.50 %                     0.87 %

A loan is considered to be impaired, as defined by SFAS No. 114 when based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement including both contractual principal and interest payments. The amount of impairment is required to be measured using one of three methods 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 September 30, 2008 and December 31, 2007 were $94.9 million and $49.6 million, respectively. Allowance for Loan Losses
The Company's Board of Directors has adopted an "Allowance for Loan Losses" (ALL) policy designed to provide management with a systematic methodology for determining and documenting the ALL each reporting period. This methodology was developed to provide a consistent process and review procedure to ensure that the ALL is in conformity with the Company's policies and procedures and other supervisory and regulatory guidelines.
On an ongoing basis, the Credit Review department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans. This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis. On an on-going basis the loan officer along with the Credit Review department grades or classifies problem loans or potential problem loans based upon their knowledge of the lending relationship and other information previously accumulated. The Company's loan grading system for problem loans is consistent with industry regulatory guidelines which classify loans as "special mention", "substandard", "doubtful" or "loss." Loans that do not expose the Company to risk sufficient to warrant classification in one of the subsequent categories, but which possess some weaknesses, are designated as "special mention". A "substandard" loan is any loan that is more than 90 days contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as "doubtful" have all the weaknesses inherent in those classified as "substandard" with the added characteristic that the weaknesses present make a collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable. Loans classified as "loss" are considered uncollectible so that their continuance as assets without the establishment of a specific loss reserve in not warranted.
The loans that have been classified as substandard or doubtful are reviewed by the Credit Review department for possible impairment under the provisions of SFAS 114. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement, including both contractual principal and interest payments.
If an individual loan is deemed to be impaired, the Credit Review department determines the proper measure of impairment for each loan based on one of three methods as 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 the collateral if the loan is collateral dependent. If the measurement of the impaired loan is more or less than the recorded investment in the loan, the Credit Review department adjusts the specific allowance associated with that individual loan accordingly.
If a substandard or doubtful loan is not considered individually for impairment, it is grouped with other loans that possess common characteristics for impairment evaluation and analysis under the

provisions of Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." This segmentation is accomplished by grouping loans of similar product types, risk characteristics and industry concentration into homogeneous pools. A range of losses for each pool is then established based upon historical loss ratios. This historical net charge-off amount is then analyzed and adjusted based on historical delinquency trends as well as the current economic, political, regulatory and interest rate environment and used to estimate the current measure of impairment.
The individual impairment measures along with the estimated range of losses for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to the Credit Committee on a quarterly basis. The Credit Committee reviews the processes and documentation presented, reviews the concentration of credit by industry and customer, discusses lending products, activity, competition and collateral values, as well as economic conditions in general and in each market area of the Company. Based on this review and discussion the appropriate amount of ALL is estimated and any adjustments to reconcile the actual ALL with this estimate are determined. In addition, the Credit Committee considers if any changes to the methodology are needed. The Credit Committee also reviews and discusses the Company's delinquency trends, nonperforming asset amounts and ALL levels and ratios compared to its peer group as well as state and national statistics. Similarly, following the Credit Committee's review and approval, a review is performed by the Risk Management Committee of the Board of Directors.
In addition to the reviews by management's Credit Committee and the Board of Directors' Risk Management Committee, regulators from either the FDIC or the Pennsylvania Department of Banking perform an extensive review on an annual basis for the adequacy of the ALL and its conformity with regulatory guidelines and pronouncements. Any recommendations or enhancements from these independent parties are considered by management and the Credit Committee and implemented accordingly. . . .