• 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 have 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 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 loans deteriorate as a result of the factors previously discussed. Any material increase in the allowance for loan losses may adversely affect the Company's financial condition and results of operations. The allowance is based on information known at the time of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results. Management believes, to the best of their knowledge, that all known losses as of the balance sheet date have been recorded. Valuation of Investment Securities. All of the Company's investment securities are classified as available for sale and recorded at current fair value on the Consolidated Statement of Financial Condition. Unrealized gains or losses, net of deferred taxes, are reported in other comprehensive income as a separate component of shareholders' equity. In general, fair value is based upon quoted market prices of identical assets, when available. If quoted market prices are not available, fair value is based upon valuation models that use cash flow, security structure and other observable information. Where sufficient data is not available to produce a fair valuation, fair value is based on broker quotes for similar assets. Broker quotes

may be adjusted to ensure that financial instruments are recorded at fair value. Adjustments may include unobservable parameters, among other things.
The Company conducts a quarterly review and evaluation of our investment securities to determine if any declines in fair value are other than temporary. In making this determination, we consider the period of time the securities were in a loss position, the percentage decline in comparison to the securities' amortized cost, the financial condition of the issuer, if applicable, and the delinquency or default rates of underlying collateral. In addition, we consider our intent and ability to hold the investment securities currently in an unrealized loss position until they mature or for a sufficient period of time to allow for a recovery in fair value. Any valuation decline that we determine to be other than temporary would require us to write down the security to fair value through a charge to earnings.
Goodwill. Goodwill is not subject to amortization but must be tested for impairment at least annually, and possibly more frequently if certain events or changes in circumstances arise. Impairment testing requires that the fair value of each reporting unit be compared to its carrying amount, including goodwill. Reporting units are identified based upon analyzing each of the Company's individual operating segments. A reporting unit is defined as any distinct, separately identifiable component of an operating segment for which complete, discrete financial information is available that management regularly reviews. Determining the fair value of a reporting unit requires a high degree of subjective management judgment. 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. The Company has engaged an independent third party to assist the Company in performing an impairment test on the Company's goodwill as of June 30, 2009.
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 and Comparison of Financial Condition The Company's total assets at March 31, 2009 were $7.042 billion, an increase of $111.6 million, or 1.6%, from $6.930 billion at December 31, 2008. This increase in assets is primarily attributed to an increase in cash and cash equivalents of $185.8 million, funded by an increase in deposits of $172.8 million, or 3.4%.
Total cash and investments increased by $121.0 million, or 9.9%, to $1.340 billion at March 31, 2009, from $1.219 billion at December 31, 2008. This increase is a result of the Company building liquidity from strong deposit growth for the quarter to repay $87.0 million of short-term borrowings, due in April 2009.
Loans receivable remained flat for the quarter at approximately $5.197 billion. Loan demand continued to be strong, with originations of approximately $515.1 million for the quarter ended March 31, 2009, however, the Company sold $159.7 million of one-to four-family first mortgage loans originated during the quarter to assist with liquidity and lessen interest-rate risk. During the quarter ended March 31, 2009 commercial loans increased by $48.8 million, or 3.4%, mortgage loans decreased by $43.4 million, or 1.8% and consumer and home equity loans decreased by $4.5 million, or less than 1.0%.
Deposit balances increased across all of our products and all of our regions as consumer spending decreased and the rate of consumer savings increased across the nation. Deposits increased by $172.8 million, or 3.4%, to $5.211 billion at March 31, 2009 from $5.038 billion at December 31, 2008. Noninterest-bearing demand deposits increased by $31.3 million, or 7.9%, to $425.3 million at March 31, 2009 from $394.0 million at December 31, 2008, interest-bearing demand deposits increased by $17.9 million, or 2.5%, to $724.0 million at March 31, 2009 from $706.1 million at December 31, 2008, savings deposits increased by $65.4 million, or 4.4%, to $1.546 billion at March 31, 2009 from $1.481 billion at December 31, 2008 and time deposits increased by $58.3 million, or 2.4%, to $2.516 billion at March 31, 2009 from $2.457 billion at December 31, 2008.
Borrowings decreased by $73.1 million, or 6.8%, to $994.8 million at March 31, 2009 from $1.068 billion at December 31, 2008. This decrease is a result of the Company using strong deposit growth to repay short-term borrowings.
Total shareholders' equity at March 31, 2009 was $624.4 million, or $12.87 per share, an increase of $10.6 million, or 1.7%, from $613.8 million, or $12.65 per share, at December 31, 2008. This increase was primarily attributable to net income of $12.3 million and $1.8 million of other comprehensive income for the quarter ended March 31, 2009, which was partially offset by dividends paid of $4.0 million.
Northwest is subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Northwest must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under

regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments made by the regulators about components, risk-weighting and other factors.
Quantitative measures, established by regulation to ensure capital adequacy, require Northwest to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Dollar amounts in the accompanying tables are in thousands.

                                 March 31, 2009

                                                                       Minimum Capital                    Well Capitalized
                                        Actual                          Requirements                        Requirements
                               Amount             Ratio            Amount            Ratio            Amount             Ratio
Total Capital (to risk
weighted assets)             $ 619,504            14.08 %          351,902            8.00 %          439,878            10.00 %
Tier I Capital (to
risk weighted assets)          564,385            12.83 %          175,951            4.00 %          263,927             6.00 %
Tier I Capital
(leverage) (to average
assets)                        564,385             8.19 %          206,656            3.00 %*         344,426             5.00 %


                               December 31, 2008

                                                                       Minimum Capital                    Well Capitalized
                                        Actual                          Requirements                        Requirements
                               Amount             Ratio            Amount            Ratio            Amount             Ratio
Total Capital (to risk
weighted assets)             $ 604,067            13.95 %          346,354            8.00 %          432,943            10.00 %
Tier I Capital (to
risk weighted assets)          549,869            12.70 %          173,177            4.00 %          259,766             6.00 %
Tier I Capital
(leverage) (to average
assets)                        549,869             8.05 %          204,887            3.00 %*         341,478             5.00 %

* The FDIC has indicated that the most highly rated institutions which meet certain criteria will be required to maintain a ratio of 3%, and all other institutions will be required to maintain an additional capital cushion of 100 to 200 basis points. As of March 31, 2009, the Company had not been advised of any additional requirements in this regard.

Northwest is required to maintain a sufficient level of liquid assets, as determined by management and reviewed for adequacy by the FDIC and the Pennsylvania Department of Banking during their regular examinations. Northwest monitors its liquidity position primarily using the ratio of unencumbered liquid assets as a percentage of deposits and borrowings ("liquidity ratio"). Northwest's liquidity ratio at March 31, 2009 was 16.7%. 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. As of March 31, 2009 the Bank had $2.2 billion of additional borrowing capacity available with the FHLB, including $150.0 million on an overnight line of credit, $200.0 million of borrowing capacity available with the Federal Reserve Bank and $75.0 million with a correspondent bank.
The Company paid $4.0 million and $3.9 million in cash dividends during the quarters ended March 31, 2009 and 2008, respectively. Annually, Northwest Bancorp, MHC requests the non-objection of the OTS to waive its receipt of dividends from the Company when such dividends are not needed for regulatory capital, working capital or other purposes. The common stock dividend payout ratio (dividends declared per share divided by net income per share) was 88.0% and 84.6% for the quarters ended March 31, 2009 and 2008, respectively, on dividends of $0.22 per share in each quarter. As a result of Northwest Bancorp, MHC waiving its receipt of dividend payments, actual dividends paid to minority shareholders represented 32.1% and 31.2% of net income for the quarters ended March 31, 2009 and 2008, respectively. The Company has declared a dividend of $0.22 per share payable on May 14, 2009 to shareholders of record as of April 30, 2009. This represents the 58thconsecutive quarter the Company has paid a cash dividend.

Nonperforming Assets
The following table sets forth information with respect to the Company's nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Loans are automatically placed on nonaccrual status when they are 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.

                                                                   March 31, 2009         December 31, 2008
                                                                            (Dollars in Thousands)
Loans accounted for on a nonaccrual basis:
One-to-four family residential loans                               $      21,004                    20,435
Multifamily and commercial real estate loans                              47,779                    43,828
Consumer loans                                                             9,617                     9,756
Commercial business loans                                                 27,133                    25,184
Total                                                                    105,533                    99,203
Total nonperforming loans as a percentage of loans                          2.03 %                    1.91 %
Total real estate acquired through foreclosure and other
real estate owned ("REO")                                                 13,848                    16,844
Total nonperforming assets                                         $     119,381                   116,047
Total nonperforming assets as a percentage of total assets                  1.70 %                    1.67 %

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 March 31, 2009 and December 31, 2008 were $105.5 million and $99.2 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. Historical loss ratios are analyzed and adjusted based on delinquency trends as well as the current economic, political, regulatory and interest rate environment and used to estimate the current measure of impairment.
The individual impairment measures along with the estimated loss for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to the Credit Committee on a quarterly basis. The Credit Committee reviews the processes and documentation presented, reviews the concentration of credit by industry and customer, lending products, activity, competition and collateral values, as well as economic conditions in general and in each market area of the Company. Based on this review and discussion the appropriate amount of ALL is estimated and any adjustments to reconcile the actual ALL with this estimate are determined. In addition, the Credit Committee considers if any changes to the methodology are needed. The Credit Committee also reviews and discusses the Company's delinquency trends, nonperforming asset amounts and ALL levels and ratios compared to its peer group as well as state and national statistics. Similarly, following the Credit Committee's review and approval, a review is performed by the Risk Management Committee of the Board of Directors.
In addition to the reviews by management's Credit Committee and the Board of Directors' Risk Management Committee, regulators from either the FDIC or the Pennsylvania Department of Banking perform an extensive review on an annual basis for the adequacy of the ALL and its conformity with regulatory guidelines and pronouncements. Any recommendations or enhancements from these independent parties are considered by management and the Credit Committee and implemented accordingly.