NWSB Northwest Bancorp (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

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 Number 0-23817

Northwest Bancorp, Inc.

(Exact name of registrant as specified in its charter)

United States of America		23-2900888
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
100 Liberty Street, Warren, Pennsylvania		16365
(Address of principal executive offices)		(Zip Code)

(814) 726-2140

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a Shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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

     Common Stock ($0.10 par value) 48,511,093 shares outstanding as of April 30, 2009

 

 

NORTHWEST BANCORP, INC.
INDEX

		PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition as of March 31, 2009 and December 31, 2008			1
Consolidated Statements of Income for the three months ended March 31, 2009 and 2008			2
Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2009 and 2008			3
Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008			4
Notes to Consolidated Financial Statements — Unaudited			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures about Market Risk			32
Item 4. Controls and Procedures			33
PART II OTHER INFORMATION			33
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3. Defaults Upon Senior Securities			34
Item 4. Submission of Matters to a Vote of Security Holders			34
Item 5. Other Information			34
Item 6. Exhibits			34
Signatures			35
EX-31.1
EX-31.2
EX-32.1

ITEM 1. FINANCIAL STATEMENTS

NORTHWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share data)

		(unaudited)
		March 31,				December 31,
		2009				2008
Assets
Cash and due from banks		$	40,963				55,815
Interest-earning deposits in other financial institutions			223,714				16,795
Federal funds sold and other short-term investments			1,043				7,312
Marketable securities available-for-sale (amortized cost of $1,078,557 and $1,144,435)			1,074,370				1,139,170
Total cash and investments			1,340,090				1,219,092
Loans held for sale			32,666				18,738
Mortgage loans — one- to four- family			2,390,173				2,447,506
Home equity loans			1,004,223				1,013,876
Consumer loans			294,747				289,602
Commercial real estate loans			1,101,141				1,071,182
Commercial business loans			374,756				355,917
Total loans			5,197,706				5,196,821
Allowance for loan losses			(57,487	)			(54,929	)
Total loans, net			5,140,219				5,141,892
Federal Home Loan Bank stock, at cost			63,143				63,143
Accrued interest receivable			26,910				27,252
Real estate owned, net			13,848				16,844
Premises and equipment, net			117,092				115,842
Bank owned life insurance			124,667				123,479
Goodwill			171,363				171,363
Mortgage servicing assets			6,259				6,280
Other intangible assets			6,551				7,395
Other assets			31,709				37,659
Total assets		$	7,041,851				6,930,241
Liabilities and Shareholders’ equity
Liabilities:
Noninterest-bearing demand deposits		$	425,272				394,011
Interest-bearing demand deposits			723,999				706,120
Savings deposits			1,545,974				1,480,620
Time deposits			2,515,769				2,457,460
Total deposits			5,211,014				5,038,211
Borrowed funds			994,802				1,067,945
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities			108,249				108,254
Advances by borrowers for taxes and insurance			25,860				26,190
Accrued interest payable			5,059				5,194
Other liabilities			72,462				70,663
Total liabilities			6,417,446				6,316,457
Shareholders’ equity:
Preferred stock, $0.10 par value: 50,000,000 authorized, no shares issued			—				—
Common stock, $0.10 par value: 500,000,000 shares authorized, 51,251,318 and 51,244,974 issued, respectively			5,125				5,124
Paid-in capital			218,830				218,332
Retained earnings			498,677				490,326
Accumulated other comprehensive loss			(28,804	)			(30,575	)
Treasury stock, at cost, 2,742,800 shares			(69,423	)			(69,423	)
			624,405				613,784
Total liabilities and shareholders’ equity		$	7,041,851				6,930,241

See accompanying notes to consolidated financial statements — unaudited

NORTHWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(in thousands, except per share amounts)

		Three months ended
		March 31,
		2009				2008
Interest income:
Loans		$	80,871				81,013
Mortgage-backed securities			7,405				7,170
Taxable investment securities			1,546				3,849
Tax-free investment securities			2,932				2,993
Interest-earning deposits			39				1,796
Total interest income			92,793				96,821
Interest expense:
Deposits			24,637				42,830
Borrowed funds			10,189				5,557
Total interest expense			34,826				48,387
Net interest income			57,967				48,434
Provision for loan losses			5,781				2,294
Net interest income after provision for loan losses			52,186				46,140
Noninterest income:
Service charges and fees			7,708				7,514
Trust and other financial services income			1,348				1,748
Insurance commission income			549				580
Loss on real estate owned, net			(3,879	)			(87	)
Gain on sale of investments, net			42				903
Other -than-temporary impairment of investments securities			—				(320	)
Income from bank owned life insurance			1,187				1,192
Mortgage banking income			1,724				442
Non-cash recovery/ (impairment) of servicing assets			90				(100	)
Other operating income			705				1,019
Total noninterest income			9,474				12,891
Noninterest expense:
Compensation and employee benefits			23,926				22,722
Premises and occupancy costs			5,978				5,725
Office operations			3,013				3,257
Processing expenses			5,308				4,204
Advertising			929				979
Federal deposit insurance premiums			1,890				824
Professional services			641				735
Amortization of other intangible assets			844				1,302
Loss on early extinguishment of debt			—				705
Other expenses			1,737				1,974
Total noninterest expense			44,266				42,427
Income before income taxes			17,394				16,604
Federal and state income taxes			5,092				3,982
Net income		$	12,302				12,622
Basic earnings per share		$	0.25				0.26
Diluted earnings per share		$	0.25				0.26

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

(dollars in thousands)

Three months ended March 31, 2008

																		Accumulated
																		Other								Total
		Common Stock								Paid-in				Retained				Comprehensive				Treasury				Shareholders’
		Shares				Amount				Capital				Earnings				Income/ (loss)				Stock				Equity
Beginning balance at December 31, 2007			48,580,309			$	5,119				214,606				458,425				816				(66,088	)			612,878
Effects of changing pension plan measurement date pursuant to FASB Statement No. 158			—				—				—				(499	)			572				—				73
December 31, 2007 balance, as adjusted			48,580,309				5,119				214,606				457,926				1,388				(66,088	)			612,951
Comprehensive income:
Net income			—				—				—				12,622				—				—				12,622
Change in unrealized gain on securities, net of tax of $1,022			—				—				—				—				1,599				—				1,599
Total comprehensive income			—				—				—				12,622				1,599				—				14,221
Exercise of stock options			6,129				1				90				—				—				—				91
Stock-based compensation expense			—				—				836				—				—				—				836
Purchase of treasury stock			(132,000	)			—				—				—				—				(3,335	)			(3,335	)
Dividends paid ($0.22 per share)			—				—				—				(3,939	)			—				—				(3,939	)
Ending balance at March 31, 2008			48,454,438			$	5,120				215,532				466,609				2,987				(69,423	)			620,825

Three months ended March 31, 2009

																		Accumulated
																		Other								Total
		Common Stock								Paid-in				Retained				Comprehensive				Treasury				Shareholders’
		Shares				Amount				Capital				Earnings				Income/ (loss)				Stock				Equity
Beginning balance at December 31, 2008			48,502,174			$	5,124				218,332				490,326				(30,575	)			(69,423	)			613,784
Comprehensive income:
Net income			—				—				—				12,302				—				—				12,302
Change in fair value of interest rate swaps, net of tax of $(613)			—				—				—				—				1,138				—				1,138
Change in unrealized loss on securities, net of tax of $(405)			—				—				—				—				633				—				633
Total comprehensive income			—				—				—				12,302				1,771				—				14,073
Exercise of stock options			6,344				1				57				—				—				—				58
Stock-based compensation expense			—				—				441				—				—				—				441
Dividends paid ($0.22 per share)			—				—				—				(3,951	)			—				—				(3,951	)
Ending balance at March 31, 2009			48,508,518			$	5,125				218,830				498,677				(28,804	)			(69,423	)			624,405

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

		Three months ended
		March 31,
		2009				2008
OPERATING ACTIVITIES:
Net Income		$	12,302				12,622
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			5,781				2,294
Net (gain)/ loss on sale of assets			(1,102	)			182
Net gain on Visa Inc. share redemption			—				(672	)
Net depreciation, amortization and accretion			4,718				3,641
Decrease in other assets			4,082				1,078
Increase in other liabilities			3,415				6,262
Net amortization of premium/ discount on marketable securities			(933	)			(1,734	)
Deferred income tax benefit			(75	)			(141	)
Noncash write-down of investment securities			—				320
Noncash write-down of REO			3,862				—
Origination of loans held for sale			(183,054	)			(74,614	)
Proceeds from sale of loans held for sale			159,697				70,353
Noncash compensation expense related to stock benefit plans			441				836
Net cash provided by operating activities			9,134				20,427
INVESTING ACTIVITIES:
Purchase of marketable securities available-for-sale			—				(303,910	)
Proceeds from maturities and principal reductions of marketable securities available-for-sale			66,854				165,023
Proceeds from sale of marketable securities available-for-sale			—				—
Loan originations			(332,029	)			(355,032	)
Proceeds from loan maturities and principal reductions			349,299				311,669
Net purchase of FHLB stock			—				(9,106	)
Proceeds from sale of real estate owned			1,447				956
Net sale of real estate owned for investment			38				39
Purchase of premises and equipment			(4,442	)			(3,196	)
Net cash provided by/ (used in) investing activities			81,167				(193,557	)

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

		Three months ended
		March 31,
		2009				2008
FINANCING ACTIVITIES:
Increase in deposits, net		$	172,803				13,334
Proceeds from long-term borrowings			—				235,000
Repayments of long-term borrowings			(69	)			(84,067	)
Net (decrease) /increase in short-term borrowings			(73,014	)			6,649
(Decrease) /increase in advances by borrowers for taxes and insurance			(330	)			3,175
Cash dividends paid			(3,951	)			(3,939	)
Purchase of treasury stock			—				(3,335	)
Proceeds from stock options exercised			58				91
Net cash provided by financing activities			95,497				166,908
Net increase/ (decrease) in cash and cash equivalents		$	185,798				(6,222	)
Cash and cash equivalents at beginning of period		$	79,922				230,616
Net increase/ (decrease) in cash and cash equivalents			185,798				(6,222	)
Cash and cash equivalents at end of period		$	265,720				224,394
Cash and cash equivalents:
Cash and due from banks		$	40,963				83,628
Interest-earning deposits in other financial institutions			223,714				126,198
Federal funds sold and other short-term investments			1,043				14,568
Total cash and cash equivalents		$	265,720				224,394
Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $20,769 and $37,527, respectively)			34,961				49,044
Income taxes			1,707				401
Non-cash activities:
Loans transferred to real estate owned			2,330				1,647
Sale of real estate owned financed by the Company			129				101
Loans transferred to held for investment from loans held for sale			—				—

See accompanying notes to unaudited consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — unaudited

(1) Basis of Presentation and Informational Disclosures

     The Northwest family of companies, headquartered in Warren, Pennsylvania, is organized in a two-tier holding company structure. Northwest Bancorp, MHC, a federal mutual holding company regulated by the Office of Thrift Supervision (“OTS”), owns approximately 63% of the outstanding shares of common stock of Northwest Bancorp, Inc. (the “Company”). The Company, a federally-chartered savings and loan holding company, is also regulated by the OTS. The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Savings Bank, a Pennsylvania-chartered savings bank (“Northwest”). Northwest is regulated by the FDIC and the Pennsylvania Department of Banking. At March 31, 2009, Northwest operated 168 community-banking offices throughout Pennsylvania, western New York, eastern Ohio, Maryland and southern Florida.

     The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiary, Northwest, and Northwest’s subsidiaries Northwest Settlement Agency, LLC, Northwest Consumer Discount Company, Northwest Financial Services, Inc., Northwest Capital Group, Inc., Boetger & Associates, Inc., Allegheny Services, Inc. and Great Northwest Corporation. The unaudited consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete annual financial statements. In the opinion of management, all adjustments necessary for the fair presentation of the Company’s financial position and results of operations have been included. The consolidated statements have been prepared using the accounting policies described in the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

     Certain items previously reported have been reclassified to conform to the current period’s format. The reclassifications had no material effect on the Company’s financial condition or results of operations. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

Stock-Based Compensation

     On February 18, 2009 the Company awarded employees 195,759 stock options and directors 24,000 stock options with an exercise price of $16.84 and a grant date fair value of $1.46 per stock option. Awarded stock options vest over a seven-year period beginning with the date of issuance. Stock-based compensation expense of $441,000 and $836,000 for the three months ended March 31, 2009 and 2008, respectively, was recognized in compensation expense relating to the Company’s RRP and stock option plans. At March 31, 2009 there was compensation expense of $1.7 million and $901,000 for the stock option plans and RRP stock award plan, respectively, remaining to be recognized.

Income Taxes

     FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“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 states that a tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information.

     No adjustments were recorded as a result of the implementation of FIN 48. As of March 31, 2009, the Company had no liability for unrecognized tax benefits.

     The Company recognizes interest accrued related to: (1) unrecognized tax benefits in Federal and state income taxes and (2) refund claims in Other operating income. The Company recognizes penalties (if any) in Federal and state income taxes. There is no amount accrued for the payment of interest or penalties at March 31, 2009. With few exceptions, the Company is no longer subject to examinations by the Internal Revenue Service, or the Department of Revenue and Taxation in the states in which it conducts business for the tax years ended prior to December 31, 2005. The Company is currently under a regularly scheduled examination by the Internal Revenue Service for the year ended December 31, 2007.

Recently Issued Accounting Standards

      Fair Value: In April 2009 the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”) , FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP 115-2 and 124-2”) and FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”) . FSP 157-4 clarifies that the measurement objective in determining fair value when the volume and level of activity for the asset or liability have significantly decreased, is the price that would be received to sell the asset in an orderly transaction between willing market participants under current market conditions and not the value in a hypothetical active market. FSP 157-4 includes additional factors for determining whether there has been a significant decrease in the volume and level of activity for an asset or liability compared to normal activity for that asset or liability (or similar assets or liabilities) and provides additional guidance in estimating fair value in those instances. An entity is required to base its conclusion about whether a transaction was not orderly on the weight of the evidence. FSP 157-4 requires an entity to disclose any change in valuation techniques, the related inputs and the effect resulting from the application of the FSP. FSP 115-2 and 124-2 replaces the existing requirement for debt securities, that in order for an entity to conclude impairment is not other-than-temporary, it must have the intent and ability to hold an impaired security for a period sufficient to allow for recovery in value of the investment. To conclude impairment is not other-than-temporary, FSP 115-2 and 124-2 requires management assert that it does not have the intent to sell the security and that it is more likely than not it will not have to sell the security before recovery of its cost basis. FSP 115-2 and 124-2 also changes the presentation in the financial statements of non-credit related impairment amounts for instruments within its scope. When an entity asserts it does not have the intent to sell the security and it is more likely than not it will not have to sell the security before recovery of its cost basis, only the credit related impairment losses are to be recorded in earnings, non-credit losses are to be recorded in accumulated other comprehensive income. FSP 115-2 and 124-2 also expands and increases the frequency of existing disclosures about other-than-temporary impairments for debt and equity securities. FSP 107-1 amends FASB Statement No. 107 to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies that were previously only required in annual financial statements.

     These FSPs are effective for interim and annual reporting periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company will adopt these FSPs for the interim period ending on June 30, 2009. The Company has not determined the effect of the adoption of these FSPs yet, but does not expect the adoption to have a material effect on the Company’s results of operations or financial position.

(2) Business Segments

     The Company operates in two reportable business segments: Community Banking and Consumer Finance. The Community Banking segment provides services traditionally offered by full-service community banks, including commercial and individual demand, savings and time deposit accounts and commercial,

mortgage and consumer loans, as well as brokerage and investment management and trust services. The Consumer Finance segment, which is comprised of Northwest Consumer Discount Company, a subsidiary of Northwest, operates 49 offices in Pennsylvania and offers personal installment loans for a variety of consumer and real estate products. This activity is funded primarily through an intercompany borrowing relationship with Allegheny Services, Inc., a subsidiary of Northwest. Net income is the primary measure used by management to measure segment performance. The following tables provide financial information for these reportable segments. The “All Other” column represents the parent company and elimination entries necessary to reconcile to the consolidated amounts presented in the financial statements.

As of or for the three months ended:

		Community				Consumer
March 31, 2009 ($ in 000’s)		Banking				Finance				All Other *				Consolidated
External interest income		$	87,784				5,000				9				92,793
Intersegment interest income			751				—				(751	)			—
Interest expense			33,300				806				720				34,826
Provision for loan losses			5,000				781				—				5,781
Noninterest income			8,957				493				24				9,474
Noninterest expense			41,117				3,010				139				44,266
Income tax expense (benefit)			5,273				372				(553	)			5,092
Net income			12,802				524				(1,024	)			12,302
Total assets		$	6,908,912				113,402				19,537				7,041,851

		Community				Consumer
March 31, 2008 ($ in 000’s)		Banking				Finance				All Other *				Consolidated
External interest income		$	91,611				5,208				2				96,821
Intersegment interest income			1,567				—				(1,567	)			—
Interest expense			46,716				1,623				48				48,387
Provision for loan losses			1,500				794				—				2,294
Noninterest income			12,275				566				50				12,891
Noninterest expense			39,527				2,749				151				42,427
Income tax expense (benefit)			4,384				199				(601	)			3,982
Net income			13,326				409				(1,113	)			12,622
Total assets		$	6,731,580				117,614				3,337				6,852,531

(3) Corporate securities with unrealized losses

     As of March 31, 2009, the Company had two investments with total book value of $2.0 million and total fair value of $869,000, where the book value exceeded the carrying value for more than 12 months. These investments were single issuer trust preferred investments, evaluated for other-than-temporary impairment by determining the strength of the underlying issuer. In each case, the underlying issuer was “well-capitalized” for regulatory purposes and was a participant in the government’s TARP program. Neither of the issuers have deferred interest payments or announced the intention to defer interest payments, nor have either been downgraded. The decline in fair value is related to the spread over three month LIBOR, on which the quarterly interest payments are based, as the spread over LIBOR is significantly lower than current market spreads. The Company concluded the impairment of these investments was considered temporary. In making that determination the Company also considered the duration and the severity of the losses.

     As of March 31, 2009, the Company had eight investments with total book value of $16.3 million and total fair value of $5.5 million where the book value exceeded the carrying value for less than 12 months. Two of these investments were single issuer trust preferred investments, evaluated for other-than-temporary impairment by determining the strength of the underlying issuer. In each case, the underlying issuer was “well-capitalized” for regulatory purposes and was a participant in the government’s TARP program. Neither of the issuers have deferred interest payments or announced the intention to defer interest payments. The Company concluded that the decline in fair value was related to the spread over three month LIBOR, on which the quarterly interest payments are based. The spread over LIBOR is significantly lower than current market spreads. The other six investments were pooled trust preferred investments. These securities were evaluated for other-than-temporary impairment considering actual cash flows, projected cash flows, performing collateral and the amount of additional defaults the duration and severity of the losses, structure could withstand prior to the security experiencing a disruption in cash flows and the class of securities owned by the Company. None of these securities are projecting a cash flow disruption, nor have any of the securities experienced a cash flow disruption. Two of the securities, MM Community Funding I And PreTSL XX, were downgraded by a rating agency. These downgrades were considered as part of the Company’s analysis. The Company concluded, based on all factors evaluated, the impairment of these investments was considered temporary.

     The following tables provides class, back value, fair value and ratings information for the Company’s portfolio of corporate securities that have an unrealized loss as of March 31, 2009 (in thousands):

As of March 31, 2009

				Total
				Book		Fair		Unrealized		Moody’s/ Fitch
Description		Class		Value		Value		Losses		Ratings
North Fork Capital (1)		N/A		1,009		432		(577)		Baa1/ BBB+
Bank Boston Capital Trust (2)		N/A		988		437		(551)		A2/ BB
Reliance Capital Trust		N/A		1,000		892		(108)		Not rated
Huntington Capital Trust		N/A		825		510		(315)		Baa3/ BBB
MM Community Funding I		Mezzanine		267		69		(198)		Caa2/ CCC
MM Community Funding II		Mezzanine		42		40		(2)		Baa2/ BBB
I-PreTSL I		Mezzanine		1,106		127		(979)		Not rated/ A-
I-PreTSL II		Mezzanine		1,008		127		(881)		Not rated/ A-
PreTSL XIX		Senior A-1		7,457		2,278		(5,179)		A3/ AAA
PreTSL XX		Senior A-1		4,612		1,495		(3,117)		Baa1/ AAA
				18,314		6,407		(11,907)

The following table provides collateral information on pooled trust preferred securities included in the previous table as of March 31, 2009 (in thousands):

As of March 31, 2009

														Additional
														Immediate
														defaults before
						Current								causing an
		Total				deferrals				Performing				interest
Description		Collateral				and defaults				Collateral				shortfall
I-PreTSL I			211,000				35,000				176,000				93,000
I-PreTSL II			402,000				20,000				382,000				140,500
PreTSL XIX			700,535				68,000				632,535				278,000
PreTSL XX			604,154				71,000				533,154				220,000

(4) Goodwill and Other Intangible Assets

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

		March 31,				December 31,
		2009				2008
Amortizable intangible assets:
Core deposit intangibles — gross		$	30,275				30,275
Less: accumulated amortization			(23,995	)			(23,172	)
Core deposit intangibles — net			6,280				7,103
Customer and Contract intangible assets — gross			1,731				1,731
Less: accumulated amortization			(1,460	)			(1,439	)
Customer and Contract intangible assets — net		$	271				292

     The following table shows the actual aggregate amortization expense for the current quarter and prior year’s quarter well as the estimated aggregate amortization expense, based upon current levels of intangible assets, for the current fiscal year and each of the five succeeding fiscal years (in thousands):

For the three months ended March 31, 2009		$	844
For the three months ended March 31, 2008			1,302
For the year ending December 31, 2009			2,847
For the year ending December 31, 2010			1,896
For the year ending December 31, 2011			1,445
For the year ending December 31, 2012			693
For the year ending December 31, 2013			355
For the year ending December 31, 2014			104

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

		Community				Consumer
		Banks				Finance				Total
Balance at December 31, 2007		$	170,301				1,313				171,614
Adjustment to purchase price allocation			(251	)			—				(251	)
Goodwill acquired			—				—				—
Impairment losses			—				—				—
Balance at December 31, 2008			170,050				1,313				171,363
Goodwill acquired			—				—				—
Impairment losses			—				—				—
Balance at March 31, 2009		$	170,050				1,313				171,363

(5) Borrowed Funds

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

		March 31, 2009								December 31, 2008
						Average								Average
		Amount				rate				Amount				rate
Term notes payable to the FHLB of Pittsburgh:
Due within one year		$	36,636				4.31	%			43,708				3.87	%
Due between one and two years			95,000				4.65	%			36,532				4.36	%
Due between two and three years			135,000				4.11	%			160,000				4.11	%
Due between three and four years			160,000				3.90	%			145,000				3.90	%
Due between four and five years			125,100				3.85	%			125,000				3.85	%
Due between five and ten years			265,662				4.11	%			315,778				4.11	%
			817,398								826,018
Less than 90 day Federal Reserves borrowings			87,000				0.25	%			—				—
Revolving line of credit, FHLB of Pittsburgh			—				—				146,000				0.59	%
Investor notes payable, due various dates through 2009			4,482				4.99	%			4,491				4.99	%
Securities sold under agreement to repurchase, due within one year			85,922				1.46	%			91,436				1.02	%
Total borrowed funds		$	994,802								1,067,945

     Borrowings from the FHLB of Pittsburgh are secured by the Company’s investment securities, mortgage-backed securities and qualifying 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 FHLB of Pittsburgh carries a commitment of $150.0 million maturing on December 7, 2011. The rate is adjusted daily and any borrowings on this line may be repaid at any time without penalty.

(6) Guarantees

     The Company issues standby letters of credit in the normal course of business. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. The Company is required to perform under a standby letter of credit when drawn upon by the guaranteed third party in the case of nonperformance by the Company’s customer. The credit risk associated with standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal loan policies and procedures. Collateral may be obtained based on management’s credit assessment of the customer. At March 31, 2009, the maximum potential amount of future payments the Company could be required to make under these standby letters of credit was $16.3 million, of which $13.7 million is fully collateralized. At March 31, 2009, the Company had a liability (deferred income) of $174,000 related to the standby letters of credit. There are no recourse provisions that would enable the Company to recover any amounts from third parties.

(7) Earnings Per Share

Basic earnings per common share (EPS) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, without considering any dilutive items. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Stock options to purchase 1,189,999 shares of common stock with a weighted average exercise price of $23.91 per share were outstanding during the three months ended March 31, 2009 but were not included in the computation of diluted earnings per share for this period because the options’ exercise price was greater than the average market price of the common shares. There were no anti-dilutive stock options for the three months ended March 31, 2008. The computation of basic and diluted earnings per share follows (in thousands, except per share amounts):

		Three months ended
		March 31,
		2009				2008
Reported net income		$	12,302				12,622
Weighted average common shares outstanding			48,412				48,330
Dilutive potential shares due to effect of stock options			113				276
Total weighted average common shares and dilutive potential shares			48,525				48,606
Basic earnings per share:		$	0.25				0.26
Diluted earnings per share:		$	0.25				0.26

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

Components of Net Periodic Benefit Cost

		Three months ended March 31,
		Pension Benefits								Other Post-retirement Benefits
		2009				2008				2009				2008
Service cost		$	1,323				1,255				—				—
Interest cost			1,183				1,140				22				24
Expected return on plan assets			(967	)			(1,247	)			—				—
Amortization of prior service cost			(39	)			13				—				—
Amortization of the net loss			458				31				14				11
Net periodic benefit cost		$	1,958				1,192				36				35

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

(9) Fair Value Measurements

     Financial assets and liabilities recognized or disclosed at fair value on a recurring basis and certain financial assets and liabilities on a non-recurring basis are accounted for in accordance with SFAS 157. 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 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 March 31, 2009 (in thousands):

														Total
														assets at
		Level 1				Level 2				Level 3				fair value
Equity securities — available for sale		$	844				—				220				1,064
Debt securities — available for sale			—				1,069,138				4,168				1,073,306
Derivative fair value of interest rate swap			—				(11,363	)			—				(11,363	)
Total assets		$	844				1,057,775				4,388				1,063,007

      Debt securities — available for sale — Generally, debt securities are valued using pricing for similar securities, recently executed transactions and other pricing models utilizing observable inputs. The valuation for most debt securities is classified as Level 2. Securities within Level 2 include corporate bonds, municipal bonds, mortgage-backed securities and US government obligations. Certain debt securities do not have an active market and as such the broker pricing received by the Company uses alternative methods, including use of cash flow estimates. Accordingly, these securities are included herein as level 3 assets. The fair value of other debt securities are determined by the Company using a discounted cash flow model using market assumptions, which generally include cash flow, collateral and other market assumptions. As such, these securities are included herein as level 3 assets.

      Equity securities — available for sale — Level 1 securities include publicly traded securities valued using quoted market prices. Level 3 securities include investments in two financial institutions that provide financial services only to investor banks received as part of previous acquisitions without observable market data to determine the investments fair values. These securities can only be sold back to the issuing financial institution at cost.

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

     The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter ended March 31, 2009 (in thousands):

		Equity				Debt
		securities				securities
Balance at December 31, 2008		$	220				5,937
Total net realized investment gains/ (losses) and net change in unrealized appreciation/ (depreciation):
Included in net income			—				—
Included in other comprehensive income			—				(1,769	)
Purchases and sales			—				—
Net transfers in (out) of Level 3			—				—
Balance at March 31, 2009		$	220				4,168

     Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans held for sale, loans measured for impairment and mortgage servicing rights. The following table represents the fair value measurement for nonrecurring assets as of March 31, 2009 (in thousands):

														Total
														assets at
		Level 1				Level 2				Level 3				fair value
Loans measured for impairment		$	—				—				50,378				50,378
Real estate owned		$	—				—				13,848				13,848
Mortgage servicing rights			—				—				4,666				4,666
Total assets		$	—				—				68,892				68,892

      Impaired loans — A loan is considered to be impaired when it is probable that all of the principal and interest due under the original terms of the loan may not be collected. Impairment is measured based on the fair value of the underlying collateral or discounted cash flows when collateral does not exist. The Company measures impairment on all nonaccrual commercial and commercial real estate loans for which it has established specific reserves as part of the specific allocated allowance component of the allowance for loan losses. The Company classifies impaired loans as nonrecurring Level 3.

      Real Estate Owned — Real estate owned is comprised of property acquired through foreclosure or voluntarily conveyed by delinquent borrowers. These assets are recorded on the date acquired at the lower of the related loan balance or fair value, less cost disposition costs, with the fair value being

determined by appraisal. Subsequently, foreclosed assets are valued at the lower of the amount recorded at acquisition date or fair value. The Company classifies Real estate owned as nonrecurring Level 3.

      Mortgage servicing rights — Mortgage servicing rights represent the value of servicing residential mortgage loans, when the mortgage loans have been sold into the secondary market and the associated servicing has been retained by the Company. The value is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management judgment. Servicing rights and the related mortgage loans are segregated into categories or homogeneous pools based upon common characteristics. Adjustments are only made when the estimated discounted future cash flows are less than the carrying value, as determined by individual pool. As such, mortgage servicing rights are classified as nonrecurring Level 3.

(10)

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

     The Company has three statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust, Northwest Bancorp Statutory Trust IV, a Connecticut statutory business trust and Penn Laurel Financial Corp. Trust I, a Delaware statutory business trust (“Trusts”). These trusts exist solely to issue preferred securities to third parties for cash, issue common securities to the Company in exchange for capitalization of the Trusts, invest the proceeds from the sale of the trust securities in an equivalent amount of debentures of the Company, and engage in other activities that are incidental to those previously listed.

     Northwest Bancorp Capital Trust III (Trust III) issued 50,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on December 5, 2006 (liquidation value of $1,000 per preferred security or $50,000,000) with a stated maturity of December 30, 2035. These securities carry a floating interest rate, which is reset quarterly, equal to three-month LIBOR plus 1.38%.

     Northwest Bancorp Statutory Trust IV (Trust IV) issued 50,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on December 15, 2006 (liquidation value of $1,000 per preferred security or $50,000,000) with a stated maturity of December 15, 2035. These securities carry a floating interest rate, which is reset quarterly, equal to three-month LIBOR plus 1.38%.

     Penn Laurel Financial Corp. Trust I issued 5,000 cumulative trust preferred securities in a private transaction to a pooled investment vehicle on January 23, 2004 (liquidation value of $1,000 per preferred security or $5,000,000) with a stated maturity of January 23, 2034. These securities carry a floating interest rate, which is reset quarterly, equal to three-month LIBOR plus 2.80%. This trust was assumed by the Company with the acquisition of Penn Laurel Financial Corporation in June 2007. The Company intends to call this issuance effective July 23, 2009.

     The Trusts have invested the proceeds of the offerings in junior subordinated deferrable interest debentures issued by the Company. The structure of these debentures mirrors the structure of the trust-preferred securities. Trust III holds $51,547,000 of the Company’s junior subordinated debentures, Trust IV holds $51,547,000 of the Company’s junior subordinated debentures and Penn Laurel Financial Corp. Trust I holds $5,155,000 of the Company’s junior subordinated debentures. These subordinated debentures are the sole assets of the Trusts.

     Cash distributions on the trust securities are made on a quarterly basis to the extent interest on the debentures is received by the Trusts. The Company has the right to defer payment of interest on the subordinated debentures at any time, or from time-to-time, for periods not exceeding five years. If interest payments on the subordinated debentures are deferred, the distributions on the trust preferred are also

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

     The Company entered into four interest rate swap agreements (swaps), designating the swaps as cash flow hedges. The swaps are intended to protect against the variability of cash flows associated with Trust III and Trust IV. The first two swaps modify the repricing characteristics of Trust III, wherein 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 modify the repricing characteristics 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 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 March 31, 2009, $11.4 million was pledged as collateral to the counterparty.

     At March 31, 2009, the fair value of the swap agreements was $(11.4) million and was the amount the Company would have expected to pay if the contracts were terminated. There was no material hedge ineffectiveness for these swaps.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements:

     In addition to historical information, this document may contain certain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, as they reflect management’s analysis only as of the date of this report. The Company has no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report.

     Important factors that might cause such a difference include, but are not limited to:

	•		Changes in interest rates which could impact our net interest margin;
	•		Adverse changes in our loan portfolio or investment securities portfolio and the resulting credit risk-related losses and/ or market value adjustments;
	•		The 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 30 ^th 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	%