Northwest Bancshares 10Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2010

¨	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 001-34582

Northwest Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Maryland		27-0950358
(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

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 x No ¨

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 ¨ No ¨

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ¨ Accelerated Filer x Non-Accelerated Filer ¨ Smaller reporting company ¨

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

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

Common Stock ($0.01 par value) 110,807,745 shares outstanding as of October 20, 2010

NORTHWEST BANCSHARES, INC.

INDEX

		PAGE
PART I FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Consolidated Statements of Financial Condition as of September 30, 2010 and December 31, 2009	1

	Consolidated Statements of Income for the three months ended and nine months ended September 30, 2010 and 2009	2

	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended September 30, 2010 and 2009	3

	Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2010 and 2009	4

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009	5

	Notes to Consolidated Financial Statements - Unaudited	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49

Item 4.	Controls and Procedures	50

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Removed and Reserved	51

Item 5.	Other Information	51

Item 6.	Exhibits	51

	Signature	52

	Certifications

ITEM 1. FINANCIAL STATEMENTS

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share data)

	(Unaudited)
	September 30,			December 31,
	2010			2009
Assets
Cash and due from banks	$	113,477			69,265
Interest-earning deposits in other financial institutions		561,634			1,037,893
Federal funds sold and other short-term investments		632			632
Marketable securities available-for-sale (amortized cost of $862,747 and $1,059,177)		884,158			1,067,089
Marketable securities held-to-maturity (fair value of $409,784 and $0)		399,324			-
Total cash and investments		1,959,225			2,174,879

Loans held for sale		18,020			1,164
Mortgage loans - one- to four- family		2,451,848			2,334,538
Home equity loans		1,102,252			1,067,584
Consumer loans		263,717			286,292
Commercial real estate loans		1,356,051			1,238,217
Commercial business loans		400,574			371,670
Total loans		5,592,462			5,299,465
Allowance for loan losses		(77,245	)		(70,403	)
Total loans, net		5,515,217			5,229,062

Federal Home Loan Bank stock, at cost		63,242			63,242
Accrued interest receivable		27,590			25,780
Real estate owned, net		22,998			20,257
Premises and equipment, net		126,999			124,316
Bank owned life insurance		131,009			128,270
Goodwill		171,682			171,363
Other intangible assets		4,419			4,678
Other assets		120,404			83,451
Total assets	$	8,142,785			8,025,298

Liabilities and Shareholders' equity
Liabilities:
Noninterest-bearing demand deposits	$	555,491			487,036
Interest-bearing demand deposits		783,749			768,110
Savings deposits		1,977,249			1,744,537
Time deposits		2,452,451			2,624,741
Total deposits		5,768,940			5,624,424

Borrowed funds		876,068			897,326
Junior subordinated deferrable interest debentures held by trusts that issued
guaranteed capital debt securities		103,094			103,094
Advances by borrowers for taxes and insurance		12,698			22,034
Accrued interest payable		1,725			4,493
Other liabilities		65,038			57,412
Total liabilities		6,827,563			6,708,783

Shareholders' equity:
Preferred stock, $0.01 par value: 50,000,000 authorized, no shares issued		-			-
Common stock, $0.01 par value: 500,000,000 shares authorized, 110,806,418 and
110,641,858 shares issued, respectively		1,108			1,106
Paid-in capital		829,929			828,195
Retained earnings		520,419			508,842
Unallocated common stock of employee stock ownership plan		(28,851	)		(11,651	)
Accumulated other comprehensive loss		(7,383	)		(9,977	)
		1,315,222			1,316,515
Total liabilities and shareholders' equity	$	8,142,785			8,025,298

See accompanying notes to consolidated financial statements - unaudited

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share amounts)

	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
Interest income:
Loans receivable	$	83,372			79,637			245,852			240,400
Mortgage-backed securities		6,534			6,580			19,385			20,858
Taxable investment securities		489			1,242			2,086			4,138
Tax-free investment securities		3,090			2,716			8,627			8,376
Interest-earning deposits		524			253			1,601			415
Total interest income		94,009			90,428			277,551			274,187

Interest expense:
Deposits		17,772			23,472			58,149			72,555
Borrowed funds		9,587			10,114			28,991			30,418
Total interest expense		27,359			33,586			87,140			102,973

Net interest income		66,650			56,842			190,411			171,214
Provision for loan losses		9,871			9,830			26,568			27,347
Net interest income after provision for loan losses		56,779			47,012			163,843			143,867

Noninterest income:
Impairment losses on securities		(1,830	)		(3,727	)		(1,994	)		(12,417	)
Noncredit related losses on securities not expected to be sold (recognized in other comprehensive income)		1,438			2,836			1,287			7,236
Net impairment losses		(392	)		(891	)		(707	)		(5,181	)
Gain on sale of investments, net		17			97			2,194			377
Service charges and fees		9,821			8,883			28,625			24,867
Trust and other financial services income		1,600			1,496			5,345			4,349
Insurance commission income		1,393			731			3,828			2,039
Loss on real estate owned, net		(2,014	)		(62	)		(2,293	)		(3,934	)
Income from bank owned life insurance		1,212			1,208			3,852			3,596
Mortgage banking income		752			1,328			773			6,442
Other operating income		1,439			1,195			3,613			2,886
Total noninterest income		13,828			13,985			45,230			35,441

Noninterest expense:
Compensation and employee benefits		24,565			23,292			75,381			69,957
Premises and occupancy costs		5,648			5,319			16,990			16,521
Office operations		4,460			3,270			10,631			9,575
Processing expenses		5,863			5,221			17,111			15,483
Marketing expenses		2,208			2,102			6,945			5,046
Federal deposit insurance premiums		2,424			2,381			6,720			6,161
FDIC special assessment		-			-			-			3,288
Professional services		1,126			668			2,437			1,899
Amortization of other intangible assets		725			701			2,266			2,371
Real estate owned expense		654			838			2,265			1,770
Other expenses		1,375			1,195			5,063			4,186
Total noninterest expense		49,048			44,987			145,809			136,257

Income before income taxes		21,559			16,010			63,264			43,051

Federal and state income taxes		6,068			3,956			18,479			11,404

Net income	$	15,491			12,054			44,785			31,647

Basic earnings per share	$	0.14			0.11			0.41			0.29

Diluted earnings per share	$	0.14			0.11			0.41			0.29

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

(dollars in thousands)

										Accumulated
Three months ended September 30, 2009										Other						Total
	Common Stock				Paid-in		Retained			Comprehensive			Treasury			Shareholders'
	Shares		Amount		Capital		Earnings			Income/ (loss)			Stock			Equity
Beginning balance at June 30, 2009		109,067,161	$	5,126		219,335		503,692			(26,195	)		(69,423	)		632,535

Comprehensive income:
Net income		-		-		-		12,054			-			-			12,054
Change in fair value of interest rate swaps, net of tax of $755		-		-		-		-			(1,401	)		-			(1,401	)
Change in unrealized loss on securities, net of tax of $(8,094)		-		-		-		-			15,032			-			15,032
Other-than-temporary impairment on securities recorded in other comprehensive income, net of tax of $993		-		-		-		-			(1,843	)		-			(1,843	)
Total comprehensive income		-		-		-		12,054			11,788			-			23,842

Exercise of stock options		110,804		1		47		-			-			-			48

Stock compensation expense		-		-		449		-			-			-			449

Dividends paid ($0.10 per share)		-		-		-		(3,954	)		-			-			(3,954	)

Ending balance at September 30, 2009		109,177,965	$	5,127		219,831		511,792			(14,407	)		(69,423	)		652,920

										Accumulated
Three months ended September 30, 2010										Other			Unallocated			Total
	Common Stock				Paid-in		Retained			Comprehensive			common stock			Shareholders'
	Shares		Amount		Capital		Earnings			Income/ (loss)			of ESOP			Equity
Beginning balance at June 30, 2010		110,775,014	$	1,108		829,686		516,005			(7,225	)		(28,851	)		1,310,723

Comprehensive income:
Net income		-		-		-		15,491			-			-			15,491
Change in fair value of interest rate swaps, net of tax of $993		-		-		-		-			(1,845	)		-			(1,845	)
Change in unrealized loss on securities, net of tax of $(1,412)		-		-		-		-			2,622			-			2,622
Other-than-temporary impairment on securities recorded in other comprehensive income, net of tax of $503		-		-		-		-			(935	)		-			(935	)
Total comprehensive income		-		-		-		15,491			(158	)		-			15,333

Exercise of stock options		31,404		-		228		-			-			-			228

Stock compensation expense		-		-		15		-			-			-			15

Dividends paid ($0.10 per share)		-		-		-		(11,077	)		-			-			(11,077	)

Ending balance at September 30, 2010		110,806,418	$	1,108		829,929		520,419			(7,383	)		(28,851	)		1,315,222

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

(dollars in thousands)

										Accumulated
Nine months ended September 30, 2009										Other						Total
	Common Stock				Paid-in		Retained			Comprehensive			Treasury			Shareholders'
	Shares		Amount		Capital		Earnings			Income/ (loss)			Stock			Equity
Beginning balance at December 31, 2008		109,052,887	$	5,124		218,332		490,326			(30,575	)		(69,423	)		613,784

Cumulative effect of change in accounting principle - adoption of FSP SFAS 115-2 and SFAS 124-2, net of tax of $903		-		-		-		1,676			(1,676	)		-			-

Comprehensive income:
Net income		-		-		-		31,647			-			-			31,647
Change in fair value of interest rate swaps, net of tax of $(1,962)		-		-		-		-			3,644			-			3,644
Change in unrealized loss on securities, net of tax of $(10,179)		-		-		-		-			18,903			-			18,903
Other-than-temporary impairment on securities recorded in other comprehensive income, net of tax of $2,533		-		-		-		-			(4,703	)		-			(4,703	)
Total comprehensive income		-		-		-		31,647			17,844			-			49,491

Exercise of stock options		33,104		3		161		-			-			-			164

Stock-based compensation expense		-		-		1,338		-			-			-			1,338

Dividends paid ($0.30 per share)		-		-		-		(11,857	)		-			-			(11,857	)

Ending balance at September 30, 2009		109,085,991	$	5,127		219,831		511,792			(14,407	)		(69,423	)		652,920

											Accumulated
Nine months ended September 30, 2010											Other			Unallocated			Total
	Common Stock				Paid-in			Retained			Comprehensive			common stock			Shareholders'
	Shares		Amount		Capital			Earnings			Income/ (loss)			of ESOP			Equity
Beginning balance at December 31, 2009		110,641,858	$	1,106		828,195			508,842			(9,977	)		(11,651	)		1,316,515

Comprehensive income:
Net income		-		-		-			44,785			-			-			44,785
Change in fair value of interest rate swaps, net of tax of $3,049		-		-		-			-			(5,663	)		-			(5,663	)
Change in unrealized loss on securities, net of tax of $(4,897)		-		-		-			-			9,094			-			9,094
Other-than-temporary impairment on securities recorded in other comprehensive income, net of tax of $450		-		-		-			-			(837	)		-			(837	)
Total comprehensive income		-		-		-			44,785			2,594			-			47,379

Exercise of stock options		164,560		2		1,394			-			-			-			1,396

Stock-based compensation expense		-		-		1,043			-			-			-			1,043

Additional costs associated with common stock offering		-		-		(703	)		-			-			-			(703	)

Purchase of common stock by ESOP		-		-		-			-			-			(17,200	)		(17,200	)

Dividends paid ($0.30 per share)		-		-		-			(33,208	)		-			-			(33,208	)

Ending balance at September 30, 2010		110,806,418	$	1,108		829,929			520,419			(7,383	)		(28,851	)		1,315,222

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

	Nine months ended
	September 30,
	2010			2009
OPERATING ACTIVITIES:
Net Income	$	44,785			31,647
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		26,568			27,347
Net loss/ (gain) on sale of assets		1,020			(6,427	)
Net depreciation, amortization and accretion		10,783			13,029
Increase in other assets		(48,607	)		(5,560	)
(Decrease)/ increase in other liabilities		(3,855	)		8,161
Net amortization of premium/ (discount) on marketable securities		(714	)		(2,922	)
Deferred income tax expense		2,232			399
Noncash impairment losses on investment securities		707			5,181
Noncash impairment of REO		1,338			3,862
Origination of loans held for sale		(104,757	)		(507,373	)
Proceeds from sale of loans held for sale		95,523			512,927
Noncash compensation expense related to stock benefit plans		1,043			1,338
Net cash provided by operating activities		26,066			81,609

INVESTING ACTIVITIES:
Purchase of marketable securities held-to-maturity		(485,995	)		-
Purchase of marketable securities available-for-sale		(123,863	)		(213,789	)
Proceeds from maturities and principal reductions of marketable securities available-for-sale		266,335			225,342
Proceeds from maturities and principal reductions of marketable securities held-to-maturity		85,966			-
Proceeds from sale of marketable securities available-for-sale		56,865			22,346
Loan originations		(1,485,739	)		(1,294,614	)
Proceeds from loan maturities and principal reductions		1,170,274			1,243,032
Proceeds from sale of real estate owned		6,913			4,740
Purchase of real estate owned for investment, net		(2,068	)		(247	)
Purchase of premises and equipment		(11,689	)		(16,760	)
Net cash used in investing activities		(523,001	)		(29,950	)

NORTHWEST BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)

(in thousands)

	Nine months ended
	September 30,
	2010			2009
FINANCING ACTIVITIES:
Increase in deposits, net	$	144,516			349,621
Repayments of long-term borrowings		(36,548	)		(29,582	)
Net increase/ (decrease) in short-term borrowings		15,296			(141,556	)
Decrease in advances by borrowers for taxes and insurance		(9,336	)		(13,050	)
Repayment of debentures		-			(5,155	)
Cash dividends paid		(33,208	)		(11,857	)
Purchase of common stock for employee stock ownership plan		(17,200	)		-
Proceeds from stock options exercised		1,368			164
Net cash provided by financing activities		64,888			148,585

Net (decrease)/ increase in cash and cash equivalents	$	(432,047	)		200,244

Cash and cash equivalents at beginning of period	$	1,107,790			79,922
Net (decrease)/ increase in cash and cash equivalents		(432,047	)		200,244
Cash and cash equivalents at end of period	$	675,743			280,166

Cash and cash equivalents:
Cash and due from banks	$	113,477			60,308
Interest-earning deposits in other financial institutions		561,634			219,227
Federal funds sold and other short-term investments		632			631
Total cash and cash equivalents	$	675,743			280,166

Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $50,787 and $61,279, respectively)	$	89,908			103,540
Income taxes	$	15,501			17,304

Non-cash activities:
Loans transferred to real estate owned	$	11,947			11,668
Sale of real estate owned financed by the Company	$	914			639

See accompanying notes to unaudited consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited

(1)	Basis of Presentation and Informational Disclosures

Northwest Bancshares, Inc. (the “Company”)(“NWBI”), a Maryland corporation headquartered in Warren, Pennsylvania, is a savings and loan holding company regulated by the Office of Thrift Supervision (“OTS”). The Company was incorporated to be the successor to Northwest Bancorp, Inc. (“NWSB”) upon the completion of the mutual-to-stock conversion of Northwest Bancorp, MHC. As a result of the conversion, all share information for periods prior to December 31, 2009, has been revised to reflect the 2.25-to-one conversion rate. 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 September 30, 2010, Northwest operated 171 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., Great Northwest Corporation and Veracity Benefits Design, Inc. 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, 2009 updated, as required, for any new pronouncements or changes.

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 and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

Stock-Based Compensation

On January 20, 2010, the Company awarded employees 484,576 stock options and directors 54,000 stock options with an exercise price of $11.49 and a grant date fair value of $1.95 per stock option. Awarded stock options vest over a seven-year period beginning with the date of issuance. Stock-based compensation expense of $15,000 and $449,000 for the three months ended September 30, 2010 and 2009, respectively, and $1.0 million and $1.3 million for the nine months ended September 30, 2010 and 2009, respectively, was recognized in compensation expense relating to the Company’s stock benefit plans. Included in compensation were grants under our retention and recognition plan, which vested and were expensed over a five-year period ended March 16, 2010. At September 30, 2010 there was compensation expense of $1.5 million to be recognized for awarded but unvested stock options.

Income Taxes- Uncertain Tax Positions

Accounting standards prescribe 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. 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% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of September 30, 2010 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 September 30, 2010. 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, 2006.

Federal Home Loan Bank of Pittsburgh debt refinancing

We restructured our borrowings with the Federal Home Loan bank of Pittsburgh during September 2010. The transaction was accounted for in accordance with ASC 470-50 Modifications and Extinguishments of Debt. Prepayment penalties of $52.2 million were capitalized in accordance with the ASC and are being amortized over the life of the restructured debt. The prepayment penalties are included in other assets of the statement of financial condition.

Recently Issued Accounting Standards to be Adopted in Future Periods

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements. This guidance improves disclosures about fair value of financial instruments and requires additional disclosures regarding fair value measurements. Specifically, the guidance requires entities to disclose the amounts and reasons for significant transfers between Level 1 and Level 2 of the fair value hierarchy, to disclose reasons for any transfers in or out of Level 3 and to separately disclose information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements. In addition, the guidance also clarifies certain existing fair value measurement disclosure requirements. Except for the requirement to disclose information about purchases, sales, issuances and settlements in the reconciliation of recurring Level 3 measurements separately, the amendments are effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of these provisions did not have a material impact on the Company’s consolidated financial statements. The requirement to separately disclose purchases, sales, issuances and settlements of recurring Level 3 measurements is effective for interim and annual reporting periods beginning after December 15, 2010. We do not expect the adoption of the remaining provisions will have a material impact on our consolidated financial statements.

In July 2010, FASB issued Accounting Standards Update No. 2010-20, “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The objective of this guidance is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables by providing additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. We do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.

(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 insurance, brokerage and investment management and trust services. The Consumer Finance segment, which is comprised of Northwest Consumer Discount Company, a subsidiary of Northwest, operates 52 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
September 30, 2010 ($ in 000's)	Banking		Finance		All Other *			Consolidated
External interest income	$	88,788		5,214		7			94,009
Intersegment interest income		805		-		(805	)		-
Interest expense		26,341		805		213			27,359
Provision for loan losses		8,750		1,121		-			9,871
Noninterest income		13,197		617		14			13,828
Noninterest expense		45,988		3,017		43			49,048
Income tax expense (benefit)		6,065		368		(365	)		6,068
Net income		15,646		520		(675	)		15,491
Total assets	$	7,999,251		115,153		28,381			8,142,785

	Community		Consumer
September 30, 2009 ($ in 000's)	Banking		Finance		All Other *			Consolidated
External interest income	$	85,227		5,197		4			90,428
Intersegment interest income		822		-		(822	)		-
Interest expense		32,163		823		600			33,586
Provision for loan losses		9,000		830		-			9,830
Noninterest income		13,421		549		15			13,985
Noninterest expense		41,964		2,904		119			44,987
Income tax expense (benefit)		3,995		494		(533	)		3,956
Net income		12,348		695		(989	)		12,054
Total assets	$	6,999,884		116,152		16,005			7,132,041

* Eliminations consist of intercompany loans, interest income and interest expense.

As of or for the nine months ended:

	Community		Consumer
September 30, 2010 ($ in 000's)	Banking		Finance		All Other *			Consolidated
External interest income	$	261,936		15,600		15			277,551
Intersegment interest income		2,419		-		(2,419	)		-
Interest expense		84,608		2,419		113			87,140
Provision for loan losses		23,750		2,818		-			26,568
Noninterest income		43,632		1,558		40			45,230
Noninterest expense		136,458		9,087		264			145,809
Income tax expense (benefit)		18,262		1,177		(960	)		18,479
Net income		44,909		1,657		(1,781	)		44,785
Total assets	$	7,999,251		115,153		28,381			8,142,785

	Community		Consumer
September 30, 2009 ($ in 000's)	Banking		Finance		All Other *			Consolidated
External interest income	$	258,895		15,277		15			274,187
Intersegment interest income		2,373		-		(2,373	)		-
Interest expense		98,558		2,449		1,966			102,973
Provision for loan losses		25,000		2,347		-			27,347
Noninterest income		33,732		1,646		63			35,441
Noninterest expense		127,116		8,775		366			136,257
Income tax expense (benefit)		11,633		1,392		(1,621	)		11,404
Net income		32,693		1,960		(3,006	)		31,647
Total assets	$	6,999,884		116,152		16,005			7,132,041

* Eliminations consist of intercompany loans, interest income and interest expense.

(3)	Investment securities and impairment of investment securities

The following table shows the Company’s portfolio of investment securities available-for-sale at September 30, 2010 (in thousands):

			Gross		Gross
			unrealized		unrealized
	Amortized		holding		holding			Fair
	cost		gains		losses			value
Debt issued by the U.S. government and agencies:
Due in one year or less	$	10,014		-		(1	)		10,013

Debt issued by government sponsored enterprises:
Due in one year - five years		1,986		117		-			2,103
Due in five years - ten years		7,074		737		-			7,811

Equity securities		954		95		(93	)		956

Municipal securities:
Due in one year - five years		3,099		176		-			3,275
Due in five years - ten years		35,944		1,596		-			37,540
Due after ten years		171,960		4,391		(497	)		175,854

Corporate debt issues:
Due in one year or less		100		-		-			100
Due in one year - five years		500		-		-			500
Due after ten years		25,530		288		(7,021	)		18,797

Residential mortgage-backed securities:
Fixed rate pass-through		114,015		8,282		(5	)		122,292
Variable rate pass-through		181,804		8,120		(24	)		189,900
Fixed rate non-agency CMOs		15,476		93		(1,187	)		14,382
Fixed rate agency CMOs		28,622		1,243		-			29,865
Variable rate non-agency CMOs		6,083		150		(180	)		6,053
Variable rate agency CMOs		259,586		5,241		(110	)		264,717
Total residential mortgage-backed securities		605,586		23,129		(1,506	)		627,209

Total marketable securities available-for-sale	$	862,747		30,529		(9,118	)		884,158

The following table shows the Company’s portfolio of investment securities available-for-sale at December 31, 2009 (in thousands):

			Gross		Gross
			unrealized		unrealized
	Amortized		holding		holding			Fair
	cost		gains		losses			value
Debt issued by the U.S. government and agencies:
Due in one year or less	$	76		-		(1	)		75

Debt issued by government sponsored enterprises:
Due in one year - five years		1,977		153		-			2,130
Due in five years - ten years		21,912		524		-			22,436
Due after ten years		52,667		1,128		(498	)		53,297

Equity securities		1,054		191		(118	)		1,127

Municipal securities:
Due in one year - five years		3,146		68		-			3,214
Due in five years - ten years		41,170		1,163		-			42,333
Due after ten years		190,812		2,774		(1,677	)		191,909

Corporate debt issues:
Due in one year - five years		500		-		-			500
Due after ten years		26,882		168		(10,549	)		16,501

Residential mortgage-backed securities:
Fixed rate pass-through		145,363		6,440		(47	)		151,756
Variable rate pass-through		231,232		7,894		(85	)		239,041
Fixed rate non-agency CMOs		18,919		48		(1,788	)		17,179
Fixed rate CMOs		19,994		982		-			20,976
Variable rate non-agency CMOs		9,075		-		(1,170	)		7,905
Variable rate CMOs		294,398		2,642		(330	)		296,710
Total residential mortgage-backed securities		718,981		18,006		(3,420	)		733,567

Total marketable securities available-for-sale	$	1,059,177		24,175		(16,263	)		1,067,089

The following table shows the Company’s portfolio of investment securities held-to-maturity at September 30, 2010 (in thousands):

			Gross		Gross
			unrealized		unrealized
	Amortized		holding		holding			Fair
	cost		gains		losses			value
Debt issued by government sponsored enterprises:
Due in one year - five years		26,500		84		-			26,584

Municipal securities:
Due after ten years		81,116		1,485		(31	)		82,570

Residential mortgage-backed securities:
Fixed rate pass-through		32,168		1,012		-			33,180
Variable rate pass-through		9,996		135		-			10,131
Fixed rate agency CMOs		221,772		7,306		-			229,078
Variable rate agency CMOs		27,772		469		-			28,241
Total residential mortgage-backed securities		291,708		8,922		-			300,630

Total marketable securities held-to-maturity	$	399,324		10,491		(31	)		409,784

The Company had no investments classified as held-to-maturity at December 31, 2009.

The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and the intent to hold the investments for a period of time sufficient to allow for a recovery in value. Some investments are evaluated using the Company’s best estimate of future cash flows. If the Company’s estimate of cash flows determines that it is expected an adverse change has occurred, other-than-temporary impairment would be recognized in the statement of operations for the credit loss.

The following table shows the fair value and gross unrealized losses on investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2010 (in thousands):

	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair value		loss			Fair value		loss			Fair value		loss

U.S. government and agencies	$	9,944		-			37		(1	)		9,981		(1	)
Municipal securities		9,407		(35	)		9,068		(493	)		18,475		(528	)
Corporate issues		1,006		(2	)		14,168		(7,019	)		15,174		(7,021	)
Equity securities		26		(1	)		136		(92	)		162		(93	)
Residential mortgage-
backed securities - non-agency		-		-			13,416		(1,367	)		13,416		(1,367	)
Residential mortgage-
backed securities - agency		7,597		(19	)		7,958		(120	)		15,555		(139	)

Total temporarily impaired securities	$	27,980		(57	)		44,783		(9,092	)		72,763		(9,149	)

	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
	Fair value		loss			Fair value		loss			Fair value		loss

U.S. government and agencies	$	17,051		(490	)		266		(9	)		17,317		(499	)
Municipal securities		43,897		(598	)		10,505		(1,079	)		54,402		(1,677	)
Corporate issues		-		-			12,058		(10,549	)		12,058		(10,549	)
Equities		452		(118	)		-		-			452		(118	)
Residential mortgage-
backed securities - non-agency		1,194		(2	)		19,451		(2,956	)		20,645		(2,958	)
Residential mortgage-
backed securities - agency		25,752		(181	)		43,067		(281	)		68,819		(462	)

Total temporarily impaired securities	$	88,346		(1,389	)		85,347		(14,874	)		173,693		(16,263	)

Corporate issues

As of September 30, 2010, the Company had ten investments with a total book value of $19.4 million and total fair value of $12.1 million, where the book value exceeded the fair value for more than 12 months. These investments were four single issuer trust preferred investments and six pooled trust preferred investments. The single issuer trust preferred investments were 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. None of the issuers have deferred interest payments or announced the intention to defer interest payments, nor have any been downgraded. The Company believes 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. The pooled trust preferred investments were evaluated for other-than-temporary impairment by considering the duration and severity of the losses, actual cash flows, projected cash flows, performing collateral, the class of investment owned by the Company and the amount of additional defaults the structure could withstand prior to the investment experiencing a disruption in cash flows. None of these investments have experienced a cash flow disruption. After evaluation, the impairment in five investments was considered temporary, while the impairment in one investment was considered other-than-temporary. Accordingly, the Company further evaluated this investment determining that $208,000 of the impairment was credit related impairment and $49,000 of the impairment was non-credit related impairment.

The following table provides class, book value, fair value and ratings information for the Company’s portfolio of corporate securities that have an unrealized loss as of September 30, 2010 (in thousands):

		Total
		Book		Fair		Unrealized			Moody's/ Fitch
Description	Class	Value		Value		Losses			Ratings
North Fork Capital (1)	N/A	$	1,008		1,006		(2	)	Baa3/ BBB
Bank Boston Capital Trust (2)	N/A		988		698		(290	)	Baa3/ BB
Reliance Capital Trust	N/A		1,000		886		(114	)	Not rated
Huntington Capital Trust	N/A		1,421		841		(580	)	Ba1/ BB+
MM Community Funding I	Mezzanine		105		56		(49	)	Ca/ C
MM Community Funding II	Mezzanine		382		33		(349	)	Baa2/ BB
I-PreTSL I	Mezzanine		1,500		188		(1,312	)	Not rated/ BB
I-PreTSL II	Mezzanine		1,500		187		(1,313	)	Not rated/ BB
PreTSL XIX *	Senior A-1		7,177		5,182		(1,995	)	A3/ A
PreTSL XX *	Senior A-1		4,349		2,985		(1,364	)	Ba2/ A
		$	19,430		12,062		(7,368	)

(1) – North Fork Bank was acquired by Capital One Financial Corporation.

(2) – Bank Boston was acquired by Bank of America.

* - Excludes the value of related U.S. Treasury zero coupon bond.

The following table provides collateral information on pooled trust preferred securities included in the previous table as of September 30, 2010 (in thousands):

							Additional
							Immediate
							defaults before
			Current				causing an
	Total		deferrals		Performing		interest
Description *	Collateral		and defaults		Collateral		shortfall
I-PreTSL I	$	193,500		17,500		176,000		99,500
I-PreTSL II		378,000		-		378,000		153,000
PreTSL XIX		700,535		162,400		538,135		191,000
PreTSL XX		580,154		159,000		421,154		122,500

* - similar information for the MM Community Funding I and II is not available.

Mortgage-backed securities

Mortgage-backed securities include agency (FNMA, FHLMC and GNMA) mortgage-backed securities and non-agency collateralized mortgage obligations (“CMOs”). The Company reviews its portfolio of agency mortgage-backed securities quarterly for impairment. As of September 30, 2010, the Company believes that the impairment within its portfolio of agency mortgage-backed securities is temporary. As of September 30, 2010, the Company had 12 non-agency CMOs with a total book value of $21.5 million and a total fair value of $20.4 million.

The following table shows issuer specific information, book value, fair value, unrealized gain or loss and other-than-temporary impairment recorded in earnings for the Company’s portfolio of non-agency CMOs as of September 30, 2010 (in thousands):

								Impairment			Total
	Total							recorded in			impairment
	Book		Fair		Unrealized			current quarter			recorded in
Description	Value		Value		Gain/ (loss)			earnings			earnings
AMAC 2003-6 2A2	$	748		764		16			-			-
AMAC 2003-6 2A8		1,548		1,577		29			-			-
AMAC 2003-7 A3		864		874		10			-			-
BOAMS 2005-11 1A8		4,177		3,970		(207	)		(146	)		(146	)
CWALT 2005-J14 A3		5,888		4,908		(980	)		(28	)		(383	)
CFSB 2003-17 2A2		1,257		1,271		14			-			-
WAMU 2003-S2 A4		994		1,018		24			-			-
CMLTI 2005-10 1A5B		1,174		1,155		(19	)		(10	)		(2,795	)
CSFB 2003-21 1A13		68		67		(1	)		-			-
FHASI 2003-8 1A24		2,340		2,267		(73	)		-			-
SARM 2005-21 4A2		1,297		1,447		150			-			(2,543	)
WFMBS 2003-B A2		1,137		1,050		(87	)		-			-
	$	21,492		20,368		(1,124	)		(184	)		(5,867	)

Credit related other-than-temporary impairment on debt securities is recognized in earnings while noncredit related other-than-temporary impairment on debt securities, not expected to be sold, is recognized in other comprehensive income.

The table below shows a cumulative roll forward of credit losses recognized in earnings for all debt securities held as of September 30, 2010 and not intended to be sold (in thousands):

Beginning balance as of Janaury 1, 2010 (a)	$	13,998
Credit losses on debt securities for which other-than-temporary impairment was not previously recognized		-
Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized		707
Ending balance as of September 30, 2010	$	14,705

(a) – The beginning balance represents credit losses included in other-than-temporary impairment charges recognized on debt securities in prior periods.

(4)	Loans receivable

The following table shows a summary of our loans receivable at September 30, 2010 and December 31, 2009 (in thousands):

	September 30,			December 31,
	2010			2009
Real estate loans:
One- to four-family	$	2,502,645			2,371,996
Home equity		1,105,809			1,080,011
Multi-family and commercial		1,427,428			1,292,145
Total real estate		5,035,882			4,744,152

Consumer loans
Automobile		92,955			101,046
Education		22,390			32,860
Loans on savings accounts		11,757			12,209
Other		133,058			127,750
Total consumer loans		260,160			273,865

Commercial business loans		429,602			403,589
Total loans receivable, gross		5,725,644			5,421,606

Deferred loan fees		(6,793	)		(7,030	)
Allowance for loan losses		(77,245	)		(70,403	)
Undisbursed loan proceeds (real estate loans)		(126,389	)		(115,111	)
Total loans receivable, net	$	5,515,217			5,229,062

The following table presents the activity in the allowance for loan losses for the three months and nine months ended September 30, 2010 and 2009 (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009

Balance at beginning of period	$	75,417			66,777			70,403			54,929
Provision for loan losses		9,871			9,830			26,568			27,347
Charge-offs - mortgage		(682	)		(417	)		(1,947	)		(1,300	)
Charge-offs - consumer		(3,040	)		(1,679	)		(7,705	)		(4,515	)
Charge-offs - commercial		(4,811	)		(7,176	)		(11,563	)		(9,701	)
Recoveries		490			440			1,489			1,015
Balance at end of period	$	77,245			67,775			77,245			67,775

The following table details information on our loans as of September 30, 2010 and 2009 (in thousands):

	September 30,				December 31,
	2010		2009		2009

Loans 90 days or more delinquent	$	103,524		117,138		109,780
Nonaccrual loans		151,217		117,138		124,626
Impaired loans		126,583		50,298		75,933
Specific allowances allocated to impaired loans		24,455		13,227		13,191
Impaired loans with no related allowance		8,220		-		3,945
Aggregate recorded investment of impaired loans with terms modified through a troubled debt restructuring		47,660		-		13,493

(5) Goodwill and Other Intangible Assets

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

	September 30,			December 31,
	2010			2009
Amortizable intangible assets:
Core deposit intangibles – gross	$	30,578			30,275
Acquisitions		-			303
Less: accumulated amortization		(27,936	)		(26,108	)
Core deposit intangibles – net		2,642			4,470
Customer and Contract intangible assets – gross		1,731			1,731
Acquisitions - Veracity Benefits Design, Inc.		2,007			-
Less: accumulated amortization		(1,961	)		(1,523	)
Customer and Contract intangible assets – net	$	1,777			208

The following table shows the actual aggregate amortization expense for the current quarter and prior year’s same quarter, as 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 September 30, 2010	$	725
For the three months ended September 30, 2009		701
For the nine months ended September 30, 2010		2,265
For the nine months ended September 30, 2009		2,371
For the year ending December 31, 2010		2,775
For the year ending December 31, 2011		1,692
For the year ending December 31, 2012		1,060
For the year ending December 31, 2013		635
For the year ending December 31, 2014		313
For the year ending December 31, 2015		140

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, 2008	$	170,050		1,313		171,363
Goodwill acquired		—		—		—
Impairment losses		—		—		—
Balance at December 31, 2009		170,050		1,313		171,363
Goodwill acquired		219		100		319
Impairment losses		—		—		—
Balance at September 30, 2010	$	170,269		1,413		171,682

Through the assistance of an independent external third party, we performed our annual goodwill impairment test as of June 30, 2010 and concluded that our goodwill was not impaired. As of September 30, 2010, there were no changes in our operations that would cause us to update the goodwill impairment test performed as of June 30, 2010.

(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 underwriting procedures. Collateral may be obtained based on management’s credit assessment of the customer. At September 30, 2010, the maximum potential amount of future payments the Company could be required to make under these standby letters of credit was $50.6 million, of which $49.3 million is fully collateralized. At September 30, 2010, the Company had a liability, which represents deferred income, of $563,000 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 942,409 shares of common stock with a weighted average exercise price of $11.50 per share were outstanding during the three months and nine months ended September 30, 2010 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. Stock options to purchase 2,677,497 shares of common stock with a weighted average exercise price of $10.63 per share were outstanding during the three months and nine months ended September 30, 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.

The computation of basic and diluted earnings per share follows (in thousands, except share data and per share amounts):

	Three months ended				Nine months ended
	September 30,				September 30,
	2010		2009		2010		2009
Reported net income	$	15,491		12,054		44,785		31,647

Weighted average common shares outstanding		108,340,566		109,056,008		108,299,515		109,007,874
Dilutive potential shares due to effect of stock options		573,503		449,913		660,070		330,561
Total weighted average common shares and dilutive potential shares		108,914,069		109,505,921		108,959,585		109,338,435

Basic earnings per share:	$	0.14		0.11		0.41		0.29

Diluted earnings per share:	$	0.14		0.11		0.41		0.29

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

Components of Net Periodic Benefit Cost
	Three months ended September 30,
	Pension Benefits						Other Post-retirement Benefits
	2010			2009			2010		2009
Service cost	$	1,397			1,323			-		-
Interest cost		1,333			1,198			24		25
Expected return on plan assets		(1,379	)		(967	)		-		-
Amortization of prior service cost		(40	)		(27	)		-		-
Amortization of the net loss		218			458			13		14
Net periodic benefit cost	$	1,529			1,985			37		39

Components of Net Periodic Benefit Cost
	Nine months ended September 30,
	Pension Benefits						Other Post-retirement Benefits
	2010			2009			2010		2009
Service cost	$	4,191			3,969			-		-
Interest cost		3,999			3,594			72		75
Expected return on plan assets		(4,137	)		(2,901	)		-		-
Amortization of prior service cost		(120	)		(105	)		-		-
Amortization of the net loss		654			1,374			39		42
Net periodic benefit cost	$	4,587			5,931			111		117

The Company made no contribution to its pension or other post-retirement benefit plans during the nine-month period ended September 30, 2010. We anticipate making a tax-deductible contribution to our defined benefit pension plan for the year ending December 31, 2010.

(9) Disclosures About Fair Value of Financial Instruments

Fair value information about financial instruments, whether or not recognized in the consolidated statement of financial condition, is required to be disclosed. These requirements exclude certain financial instruments and all nonfinancial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The carrying amounts reported in the consolidated statement of financial condition approximate fair value for the following financial instruments: cash on hand, interest-earning deposits in other institutions, federal funds sold and other short-term investments, accrued interest receivable, accrued interest payable, and marketable securities available-for-sale.

Marketable Securities

Where available, market values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services. See the Fair Value Measurements section of this footnote for further detail on how fair values of marketable securities are determined.

Loans Receivable

Loans with comparable characteristics including collateral and repricing structures were segregated for valuation purposes. Each loan pool was separately valued utilizing a discounted cash flow analysis. Projected monthly cash flows were discounted to present value using a market rate for comparable loans, which is not considered an exit price. Characteristics of comparable loans included remaining term, coupon interest, and estimated prepayment speeds.

Deposit Liabilities

The estimated fair value of deposits with no stated maturity, which includes demand deposits, money market, and other savings accounts, is the amount payable on demand. Although market premiums paid for depository institutions reflect an additional value for these low-cost deposits, adjusting fair value for any value expected to be derived from retaining those deposits for a future period of time or from the benefit that results from the ability to fund interest-earning assets with these deposit liabilities is prohibited. The fair value estimates of deposit liabilities do not include the benefit that results from the low-cost funding provided by these deposits compared to the cost of borrowing funds in the market. Fair values for time deposits are estimated using a discounted cash flow calculation that applies contractual cost currently being offered in the existing portfolio to current market rates being offered locally for deposits of similar remaining maturities. The valuation adjustment for the portfolio consists of the present value of the difference of these two cash flows, discounted at the assumed market rate of the corresponding maturity.

Borrowed Funds

The fixed rate advances were valued by comparing their contractual cost to the prevailing market cost.

Trust-Preferred Securities

The fair value of trust-preferred investments is calculated using the discounted cash flows at the prevailing rate of interest on similar investments.

Cash flow hedges – Interest rate swap agreements (“swaps”)

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

Off-Balance Sheet Financial Instruments

These financial instruments generally are not sold or traded, and estimated fair values are not readily available. However, the fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. Commitments to extend credit issued by the Company are generally short-term in nature and, if drawn upon, are issued under current market terms. At September 30, 2010 and December 31, 2009, there was no material unrealized appreciation or depreciation on these financial instruments.

The following table sets forth the carrying amount and estimated fair value of the Company’s financial instruments included in the consolidated statement of financial condition as of September 30, 2010 and December 31, 2009:

	September 30, 2010				December 31, 2009
	Carrying		Estimated		Carrying		Estimated
	amount		fair value		amount		fair value
Financial assets:
Cash and cash equivalents		675,743		675,743		1,107,790		1,107,790
Securities available-for-sale		884,158		884,158		1,067,089		1,067,089
Securities held-to-maturity		399,324		409,784		-		-
Loans receivable, net		5,592,462		5,929,701		5,229,062		5,509,279
Accrued interest receivable		27,590		27,590		25,780		25,780
FHLB Stock		63,242		63,242		63,242		63,242
Total financial assets		7,642,519		7,990,218		7,492,963		7,773,180

Financial liabilities:
Savings and checking accounts		3,316,489		3,316,489		2,999,683		2,999,683
Time deposits		2,452,451		2,508,276		2,624,741		2,689,898
Borrowed funds		876,068		929,142		897,326		893,749
Junior subordinated debentures		103,094		116,763		103,094		108,051
Cash flow hedges - swaps		13,669		13,669		4,957		4,957
Accrued interest payable		1,725		1,725		4,493		4,493
Total financial liabilities		6,763,496		6,886,064		6,634,294		6,700,831

Fair value estimates are made at a point in time, based on relevant market data and information about the instrument. The following methods and assumptions were used in estimating the fair value of financial instruments at both September 30, 2010 and December 31, 2009.

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 using a three-level hierarchy valuation technique based on whether the inputs to those valuation techniques are observable or unobservable. This 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:

Quotes from brokers or other external sources that are not considered binding;

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;

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 values. 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 September 30, 2010 (in thousands):

								Total
								assets at
	Level 1		Level 2			Level 3		fair value

Equity securities	$	736		-			220		956

Debt securities:
U.S. government and agencies		-		10,013			-		10,013
Government sponsored enterprises		-		9,914			-		9,914
States and political subdivisions		-		216,669			-		216,669
Corporate		-		10,165			9,232		19,397
Total debt securities		-		246,761			9,232		255,993

Residential mortgage-backed securities:
GNMA		-		59,648			-		59,648
FNMA		-		145,512			-		145,512
FHLMC		-		106,280			-		106,280
Non-agency		-		752			-		752
Collateralized mortgage obligations:
GNMA		-		60,554			-		60,554
FNMA		-		77,202			-		77,202
FHLMC		-		132,386			-		132,386
Other agency		-		24,440			-		24,440
Non-agency		-		20,435			-		20,435
Total mortgage-backed securities		-		627,209			-		627,209

Interest rate swaps		-		(13,669	)		-		(13,669	)

Total assets	$	736		860,301			9,452		870,489

The following table represents assets measured at fair value on a recurring basis as of December 31, 2009 (in thousands):

								Total
								assets at
	Level 1		Level 2			Level 3		fair value

Equity securities	$	907		-			220		1,127

Debt securities:
U.S. government and agencies		-		75			-		75
Government sponsored enterprises		-		77,863			-		77,863
States and political subdivisions		-		237,456			-		237,456
Corporate		-		9,616			7,385		17,001
Total debt securities		-		325,010			7,385		332,395

Residential mortgage-backed securities:
GNMA		-		71,673			-		71,673
FNMA		-		178,147			-		178,147
FHLMC		-		140,203			-		140,203
Non-agency		-		774			-		774
Collateralized mortgage obligations:
GNMA		-		54,492			-		54,492
FNMA		-		78,834			-		78,834
FHLMC		-		184,360			-		184,360
Non-agency		-		25,084			-		25,084
Total mortgage-backed securities		-		733,567			-		733,567

Interest rate swaps		-		(4,957	)		-		(4,957	)

Total assets	$	907		1,053,620			7,605		1,062,132

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 certain corporate debt securities are determined by the Company using a discounted cash flow model and 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 obtained 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. The Company considers the financial condition of the issuer to determine if the securities have indicators of impairment.

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

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine-month periods ended September 30, 2010 (in thousands):

	Three months ended					Nine months ended
	September 30, 2010					September 30, 2010
	Equity		Debt			Equity		Debt
	securities		securities			securities		securities

Beginning balace	$	220		9,470		$	220		7,385

Total net realized investment gains/ (losses) and net change in unrealized appreciation/ (depreciation):
Included in net income as OTTI		-		(208	)		-		(362	)
Included in other comprehensive income		-		(30	)		-		2,209

Purchases and sales		-		-			-		-
Net transfers in (out) of Level 3		-		-			-		-

Ending balance	$	220		9,232		$	220		9,232

	Three months ended					Nine months ended
	September 30, 2009					September 30, 2009
	Equity		Debt			Equity		Debt
	securities		securities			securities		securities

Beginning balace	$	220		7,238		$	220		5,937

Total net realized investment gains/ (losses) and net change in unrealized appreciation/ (depreciation):
Included in net income as OTTI		-		(442	)		-		(442	)
Included in other comprehensive income		-		232			-		1,033

Purchases and sales		-		-			-		500
Net transfers in (out) of Level 3		-		-			-		-

Ending balance	$	220		7,028		$	220		7,028

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans measured for impairment, real estate owned and mortgage servicing rights. The following table represents the fair value measurement for nonrecurring assets as of September 30, 2010 (in thousands):

							Total
							assets at
	Level 1		Level 2		Level 3		fair value

Loans measured for impairment	$	-		-		102,127		102,127

Real estate owned	$	-		-		22,998		22,998

Mortgage servicing rights	$	-		-		1,314		1,314

Total assets	$	-		-		126,439		126,439

							Total
							assets at
	Level 1		Level 2		Level 3		fair value

Loans measured for impairment	$	-		-		62,742		62,742

Real estate owned	$	-		-		20,257		20,257

Mortgage servicing rights	$	-		-		5,481		5,481

Total assets	$	-		-		88,480		88,480

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 estimated 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, less estimated disposition costs. 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, primarily loan term and note rate. 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) Mortgage Loan Servicing

Mortgage servicing assets are recognized as separate assets when servicing rights are recorded through loan originations when the underlying loan is sold. Upon sale, the mortgage servicing right (“MSR”) is established, which represents the then-fair value of future net cash flows expected to be realized for performing the servicing activities. The fair value of the MSRs are estimated by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. In determining the fair value of the MSRs, mortgage interest rates, which are used to determine prepayment rates and discount rates, are held constant over the estimated life of the portfolio. MSRs are amortized against mortgage banking income in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans.

Capitalized MSRs are evaluated for impairment based on the estimated fair value of those rights. The MSRs are stratified by certain risk characteristics, primarily loan term and note rate. If temporary impairment exists within a risk stratification tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the fair value. If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced.

The following table shows changes in MSRs as of and for the three months ended September 30, 2010 (in thousands):

							Net
							Carrying
	Servicing			Valuation			Value and
	Rights			Allowance			Fair Value

Balance at June 30, 2010		6,557			(175	)		6,382
Additions/ (reductions)		625			(70	)		555
Amortization		(1,121	)		-			(1,121	)
Balance at September 30, 2010		6,061			(245	)		5,816

The following table shows changes in MSRs as of and for the nine months ended September 30, 2010 (in thousands):

							Net
							Carrying
	Servicing			Valuation			Value and
	Rights			Allowance			Fair Value

Balance at December 31, 2009		8,570			(540	)		8,030
Additions/ (reductions)		779			295			1,074
Amortization		(3,288	)		-			(3,288	)
Balance at September 30, 2010		6,061			(245	)		5,816

The following table shows changes in MSRs as of and for the three months ended September 30, 2009 (in thousands):

							Net
							Carrying
	Servicing			Valuation			Value and
	Rights			Allowance			Fair Value

Balance at June 30, 2009		8,907			(990	)		7,917
Additions/ (reductions)	��	1,256			160			1,416
Amortization		(1,132	)		-			(1,132	)
Balance at September 30, 2009		9,031			(830	)		8,201

The following table shows changes in MSRs as of and for the nine months ended September 30, 2009 (in thousands):

							Net
							Carrying
	Servicing			Valuation			Value and
	Rights			Allowance			Fair Value

Balance at December 31, 2008		8,660			(2,380	)		6,280
Additions/ (reductions)		4,160			1,550			5,710
Amortization		(3,789	)		-			(3,789	)
Balance at September 30, 2009		9,031			(830	)		8,201

MSRs are recorded in other assets on the consolidated statement of financial condition.

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

The Company has two statutory business trusts: Northwest Bancorp Capital Trust III, a Delaware statutory business trust and Northwest Bancorp Statutory Trust IV, a Connecticut 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, 2005 (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, 2005 (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%. The Trusts have invested the proceeds of the offerings, as well as the capital investment from the Company, 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 and Trust IV holds $51,547,000 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 (i) the Company receives interest of three-month 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 (ii) the Company receives interest of three-month 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 original terms of these two swaps are five years and ten years, respectively, and terminate on September 30, 2013 and 2018, respectively. The second two swaps modify the repricing characteristics of Trust IV, wherein (i) the Company receives interest of three-month 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 (ii) the Company receives interest of three-month 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 original terms of these two swaps are seven years and ten years, respectively, and terminate on December 15, 2015 and 2018, 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 material. At September 30, 2010, $13.7 million was pledged as collateral to the counterparty.

At September 30, 2010, the fair value of the swap agreements was $(13.7) 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.

The following table shows liability derivatives, included in other liabilities, as of September 30, 2010 and December 31, 2009 (in thousands):

	September 30,		December 31,
	2010		2009
Fair value	$	13,669		4,957
Notional amount	$	100,000		100,000
Collateral posted	$	13,669		4,957

(12) Subsequent Events

On November 8, 2010, we announced that our Agreement and Plan of Merger, dated May 5, 2010, with NexTier, Inc., the holding company for NexTier Bank, was terminated.

The termination of the merger agreement was based on the expectation that the merger would not received required approval from Northwest Savings Bank’s primary federal regulator, the Federal Deposit Insurance Corporation (“FDIC”). As a result of a recently completed, regularly scheduled compliance examination, the FDIC criticized various components of Northwest Savings Bank’s consumer compliance program. Northwest Savings Bank is taking steps to promptly address the issues identified by the FDIC. Northwest Savings Bank expects to receive a formal enforcement order concerning its compliance program. As a result of the foregoing, the FDIC requested that Northwest Savings Bank withdraw its merger application to acquire NexTier Bank, National Association.

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. We have 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 related losses and/ or market value adjustments;

The impact of the current financial crisis on our loan portfolio (including cash flow and collateral values), investment portfolio, customers and capital market activities;

Possible impairments of securities held by us, including those issued by government entities and government sponsored enterprises;

Our ability to continue to increase and manage our commercial and residential real estate, multifamily and commercial and industrial loans;

The adequacy of the allowance for loan losses;

Changes in the financial performance and/ or condition of the Company’s borrowers;

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;

The impact of recent legislation restructuring the U.S. financial and regulatory system;

The level of future deposit premium assessments;

Competition from other financial institutions in originating loans and attracting deposits;

The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the SEC, Public Company Oversight Board, the Financial Accounting Standards Board and other accounting standards setters;

Our ability to effectively implement technology driven products and services;

Sources of liquidity; and

Our success in managing the risks involved in the foregoing.

Overview of Critical Accounting Policies Involving Estimates

Our 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 our financial condition and/ or results of operations.

Allowance for Loan Losses. We recognize 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. We maintain an allowance for loan losses for 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 our allowance for loan losses and may require us 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 our 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. 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 our 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, however, to the best of their knowledge, that all known losses as of the balance sheet date have been recorded.

Valuation of Investment Securities. Unrealized gains or losses, net of deferred taxes, on available for sale securities 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.

We conduct 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 to sell the investment securities currently in an unrealized loss position and whether it is more likely than not that we will be required to sell the security before recovery of its cost basis. 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 for the credit loss component.

Goodwill. Goodwill is not subject to amortization but is 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 individual operating segment. 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, including developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions and selecting an appropriate control premium. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the weightings that are most representative of fair value. We have established June 30th of each year as the date for conducting its annual goodwill impairment assessment. As of June 30, 2010, we, through the assistance of an external third party, performed an impairment test on goodwill. We valued each reporting unit by using a weighted average of four valuation methodologies; comparable transaction approach, control premium approach, public market peers approach and discounted cash flow approach. Declines in fair value could result in impairment being identified. At June 30, 2010, we did not identify any individual reporting unit where the fair value was less than the carrying value and no other events or changes have occurred since that date that would warrant an updated valuation. Future changes in the economic environment or the operations of the operating units could cause changes to the variables used, which could give rise to declines in the estimated fair value of the reporting units.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. 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 would be 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. Significant judgment is exercised 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 made 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 us 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, we are 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. 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

Total assets at September 30, 2010 were $8.143 billion, an increase of $117.5 million, or 1.5%, from $8.025 billion at December 31, 2009. This increase in assets is primarily attributed to an increase in loans receivable of $293.0 million, which was partially offset by a decrease in cash and investments of $215.7 million and an increase in the allowance for loan losses of $6.8 million. The net increase in total assets was funded by an increase in deposits of $144.5 million, partially offset by a decrease in borrowed funds of $21.3 million and a decrease in escrow for taxes and insurance of $9.3 million.

Total cash and investments decreased by $215.7 million, or 9.9%, to $1.959 billion at September 30, 2010, from $2.175 billion at December 31, 2009. This decrease is primarily a result of using cash to fund loan growth.

Loans receivable increased by $293.0 million, or 5.5%, to $5.592 billion at September 30, 2010, from $5.299 billion at December 31, 2009. Loan demand continues to be strong and we continue to gain market share throughout our footprint. During the nine months ended September 30, 2010, we originated $1.590 billion of loans receivable.

Deposit balances increased across all products, except time deposits. Total deposits increased by $144.5 million, or 2.6%, to $5.769 billion at September 30, 2010 from $5.624 billion at December 31, 2009. Noninterest-bearing demand deposits increased by $68.5 million, or 14.1%, to $555.5 million at September 30, 2010 from $487.0 million at December 31, 2009; interest-bearing demand deposits increased by $15.6 million, or 2.0%, to $783.7 million at September 30, 2010 from $768.1 million at December 31, 2009; savings deposits, including insured money fund accounts, increased by $232.7 million, or 13.3%, to $1.977 billion at September 30, 2010 from $1.745 billion at December 31, 2009; while time deposits decreased by $172.3 million, or 6.6%, to $2.452 billion at September 30, 2010 from $2.625 billion at December 31, 2009.

Total shareholders’ equity at September 30, 2010 was $1.315 billion, or $11.87 per share, a decrease of $1.3 million, or 0.1%, from $1.317 billion, or $11.90 per share, at December 31, 2009. This decrease was primarily attributable to the payment of cash dividends of $33.2 million and the purchase of the remaining ESOP plan shares of $17.2 million, partially offset by net income of $44.8 million.

Financial institutions are 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 a company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, financial institutions 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 financial institutions 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). Capital ratios for Northwest are presented in the tables below. Dollar amounts in the accompanying tables are in thousands.

September 30, 2010

						Minimum Capital					Well Capitalized
	Actual					Requirements					Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk weighted assets)	$	1,026,846		20.58	%		395,877		8.00	%		498,946		10.00	%

Tier I Capital (to risk weighted assets)		964,294		19.33	%		199,579		4.00	%		299,368		6.00	%

Tier I Capital (leverage) (to average assets)		964,294		12.09	%		239,236		3.00	%*		398,726		5.00	%

December 31, 2009

						Minimum Capital					Well Capitalized
	Actual					Requirements					Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk weighted assets)	$	974,967		20.95	%		372,366		8.00	%		465,457		10.00	%

Tier I Capital (to risk weighted assets)		916,613		19.69	%		186,183		4.00	%		279,274		6.00	%

Tier I Capital (leverage) (to average assets)		916,613		12.65	%		217,402		3.00	%*		362,337		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, 2010, the Company had not been advised of any additional requirements in this regard.

Northwest Savings Bank 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, 2010 was 22.8%. We 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 and loan commitments. As of September 30, 2010 the Bank had $2.1 billion of additional borrowing capacity available with the FHLB, including $150.0 million on an overnight line of credit, as well as $220.8 million of borrowing capacity available with the Federal Reserve Bank and $80.0 million with correspondent banks.

We paid $11.1 million and $4.0 million in cash dividends during the quarters ended September 30, 2010 and 2009, respectively, and $33.2 million and $11.9 million during the nine-month periods ended September 30, 2010 and 2009, respectively. The increase in dividends paid is the result of our reorganization and second-step common stock offering completed on December 18, 2009. Prior to the reorganization and second-step common stock offering, Northwest Bancorp, MHC requested the non-objection of the OTS to waive its receipt of dividends from the Company when such dividends were not needed for regulatory capital, working capital or other purposes. As a result, we did not pay dividends on the 63% of shares owned by Northwest Bancorp, MHC. The common stock dividend payout ratio (dividends declared per share divided by net income per share) was 71.4% and 90.9% for the quarters ended September 30, 2010 and 2009, respectively, on dividends of $0.10 per share for each period. The common stock dividend payout ratio for the nine-month periods ended September 30, 2010 and 2009 was 73.2% and 103.4%, respectively, on dividends of $0.30 per share for each period. The 2009 dividends per share amounts were adjusted for the second-step common stock offering and related conversion of 2.25 shares of Northwest Bancshares, Inc. for each share of Northwest Bancorp, Inc. We have declared a dividend of $0.10 per share payable on November 18, 2010 to shareholders of record as of November 4, 2010. This represents the 64th consecutive quarter we will pay a cash dividend.

Nonperforming Assets

The following table sets forth information with respect to our nonperforming assets, defined as nonaccrual loans and foreclosed real estate. Nonaccrual loans are those loans for which the accrual of interest has ceased. Loans are automatically placed on nonaccrual status when they are 90 days or more contractually delinquent and may also be placed on nonaccrual status even if not 90 days or more delinquent but other conditions exist. Other nonperforming assets represent real estate we acquired 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, 2010			December 31, 2009
	(Dollars in Thousands)
Loans accounted for on a nonaccrual basis:
One- to four-family residential loans	$	27,552			29,373
Multifamily and commercial real estate loans		65,498			49,594
Consumer loans		11,936			12,544
Commercial business loans		46,231			33,115
Total		151,217			124,626
Total nonperforming loans as a percentage of loans		2.70	%		2.35	%
Total real estate acquired through foreclosure and other real estate owned (“REO”)		22,998			20,257
Total nonperforming assets	$	174,215			144,883
Total nonperforming assets as a percentage of total assets		2.14	%		1.81	%

A loan is considered to be impaired, when, based on current information and events it is probable that we 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: (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 allowance is allocated for the impairment. Impaired loans at September 30, 2010 and December 31, 2009 were $126.6 million and $75.9 million, respectively. Specific allowances allocated to impaired loans were $24.5 million and $13.2 million at September 30, 2010 and December 31, 2009, respectively.

Allowance for Loan Losses

Our 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 GAAP, our internal 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. In addition, a meeting is held every quarter with each of our eight regions to monitor the performance and status of loans on an internal watch list. 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. Our loan grading system for problem loans is consistent with industry regulatory guidelines which classify loans as “substandard”, “doubtful” or “loss.” Loans that do not exhibit 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 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 allowance is not warranted.

The loans that have been classified as substandard or doubtful are reviewed by the Credit Review department for possible impairment. A loan is considered impaired when, based on current information and events, it is probable that we 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: (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. 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 of our market areas. 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 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 on a quarterly basis.

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 a 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.

Management acknowledges that this is a dynamic process and consists of factors, many of which are external and out of management’s control, that can change often, rapidly and substantially. The adequacy of the ALL is based upon estimates using all the information previously discussed as well as current and known circumstances and events. There is no assurance that actual portfolio losses will not be substantially different than those that were estimated.

Management utilizes a consistent methodology each period when analyzing the adequacy of the allowance for loan losses and the related provision for loan losses. As part of the analysis as of September 30, 2010, management considered the economic conditions in our markets, such as the continued elevated unemployment and bankruptcy levels as well as real estate collateral values, which continue to be depressed. In addition, management considered the trend in asset quality, loan charge-offs and the allowance for loan losses as a percentage of nonperforming loans. As a result, we increased the allowance for loan losses during the nine-month period ended September 30, 2010 by $6.8 million, or 9.7%, to $77.2 million, or 1.38% of total loans, at September 30, 2010 from $70.4 million, or 1.33% of total loans, at December 31, 2009. The increase in the allowance for loan losses and the related provision for loan losses is partially attributed to specific reserves discussed further in the comparison of operating results for the nine months ended September 30, 2010 section which follows. In addition, management considered how the level of nonperforming loans and historical charge-offs have influenced the required amount of allowance for loan losses. Nonperforming loans of $151.2 million, or 2.70% of total loans, at September 30, 2010 increased by $26.6 million, or 21.3%, from $124.6 million, or 2.35% of total loans, at December 31, 2009. As a percentage of average loans, annualized net charge-offs increased to 0.48% for the nine months ended September 30, 2010 compared to 0.40% for the nine months ended September 30, 2009

In addition, the increase in the allowance for loan losses is related to the growth in the loan portfolio and in particular the increase in commercial loans. The commercial loan portfolio increased by $146.7 million, or 9.1%, during the nine months ended September 30, 2010 to $1.757 billion, from $1.610 billion at December 31, 2009. Commercial loans tend to be larger in size and generally more vulnerable to economic slowdowns. Management believes all known losses as of the balance sheet dates have been recorded.

Comparison of Operating Results for the Quarters Ended September 30, 2010 and 2009

Net income for the quarter ended September 30, 2010 was $15.5 million, or $0.14 per diluted share, an increase of $3.4 million, or 28.5%, from $12.1 million, or $0.11 per diluted share, for the same quarter last year. The increase in net income resulted primarily from increases in net interest income of $9.8 million. Partially offsetting this increase was a decrease in noninterest income of $157,000 and increases in noninterest expense of $4.1 million and income taxes of $2.1 million. A discussion of significant changes follows. Annualized, net income for the quarter ended September 30, 2010 represents a 4.72% and 0.76% return on average equity and return on average assets, respectively, compared to 7.48% and 0.68% for the same quarter last year.

Interest Income

Total interest income increased by $3.6 million, or 4.0%, to $94.0 million for the quarter ended September 30, 2010 due to an increase in the average balance of interest earning assets, which was partially offset by a decrease in the average yield earned on interest earning assets. Average interest earning assets increased by $944.9 million, or 14.3%, to $7.571 billion for the quarter ended September 30, 2010 from $6.626 billion for the quarter ended September 30, 2009. The average yield on interest earning assets decreased to 4.95% for the quarter ended September 30, 2010 from 5.42% for the quarter ended September 30, 2009. The average yield on all categories of interest earning assets decreased from the previous period.

Interest income on loans increased by $3.8 million, or 4.7%, to $83.4 million for the quarter ended September 30, 2010 from $79.6 million for the quarter ended September 30, 2009. Average loans receivable increased by $400.8 million, or 7.8%, to $5.569 billion for the quarter ended September 30, 2010 from $5.168 billion for the quarter ended September 30, 2009. This increase is primarily attributable to strong loan demand throughout our market area and a continued increase in market share, as well as the decision to retain most of our one- to four-family mortgage loan production instead of selling into the secondary market as we did throughout the prior year. The average yield on loans receivable decreased to 5.96% for the quarter ended September 30, 2010 from 6.12% for the quarter ended September 30, 2009. The decrease in average yield is primarily attributable to the interest rates on variable rate loans adjusting downward as market rates decreased, as well as the origination of new loans in a generally lower interest rate environment.

Interest income on mortgage-backed securities decreased by $46,000, or 0.7%, to $6.5 million for the quarter ended September 30, 2010 from $6.6 million for the quarter ended September 30, 2009. This decrease is the result of a decrease in the average yield, which decreased to 3.06% for the quarter ended September 30, 2010 from 3.68% for the quarter ended September 30, 2009. The decrease in average yield resulted from the reduction in interest rates for variable rate securities during this period of generally declining market interest rates. The decrease in average yield was partially offset by an increase in average balance, which increased by $139.2 million, or 19.5%, to $853.7 million for the quarter ended September 30, 2010 from $714.5 million for the quarter ended September 30, 2009. The increase in average balance is a result of continuing to deploy the proceeds from our second-step common stock offering, completed in December 2009.

Interest income on investment securities decreased by $379,000, or 9.6%, to $3.6 million for the quarter ended September 30, 2010 from $4.0 million for the quarter ended September 30, 2009. This decrease is due to a decrease in average yield, which decreased to 3.79% for the quarter ended September 30, 2010 from 4.50% for the quarter ended September 30, 2009. The average yield decreased as a result of the purchase of investment securities during a period of generally lower market interest rates. Partially offsetting the decrease in average yield was an increase in the average balance of investment securities, which increased by $26.4 million, or 7.5%, to $378.1 million for the quarter ended September 30, 2010 from $351.7 million for the quarter ended September 30, 2009. The increase in the average balance is a result of investing part of the proceeds of our second-step common stock offering in shorter-term investment securities in order to improve net interest income.

Interest income on interest-earning deposits increased by $271,000, to $524,000 for the quarter ended September 30, 2010 from $253,000 for the quarter ended September 30, 2009. This increase is due to the average balance increasing by $378.4 million, to $706.8 million for the quarter ended September 30, 2010 from $328.4 million for the quarter ended September 30, 2009. The average balance increased due to the placement of the proceeds from our second-step common stock offering in overnight funds while we systematically deploy these funds to originate loans and purchase investments. The average yield decreased slightly to 0.29% for the quarter ended September 30, 2010 from 0.30% for the quarter ended September 30, 2009.

Interest Expense

Interest expense decreased by $6.2 million, or 18.5%, to $27.4 million for the quarter ended September 30, 2010 from $33.6 million for the quarter ended September 30, 2009. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities to 1.75% from 2.25%, which was partially offset by an increase in the average balance of interest-bearing liabilities. Average interest-bearing liabilities increased by $273.2 million, or 4.6%, to $6.202 billion for the quarter ended September 30, 2010 from $5.928 billion for the quarter ended September 30, 2009. The decrease in the cost of funds resulted primarily from a decrease in the level of market interest rates which enabled the Company to reduce the rate of interest paid on most deposit products. The increase in liabilities resulted primarily from deposit growth in all of our markets, particularly low cost deposit products. In addition, during the quarter, we restructured $695.0 million of FHLB borrowings reducing the annual interest cost by 0.22%, while extending the average maturities of these borrowings by approximately 3.5 years.

Net Interest Income

Net interest income increased by $9.8 million, or 17.3%, to $66.7 million for the quarter ended September 30, 2010 from $56.8 million for the quarter ended September 30, 2009. This increase in net interest income was attributable to the factors discussed above, primarily the increase in the balance and change in mix of interest earning assets, and the decrease in market interest rates enabling us to reduce our cost of funds. Our net interest rate spread increased to 3.20% for the quarter ended September 30, 2010 from 3.17% for the quarter ended September 30, 2009, and our net interest margin increased to 3.52% for the quarter ended September 30, 2010 from 3.42% for the quarter ended September 30, 2009.

Provision for Loan Losses

The provision for loan losses increased by $41,000, or 0.4%, to $9.9 million for the quarter ended September 30, 2010 from $9.8 million for the quarter ended September 30, 2009. This increase is primarily a result of an increase in nonperforming loans. Included in the provision for the quarter ended September 30, 2010 was a specific reserve of $683,000 for a loan secured by two hotels in northwestern Pennsylvania, a specific reserve of $331,000 for a loan secured by various residential rental real estate properties located in Maryland and a specific reserve of $1.4 million for a loan secured by a hotel in Florida.

In determining the amount of the current quarter’s provision, we considered the extended length of time of the current economic downturn and the increase in charge-offs over the past year. We also considered that the historical loss factors now include these elevated charge-off levels and determined that these historical loss ratios appropriately represent future losses. Net charge-offs for the quarter ended September 30, 2010 were $8.0 million compared to $8.8 million for the quarter ended September 30, 2009. Annualized net charge-offs to average loans was 0.58% for the quarter ended September 30, 2010. We also considered unemployment levels and bankruptcy filings, declines in real estate values and the impact of these factors on the quality of our loan portfolio. Management analyzes the allowance for loan losses as described in the section entitled “Allowance for Loan Losses.” The provision that is recorded is sufficient, in management’s judgment, to bring this reserve to a level that reflects the losses inherent in our loan portfolio relative to loan mix, economic conditions and historical loss experience. Management believes, to the best of their knowledge, that all known losses as of the balance sheet dates have been recorded.

Noninterest Income

Noninterest income decreased by $157,000, or 1.1%, to $13.8 million for the quarter ended September 30, 2010 from $14.0 million for the quarter ended September 30, 2009. Net impairment charges on investment securities of $392,000 for the quarter ended September 30, 2010, improved by $499,000 compared to the same quarter last year when net impairment charges were $891,000. Net impairment charges decreased as the portfolio experienced less deterioration in credit quality due to market conditions. Service charges and fees increased by $938,000, or 10.6%, to $9.8 million for the quarter ended September 30, 2010 from $8.9 million for the quarter ended September 30, 2009 primarily as a result of our growth in deposit transaction accounts which generate these types of fees. Insurance commission income increased by $662,000, or 90.6%, to $1.4 million for the quarter ended September 30, 2010 from $731,000 for the quarter ended September 30, 2009. This increase is primarily attributable to our acquisition of Veracity Benefits Design, an employee benefits firm specializing in services to employer and employee groups. Offsetting these increases was a decrease in mortgage banking income, which decreased by $576,000, or 43.4%, to $752,000 for the quarter ended September 30, 2010 from $1.3 million for the quarter ended September 30, 2009 and an increase in loss on REO, which increased to $2.0 million for the quarter ended September 30, 2010, from $62,000 for the quarter ended September 30, 2009. The decrease in mortgage banking income is a result of holding substantially all of our one- to four-family mortgage loan production during the current year, while we sold the majority of this production in the prior year. The increase in loss on REO is primarily the result of a write-down on a parcel of land located in south Florida due to further deterioration of its market value.

Noninterest Expense

Noninterest expense increased by $4.0 million, or 9.0%, to $49.0 million for the quarter ended September 30, 2010 from $45.0 million for the same quarter in the prior year. Compensation and employee benefits expense increased by $1.3 million, or 5.5%, to $24.6 million for the quarter ended September 30, 2010 from $23.3 million for the quarter ended September 30, 2009. This increase is primarily due to an increase in health insurance expense, the expense related to the ESOP plan and the addition of Veracity Benefits Design, Inc. Office operations expense increased by $1.2 million, or 36.4% to $4.5 million for the quarter ended September 30, 2010 from $3.3 million for the quarter ended September 30, 2009. This increase was due to a large check kiting fraud, net of probable insurance recoveries. Processing expenses increased by $642,000, or 12.3%, to $5.9 million for the quarter ended September 30, 2010 from $5.2 million for the quarter ended September 30, 2009. This increase is primarily the result of our continued upgrade of systems, including our migration to check imaging. Professional services expense increased by $458,000, or 68.6%, to $1.1 million for the quarter ended September 30, 2010 from $668,000 for the quarter ended September 30, 2009. This increase is due to an increase in consulting expenses related to regulatory compliance efforts and the restructuring of our FHLB borrowings.

Income Taxes

The provision for income taxes increased by $2.1 million, or 53.4%, to $6.1 million for the quarter ended September 30, 2010 from $4.0 million for the quarter ended September 30, 2009. This increase in income tax is primarily a result of an increase in income before income taxes of $5.5 million, or 34.7%. Our effective tax rate for the quarter ended September 30, 2010 was 28.1% compared to 24.7% in the same quarter last year as tax-free income from the investment in municipal securities and BOLI comprised a smaller percentage of earnings in the current period compared to the prior period.

Comparison of operating results for the nine months ended September 30, 2010 and 2009

Net income for the nine months ended September 30, 2010 was $44.8 million, or $0.41 per diluted share, an increase of $13.2 million, or 41.5%, from $31.6 million, or $0.29 per diluted share, for the same period last year. The increase in net income resulted primarily from an increase in net interest income of $19.2 million, a decrease in the provision for loan losses of $779,000 and an increase in noninterest income of $9.8 million. These changes were partially offset by an increase in noninterest expense of $9.5 million and income taxes of $7.1 million. A discussion of significant changes follows. Annualized, net income for the nine months ended September 30, 2010 represents a 4.57% and 0.74% return on average equity and return on average assets, respectively, compared to 6.68% and 0.60% for the same period last year.

Interest Income

Total interest income increased by $3.4 million, or 1.2%, to $277.6 million for the nine months ended September 30, 2010 due to an increase in the average balance of interest earning assets, which was partially offset by a decrease in the average yield earned on interest earning assets. Average interest earning assets increased by $965.5 million, or 14.7%, to $7.524 billion for the nine months ended September 30, 2010 from $6.558 billion for the nine months ended September 30, 2009 primarily as a result of our second-step stock offering which provided cash of $658.0 million. The average yield on interest earning assets decreased to 4.93% for the nine months ended September 30, 2010 from 5.56% for the nine months ended September 30, 2009. The average yield on all categories of interest earning assets decreased from the previous period, except for the yield on interest earning deposits, which increased slightly.

Interest income on loans increased by $5.5 million, or 2.3%, to $245.9 million for the nine months ended September 30, 2010 from $240.4 million for the nine months ended September 30, 2009. Average loans receivable increased by $275.9 million, or 5.3%, to $5.461 billion for the nine months ended September 30, 2010 from $5.185 billion for the nine months ended September 30, 2009. This increase is primarily attributable to strong loan demand throughout our market area and the continued increase in market share, as well as the decision to retain most of our one-to four-family mortgage loan production in the current period instead of selling into the secondary market, as we did throughout the prior year. The average yield on loans receivable decreased to 6.02% for the nine months ended September 30, 2010 from 6.16% for the nine months ended September 30, 2009. The decrease in average yield is primarily attributable to the interest rates on variable rate loans adjusting downward as market interest rates decreased, as well as the origination of new loans in a generally lower interest rate environment.

Interest income on mortgage-backed securities decreased by $1.5 million, or 7.1%, to $19.4 million for the nine months ended September 30, 2010 from $20.9 million for the nine months ended September 30, 2009. This decrease is the result of a decrease in the average yield, which decreased to 3.25% for the nine months ended September 30, 2010 from 3.90% for the nine months ended September 30, 2009. The decrease in average yield resulted from the reduction in interest rates for variable rate securities during this period of generally lower market interest rates. The decrease in average yield was partially offset by an increase in average balance, which increased by $82.1 million, or 11.5%, to $794.7 million for the nine months ended September 30, 2010 from $712.6 million for the nine months ended September 30, 2009. The increase in average balance is a result of continuing to deploy the proceeds from our second-step common stock offering, which was completed in December 2009.

Interest income on investment securities decreased by $1.8 million, or 14.4%, to $10.7 million for the nine months ended September 30, 2010 from $12.5 million for the nine months ended September 30, 2009. This decrease is due to a decrease in average yield, which decreased to 3.84% for the nine months ended September 30, 2010 from 4.58% for the nine months ended September 30, 2009. The average yield decreased as a result of the purchase of investment securities during a period of generally lower market interest rates. The average balance of investment securities increased by $7.2 million, or 2.0%, to $371.6 million for the nine months ended September 30, 2010 from $364.4 million for the nine months ended September 30, 2009.

Interest income on interest-earning deposits increased by $1.2 million, to $1.6 million for the nine months ended September 30, 2010 from $415,000 for the nine months ended September 30, 2009. This increase is due to the average balance increasing by $600.3 million, to $833.2 million for the nine months ended September 30, 2010 from $232.9 million for the nine months ended September 30, 2009. The average balance increased due to the placement of the proceeds from our second-step common stock offering and deposit inflows in overnight funds while we systematically deploy these funds to originate loans and purchase investments. The average yield increased slightly to 0.25% for the nine months ended September 30, 2010 from 0.24% for the nine months ended September 30, 2009.

Interest Expense

Interest expense decreased by $15.9 million, or 15.4%, to $87.1 million for the nine months ended September 30, 2010 from $103.0 million for the nine months ended September 30, 2009. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities to 1.89% from 2.34%, which was partially offset by an increase in the average balance of interest-bearing liabilities of $298.3 million, or 5.1%, to $6.171 billion for the nine months ended September 30, 2010 from $5.872 billion for the nine months ended September 30, 2009. The decrease in the cost of funds resulted primarily from a decrease in the level of market interest rates. The increase in liabilities resulted primarily from deposit growth in all of our markets.

Net Interest Income

Net interest income increased by $19.2 million, or 11.2%, to $190.4 million for the nine months ended September 30, 2010 from $171.2 million for the nine months ended September 30, 2009. This increase in net interest income was primarily attributable to the receipt of $658.0 million of proceeds from our common stock offering, funds which we do not pay interest on, but are being placed in interest earning assets. The receipt of these funds increased our ratio of interest earning assets to interest bearing liabilities to 122.0% for the nine months ended September 30, 2010 from 112.0% for the nine months ended September 30, 2009. Our net interest rate spread decreased to 3.04% for the nine months ended September 30, 2010 from 3.22% for the nine months ended September 30, 2009 while our net interest margin decreased to 3.37% for the nine months ended September 30, 2010 from 3.47% for the nine months ended September 30, 2009.

Provision for Loan Losses

The provision for loan losses decreased by $779,000, or 2.8%, to $26.6 million for the nine months ended September 30, 2010 from $27.3 million for the nine months ended September 30, 2009. Included in the provision for loan losses for the nine months ended September 30, 2010 was a specific reserve of $395,000 for a loan secured by a marina in Florida, a specific reserve of $1.4 million for a loan secured by a hotel in Maryland, a specific reserve of $501,000 for a loan to a car dealership in northwestern Pennsylvania, a specific reserve of $449,000 for a land development located in Maryland, a specific reserve of $612,000 for a loan to a recycling company in northwestern Pennsylvania, a specific reserve of $3.5 million for a land development in southwestern Pennsylvania, a specific reserve of $683,000 for loan secured by two hotels in northwestern Pennsylvania, a specific reserve of $589,000 for a condominium development in southern New York, a specific reserve of $331,000 for a loan secured by retail rental space located in Virginia and a specific reserve of $1.4 million for a loan secured by a hotel in Florida.

In determining the amount of the current period provision, we considered the economic conditions, including unemployment levels and bankruptcy filings, and declines in real estate values and the impact of these factors on the quality of our loan portfolio. Net charge-offs for the nine months ended September 30, 2010 were $19.7 million compared to $14.5 million for the nine months ended September 30, 2009. Annualized net charge-offs to average loans was 0.48% for the nine months ended September 30, 2010 compared to 0.40% for the same period the prior year. Management analyzes the allowance for loan losses as described in the section entitled “Allowance for Loan Losses.” The provision that is recorded is sufficient, in management’s judgment, to bring this reserve to a level that reflects the losses inherent in our loan portfolio relative to loan mix, economic conditions and historical loss experience. Management believes, to the best of their knowledge, that all known losses as of the balance sheet dates have been recorded.

Noninterest Income

Noninterest income increased by $9.8 million, or 27.6%, to $45.2 million for the nine months ended September 30, 2010 from $35.4 million for the nine months ended September 30, 2009. Net impairment charges on investment securities of $707,000 for the nine months ended September 30, 2010, improved by $4.5 million compared to the same period last year when net impairment charges were $5.2 million. Net impairment charges decreased as the portfolio experienced less deterioration in credit quality due to market conditions. Gains on the sale of investment securities increased by $1.8 million to $2.2 million for the nine months ended September 30, 2010 from $377,000 for the nine months ended September 30, 2009. Service charges and fees increased by $3.7 million, or 15.1%, to $28.6 million for the nine months ended September 30, 2010 from $24.9 million for the nine months ended September 30, 2009 primarily as a result of our growth in deposit transaction accounts which generate these types of fees. Trust and other financial services income increased by $1.0 million, or 22.9%, to $5.3 million for the nine months ended September 30, 2010 from $4.3 million for the nine months ended September 30, 2009 as a result of an increase in assets under management. Assets under management have increased to $1.192 billion as of September 30, 2010 from $1.031 billion as of September 30, 2009. Insurance commission income increased by $1.8 million, or 87.7%, to $3.8 million for the nine months ended September 30, 2010 from $2.0 million for the nine months ended September 30, 2009. This increase is primarily attributable to our acquisition of Veracity Benefits Design. Losses on real estate owned decreased because in the nine months ended September 30, 2009 we recorded an impairment charge of approximately $3.9 million related to a parcel of land in Florida that was taken into real estate owned during 2008. During the quarter ended September 30, 2010 we recorded an impairment charge of $1.1 million on the same parcel of land. Offsetting these increases in non-interest income was a decrease in mortgage banking income, which decreased by $5.7 million, or 88.0%, to $773,000 for the nine months ended September 30, 2010 from $6.4 million for the nine months ended September 30, 2009. This decrease is a result of unusually favorable market conditions during most of 2009 when loans could be originated and sold for sizable gains.

Noninterest Expense

Noninterest expense increased by $9.5 million, or 7.0%, to $145.8 million for the nine months ended September 30, 2010 from $136.3 million for the same period in the prior year. Compensation and employee benefits expense increased by $5.4 million, or 7.8%, to $75.4 million for the nine months ended September 30, 2010 from $70.0 million for the nine months ended September 30, 2009. This increase is primarily due to an increase in health insurance expense, the expense related to stock benefit plans and the addition of Veracity Benefits Design, Inc. Office operations expense increased by $1.0 million, or 11.0% to $10.6 million for the nine months ended September 30, 2010 from $9.6 million for the nine months ended September 30, 2009. This increase was due to a large check kiting fraud, net of probable insurance recoveries. Processing expenses increased by $1.6 million, or 10.5%, to $17.1 million for the nine months ended September 30, 2010 from $15.5 million for the nine months ended September 30, 2009. This increase is primarily the result of our continued upgrade of systems, including our migration to check imaging. Marketing expense increased by $1.9 million, or 37.6%, to $6.9 million for the nine months ended September 30, 2010 from $5.0 million for the nine months ended September 30, 2009. This increase was due to the initiation of an aggressive marketing campaign focused on acquiring low cost checking accounts. Also impacting our marketing expense was the cost to advertise our recognition by J. D. Power as the top bank in the mid-Atlantic region for customer satisfaction. Partially offsetting these increases was a decrease in FDIC insurance special assessments. In the prior year, the FDIC levied a special assessment on all insured banks to help replenish the insurance fund. Our assessment was $3.3 million.

Income Taxes

The provision for income taxes increased by $7.1 million, or 62.0%, to $18.5 million for the nine months ended September 30, 2010 from $11.4 million for the nine months ended September 30, 2009. This increase in income tax is primarily a result of an increase in income before income taxes of $20.2 million, or 47.0%. Our effective tax rate for the nine months ended September 30, 2010 was 29.2% compared to 26.5% experienced in the same period last year.

Average Balance Sheet

(Dollars in Thousands)

The following table sets forth certain information relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are calculated using daily averages.

	Three months ended September 30,
	2010							2009
					Avg.							Avg.
	Average				Yield/			Average				Yield/
	Balance		Interest		Cost (f)			Balance		Interest		Cost (f)
ASSETS:
Interest earning assets:
Loans (a) (b) (includes FTE adjustments of $381 and $369, respectively)	$	5,569,014		83,753		6.00	%		5,168,204		80,006		6.15	%
Mortgage-backed securities (c)		853,714		6,534		3.06	%		714,548		6,580		3.68	%
Investment securities (c) (includes FTE adjustments of $1,664 and $1,464, respectively)		378,145		5,243		5.55	%		351,741		5,422		6.17	%
FHLB stock		63,242		-		-			63,143		-		-
Other interest earning deposits		706,829		524		0.29	%		328,447		253		0.30	%
Total interest earning assets (includes FTE adjustments of $2,045 and $1,833, respectively)		7,570,944		96,054		5.06	%		6,626,083		92,261		5.54	%
Noninterest earning assets (d)		591,977							512,804

TOTAL ASSETS		8,162,921							7,138,887

LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
Savings accounts		1,071,708		2,203		0.82	%		842,069		1,591		0.75	%
Now accounts		778,597		244		0.12	%		746,125		555		0.30	%
Money market demand accounts		903,278		1,301		0.57	%		766,742		1,908		0.99	%
Certificate accounts		2,446,317		14,024		2.27	%		2,578,266		19,418		2.99	%
Borrowed funds (e)		898,618		8,150		3.60	%		892,081		8,665		3.85	%
Debentures		103,094		1,437		5.45	%		103,094		1,449		5.50	%

Total interest bearing liabilities		6,201,612		27,359		1.75	%		5,928,377		33,586		2.25	%
Noninterest bearing liabilities		648,905							566,250
Total liabilities		6,850,517							6,494,627
Shareholders' equity		1,312,404							644,260

TOTAL LIABILITIES AND EQUITY	$	8,162,921							7,138,887

Net interest income/ Interest rate spread				68,695		3.31	%				58,675		3.29	%

Net interest earning assets/ Net interest margin	$	1,369,332				3.63	%		697,706				3.54	%

Ratio of interest earning assets to interest bearing liabilities		1.22X							1.12X

(a) Average gross loans include loans held as available-for-sale and loans placed on nonaccrual status.

(b) Interest income includes accretion/ amortization of deferred loan fees/ expenses, which were not material.

(d) Average balances include the effect of unrealized gains or losses on securities held as available-for-sale.

(e) Average balances include FHLB borrowings, securities sold under agreements to repurchase and other borrowings.

(f) Annualized. Shown on a fully tax-equivalent basis (“FTE”). The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: Loans – 5.96% and 6.12%; respectively, Investment securities – 3.79% and 4.50%; respectively, interest-earning assets – 4.95% and 5.42%; respectively. GAAP basis net interest rate spreads were 3.20% and 3.17%, respectively and GAAP basis net interest margins were 3.52% and 3.42%, respectively.

Rate/ Volume Analysis

(Dollars in Thousands)

The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affect the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) net change. Changes that cannot be attributed to either rate or volume have been allocated to both rate and volume.

Three months ended September 30, 2010 and 2009

							Net
	Rate			Volume			Change
Interest earning assets:
Loans	$	(2,415	)		6,162			3,747
Mortgage-backed securities		(1,328	)		1,282			(46	)
Investment securities		(586	)		407			(179	)
FHLB stock		-			-			-
Other interest-earning deposits		(20	)		291			271
Total interest-earning assets		(4,349	)		8,142			3,793

Interest-bearing liabilities:
Savings accounts		159			453			612
Now accounts		(335	)		24			(311	)
Money market demand accounts		(947	)		340			(607	)
Certificate accounts		(4,519	)		(875	)		(5,394	)
Borrowed funds		(578	)		63			(515	)
Debentures		(12	)		0			(12	)
Total interest-bearing liabilities		(6,232	)		5			(6,227	)

Net change in net interest income	$	1,883			8,137			10,020

Average Balance Sheet

(Dollars in Thousands)

	Nine months ended September 30,
	2010							2009
					Avg.							Avg.
	Average				Yield/			Average				Yield/
	Balance		Interest		Cost (f)			Balance		Interest		Cost (f)
ASSETS:
Interest earning assets:
Loans (a) (b) (includes FTE adjustments of $1,089 and $1,204, respectively)	$	5,461,244		246,941		6.05	%		5,185,359		241,604		6.19	%
Mortgage-backed securities (c)		794,691		19,385		3.25	%		712,593		20,858		3.90	%
Investment securities (c) (includes FTE adjustments of $4,645 and $4,511, respectively)		371,587		15,358		5.51	%		364,437		17,025		6.23	%
FHLB stock		63,242		-		-			63,143		-
Other interest earning deposits		833,157		1,601		0.25	%		232,852		415		0.24	%
Total interest earning assets (includes FTE adjustments of $5,734 and $5,715, respectively)		7,523,921		283,285		5.04	%		6,558,384		279,902		5.67	%
Noninterest earning assets (d)		577,252							491,480

TOTAL ASSETS		8,101,173							7,049,864

LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
Savings accounts		1,022,259		6,472		0.85	%		822,401		4,649		0.76	%
Now accounts		772,584		962		0.17	%		733,714		2,102		0.38	%
Money market demand accounts		881,983		4,768		0.72	%		733,956		6,703		1.22	%
Certificate accounts		2,492,344		45,947		2.46	%		2,526,660		59,101		3.13	%
Borrowed funds (e)		898,320		24,728		3.68	%		948,981		26,020		3.67	%
Debentures		103,094		4,263		5.45	%		106,531		4,398		5.44	%

Total interest bearing liabilities		6,170,584		87,140		1.89	%		5,872,243		102,973		2.34	%
Noninterest bearing liabilities		623,875							545,623
Total liabilities		6,794,459							6,417,866
Shareholders' equity		1,306,714							631,998

TOTAL LIABILITIES AND EQUITY	$	8,101,173							7,049,864

Net interest income/ Interest rate spread				196,145		3.15	%				176,929		3.33	%

Net interest earning assets/ Net interest margin	$	1,353,337				3.48	%		686,141				3.60	%

Ratio of interest earning assets to interest bearing liabilities		1.22X							1.12X

(a) Average gross loans include loans held as available-for-sale and loans placed on nonaccrual status.

(b) Interest income includes accretion/ amortization of deferred loan fees/ expenses, which were not material.

(d) Average balances include the effect of unrealized gains or losses on securities held as available-for-sale.

(e) Average balances include FHLB borrowings, securities sold under agreements to repurchase and other borrowings.

(f) Annualized. Shown on a fully tax-equivalent basis (“FTE”). The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. GAAP basis yields were: Loans – 6.02% and 6.16%; respectively, Investment securities – 3.84% and 4.58%; respectively, interest-earning assets – 4.93% and 5.56%; respectively. GAAP basis net interest rate spreads were 3.04% and 3.22%, respectively and GAAP basis net interest margins were 3.37% and 3.47%, respectively.

Rate/ Volume Analysis

(Dollars in Thousands)

Nine months ended September 30, 2010 and 2009

							Net
	Rate			Volume			Change
Interest earning assets:
Loans	$	(7,471	)		12,808			5,337
Mortgage-backed securities		(3,876	)		2,403			(1,473	)
Investment securities		(2,001	)		334			(1,667	)
FHLB stock		-			-			-
Other interest-earning deposits		74			1,112			1,186
Total interest-earning assets		(13,274	)		16,657			3,383

Interest-bearing liabilities:
Savings accounts		625			1,198			1,823
Now accounts		(1,251	)		111			(1,140	)
Money market demand accounts		(3,287	)		1,352			(1,935	)
Certificate accounts		(12,436	)		(718	)		(13,154	)
Borrowed funds		102			(1,394	)		(1,292	)
Debentures		7			(142	)		(135	)
Total interest-bearing liabilities		(16,240	)		407			(15,833	)

Net change in net interest income	$	2,966			16,250			19,216

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As the holding company for a savings bank, one of our primary market risks is interest rate risk. Interest rate risk is the sensitivity of net interest income to variations in interest rates over a specified time period. The sensitivity results from differences in the time periods in which interest rate sensitive assets and liabilities mature or reprice. We attempt to control interest rate risk by matching, within acceptable limits, the repricing periods of our assets and liabilities. We have attempted to limit our exposure to interest sensitivity by increasing core deposits, enticing customers to extend certificates of deposit maturities, borrowing funds with fixed-rates and longer maturities and by shortening the maturities of our assets by emphasizing the origination of more short-term fixed rate loans and adjustable rate loans. We also continue to sell a portion of the long-term, fixed-rate mortgage loans that we originate. In addition, we purchase shorter term or adjustable-rate investment securities and adjustable-rate mortgage-backed securities.

We have an Asset/ Liability Committee consisting of several members of management which meets monthly to review market interest rates, economic conditions, the pricing of interest earning assets and interest bearing liabilities and our balance sheet structure. On a quarterly basis, this Committee also reviews our interest rate risk position and the Bank’s cash flow projections.

Our Board of Directors has a Risk Management Committee which meets quarterly and reviews interest rate risks and trends, our interest sensitivity position, our liquidity position and the market risk inherent in our investment portfolio.

In an effort to assess market risk, we utilize a simulation model to determine the effect of immediate incremental increases and decreases in interest rates on net income and the market value of our equity. Certain assumptions are made regarding loan prepayments and decay rates of passbook and NOW accounts. Because it is difficult to accurately project the market reaction of depositors and borrowers, the effect of actual changes in interest rates on these assumptions may differ from simulated results. We have established the following guidelines for assessing interest rate risk:

Net income simulation. Given a parallel shift of 2% in interest rates, the estimated net income may not decrease by more than 20% within a one-year period.

Market value of equity simulation. The market value of equity is the present value of our assets and liabilities. Given a parallel shift of 2% in interest rates, the market value of equity may not decrease by more than 30% of total shareholders’ equity.

The following table illustrates the simulated impact of a 1% or 2% upward or 1% or 2% downward movement in interest rates on net income, return on average equity, earnings per share and market value of equity. This analysis was prepared assuming that interest-earning asset levels at September 30, 2010 remain constant. The impact of the rate movements was computed by simulating the effect of an immediate and sustained shift in interest rates over a twelve-month period from September 30, 2010 levels.

	Increase						Decrease
Parallel shift in interest rates over the next 12 months		1.0	%		2.0	%		1.0	%		2.0	%
Projected percentage increase/ (decrease) in net income		9.1	%		9.6	%		2.3	%		(2.9	)%
Projected increase/ (decrease) in return on average equity		9.1	%		9.6	%		2.3	%		(2.9	)%
Projected increase/ (decrease) in earnings per share	$	0.07		$	0.07		$	0.02		$	(0.02	)
Projected percentage increase/ (decrease) in market value of equity		(3.9	)%		(11.5	)%		(6.5	)%		(10.0	)%

The figures included in the table above represent projections that were computed based upon certain assumptions including prepayment rates and decay rates. These assumptions are inherently uncertain and, as a result, we cannot precisely predict the impact of changes in interest rates. Actual results may differ significantly due to timing, magnitude and frequency of interest rate changes and changes in market conditions.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision of and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, these disclosure controls and procedures were effective in timely alerting them to the material information relating to the Company (or the consolidated subsidiaries) required to be included in our periodic SEC filings.

There were no changes in internal controls over financial reporting during the period covered by this report or in other factors that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Northwest Bancshares, Inc. and its subsidiaries are subject to a number of asserted and unasserted claims encountered in the normal course of business. Management believes that the aggregate liability, if any, that may result from such potential litigation will not have a material adverse effect on our financial statements.

Item 1A. Risk Factors

There are no material changes to the risk factors as previously discussed in Item 1A, to Part 2, Item 1A of our June 30, 2010 Quarterly Report on Form 10-Q or Part I of our 2009 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

a.)

Not applicable.

b.)

Not applicable.

c.)

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Removed and Reserved

Item 5. Other Information

Not applicable.

Item 6. Exhibits

31.1	Certification of the Company’s Chief Executive Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of the Company’s Chief Financial Officer pursuant to Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.

	NORTHWEST BANCSHARES, INC.
	(Registrant)

Date: November 9, 2010	By:	/s/ Gerald J. Ritzert
		Gerald J. Ritzert
		Controller
		(Duly Authorized Officer and Principal
		Accounting Officer of the Registrant)

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Northwest Bancshares (NWBI) 10-Q2010 Q3 Quarterly report

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