NORTHWEST BANCORP INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended March 31, 2005


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from to

Commission File Number 0-23817

Northwest Bancorp, Inc.

(Exact name of registrant as specified in its charter)


United States of America		23-2900888

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


301 Second Avenue, Warren, Pennsylvania		16365

(Address of principal executive offices)	(Zip Code)

(814) 726-2140

(Registrant’s telephone number, including area code)

Not Applicable

(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 þ No o

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

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

Common Stock ($.10 par value) 50,825,387 shares outstanding as of April 30, 2005

ITEM 1. FINANCIAL STATEMENTS

NORTHWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share data)


	March 31,			June 30,
	2005			2004
Assets
Cash and cash equivalents	$	74,095			57,466
Interest-earning deposits in other financial institutions		103,852			174,199
Federal funds sold and other short-term investments		21,840			160,058
Marketable securities available-for-sale (amortized cost of $692,975 and $858,569)		693,819			855,679
Marketable securities held-to-maturity (market value of $735,719 and $601,738)		732,783			601,542

Total cash, interest-earning deposits and marketable securities		1,626,389			1,848,944

Mortgage loans - one- to four- family		2,612,480			2,563,251
Commercial real estate loans		513,733			446,675
Consumer loans		1,049,067			924,786
Commercial business loans		127,841			149,899

Total loans receivable		4,303,121			4,084,611
Allowance for loan losses		(30,700	)		(30,670	)

Loans receivable, net		4,272,421			4,053,941

Federal Home Loan Bank stock, at cost		32,191			38,884
Accrued interest receivable		25,523			22,578
Real estate owned, net		6,530			3,951
Premises and equipment, net		95,489			82,417
Bank owned life insurance		103,517			100,090
Goodwill		142,078			142,078
Other intangible assets		12,942			16,429
Other assets		23,870			33,936

Total assets	$	6,340,950		$	6,343,248


Liabilities and Shareholders’ equity
Liabilities:
Noninterest-bearing demand deposits		253,434			220,667
Interest-bearing demand deposits		663,582			668,475
Savings deposits		1,764,777			1,970,303
Time deposits		2,504,669			2,332,176

Total deposits		5,186,462			5,191,621

Borrowed funds		435,033			449,147
Advances by borrowers for taxes and insurance		23,943			29,607
Accrued interest payable		4,046			4,280
Other liabilities		21,513			16,059
Junior subordinated deferrable interest debentures held by trusts that issued guaranteed capital debt securities		102,062			102,062

Total liabilities		5,773,059			5,792,776

Shareholders’ equity:
Preferred stock, $.10 par value: 50,000,000 and 10,000,000 shares authorized, respectively, no share issued		—			—
Common stock, $.10 par value: 500,000,000 and 100,000,000 shares authorized, 50,824,417 and 47,960,287 issued and outstanding, respectively		5,082			4,796
Paid-in capital		206,134			211,545
Retained earnings		359,895			336,164
Accumulated other comprehensive income:
Net unrealized gain on securities available-for-sale, net of income taxes		2,614			(2,033	)
Unearned compensation - recognition and retention plan		(5,834	)		—

		567,891			550,472

Total liabilities and shareholders’ equity	$	6,340,950			6,343,248

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)


	Three months ended						Nine months ended
	March 31,						March 31,
	2005			2004			2005			2004
Interest income:
Loans receivable	$	65,801			61,752		$	193,799			181,681
Mortgage-backed securities		6,669			7,302			19,955			19,629
Taxable investment securities		5,388			3,781			13,076			11,664
Tax-free investment securities		3,057			3,131			9,219			9,053
Interest-earning deposits		837			719			3,304			2,562

Total interest income		81,752			76,685			239,353			224,589

Interest expense:
Deposits		27,462			25,577			80,788			80,642
Borrowed funds		6,967			6,925			21,023			21,199

Total interest expense		34,429			32,502			101,811			101,841

Net interest income		47,323			44,183			137,542			122,748
Provision for loan losses		2,906			1,659			6,909			5,137

Net interest income after provision for loan losses		44,417			42,524			130,633			117,611

Noninterest income:
Service charges and fees		4,011			3,503			12,033			10,377
Trust and other financial services income		1,107			1,091			3,219			2,940
Insurance commission income		604			183			1,625			542
Gain on sale of marketable securities, net		381			1,210			523			5,107
Gain (loss) on sale of loans, net		(76	)		(93	)		(211	)		308
Gain on sale of real estate owned, net		794			501			946			1,561
Income from bank owned life insurance		1,083			1,126			3,323			3,274
Other operating income		654			770			2,211			1,620

Total noninterest income		8,558			8,291			23,669			25,729

Noninterest expense:
Compensation and employee benfits		17,981			16,651			52,990			48,440
Premises and occupancy costs		4,720			4,372			13,038			12,007
Office operations		2,716			2,713			8,393			8,158
Processing expenses		2,649			2,452			7,671			7,028
Advertising		1,359			839			3,060			2,011
Amortization of other intangible assets		1,028			1,392			3,486			3,276
Other expenses		2,276			2,375			6,602			6,200

Total noninterest expense		32,729			30,794			95,240			87,120


Income before income taxes		20,246			20,021			59,062			56,220

Federal and state income taxes		5,983			5,832			17,365			16,433


Net income	$	14,263		$	14,189		$	41,697			39,787


Basic earnings per share	$	0.28		$	0.30		$	0.84			0.83


Diluted earnings per share	$	0.28		$	0.29		$	0.83			0.82

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in thousands)

Three months ended March 31, 2004


										Accum.
										Other		Unearned		Total
	Common Stock				Paid-in		Retained			Comprehensive		Compensation -		Shareholders’
	Shares		Amount		Capital		Earnings			Income		RRP plan		Equity
Beginning balance at December 31, 2003		47,788,950	$	4,779		200,975		315,059			8,609		—	$	529,422

Comprehensive income:
Net income		—		—		—		14,189			—		—		14,189
Change in unrealized gain on securities, net of tax and reclassification adjustment		—		—		—		—			1,425		—		1,425

Total comprehensive income		—		—		—		14,189			1,425		—		15,614

Exercise of stock options		144,595		14		450		—			—		—		464

Tax benefit for excess of fair value above cost of stock option plans		—		—		695		—			—		—		695

Dividends paid ($0.10 per share)		—		—		—		(1,970	)		—		—		(1,970	)


Ending balance at March 31, 2004		47,933,545	$	4,793		202,120		327,278			10,034		—	$	544,225

Three months ended March 31, 2005


										Accum.
										Other			Unearned			Total
	Common Stock				Paid-in		Retained			Comprehensive			Compensation -			Shareholders’
	Shares		Amount		Capital		Earnings			Income			RRP plan			Equity
Beginning balance at December 31, 2004		50,485,654	$	5,049		199,924		351,691			7,449			—		$	564,113

Comprehensive income:
Net income		—		—		—		14,263			—			—			14,263
Change in unrealized gain on securities, net of tax and reclassification adjustment		—		—		—		—			(4,835	)		—			(4,835	)

Total comprehensive income		—		—		—		14,263			(4,835	)		—			9,428

Exercise of stock options		60,532		6		278		—			—			—			284

Recognition and retention plan, net		278,231		27		5,932		—			—			(5,834	)		125

Dividends paid ($0.12 per share)		—		—		—		(6,059	)		—			—			(6,059	)


Ending balance at March 31, 2005		50,824,417	$	5,082		206,134		359,895			2,614			(5,834	)	$	567,891

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in thousands)

Nine months ended March 31, 2004


										Accum.
										Other		Unearned		Total
	Common Stock				Paid-in		Retained			Comprehensive		Compensation -		Shareholders’
	Shares		Amount		Capital		Earnings			Income		RRP plan		Equity
Beginning balance at June 30, 2003		47,693,981	$	4,769		87,787		292,659			9,859		—	$	395,074

Comprehensive income:
Net income		—		—		—		39,787			—		—		39,787
Change in unrealized gain on securities, net of tax and reclassification adjustment		—		—		—		—			175		—		175

Total comprehensive income		—		—		—		39,787			175		—		39,962

Exercise of stock options		239,564		24		834		—			—		—		858

Tax benefit for excess of fair value above cost of stock option plans		—		—		695		—			—		—		695

Proceeds from incremental stock offering, net of related expenses of $2,196		—		—		112,804		—			—		—		112,804

Dividends paid ($0.30 per share)		—		—		—		(5,168	)		—		—		(5,168	)


Ending balance at March 31, 2004		47,933,545	$	4,793		202,120		327,278			10,034		—	$	544,225

Nine months ended March 31, 2005


											Accum.
											Other			Unearned			Total
	Common Stock				Paid-in			Retained			Comprehensive			Compensation -			Shareholders’
	Shares		Amount		Capital			Earnings			Income			RRP plan			Equity
Beginning balance at June 30, 2004		47,960,287	$	4,796		211,545			336,164			(2,033	)		—		$	550,472

Comprehensive income:
Net income		—		—		—			41,697			—			—			41,697
Change in unrealized gain on securities, net of tax and reclassification adjustment		—		—		—			—			4,647			—			4,647

Total comprehensive income		—		—		—			41,697			4,647			—			46,344

Exercise of stock options		160,140		16		670			—			—			—			686

Issuance of common shares in exchange for Leeds and First Carnegie shares		2,425,759		243		(12,013	)		(230	)		—			—			(12,000	)

Recognition and retention plan, net		278,231		27		5,932			—			—			(5,834	)		125

Dividends paid ($0.36 per share)		—		—		—			(17,736	)		—			—			(17,736	)


Ending balance at March 31, 2005		50,824,417	$	5,082		206,134			359,895			2,614			(5,834	)	$	567,891

See accompanying notes to unaudited consolidated financial statements

NORTHWEST BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Three months ended						Nine months ended
	March 31,						March 31,
	2005			2004			2005			2004
OPERATING ACTIVITIES:
Net Income	$	14,263			14,189			41,697			39,787
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,906			1,659			6,909			5,137
Net gain on sale of assets		(1,099	)		(1,618	)		(1,258	)		(6,976	)
Net depreciation, amortization and accretion		2,403			6,706			7,690			11,394
Decrease (increase) in other assets		(1,251	)		3,377			4,627			18,457
Decrease (increase) in other liabilities		7,827			3,295			5,220			(9,595	)
Net amortization of premium/ discount on marketable securities		649			754			2,024			6,443
Noncash compensation expense related to stock benefit plans		125			—			125			—
Other		—			(51	)		—			(96	)

Net cash provided by operating activities		25,823			28,311			67,034			64,551

INVESTING ACTIVITIES:
Purchase of marketable securities held-to-maturity		—			(79,876	)		(172,540	)		(84,030	)
Purchase of marketable securities available-for-sale		(48,441	)		(57,990	)		(228,605	)		(586,504	)
Proceeds from maturities and principal reductions of marketable securities held-to-maturity		43,198			54,049			186,617			323,315
Proceeds from maturities and principal reductions of marketable securities available-for-sale		49,717			131,300			226,498			517,167
Proceeds from sales of marketable securities, available-for-sale		9,943			62,235			22,713			280,792
Loan originations		(337,971	)		(248,399	)		(1,037,598	)		(1,081,488	)
Proceeds from loan maturities and principal reductions		262,423			187,551			741,883			738,866
Proceeds from loan sales		17,772			19,972			50,602			68,458
Sale of FHLB stock		3,607			482			6,693			13,875
Proceeds from sale of real estate owned		2,797			3,801			4,596			7,128
Net (purchase) sale of real estate owned for investment		(165	)		(380	)		10			(226	)
Purchase of premises and equipment		(3,698	)		(7,204	)		(18,519	)		(17,006	)
Acquisitions, net of cash received		—			—			—			(95,167	)

Net cash used by investing activities		(818	)		65,541			(217,650	)		85,180

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


	Three months ended						Nine months ended
	March 31,						March 31,
	2005			2004			2005			2004
FINANCING ACTIVITIES:
Increase (decrease) in deposits, net	$	(1,080	)		12,175			(5,119	)		(155,118	)
Repayments of long-term borrowings		(5,014	)		(343	)		(7,542	)		(203,050	)
Net increase (decrease) in short-term borrowings		1,090			(5,019	)		(5,945	)		(2,148	)
Increase (decrease) in advances by borrowers for taxes and insurance		1,456			(297	)		(5,664	)		(4,571	)
Cash dividends paid		(6,059	)		(1,970	)		(17,736	)		(5,168	)
Proceeds from stock offering, net		—			—			—			112,804
Proceeds from stock options exercised		284			464			686			858

Net cash provided by financing activities		(9,323	)		5,010			(41,320	)		(256,393	)

Net decrease in cash and cash equivalents		15,682			98,862			(191,936	)		(106,662	)


Cash and cash equivalents at beginning of period	$	184,105			335,307			391,723			540,831
Net decrease in cash and cash equivalents		15,682			98,862			(191,936	)		(106,662	)

Cash and cash equivalents at end of period		199,787			434,169			199,787			434,169


Cash paid during the period for:
Interest on deposits and borrowings (including interest credited to deposit accounts of $23,993, $22,212 $69,441 and $72,070, respectively)		34,454			32,451			101,595			101,718

Income taxes		1,950			85			15,156			3,209


Business acquisitions:
Fair value of assets acquired	$	—			—			—			908,873
Cash paid		—			—			—			(95,167	)

Liabilities assumed		—			—			—			813,706


Non-cash activities:
Loans transferred to real estate owned		1,259			750			6,274			2,789

Sale of real estate owned financed by the Company		279			—			896			317

See accompanying notes to unaudited consolidated financial statements

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation and Informational Disclosure

The Northwest group of companies is organized in a two-tier holding company structure. Northwest Bancorp, MHC, a federal mutual holding company, owns approximately 60% of the outstanding shares of common stock of Northwest Bancorp, Inc. (the “Company”). The Company is a federally-chartered savings and loan holding company that is regulated by the Office of Thrift Supervision (“OTS”). The primary activity of the Company is the ownership of all of the issued and outstanding common stock of Northwest Savings Bank, a Pennsylvania-chartered savings bank and Jamestown Savings Bank, a New York-chartered savings bank (the “Banks”). Together the Banks operate 152 community banking offices throughout northwest, southwest and central Pennsylvania, western New York, eastern Ohio and eastern Maryland. On May 20, 2005 the Company is scheduled to merge the two banks under the Northwest Savings Bank charter. As a result, the Company will recognize the efficiency of operating one bank while enhancing customer convenience. It is not expected that this combination will have a material impact on the consolidated financial statements of the Company.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with instructions for Form 10-Q and, accordingly, do not include the necessary footnote information for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments have been included which are necessary for a fair presentation of financial position and results of operations. 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 fiscal year ended June 30, 2004. Certain items previously reported have been reclassified to conform to the current period’s reporting format. The results of operations for the three months and nine months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the entire fiscal year.

Dollar amounts contained in this document have been revised to include the operations and financial condition of Leeds Federal Savings Bank (“Leeds Federal”) beginning January 24, 2003, the date Leeds Federal was acquired by Northwest Bancorp, MHC. On September 10, 2004, in exchange for 100% of the outstanding shares of Leeds Federal, the Company cancelled a $12.0 million loan receivable from, and issued 1,334,859 shares to, Northwest Bancorp, MHC. Concurrent with the Company’s acquisition of Leeds Federal, the Company merged Leeds Federal into Northwest Savings Bank.

Dollar amounts contained in this document have also been revised to include the operations and financial condition of First Carnegie Deposit (“First Carnegie”) beginning May 1, 2004, the date First Carnegie was acquired by Northwest Bancorp, MHC. On November 15, 2004, in exchange for 100% of the outstanding shares of First Carnegie, the Company issued 1,090,900 shares to Northwest Bancorp, MHC. Concurrent with the Company’s acquisition of First Carnegie, the Company merged First Carnegie into Northwest Savings Bank.

Pro forma cost of stock options

The Company currently accounts for its stock-based compensation plans under the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees” utilizing the intrinsic-value-based method, on which APB No. 25 is based. In accordance with SFAS No. 123 “Accounting for Stock-based Compensation,” (“SFAS 123”) the Company previously adopted the disclosure-only option and continues to apply the provisions of APB No. 25, for financial statement purposes. The Black-Scholes option-pricing model was used to determine the fair value estimates for disclosure purposes.

Had compensation costs for the Stock Option Plan been determined consistent with the fair value method of SFAS 123, which requires entities to expense an estimated fair value of employee stock options granted, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated

below (in thousands, except per share amounts):



	Three months ended						Nine months ended
	March 31,						March 31,
	2005			2004			2005			2004
Net income:
As reported	$	14,263			14,189			41,697			39,787
Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax		(229	)		(96	)		(749	)		(422	)

Pro forma		14,034			14,093			40,948			39,365


Basic earnings per share:
As reported		0.28			0.30			0.84			0.83
Pro forma		0.28			0.29			0.83			0.82

Diluted earnings per share:
As reported		0.28			0.29			0.83			0.82
Pro forma		0.28			0.29			0.82			0.81

On March 16, 2005, the Company issued 278,231 shares to participants of the Northwest Bancorp, Inc. 2004 Recognition and Retention Plan (“RRP”). RRP share vest over a five-year period and dividends will be paid beginning with the dividend payable on May 16, 2005.

Stock-based employee compensation expense of $125,000 relating to the Company’s RRP was included in reported net income during the three and nine months ended March 31, 2005. No stock-based employee compensation was included in reported net income during the three and nine months ended March 31, 2004.

(2) Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Northwest Savings Bank (“Northwest”), Jamestown Savings Bank (“Jamestown”), Northwest Consumer Discount Company, Northwest Finance Company, Northwest Financial Services, Inc., Northwest Capital Group, Inc., Boetger & Associates, Inc., Rid-Fed, Inc., Allegheny Services, Inc. and Great Northwest Corporation. All significant intercompany items have been eliminated.

(3) Business Segments

The Company has identified two reportable business segments based upon the operating approach currently used by management. The Community Banks segment includes the savings bank subsidiaries of the Company: Northwest and Jamestown, as well as the subsidiaries of the savings banks that provide similar products and services. The savings banks are community-oriented institutions that offer a full array of traditional deposit and loan products, including mortgage, consumer and commercial loans, as well as trust, investment management and brokerage services typically offered by a full-service financial institution. The Consumer Finance segment is comprised of Northwest Consumer Discount Company, a subsidiary of Northwest, which operates 47 offices in Pennsylvania and two offices in southwestern New York. The subsidiary compliments the services of the banks by offering personal installment loans for a variety of consumer and real estate products. This activity is funded primarily through its intercompany borrowing

relationship with Allegheny Services, Inc. Net income is primarily used by management to measure segment performance. The following tables provide financial information for these segments. The “All Other” column represents the parent company and elimination entries necessary to reconcile to the consolidated amounts presented in the financial statements.

As of or for the three months ended:



	Community		Consumer
March 31, 2005 ($ in 000’s)	Banks		Finance		All Other *			Consolidated
External interest income	$	77,338		4,339		75			81,752
Intersegment interest income		1,407		—		(1,407	)		—
Interest expense		32,340		1,484		605			34,429
Provision for loan losses		2,270		636		—			2,906
Noninterest income		7,865		632		61			8,558
Noninterest expense		30,285		2,106		338			32,729
Income tax expense (benefit)		6,452		306		(775	)		5,983
Net income		15,263		439		(1,439	)		14,263
Total assets	$	6,304,567		122,071		(85,688	)		6,340,950



	Community		Consumer
March 31, 2004 ($ in 000’s)	Banks		Finance		All Other *			Consolidated
External interest income	$	72,143		4,393		149			76,685
Intersegment interest income		1,118		—		(1,118	)		—
Interest expense		30,599		1,195		708			32,502
Provision for loan losses		1,010		649		—			1,659
Noninterest income		7,979		254		58			8,291
Noninterest expense		28,302		2,041		451			30,794
Income tax expense (benefit)		6,247		315		(730	)		5,832
Net income		15,082		447		(1,340	)		14,189
Total assets	$	6,122,835		121,692		22,486			6,267,013

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

As of or for the nine months ended:



	Community		Consumer
March 31, 2005 ($ in 000’s)	Banks		Finance		All Other *			Consolidated
External interest income	$	225,892		12,985		476			239,353
Intersegment interest income		3,909		—		(3,909	)		—
Interest expense		95,656		4,141		2,014			101,811
Provision for loan losses		4,880		2,029		—			6,909
Noninterest income		21,718		1,771		180			23,669
Noninterest expense		88,413		5,881		946			95,240
Income tax expense (benefit)		18,428		1,121		(2,184	)		17,365
Net income		44,142		1,584		(4,029	)		41,697
Total assets	$	6,304,567		122,071		(85,688	)		6,340,950



	Community		Consumer
March 31, 2004 ($ in 000’s)	Banks		Finance		All Other *			Consolidated
External interest income	$	210,913		13,224		452			224,589
Intersegment interest income		3,401		—		(3,401	)		—
Interest expense		96,276		3,636		1,929			101,841
Provision for loan losses		3,133		2,004		—			5,137
Noninterest income		24,741		804		184			25,729
Noninterest expense		80,124		5,973		1,023			87,120
Income tax expense (benefit)		17,446		1,002		(2,015	)		16,433
Net income		42,076		1,413		(3,702	)		39,787
Total assets	$	6,122,835		121,692		22,486			6,267,013

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

(4) Business Combination

On August 31, 2003, the Company completed the acquisition of First Bell Bancorp, Inc., and its subsidiary Bell Federal Savings and Loan Association of Bellevue (collectively “Bell”), both headquartered in Bellevue, Pennsylvania. The acquisition included the seven offices of Bell, assets of $935.9 million including cash of $22.6 million, investments of $544.8 million, loans of $224.5 million, goodwill of $53.1 million, core deposit intangible of $15.1 million, noncompete intangible of $1.1 million, and other assets of $74.7 million. Liabilities assumed in the acquisition of $813.7 million included deposits of $609.4 million, long-term debt of $186.7 million and other liabilities of $17.6 million. Under terms of the agreement, shareholders of First Bell Bancorp, Inc. received $26.25 in cash for each share of common stock, or approximately $114.3 million. The acquisition created approximately $53.1 million of goodwill, none of which is tax deductible, $15.1 million of core deposit intangible with an estimated life of seven years and a non-compete intangible of $1.1 million with an estimated life of one year. The results of operations have been included in the consolidated financial statements beginning September 1, 2003.

(5) Goodwill and Other Intangible Assets

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


	March 31,			June 30,
	2005			2004
Amortizable intangible assets:
Core deposit intangibles – gross	$	21,006			21,006
Less: accumulated amortization		(8,668	)		(5,507	)

Core deposit intangibles – net	$	12,338			15,499


Customer and Contract intangible assets – gross		1,881			1,881
Less: accumulated amortization		(1,277	)		(951	)


Customer and Contract intangible assets – net	$	604			930

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


	Community			Consumer
	Banks			Finance		Total
Balance at June 30, 2003	$	86,618			893		87,511

Goodwill acquired		62,051			420		62,471

Impairment losses		(7,904	)		—		(7,904	)


Balance at June 30, 2004		140,765			1,313		142,078

Goodwill acquired		—			—		—

Impairment losses		—			—		—

Balance at March 31, 2005	$	140,765			1,313		142,078

The following information shows the actual aggregate amortization expense for the current quarter, the prior year’s quarter, and prior fiscal year 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 3/31/04	$	1,392

For the three months ended 3/31/05		1,028

For the nine months ended 3/31/04		3,276

For the nine months ended 3/31/05		3,486

For the fiscal year ended 6/30/04		4,706

For the fiscal year ended 6/30/05		4,509

For the fiscal year ended 6/30/06		3,601

For the fiscal year ended 6/30/07		2,999

For the fiscal year ended 6/30/08		2,298

For the fiscal year ended 6/30/09		1,752

For the fiscal year ended 6/30/10		827

(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 credit policies. Collateral may be obtained based on management’s credit assessment of the customer. At March 31, 2005, the maximum potential amount of future payments the Company could be required to make under these standby letters of credit was $13.7 million, of which $10.8 million is fully collateralized. At March 31, 2005, the Company had a liability of $81,000 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 common stock equivalents or 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. Option grants to purchase 220,780 and 224,546 shares of common stock at $25.49 and $22.93, respectively, per share were outstanding during the quarter but were not included in the computation of diluted earnings per share 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 per share amounts):


	Three months ended				Nine months ended
	March 31,				March 31,
	2005		2004		2005		2004
Reported net income	$	14,263		14,189		41,697		39,787

Weighted average common shares outstanding		50,573		47,848		49,593		47,773
Common stock equivalents due to effect of stock options		424		637		489		597


Total weighted average common shares and equivalents		50,997		48,485		50,082		48,370


Basic earnings per share:	$	0.28		0.30		0.84		0.83


Diluted earnings per share:	$	0.28		0.29		0.83		0.82

(8) Pension and Post-retirement benefits (in thousands):

Components of Net Periodic Benefit Cost


	Three months ended March 31,
	Pension Benefits						Other Post-retirement Benefits
	2005			2004			2005		2004
Service cost	$	938			831			—		—
Interest cost		776			664			25		23
Expected return on plan assets		702			552			—		—
Amortization of transition asset		(10	)		(10	)		—		—
Amortization of prior service cost		20			24			—		—
Amortization of the net (gain) loss		165			189			7		5

Net periodic benefit cost	$	1,187			1,146			32		28


	Nine months ended March 31,
	Pension Benefits						Other Post-retirement Benefits
	2005			2004			2005		2004
Service cost	$	2,815			2,493			—		—
Interest cost		2,328			1,992			74		68
Expected return on plan assets		2,107			1,656			—		—
Amortization of transition asset		(30	)		(30	)		—		—
Amortization of prior service cost		59			71			—		—
Amortization of the net (gain) loss		496			568			22		16

Net periodic benefit cost	$	3,561			3,438			96		84

The Company made no contribution to its pension plans during the nine months ended March 31, 2005. The Company made a contribution to its defined benefit pension plan of $5.0 million in the fourth quarter of the fiscal year ending June 30, 2005. The amount of the contribution was determined by actuarial computation and the plan continues to be fully funded.

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 Securities Exchange Act of 1934, as amended, and the regulations thereunder. 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. Important factors that might cause such a difference include, but are not limited to, economic, regulatory and other factors as discussed herein. Readers are cautioned not to place undue reliance on these forward-looking statements, as they reflect management’s analysis only as of the date of this report. The Company has no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report.

Overview of Critical Accounting Policies Involving Estimates

The Company’s critical accounting policies involve accounting estimates that: a) require assumptions about highly uncertain matters, and b) could vary sufficiently enough to cause a material effect on the Company’s financial condition or results of operations.

Allowance for Loan Losses. In originating loans, the Company recognizes that losses will be experienced on loans and that the risk of loss will vary with, among other things, the type of loan, the creditworthiness of the borrower, general economic conditions and the quality of the security for the loan. The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. The allowance for loan losses represents management’s estimate of probable losses based on information available as of the date of the financial statements. The allowance for loan losses is based on management’s evaluation of the collectibility of the loan portfolio, including past loan loss experience, known and inherent losses, information about specific borrower situations and estimated collateral values, and current economic conditions. The loan portfolio and other credit exposures are regularly reviewed by management in its determination of the allowance for loan losses. The methodology for assessing the appropriateness of the allowance includes a review of historical losses, peer group comparisons, industry data and economic conditions. As an integral part of their examination process, regulatory agencies periodically review the Company’s allowance for loan losses and may require the Company to make additional provisions for estimated losses based upon judgments different from those of management. In establishing the allowance for loan losses, loss factors are applied to various pools of outstanding loans. Loss factors are derived using the Company’s historical loss experience and may be adjusted for factors that affect the collectibility of the portfolio as of the evaluation date. Commercial loans over a certain dollar amount are evaluated individually to determine the required allowance for loan losses and to evaluate the potential impairment of such loans under SFAS 114, “Accounting by Creditors for Impairment of a Loan”. Although management believes that it uses the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect the Company’s financial condition and results of operations. The allowance review methodology is based on information known at the time of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results. Management believes, to the best of their knowledge, that all known losses as of the balance sheet date have been recorded.

Goodwill. Goodwill is not subject to amortization but must be tested for impairment at least annually, and possibly more frequently if certain events or changes in circumstances arise. Impairment testing requires that

the fair value of each reporting unit be compared to its carrying amount, including goodwill. Reporting units are identified based upon analyzing each of the Company’s individual operating segments. A reporting unit is defined as any distinct, separately identifiable component of an operating segment for which complete, discrete financial information is available that management regularly reviews. Goodwill is allocated to the carrying value of each reporting unit based on its relative fair value at the time it is acquired. Determining the fair value of a reporting unit requires a high degree of subjective management judgment. A discounted cash flow valuation model is used to determine the fair value of each reporting unit. The discounted cash flow model incorporates such variables as growth of net income, interest rates and terminal values. Based upon an evaluation of key data and market factors, management selects the specific variables to be incorporated into the valuation model. Future changes in the economic environment or the operations of the operating units could cause changes to these variables, which could give rise to declines in the estimated fair value of the reporting unit. Declines in fair value could result in impairment being identified. The Company has established December 31^st of each year as the date for conducting its annual goodwill impairment assessment. The variables are selected as of that date and the valuation model is run to determine the fair value of each reporting unit. At December 31, 2004, the Company did not identify any individual reporting unit where the fair value was less than the carrying value.

Deferred Income Taxes. The Company uses the asset and liability method of accounting for income taxes as prescribed in Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Using this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates the Company makes in determining our deferred tax assets, which are inherently subjective, are reviewed on an ongoing basis as regulatory and business factors change. A reduction in estimated future taxable income could require the Company to record a valuation allowance. Changes in levels of valuation allowances could result in increased income tax expense, and could negatively affect earnings.

Other Intangible Assets. Using the purchase method of accounting for acquisitions, the Company is required to record the assets acquired, including identified intangible assets, and liabilities assumed at their fair values. These fair values often involve estimates based on third party valuations, including appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques, which are inherently subjective. Core deposit and other intangible assets are recorded in purchase accounting when a premium is paid to acquire other entities or deposits. Other intangible assets, which are determined to have finite lives, are amortized based on the period of estimated economic benefits received, primarily on an accelerated basis.

Executive Summary

The Company’s total assets at March 31, 2005 were $6.341 billion, a decrease of $2.3 million, or less than 1%, from June 30, 2004. During the period, cash and investments decreased by $222.6 million, while net loans receivable increased by $218.5 million.

Deposits decreased by $5.2 million, or less than 1%, during the first nine months of the current fiscal year, while shareholders equity increased by $17.4 million.

Net income for the third quarter of fiscal 2005 increased to $14.3 million, from $14.2 million for the same period of the previous fiscal year. Year-to-date net income increased to $41.7 million, from $39.8 million during the previous fiscal year.

During the current fiscal year, the Company acquired both Leeds Federal and First Carnegie from the Company’s parent, Northwest Bancorp, MHC, in exchange for 2,425,759 shares of common stock. Because the transaction occurred between the parent company and its subsidiary, prior year results have been revised.

Discussion of Financial Condition Changes from June 30, 2004 to March 31, 2005

Assets

At March 31, 2005 the Company had total assets of $6.341 billion, a decrease of $2.3 million, or less than 1%, from $6.343 billion at June 30, 2004. This decrease is primarily attributed to a decrease in funding sources as deposits decreased $5.2 million, borrowed funds decreased by $14.1 million and advances by borrowers for taxes and insurance decreased $5.7 million.

Cash and investments totaled $1.626 billion at March 31, 2005, a decrease of $222.6 million, or 12.0%, from $1.849 billion at June 30, 2004. This decrease resulted from the aforementioned decrease in funding sources as well as supporting the continued loan demand throughout the Company’s retail network. Net loans receivable increased by $218.5 million, or 5.4%, to $4.272 billion at March 31, 2005 from $4.054 billion at June 30, 2004.

Liabilities

Deposits decreased slightly by $5.2 million, or less than 1%, to $5.186 billion at March 31, 2005 from $5.192 billion at June 30, 2004. This decrease was anticipated by the Company as the industry, as a whole, began to experience an outflow of volatile funds accumulated during an uncertain investment environment over the last several years. Advances by borrowers for taxes and insurance decreased by $5.7 million, or 19.1%, to $23.9 million at March 31, 2005 from $29.6 million at June 30, 2004. This decrease is due to the seasonal nature of payments made to taxing authorities on behalf of our customers. Borrowed funds decreased by $14.1 million, or 3.1%, due to scheduled repayments on borrowings from the Federal Home Loan Bank.

Capital Resources and Liquidity

Total shareholders’ equity at March 31, 2005 was $567.9 million, an increase of $17.4 million, or 3.2%, from $550.5 million at June 30, 2004. This increase was primarily attributable to net income for the nine-month period of $41.7 million and an increase in unrealized gain on securities, net of tax, of $4.6 million partially offset by the payment of cash dividends of $17.7 million and a decrease in additional paid-in capital of $5.4 million. The decrease in additional paid-in capital resulted from the Company canceling a $12.0 million loan to Northwest Bancorp, MHC as part of the consideration paid for the acquisition of Leeds Federal Savings Bank.

The Company’s banking subsidiaries, Northwest and Jamestown, are subject to various regulatory capital requirements administered by the state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by the regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the banking subsidiaries must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk-weighting and other factors.

Quantitative measures, established by regulation to ensure capital adequacy, require the banking subsidiaries 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). The amounts included as of June 30, 2004 for Leeds Federal and First Carnegie Deposit have been calculated using the corresponding OTS definitions for Tier I core capital [Tier I Capital (Leverage)], Risk-based capital, Tier I (Tier I Capital) and Risk-based capital, total (Total Capital).

March 31, 2005



						Minimum Capital					Well Capitalized
	Actual					Requirements					Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk weighted assets):
Northwest Savings Bank	$	494,669		15.48	%	$	255,689		8.00	%	$	319,611		10.00	%
Jamestown Savings Bank	$	26,962		10.70	%	$	20,155		8.00	%	$	25,194		10.00	%

Tier I Capital (to risk weighted assets):
Northwest Savings Bank	$	464,627		14.54	%	$	127,845		4.00	%	$	191,767		6.00	%
Jamestown Savings Bank	$	24,489		9.72	%	$	10,078		4.00	%	$	15,116		6.00	%

Tier I Capital (leverage) (to average assets):
Northwest Savings Bank	$	464,627		8.01	%	$	174,089		3.00	%*	$	290,149		5.00	%
Jamestown Savings Bank	$	24,489		5.82	%	$	12,615		3.00	%*	$	21,025		5.00	%

June 30, 2004



						Minimum Capital					Well Capitalized
	Actual					Requirements					Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk weighted assets):
Northwest Savings Bank	$	430,831		15.02	%	$	229,505		8.00	%	$	286,881		10.00	%
Jamestown Savings Bank	$	23,968		10.57	%	$	18,140		8.00	%	$	22,674		10.00	%
Leeds Federal Savings Bank	$	29,529		15.61	%	$	15,133		8.00	%	$	18,917		10.00	%
First Carnegie Deposit	$	5,147		17.27	%	$	2,384		8.00	%	$	2,980		10.00	%

Tier I Capital (to risk weighted assets):
Northwest Savings Bank	$	402,290		14.02	%	$	114,752		4.00	%	$	172,129		6.00	%
Jamestown Savings Bank	$	21,925		9.67	%	$	9,070		4.00	%	$	13,605		6.00	%
Leeds Federal Savings Bank	$	27,038		14.29	%	$	7,568		4.00	%	$	11,353		6.00	%
First Carnegie Deposit	$	4,775		16.03	%	$	1,192		4.00	%	$	1,788		6.00	%

Tier I Capital (leverage) (to average assets):
Northwest Savings Bank	$	402,290		7.56	%	$	159,709		3.00	%*	$	266,182		5.00	%
Jamestown Savings Bank	$	21,925		5.79	%	$	11,352		3.00	%*	$	18,920		5.00	%
Leeds Federal Savings Bank	$	27,038		5.98	%	$	18,086		4.00	%	$	22,607		5.00	%
First Carnegie Deposit	$	4,775		5.14	%	$	3,715		4.00	%	$	4,644		5.00	%

The FDIC has indicated that the most highly rated institutions which meet certain criteria will be required to maintain a ratio of 3%, and all other institutions will be required to maintain an additional capital cushion of 100 to 200 basis points. As of March 31, 2005, the Company had not been advised of any additional requirements in this regard.

The Company’s banking subsidiaries, Northwest and Jamestown, are required to maintain a sufficient level of liquid assets, as determined by management and defined and reviewed for adequacy by the FDIC and the applicable state department of banking during their regular examinations. The Banks’ internal liquidity requirements are based upon liquid assets as a percentage of deposits and borrowings (“liquidity ratio”). The Banks have always maintained a level of liquid assets in excess of regulatory and internal requirements, and the liquidity ratio at March 31, 2005 was 26.3% and 40.3% for Northwest and Jamestown, respectively. The Company and its subsidiaries 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, when applicable, and loan commitments.

The Company paid $17.7 million in cash dividends during the first nine months of the current fiscal year, compared with $5.2 million in the prior year period. During the current nine-month period, Northwest Bancorp, MHC accepted the payment of its dividends to provide a source of additional liquidity and capital which in turn could be pushed down to its savings bank subsidiaries, Leeds Federal and First Carnegie. During the comparable period in the prior fiscal year, no dividends were paid to Northwest Bancorp, MHC. The common stock dividend payout ratio (dividends declared per share divided by net income per share) was 42.9% in the current quarter on a dividend of $0.12 per share compared with 34.5% in the same period last year on a dividend of $0.10 per share. Northwest Bancorp, MHC applied to the Office of Thrift Supervision and received approval to waive its right to receive future dividends. Beginning with the dividend payable on May 16, 2005, and until further notice, Northwest Bancorp, MHC will not receive dividends.

Nonperforming Assets

The following table sets forth information with respect to the Company’s nonperforming assets. Nonaccrual loans are those loans on which the accrual of interest has ceased. Loans are automatically placed on nonaccrual status when they are more than 90 days contractually delinquent and may also be placed on nonaccrual status even if not more than 90 days delinquent but other conditions exist. Other nonperforming assets represent property acquired by the Company through foreclosure or repossession. Foreclosed property is carried at the lower of its fair value less estimated costs to sell, or the principal balance of the related loan. Management believes that the generally low level of nonperforming assets is attributable to stringent credit policies and sustained collection procedures.



	March 31, 2005			June 30, 2004
	(Dollars in Thousands)
Loans accounted for on a nonaccrual basis:
One-to-four family residential loans	$	10,858		$	11,262
Multifamily and commercial real estate loans		15,506			13,883
Consumer loans		5,488			4,536
Commercial business loans		2,228			2,824
Total	$	34,080		$	32,505
Total nonperforming loans as a percentage of loans receivable		0.79	%		0.80	%
Total real estate acquired through foreclosure and other real estate owned	$	6,530		$	3,951
Total nonperforming assets	$	40,610		$	36,456
Total nonperforming assets as a percentage of total assets		0.64	%		0.57	%

A loan is considered to be impaired, as defined by SFAS No. 114, “Accounting by Creditors for Impairment of a Loan” (“SFAS 114”), when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement including both contractual principal and interest payments. The amount of impairment is required to be measured using one of three methods prescribed by SFAS 114: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, a specific reserve is allocated for the impairment. Impaired loans at March 31, 2005 and June 30, 2004 were $34.1 million and $32.5 million, respectively.

Allowance for Loan Losses

The Company’s Board of Directors has adopted an “Allowance for Loan Losses” (ALL) policy designed to provide management with a systematic methodology for determining and documenting the ALL each reporting period. This methodology was developed to provide a consistent process and review procedure to ensure that the ALL is in conformity with the Company’s policies and procedures and other supervisory and regulatory guidelines.

On an ongoing basis, the Credit Review department, as well as loan officers, branch managers and department heads, review and monitor the loan portfolio for problem loans. This portfolio monitoring includes a review of the monthly delinquency reports as well as historical comparisons and trend analysis. On a quarterly basis the Credit Review department grades or classifies problem loans or potential problem loans based upon their knowledge of the lending relationship and other information previously accumulated. The Company’s loan grading system for problem loans is consistent with industry regulatory guidelines which classify loans as “special mention”, “substandard”, “doubtful” or “loss.” Loans that do not expose the Company to risk sufficient to warrant classification in one of the subsequent categories, but which possess some weaknesses, are designated as “special mention”. A “substandard” loan is any loan that is more than 90 days contractually delinquent or is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as “doubtful” have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make a collection or liquidation in full, on the basis of currently existing facts, conditions or values, highly questionable and improbable. Loans classified as “loss” are considered uncollectible so that their continuance as assets without the establishment of a specific loss reserve in not warranted.

The loans that have been classified as substandard or doubtful are reviewed by the Credit Review department for possible impairment under the provisions of SFAS 114. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement including both contractual principal and interest payments.

If an individual loan is deemed to be impaired, the Credit Review department determines the proper measure of impairment for each loan based on one of three methods as prescribed by SFAS 114: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. If the measurement of the impaired loan is more or less than the recorded investment in the loan, the Credit Review department adjusts the specific allowance associated with that individual loan accordingly.

If a substandard or doubtful loan is not considered individually for impairment, it is grouped with other loans that possess common characteristics for impairment evaluation and analysis under the provisions of Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies.” This segmentation is accomplished by grouping loans of similar product types, risk characteristics and industry concentration into homogeneous pools. A range of losses for each pool is then established based upon historical loss ratios. This historical net charge-off amount is then analyzed and adjusted based on historical delinquency trends as well as the current economic, political, regulatory and interest rate environment and used to estimate the current measure of impairment.

The individual impairment measures along with the estimated range of losses for each homogeneous pool are consolidated into one summary document. This summary schedule along with the support documentation used to establish this schedule is presented to the Credit Committee on a quarterly basis. The Credit Committee reviews the processes and documentation presented, reviews the concentration of credit by industry and customer, discusses lending products, activity, competition and collateral values, as well as economic conditions in general and in each market area of the Company. Based on this review and discussion the appropriate amount of ALL is estimated and any adjustments to reconcile the actual ALL with this estimate are determined. In addition, the Credit Committee considers if any changes to the methodology are needed. The Credit Committee also reviews and discusses the Company’s delinquency trends, nonperforming asset amounts and ALL levels and ratios compared to its peer group as well as state and national statistics. Following the Credit Committee’s review and approval, a similar review is performed by the Board of Director’s Risk Management Committee.

In addition to the reviews by the Credit Committee and the Risk Management Committee, regulators from either the FDIC or applicable state department of banking perform an extensive review on an annual basis for the adequacy of the ALL and its conformity with regulatory guidelines and pronouncements. Any recommendations or enhancements from these independent parties are considered by management and the Credit Committee and implemented accordingly.

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.

Comparison of Operating Results for the Three Months Ended March 31, 2005 and 2004

Net income for the three months ended March 31, 2005 was $14.3 million, or $0.28 per diluted share, an increase of $74,000, or 1.0%, from $14.2 million, or $0.29 per diluted share, for the same quarter last year. The increase in net income resulted primarily from an increase in net interest income of $3.1 million, which was partially offset by an increase in the provision for loan losses of $1.2 million and an increase in noninterest expense of $1.9 million. The decrease in earnings per share resulted from the issuance of 2,425,759 shares of common stock to Northwest Bancorp, MHC in connection with the acquisitions of Leeds and First Carnegie from Northwest Bancorp, MHC.

Net income for the three months ended March 31, 2005 represents a 10.11% and 0.90% return on average equity and return on average assets, respectively, compared to 10.60% and 0.91% for the same quarter last year.

Interest Income

Total interest income increased by $5.1 million, or 6.4%, on a taxable equivalent basis, to $83.7 million due to increases in both average interest earnings assets and the average yield earned on interest earning assets. Average interest earning assets increased by $83.4 million, or 1.4%, to $5.899 billion for the three months ended March 31, 2005 from $5.816 billion for the three months ended March 31, 2004. The average yield on interest earning assets increased to 5.68% from 5.41%.

Interest income on loans receivable increased by $4.1 million, or 6.6%, on a taxable equivalent basis, to $66.1 million primarily because of an increase in the average balance of $339.3 million, or 8.6%, to $4.273 billion for the three months ended March 31, 2005 from $3.934 billion for the three months ended March 31, 2004. The increase in average balance was partially offset by a decrease in the average rate to 6.19% from 6.31%. Average loans outstanding increased primarily as a result of the continued strong internal loan demand. The decrease in average yield resulted primarily from the repricing of variable rate loans and the refinancing of fixed rate loans during a period of relatively low interest rates.

Interest income on mortgage-backed securities decreased by $632,000, or 8.7%, to $6.7 million, primarily because of a decrease in the average balance of $138.3 million, or 16.1%, to $721.6 million. The effect of the decrease in the average balance was partially offset by an increase in the average yield to 3.70% from 3.40%. The average balance decreased when funds received from principal and interest payments were used to fund loan demand rather than being reinvested in mortgage-backed securities. The average yield on mortgage-backed securities, of which approximately 71% are variable rate, increased in response to the recent increases in short-term interest rates.

Interest income on investment securities increased by $1.2 million, or 14.5%, to $9.8 million, on a taxable-equivalent basis, because of increases in both the average balance and average yield earned. The average balance increased $61.9 million, or 9.0% to $746.7 million for the three-month period ended March 31, 2005 from $684.8 million for the three-month period ended March 31, 2004. The average yield increased to 5.23%, from 4.98%, on a taxable equivalent basis. The increases in both the average balance and average yield resulted from the Company’s purchase of callable U.S. Agency securities which offer higher yields.

Interest income on interest-earning deposits increased by $118,000, or 16.4%, primarily because of an increase in the average yield to 2.67% from 0.95%. The effect of the increase in the average yield was largely offset by a decrease in the average balance of $177.2 million, or 58.6%, to $125.2 million for the three-month period ended March 31, 2005 from $302.4 million for the three-month period ended March 31, 2004. The increase in average yield was primarily due to the recent increases in overnight interest rates. The average balance decreased due to the use of cash to fund loan growth and repay FHLB advances.

Interest Expense

Total interest expense increased by $1.9 million, or 5.9%, to $34.4 million due to an increase in the average cost of interest-bearing liabilities to 2.51% from 2.38%, and an increase in the average balance of interest-bearing liabilities of $11.9 million, or less than 1.0%, to $5.479 billion. The increase in the cost of funds resulted primarily from an increase in the cost of deposits of 15 basis points, from 2.08% to 2.23%, driven by an increase in the level of short-term interest rates. The increase in the average balance of interest-bearing liabilities resulted primarily from an increase of $11.5 million, or 1.8%, in the average balance of demand deposits.

Net Interest Income

Net interest income increased by $3.1 million, or 6.8%, on a taxable equivalent basis, to $49.3 million from $46.2 million during the prior year period. This increase in net interest income was attributable to the overall growth in the Company’s balance sheet and the expansion of the Company’s net interest rate spread to 3.17%, from 3.03%.

Provision for Loan Losses

The provision for loan losses increased by $1.2 million, or 75.2%, to $2.9 million for the three months ended March 31, 2005. 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 the Company’s 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 $1.1 million, or 15.5%, to $8.2 million, excluding the gain on sale of investment securities, which the Company does not consider to be core earnings. This increase was primarily due to increases in service charges and fees, trust and other financial services income and insurance commissions. Service charges and fees increased $508,000, or 14.5%. Trust and other financial services income increased $16,000 and insurance commission income increased by $421,000. The increases in both service charges and other financial services income are primarily due to increased volume and growth of the

Company. Insurance commissions increased primarily as a result of the Company again offering insurance products on consumer loans.

Noninterest Expense

Noninterest expense increased by $1.9 million, or 6.3%, to $32.7 million from $30.8 million for the same quarter in the prior year. All major expense categories, except amortization of intangible assets, increased as a result of the growth of the Company’s retail network, the expansion of business banking and investment management and trust services and the addition of new products and services. The largest increase was in compensation and employee benefits expense. Compensation and employee benefits increased as a result of the continued increase in health care costs, normal annual merit increases in salaries and the continued growth of the Company’s employee base. Amortization of intangible assets decreased primarily because of the continued amortization of the core deposit intangibles. Advertising expense increased primarily due to branding campaigns in new markets and additional product promotions.

Income Taxes

The provision for income taxes for the three months ended March 31, 2005 increased by $151,000, or 2.6%, compared to the same period last year. This increase in income tax expense is primarily due to an increase in income before income taxes of $225,000, or 1.1%, to $20.2 million from $20.0 million. The Company’s effective tax rate remained at approximately 29.0% for both periods presented.

Comparison of Operating Results for the Nine Months Ended March 31, 2005 and 2004

Net income for the nine months ended March 31, 2005 was $41.7 million, or $0.83 per diluted share, an increase of $1.9 million, or 4.8%, from $39.8 million, or $0.82 per diluted share, for the same period in the prior fiscal year. The increase in net income resulted primarily from an increase in net interest income of $14.8 million, which was partially offset by a decrease in the gain on sale of marketable securities of $4.6 million. In addition, the provision for loan losses increased by $1.8 million and noninterest expense increased by $8.1 million. The increase in earnings per share resulted from the increase in net income, which was partially offset by a 2,425,759 increase in the number of shares outstanding. These shares were issued in the aforementioned acquisitions of Leeds and First Carnegie.

Net income for the nine months ended March 31, 2005 represents a 9.95% and 0.88% return on average equity and return on average assets, respectively, compared to 10.54% and 0.86% for the same period in the prior fiscal year.

Interest Income

Total interest income increased by $14.8 million, or 6.4%, on a taxable equivalent basis, to $245.3 million due to increases in both average interest earning assets and the average yield earned on interest earning assets. Average interest earning assets increased by $129.3 million, or 2.2%, to $5.916 billion for the nine months ended March 31, 2005 from $5.787 billion for the nine months ended March 31, 2004. The average yield on interest earnings assets increased to 5.53% from 5.31%.

Interest income on loans receivable increased by $12.1 million, or 6.6%, on a taxable equivalent basis, to $194.8 million primarily because of an increase in the average balance of $407.1 million, or 10.7%, to $4.196 billion for the nine months ended March 31, 2005 from $3.789 billion for the nine months ended March 31, 2004. The increase in average balance was partially offset by a decrease in the average yield to 6.19% from 6.43%. Average loans outstanding increased as a result of strong internal loan growth. The decrease in average yield resulted primarily from the significant growth of the mortgage portfolio during a period of relatively low long-term interest rates.

Interest income on mortgage-backed securities increased by $326,000, or 1.7%, to $20.0 million, primarily because of an increase in the average yield to 3.52% from 2.88%. The effect of the increase in average yield was partially offset by a decrease in the average balance of $153.3 million, or 16.9%, to $755.5 million. The average yield on mortgage-backed securities, of which approximately 71% are variable rate, increased in response to the recent increases in short-term interest rates. The average balance decreased when funds

received from principal and interest payments were used to fund an increase in the loan portfolio rather than being reinvested in mortgage-backed securities.

Interest income on investment securities increased by $1.5 million, or 5.9%, to $26.6 million, on a taxable-equivalent basis, primarily because of an increase in the average yield to 5.30% from 4.98%. This increase was partially offset by a slight decrease in the average balance of $3.2 million, or less than 1%, to $670.5 million for the nine-month period ended March 31, 2005 from $673.7 million for the nine-month period ended March 31, 2004.

Interest income on interest-earning deposits increased by $742,000, or 29.0%, primarily because of an increase in the average yield to 1.71% from 0.91%. The effect of the increase in the average yield was partially offset by a decrease in the average balance of $119.4 million, or 31.7%, to $257.8 million for the nine-month period ended March 31, 2005 from $377.2 million for the nine-month period ended March 31, 2004. The increase in average yield was primarily due to the recent increases in short-term interest rates. The decrease in average balance resulted from using short-term funds to finance the growth in the loan portfolio.

Interest Expense

Total interest expense decreased by $30,000, or less than 1%, to $101.8 million due to a decrease in the average cost of interest-bearing liabilities to 2.47% from 2.49%, which was offset by an increase in the average balance of interest-bearing liabilities of $54.3 million, or 1.0%, to $5.506 billion. The decrease in the cost of funds resulted primarily from a decrease in the average cost of certificates of deposit. The increase in the average balance of interest-bearing liabilities resulted primarily from an increase in savings accounts.

Net Interest Income

Net interest income increased by $14.9 million, or 11.6%, on a taxable equivalent basis, to $143.5 million from $128.6 million during the prior year period. This increase in net interest income was attributable to the overall growth in the Company’s balance sheet and the expansion of the Company’s net interest rate spread to 3.06%, from 2.82%.

Provision for Loan Losses

The provision for loan losses increased by $1.8 million, or 34.5%, to $6.9 million for the nine months ended March 31, 2005. 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 the Company’s 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 $2.1 million, or 8.0%, to $23.7 million for the current nine-month period from $25.7 million for the same period in the prior fiscal year. This decrease was primarily due to a decrease in gain on sale of investments of $4.6 million. The Company recorded a substantial gain in the previous year as a result of the sale of municipal bonds acquired with the purchase of Bell Federal. Partially offsetting the decrease in the gain on sale of investments are increases in service charges and fees and insurance commission income. Service charges and fees increased $1.6 million, or 16.0%, to $12.0 million for the nine-month period ended March 31, 2005 from $10.4 million for the nine-month period ended March 31, 2004. This increase is primarily due to the overall growth of the Company. Insurance commissions income increased $1.1 million as a result of the Company again offering insurance products on consumer loans.

Noninterest Expense

Noninterest expense increased by $8.1 million, or 9.3%, to $95.2 million from $87.1 million for the same period in the prior year. All major expense categories increased as a result of the significant growth of the Company’s retail network; the expansion of its investment management, trust and brokerage services; and

the addition of new products and services. The largest increases were in compensation and employee benefits expense. Compensation and employee benefits increased as a result of the continued increase in health care costs, normal annual merit increases in salaries and the addition of approximately 60 full-time equivalent employees. Management believes that despite these increases in costs due to expansion, progress has been made in controlling operating expense as the ratio of operating expense to average assets remains at 2.0%.

Income Taxes

The provision for income taxes for the nine months ended March 31, 2005 increased by $932,000, or 5.7%, compared to the same period last year. This increase in income tax expense is primarily due to an increase in income before income taxes of $2.8 million, or 5.1%, to $59.1 million from $56.2 million. The Company’s effective tax rate remains at 29.0%.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments (“SFAS 123R”). SFAS 123R is a revision of the FASB Statement No. 123, Accounting for Stock-Based Compensation. SFAS 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and any related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R is effective as of the beginning of the annual reporting period that begins after June 15, 2005, which for the Company will be July 1, 2005. SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date. As of the required effective date, the Company will apply SFAS 123R using a permitted modified version of retrospective application. Under this transition method, the Company will recognize compensation costs as new and previously issued stock option grants vest. The Company does not anticipate any material difference between the application of SFAS 123 and SFAS 123R. See the Basis of Presentation and Informational Disclosure section of this quarterly report for analysis on the effect of this new standard on the Company’s financial statements.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 152, Accounting for Real Estate Time-Sharing Transactions, an amendment of FASB Statements No. 66 and 67 (“SFAS 152”). SFAS 152 amends FASB Statement No. 66 to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position 04-2. SFAS 152 also amends FASB Statement No. 67 to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. SFAS 152 is effective for financial statements for fiscal years beginnings after June 15, 2005. The Company does not anticipate that this accounting standard will have a material effect on the Company’s financial statements.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29 (“SFAS 153”). SFAS 153 amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for financial statements for fiscal years beginning after June 15, 2005. The Company does not anticipate that this accounting standard will have a material effect on the Company’s financial statements.

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 March 31,
	2005								2004
						Avg.								Avg.
	Average					Yield/			Average					Yield/
	Balance			Interest		Cost			Balance			Interest		Cost

ASSETS:
Interest earning assets:
Loans receivable (a) (b) (d)	$	4,272,807		$	66,135		6.19	%	$	3,933,539		$	62,058		6.31	%
Mortgage-backed securities (c)	$	721,608		$	6,669		3.70	%	$	859,934		$	7,301		3.40	%
Investment securities (c) (d) (e)	$	746,718		$	9,758		5.23	%	$	684,770		$	8,521		4.98	%
FHLB stock	$	32,816		$	333		4.06	%	$	35,145		$	71		0.81	%
Other interest earning deposits	$	125,207		$	837		2.67	%	$	302,414		$	719		0.95	%


Total interest earning assets	$	5,899,156		$	83,732		5.68	%	$	5,815,802		$	78,670		5.41	%

Noninterest earning assets (f)	$	442,997							$	448,908


TOTAL ASSETS	$	6,342,153							$	6,264,710


LIABILITIES AND SHAREHOLDERS’ EQUITY:
Interest bearing liabilities:
Savings accounts	$	1,080,913		$	3,463		1.28	%	$	1,021,501		$	3,491		1.37	%
Now accounts	$	665,440		$	1,388		0.83	%	$	653,992		$	1,094		0.67	%
Money market demand accounts	$	711,421		$	3,286		1.85	%	$	933,485		$	3,812		1.63	%
Certificate accounts	$	2,479,537		$	19,325		3.12	%	$	2,307,535		$	17,180		2.98	%
Borrowed funds (g)	$	439,548		$	4,931		4.49	%	$	448,429		$	4,996		4.46	%
Debentures	$	102,062		$	2,036		7.98	%	$	102,062		$	1,929		7.56	%


Total interest bearing liabilities	$	5,478,921		$	34,429		2.51	%	$	5,467,004		$	32,502		2.38	%

Noninterest bearing liabilities	$	298,882							$	262,434


Total liabilities	$	5,777,803							$	5,729,438

Shareholders’ equity	$	564,350							$	535,272


TOTAL LIABILITIES AND EQUITY	$	6,342,153							$	6,264,710


Net interest income/ Interest rate spread				$	49,303		3.17	%				$	46,168		3.03	%

Net interest earning assets/ Net interest margin	$	420,235					3.34	%	$	348,798					3.18	%

Ratio of interest earning assets to interest bearing liabilities		1.08	X							1.06	X

(a)		Average gross loans receivable includes 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.

(c)		Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.

(d)		Interest income on tax-free investment securities and tax-free loans is presented on a taxable equivalent basis.

(e)		Average balances include Fannie Mae and FHLMC stock.

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

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

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 affected 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), (iii) the net change. Changes that cannot be attributed to either rate or volume have been allocated among both rate and volume.

Three months ended March 31, 2005 and 2004


							Net
	Rate			Volume			Change

Interest earning assets:
Loans receivable	$	(1,276	)	$	5,353		$	4,077
Mortgage-backed securities	$	646		$	(1,278	)	$	(632	)
Investment securities	$	446		$	791		$	1,237
FHLB stock	$	286		$	(24	)	$	262
Other interest-earning deposits	$	1,303		$	(1,185	)	$	118

Total interest-earning assets	$	1,405		$	3,657		$	5,062

Interest-bearing liabilities:
Savings accounts	$	(231	)	$	203		$	(28	)
Now accounts	$	274		$	20		$	294
Money market demand accounts	$	500		$	(1,026	)	$	(526	)
Certificate accounts	$	824		$	1,321		$	2,145
Borrowed funds	$	35		$	(100	)	$	(65	)
Debentures	$	107		$	-0-		$	107

Total interest-bearing liabilities	$	1,509		$	418		$	1,927


Net change in net interest income	$	(104	)	$	3,239		$	3,135

Average Balance Sheet
(Dollars in Thousands)


	Nine months ended March 31,
	2005							2004
	Average		Interest		Avg.			Average		Interest		Avg.
	Balance				Yield/			Balance				Yield/
					Cost							Cost

ASSETS:
Interest earning assets:
Loans receivable (a) (b) (d)	$	4,195,853	$	194,758		6.19	%	$	3,788,756	$	182,669		6.43	%
Mortgage-backed securities (c)	$	755,492	$	19,955		3.52	%	$	908,749	$	19,629		2.88	%
Investment securities (c) (d) (e)	$	670,473	$	26,635		5.30	%	$	673,657	$	25,155		4.98	%
FHLB stock	$	36,321	$	624		2.29	%	$	38,255	$	419		1.46	%
Other interest earning deposits	$	257,816	$	3,304		1.71	%	$	377,213	$	2,562		0.91	%


Total interest earning assets	$	5,915,955	$	245,276		5.53	%	$	5,786,630	$	230,434		5.31	%

Noninterest earning assets (f)	$	430,167						$	408,390


TOTAL ASSETS	$	6,346,122						$	6,195,020


LIABILITIES AND SHAREHOLDERS’ EQUITY:
Interest bearing liabilities:
Savings accounts	$	1,085,992	$	10,695		1.31	%	$	1,022,631	$	10,641		1.39	%
Now accounts	$	665,384	$	3,745		0.75	%	$	686,554	$	4,195		0.81	%
Money market demand accounts	$	791,914	$	10,546		1.78	%	$	858,519	$	10,708		1.66	%
Certificate accounts	$	2,416,358	$	55,802		3.08	%	$	2,313,386	$	55,098		3.18	%
Borrowed funds (g)	$	444,419	$	15,023		4.51	%	$	469,738	$	15,472		4.39	%
Debentures	$	102,062	$	6,000		7.84	%	$	101,041	$	5,727		7.56	%


Total interest bearing liabilities	$	5,506,129	$	101,811		2.47	%	$	5,451,869	$	101,841		2.49	%

Noninterest bearing liabilities	$	280,993						$	239,990


Total liabilities	$	5,787,122						$	5,691,859

Shareholders’ equity	$	559,000						$	503,161


TOTAL LIABILITIES AND EQUITY	$	6,346,122						$	6,195,020


Net interest income/ Interest rate spread			$	143,465		3.06	%			$	128,593		2.82	%

Net interest earning assets/ Net interest margin	$	409,826				3.23	%	$	334,761				2.96	%

Ratio of interest earning assets to interest bearing liabilities		1.07X							1.06X

(a)		Average gross loans receivable includes 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.

(c)		Average balances do not include the effect of unrealized gains or losses on securities held as available-for-sale.

(d)		Interest income on tax-free investment securities and tax-free loans is presented on a taxable equivalent basis.

(e)		Average balances include Fannie Mae and FHLMC stock.

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

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

Rate/ Volume Analysis
(Dollars in Thousands)

Nine months ended March 31, 2005 and 2004



							Net
	Rate			Volume			Change

Interest earning assets:
Loans receivable	$	(7,539	)	$	19,628		$	12,089
Mortgage-backed securities	$	4,374		$	(4,048	)	$	326
Investment securities	$	1,606		$	(126	)	$	1,480
FHLB stock	$	238		$	(33	)	$	205
Other interest-earning deposits	$	2,272		$	(1,530	)	$	742

Total interest-earning assets	$	951		$	13,891		$	14,842

Interest-bearing liabilities:
Savings accounts	$	(605	)	$	659		$	54
Now accounts	$	(326	)	$	(124	)	$	(450	)
Money market demand accounts	$	725		$	(887	)	$	(162	)
Certificate accounts	$	(1,748	)	$	2,452		$	704
Borrowed funds	$	407		$	(856	)	$	(449	)
Debentures	$	214		$	59		$	273

Total interest-bearing liabilities	$	(1,333	)	$	1,303		$	(30	)


Net change in net interest income	$	2,284		$	12,588		$	14,872

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a savings bank holding company, the Company’s primary market risk 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. The Company attempts to control interest rate risk by matching, within acceptable limits, the repricing periods of its assets and liabilities. Because the Company’s interest sensitive liabilities typically have repricing periods or maturities of short duration, the Company has attempted to shorten the maturities of its assets by emphasizing the origination of short-term, fixed-rate consumer loans, one-to-four family residential mortgage loans with terms of 15 years or less and adjustable rate mortgage loans, consumer loans and commercial loans. In addition, the Company has purchased shorter term or adjustable-rate investment securities and adjustable-rate mortgage-backed securities.

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

The Company also has a Risk Management Committee comprised of certain members of the Board of Directors which meets quarterly and reviews interest rate risks and trends, the Company’s interest sensitivity position, the Company’s liquidity position and the market risk inherent in the Company’s investment portfolio.

In an effort to assess market risk, the Company utilizes a simulation model to determine the effect of immediate incremental increases and decreases in interest rates in net income and the market value of the Company’s 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 on these assumptions may differ from simulated results. The Company has 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 the Company’s equity is the present value of the Company’s assets and liabilities. Given a parallel shift of 2% in interest rates, the market value of equity may not decrease by more than 35% of total shareholders’ equity.

The following table illustrates the simulated impact of a 1% or 2% upward or 1% downward movement in interest rates on net income, return on average equity, earnings per share and market value of equity. Given the low interest rate environment that existed in the current period, the impact of a 2% downward shift is not shown in the table. This analysis was prepared assuming that interest-earning asset levels at March 31, 2005 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 March 31, 2005 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		1.4	%		(7.1	)%		(2.8	)%	NM
Projected increase/ (decrease) in return on average equity		0.1	%		(0.6	)%		(0.2	)%	NM
Projected increase/ (decrease) in earnings per share	$	0.02		$	(0.08	)	$	(0.03	)	NM
Projected percentage increase/ (decrease) in market value of equity		(6.1	)%		(20.9	)%		4.8	%	NM

NM – Not meaningful

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, the Company 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 the Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company 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 this fiscal quarter. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, these disclosure controls and procedures are effective in timely alerting them to the material information relating to the Company (or the consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

There were no changes in the Company’s 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 the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

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

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

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.


Date:	May 10, 2005	By:	/s/ William J. Wagner

			William J. Wagner
			President and Chief Executive Officer

Date:	May 10, 2005	By:	/s/ William W. Harvey, Jr.

			William W. Harvey, Jr.
			Senior Vice President and
			Chief Financial Officer

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PART I	FINANCIAL INFORMATION	PAGE
Item 1.	Financial Statements

	Consolidated Statements of Financial Condition as of March 31, 2005 and June 30, 2004		1

	Consolidated Statements of Income for the three months and nine months ended March 31, 2005 and 2004		2

	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2005 and 2004		3

	Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended March 31, 2005 and 2004		4

	Consolidated Statements of Cash Flows for the three months and nine months ended March 31, 2005 and 2004		5

	Notes to Unaudited Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		29

Item 4.	Controls and Procedures		30

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings		30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		30

Item 3.	Defaults Upon Senior Securities		30

Item 4.	Submission of Matters to a Vote of Security Holders		30

Item 5.	Other Information		30

Item 6.	Exhibits		31

	Signatures		32

	Certifications
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1


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


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK