<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>j9014401e10-k.txt
<DESCRIPTION>NORTHWEST BANCORP, INC.
<TEXT>
<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             450 FIFTH STREET, N.W.
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

     [X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 For the Fiscal Year Ended June 30, 2001

                                       OR

     [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

         For the transition period from                   to
                                        -----------------    ------------------

                           COMMISSION FILE NO. 0-23817

                             NORTHWEST BANCORP, INC.
                         -----------------------------
             (Exact name of registrant as specified in its charter)

                 UNITED STATES                                  23-2900888
        ---------------------------------                  --------------------
         (State or other jurisdiction of                    (I.R.S. Employer
         incorporation or organization)                  Identification Number)

LIBERTY AND SECOND STREETS, WARREN, PENNSYLVANIA                  16365
------------------------------------------------               ----------
    (Address of Principal Executive Offices)                    Zip Code

                                 (814) 726-2140
                         -------------------------------
                         (Registrant's telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:   NONE

Securities Registered Pursuant to Section 12(g) of the Act:
                                         COMMON STOCK, PAR VALUE $.10 PER SHARE
                                         --------------------------------------
                                                    (Title of Class)

         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 twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES X . NO .

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].

         As of September 25, 2001, there were issued and outstanding 47,434,402
shares of the Registrant's Common Stock, including 35,366,218 shares held by
Northwest Bancorp, M.H.C., the Registrant's mutual holding company.

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant, which amount includes voting stock held by officers and
directors, computed by reference to the last sale price on September 25, 2001,
as reported by the Nasdaq National Market, was approximately $121.9 million.

                       DOCUMENTS INCORPORATED BY REFERENCE

     1.   Proxy Statement for the 2001 Annual Meeting of Stockholders of the
          Registrant (Part III).

                                        1

<PAGE>   2



                                     PART I

ITEM 1.  BUSINESS

GENERAL

         NORTHWEST BANCORP, INC.

         Northwest Bancorp, Inc. is a Federal corporation formed on June 29,
2001, as the successor to a Pennsylvania corporation of the same name. Both the
Federal corporation and its Pennsylvania predecessor are referred to as the
"Company." The Company became the stock holding company of Northwest Savings
Bank (the "Bank") in a transaction (the "Two-Tier Reorganization") that was
approved by the Bank's stockholders in December of 1997, and completed in
February of 1998. In the Two-Tier Reorganization, each share of the Bank's
common stock was converted into and became a share of common stock of the
Company, par value $0.10 per share (the "Common Stock"), and the Bank became a
wholly-owned subsidiary of the Company. Northwest Bancorp, MHC (the "Mutual
Holding Company"), which owned a majority of the Bank's outstanding shares of
common stock immediately prior to completion of the Two-Tier Reorganization,
became the owner of the same percentage of the outstanding shares of Common
Stock of the Company immediately following the completion of the Two-Tier
Reorganization. As of June 30, 2001, the primary activity of the Company was the
ownership of all of the issued and outstanding common stock of the Bank and of
Jamestown Savings Bank ("Jamestown"). Jamestown was formed in November of 1995
as a de novo New York-chartered savings bank headquartered in Jamestown, New
York.

         As of June 30, 2001, the Company, through the Bank and Jamestown,
operated 118 community banking offices throughout its market area in northwest,
southwest and central Pennsylvania, southwestern New York, and eastern Ohio. The
Company, through the Bank and its wholly owned subsidiaries, also operates 44
consumer lending offices throughout Pennsylvania and one consumer lending office
in New York. The Company has focused its lending activities primarily on the
origination of loans secured by first mortgages on owner-occupied, one- to four-
family residences. The Company, directly or through its subsidiaries, also
emphasizes the origination of consumer loans, including home equity, second
mortgage, education and other consumer loans. To a lesser extent, the Company
also originates multifamily residential and commercial real estate loans and
commercial business loans.

         The Company's principal sources of funds are deposits, borrowed funds
and the principal and interest payments on loans and marketable securities. The
principal source of income is interest received from loans and marketable
securities. The Company's principal expenses are the interest paid on deposits
and the cost of employee compensation and benefits.

         The Company's principal executive office is located at Liberty and
Second Streets, Warren, Pennsylvania, and its telephone number at that address
is (814) 726-2140.

         NORTHWEST SAVINGS BANK

         The Bank is a Pennsylvania-chartered stock savings bank headquartered
in Warren, which is located in northwestern Pennsylvania. The Bank is a
community-oriented institution offering traditional deposit and loan products,
and through a subsidiary, consumer finance services. The Bank's mutual savings
bank predecessor was founded in 1896. The Bank in its current stock form was
established on November 2, 1994, as a result of the reorganization (the
"Reorganization") of the Bank's mutual predecessor into a mutual holding company
structure. At the time of the Reorganization, the Bank issued a majority of its
to-be outstanding shares of common stock to the Mutual Holding Company (which
was formed in connection with the Reorganization) and sold a minority of its
to-be outstanding shares to stockholders other than the Mutual Holding Company
in a stock offering conducted as part of the Reorganization.

         The Bank's principal executive office is located at Liberty and Second
Streets, Warren, Pennsylvania, and its telephone number at that address is (814)
726-2140.

                                        2

<PAGE>   3



         JAMESTOWN SAVINGS BANK

         Jamestown began operations on November 9, 1995 as a de novo New York
state-chartered stock savings bank. The bank was organized to engage in the
retail savings bank business in the area surrounding Jamestown, New York, which
is located in Chautauqua County.

         Jamestown was capitalized through an initial public offering of 761,866
shares of common stock, including 400,000 shares that were purchased by the
Mutual Holding Company. The Mutual Holding Company continued to accumulate
additional ownership in Jamestown and in February 1998 sold its entire ownership
position, consisting of 490,050 shares, to the Company. On July 8, 1998 the
Company conducted a tender offer for the remaining shares of Jamestown, and
acquired 100% of the outstanding shares of Jamestown as of July 31, 1998.

         As of June 30, 2001, Jamestown had five offices in southwestern New
York.

MARKET AREA

         The Company has been, and intends to continue to be, an independent
community-oriented financial institution offering a wide variety of financial
services to meet the needs of the communities it serves. The Company is
headquartered in Warren, Pennsylvania which is located in the northwestern
region of Pennsylvania, and the Company has its highest concentration of
deposits and loans in the portion of its office network located in northwestern
Pennsylvania. Since the early 1990s, the Company has expanded, primarily through
acquisitions, into the southwestern and central regions of Pennsylvania. As of
June 30, 2001, the Company operated in Pennsylvania 109 community banking
offices and 44 consumer finance offices located in the counties of Allegheny,
Armstrong, Bedford, Berks, Blair, Butler, Cambria, Centre, Chester, Clarion,
Clearfield, Clinton, Columbia, Crawford, Cumberland, Dauphin, Elk, Erie,
Fayette, Forest, Huntingdon, Indiana, Jefferson, Lawrence, Lancaster, Lebanon,
Luzerne, Lycoming, McKean, Mercer, Mifflin, Northumberland, Potter, Schuylkill,
Tioga, Venango, Warren, Washington, Westmoreland and York. In addition, the
Company operated in Ohio four community banking offices located in the counties
of Ashtabula, Geauga and Lake. Through Jamestown, the Company operated in New
York five community banking offices located in the counties of Chautauqua, Erie
and Cattaraugus. The Company, through the Bank and its subsidiaries, also
operates one consumer finance office in southwestern New York.

LENDING ACTIVITIES

         GENERAL. Historically, the principal lending activity of the Company
has been the origination, for retention in its portfolio, of fixed-rate and, to
a lesser extent, adjustable-rate mortgage loans collateralized by one- to four-
family residential real estate located in its market area. To a lesser extent,
the Company also originates loans collateralized by multifamily residential and
commercial real estate, construction loans, commercial business loans and
consumer loans.

         In an effort to manage interest rate risk, the Company has sought to
make its interest-earning assets more interest rate sensitive by originating
adjustable-rate loans, such as adjustable-rate mortgage loans, home equity
loans, and education loans, and by originating short-term and medium-term
fixed-rate consumer loans. The Company also purchases mortgage-backed securities
that generally have adjustable interest rates. Because the Company also
originates a substantial amount of long-term fixed-rate mortgage loans
collateralized by one- to four-family residential real estate, when possible,
such loans are originated and underwritten according to standards that allow the
Company to sell them in the secondary mortgage market for purposes of managing
interest-rate risk and liquidity. The Company currently sells in the secondary
market a limited amount of fixed-rate residential mortgage loans with maturities
of more than 15 years, and retains all adjustable-rate mortgage loans and
fixed-rate residential mortgage loans with maturities of 15 years or less. The
Company is primarily a portfolio lender and at any one time the Company holds
only a nominal amount of loans identified as available-for-sale. The Company
retains servicing on the mortgage loans it sells and realizes monthly service
fee income. The Company retains in its portfolio all consumer loans, multifamily
residential and commercial real estate loans, and commercial business loans that
it originates.

                                        3

<PAGE>   4


         ANALYSIS OF LOAN PORTFOLIO. Set forth below are selected data relating
to the composition of the Company's loan portfolio by type of loan as of the
dates indicated.
<TABLE>
<CAPTION>
                                                                               AT JUNE 30,
                                   ------------------------------------------------------------------------------------------------
                                          2001               2000                1999                1998               1997
                                   -----------------   -----------------   -----------------  ------------------ ------------------
                                    AMOUNT   PERCENT    AMOUNT  PERCENT     AMOUNT  PERCENT    AMOUNT   PERCENT   AMOUNT    PERCENT
                                   -------   -------   -------  -------     ------  -------    ------   -------   -------   -------
                                                                        (DOLLARS IN THOUSANDS)
<S>                               <C>       <C>      <C>       <C>      <C>         <C>     <C>        <C>       <C>       <C>
Real estate:
  One- to four-family ............$2,005,020   68.7% $1,836,154   70.9%  $1,718,002   73.8%  $1,368,736    69.4%  $1,096,315   68.8%
  Multifamily and commercial......   249,049    8.5     192,897    7.5      152,466    6.6      128,831     6.5      100,912    6.3
                                   ---------  -----  ----------  -----   ----------  -----   ----------   -----   ----------  -----
    Total real estate loans....... 2,254,069   77.2   2,029,051   78.4    1,870,468   80.4    1,497,567    75.9    1,197,227   75.1
Consumer:
  Home improvement................    58,435    2.0      44,848    1.7       39,067    1.7       33,963     1.7       37,607    2.4
  Education loans.................    77,753    2.7      70,619    2.7       64,341    2.8       59,791     3.0       53,542    3.3
  Loans on savings accounts.......     8,923    0.3       8,052    0.3        6,263    0.3        6,898     0.4        7,176    0.5
  Other (1).......................   430,232   14.7     387,423   15.0      305,812   13.1      252,443    12.8      212,472   13.3
                                   ---------  -----  ----------  -----   ----------  -----   ----------   -----   ----------  -----
    Total consumer loans .........   575,343   19.7     510,942   19.7      415,483   17.9      353,095    17.9      310,797   19.5
Commercial business...............    89,784    3.1      49,992    1.9       40,039    1.7      123,188     6.2       86,087    5.4
                                   ---------  -----  ----------  -----   ----------  -----   ----------   -----   ----------  -----
    Total loans receivable, gross. 2,919,196  100.0%  2,589,985  100.0%   2,325,990  100.0%   1,973,850   100.0%   1,594,111  100.0%
                                              =====              =====               =====                =====               =====

Deferred loan fees................    (2,517)            (1,829)               (923)             (1,357)              (2,384)
Undisbursed loan proceeds.........   (39,808)           (25,266)            (23,056)            (49,435)             (41,618)
Allowance for loan losses
  (real estate loans).............   (11,629)           (11,334)            (10,619)             (8,103)              (6,898)
Allowance for loan losses
  (other loans)...................    (8,661)            (6,926)             (6,154)             (7,666)              (6,713)
                                   ----------        ----------          ----------          ----------           ----------
    Total loans receivable, net... $2,856,581        $2,544,630          $2,285,238          $1,907,289           $1,536,498
                                   ==========        ==========          ==========          ==========           ==========
</TABLE>
----------
(1)  Consist primarily of automobile loans and secured and unsecured personal
     loans.

         FIXED- AND ADJUSTABLE-RATE LOANS. Set forth below are selected data
regarding the dollar amounts of the Company's total loans represented by fixed-
and adjustable-rate loans at the dates indicated.

<TABLE>
<CAPTION>
                                                                           AT JUNE 30,
                              ----------------------------------------------------------------------------------------------------
                                     2001                 2000                1999                 1998                 1997
                              ------------------    -----------------   -----------------   ------------------   -----------------
                               AMOUNT   PERCENT      AMOUNT  PERCENT     AMOUNT  PERCENT     AMOUNT   PERCENT     AMOUNT   PERCENT
                               ------   -------      ------  -------     ------  -------     ------   -------     ------   -------
                                                                     (DOLLARS IN THOUSANDS)
<S>                          <C>       <C>       <C>        <C>      <C>        <C>       <C>        <C>       <C>        <C>
Real estate loans:
  Adjustable................ $  170,054    5.8%   $  108,628    4.2%  $   99,029    4.3%   $   55,493    2.8%   $   78,568     4.9%
  Fixed.....................  2,084,015   71.4     1,920,423   74.2    1,771,439   76.1     1,442,074   73.1     1,118,659    70.2
                             ----------  -----    ----------  -----   ----------  -----    ----------  -----    ----------   -----
   Total real estate loans..  2,254,069   77.2     2,029,051   78.4    1,870,468   80.4     1,497,567   75.9     1,197,227    75.1

Other loans:
  Adjustable................    197,403    6.8       151,177    5.8      132,873    5.7       117,100    5.9       117,301     7.4
  Fixed.....................    467,724   16.0       409,757   15.8      322,649   13.9       359,183   18.2       279,583    17.5
                             ----------  -----    ----------  -----   ----------  -----    ----------  -----    ----------   -----
   Total other loans........    665,127   22.8       560,934   21.6      455,522   19.6       476,283   24.1       396,884    24.9
                             ----------  -----    ----------  -----   ----------  -----    ----------  -----    ----------   -----
                             $2,919,196  100.0%   $2,589,985  100.0%  $2,325,990  100.0%   $1,973,850  100.0%   $1,594,111   100.0%
                             ==========  =====    ==========  =====   ==========  =====    ==========  =====    ==========   =====
</TABLE>

                                        4


<PAGE>   5



         LOAN MATURITY AND REPRICING SCHEDULE. The following table sets forth
the maturity or period of repricing of the Company's loan portfolio at June 30,
2001. Demand loans and loans having no stated schedule of repayments and no
stated maturity are reported as due in one year or less. Adjustable and
floating-rate loans are included in the period in which interest rates are next
scheduled to adjust rather than in which they contractually mature, and fixed-
rate loans are included in the period in which the final contractual repayment
is due.

<TABLE>
<CAPTION>
                                                                                                 BEYOND
                                       WITHIN          1-2            2-3           3-5            5
                                       1 YEAR         YEARS          YEARS         YEARS          YEARS           TOTAL
                                      ---------     ---------      ---------      --------       --------       ---------
                                                                      (IN THOUSANDS)
<S>                                 <C>            <C>            <C>            <C>            <C>            <C>
Real estate loans:
 One- to four-family residential..   $  125,510     $   84,517     $   87,019     $  174,175     $1,493,991     $1,965,212
 Multifamily and commercial ......       80,398         21,649         19,834         56,244         70,924        249,049
Consumer loans ...................      251,699         81,831         72,735        109,662         59,416        575,343
Commercial business loans ........       49,663         12,847          8,073         11,447          7,754         89,784
                                     ----------     ----------     ----------     ----------     ----------     ----------
    Total loans ..................   $  507,270     $  200,844     $  187,661     $  351,528     $1,632,085     $2,879,388
                                     ==========     ==========     ==========     ==========     ==========     ==========
</TABLE>


         FIXED- AND ADJUSTABLE-RATE LOAN SCHEDULE. The following table sets
forth at June 30, 2001, the dollar amount of all fixed-rate and adjustable-rate
loans due after June 30, 2002. Adjustable- and floating-rate loans are included
in the period in which they are contractually due.

<TABLE>
<CAPTION>
                                             FIXED        ADJUSTABLE        TOTAL
                                             -----        ----------        -----
                                                        (IN THOUSANDS)
<S>                                       <C>            <C>            <C>
Real estate loans:
  One- to four-family residential.....     $1,831,821     $   44,878     $1,876,699
  Multifamily and commercial .........        115,315         62,604        177,919
Consumer .............................        323,583         80,704        404,287
Commercial ...........................         34,318         38,811         73,129
                                           ----------     ----------     ----------
  Total ..............................     $2,305,037     $  226,997     $2,532,034
                                           ==========     ==========     ==========
</TABLE>


         ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The primary lending
activity of the Company consists of the origination for retention in the
Company's portfolio of owner-occupied one- to four-family residential mortgage
loans secured by properties located in the Company's market area.

         The Company currently offers one- to four-family residential mortgage
loans with terms typically ranging from 10 to 30 years, with either adjustable
or fixed interest rates. Originations of fixed-rate mortgage loans versus
adjustable-rate mortgage loans are monitored on an ongoing basis and are
affected significantly by such things as the level of market interest rates,
customer preference, the Company's interest rate sensitivity position and loan
products offered by the Company's competitors. Therefore, even when management's
strategy is to increase the originations of adjustable-rate mortgage loans,
market conditions may be such that there is greater demand for fixed-rate
mortgage loans.

         The Company's fixed-rate loans, whenever possible, are originated and
underwritten according to standards that permit sale in the secondary mortgage
market. Whether the Company can or will sell fixed-rate loans into the secondary
market, however, depends on a number of factors including the yield and the term
of the loan, market conditions, and the Company's current liquidity and interest
rate sensitivity position. The Company historically has been primarily a
portfolio lender, and at any one time the Company has held only a nominal amount
of loans that may be sold. The Company's current policy is to retain in its
portfolio fixed-rate loans with terms of 15 years or less, and sell a limited
amount of fixed-rate loans (servicing retained) with terms of more than 15
years. Moreover, the Company is more likely to retain fixed-rate loans if its
interest rate sensitivity is within acceptable limits. The Company's mortgage
loans are amortized on a monthly basis with principal and interest due each
month. One- to four-family residential real estate loans often remain
outstanding for significantly shorter periods than their contractual terms
because borrowers may refinance or prepay loans at their option.

         The Company currently offers adjustable-rate mortgage loans with
initial interest rate adjustment periods of one, three and five years, based on
changes in a designated market index. The Company determines whether a

                                        5

<PAGE>   6



borrower qualifies for an adjustable-rate mortgage loan based on the fully
indexed rate of the adjustable-rate mortgage loan at the time the loan is
originated. One- to four-family residential adjustable-rate mortgage loans
totalled $47.1 million, or 1.6% of the Company's gross loan portfolio at June
30, 2001.

         The primary purpose of offering adjustable-rate mortgage loans is to
make the Company's loan portfolio more interest rate sensitive. However, as the
interest income earned on adjustable-rate mortgage loans varies with prevailing
interest rates, such loans may not offer the Company as predictable cash flows
as long-term, fixed-rate loans. Adjustable-rate mortgage loans carry increased
credit risk associated with potentially higher monthly payments by borrowers as
general market interest rates increase. It is possible, therefore, that during
periods of rising interest rates, the risk of default on adjustable-rate
mortgage loans may increase due to the upward adjustment of interest costs to
the borrower.

         The Company's one- to four-family residential first mortgage loans
customarily include due-on-sale clauses, which are provisions giving the Company
the right to declare a loan immediately due and payable in the event, among
other things, that the borrower sells or otherwise disposes of the underlying
real property serving as security for the loan. Due-on-sale clauses are an
important means of adjusting the rates on the Company's fixed-rate mortgage loan
portfolio, and the Company has generally exercised its rights under these
clauses.

         Regulations limit the amount that a savings bank may lend relative to
the appraised value of the real estate securing the loan, as determined by an
appraisal at the time of loan origination. Appraisals are generally performed by
the Company's in-house appraisal staff. Such regulations permit a maximum
loan-to-value ratio of 95% for residential property and 80% for all other real
estate loans. The Company's lending policies generally limit the maximum
loan-to-value ratio on both fixed-rate and adjustable-rate mortgage loans
without private mortgage insurance to 80% of the lesser of the appraised value
or the purchase price of the real estate that serves as collateral for the loan.
The Company makes a limited amount of one- to four-family real estate loans with
loan-to-value ratios in excess of 80%. For one- to four-family real estate loans
with loan-to-value ratios in excess of 80%, the Company generally requires the
borrower to obtain private mortgage insurance on the entire amount of the loan.
The Company requires fire and casualty insurance, as well as a title guaranty
regarding good title, on all properties securing real estate loans made by the
Company.

         In the past, the Company purchased loans that are serviced by other
institutions and that are secured by one- to four-family residences. At June 30,
2001, the Company's portfolio of loans serviced by others totaled $1.5 million.
The Company currently has no formal plans to enter into new loan participations.

         Included in the Company's $2.005 billion of one- to four-family
residential real estate loans are construction loans and land loans of $60.5
million, or 2.1% of the Company's total loan portfolio. The Company offers
fixed-rate and adjustable-rate residential construction loans primarily for the
construction of owner-occupied one- to four-family residences in the Company's
market area to builders or to owners who have a contract for construction.
Construction loans are generally structured to become permanent loans, and are
originated with terms of up to 30 years with an allowance of up to one year for
construction. During the construction phase the loans have a fixed interest rate
and convert into either a fixed-rate or an adjustable-rate mortgage loan at the
end of the construction period. Advances are made as construction is completed.
In addition, the Company originates loans within its market area that are
secured by individual unimproved or improved lots. Land loans are currently
offered with fixed-rates for terms of up to 10 years. The maximum loan-to-value
ratio for the Company's land loans is 75% of the appraised value, and the
maximum loan-to-value ratio for the Company's construction loans is 95% of the
lower of cost or appraised value.

         Construction lending generally involves a greater degree of credit risk
than other one- to four-family residential mortgage lending. The repayment of
the construction loan is often dependent upon the successful completion of the
construction project. Construction delays or the inability of the borrower to
sell the property once construction is completed may impair the borrower's
ability to repay the loan.

         MULTIFAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE LOANS. The Company's
multifamily residential real estate loans are secured by multifamily residences,
such as rental properties. The Company's commercial real estate

                                        6

<PAGE>   7



loans are secured by nonresidential properties such as hotels, church property,
and retail establishments. At June 30, 2001, a significant portion of the
Company's multifamily residential and commercial real estate loans were secured
by properties located within the Company's market area. The Company's largest
multifamily residential real estate loan relationship at June 30, 2001, had a
principal balance of $4.7 million, and was collateralized by a condominium
project in Allegheny County, Pennsylvania. The Company's largest commercial real
estate loan at June 30, 2001, had a principal balance of $8.0 million and was
collateralized by land and real estate in St. George, Utah. Multifamily
residential and commercial real estate loans are offered with both adjustable
interest rates and fixed interest rates. The terms of each multifamily
residential and commercial real estate loan are negotiated on a case-by- case
basis. The Company generally makes multifamily residential and commercial real
estate loans up to 75% of the appraised value of the property collateralizing
the loan.

         Loans secured by multifamily residential and commercial real estate
generally involve a greater degree of credit risk than one- to four-family
residential mortgage loans and carry larger loan balances. This increased credit
risk is a result of several factors, including the concentration of principal in
a limited number of loans and borrowers, the effects of general economic
conditions on income producing properties, and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multifamily residential and commercial real estate is typically
dependent upon the successful operation of the related real estate property. If
the cash flow from the project is reduced, the borrower's ability to repay the
loan may be impaired.

         CONSUMER LOANS. The principal types of consumer loans offered by the
Company are adjustable-rate home equity lines of credit and variable-rate
education loans, and fixed-rate consumer loans such as second mortgage loans,
automobile loans, sales finance loans, unsecured personal loans, credit card
loans, and loans secured by deposit accounts. Consumer loans are offered with
maturities generally of less than ten years. The Company's home equity lines of
credit are secured by the borrower's principal residence with a maximum
loan-to-value ratio, including the principal balances of both the first and
second mortgage loans, of 90% or less. Such loans are offered on an
adjustable-rate basis with terms of up to ten years. At June 30, 2001, the
disbursed portion of home equity lines of credit totalled $58.4 million, or
10.2%, of consumer loans, with $100.3 million remaining undisbursed.

         The underwriting standards employed by the Company for consumer loans
include a determination of the applicant's credit history and an assessment of
ability to meet existing obligations and payments on the proposed loan. The
stability of the applicant's monthly income may be determined by verification of
gross monthly income from primary employment, and additionally from any
verifiable secondary income. Creditworthiness of the applicant is of primary
consideration; however, the underwriting process also includes a comparison of
the value of the collateral in relation to the proposed loan amount, and in the
case of home equity lines of credit, the Company obtains a title guarantee or an
opinion as to the validity of title.

         Consumer loans entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans that are unsecured or secured
by assets that depreciate rapidly, such as automobiles, mobile homes, boats,
recreation vehicles, appliances, and furniture. In such cases, repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment for the outstanding loan and the remaining deficiency often does not
warrant further substantial collection efforts against the borrower. In
particular, amounts realizable on the sale of repossessed automobiles may be
significantly reduced based upon the condition of the automobiles and the lack
of demand for used automobiles. The Company adds a general provision on a
regular basis to its consumer loan loss allowance, based on general economic
conditions and prior loss experience.

         COMMERCIAL BUSINESS LOANS. The Company currently offers commercial
business loans to existing customers to finance various activities in the
Company's market area, some of which are secured in part by additional real
estate collateral. The largest commercial business loan had a principal balance
of $6.6 million, and was secured by marketable securities.

         Commercial business loans are offered with both fixed and adjustable
interest rates and with terms of up to 15 years. Underwriting standards employed
by the Company for commercial business loans include a determination of the
applicant's ability to meet existing obligations and payments on the proposed
loan from normal

                                        7

<PAGE>   8



cash flows generated by the applicant's business. The financial strength of each
applicant also is assessed through a review of financial statements provided by
the applicant.

         Commercial business loans generally bear higher interest rates than
residential loans, but they also may involve a higher risk of default since
their repayment is generally dependent on the successful operation of the
borrower's business. The Company generally obtains personal guarantees from the
borrower or a third party as a condition to originating its commercial business
loans.

         LOAN ORIGINATIONS, SOLICITATION, PROCESSING, AND COMMITMENTS. Loan
originations are derived from a number of sources such as real estate broker
referrals, existing customers, borrowers, builders, attorneys, mortgage brokers
and walk-in customers. All of the Company's loan originators are salaried
employees, and the Company does not pay commissions in connection with loan
originations. Upon receiving a loan application, the Company obtains a credit
report and employment verification to verify specific information relating to
the applicant's employment, income, and credit standing. In the case of a real
estate loan, an in-house appraiser or an appraiser approved by the Company
appraises the real estate intended to secure the proposed loan. A loan processor
in the Company's loan department checks the loan application file for accuracy
and completeness, and verifies the information provided. The Company has a
formal loan policy which assigns lending limits to the Company's various loan
officers. Also, the Company has a Credit Committee and a Senior Loan Committee
which meets as needed to review and verify that the assigned lending limits are
being followed and to monitor the Company's lending policies and the Company's
loan activity. The Senior Loan Committee also has lending authority as
designated in the Company's loan policy which is approved by the Board of
Directors. Loans exceeding the limits established for the Senior Loan Committee
must be approved by the Executive Committee of the Board of Directors or by the
entire Board of Directors. The Company's policy is to make no loans either
individually or in the aggregate to one entity in excess of $7.5 million. Fire
and casualty insurance is required at the time the loan is made and throughout
the term of the loan, and upon request of the Company, flood insurance may be
required. After the loan is approved, a loan commitment letter is promptly
issued to the borrower. At June 30, 2001, the Company had commitments to
originate $43.8 million of loans.

         If the loan is approved, the commitment letter specifies the terms and
conditions of the proposed loan including the amount of the loan, interest rate,
amortization term, a brief description of the required collateral and required
insurance coverage. The borrower must provide proof of fire and casualty
insurance on the property (and, as required, flood insurance) serving as
collateral, which insurance must be maintained during the full term of the loan.
A title guaranty, based on a title search of the property, is required on all
loans secured by real property.

         ORIGINATION, PURCHASE AND SALE OF LOANS. The table below shows the
Company's originations of loans for the periods indicated.

<TABLE>
<CAPTION>
                                                                              YEARS ENDED JUNE 30,
                                                                         2001         2000         1999
                                                                       ---------    ---------    ---------
                                                                                 (IN THOUSANDS)
<S>                                                                   <C>          <C>          <C>
Loans receivable, gross, at beginning of period...................     $2,589,985   $2,325,990   $1,973,850
Originations......................................................        776,001      629,104      881,861
Principal repayments..............................................       (450,120)    (408,837)    (512,069)
Loan purchases including acquisitions.............................         57,213       46,933       22,558
Loan sales and change in undisbursed loan proceeds................        (50,503)      (1,580)     (36,832)
Transfer to REO...................................................         (3,380)      (1,625)      (3,378)
                                                                       -----------  ----------   ----------
    Loans receivable, gross, at end of period.....................     $2,919,196   $2,589,985   $2,325,990
                                                                       ==========   ==========   ==========
</TABLE>


         LOAN ORIGINATION FEES AND OTHER INCOME. In addition to interest earned
on loans, the Company generally receives loan origination fees. To the extent
that loans are originated or acquired for the Company's portfolio, Statement of
Financial Accounting Standards No. 91 requires that the Company defer loan
origination fees and costs and amortize such amounts as an adjustment of yield
over the life of the loan by use of the level yield method. Fees deferred under
SFAS 91 are recognized into income immediately upon prepayment or the sale of
the related loan. At June 30, 2001 the Company had $2.5 million of net deferred
loan origination fees. Loan origination fees are

                                        8

<PAGE>   9



volatile sources of income. Such fees vary with the volume and type of loans and
commitments made and purchased, principal repayments, and competitive conditions
in the mortgage markets, which in turn respond to the demand and availability of
money.

         In addition to loan origination fees, the Company also receives other
fees, service charges, and other income that consist primarily of deposit
transaction account service charges, late charges, credit card fees, and income
from operations of real estate owned ("REO"). The Company recognized fees and
service charges of $10.0 million, $7.0 million and $4.5 million, for the fiscal
years ended June 30, 2001, 2000 and 1999, respectively.

         LOANS-TO-ONE BORROWER. Savings banks are subject to the same
loans-to-one borrower limits as those applicable to national banks, which under
current regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired capital and unimpaired surplus on an unsecured basis, and an
additional amount equal to 10% of unimpaired capital and unimpaired surplus if
the loan is secured by readily marketable collateral (generally, financial
instruments and bullion, but not real estate). At June 30, 2001, the largest
aggregate amount loaned by the Company to one borrower totaled $8.0 million and
was secured by land and real estate. The Company's second largest lending
relationship totaled $6.9 million and was secured by business personal property
and commercial real estate. The Company's third largest lending relationship
totaled $6.6 million and was secured by marketable securities. The Company's
fourth largest lending relationship was for $5.4 million and was secured by
commercial real estate. The Company's fifth largest lending relationship totaled
$5.3 million and was secured by commercial real estate and inventory.

DELINQUENCIES AND CLASSIFIED ASSETS

         COLLECTION PROCEDURES. The Company's collection procedures provide that
when a loan is five days past due, a computer-generated late notice is sent to
the borrower requesting payment. If delinquency continues, at 15 days a
delinquent notice, plus a notice of a late charge, is sent and personal contact
efforts are attempted, either in person or by telephone, to strengthen the
collection process and obtain reasons for the delinquency. Also, plans to
arrange a repayment plan are made. If a loan becomes 60 days past due, a
collection letter is sent, personal contact is attempted, and the loan becomes
subject to possible legal action if suitable arrangements to repay have not been
made. In addition, the borrower is given information which provides access to
consumer counseling services, to the extent required by regulations of the
Department of Housing and Urban Development. When a loan continues in a
delinquent status for 90 days or more, and a repayment schedule has not been
made or kept by the borrower, generally a notice of intent to foreclose is sent
to the borrower, giving 30 days to cure the delinquency. If not cured,
foreclosure proceedings are initiated.

         NONPERFORMING ASSETS. Loans are reviewed on a regular basis and are
placed on a nonaccrual status when, in the opinion of management, the collection
of additional interest is doubtful. Loans are automatically placed on nonaccrual
status when either principal or interest is 90 days or more past due. Interest
accrued and unpaid at the time a loan is placed on a nonaccrual status is
charged against interest income.

         Real estate acquired by the Company as a result of foreclosure or by
deed in lieu of foreclosure is classified as REO until such time as it is sold.
When real estate is acquired through foreclosure or by deed in lieu of
foreclosure, it is recorded at its fair value, less estimated costs of disposal.
If the value of the property is less than the loan, less any related specific
loan loss reserve allocations, the difference is charged against the allowance
for loan losses. Any subsequent write-down of REO is charged against earnings.


                                        9

<PAGE>   10



         LOANS PAST DUE AND NONPERFORMING ASSETS. The following table sets forth
information regarding the Company's loans 30 days or more past due, nonaccrual
loans 90 days or more past due, and real estate acquired or deemed acquired by
foreclosure at the dates indicated. Effective November 1998, the Company changed
its policy so that a loan is considered past due if less than 90% of a
contractually-due payment has been paid. Prior to this change, a loan was
considered past due only if no amount had been paid. As a result of this change,
the Company recorded a significant increase in the amount of loans which were 90
days or more past due as of June 30, 1999. When a loan is delinquent 90 days or
more, the Company fully reserves all accrued interest thereon and ceases to
accrue interest thereafter. For all the dates indicated, the Company did not
have any material restructured loans within the meaning of SFAS 15.


<TABLE>
<CAPTION>
                                                                              AT JUNE 30,
                                                 ---------------------------------------------------------------------
                                                        2001              2000         1999         1998         1997
                                                 ------------------      -------      -------      -------      -------
                                                 NUMBER     BALANCE
                                                 ------     -------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                              <C>        <C>         <C>          <C>          <C>          <C>
Loans past due 30 days to 59 days:
  One- to four-family residential loans ....          77     $ 3,055     $ 2,030      $ 3,632      $ 4,842      $ 3,224
  Multifamily and commercial loans .........          12       1,184         806          320           79           --
  Consumer loans ...........................         734       3,439       2,108        3,491        3,632        2,477
  Commercial business loans ................          18         418         535           --          458          183
                                                 -------     -------     -------      -------      -------      -------
   Total loans past due 30 days to 59 days .         841     $ 8,096     $ 5,479      $ 7,443      $ 9,011      $ 5,884
                                                 -------     -------     -------      -------      -------      -------

Loans past due 60 days to 89 days:
  One- to four-family residential loans ....          81     $ 3,001     $ 2,205      $ 4,895      $ 2,386      $ 1,491
  Multifamily and commercial loans .........           5         248         152          314          219         --
  Consumer loans ...........................         354       1,262         777          957          954          908
  Commercial business loans ................           9         758          47         --            841          180
                                                 -------     -------     -------      -------      -------      -------
   Total loans past due 60 days to 89 days .         449     $ 5,269     $ 3,181      $ 6,166      $ 4,400      $ 2,579
                                                 -------     -------     -------      -------      -------      -------

Loans past due 90 days or more (1):
  One- to four-family residential loans ....         144     $ 6,874     $ 5,753      $ 8,623      $ 6,013      $ 6,229
  Multifamily and commercial loans .........          12       2,296       1,923        2,141          390        2,585
  Consumer loans ...........................         755       3,129       2,459        2,202        1,631        1,161
  Commercial business loans ................          14       5,336         125        3,150          578          455
                                                 -------     -------     -------      -------      -------      -------
   Total loans past due 90 days or more ....         925     $17,635     $10,260      $16,116      $ 8,612      $10,430
                                                 -------     -------     -------      -------      -------      -------

Total loans 30 days or more past due .......       2,215     $31,000     $18,920      $29,725      $22,023      $18,893
                                                 =======     =======     =======      =======      =======      =======

Total loans 90 days or more past due (1) ...         925     $17,635     $10,260      $16,116      $ 8,612      $10,430

Total REO ..................................          51       3,697       2,144        3,383        3,506        4,549
                                                 -------     -------     -------      -------      -------      -------

Total loans 90 days or more past due
  and REO to total assets ..................         976     $21,332     $12,404      $19,499      $12,118      $14,979
                                                 =======     =======     =======      =======      =======      =======

Total loans 90 days or more past due to
  net loans receivable .....................                     .62%        .40%         .71%         .45%         .68%

Total loans 90 days or more past due
  and REO to total assets ..................                     .55%        .36%         .63%         .47%         .72%
</TABLE>
----------

(1) The Company classifies as nonperforming all loans 90 days or more
    delinquent.

         During the fiscal year ended June 30, 2001, gross interest income of
approximately $1.4 million would have been recorded on loans accounted for on a
nonaccrual basis if the loans had been current throughout the period. No
interest income on nonaccrual loans was included in income during such period.

         CLASSIFICATION OF ASSETS. The Company's policies, consistent with
regulatory guidelines, provide for the classification of loans and other assets
such as debt and equity securities, considered to be of lesser quality as
"substandard," "doubtful," or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets

                                       10

<PAGE>   11



include those characterized by the "distinct possibility" that the savings
institution will sustain "some loss" if the deficiencies are not corrected.
Assets classified as "doubtful" have all of the weaknesses inherent in those
classified "substandard" with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as "loss" are those considered "uncollectible" so that their
continuance as assets without the establishment of a specific loss reserve is
not warranted. Assets that do not expose the savings institution to risk
sufficient to warrant classification in one of the aforementioned categories,
but which possess some weaknesses, are required to be designated "special
mention" by management. At June 30, 2001, the Company had 17 loans, with an
aggregate principal balance of $17.6 million, designated as special mention.

         When a savings bank classifies problem assets as either substandard or
doubtful, it is required to establish general valuation allowances or "loss
reserves" in an amount deemed prudent by management. General valuation
represents loss allowances that have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When a savings bank
classifies problem assets as "loss," it is required either to establish a
specific allowance for losses equal to 100% of the amount of the assets so
classified, or to charge off such amount. A savings bank's determination as to
the classification of its assets and the amount of its valuation allowance is
subject to review by its regulatory agencies, which can order the establishment
of additional general or specific loss allowances. The Company regularly reviews
its asset portfolio to determine whether any assets require classification in
accordance with applicable regulations. The Company's largest classified assets
are also the Company's largest nonperforming assets.

         The following table sets forth the aggregate amount of the Company's
classified assets at the dates indicated.

<TABLE>
<CAPTION>
                                                                                        AT JUNE 30,
                                                                       -----------------------------------------
                                                                        2001             2000              1999
                                                                       -------          -------          -------
                                                                                    (IN THOUSANDS)
<S>                                                                   <C>              <C>              <C>
Substandard assets............................................         $35,011          $21,448          $30,852
Doubtful assets...............................................              33               35               99
Loss assets...................................................             160               20               20
                                                                       -------          -------          -------
   Total classified assets....................................         $35,204          $21,503          $30,971
                                                                       =======          =======          =======
</TABLE>


         ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and current economic conditions. Such evaluation,
which includes a review of all loans on which full collectibility may not be
reasonably assured, considers among other matters, the estimated net realizable
value or the fair value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant recognition in
providing for an appropriate loan loss allowance. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses and valuation of
foreclosed real estate. Such agencies may require the Company to recognize
additions to the allowance based on their judgment about information available
to them at the time of their examination. The Company will continue to monitor
and modify the level of its allowance for loan losses in order to maintain it at
a level which management considers appropriate to provide for probable loan
losses.


                                       11

<PAGE>   12



         ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES. The following table sets
forth the analysis of the allowance for loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                                                                YEARS ENDED JUNE 30,
                                                         ----------------------------------------------------------------------
                                                            2001           2000           1999           1998           1997
                                                         ----------     ----------     ----------     ----------     ----------
                                                                                     (IN THOUSANDS)
<S>                                                     <C>            <C>            <C>            <C>            <C>
Net loans receivable .................................   $2,856,581     $2,544,630     $2,285,238     $1,907,289     $1,536,498
Average loans outstanding ............................    2,715,012      2,436,260      2,128,480      1,690,412      1,449,807

Allowance for loan losses balance at
  beginning of period ................................       18,260         16,773         15,769         13,611         13,130
Provision for loan losses ............................        5,347          4,149          3,629          4,072          2,491
Charge-offs:
  Real estate loans ..................................         (176)          (289)          (514)          (132)          (383)
  Consumer loans .....................................       (3,528)        (2,987)        (3,049)        (2,384)        (2,004)
  Commercial loans ...................................         (158)          --             (101)          --             (150)
                                                         ----------     ----------     ----------     ----------     ----------
   Total charge-offs .................................       (3,862)        (3,276)        (3,664)        (2,516)        (2,537)
                                                         ----------     ----------     ----------     ----------     ----------
Recoveries:
  Real estate loans ..................................           32             75            367           --               10
  Consumer loans .....................................          453            481            470            393            363
  Commercial loans ...................................           60             33             61           --                1
                                                         ----------     ----------     ----------     ----------     ----------
   Total recoveries ..................................          545            589            898            393            374
Acquired through acquisition .........................         --               25            141            209            153
                                                         ----------     ----------     ----------     ----------     ----------
  Allowance for loan losses balance at end of period..   $   20,290     $   18,260     $   16,773     $   15,769     $   13,611
                                                         ==========     ==========     ==========     ==========     ==========

Allowance for loan losses as a percentage of net
  loans receivable ...................................         0.71%          0.72%          0.73%          0.83%          0.89%
Net loans charged-off as a percentage of average
  loans outstanding ..................................         0.14%          0.13%          0.17%          0.15%          0.17%
Allowance for loan losses as a percentage of
  nonperforming loans ................................       115.06%        177.97%        104.08%        183.10%        130.50%
Allowance for loan losses as a percentage
  of nonperforming loans and REO .....................        95.12%        147.21%         86.02%        130.13%         90.87%
</TABLE>


         ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table sets forth
the allocation of allowance for loan losses by loan category for the periods
indicated.

<TABLE>
<CAPTION>
                                                                       AT JUNE 30,
                             ---------------------------------------------------------------------------------------------------
                                    2001                2000                1999               1998                  1997
                             ------------------   -----------------   -----------------   -----------------   ------------------
                                        % OF                % OF                 % OF               % OF                 % OF
                                        TOTAL               TOTAL                TOTAL              TOTAL                TOTAL
                              AMOUNT   LOANS(1)   AMOUNT   LOANS(1)   AMOUNT   LOANS(1)   AMOUNT   LOANS(1)   AMOUNT    LOANS(1)
                             -------   --------   -------  --------   ------   --------   ------   --------   -------   --------
                                                                   (DOLLARS IN THOUSANDS)
<S>                          <C>       <C>       <C>       <C>        <C>        <C>      <C>       <C>       <C>       <C>
Balance at end of period
  applicable to:
Real estate loans .........  $11,629     77.2%    $11,334     78.4%    $10,619     80.4%  $ 8,103     75.9%   $ 6,898     75.1%
Consumer loans ............    6,682     19.7       5,976     19.7       5,318     17.9     4,957     17.9      4,499     19.5
Commercial business loans..    1,979      3.1         950      1.9         836      1.7     2,709      6.2      2,214      5.4
                             -------    -----     -------    -----     -------    -----   -------    -----    -------    -----

Total allowance for
loan losses ...............  $20,290    100.0%    $18,260    100.0%    $16,773    100.0%  $15,769    100.0%   $13,611    100.0%
                             =======    =====     =======    =====     =======    =====   =======    =====    =======    =====
</TABLE>

----------

(1)  Represents percentage of loans in each category to total loans.


INVESTMENT ACTIVITIES

         The Company's investment portfolio comprises mortgage-backed
securities, investment securities, and cash and cash equivalents. In recent
years, the Company generally has increased both the percentage of its assets
held in its investment securities portfolio, and the percentage of assets held
in the mortgage-backed securities portfolio. This increase in investment
securities and mortgage-backed securities resulted from the Company leveraging
its capital by borrowing funds and investing the proceeds in marketable
securities in order to improve net interest

                                       12

<PAGE>   13



income. In addition, any excess funds resulting from the acquisition of branch
offices, and the related deposits, from other financial institutions is invested
by the Company. Also, the Company maintains a high percentage of its assets in
marketable securities and cash equivalents to assist in asset/liability
management.

         The Company is required under federal regulations to maintain a minimum
amount of liquid assets that may be invested in specified short term securities
and certain other investments. The Company generally has maintained a portfolio
of liquid assets that exceeds regulatory requirements. Liquidity levels may be
increased or decreased depending upon the yields on investment alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other opportunities and its expectation of the level of yield
that will be available in the future, as well as management's projections as to
the short-term demand for funds to be used in the Company's loan origination and
other activities.

         PURCHASES, SALES, AND REPAYMENTS OF INVESTMENT AND MORTGAGE-BACKED
SECURITIES. Set forth below is information relating to the Company's purchases,
sales and repayments of investment securities and mortgage-backed securities for
the periods indicated.

<TABLE>
<CAPTION>
                                                                                      YEARS ENDED JUNE 30,
                                                                             ---------------------------------------
                                                                               2001           2000            1999
                                                                             ---------      ---------      ---------
                                                                                        (IN THOUSANDS)
<S>                                                                         <C>            <C>            <C>
Mortgage-backed securities balance at beginning of period (1) ..........     $ 420,177      $ 348,257      $ 305,764
Purchases ..............................................................       114,926         96,320        118,514
Sales ..................................................................       (11,127)            --           (772)
Securities acquired by business combination ............................            --             --            351
Increase (decrease) in market value of securities available for sale....         5,725         (5,308)           128
Principal payments and amortization of premiums and discounts ..........       (25,427)       (19,092)       (75,728)
                                                                             ---------      ---------      ---------
Mortgage-backed securities balance at end of period (1) ................     $ 504,274      $ 420,177      $ 348,257
                                                                             =========      =========      =========

Investment securities balance at beginning of period (2) ...............     $ 205,562      $ 240,230      $ 204,213
Purchases ..............................................................        68,982         26,108        108,474
Sales ..................................................................        (3,985)       (29,934)       (26,544)
Securities acquired by business combination ............................            --             --          2,771
Increase (decrease) in market value of securities available for sale ...         7,012         (6,075)        (2,095)
Maturities and amortization of premiums and discounts ..................       (50,935)       (24,767)       (46,589)
                                                                             ---------      ---------      ---------
Investment securities balance at end of period (2) .....................     $ 226,636      $ 205,562      $ 240,230
                                                                             =========      =========      =========
</TABLE>
---------
(1) Includes mortgage-backed securities available for sale and held to
    maturity.

(2) Includes investment securities available for sale and held to maturity.


                                       13

<PAGE>   14



         AMORTIZED COST AND MARKET VALUE OF INVESTMENT AND MORTGAGE-BACKED
SECURITIES. The following table sets forth certain information regarding the
amortized cost and market values of the Company's investment securities
portfolio and mortgage-backed securities portfolio at the dates indicated.


<TABLE>
<CAPTION>
                                                                                        AT JUNE 30,
                                                         --------------------------------------------------------------------------
                                                                  2001                     2000                      1999
                                                         ---------------------     --------------------      ----------------------
                                                         AMORTIZED      MARKET     AMORTIZED     MARKET      AMORTIZED      MARKET
                                                            COST        VALUE        COST         VALUE         COST         VALUE
                                                         ---------     --------    ---------     --------    ---------     --------
                                                                                      (IN THOUSANDS)
<S>                                                     <C>          <C>          <C>          <C>          <C>          <C>
Mortgage-backed securities held to maturity:
  Fixed-rate pass through certificates ..............     $  3,379     $  3,387     $  1,298     $  1,311     $    731     $    772
  Variable-rate pass through certificates ...........        4,743        4,834        5,967        5,967        7,212        7,307
  Fixed-rate collateralized mortgage
   obligations (CMOs) ...............................        2,284        2,373           --           --           --           --
  Variable-rate CMOs ................................      198,934      194,356      132,901      128,197      127,614      126,603
                                                          --------     --------     --------     --------     --------     --------
    Total mortgage-backed securities held
      to maturity ...................................      209,340      204,950      140,166      135,475      135,557      134,682
                                                          --------     --------     --------     --------     --------     --------

Mortgage-backed securities available for sale:
  Fixed-rate pass through certificates ..............     $ 72,522     $ 74,038     $ 84,487     $ 82,772     $ 53,898     $ 52,814
  Variable-rate pass through certificates ...........       15,148       15,252       30,670       29,862        9,342        9,326
  Fixed-rate collateralized mortgage
   obligations (CMOs) ...............................            3            3            8            8           17           17
  Variable-rate CMOs ................................      206,149      205,641      169,459      167,369      148,748      150,543
                                                          --------     --------     --------     --------     --------     --------
    Total mortgage-backed securities available for...      293,822      294,934      284,624      280,011      212,005      212,700
                                                          --------     --------     --------     --------     --------     --------


    Total mortgage-backed securities ................     $503,162     $499,884     $424,790     $415,486     $347,562     $347,382
                                                          ========     ========     ========     ========     ========     ========

Investment securities held to maturity:
  U.S. Government and agency ........................     $ 34,518     $ 35,819     $ 35,993     $ 34,588     $ 56,692     $ 56,614
  Municipal securities ..............................       50,641       50,388       31,848       27,850       31,842       30,422
  Corporate debt issues .............................       44,832       42,215       29,749       24,451       29,773       28,633
                                                          --------     --------     --------     --------     --------     --------
    Total investment securities held to maturity ....     $129,991     $128,422     $ 97,590     $ 86,889     $118,307     $115,669
                                                          ========     ========     ========     ========     ========     ========


Investment securities available for sale:
  U.S. Government and agency ........................     $ 27,220     $ 27,793     $ 50,970     $ 50,593     $ 65,597     $ 65,232
  Municipal securities ..............................       57,538       57,588       55,810       51,387       51,440       50,830
  Corporate debt issues .............................          986          905          985          949          985          955
  Equity securities .................................        7,123       10,359        3,441        5,043        2,155        4,906
                                                          --------     --------     --------     --------     --------     --------
    Total investment securities available for sale        $ 92,867     $ 96,645     $111,206     $107,972     $120,177     $121,923
                                                          ========     ========     ========     ========     ========     ========
</TABLE>


         ISSUERS OF MORTGAGE-BACKED SECURITIES. The following table sets forth
information regarding the issuers and the carrying value of the Company's
mortgage-backed securities held to maturity and mortgage-backed securities
available for sale.

<TABLE>
<CAPTION>
                                                                                        AT JUNE 30,
                                                                       --------------------------------------------
                                                                         2001              2000             1999
                                                                       ---------        ---------         ---------
                                                                                        (IN THOUSANDS)
<S>                                                                    <C>              <C>               <C>
Mortgage-backed securities:
   FNMA...........................................................      $210,548         $149,780          $128,256
   GNMA...........................................................        91,535          103,537            57,881
   FHLMC..........................................................       181,500          146,309           141,017
   Other (non-agency).............................................        20,691           20,551            21,103
                                                                        --------         --------          --------
     Total mortgage-backed securities.............................      $504,274         $420,177          $348,257
                                                                        ========         ========          ========
</TABLE>

                                       14

<PAGE>   15




         INVESTMENT PORTFOLIO MATURITIES. The following table sets forth the
scheduled maturities, carrying values, amortized cost, market values and
weighted average yields for the Company's investment securities and
mortgage-backed securities portfolios at June 30, 2001. Adjustable-rate
mortgage-backed securities are included in the period in which interest rates
are next scheduled to adjust.


<TABLE>
<CAPTION>
                                                                          AT JUNE 30, 2001
                           ------------------- ------------------------------------------------------------------------------------
                            ONE YEAR OR LESS   ONE TO FIVE YEARS  FIVE TO TEN YEARS  MORE THAN TEN YEARS            TOTAL
                           ------------------- ------------------ -----------------  -------------------- -------------------------
                                    ANNUALIZED         ANNUALIZED         ANNUALIZED          ANNUALIZED                 ANNUALIZED
                                     WEIGHTED           WEIGHTED           WEIGHTED            WEIGHTED                   WEIGHTED
                           AMORTIZED AVERAGE  AMORTIZED AVERAGE   AMORTIZED AVERAGE  AMORTIZED  AVERAGE  AMORTIZED MARKET  AVERAGE
                             COST     YIELD     COST     YIELD      COST     YIELD     COST      YIELD      COST   VALUE    YIELD
                           --------- -------  --------- --------  --------  -------  -------- ---------- --------  ------ ---------
                                                   (DOLLARS IN THOUSANDS)
<S>                        <C>        <C>    <C>        <C>      <C>        <C>     <C>          <C>     <C>       <C>       <C>
Investment securities
held to maturity:
 U.S. Government and
   agency obligations...... $     --    --%   $   --       --%    $13,744    7.22%   $ 20,774      7.30%  $ 34,518 $ 35,819   7.27%
 Municipal securities......       --    --       100     5.25          --      --      50,541      5.08     50,641   50,388   5.08
 Corporate debt issues.....       --    --     1,027    11.51          --      --      43,805      8.65     44,832   42,215   8.71
                            --------  ----    ------    -----     -------     ---    --------      ----   -------- --------   ----
  Total investment
    securities held
    to maturity ........... $     --    --%   $1,127    10.95%    $13,744    7.22%   $115,120      6.97%  $129,991 $128,422   7.03%

Investment securities
available for sale:
 U.S. Government and
   agency obligations...... $ 13,976  6.35%   $5,516     6.08%    $ 1,494    6.41%   $  6,234      7.00%  $ 27,220 $ 27,793   6.45%
 Equity securities.........       --    --        --       --          --      --       7,123       N/A      7,123   10,359    N/A
 Municipal securities......      450  4.55       445     5.77         497    4.95      56,146      5.17     57,538   57,588   5.17
 Corporate debt issues.....       --    --        --       --          --      --         986      4.65        986      905   4.65
                            --------  ----    ------    -----     -------     ---    --------      ----   -------- --------   ----
  Total investment
    securities available
    for sale .............. $ 14,426  6.29%   $5,961     6.06%    $ 1,991    6.05%   $ 70,489      5.34%  $ 92,867 $ 96,645   5.55%

Mortgage-backed
securities held to maturity:
 Pass-through certificates. $  4,743  7.58%   $   --       --%    $    --      --%   $  3,379      7.63%  $  8,122 $  8,122   7.60%
 CMOs......................  198,934  5.54        --       --          --      --       2,284      7.94    201,218  196,729   5.56
                            --------  ----    ------    -----     -------     ---    --------      ----   -------- --------   ----
  Total mortgage-backed
   securities held
   to maturity............. $203,677  5.58%   $   --       --%    $    --      --%   $  5,663      7.75%  $209,340 $204,950   5.64%
Mortgage-backed securities
available for sale:
 Pass through certificates. $ 15,219  5.80%   $  125     5.73%    $ 6,005    6.74%   $ 66,321      7.33%  $ 87,670 $ 89,290   7.02%
 CMOs......................  206,149  5.52         3    10.15          --      --          --        --    206,152  205,644   5.52
                            --------  ----    ------    -----     -------    ----    --------      ----   -------- --------   ----
  Total mortgage-backed
  securities available
  for sale................. $221,368  5.54%   $  128     5.83%    $ 6,005    6.74%   $ 66,321      7.33%  $293,822 $294,934   5.97%
                            --------  ----    ------    -----     -------     ---    --------      ----   -------- --------   ----

Total investment
 securities and
 mortgage-backed
 securities................ $439,471  5.58%   $7,216     6.82%    $21,740    6.98%   $257,593      6.38%  $726,020 $724,951   5.92%
                            ========  ====    ======    =====     =======    ====    ========      ====   ======== ========   ====
</TABLE>

                                 15

<PAGE>   16



SOURCES OF FUNDS

         GENERAL. Deposits are the major source of the Company's funds for
lending and other investment purposes. In addition to deposits, the Company
derives funds from the amortization and prepayment of loans and mortgage- backed
securities, the maturity of investment securities, operations and, if needed,
borrowings from the FHLB. Scheduled loan principal repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources or on a longer term basis for general
business purposes.

         DEPOSITS. Consumer and commercial deposits are attracted principally
from within the Company's market area through the offering of a broad selection
of deposit instruments including checking accounts, savings accounts, money
market deposit accounts, term certificate accounts and individual retirement
accounts. While the Company accepts deposits of $100,000 or more, it does not
offer substantial premium rates for such deposits. Deposit account terms vary
according to the minimum balance required, the period of time during which the
funds must remain on deposit, and the interest rate, among other factors. The
Company regularly evaluates its internal cost of funds, surveys rates offered by
competing institutions, reviews the Company's cash flow requirements for lending
and liquidity, and executes rate changes when deemed appropriate. The Company
does not obtain funds through brokers, nor does it solicit funds outside its
market area.

         The following table sets forth the savings activities of the Company
for the periods indicated.

<TABLE>
<CAPTION>
                                                                                   YEARS ENDED JUNE 30,
                                                                       -------------------------------------------
                                                                         2001             2000             1999
                                                                       ---------       ---------         ---------
                                                                                        (IN THOUSANDS)
<S>                                                                    <C>            <C>              <C>
Balance at beginning of period....................................     $2,886,509      $2,463,711       $2,022,503
Net savings activity..............................................        131,763          18,222           90,938
Net checking activity.............................................          2,019          43,240           26,186
Deposits acquired.................................................        137,941         270,810          249,987
                                                                       ----------      ----------       ----------
   Net increase before interest credited..........................        271,723         332,272          367,111
Interest credited.................................................        106,708          90,526           74,097
                                                                       ----------      ----------       ----------
   Net increase in deposits.......................................        378,431         422,798          441,208
                                                                       ----------      ----------       ----------
     Balance at end of period.....................................     $3,264,940      $2,886,509       $2,463,711
                                                                       ==========      ==========       ==========
</TABLE>

         The following table sets forth the dollar amount of savings deposits in
the various types of savings accounts offered by the Company between the dates
indicated.


<TABLE>
<CAPTION>
                                                                         AT JUNE 30,
                                ------------------------------------------------------------------------------------------------
                                              2001                           2000                             1999
                                ------------------------------  -------------------------------  -------------------------------
                                 BALANCE    PERCENT(1) RATE(2)  BALANCE    PERCENT(1)  RATE(2)    BALANCE    PERCENT(1)  RATE(2)
                                 -------    ---------- -------  -------    ----------  -------    -------    ----------  -------
                                      (DOLLARS IN THOUSANDS)
<S>                            <C>         <C>        <C>     <C>         <C>         <C>       <C>         <C>         <C>
Savings accounts ............   $  455,031    13.94%   3.17%  $  432,908     15.00%     3.22%    $  409,029     16.60%    3.24%
Checking accounts ...........      522,580    16.00    0.96      470,183     16.29      0.93        389,148     15.80     1.38
Money market accounts .......      208,220     6.38    3.69      183,257      6.35      3.63        164,484      6.68     3.73
Certificates of deposit:
     Maturing within 1 year .    1,691,033    51.79    6.02    1,042,401     36.11      5.24        992,723     40.29     5.22
  Maturing 1 to 3 years .....      313,697     9.61    5.79      660,620     22.89      6.22        417,367     16.94     5.11
  Maturing more than
   3 years ..................       74,379     2.28    6.02       97,140      3.36      5.93         90,960      3.69     5.65
                                ----------   ------    ----   ----------     -----     -----     ----------     -----     ----
   Total certificates .......    2,079,109    63.68    5.99    1,800,161     62.36      5.64      1,501,050     60.92     5.22
                                ----------   ------    ----   ----------     -----     -----     ----------     -----     ----

Total deposits ..............   $3,264,940    100.0%   4.65%  $2,886,509     100.0%     4.38%    $2,463,711     100.0%    4.18%
                                ==========   ======    ====   ==========     =====     =====     ==========     =====     ====
</TABLE>
---------
(1)  Represents percentage of total deposits.

(2)  Represents weighted average nominal rate at fiscal year end.


                                       16

<PAGE>   17



         TIME DEPOSIT RATES. The following table sets forth the time deposits in
the Company classified by rates as of the dates indicated:
<TABLE>
<CAPTION>
                                                                                        AT JUNE 30,
                                                                       -----------------------------------------
                                                                          2001            2000          1999
                                                                       -----------    -----------  -------------
             RATE                                                                     (IN THOUSANDS)
             ----
<S>                                                                   <C>            <C>           <C>
2.00 - 2.99%.........................................................  $      301     $       --    $       --
3.00 - 3.99%.........................................................      79,616          4,485         4,016
4.00 - 4.99%.........................................................     330,509        322,494       552,807
5.00 - 5.99%.........................................................     428,362        911,908       815,790
6.00 - 6.99%.........................................................   1,124,205        546,796       120,294
7.00 - 7.99%.........................................................     116,052         14,417         7,083
8.00% or greater.....................................................          64             61         1,060
                                                                       ----------     ----------    ----------
    Total............................................................  $2,079,109     $1,800,161    $1,501,050
                                                                       ==========     ==========    ==========
</TABLE>

         TIME DEPOSIT MATURITIES. The following table sets forth the amount and
maturities of time deposits at June 30, 2001.


<TABLE>
<CAPTION>
                                                                                AMOUNT DUE
                                                     ---------------------------------------------------------------
                                                      LESS THAN      1-2           2-3        AFTER 3
                                                      ONE YEAR      YEARS         YEARS        YEARS        TOTAL
                                                      ---------     -----         -----        -----       ------
             RATE                                                            (IN THOUSANDS)
             ----
<S>                                                  <C>          <C>          <C>           <C>         <C>
2.00 - 2.99%......................................    $      255   $      46    $     --      $     --    $      301
3.00 - 3.99%......................................        76,868       2,181          140          427        79,616
4.00 - 4.99%......................................       261,341      39,084       26,249        3,835       330,509
5.00 - 5.99%......................................       305,465      48,749       32,825       41,323       428,362
6.00 - 6.99%......................................       958,865     140,633        8,812       15,895     1,124,205
7.00 - 7.99%......................................        88,239      12,982        1,936       12,895       116,052
8.00% or greater..................................            --          --           60            4            64
                                                      ----------   ---------    ---------     --------    ----------
Total.............................................    $1,691,033   $ 243,675    $  70,022     $ 74,379    $2,079,109
                                                      ==========   =========    =========     ========    ==========
</TABLE>


         LARGE CERTIFICATES OF DEPOSIT MATURITIES. The following table indicates
the amount of the Company's certificates of deposit of $100,000 or more by time
remaining until maturity at June 30, 2001.

<TABLE>
<CAPTION>
                                                                                               CERTIFICATES
         MATURITY PERIOD                                                                        OF DEPOSIT
         ---------------                                                                      --------------
                                                                                              (IN THOUSANDS)
<S>                                                                                          <C>
          Three months or less.............................................................    $    62,227
          Three through six months.........................................................        104,540
          Six through twelve months........................................................         86,870
          Over twelve months...............................................................         47,072
                                                                                               -----------
            Total..........................................................................    $  300,709
                                                                                               ===========
</TABLE>

BORROWINGS

         Savings deposits are the primary source of funds for the Company's
lending and investment activities and for its general business purposes. The
Company also relies upon borrowings from the FHLB to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. Borrowings from the
FHLB typically are collateralized by the Bank's stock in the FHLB and a portion
of the Bank's first mortgage loans.

         The FHLB functions as a central reserve bank providing credit for the
Bank and other member financial institutions. As a member, the Bank is required
to own capital stock in the FHLB and is authorized to apply for borrowings on
the security of such stock and certain of its first mortgage loans and other
assets (principally, securities that are obligations of, or guaranteed by, the
United States) provided certain standards related to creditworthiness have been
met. Borrowings are made pursuant to several different programs. Each credit
program

                                       17

<PAGE>   18



has its own interest rate and range of maturities. Depending on the program,
limitations on the amount of borrowings are based either on a fixed percentage
of a member institution's net worth or on the FHLB's assessment of the
institution's creditworthiness. All FHLB borrowings have fixed interest rates
and original maturities of between one day and twenty years.

<TABLE>
<CAPTION>
                                                                              DURING THE YEAR ENDED JUNE 30,
                                                                       --------------------------------------------
                                                                         2001              2000             1999
                                                                       ---------        ---------         ---------
                                                                                  (DOLLARS IN THOUSANDS)
<S>                                                                   <C>              <C>               <C>
FHLB Pittsburgh borrowings:
   Average balance outstanding ...................................       $247,291        $264,130         $279,410
   Maximum outstanding at end of any month during period..........        304,583         411,370          359,135
   Balance outstanding at end of period...........................        245,552         201,602          317,387
   Weighted average interest rate during period...................           5.84%           5.53%            5.28%
   Weighted average interest rate at end of period................           5.36%           5.90%            5.59%

Reverse repurchase agreements:
   Average balance outstanding ...................................       $ 24,059        $ 27,627         $ 29,525
   Maximum outstanding at end of any month during period..........         28,997          35,215           43,932
   Balance outstanding at end of period...........................         24,165          31,463           23,905
   Weighted average interest rate during period...................           6.14%           5.50%            5.20%
   Weighted average interest rate at end of period................           4.47%           6.38%            4.91%

Other borrowings:
   Average balance outstanding ...................................       $  7,208        $  8,100         $  7,995
   Maximum outstanding at end of any month during period..........         10,315          10,054            8,682
   Balance outstanding at end of period...........................          6,495           6,876            7,623
   Weighted average interest rate during period...................           7.03%           6.55%            6.74%
   Weighted average interest rate at end of period................           6.65%           6.55%            6.62%

Total borrowings:
   Average balance outstanding ...................................       $278,558        $299,857         $316,930
   Maximum outstanding at end of any month during period..........        339,531         447,281          388,471
   Balance outstanding at end of period...........................        276,212         239,941          348,915
   Weighted average interest rate during period...................           5.90%           5.55%            5.30%
   Weighted average interest rate at end of period................           5.31%           5.98%            5.56%
</TABLE>


COMPETITION

         The Company's market area in Pennsylvania, southwestern New York and
eastern Ohio has a large concentration of financial institutions, some of which
are significantly larger and have greater financial resources than the Company,
and all of which are competitors of the Company to varying degrees. As a result,
the Company encounters strong competition both in attracting deposits and in
originating real estate and other loans. Its most direct competition for
deposits has come historically from commercial banks, brokerage houses, other
savings associations, and credit unions in its market area, and the Company
expects continued strong competition from such financial institutions in the
foreseeable future. The Company's market area includes offices of several
commercial banks that are substantially larger than the Company in terms of
state-wide deposits. The Company competes for savings by offering depositors a
high level of personal service and expertise together with a wide range of
financial services.

         The competition for real estate and other loans comes principally from
commercial banks, mortgage banking companies, and other savings institutions.
This competition for loans has increased substantially in recent years as a
result of the large number of institutions competing in the Company's market
area as well as the increased efforts by commercial banks to expand mortgage
loan originations.

         The Company competes for loans primarily through the interest rates and
loan fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers, and builders. Factors that affect competition
include general and local economic conditions, current interest rate levels, and
volatility of the mortgage markets.


                                       18

<PAGE>   19



SUBSIDIARY ACTIVITIES

         The Company has two subsidiaries, the Bank and Jamestown, both of which
are wholly-owned. The Bank has five wholly owned subsidiaries, Great Northwest
Corporation, Northwest Financial Services, Inc., Northwest Consumer Discount
Company, Inc., Allegheny Services, Inc., and Northwest Capital Group, Inc.
Jamestown has no subsidiaries. Great Northwest's sole activity is holding equity
investments in government-assisted low-income housing projects in various
locations in the Company's market area. At June 30, 2001, the Bank had an equity
investment in Great Northwest of $3.1 million. For the fiscal year ended June
30, 2001, Great Northwest had net income of $600,000 generated primarily from
federal low-income housing tax credits.

         Northwest Financial Services' principal activity is the operation of
retail brokerage activities for the Company. It also maintains an investment in
land acquired by foreclosure and the ownership of the common stock of several
financial institutions. In addition, Northwest Financial Services also holds an
equity investment in one government assisted low-income housing project and owns
100% of the stock in Rid-Fed, Inc. At June 30, 2001, the Bank had an equity
investment in Northwest Financial Services of $5.6 million, and for the fiscal
year ended June 30, 2001, Northwest Financial Services had net income of
$61,000.

         Northwest Consumer Discount Company operates 44 consumer finance
offices throughout Pennsylvania and operates one consumer finance office in New
York State as a separate subsidiary doing business therein as Northwest Finance
Company. At June 30, 2001, the Bank had an equity investment in Northwest
Consumer Discount Company of $13.3 million and the net income of Northwest
Consumer Discount Company for the fiscal year ended June 30, 2001 was $854,000.
Consumer loans entail greater credit risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly, such as automobiles, mobile homes, boats, and
recreation vehicles. In such cases, repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In particular, amounts
realizable on the sale of repossessed automobiles may be significantly reduced
based upon the condition of the automobiles and the lack of demand for used
automobiles. The Company adds a general provision on a regular basis to its
consumer loan loss allowance, based on general economic conditions and prior
loss experience.

         Allegheny Services, Inc. is a Delaware investment company that holds
mortgage loans originated through the Bank's wholesale lending business. At June
30, 2001 the Bank had an equity investment in Allegheny Services, Inc. of $359.7
million, and for the fiscal year ended June 30, 2001, Allegheny Services, Inc.
had net income of $3.9 million.

         Northwest Capital Group's principal activity is the development and
sale of a timeshare project in Honolulu, Hawaii which was acquired by deed in
lieu of foreclosure in 1997. At June 30, 2001 the Bank had an equity investment
of $26,000 in Northwest Capital Group and for the fiscal year ended June 30,
2001 Northwest Capital Group reported no net income.

         Rid-Fed, Inc., a wholly owned subsidiary of Northwest Financial
Services, has as its sole activity a commercial real estate loan to Northwest
Capital Group. At June 30, 2001 Northwest Financial Services had an equity
investment of $1.1 million in Rid-Fed, Inc. and for the fiscal year ended June
30, 2001 Rid-Fed, Inc. had net income of $33,000.

         Northwest Finance Company, Inc. is a wholly owned subsidiary of
Northwest Consumer Discount Company. Northwest Finance Company operates a
consumer finance office in Jamestown, New York. As of June 30, 2001, Northwest
Consumer Discount Company's equity investment in Northwest Finance Company was
$(100,000). For the year ended June 30, 2001, Northwest Finance Company had a
net loss of $11,000.

         Federal regulations require SAIF-insured institutions to provide 30
days advance notice to the FDIC before establishing or acquiring a subsidiary or
conducting a new activity in a subsidiary. The insured institution must also
provide the FDIC such information as may be required by applicable regulations
and must conduct the activity in accordance with the rules and orders of the
FDIC. In addition to other enforcement and supervision powers, the FDIC may
determine after notice and opportunity for a hearing that the continuation of a
savings association's ownership of or relation to a subsidiary constitutes a
serious risk to the safety, soundness or stability of the savings association,
or

                                       19

<PAGE>   20



is inconsistent with the purposes of federal banking law. Upon the making of
such a determination, the FDIC may order the savings association to divest the
subsidiary or take other actions.

PERSONNEL

         As of June 30, 2001, the Company and its wholly owned subsidiaries had
1,149 full-time and 282 part-time employees. None of the Company's employees is
represented by a collective bargaining group. The Company believes its
relationship with its employees to be good.

                                   REGULATION

GENERAL

         The Company is a Federal corporation, and the Mutual Holding Company is
a Federal mutual holding company. The Company and the Mutual Holding Company are
required to file certain reports with, and otherwise comply with the rules and
regulations of the OTS.

         The Bank is a Pennsylvania-chartered savings bank and its deposit
accounts are insured up to applicable limits by the FDIC under the SAIF. The
Bank is subject to extensive regulation by the Department of Banking of the
Commonwealth of Pennsylvania (the "Department"), as its chartering agency, and
by the FDIC, as the deposit insurer. The Bank must file reports with the
Department and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions including, but not limited to, mergers with or acquisitions of
other savings institutions. There are periodic examinations by the Department
and the FDIC to test the Bank's compliance with various regulatory requirements.
This regulation and supervision establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily for the
protection of the FDIC insurance fund and depositors. The regulatory structure
also gives the regulatory authorities extensive discretion in connection with
their supervisory and enforcement activities and with their examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the Department or the FDIC could have a
material adverse impact on the Company, the Mutual Holding Company, the Bank and
their operations.

PENNSYLVANIA SAVINGS BANK LAW

         The Pennsylvania Banking Code of 1965, as amended (the "Banking Code")
contains detailed provisions governing the organization, location of offices,
rights and responsibilities of directors, officers, employees, and depositors,
as well as corporate powers, savings and investment operations and other aspects
of the Bank and its affairs. The Banking Code delegates extensive rulemaking
power and administrative discretion to the Department so that the supervision
and regulation of state-chartered savings banks may be flexible and readily
responsive to changes in economic conditions and in savings and lending
practices.

         One of the purposes of the Banking Code is to provide savings banks
with the opportunity to be competitive with each other and with other financial
institutions existing under other Pennsylvania laws as well as other state,
federal and foreign laws. A Pennsylvania savings bank may locate or change the
location of its principal place of business and establish an office anywhere in
Pennsylvania, with the prior approval of the Department.

         The Department generally examines each savings bank not less frequently
than once every two years. Although the Department may accept the examinations
and reports of the FDIC in lieu of the Department's examination, the current
practice is for the Department to conduct individual examinations. The
Department may order any savings bank to discontinue any violation of law or
unsafe or unsound business practice and may direct any trustee, officer,
attorney, or employee of a savings bank engaged in an objectionable activity,
after the Department has ordered the activity to be terminated, to show cause at
a hearing before the Department why such person should not be removed.


                                       20

<PAGE>   21


INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC

         The Bank is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct examinations of
and to require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the FDIC. The FDIC also has the
authority to initiate enforcement actions against savings banks, after giving
the OTS an opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged or is engaging in
unsafe or unsound practices, or is in an unsafe or unsound condition.

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, ranging from 0% to .27% of
deposits, based upon their level of capital and supervisory evaluation. Under
the system, institutions classified as well capitalized (i.e., a core capital
ratio of at least 5%, a ratio of core capital to risk-weighted assets of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
would pay the lowest premium while institutions that are less than adequately
capitalized (i.e., a core capital or core capital to risk-based capital ratios
of less than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial supervisory concern would pay the highest premium. Risk
classification of all insured institutions is made by the FDIC for each
semi-annual assessment period.

         The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC. In addition, interest payments on FICO bonds issued in
the late 1980's by the Financing Corporation to recapitalize the now defunct
Federal Savings and Loan Insurance Corporation are paid jointly by Bank
Insurance Fund ("BIF") insured institutions and SAIF-insured institutions.
Since January 1, 2000, the FICO interest payments have been paid pro rata by
banks and thrifts based on approximately 2.1 basis point of deposits.

         As a result of the enactment of the Small Business Job Protection Act
of 1996, all savings banks and savings associations are able to convert to a
commercial bank charter, diversify their lending, or merge into a commercial
bank without having to recapture any of their pre-1988 tax bad debt reserve
accumulations. Any post-1987 reserves are subject to recapture, regardless of
whether or not a particular thrift intends to convert its charter, be acquired,
or diversify its activities. The recapture tax on post-1987 reserves is assessed
in equal installments over the six year period beginning in fiscal 1997.
However, because the Company met the minimum level of mortgage lending test
(i.e., the Company's level of mortgage lending activity (re-financings and home
equity loans excluded) exceeded its average mortgage lending activity for the
six years preceding fiscal 1997 and 1998, adjusted for inflation), the Company
was able to suspend its tax bad debt recapture for the 1997 and 1998 tax years.
During each of the fiscal years 1999, 2000, and 2001, the Company recaptured
into taxable income approximately $1.3 million of the post-1987 bad debt
reserves. At June 30, 2001, the Company had a balance of approximately $4.0
million of bad debt reserves in retained income that is subject to recapture
equally over the next three years under this legislation.

CAPITAL REQUIREMENTS

         Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the FDIC. Such actions could include
a capital directive, a cease and desist order, civil money penalties, the
establishment of restrictions on an institution's operations, termination of
federal deposit insurance, and the appointment of a conservator or receiver.
Certain actions are required by law. The FDIC's capital regulation provides that
such actions, through enforcement proceedings or otherwise, could require one or
more of a variety of corrective actions.


                                       21

<PAGE>   22


         The Bank is also subject to more stringent capital guidelines of the
Department. Although not adopted in regulation form, the Department utilizes
capital standards of 6% leverage capital and 10% risk-based capital. The
components of leverage and risk-based capital are substantially the same as
those defined by the FDIC.

LOANS-TO-ONE BORROWER LIMITATION

         Under federal regulations, with certain limited exceptions, a
Pennsylvania chartered savings bank may lend to a single or related group of
borrowers on an "unsecured" basis an amount equal to 15% of its unimpaired
capital and surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral, which is defined to include certain securities and bullion, but
generally does not include real estate. The Company's internal policy, however,
is to make no loans either individually or in the aggregate to one entity in
excess of $7.5 million.

PROMPT CORRECTIVE ACTION

         Under federal regulations, a bank shall be deemed to be (i) "well
capitalized" if it has total risk-based capital of 10.0% or more, has a Tier 1
risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of
5.0% or more and is not subject to any written capital order or directive; (ii)
"adequately capitalized" if it has a total risk-based capital ratio of 8.0% or
more, a Tier I risk-based capital ratio of 4.0% or more and a Tier I leverage
capital ratio of 4.0% or more (3.0% under certain circumstances) and does not
meet the definition of "well capitalized"; (iii) "undercapitalized" if it has a
total risk-based capital ratio that is less than 8.0%, a Tier I risk-based
capital ratio that is less than 4.0% or a Tier I leverage capital ratio that is
less than 4.0% (3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier I
leverage capital ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. Federal regulations also specify circumstances under
which a federal banking agency may reclassify a well capitalized institution as
adequately capitalized and may require an adequately capitalized institution to
comply with supervisory actions as if it were in the next lower category (except
that the FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized). As of June 30, 2001, the Bank was a
"well-capitalized institution" for this purpose.

ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS

         Federal law generally limits the activities and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks. Under regulations dealing with equity investments, an insured state bank
generally may not, directly or indirectly, acquire or retain any equity
investment of a type, or in an amount, that is not permissible for a national
bank. An insured state bank is not prohibited from, among other things, (i)
acquiring or retaining a majority interest in a subsidiary; (ii) investing as a
limited partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation, or new construction of a
qualified housing project, provided that such limited partnership investments
may not exceed 2% of the bank's total assets; (iii) acquiring up to 10% of the
voting stock of a company that solely provides or reinsures directors',
trustees', and officers' liability insurance coverage or bankers' blanket bond
group insurance coverage for insured depository institutions; and (iv) acquiring
or retaining the voting shares of a depository institution if certain
requirements are met.

HOLDING COMPANY REGULATION

         Generally. Federal law allows a state savings bank, such as the Bank,
that qualifies as a "Qualified Thrift Lender," discussed below, to elect to be
treated as a savings association for purposes of the savings and loan holding
company provisions of the HOLA. Such election results in its holding company
being regulated as a savings and loan holding company by the OTS rather than as
a bank holding company by the Federal Reserve Board. The Company and the Mutual
Holding Company have made such election by converting from a Pennsylvania
corporation and a Pennsylvania mutual holding company to a Federal corporation
and Federal mutual holding company, respectively, effective June 30, 2001. The
Company and the Mutual Holding Company are savings and loan holding companies
within the meaning of the HOLA. As such, the Company and the Mutual Holding
Company are registered with the OTS and are subject to OTS regulations,
examinations, supervision and reporting requirements. In addition, the OTS has


                                       22

<PAGE>   23


enforcement authority over the Company and the Mutual Holding Company and any
nonsavings institution subsidiaries. Among other things, this authority permits
the OTS to restrict or prohibit activities that are determined to be a serious
risk to the subsidiary savings institution. As federal corporations, the Company
and the Mutual Holding Company are generally not subject to state business
organizations laws.

         Permitted Activities. Pursuant to Section 10(o) of the HOLA and OTS
regulations and policy, a mutual holding company and a federally chartered
mid-tier holding company, such as the Company, may engage in the following
activities: (i) investing in the stock of a savings association; (ii) acquiring
a mutual association through the merger of such association into a savings
association subsidiary of such holding company or an interim savings association
subsidiary of such holding company; (iii) merging with or acquiring another
holding company, one of whose subsidiaries is a savings association; (iv)
investing in a corporation, the capital stock of which is available for purchase
by a savings association under federal law or under the law of any state where
the subsidiary savings association or associations share their home offices; (v)
furnishing or performing management services for a savings association
subsidiary of such company; (vi) holding, managing or liquidating assets owned
or acquired from a savings subsidiary of such company; (vii) holding or managing
properties used or occupied by a savings association subsidiary of such company;
(viii) acting as trustee under deeds of trust; (ix) any other activity (A) that
the Federal Reserve Board, by regulation, has determined to be permissible for
bank holding companies under Section 4(c) of the Bank Holding Company Act,
unless the Director of the OTS, by regulation, prohibits or limits any such
activity for savings and loan holding companies; or (B) in which multiple
savings and loan holding companies were authorized (by regulation) to directly
engage on March 5, 1987; and (x) purchasing, holding, or disposing of stock
acquired in connection with a qualified stock issuance if the purchase of such
stock by such savings and loan holding company is approved by the Director. In
addition, a Federal mutual holding company may engage in any activities
permissible for a financial holding company under Section 4(k) of the Bank
Holding Company Act and regulations of the Federal Reserve Board thereunder,
including underwriting debt and equity securities, insurance agency and
underwriting, and merchant banking. If a mutual holding company acquires or
merges with another holding company, the holding company acquired or the holding
company resulting from such merger or acquisition may only invest in assets and
engage in activities listed in (i) through (x) above, and has a period of two
years to cease any nonconforming activities and divest of any nonconforming
investments.

         The HOLA prohibits a savings and loan holding company, including the
Company and the Mutual Holding Company, directly or indirectly, or through one
or more subsidiaries, from acquiring another savings institution or holding
company thereof, without prior written approval of the OTS. It also prohibits
the acquisition or retention of more than 5% of the voting stock of another
savings institution or savings and loan holding company without the prior
approval of the OTS, and from acquiring or retaining control of any depository
institution that is not FDIC-insured. In evaluating applications by holding
companies to acquire savings institutions, the OTS must consider the financial
and managerial resources, future prospects of the company and institution
involved, the effect of the acquisition on the risk to the insurance fund, the
convenience and needs of the community and competitive factors.

         The Company is regulated as a multiple savings and loan holding company
for interstate acquisition purposes by virtue of its ownership of the Bank and
Jamestown Savings Bank. The OTS is prohibited from approving any acquisition
that would result in a multiple savings and loan holding company controlling
savings institutions in more than one state, subject to two exceptions: (i) the
approval of interstate supervisory acquisitions by savings and loan holding
companies, and (ii) the acquisition of a savings institution in another
state if the laws of the state of the target savings institution specifically
permit such acquisitions. The states vary in the extent to which they permit
interstate savings and loan holding company acquisitions.

Qualified Thrift Lender Test. To be regulated as a savings and loan holding
company by the OTS (rather than as a bank holding company by the Federal
Reserve Board), both the Bank and Jamestown Savings Bank must qualify as a
Qualified Thrift Lender. To qualify as a Qualified Thrift Lender, each of the
Bank and Jamestown Savings Bank must maintain compliance with the test for a
"domestic building and loan association," as defined in the Internal Revenue
Code, or with the Qualified Thrift Lender test. Under the Qualified Thrift
Lender test, a savings institution is required to maintain at least 65% of its
"portfolio assets" (total assets less: (1) specified liquid assets up to 20% of
total assets; (2) intangibles, including goodwill; and (3) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out of each
12-month period. As of June 30, 2001, the Bank and Jamestown Savings Bank met
the Qualified Thrift Lender test.


                                       23

<PAGE>   24



         Waivers of Dividends by the Mutual Holding Company. OTS regulations
require the Mutual Holding Company to notify the OTS of any proposed waiver of
its right to receive dividends. The OTS reviews dividend waiver notices on a
case-by-case basis. Since the Mutual Holding Company converted to a federal
charter it has waived all dividends paid by the Company.

         Conversion of the Mutual Holding Company to Stock Form. OTS regulations
permit the Mutual Holding Company to issue from the mutual to the stock form of
ownership (a "Conversion Transaction"). There can be no assurance when, if ever,
a Conversion Transaction will occur, and the Board of Directors has no current
intention or plan to undertake a Conversion Transaction. In a Conversion
Transaction a new holding company would be formed as the successor to the
Company (the "New Holding Company"), the Mutual Holding Company's corporate
existence would end, and certain depositors of the Bank would receive the right
to subscribe for additional shares of the New Holding Company. Based upon
current OTS policy, in a Conversion Transaction, each share of Common Stock held
by the Company's public stockholders ("Minority Stockholders") would be
automatically converted into a number of shares of common stock of the New
Holding Company determined pursuant an exchange ratio that ensures that after
the Conversion Transaction, subject to any adjustment to reflect the receipt of
cash in lieu of fractional shares, the percentage of the to-be outstanding
shares of the New Holding Company issued to Minority Stockholders in exchange
for their Common Stock would be equal to the percentage of the outstanding
shares of Common Stock held by Minority Stockholders immediately prior to the
Conversion Transaction. The total number of shares held by Minority Stockholders
after the Conversion Transaction would also be affected by any purchases by such
persons in the offering that would be conducted as part of the Conversion
Transaction.

FEDERAL SECURITIES LAWS

         Shares of the Company's common stock are registered with the SEC under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company is also subject to the proxy rules, tender offer rules,
insider trading restrictions, annual and periodic reporting, and other
requirements of the Exchange Act.

REGULATORY ENFORCEMENT AUTHORITY

         Federal law provides federal banking regulators with substantial
enforcement powers. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders, and to initiate injunctive actions against banking organizations and
institution-affiliated parties, as defined. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with
regulatory authorities.

DIVIDENDS

         The Company's ability to pay dividends depends, to a large extent, upon
the Bank's ability to pay dividends to the Company. The Banking Code of the
Commonwealth of Pennsylvania states, in part, that dividends may be declared and
paid by the Bank only out of accumulated net earnings and may not be declared or
paid unless surplus (retained earnings) is at least equal to capital. The Bank
has not declared or paid any dividends which caused the Bank's retained earnings
to be reduced below the amount required. Finally, dividends may not be declared
or paid if the Bank is in default in payment of any assessment due to the FDIC.
At June 30, 2001, the Bank's retained earnings exceeded required capital by
$120.5 million and the Bank was not in default of any assessment due the FDIC.

         In addition, the Bank is required to notify the OTS prior to paying a
dividend to the Company, and receive the nonobjection of the OTS to any such
dividend.


                                       24

<PAGE>   25



                           FEDERAL AND STATE TAXATION

         FEDERAL TAXATION. For federal income tax purposes, the Company files a
consolidated federal income tax return with its wholly owned subsidiaries on a
fiscal year basis. The applicable federal income tax expense or benefit is
properly allocated to each subsidiary based upon taxable income or loss
calculated on a separate company basis. The Mutual Holding Company is not
permitted to file a consolidated federal income tax return with the Company, and
must pay Federal income tax on 20% of the dividends received from the Company.
Because the Mutual Holding Company has nominal assets other than the stock of
the Company, it does not have material federal income tax liability other than
the tax due on the dividends received from the Company.

         In April 1992, the FASB issued SFAS 109. The Company currently is
accounting for income taxes in accordance with SFAS 109. The liability method
accounts for deferred income taxes by applying the enacted statutory rates in
effect at the balance sheet date to differences between the book cost and the
tax cost of assets and liabilities. The resulting deferred tax liabilities and
assets are adjusted to reflect changes in tax laws. SFAS 109 was implemented by
the Bank effective July 1, 1993.

         The statute of limitations is open for potential examinations by the
Internal Revenue Service for the tax years ended June 30, 1997 through June 30,
2001.

         STATE TAXATION. The Company is subject to the Corporate Net Income Tax
and the Capital Stock Tax of the Commonwealth of Pennsylvania. Dividends
received from the Bank qualify for a 100% dividends received deduction and are
not subject to Corporate Net Income Tax. In addition, the Company's investments
in its subsidiaries qualify as exempt intangible assets and greatly reduce the
amount of Capital Stock Tax assessed.

         The Bank is subject to the Mutual Thrift Institutions Tax of the
Commonwealth of Pennsylvania based on the Bank's financial net income determined
in accordance with generally accepted accounting principles with certain
adjustments. The tax rate under the Mutual Thrift Institutions Tax is 11.5%.
Interest on state and federal obligations is excluded from net income. An
allocable portion of interest expense incurred to carry the obligations is
disallowed as a deduction.

         The subsidiaries of the Bank are subject to the Corporate Net Income
Tax and the Capital Stock Tax of the Commonwealth of Pennsylvania and other
applicable taxes in the states where they conduct business.

ITEM 2.  PROPERTIES

         As of June 30, 2001, the Company conducted its business through its
main office located in Warren, Pennsylvania, 108 other full-service offices
throughout its market area in northwest, southwest and central Pennsylvania,
five offices in southwestern New York, and four offices in eastern Ohio. The
Company and its wholly owned subsidiaries also operated 44 consumer finance
offices located throughout Pennsylvania and one consumer lending office in New
York. At June 30, 2001, the Company's premises and equipment had an aggregate
net book value of approximately $46.8 million. The Company believes that its
current facilities are adequate to meet the present and immediately foreseeable
needs of the Company and Holding Company.

                                       25

<PAGE>   26




         Listed below is the location of each of the Company's community banking
offices.

                                  PENNSYLVANIA

Austin, Potter Co.
         --        21 Turner Street

Bellefonte, Centre Co.
         --        117 North Allegheny Street

Bradford (3), McKean Co.
         --        Bradford Mall - 1001 E. Main Street
         --        33 Main Street
         --        85 West Washington Street

Bridgeville, Allegheny Co.
        --         431 Washington Avenue

Butler, Butler Co.
         --        151 Pittsburgh Road

Canonsburg, Washington Co.
        --         148 West Pike Street

Centre Hall, Centre Co.
         --        219 North Pennsylvania Avenue

Clarion (2), Clarion Co.
         --        601 Main Street
         --        97 West Main Street

Clearfield, Clearfield Co.
        --         1200 Old Town Road

Columbia, Lancaster Co.
         --        350 Locust Street

Coudersport, Potter Co.
        --         302 N. East Street

Corry, Erie Co.
         --        150 North Center Street

Cranberry, Venango Co.
         --        Cranberry Mall

Elizabethtown, Lancaster Co.
        --         2296 South Market Street

Erie (11), Erie Co.
         --        2256 West 8th Street
         --        K-Mart Plaza West
                   2863 West 26th Street
         --        K-Mart Plaza East
                   4423 Buffalo Road
        --         Millcreek Mall
        --         3805 Peach Street
        --         5624 Peach Street
        --         401 State Street
        --         121 West 26th Street
        --         K-Mart Plaza South
                   1328 East Grandview Blvd.
         --        1945 Douglas Parkway
         --        800 State Street

Franklin, Venango Co.
         --        1301 Liberty Street

Fredericktown, Washington Co.
        --         Front Street

Galeton, Potter Co.
         --        30 West Street

Gibsonia, Allegheny Co.
         --        The Village of St. Barnabus
                   5850 Meridian Road

Greenville, Mercer Co.
         --        Walmart, 45 Williamson Road

Grove City, Mercer Co.
        --         200 S. Center Street

Hanover, York Co.
         --        1 Center Square

Harborcreek, Erie Co.
         --        4270 East Lake Road

Hershey, Dauphin Co.
         --        10 West Chocolate Avenue

Johnsonburg, Elk Co.
         --        553 Market Street

Johnstown(2), Cambria Co.
         --        225 Franklin Street
         --        475 Theatre Drive


                                       26

<PAGE>   27



Kane, McKean Co.
         --        56 Fraley Street

Kittanning (2), Armstrong Co.
         --        Franklin Village Mall
         --        165 Butler Road

Lake City, Erie Co.
         --        2102 Rice Avenue

Lancaster(3), Lancaster County
         --        24 West Orange Street
         --        922 Columbia Avenue
         --        1195 Manheim Pike

Lawrenceville, Tioga Co.
         --        53 Main Street

Lebanon (2), Lebanon Co.
         --        770 Cumberland Street
         --        547 South 10th Street

Lewistown, Mifflin County
         --        51 West Market Street

Lititz, Lancaster Co.
         --        744 South Broad Street

Lock Haven, Clinton Co.
         --        104 East Main Street

Loyalsock, Lycoming Co.
         --        815 Westminster Drive

Mansfield, Tioga Co.
         --        50 South Main Street

Marianna, Washington Co.
         --        1784 Main Street

Marienville, Forest Co.
         --        Walnut & West Spruce Street

McDonald, Washington Co.
         --        101 East Lincoln Avenue

Meadville (3), Crawford Co.
         --        932 Diamond Park
         --        1073 Park Avenue
         --        880 Park Avenue

Mount Joy, Lancaster Co.
         --        24 East Main Street

Myerstown, Lebanon Co.
         --        1 West Main Avenue

New Bethlehem, Clarion Co.
        --         301 Broad Street

New Holland, Lancaster Co.
        --         201 West Main Street

North East, Erie Co.
         --        35 East Main Street

Oil City (3), Venango Co.
         --        One East First Street
         --        301 Seneca Street
         --        259 Seneca Street

Palmyra, Lebanon Co.
         --        1048 East Main Street

Pleasantville, Venango Co.
        --         102 East State Street

Pottsville, Schuylkill Co.
        --         104 North Centre Street

Ridgway, Elk Co.
         --        Main & Mill Streets

Rimersburg, Clarion Co.
         --        629 Main Street

Sarver, Butler Co.
         --        737 South Pike Road

Schaefferstown, Lebanon Co.
        --         Dutch-Way Shopping Mall
                   Route 501 North

Sheffield, Warren Co.
         --        101 South Main Street

Shinglehouse, Potter Co.
         --        105 West Academy Street

Sligo, Clarion Co.
         --        1613 Bald Eagle Street

Smethport, McKean Co.
         --        428 Main Street

Smithfield, Huntington Co.
        --         Fairgrounds Road &
                   Pennsylvania Avenue

                                       27

<PAGE>   28




Springboro, Crawford Co.
         --        105 South Main Street

St. Marys (2), Elk Co.
        --        201 Brusselles Street
        --        St. Mary's Plaza
                  824 Million Dollar Highway

State College (3), Centre Co.
         --        201 West Beaver Avenue
         --        611 University Drive
         --        1524 West College Avenue

Sykesville, Jefferson Co.
        --         Main and Park Street

Tidioute, Warren Co.
         --        5 Buckingham Street

Tionesta, Forest Co.
         --        221 Elm Street

Titusville, Crawford Co.
         --        Spring & Franklin Street

Union City (2), Erie Co.
         --        22 North Main Street
         --        4 Perry Street

Valencia, Butler Co.
         --        1421 Pittsburgh Road

Volant, Lawrence Co.
         --        Main Street

Wampum, Lawrence Co.
         --        342 Main Street

Warren (3), Warren Co.
         --        Warren Mall
                   1666 Market Street Ext.
         --        125 Ludlow Street
         --        Liberty Street at Second Avenue

Washington, Washington Co.
         --        Walmart, 30 Trinity Point Drive

Wattsburg, Erie Co.
         --        14457 Main Street

Weedville, Elk Co.
        --         Bennetts Valley, Rt. 555

Wellsboro, Tioga Co.
         --        61 Main Street
         --        16 Main Street

Westfield, Tioga Co.
         --        100 East Main Street

Westmont, Cambria Co.
         --        Lyter and Entrance Drive

Wrightsville, York Co.
         --        120 North 4th Street

York (2), York Co.
         --        Queensgate Shopping Center
         --        Stonybrook Plaza
                   3649 East Market Street


                                       28

<PAGE>   29



                                    NEW YORK

Jamestown (2) Chautauqua Co. NY
         --        23 West Third Street
         --        768 Foote Avenue

Lakewood, Chautauqua Co. NY
        --        311 East Fairmount Avenue

Olean, Cattaraugus Co. NY
         --        2513 West State Street

Williamsville, Erie Co. NY
        --         Eastern Hills Mall
                   4545 Transit Road




                                      OHIO

Chardon, Geauga Co. OH
         --        325 Center Street

Geneva, Ashtabula Co. OH
         --        30 East Main Street


Madison, Lake Co. OH
         --        1903 Hubbard Road

Painesville, Lake Co. OH
         --        70 Richmond Street


ITEM 3.  LEGAL PROCEEDINGS

         The Company and its subsidiaries are subject to various legal actions
arising in the normal course of business. In the opinion of management, the
resolution of these legal actions is not expected to have a material adverse
effect on the Company's results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

         During the fourth quarter of the fiscal year covered by this report,
the Company did not submit any matters to the vote of security holders.



                                       29

<PAGE>   30



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

                   MARKET FOR COMMON STOCK AND RELATED MATTERS

         The Company's common stock is listed on the Nasdaq National Market
under the symbol "NWSB." As of June 30, 2001, the Company had 16 registered
market makers, 4,306 stockholders of record (excluding the number of persons or
entities holding stock in street name through various brokerage firms), and
47,426,755 shares outstanding. As of such date, the Mutual Holding Company held
35,366,218 shares of common stock and stockholders other than the Mutual Holding
Company held 12,060,537 shares. The following table sets forth market price and
dividend information for the Company's common stock. Information is presented
for each quarter of the previous two fiscal years.

<TABLE>
<CAPTION>
                   FISCAL YEAR ENDED                                                CASH DIVIDENDS
                     JUNE 30, 2001                   HIGH               LOW           DECLARED
                  ------------------             -------------    -------------     --------------
<S>                                             <C>              <C>               <C>
                  First quarter                  $   9.000        $    6.500          $   0.04
                  Second quarter                    10.375             6.938              0.04
                  Third quarter                     13.000             8.000              0.04
                  Fourth quarter                    11.500             8.820              0.06
</TABLE>

<TABLE>
<CAPTION>
                  FISCAL YEAR ENDED                                                 CASH DIVIDENDS
                     JUNE 30, 2000                   HIGH               LOW           DECLARED
                  ------------------             -------------    -------------     -------------
<S>                                              <C>              <C>                 <C>
                  First quarter                  $ 10.125         $   7.875           $   0.04
                  Second quarter                    8.750             6.938               0.04
                  Third quarter                     8.250             6.688               0.04
                  Fourth quarter                    8.188             6.125               0.04
</TABLE>

         Payment of dividends on the Common Stock is subject to determination
and declaration by the Board of Directors and will depend upon a number of
factors, including capital requirements, regulatory limitations on the payment
of dividends, the Company's results of operations and financial condition, tax
considerations and general economic conditions. No assurance can be given that
dividends will be declared or, if declared, what the amount of dividends will
be, or whether such dividends, once declared, will continue.

ITEM 6.  SELECTED FINANCIAL DATA

SELECTED FINANCIAL AND OTHER DATA

         Set forth below are selected consolidated financial and other data of
the Company. For additional information about the Company, please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and related
notes included elsewhere herein.


<TABLE>
<CAPTION>
                                                                             AT JUNE 30,
                                                   -------------------------------------------------------------
                                                     2001          2000         1999         1998         1997
                                                   ---------    ---------    ---------    ---------     --------
SELECTED CONSOLIDATED FINANCIAL CONDITION DATA:                              (IN THOUSANDS)
<S>                                               <C>          <C>          <C>          <C>            <C>
Total assets ................................     $3,852,831   $3,407,292   $3,078,832   $2,562,584    $2,091,363
Investment securities held-to-maturity ......        129,991       97,590      118,307       83,021        43,419
Investment securities available-for-sale ....         96,645      107,972      121,923      121,192        76,684
Mortgage-backed securities held-to-maturity .        209,340      140,166      135,557      110,241       110,561
Mortgage-backed securities available-for-sale        294,934      280,011      212,700      195,523       181,036
Loans receivable net:
   Real estate ..............................      2,200,115    1,990,622    1,835,870    1,449,428     1,156,160
   Consumer .................................        568,661      504,966      410,165      348,096       306,228
   Commercial ...............................         87,805       49,042       39,203      109,765        74,110
     Total loans receivable, net ............      2,856,581    2,544,630    2,285,238    1,907,289     1,536,498
Deposits ....................................      3,264,940    2,886,509    2,463,711    2,022,503     1,640,815
Advances from FHLB and other borrowed funds .        276,212      239,941      348,915      289,706       223,458
Shareholders' equity ........................        275,713      247,888      233,657      217,879       198,494
</TABLE>




                                       30

<PAGE>   31


<TABLE>
<CAPTION>
                                                                    YEARS ENDED JUNE 30,
                                                ------------------------------------------------------------
                                                  2001         2000         1999         1998         1997
                                                --------     --------     --------     --------     --------
SELECTED CONSOLIDATED OPERATING DATA:                                   (IN THOUSANDS)
<S>                                            <C>          <C>          <C>          <C>          <C>
Total interest income .....................     $269,430     $239,724     $206,593     $175,762     $154,227
Total interest expense ....................      157,322      132,099      114,911       95,203       81,424
                                                --------     --------     --------     --------     --------
   Net interest income ....................      112,108      107,625       91,682       80,559       72,803
Provision for loan losses .................        5,347        4,149        3,629        4,072        2,491
                                                --------     --------     --------     --------     --------
   Net interest income after
     provision for loan losses ............      106,761      103,476       88,053       76,487       70,312
                                                --------     --------     --------     --------     --------
Noninterest income ........................       15,054       11,271        6,010        7,947        6,027
Noninterest expense .......................       82,339       73,634       63,110       50,318       54,203
                                                --------     --------     --------     --------     --------
Income before income tax expense ..........       39,476       41,113       30,953       34,116       22,136
Income tax expense ........................       12,699       13,910       10,914       12,995        8,472
                                                --------     --------     --------     --------     --------
Minority interest in net loss of subsidiary           --           --            3          201           --
     Net income ...........................     $ 26,777     $ 27,203     $ 20,042     $ 21,322     $ 13,664
                                                ========     ========     ========     ========     ========
Basic earnings per share ..................     $    .57     $   0.58     $   0.42     $   0.46     $   0.30
Diluted earnings per share ................     $    .56     $   0.57     $   0.42     $   0.45     $   0.30
</TABLE>

<TABLE>
<CAPTION>
                                                                       AT OR FOR THE YEAR ENDED JUNE 30,
                                                            --------------------------------------------------------
                                                             2001          2000       1999         1998        1997
                                                            ------        ------     ------       ------      ------
<S>                                                         <C>         <C>         <C>          <C>         <C>
KEY FINANCIAL RATIOS AND OTHER DATA:

Return on average assets (net income divided
   by average total assets)(1) ......................          0.75%       0.83%       0.71%       0.94%       0.70%
Return on average equity (net income divided by
   average equity)(1) ...............................         10.25       11.39        8.86       10.29        7.12
Average capital to average assets ...................          7.27        7.29        8.01        9.14        9.84
Capital to total assets .............................          7.16        7.28        7.59        8.50        9.49
Net interest rate spread (average yield on
   interest-earning assets less average cost
   of interest-bearing liabilities) .................          2.97        3.26        3.20        3.34        3.53
Net interest margin (net interest income as a
   percentage of average interest-earning assets) ...          3.35        3.54        3.49        3.72        3.87
Noninterest expense to average assets ...............          2.29        2.25        2.23        2.22        2.78
Net interest income to noninterest expense(1) .......          1.36x       1.46x       1.45x       1.60x       1.34x
Nonperforming loans to net loans receivable .........          0.62        0.40        0.71        0.45        0.68
Nonperforming assets to total assets ................          0.55        0.36        0.63        0.47        0.72
Allowance for loan losses to nonperforming loans ....        115.06      177.97      104.08      183.10      130.50
Allowance for loan losses to net loans receivable ...          0.71        0.72        0.73        0.83        0.89
Average interest-bearing assets to average
   interest-bearing liabilities .....................          1.08x       1.07x       1.07x       1.09x       1.10x
Number of:
   Full-service offices .............................           118         106          94          71          57
   Consumer finance offices .........................            45          43          36          34          30
   Mortgage loan production offices .................            --          --          --           5           7
</TABLE>

---------
(1)  For the year ended June 30, 1997, return on average assets, return on
     average equity, and net interest income to noninterest expense would have
     been .96%, 9.80%, and 1.58x without the one-time charge of $8.6 million (or
     $5.1 million, after adjusted for taxes) to recapitalize the Savings
     Association Insurance Fund.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

         In addition to historical information, this document contains
forward-looking statements. The forward- looking statements contained in the
following sections are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected in the
forward-looking statements. Important factors that might cause such a difference
include, but are not limited to, those discussed. Readers should not place undue
reliance on these forward-looking statements, as they reflect management's
analysis as of the date of this report. The Company has no obligation to update
or revise these forward-looking statements to reflect events or circumstances
that occur after the date of this report. Readers should carefully review the
risk factors described in other documents the Company files from time to time
with the Securities and Exchange Commission, including quarterly reports on Form
10-Q and current reports filed on Form 8-K.


                                       31

<PAGE>   32



FINANCIAL CONDITION

         GENERAL. Total assets increased by $445.5 million, or 13.1%, to $3.853
billion at June 30, 2001 from $3.407 billion at June 30, 2000. This increase was
funded primarily by a $378.4 million increase in deposits, a $36.3 million
increase in borrowed funds and net income of $26.8 million. Total assets
increased by $328.5 million, or 10.7%, to $3.407 billion at June 30, 2000 from
$3.079 billion at June 30, 1999. This increase was funded primarily by a $422.8
million increase in deposits and net income of $27.2 million, partially offset
by a decrease in borrowed funds of $109.0 million. The additional funds received
in both fiscal years 2001 and 2000 were used to increase loans receivable and
marketable securities.

         INTEREST-EARNING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS.
Interest-earning deposits in other financial institutions increased by $36.5
million to $45.0 million at June 30, 2001 from $8.5 million at June 30, 2000 as
a result of significant deposit activity the last several weeks of the fiscal
year. Interest-earning deposits in other financial institutions decreased by
$467,000, or 5.2%, to $8.5 million at June 30,2000 from $8.9 million at June 30,
1999. The balances in these accounts fluctuate daily based on the net cash flow
from the Company's activities.

         INVESTMENT SECURITIES. Investment securities increased by $21.0
million, or 10.2%, to $226.6 million at June 30, 2001 from $205.6 million at
June 30, 2000. This increase was primarily due to the investment of funds
received from branch acquisitions. Investment securities decreased by $34.6
million, or 14.4%, to $205.6 million at June 30, 2000 from $240.2 million at
June 30, 1999. This decrease was primarily a result of a decision by the Company
to change its portfolio mix by purchasing variable rate mortgage-backed
securities with the funds received from the maturity of investment securities.

         MORTGAGE-BACKED SECURITIES. Mortgage-backed securities increased by
$84.1 million, or 20.0%, to $504.3 million at June 30, 2001 from $420.2 million
at June 30, 2000. This increase was primarily due to the investment of funds
received from both internal deposit growth and branch acquisitions.
Mortgage-backed securities increased by $71.9 million, or 20.6%, to $420.2
million at June 30, 2000 from $348.3 million at June 30, 1999. In addition to
the change in the investment portfolio mix mentioned above, the Company utilized
the funds received from both internal deposit growth and branch acquisitions to
purchase additional mortgage-backed securities.

         LOANS RECEIVABLE. Net loans receivable increased by $312.0 million, or
12.3%, to $2.857 billion at June 30, 2001 from $2.545 billion at June 30, 2000.
This increase resulted primarily from strong loan demand throughout the
Company's market area as well as the purchase of approximately $57.2 million of
loans as part of the November 2000, purchase of 9 retail offices. Net loans
receivable increased by $259.4 million, or 11.4%, to $2.545 billion at June 30,
2000 from $2.285 billion at June 30, 1999. This increase also resulted from
continued growth across the Company's market area as well as the purchase of
approximately $47.0 million of loans in September 1999 as part of the
acquisition of eight retail offices.

         DEPOSITS. Deposits increased by $378.4 million, or 13.1% , to $3.265
billion at June 30, 2001 from $2.887 billion at June 30, 2000. This increase was
primarily due to normal deposit growth in existing offices as well as successful
integration and growth of recently opened offices. In addition, the acquisition
of 9 retail offices in November 2000 contributed deposits of approximately
$138.0 million. Deposits increased by $422.8 million, or 17.2%, to $2.887
billion at June 30, 2000 from $2.464 billion at June 30, 1999. This increase was
primarily due to the purchase of eight retail offices with deposits of $270.8
million along with normal internal deposit growth from both existing offices and
newly opened offices.

         BORROWINGS. Borrowings increased by $36.3 million, or 15.1%, to $276.2
million at June 30, 2001 from $239.9 million at June 30, 2000. This increase
resulted from the Company utilizing its borrowing relationship with the FHLB to
fund asset growth in an effort to increase net interest income. Borrowings
decreased by $109.0 million, or 31.2%, to $239.9 million at June 30, 2000 from
$348.9 million at June 30, 1999, as the Company utilized a portion of the
aforementioned deposit growth to reduce borrowings.


                                       32

<PAGE>   33



         SHAREHOLDERS' EQUITY. Shareholders' equity increased by $27.8 million,
or 11.2%, to $275.7 million at June 30, 2001 from $247.9 million at June 30,
2000. This increase was primarily due to net income of $26.8 million which was
partially offset by the declaration of common stock dividends in the amount of
$7.6 million. The remaining net increase was the result of the Company recording
a net unrealized gain in the value of securities available for sale of $8.3
million due to the decrease in short-term interest rates orchestrated by the
Federal Reserve Bank. Shareholders' equity increased by $14.2 million, or 6.1%,
to $247.9 million at June 30, 2000 from $233.7 million at June 30, 1999. This
increase was primarily due to net income of $27.2 million which was partially
offset by common stock dividends of $7.6 million. In addition, the Company
recorded a net unrealized loss in the value of securities available for sale of
$7.1 million as a result of the decrease in market value of fixed-rate
securities during a period of rising interest rates.

RESULTS OF OPERATIONS

         GENERAL. The earnings of the Company depend primarily on its level of
net interest income, which is the difference between interest earned on the
Company's interest-earning assets, consisting primarily of loans, mortgage-
backed securities and other investment securities, and the interest paid on
interest-bearing liabilities, consisting primarily of deposits and borrowed
funds. Net interest income is a function of the Company's interest rate spread,
which is the difference between the average yield earned on interest-earning
assets and the average rate paid on interest-bearing liabilities, as well as a
function of the average balance of interest-earning assets as compared to
interest-bearing liabilities. The Company's earnings also are affected by its
level of service charges, gains and losses on sale of assets, and its level of
general administrative and other expenses, including employee compensation and
benefits, occupancy and equipment costs, and deposit insurance premiums.

         INTEREST INCOME. Interest income increased by $30.0 million, or 12.4%,
on a taxable equivalent basis, to $272.0 million for the fiscal year ended June
30, 2001 from $242.0 million for the fiscal year ended June 30, 2000. This
increase in interest income was primarily attributable to a $320.5 million, or
10.3%, increase in average interest- earning assets to $3.424 billion from
$3.104 billion. Also contributing to this increase in interest income was an
increase in the taxable equivalent yield on average interest-earning assets to
7.94% from 7.80%. The increase in average interest-earning assets was primarily
due to strong internal growth and the investment of funds received from the
acquisition of retail offices with average deposits of approximately $150.0
million. The increase in the overall yield on interest earning assets resulted
primarily from the aforementioned growth occurring during a period of higher
long-term interest rates which increased the yields on both fixed rate mortgages
and long-term fixed rate investment securities. Interest income increased by
$33.9 million, or 16.3%, on a taxable equivalent basis, to $242.0 million for
the fiscal year ended June 30, 2000 from $208.1 million for the fiscal year
ended June 30, 1999. This increase in interest income was primarily attributable
to a $432.7 million, or $16.2%, increase in average interest-earning assets to
$3.104 billion from $2.671 billion. Also contributing to this increase in
interest income was an increase in the taxable equivalent yield on average
interest -earning assets to 7.80% from 7.79%. The increase in average
interest-earning assets was primarily due to the investment of funds received
from the acquisition of offices over the last 12 months with average deposits of
approximately $350.0 million combined with continued strong internal growth. The
increase in the overall yield on interest-earning assets resulted primarily from
an increase in the yield on variable rate mortgage-backed securities due to an
increase in market interest rates.

         Interest income on loans receivable increased by $26.1 million, or
13.3%, to $222.7 million for the year ended June 30, 2001 from $196.6 million
for the year ended June 30, 2000. This increase was primarily due to $278.8
million, or 11.4%, increase in average loans outstanding to $2.715 billion from
$2.436 billion. Also contributing to the increase in loan interest income was an
increase in the yield on average loans to 8.20% from 8.07%. Average loans
receivable increased primarily because of strong loan demand throughout the
Company's market area as well as the acquisition of retail offices over the past
twelve months with average loans of approximately $48.0 million. The increase in
average yield resulted primarily from the growth in the Company's loan portfolio
over the past year at interest rate levels higher than the existing average
portfolio rate. Interest income on loans receivable increased by $22.2 million,
or 12.7%, to $196.6 million for the year ended June 30, 2000 from $174.4 million
for the year ended June 30, 1999. This increase primarily resulted from a $307.8
million, or 14.5%, increase in average loans receivable to $2.436 billion from
$2.128 billion. Partially offsetting this increase was a decrease in the yield

                                       33

<PAGE>   34



on average loans to 8.07% from 8.19%. The increase in average loans receivable
primarily resulted from strong loan demand throughout the Company's market area
as well as the purchase of approximately $47.0 million of loans in September,
1999 as part of the acquisition of eight retail offices. Despite an overall
increase in market rates in general, the average yield on loans declined as the
weighted average rate on a substantial number of loans refinanced in the prior
year continued to impact the average rate on the overall loan portfolio.

         Interest income on mortgage-backed securities increased by $2.0
million, or 7.4%, to $29.2 million for the year ended June 30, 2001 from $27.2
million for the year ended June 30, 2000. This increase was primarily due to an
increase in the average balance of mortgage-backed securities of $28.5 million,
or 6.9%, to $443.0 million from $414.5 million, combined with an increase in the
average yield to 6.58% from 6.57%. The average balance increased primarily as a
result of investing the funds received from the aforementioned acquisition of
retail offices. The slight change in the average yield on mortgage-backed
securities, 86% of which are variable rate, reflects the increase in short term
market interest rates during the first six months of the current fiscal year.
Interest income on mortgage- backed securities increased by $9.6 million, or
54.5%, to $27.2 million for the year ended June 30, 2000 from $17.6 million for
the year ended June 30, 1999. This increase resulted primarily from a $108.8
million, or 35.6%, increase in average mortgage-backed securities to $414.5
million from $305.7 million, combined with an increase in the average yield to
6.57% from 5.77%. The increase in average balance was primarily due to the
investment of the funds received from branch acquisitions. The average yield on
mortgage-backed securities, most of which are variable rate, increased in
response to an increase in market interest rates for short-term securities.

          Interest income on investment securities increased by $1.8 million, or
11.3%, on a taxable equivalent basis, to $17.7 million for the year ended June
30, 2001 from $15.9 million for the year ended June 30, 2000. This increase
resulted primarily from an increase in the average taxable equivalent yield to
7.76% from 7.24% combined with a $9.4 million, or 4.3%, increase in the average
balance of investment securities to $228.5 million from $219.1 million. These
increases resulted from the investment of the proceeds received from the
aforementioned acquisition of retail offices and from maturing bonds primarily
into higher yielding municipal bonds and trust preferred securities. Interest
income on investment securities increased by $2.1 million, or 15.2%, on a
taxable equivalent basis, to $15.9 million for the year ended June 30, 2000 from
$13.8 million for the year ended June 30, 1999. This increase resulted primarily
from a $23.3 million, or 11.9%, increase in the average balance of investment
securities to $219.1 million from $195.8 million, combined with an increase in
the average taxable equivalent yield to 7.24% from 7.05%. The increase in the
average balance was primarily due to the investment of a portion of the
Company's deposit growth. The increase in the average taxable equivalent yield
resulted primarily from the maturity or sale of approximately $45.0 million of
U.S. Treasury securities with an average yield of only 6.31%, the proceeds of
which were invested in higher yielding securities.

         Interest income on interest-earning deposits decreased by $3,000, or
0.3%, to $877,000 for the year ended June 30, 2001 from $880,000 for the year
ended June 30, 2000. This decrease resulted primarily from a decrease in the
average yield to 5.36% from 6.54% partially offset by an increase in the average
balance of interest-earning deposits by $2.9 million, or 21.5%, to $16.4 million
from $13.5 million. The volatility in the average yield and average balance is
largely influenced by the timing as to when the Company begins to earn interest
on its daily deposits and the float experienced on checks issued. Interest
income on interest-earning deposits decreased by $143,000, or 14.0%, to $880,000
for the year ended June 30, 2000 from $1.0 million for the year ended June 30,
1999. This decrease resulted primarily from an $11.2 million, or 45.3%, decrease
in average interest-earning deposits to $13.5 million from $24.7 million.
Partially offsetting this decrease in average balance was an increase in the
average yield on interest-earning deposits to 6.54% from 4.15%. The decrease in
average balance was primarily due to improved efficiencies by the Company in
managing its cash in other institutions. The increase in average yield is
primarily due to the increase in market interest rates in general.

         INTEREST EXPENSE. Interest expense increased by $25.2 million, or
19.1%, to $157.3 million for the year ended June 30, 2001 from $132.1 million
for the year ended June 30, 2000. This increase resulted primarily from an
increase in the average balance of interest-bearing liabilities by $254.9
million, or 8.8%, to $3.164 billion for the year ended June 30, 2001 from $2.909
billion for the year ended June 30, 2000. In addition, the average cost of
interest-bearing liabilities increased to 4.97% from 4.54%. The increase in
average interest-bearing liabilities resulted

                                       34

<PAGE>   35



from an increase of $276.2 million, or 10.6%, in the average balance of
deposits, attributed primarily to the acquisition and opening of new offices
along with the internal growth of existing offices. Partially offsetting this
increase in deposits was a decrease in average borrowed funds of $21.3 million,
or 7.1%, to $278.8 million for the year ended June 30, 2001 from $299.9 million
for the year ended June 30, 2000. The Company utilized a portion of its deposit
growth to repay borrowed funds. The overall increase in the average cost of
funds resulted primarily from increases in the interest rates on term deposits
over the last two years in response to significant increases in short-term
interest rates as directed by the Federal Reserve Board during that time period.
These deposits have not yet repriced in response to the recent change in
strategy by the Federal Reserve Board to decrease short-term interest rates. In
addition, the average cost of borrowings with the Federal Home Loan Bank
increased to 5.90% from 5.55% as the average cost of these borrowings has not
had sufficient time to reflect the decreases experienced in short-term interest
rates over the last six months. Interest expense increased by $17.2 million, or
15.0%, to $132.1 million for the year ended June 30, 2000 from $114.9 million
for the year ended June 30, 1999. This increase resulted primarily from a $406.3
million, or 16.2%, increase in average interest-bearing liabilities to $2.909
billion for the year ended June 30, 2000 from $2.503 billion for the year ended
June 30, 1999. Partially offsetting the increase in average balance of
interest-bearing liabilities was a decrease in the average cost of funds to
4.54% from 4.59%. The increase in average interest-bearing liabilities resulted
primarily from the increase in deposits from the aforementioned acquisitions
over the last 12 months with average deposits of approximately $350.0 million
combined with internal growth throughout the Company's market areas. Partially
offsetting this increase in deposits was a decrease of $17.0 million, or 5.4%,
in average borrowed funds to $299.9 million for the year ended June 30, 2000
from $316.9 million for the year ended June 30, 1999. This change in mix between
deposits and borrowed funds resulted from the Company utilizing a portion of the
funds received from acquisitions to repay borrowed funds. The decrease in the
average cost of funds resulted primarily from a decrease in the average interest
rate paid on the Company's checking accounts to 1.36% from 1.69% in response to
competitive forces in its market. In addition, lower interest rates for
certificates of deposit issued in the prior year carried over and caused the
average rate paid to decline to 5.41% from 5.49%. Partially offsetting the
decrease in interest expense due to lower average interest rates on deposits was
an increase in the average interest rate on borrowed funds to 5.55% for the year
ended June 30, 2000 from 5.30% for the year ended June 30, 1999. This increase
in the interest rate on borrowed funds was directly related to the increase in
the rate for overnight borrowings which reprice immediately with changes in
short term interest rates.

         NET INTEREST INCOME. Net interest income increased by $4.8 million, or
4.4%, on a taxable equivalent basis, to $114.7 million for the year ended June
30, 2001 from $109.9 million for the year ended June 30, 2000. As previously
summarized, this increase in net interest income was attributable to the
significant increase in net interest earning assets as the Company's interest
rate spread decreased to 2.97% from 3.26% in response to higher short-term
interest rates and an inverted yield curve during much of the last two years.
Net interest income increased by $16.7 million, or 17.9%, on a taxable
equivalent basis, to $109.9 million for the year ended June 30, 2000 from $93.2
million for the year ended June 30, 1999. This increase resulted primarily from
a $432.7 million, or 16.2%, increase in average interest-earning assets and an
increase in the Company's net interest spread to 3.26% for the year ended June
30, 2000 from 3.20% for the year ended June 30, 1999, the effect of which was
partially offset by a $406.3 million, or 16.2%, increase in average
interest-bearing liabilities.

         PROVISION FOR LOAN LOSSES. The Company establishes valuation allowances
for losses inherent in the Company's loan portfolio. In providing such
allowances, management of the Company considers, among other factors, economic
trends within its market area, concentrations of credit risk and trends
affecting the valuation of collateral for the Company's loans. The Company
provided $5.3 million, $4.1 million and $3.6 million in loan loss provisions for
the fiscal years ended June 30, 2001, 2000 and 1999, respectively.

         The allowance for loan losses is based on management's estimate of the
fair value of collateral, the Company's actual loss experience, as well as
standards applied by state and federal bank regulators. The Company provides
both general valuation allowances and specific valuation allowances with respect
to its loan portfolio. General valuation allowances are included, subject to
limitation, in the Company's regulatory capital for purposes of computing the
Company's regulatory risk-based capital. The Company regularly reviews its loan
portfolio, including problem loans, to determine whether any loans require
classification or the establishment of appropriate valuation allowances.

                                       35

<PAGE>   36



         NONINTEREST INCOME. Noninterest income increased by $3.8 million, or
33.6%, to $15.1 million for the year ended June 30, 2001 from $11.3 million for
the year ended June 30, 2000. Of this increase, approximately $1.8 million was
attributable to increases in fee income relating to the Company's growth in
loans and deposits as well as an increase in overdraft charges. In addition,
debit card transaction income and surcharges for foreign ATM use contributed an
increase of approximately $672,000 while the investment management and trust and
brokerage lines of business added additional income of approximately $560,000
primarily related to the additional fees generated by Heritage Trust Company
which was acquired in April 2001. Also occurring in the current fiscal year was
the sale of approximately $61.0 million of mortgage loans from the wholesale
lending business for a net gain of $478,000. These higher coupon loans were sold
in response to the decrease in market interest rates which typically results in
an acceleration of prepayments. Noninterest income increased by $5.3 million, or
88.3%, to $11.3 million for the year ended June 30, 2000 from $6.0 million for
the year ended June 30, 1999. This increase was primarily the result of
additional loan and deposit fee income of approximately $1.5 million due to
growth in loans and deposits as well as an increase in fees associated with
overdraft charges. In addition, income from the sale of insurance to the
Company's loan customers increased by approximately $600,000, debit card
transaction fee income increased by $485,000 and surcharges for foreign ATM
transactions contributed approximately $400,000 to the increase in noninterest
income. Also, the current fiscal year contained a net gain on the sale of
marketable securities, loans and real estate owned of $944,000 compared to a net
loss in the prior fiscal year of $1.0 million from the sale of such assets.

         NONINTEREST EXPENSE. Noninterest expense increased by $8.7 million, or
11.8%, to $82.3 million for the year ended June 30, 2001 from $73.6 million for
the year ended June 30, 2000. This increase resulted primarily from a $5.6
million, or 14.7%, increase in compensation and employee benefit expense to
$43.6 million for the year ended June 30, 2001 from $38.0 million for the year
ended June 30, 2000. This increase in compensation and employee benefit expense
resulted from the growth of the Company's network of community banking and
consumer finance offices, along with the expansion of its investment management,
trust and brokerage lines of business. Occupancy costs as well as data
processing and check processing expenses also increased by $1.5 million, or
16.5%, $331,000, or 12.4%, and $187,000, or 5.7%, respectively, as a result of
the aforementioned increases in the Company's network of offices. In addition,
the expense for the amortization of intangibles increased by $1.6 million, or
27.6%, to $7.4 million for the year ended June 30, 2001 from $5.8 million for
the year ended June 30, 2000. This was primarily a result of the additional
intangible recorded for the acquisition of nine retail offices in November of
2000. Partially offsetting these increases in expense was a decrease in the
deposit insurance expense of $313,000, or 35.0%, as a result of the last of a
series of scheduled decreases in the FICO debt assessment rate. This rate was
reduced on January 1, 2000 to $.21 from $.58 for every $1,000 in deposits.
Noninterest expense increased by $10.5 million, or 16.6%, to $73.6 million for
the year ended June 30, 2000 from $63.1 million for the year ended June 30,
1999. This increase resulted primarily from expected increases associated with a
14% increase in the Company's network of community banking and finance company
offices. Partially mitigating these growth related increases were nonrecurring
expenses in the prior year relating to the Company's conversion to a new core
application data processing system. As a result of the Company's growth, along
with normal inflationary increases in costs, all expenses categories, except
FDIC premium expense, increased for the year ended June 30, 2000 compared to the
year ended June 30, 1999. Compensation and employee benefit expense increased by
$3.0 million, or 8.6%, to $38.0 million; premises and occupancy costs increased
by $2.0 million, or 28.2%, to $9.1 million; and all other expenses increased by
$3.3 million, or 20.1%, to $19.7 million. In addition, as a result of recording
intangible assets relating to the acquisition of eight offices with deposits
over the last twelve months, the expense for the amortization of intangibles
increased by $2.3 million, or 65.7%, to $5.8 million for the year ended June 30,
2000 from $3.5 million for the year ended June 30, 1999. Deposit insurance
expense decreased by $238,000, or 21.0%, to $894,000 for the year ended June 30,
2000 from $1.1 million for the year ended June 30, 1999 as a result of the last
of a series of incremental decreases to the FICO debt assessment rate. The
premium was reduced on January 1, 2000 to $.21 from $.58 for every $1,000 in
deposits.

         INCOME TAXES. Income tax expense decreased by $1.2 million, or 8.6%, to
$12.7 million for the year ended June 30, 2001 from $13.9 million for the year
ended June 30, 2000. This decrease was primarily due to a decrease in net income
before tax as well as a decrease in the effective tax rate to 32.2% for the year
ended June 30, 2001 from 33.8% for the year ended June 30, 2000. The decrease in
the effective tax rate was due to an increase in the Company's portfolio of
tax-exempt assets. Income tax expense increased by $3.0 million, or 27.5%, to
$13.9 million

                                       36

<PAGE>   37



for the year ended June 30, 2000 from $10.9 million for the year ended June 30,
1999. This increase was primarily due to an increase in net income before tax
which was partially offset by a decrease in the effective tax rate to 33.8% for
the year ended June 30, 2000 from 35.3% for the year ended June 30, 1999. This
decrease in effective tax rate was due to an increase in the Company's portfolio
of tax-exempt assets.

         DEPOSIT INSURANCE PREMIUMS. The deposits of the Company are presently
insured by SAIF, which along with the Bank Insurance Fund (the "BIF"), is one of
the two insurance funds administered by the FDIC. In September 1996, Congress
enacted legislation to recapitalize the SAIF by a one-time assessment on all
SAIF-insured deposits held as of March 31, 1995. The assessment was 65.7 basis
points of deposits, payable on November 30, 1996. For the Company, the
assessment amounted to $8.6 million (or $5.1 million when adjusted for taxes),
based on the Company's SAIF-insured deposits, including the March 31, 1995
deposits of all SAIF insured institutions acquired by Northwest after March 31,
1995, of $1.304 billion. In addition, pursuant to the legislation, interest
payments on FICO bonds issued in the late 1980's by the Financing Corporation to
recapitalize the now defunct Federal Savings and Loan Insurance Corporation are
now paid jointly by BIF-insured institutions and SAIF-insured institutions.
Beginning January 1, 2000, the FICO interest payments are paid pro-rata by banks
and thrifts based on approximately 2.1 basis points of deposits.



                                       37

<PAGE>   38


         AVERAGE BALANCE SHEET. 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 derived from monthly averages.

<TABLE>
<CAPTION>
                                                                         YEARS ENDED JUNE 30
                                 -----------------------------------------------------------------------------------------------
                                               2001                             2000                             1999
                                 -------------------------------  -------------------------------  -----------------------------
                                                       AVERAGE                          AVERAGE                          AVERAGE
                                  AVERAGE               YIELD/     AVERAGE               YIELD/     AVERAGE               YIELD/
                                  BALANCE    INTEREST    COST      BALANCE   INTEREST     COST      BALANCE   INTEREST     COST
                                 ---------  ---------  -------    ---------  ---------  -------    ---------  ---------  -------
                                                                       (DOLLARS IN THOUSANDS)
<S>                             <C>         <C>       <C>       <C>         <C>          <C>     <C>         <C>          <C>
Interest-earning assets:
  Loans receivable(1)(2)....... $2,715,012  $ 222,740    8.20%   $2,436,260  $ 196,596    8.07%   $2,128,480  $ 174,393    8.19%
  Mortgage-backed securities(3)    442,985     29,161    6.58       414,548     27,236    6.57       305,676     17,649    5.77
  Investment securities(3)(4)(5)   228,503     17,733    7.76       219,073     15,861    7.24       195,788     13,806    7.05
  FHLB stock...................     21,521      1,506    7.00        20,578      1,420    6.90        16,551      1,195    7.22
  Interest-earning deposits....     16,361        877    5.36        13,450        880    6.54        24,669      1,023    4.15
                                ----------  ---------            ----------  ---------            ----------  ---------
  Total interest-earning assets  3,424,382    272,017    7.94     3,103,909    241,993    7.80     2,671,164    208,066    7.79
Noninterest-earning assets(6)..    169,737                          171,675                          154,601
                                ----------                       ----------                       ----------
   Total assets................ $3,594,119                       $3,275,584                       $2,825,765
                                ==========                       ==========                       ==========

Interest-bearing liabilities:
  Savings accounts............. $  425,583     13,501    3.17    $  418,871     13,650    3.26    $  359,137     11,819    3.29
  NOW accounts.................    351,883      4,611    1.31       335,775      4,559    1.36       296,786      5,001    1.69
  Money market demand accounts.    187,823      6,929    3.69       185,261      6,855    3.70       136,810      4,830    3.53
  Certificate accounts.........  1,920,171    115,840    6.03     1,669,375     90,386    5.41     1,393,199     76,457    5.49
  Borrowed funds(7)............    278,558     16,441    5.90       299,857     16,649    5.55       316,930     16,804    5.30
                                ----------  ---------            ----------  ---------            ----------  ---------
  Total interest-bearing
    liabilities................  3,164,018    157,322    4.97     2,909,139    132,099    4.54     2,502,862    114,911    4.59
Noninterest-bearing liabilities    168,925                          127,596                           96,315
                                ----------                       ----------                       ----------
  Total liabilities............  3,332,943                        3,036,735                        2,599,177
Minority interest in subsidiary         --                               --                              294
Shareholders' equity...........    261,176                          238,849                          226,294
                                ----------                       ----------                       ----------

  Total liabilities and equity. $3,594,119                       $3,275,584                       $2,825,765
                                ==========                       ==========                       ==========
Net interest income............             $ 114,695                        $ 109,894                        $  93,155
                                            =========                        =========                        =========
Net interest rate spread(8)....                          2.97%                            3.26%                            3.20%
                                                       ======                           ======                           ======
Net interest-earning assets.... $  260,364                       $  194,770                       $  168,302
                                ==========                       ==========                       ==========
Net interest margin(9).........                          3.35%                            3.54%                            3.49%
                                                       ======                           ======                           ======
Ratio of average
  interest-earning assets
  to average interest-bearing
  liabilities..................      1.08x                            1.07x                            1.07x
                                ==========                       ==========                       ==========
</TABLE>
---------
(1)  Average gross loans receivable includes loans held as available-for-sale
     and loans placed on nonaccrual status.

(2)  Interest income includes accretion/amortization of deferred loan
     fees/expenses.

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

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

(5)  Average balances include FNMA and FHLMC stock.

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

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

(8)  Net interest rate spread represents the difference between the average
     yield on interest-earning assets and the average cost of interest-bearing
     liabilities.

(9)  Net interest margin represents net interest income as a percentage of
     average interest-earning assets.


                                       38

<PAGE>   39



         RATE/VOLUME ANALYSIS. Net interest income can also be analyzed in terms
of the impact of changes in interest rates on interest-earning assets and
interest-bearing liabilities and changes in the volume or amount of these assets
and liabilities. 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 (change
in volume multiplied by prior rate), (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume), (iii) changes in rate-volume
(changes in rate multiplied by changes in volume), and (iv) the net change.

<TABLE>
<CAPTION>
                                                                   YEARS ENDED JUNE 30,
                                  ----------------------------------------------------------------------------------
                                                2001 VS. 2000                            2000 VS. 1999
                                  ----------------------------------------  ----------------------------------------
                                       INCREASE/(DECREASE)                      INCREASE/(DECREASE)
                                            DUE TO                                      DUE TO
                                  ----------------------------     TOTAL    -----------------------------   TOTAL
                                                        RATE/    INCREASE                          RATE/   INCREASE
                                  RATE      VOLUME     VOLUME    (DECREASE)   RATE      VOLUME    VOLUME  (DECREASE)
                                  ----      ------     ------    ----------   ----      ------    ------  ----------
                                                                    (IN THOUSANDS)
<S>                             <C>        <C>        <C>        <C>        <C>        <C>       <C>      <C>
Interest-earning assets:
 Loans receivable..............  $ 3,275    $22,494    $   375    $26,144    $(2,633)   $25,217    $(381)   $22,203
 Mortgage-backed securities....       53      1,868          4      1,925      2,434      6,286      867      9,587
 Investment securities.........    1,140        683         49      1,872        369      1,642       44      2,055
 FHLB stock....................       20         65          1         86        (53)       291      (13)       225
 Interest-earning deposits.....     (159)       190        (34)        (3)       591       (465)    (269)      (143)
                                 --------   -------    --------   --------   -------    -------    -----    -------
   Total interest-earning assets   4,329     25,300        395     30,024        708     32,971      248     33,927

Interest-bearing liabilities:
 Savings accounts..............     (362)       219         (6)      (149)      (116)     1,966      (19)     1,831
 NOW accounts..................     (159)       219         (8)        52       (971)       657     (128)      (442)
 Money market demand accounts..      (21)        95         --         74        232      1,711       82      2,025
 Certificate accounts..........   10,324     13,579      1,551     25,454     (1,024)    15,156     (203)    13,929
 Borrowed funds................    1,050     (1,183)       (75)      (208)       793       (906)     (42)      (155)
                                 -------    -------    -------    -------    -------    -------    -----    -------
  Total interest-bearing
    liabilities................   10,832     12,929      1,462     25,223     (1,086)    18,584     (310)    17,188

   Net change in net interest
     income....................  $(6,503)   $12,371    $(1,067)   $ 4,801    $ 1,794    $14,387    $ 558    $16,739
                                 =======    =======    =======    =======    =======    =======    =====    =======
</TABLE>


         ASSET AND LIABILITY MANAGEMENT-INTEREST RATE SENSITIVITY ANALYSIS. The
matching of assets and liabilities may be analyzed by examining the extent to
which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to positively affect net interest income. Similarly,
during a period of falling interest rates, a negative gap would tend to
positively affect net interest income while a positive gap would tend to
adversely affect net interest income.

         The Company's policy in recent years has been to reduce its exposure to
interest rate risk generally by better matching the maturities of its interest
rate sensitive assets and liabilities and by increasing the interest rate
sensitivity of its interest-earning assets. The Company (i) emphasizes the
origination of short-term, fixed-rate consumer loans, and at June 30, 2001, such
loans constituted $425.6 million, or 14.6%, of the Company's total loan
portfolio; (ii) emphasizes the origination of one- to four-family residential
mortgage loans with terms of 15 years or less, and purchases shorter term or
adjustable-rate investment securities and mortgage-backed securities; and (iii)
originates adjustable-rate mortgage loans, adjustable-rate consumer loans, and
adjustable-rate commercial loans, which at June 30, 2001, totalled $367.5
million or 12.6% of the Company's total loan portfolio. Of the Company's $3.655
billion of interest-earning assets at June 30, 2001, $837.0 million, or 22.9%,
consisted of assets with adjustable rates of interest. The Company also attempts
to reduce interest rate risk by lengthening the maturities of its
interest-bearing

                                       39

<PAGE>   40



liabilities by using FHLB advances as a source of long-term fixed-rate funds,
and by promoting longer term certificates of deposit.

         At June 30, 2001, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing in the same period by $459.6 million, representing a cumulative
negative one-year gap ratio of 11.9%. The Company has an Asset/Liability
Committee with members consisting of various individuals from Senior Management.
This committee meets monthly in an effort to effectively manage the Company's
balance sheet and to monitor activity and set pricing. The Company also has a
Risk Management Committee comprised of certain members of the Board of Directors
which is responsible for reviewing the Company's asset and liability management
policies. The Committee meets quarterly and, as part of their risk management
assessment, reviews interest rate risks and trends, the Company's interest
sensitivity position and the liquidity and market value of the Company's
investment portfolio.

         The following table sets forth, on an amortized cost basis, the amounts
of interest-earning assets and interest- bearing liabilities outstanding at June
30, 2001, which are expected to reprice or mature, based upon certain
assumptions, in each of the future time periods shown. Except as stated below,
the amounts of assets and liabilities shown that reprice or mature during a
particular period were determined in accordance with the earlier of the term of
repricing or the contractual term of the asset or liability. Management believes
that these assumptions approximate the standards used in the savings industry
and considers them appropriate and reasonable. For information regarding the
contractual maturities of the Company's loans, investments and deposits, see
"Business of the Company--Lending Activities," "--Investment Activities" and
"--Sources of Funds."

<TABLE>
<CAPTION>
                                                             AMOUNTS MATURING OR REPRICING
                                      -------------------------------------------------------------------------------------------
                                       WITHIN        1-3           3-5         5-10         10-20        OVER 20
                                       1 YEAR       YEARS         YEARS        YEARS        YEARS         YEARS          TOTAL
                                     ----------    --------      --------     --------     --------      ---------     ----------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                  <C>          <C>           <C>          <C>          <C>           <C>           <C>
Rate-sensitive assets:
  Interest-earning deposits .......  $   45,008    $     --      $     --     $     --    $      --      $      --     $   45,008
  Mortgage-backed securities:
   Fixed ..........................      18,958      24,116        14,599       16,983        5,048             --         79,704
   Variable .......................     424,570          --            --           --           --             --        424,570
  Investment securities ...........      33,440      11,660         6,293       14,752      160,491             --        226,636
  Real estate loans:
   Adjustable-rate ................      40,852       6,121            --           --           --             --         46,973
   Fixed-rate .....................     379,025     564,690       407,848      538,643       28,033             --      1,918,239
  Home equity lines of credit .....      52,934       2,343         1,569        1,589           --             --         58,435
  Education loans .................      77,753          --            --           --           --             --         77,753
  Other consumer loans ............     245,235     193,827            93           --           --             --        439,155
  Commercial loans ................     181,125      96,338        52,837        8,533           --             --        338,833
                                     ----------    --------      --------     --------    ---------      ---------     ----------
   Total rate-sensitive assets ....  $1,498,900    $899,095      $483,239     $580,500    $ 193,572      $       0     $3,655,306
                                     ==========    ========      ========     ========    =========      =========     ==========

Rate-sensitive liabilities:
  Fixed maturity deposits .........  $1,692,515    $312,133      $ 63,963     $ 10,429    $      69      $      --     $2,079,109
  Money market deposit accounts ...      69,407      75,294        63,519           --           --             --        208,220
  Savings accounts ................     109,536      80,000            --           --      265,495             --        455,031
  Checking accounts ...............      50,000          --            --           --       27,757        444,823        522,580
  FHLB advances ...................      10,000      34,350        25,000      175,000        1,202             --        245,552
  Other borrowings ................      27,027       1,947         1,676           10           --             --         30,660
                                     ----------    --------      --------     --------    ---------      ---------     ----------
   Total rate-sensitive liabilities  $1,958,485    $503,724      $154,158     $185,439    $ 294,523      $ 444,823     $3,541,152
                                     ==========    ========      ========     ========    =========      =========     ==========
Interest sensitivity gap per period  $ (459,585)   $395,371      $329,081     $395,061    $(100,951)     $(444,823)    $  114,154
                                     ==========    ========      ========     ========    =========      =========     ==========

Cumulative interest sensitivity gap  $ (459,585)   $(64,214)     $264,867     $659,928    $ 558,977      $ 114,154     $  114,154
                                     ==========    ========      ========     ========    =========      =========     ==========

Cumulative interest sensitivity
  gap as a percentage
  of total assets...................     (11.95)%     (1.67)%        6.89%       17.16%       14.53%          2.97%          2.97%
Cumulative interest-earning assets
  as a  percent of cumulative
  interest-bearing liabilities......      76.53%      97.39%       110.12%      123.55%      118.05%        103.22%        103.22%
</TABLE>


         When assessing the interest rate sensitivity of the company, analysis
of historical trends indicates that loans will prepay at various speeds (or
annual rates) depending on the variance between the weighted average portfolio
rates and the current market rates. In preparing the table above, it has been
assumed market rates will remain constant at current levels and as a result, the
Company's loans will be affected as follows: (i) adjustable-rate

                                       40

<PAGE>   41



mortgage loans will prepay at an annual rate of 20%; (ii) fixed-rate mortgage
loans will prepay at an annual rate of 10% to 15%; (iii) commercial loans will
prepay at an annual rate of 15%; (iv) consumer loans held by the Bank will
prepay at an annual rate of 25%; and (v) consumer loans held by Northwest
Consumer will prepay at an annual rate of 60% to 65%. In regards to the
Company's deposits, it has been assumed that (i) fixed maturity deposits will
not be withdrawn prior to maturity; (ii) money market accounts will gradually
reprice over the next five years; and (iii) savings accounts and checking
accounts will reprice either when the rates on such accounts reprice as interest
rate levels change, or when deposit holders withdraw funds from such accounts
and select other types of deposit accounts, such as certificate accounts, which
may have higher interest rates. For purposes of this analysis, management has
estimated, based on historical trends, that only $50 million of the Company's
checking accounts and $110 million of the Company's savings accounts are
interest sensitive and will reprice in one year or less, and that the remainder
will reprice over longer time periods.

         The above assumptions utilized by management are annual percentages
based on remaining balances and should not be regarded as indicative of the
actual prepayments and withdrawals that may be experienced by the Company.
Moreover, certain shortcomings are inherent in the analysis presented by the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, interest rates on certain types of
assets and liabilities may fluctuate in advance of or lag behind changes in
market interest rates. Additionally, certain assets, such as some
adjustable-rate loans, have features that restrict changes in interest rates on
a short-term basis and over the life of the asset. Moreover, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table.

         In an effort to assess the market risk, the Company utilizes a
simulation model to determine the effect of immediate incremental increases or
decreases in interest rates on net interest 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 effects of actual
changes in interest on these assumptions may differ from simulated results.

         The Company has established the following guidelines for assuming
interest rate risk:

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

          o    Market value of equity simulation. The market value of the
               Company's equity is the net present value of the Company's assets
               and liabilities. Given a parallel shift of 2% in interest rates,
               equity may not decrease by more than 50% of total shareholder
               equity.

         The following table illustrates the simulated impact of a 1% or 2%
upward or downward movement in interest rates on net interest income, return on
average equity, earnings per share and market value of equity. This analysis was
prepared assuming that interest-earning asset levels at June 30, 2001 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 the June 30, 2001 levels.

<TABLE>
<CAPTION>
                                                              MOVEMENTS IN INTEREST RATES FROM
                                                                      JUNE 30, 2001 RATES
                                                         ------------------------------------------
                                                             INCREASE                  DECREASE
                                                         -----------------        -----------------
                                                          1%          2%           1%           2%
                                                         ----        ----         ----         ----
<S>                                                    <C>         <C>          <C>          <C>
Simulated impact over the next
  12 months compared with June 30, 2001:
Percentage increase/(decrease) in net income.......      45.2%       21.7%        66.1%        41.8%

Increase/(decrease) in return on average equity....      13.7%       11.5%        15.7%        13.4%
Increase/(decrease) in diluted earnings per share..     $0.25       $0.12        $0.37        $0.23
Percentage increase/(decrease)
  in market value of equity........................     (16.5)%     (47.0)%       12.6%        23.1%
</TABLE>


                                       41

<PAGE>   42



         REGULATORY CAPITAL REQUIREMENTS. The FDIC's capital regulations
establish a minimum 3.0% Tier I leverage capital requirement for the most
highly-rated state-chartered, non-member banks, with an additional cushion of at
least 100 to 200 basis points for all other state-chartered, non-member banks,
which effectively will increase the minimum Tier I leverage ratio for such other
banks to 4.0% to 5.0% or more. Under the FDIC's regulation, highest-rated banks
are those that the FDIC determines are not anticipating or experiencing
significant growth and have well diversified risk, including no undue interest
rate risk exposure, excellent asset quality, high liquidity, good earnings and,
in general, which are considered a strong banking organization, rated composite
1 under the Uniform Financial Institutions Rating System. Leverage or core
capital is defined as the sum of common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, and
minority interests in consolidated subsidiaries, minus all intangible assets
other than certain qualifying supervisory goodwill, and certain purchased
mortgage servicing rights and purchased credit card relationships.

         The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital which is defined as Tier I capital and
supplementary (Tier 2 capital) to risk weighted assets of 8%. In determining the
amount of risk-weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item.

         The components of Tier I capital are equivalent to those discussed
above under the 3% leverage standard. The components of supplementary (Tier 2)
capital include certain perpetual preferred stock, certain mandatory convertible
securities, certain subordinated debt and intermediate preferred stock and
general allowances for loan and lease losses. Allowance for loan and lease
losses includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of core capital. At June 30, 2001, the
Company exceeded each of its capital requirements.

         A bank which has less than the minimum leverage capital requirement
shall, within 60 days of the date as of which it fails to comply with such
requirement, submit to its FDIC regional director for review and approval a
reasonable plan describing the means and timing by which the bank shall achieve
its minimum leverage capital requirement. A bank which fails to file such plan
with the FDIC is deemed to be operating in an unsafe and unsound manner, and
could be subject to a cease-and-desist order from the FDIC. The FDIC's
regulation also provides that any insured depository institution with a ratio of
Tier I capital to total assets that is less than 2.0% is deemed to be operating
in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA and is
subject to potential termination of deposit insurance. However, such an
institution will not be subject to an enforcement proceeding thereunder solely
on account of its capital ratios if it has entered into and is in compliance
with a written agreement with the FDIC to increase its Tier I leverage capital
ratio to such level as the FDIC deems appropriate and to take such other action
as may be necessary for the institution to be operated in a safe and sound
manner. The FDIC capital regulation also provides, among other things, for the
issuance by the FDIC or its designee(s) of a capital directive, which is a final
order issued to a bank that fails to maintain minimum capital to restore its
capital to the minimum leverage capital requirement within a specified time
period. Such directive is enforceable in the same manner as a final
cease-and-desist order.



                                       42

<PAGE>   43



         The following table summarizes the actual and minimum regulatory
capital requirements of the Bank and Jamestown at June 30, 2001 and June 30,
2000.
<TABLE>
<CAPTION>
                                                                          JUNE 30, 2001
                                            ---------------------------------------------------------------------
                                                                         MINIMUM CAPITAL       WELL CAPITALIZED
                                                    ACTUAL                REQUIREMENTS           REQUIREMENTS
                                            ----------------------   ---------------------   --------------------
                                              AMOUNT        RATIO     AMOUNT        RATIO     AMOUNT       RATIO
                                              ------        -----     ------        -----     ------       -----
                                                                    (DOLLARS IN THOUSANDS)
<S>                                         <C>           <C>       <C>           <C>       <C>           <C>
Total capital (to risk weighted assets):
   Northwest Savings Bank.................   $214,670      10.39%    $165,364       8.00%    $206,705      10.00%
   Jamestown Savings Bank.................      8,232      10.72        6,142       8.00        7,678      10.00

Tier I capital (to risk weighted assets):
   Northwest Savings Bank.................   $193,570       9.36%    $ 82,682       4.00%    $124,023       6.00%
   Jamestown Savings Bank.................      7,596       9.89        3,071       4.00        4,607       6.00

Tier I capital (leverage to average assets):
   Northwest Savings Bank.................   $193,570       5.33%    $108,916       3.00%*   $181,526       5.00%
   Jamestown Savings Bank.................      7,596       5.96        3,821       3.00 *      6,368       5.00
</TABLE>

<TABLE>
<CAPTION>
                                                                          JUNE 30, 2000
                                            -----------------------------------------------------------------------
                                                                         MINIMUM CAPITAL        WELL CAPITALIZED
                                                    ACTUAL                REQUIREMENTS            REQUIREMENTS
                                            ----------------------   ---------------------   ----------------------
                                              AMOUNT        RATIO     AMOUNT        RATIO     AMOUNT        RATIO
                                            ---------     --------   --------     --------   --------     ---------
<S>                                         <C>           <C>       <C>            <C>      <C>           <C>
Total capital (to risk weighted assets):
   Northwest Savings Bank.................   $204,018      11.33%    $144,043       8.00%    $180,054      10.00%
   Jamestown Savings Bank.................      7,845      14.21        4,416       8.00        5,520      10.00

Tier I capital (to risk weighted assets):
   Northwest Savings Bank.................   $185,509      10.30%    $ 72,022       4.00%    $108,032       6.00%
   Jamestown Savings Bank.................      7,367      13.35        2,208       4.00        3,312       6.00

Tier I capital (leverage to average assets):
   Northwest Savings Bank.................   $185,509       5.71%    $ 97,403       3.00%*   $162,338       5.00%
   Jamestown Savings Bank.................      7,367       7.57        2,920       3.00*       4,867       5.00
</TABLE>

-------------------

*    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 June 30, 2001, the Company had not been
     advised of any additional requirements in this regard.


         The Bank is also subject to Pennsylvania Department of Banking
("Department") capital guidelines. Although not adopted in regulation form, the
Department utilizes capital standards of 6% leverage capital and 10% risk-based
capital. The components of leverage and risk-based capital are substantially the
same as those defined by the FDIC.

         LIQUIDITY AND CAPITAL RESOURCES. The Bank 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 during their regular examinations.
The FDIC, however, does not prescribe by regulation a minimum amount or
percentage of liquid assets. The FDIC allows any marketable security, whose sale
would not impair the capital adequacy of the Company, to be eligible for
liquidity. Liquidity is quantified through the use of a standard liquidity ratio
of liquid assets to short- term borrowings plus deposits. Using this formula,
the Bank's and Jamestown's liquidity ratios were 21.0% and 35.6%, respectively,
as of June 30, 2001. The Bank and Jamestown adjust their liquidity levels in
order to meet funding needs of deposit outflows, repayment of borrowings and
loan commitments. The Company also adjusts liquidity as appropriate to meet its
asset and liability management objectives.

         The Company's primary sources of funds are the amortization and
repayment of loans and mortgage-backed securities, maturities of investment
securities and other short-term investments, and earnings and funds provided
from operations. While scheduled principal repayments on loans and
mortgage-backed securities are a relatively predictable source of funds, deposit
flows and loan prepayments are greatly influenced by general interest rate
levels, economic

                                       43

<PAGE>   44



conditions, and competition. The Company manages the pricing of its deposits to
maintain a desired deposit balance. In addition, the Company invests excess
funds in short-term interest-earning and other assets, which provide liquidity
to meet lending requirements. Short-term interest-earning deposits with the FHLB
of Pittsburgh amounted to $33.4 million at June 30, 2001. Other assets
qualifying for liquidity outstanding at June 30, 2001, amounted to $732.3
million. For additional information about cash flows from the Company's
operating, financing, and investing activities, see Statements of Cash Flows
included in the Consolidated Financial Statements.

         A major portion of the Company's liquidity consists of cash and cash
equivalents, which are a product of its operating, investing, and financing
activities. The primary sources of cash were net income, principal repayments on
loans and mortgage-backed securities, and increases in deposit accounts.

         Liquidity management is both a daily and long-term function of business
management. If the Company requires funds beyond its ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. At June 30, 2001, the Company had $245.6 million in advances
from the FHLB. The Company borrows from the FHLB to reduce interest rate risk
and to provide liquidity when necessary.

         At June 30, 2001, the Company's customers had $100.3 million of unused
lines of credit available. This amount does not include the unfunded portion of
loans in process. Certificates of deposit scheduled to mature in less than one
year at June 30, 2001, totaled $1.691 billion. Based on prior experience,
management believes that a significant portion of such deposits will remain with
the Company.

         The major sources of the Company's cash flows are the areas of loans,
marketable securities, deposits and borrowed funds.

         Deposits are the Company's primary source of externally generated
funds. The level of deposit inflows during any given period is heavily
influenced by factors outside of management's control, such as the general level
of short-term and long-term interest rates in the economy, as well as higher
alternative yields that investors may obtain on competing investments such as
money market mutual funds. Financial institutions, such as the Company, are also
subject to deposit outflows. The Company's net deposits excluding interest
credits and acquisitions, increased by $133.8 million, $61.5 million and $117.1
million for the fiscal years ended June 30, 2001, 2000 and 1999, respectively.

         Similarly, the amount of principal repayments on loans and the amount
of new loan originations is heavily influenced by the general level of interest
rates in the economy. Funds received from principal payments on loans for the
fiscal years ended in June 30, 2001, 2000 and 1999 were $450.1 million, $408.8
million and $512.1 million, respectively. Loan originations for the years ended
June 30, 2001, 2000 and 1999 were $776.0 million, $629.1 million and $881.9
million, respectively. The Company also sells a portion of the loans it
originates and the cash flows from such sales for the fiscal years ended June
30, 2001, 2000 and 1999 were $61.4 million, $1.1 million and $7.4 million,
respectively.

         The Company also experiences significant cash flows from its portfolio
of marketable securities as principal payments are received on mortgage-backed
securities and investment securities, which generally are of short duration,
mature. During recent years, the Company has utilized cash to increase its
portfolio of marketable securities. Cash flow from the repayment of principal
and the maturity of marketable securities for the fiscal years ended June 30,
2001, 2000 and 1999 were $77.9 million, $44.4 million and $122.5 million,
respectively. During the fiscal years ended June 30, 2001, 2000 and 1999, the
bank utilized cash to purchase marketable securities in the amount of $183.9
million, $122.4 million and $195.1 million, respectively.

         The Company utilizes borrowings as a source of liquidity, when
necessary, and as a source of funds for long term investment when market
conditions permit. The net cash flow from the receipt and repayment of
borrowings was a net increase of $36.3 million for the fiscal year ended June
30, 2001, a net decrease of $109.0 million for the fiscal year ended June 30,
2000 and a net increase of $57.6 million for the fiscal year ended June 30,
1999.


                                       44

<PAGE>   45



         Other activity with respect to cash flow was the payment of cash
dividends on common stock in the amount of $7.6 million, $7.6 million and $7.5
million for the fiscal years ended June 30 2001, 2000 and 1999, respectively.

         IMPACT OF INFLATION AND CHANGING PRICES. The Consolidated Financial
Statements of the Company and notes thereto, presented elsewhere herein, have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
monetary. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board ("FASB")
released SFAS 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting designation.
This statement was to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. This effective date was changed, however, in June
1999, when the FASB issued SFAS 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement 133 - an
Amendment of FASB Statement 133," which delayed the adoption of FASB Statement
133 until the first quarter of the Company's fiscal year 2001. Adoption of this
statement had no effect on the Company's financial position or results of
operations as the Company did not use derivative instruments in the current
fiscal year.

         In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation - an Interpretation of APB Opinion No. 25." This Interpretation
clarifies the application of APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) for only certain issues. The issues addressed by this
interpretation were resolved within the framework of the intrinsic value method
prescribed by APB 25, and do not amend APB 25. Among the issues this
interpretation clarifies are (a) the definition of employee for purposes of
applying APB 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination.

         This Interpretation is effective July 1, 2000, but certain conclusions
in this Interpretation cover specific events that occur after either December
15, 1998 or January 12, 2000. To the extent that this Interpretation covers
events occurring during the period after December 15, 1998, or January 12, 2000,
but before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. Adoption
of this statement did not have a material effect on the Company's position or
results of operations.

         In September 2000, the FASB released SFAS 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities - a
replacement of FASB Statement No. 125 ("SFAS 140")". SFAS 140 revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures. This statement provides
accounting and reporting standards based upon a financial- components approach
that focuses on control of the underlying asset or liability after the transfer.
This statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. This statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. This statement is to be applied prospectively with
certain exceptions. Other than those specific exceptions, earlier or retroactive
application of its accounting provisions is not permitted. Adoption of this
statement did not have a material effect on the Company's financial position or
results of operations.


                                       45

<PAGE>   46



         In July 2001, the FASB released SFAS 141 "Business Combinations"("SFAS
141"). SFAS 141 addresses financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, "Business Combinations", and
FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises". This statement effectively eliminates the use of the pooling
method of accounting for business combinations and states that all business
combinations in the scope of this statement are to be accounted for using only
the purchase method. The provisions of this statement apply to all business
combinations initiated after June 30, 2001 and to all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later. Because the Company has always used purchase accounting
for its business combinations, it is not expected that this statement will have
a material change in its operations.

         Also in July 2001, and concurrently with SFAS 141, the FASB released
SFAS 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, "Intangible Assets". This statement
also addresses how goodwill and other intangible assets should be accounted for
after they have been initially recognized in the financial statements. This
statement, among other things, eliminates the regularly scheduled amortization
of goodwill and replaces this method with a two-step process for testing the
impairment of goodwill on at least an annual basis. This approach will most
likely cause more volatility in a company's reported net income because
impairment losses, if any, are likely to occur irregularly and in varying
amounts. The Company adopted this statement on July 1, 2001, the beginning of
its fiscal year, and immediately upon adoption stopped amortizing the existing
goodwill of $63.3 million. As a result of this pronouncement, the amortization
expense savings for fiscal 2002 is expected to be $8.2 million which is
approximately $5.5 million after tax, or $0.11 per diluted share.

SUBSEQUENT BUSINESS ACQUISITIONS

         On September 6, 2001 the Company announced its intention to purchase
the Ebensburg, Pennsylvania office of Reliance Bank. The cash purchase includes
approximately $26 million of deposits and related fixed assets. Pending
regulatory approval this transaction is expected to be completed in the fourth
calendar quarter of 2001.

         On August 16, 2001 the Company announced it had entered into a
definitive agreement to acquire Leeds Federal Bankshares, Inc. of Baltimore,
Maryland. As of June 30, 2001 Leeds Bankshares had total assets of $378.5
million, deposits of $320.5 million and shareholders equity of $50.9 million.
Pending approval by Leeds Bankshares stockholders and applicable regulatory
authorities the transaction is expected to be completed in the first calendar
quarter of 2002.

         Also on August 16, 2001 the Company announced it had reached a
definitive agreement with Sun Bancorp, Inc. to purchase Sun's Johnsonburg and
Emporium branch offices. The sale is expected to close in the fourth calendar
quarter of 2001, subject to regulatory approval, and will include approximately
$57 million in deposits, $21 million in loans and the related fixed assets.

         On August 3, 2001 the Company announced its intention to purchase a
retail office from Prestige Bank. The office is located within the Shop 'n Save
supermarket in Washington, Pennsylvania. The cash purchase includes $4.7 million
in deposits, as well as related fixed assets, and upon regulatory approval is
expected to close in the fourth calendar quarter of 2001.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section set forth above is incorporated herein by
reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Financial Statements are included in Part III, Item 14 of this
Form 10-K.


                                       46

<PAGE>   47
                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
Northwest Bancorp, Inc.:


We have audited the accompanying consolidated statements of financial condition
of Northwest Bancorp, Inc. and subsidiaries as of June 30, 2001 and 2000, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended June 30,
2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Northwest Bancorp,
Inc. and subsidiaries as of June 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States of America.


                                                /s/ KPMG LLP
                                                -----------------------
                                                KPMG LLP


Pittsburgh, Pennsylvania
July 20, 2001




                                       47
<PAGE>   48



                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                 Consolidated Statements of Financial Condition

                             June 30, 2001 and 2000

                  (Amounts in thousands, excluding share data)


<TABLE>
<CAPTION>
                        ASSETS                                            2001                   2000
                                                                          ----                   ----

<S>                                                                    <C>                     <C>
Cash and cash equivalents                                              $    50,958                82,305
Interest-earning deposits in other financial institutions                   45,008                 8,461
Marketable securities available-for-sale (amortized cost of
    $386,689 and $395,830)                                                 391,579               387,983
Marketable securities held-to-maturity (market value of
    $333,372 and $222,364)                                                 339,331               237,756
Loans receivable, net of allowance for estimated
    losses of $20,290 and $18,260                                        2,856,581             2,544,630
Accrued interest receivable                                                 18,795                15,978
Real estate owned, net                                                       3,697                 2,144
Federal Home Loan Bank stock, at cost                                       22,499                21,269
Premises and equipment, net                                                 46,767                40,953
Goodwill and other intangibles                                              65,053                52,300
Other assets                                                                12,563                13,513
                                                                       -----------           -----------
                   Total assets                                        $ 3,852,831             3,407,292
                                                                       ===========           ===========
                     LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
    Deposits                                                             3,264,940             2,886,509
    Borrowed funds                                                         276,212               239,941
    Advances by borrowers for taxes and insurance                           21,832                22,557
    Accrued interest payable                                                 3,720                 2,352
    Other liabilities                                                       10,414                 8,045
                                                                       -----------           -----------
                   Total liabilities                                     3,577,118             3,159,404
Shareholders' equity
    Common stock, $.10 par value, authorized 100,000,000
       shares; 47,426,755 and 47,360,769 issued and
       outstanding at June 30, 2001 and 2000, respectively                   4,743                 4,736
    Paid-in capital                                                         71,283                70,949
    Retained earnings, substantially restricted                            196,566               177,371
    Accumulated other comprehensive income (loss), net                       3,178                (5,104)
    Unearned recognition and retention plan shares                             (57)                  (64)
                                                                       -----------           -----------
                   Total shareholders' equity                              275,713               247,888
                                                                       -----------           -----------
                   Total liabilities and shareholders' equity          $ 3,852,831             3,407,292
                                                                       ===========           ===========
</TABLE>


See accompanying notes to consolidated financial statements.


                                       48
<PAGE>   49

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                        Consolidated Statements of Income

                For the Years Ended June 30, 2001, 2000 and 1999

                  (Amounts in thousands, excluding share data)


<TABLE>
<CAPTION>
                                                                  2001              2000               1999
                                                                  ----              ----               ----
<S>                                                             <C>                <C>                <C>
Interest income:
    Loans receivable                                            $222,740           196,596            174,393
    Mortgage-backed securities                                    29,161            27,236             17,649
    Taxable investment securities                                 11,630            10,608             10,669
    Tax-free investment securities                                 5,022             4,404              2,859
    Interest-earning deposits                                        877               880              1,023
                                                                --------          --------           --------
                   Total interest income                         269,430           239,724            206,593
Interest expense:
    Deposits                                                     140,881           115,450             98,107
    Borrowed funds                                                16,441            16,649             16,804
                                                                --------          --------           --------
                   Total interest expense                        157,322           132,099            114,911
                                                                --------          --------           --------
                   Net interest income                           112,108           107,625             91,682
Provision for loan losses                                          5,347             4,149              3,629
                                                                --------          --------           --------
                   Net interest income after provision
                     for loan losses                             106,761           103,476             88,053
Noninterest income:
    Service charges and fees                                      10,030             7,020              4,500
    Gain (loss) on sale of marketable securities, net                368               397               (686)
    Gain (loss) on sale of loans                                     478               (74)              (481)
    Gain on sale of real estate owned                                602               621                150
    Insurance income                                               1,913             2,135              1,527
    Other operating income                                         1,663             1,172              1,000
                                                                --------          --------           --------
                   Total noninterest income                       15,054            11,271              6,010
</TABLE>




                                       49
<PAGE>   50


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                        Consolidated Statements of Income

                For the Years Ended June 30, 2001, 2000 and 1999

                  (Amounts in thousands, excluding share data)


<TABLE>
<CAPTION>
                                                              2001              2000             1999
                                                              ----              ----             ----
<S>                                                          <C>               <C>              <C>
Noninterest expense:
    Compensation and employee benefits                       $43,569           38,028           35,005
    Premises and occupancy costs                              10,570            9,138            7,116
    Federal insurance premiums                                   581              894            1,132
    Data processing                                            2,992            2,661            2,149
    Check processing                                           3,450            3,263            2,364
    Advertising                                                1,631            2,048            1,809
    Amortization of intangibles                                7,371            5,831            3,458
    Other expenses                                            12,175           11,771           10,077
                                                             -------          -------          -------
                   Total noninterest expense                  82,339           73,634           63,110
                                                             -------          -------          -------
                   Income before income taxes                 39,476           41,113           30,953
Provision for income taxes
    Federal                                                   10,488           11,263            8,910
    State                                                      2,211            2,647            2,004
                                                             -------          -------          -------
                   Total provision for income taxes           12,699           13,910           10,914
Minority interest in net loss of subsidiary                       --               --                3
                                                             -------          -------          -------
                   Net income                                $26,777           27,203           20,042
                                                             =======          =======          =======
Basic earnings per share                                     $   .57              .58              .42
                                                             =======          =======          =======
Diluted earnings per share                                   $   .56              .57              .42
                                                             =======          =======          =======
</TABLE>


See accompanying notes to consolidated financial statements.


                                       50
<PAGE>   51

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

           Consolidated Statements of Changes in Shareholders' Equity

                For the Years Ended June 30, 2001, 2000 and 1999

                  (Amounts in thousands, excluding share data)


<TABLE>
<CAPTION>
                                                                                                                   ACCUMULATED
                                                                                                                      OTHER
                                                            COMMON            PAID-IN          RETAINED           COMPREHENSIVE
                                                            STOCK             CAPITAL          EARNINGS         INCOME (LOSS), NET
                                                            -----             -------          --------         ------------------
<S>                                                        <C>                <C>              <C>              <C>
Balance at June 30, 1998                                   $  4,684            67,248           145,259              3,371
Comprehensive income:
    Net income                                                   --                --            20,042                 --
    Change in unrealized gain on securities,
       net of tax and reclassification adjustment                --                --                --             (1,393)
                                                           --------          --------          --------           --------
                   Total comprehensive income                    --                --            20,042             (1,393)
Stock issuance for acquisition*                                  48             1,145                --                 --
Exercise of stock options                                         4               216                --                 --
Tax benefit for excess of fair value above
    cost of stock option and retention plans                     --               214                --                 --
ESOP shares released                                             --             1,551                --                 --
RRP shares released                                              --                --                --                 --
Dividends declared                                               --                --            (7,556)                --
                                                           --------          --------          --------           --------
Balance at June 30, 1999                                      4,736            70,374           157,745              1,978

Comprehensive income:
    Net income                                                   --                --            27,203                 --
    Change in unrealized gain on securities,
       net of tax and reclassification adjustment                --                --                --             (7,082)
                                                           --------          --------          --------           --------
                   Total comprehensive income                    --                --            27,203             (7,082)
Exercise of stock options                                        --                20                --                 --
Tax benefit for excess of fair value above
    cost of stock option and retention plans                     --               162                --                 --
ESOP shares released                                             --               393                --                 --
RRP shares released                                              --                --                --                 --
Dividends declared                                               --                --            (7,577)                --
                                                           --------          --------          --------           --------
Balance at June 30, 2000                                      4,736            70,949           177,371             (5,104)


<CAPTION>
                                                            UNEARNED          UNEARNED
                                                            EMPLOYEE         RECOGNITION
                                                             STOCK               AND               TOTAL
                                                           OWNERSHIP          RETENTION        SHAREHOLDERS'
                                                          PLAN SHARES        PLAN SHARES           EQUITY
                                                          -----------        -----------           ------

<S>                                                       <C>                <C>               <C>
Balance at June 30, 1998                                     (1,412)            (1,271)           217,879
Comprehensive income:
    Net income                                                   --                 --             20,042
    Change in unrealized gain on securities,
       net of tax and reclassification adjustment                --                 --             (1,393)
                                                           --------           --------           --------
                   Total comprehensive income                    --                 --             18,649
Stock issuance for acquisition*                                  --                 --              1,193
Exercise of stock options                                        --                 --                220
Tax benefit for excess of fair value above
    cost of stock option and retention plans                     --                 --                214
ESOP shares released                                            851                 --              2,402
RRP shares released                                              --                656                656
Dividends declared                                               --                 --             (7,556)
                                                           --------           --------           --------
Balance at June 30, 1999                                       (561)              (615)           233,657

Comprehensive income:
    Net income                                                   --                 --             27,203
    Change in unrealized gain on securities,
       net of tax and reclassification adjustment                --                 --             (7,082)
                                                           --------           --------           --------
                   Total comprehensive income                    --                 --             20,121
Exercise of stock options                                        --                 --                 20
Tax benefit for excess of fair value above
    cost of stock option and retention plans                     --                 --                162
ESOP shares released                                            561                 --                954
RRP shares released                                              --                551                551
Dividends declared                                               --                 --             (7,577)
                                                           --------           --------           --------
Balance at June 30, 2000                                         --                (64)           247,888
</TABLE>


                                                                     (Continued)


                                       51
<PAGE>   52

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

           Consolidated Statements of Changes in Shareholders' Equity

                For the Years Ended June 30, 2001, 2000 and 1999

                  (Amounts in thousands, excluding share data)

<TABLE>
<CAPTION>
                                                                                                                 ACCUMULATED
                                                                                                                    OTHER
                                                            COMMON            PAID-IN          RETAINED         COMPREHENSIVE
                                                            STOCK             CAPITAL          EARNINGS       INCOME (LOSS), NET
                                                            -----             -------          --------       ------------------
<S>                                                        <C>                <C>              <C>            <C>
Comprehensive income:
    Net income                                             $     --                --            26,777                 --
    Change in unrealized loss on securities,
       net of tax and reclassification adjustment                --                --                --              8,282
                                                                             --------          --------           --------
                   Total comprehensive income                    --                --            26,777              8,282
Exercise of stock options                                         7               301                --                 --
Tax benefit for excess of fair value above
    cost of stock option and retention plans                     --                33                --                 --
RRP shares released                                              --                --                --                 --
Dividends declared                                               --                --            (7,582)                --
                                                           --------          --------          --------           --------
Balance at June 30, 2001                                   $  4,743            71,283           196,566              3,178
                                                           ========          ========          ========           ========



<CAPTION>
                                                       UNEARNED         UNEARNED
                                                       EMPLOYEE        RECOGNITION
                                                         STOCK             AND              TOTAL
                                                       OWNERSHIP        RETENTION       SHAREHOLDERS'
                                                      PLAN SHARES      PLAN SHARES          EQUITY
                                                      -----------      -----------          ------
<S>                                                   <C>              <C>              <C>
Comprehensive income:
    Net income                                             --                --             26,777
    Change in unrealized loss on securities,
       net of tax and reclassification adjustment          --                --              8,282
                                                           --          --------           --------
                   Total comprehensive income              --                --             35,059
Exercise of stock options                                  --                --                308
Tax benefit for excess of fair value above
    cost of stock option and retention plans               --                --                 33
RRP shares released                                        --                 7                  7
Dividends declared                                         --                --             (7,582)
                                                           --          --------           --------
Balance at June 30, 2001                                   --               (57)           275,713
                                                           ==          ========           ========
</TABLE>



*      Represents shares issued for the acquisition of Corry Savings Bank (see
       note 3, Business Combinations).

See accompanying notes to financial statements.



                                       52
<PAGE>   53


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                For the Years Ended June 30, 2001, 2000 and 1999

                  (Amounts in thousands, excluding share data)


<TABLE>
<CAPTION>
                                                                          2001                 2000                1999
                                                                          ----                 ----                ----
<S>                                                                     <C>                  <C>                 <C>
Operating activities:
    Net income                                                          $  26,777              27,203              20,042
    Adjustments to reconcile net income to net
       cash provided by operating activities:
          Provision for loan losses                                         5,347               4,149               3,629
          Net loss (gain) on sales of assets                               (1,448)               (944)              1,017
          Purchase of marketable securities, trading                           --                  --             (31,863)
          Proceeds from sale of marketable securities,
            trading                                                            --               8,822              22,160
          Amortization of goodwill and other intangible assets              7,371               5,831               3,458
          Net depreciation, amortization and accretion                      5,449               4,002               2,503
          Decrease (increase) in other assets                              (6,080)              1,080              (4,662)
          Increase (decrease) in other liabilities                          3,011              (3,682)                943
          Net accretion of discounts on marketable securities              (1,839)               (541)               (255)
          Noncash compensation expense related to
            stock benefit plans                                                 7               1,145               2,244
          Other                                                                26                  --                 241
                                                                        ---------           ---------           ---------
                   Net cash provided by operating
                     activities                                            38,621              47,065              19,457
                                                                        ---------           ---------           ---------
Investing activities:
    Purchase of marketable securities held-to-maturity                   (126,420)             (9,252)           (106,562)
    Purchase of marketable securities available-for-sale                  (57,488)           (113,176)            (88,563)
    Proceeds from maturities and principal reductions
       of marketable securities held-to-maturity                           25,662              25,514              48,051
    Proceeds from maturities and principal reductions
       of marketable securities available-for-sale                         52,291              18,884              74,491
    Proceeds from sales of marketable securities available-
       for-sale                                                            15,477              21,616               4,470
    Loan originations                                                    (776,001)           (629,104)           (881,861)
    Proceeds from loan maturities and principal
       reductions                                                         450,120             408,837             512,069
    Proceeds from loan sales                                               61,365               1,137               7,365
    Purchase of Federal Home Loan Bank stock                               (1,230)             (3,112)             (4,511)
    Proceeds from sale of real estate owned                                 2,429               3,473               3,312
    Sale of real estate owned for investment                                   97                 534                 245
    Purchase of premises and equipment                                     (8,166)             (8,282)             (7,821)
    Acquisitions, net of cash received                                     59,681             203,319             198,627
                                                                        ---------           ---------           ---------
                   Net cash used by investing activities                 (302,183)            (79,612)           (240,688)
                                                                        ---------           ---------           ---------
</TABLE>




                                       53
<PAGE>   54


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                For the Years Ended June 30, 2001, 2000 and 1999

                  (Amounts in thousands, excluding share data)

<TABLE>
<CAPTION>
                                                                        2001                2000                  1999
                                                                        ----                ----                  ----
<S>                                                                   <C>                  <C>                  <C>
Financing activities:
    Increase in deposits, net                                         $ 240,490             151,988             191,221
    Proceeds from long-term borrowings                                  116,963              37,112             101,281
    Repayments of long-term borrowings                                  (31,217)            (33,607)            (87,413)
    Net increase (decrease) in short-term borrowings                    (49,475)           (112,479)             43,720
    Increase (decrease) in advances by borrowers for
       taxes and insurance                                                 (725)              3,603               3,423
    Cash dividends paid                                                  (7,582)             (7,577)             (7,556)
    Stock issuance for acquisition                                           --                  --               1,193
    Proceeds from options exercised                                         308                  20                 220
                                                                      ---------           ---------           ---------
                   Net cash provided by financing activities            268,762              39,060             246,089
                                                                      ---------           ---------           ---------
                   Net increase in cash and
                     cash equivalents                                 $   5,200               6,513              24,858
                                                                      =========           =========           =========
Cash and cash equivalents at beginning of period                         90,766              84,253              59,395
Net increase in cash and cash equivalents                                 5,200               6,513              24,858
                                                                      ---------           ---------           ---------
Cash and cash equivalents at end of period                            $  95,966              90,766              84,253
                                                                      =========           =========           =========
Cash paid during the year for:
    Interest on deposits and borrowings (including
       interest credited to deposit accounts of
       $106,708, $90,526 and $74,097, respectively)                   $ 155,954             133,445             114,145
                                                                      =========           =========           =========
    Income taxes                                                      $  15,808              13,926              12,858
                                                                      =========           =========           =========
Noncash activities:
    Business acquisitions:
       Fair value of assets acquired                                     79,253              68,643              50,457
       Net cash received                                                 59,681             203,319             198,627
       Minority interest                                                     --                  --               1,913
                                                                      ---------           ---------           ---------
                   Liabilities assumed                                $ 138,934             271,962             250,997
                                                                      =========           =========           =========
    Loan foreclosures and repossessions                               $   3,380               1,625               3,378
                                                                      =========           =========           =========
    Sale of real estate owned financed by the Company                 $     315                 536                 456
                                                                      =========           =========           =========
</TABLE>


See accompanying notes to consolidated financial statements


                                       54
<PAGE>   55



                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)



(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       (a)    NATURE OF OPERATIONS

              Northwest Bancorp, Inc. (the "Company") headquartered in Warren,
              Pennsylvania, is a Bank Holding Company for its wholly owned
              subsidiaries Northwest Savings Bank ("Northwest") and Jamestown
              Savings Bank ("Jamestown"). These retail oriented financial
              institutions offer traditional deposit and loan products through
              their 109 banking locations in Pennsylvania, five banking
              locations in southwestern New York and four banking locations in
              eastern Ohio. The Company and its subsidiaries also offer loan
              products through 44 consumer finance offices in Pennsylvania and
              one in New York. The Company maintains geographic diversification
              in its real estate loan portfolio by originating loans through
              correspondent originators by way of a mortgage production office
              in Pittsburgh, Pennsylvania.

       (b)    CONSOLIDATION

              The consolidated financial statements include the accounts of the
              Company and its wholly owned subsidiaries after elimination of all
              intercompany accounts and transactions.

       (c)    CASH AND CASH EQUIVALENTS

              For purposes of the statement of cash flows, cash and cash
              equivalents include cash and amounts due from depository
              institutions and interest-bearing deposits in other financial
              institutions.

       (d)    MARKETABLE SECURITIES

              The Company classifies marketable securities at the time of their
              purchase as either held-to-maturity, available-for-sale or trading
              securities. Securities for which management has the intent and the
              Company has the ability to hold until their maturity are
              classified as held-to-maturity and are carried on the Company's
              books at cost, adjusted for amortization of premium and accretion
              of discount on a level yield basis. If it is management's intent
              at the time of purchase to hold securities for an indefinite
              period of time and/or to use such securities as part of its
              asset/liability management strategy, the securities are classified
              as available-for-sale and are carried at fair value, with
              unrealized gains and losses excluded from net earnings and
              reported as accumulated other comprehensive income, a separate
              component of shareholders' equity, net of tax. Securities
              available-for-sale include securities which may be sold in
              response to changes in interest rates, resultant prepayment risk
              or other market factors. Securities that are bought and held
              principally for the purpose of selling them in the near term are
              classified as trading and are reported at fair value, with
              unrealized gains and losses included in earnings. The cost of
              securities sold is determined on a specific identification basis.


                                                                     (Continued)

                                       55
<PAGE>   56

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


              Federal law requires a member institution of the Federal Home Loan
              Bank ("FHLB") system to hold stock of its district FHLB according
              to a predetermined formula. This stock is recorded at cost and may
              be pledged to secure FHLB advances.


       (e)    LOANS RECEIVABLE

              Loans are stated at their unpaid principal balance net of any
              deferred origination fees or costs and the allowance for estimated
              loan losses. Interest income on loans is credited to income as
              earned. Interest earned on loans for which no payments were
              received during the month is accrued at month end. Interest
              accrued on loans more than ninety days delinquent is offset by a
              reserve for uncollected interest, and such loans are placed on
              nonaccrual status.

              The Company has identified certain residential loans which will be
              sold prior to maturity. These loans are recorded at the lower of
              amortized cost or market value and are not significant as of June
              30, 2001 and 2000.

              Loan fees and certain direct loan origination costs are deferred,
              and the net deferred fee or cost is then recognized using the
              level-yield method over the contractual life of the loan as an
              adjustment to interest income.

       (f)    REAL ESTATE OWNED

              Real estate owned is comprised of property acquired through
              foreclosure or voluntarily conveyed by delinquent borrowers. These
              assets are recorded on the date acquired at the lower of the
              related loan balance or market value of the collateral, as
              determined by an appraisal. Subsequently, foreclosed assets are
              valued at the lower of the amount recorded at acquisition date or
              the current market value, less estimated disposition costs. Gains
              or losses realized from the disposition of such property are
              credited or charged to operations.

       (g)    PROVISION FOR LOAN LOSSES

              Provisions for estimated losses on the loan portfolios, other than
              those specifically identified, are charged to earnings in an
              amount that results in a loss allowance sufficient, in
              management's judgment, to cover losses based on past experience
              and economic conditions. Estimated losses on specific loans are
              charged to the allowance for loan losses when, in the opinion of
              management, a significant decline reduces the estimated fair value
              of the underlying collateral to less than the loan's current
              carrying value.

                                                                     (Continued)

                                       56
<PAGE>   57

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


              Management considers a loan to be impaired when it is probable
              that the Company will be unable to collect all amounts due
              according to the contractual terms of the loan agreement.
              Generally, all nonaccrual loans are deemed to be impaired. In
              evaluating whether a loan is impaired, management considers not
              only the amount that the Company expects to collect but also the
              timing of collection. Generally, if a delay in payment is
              insignificant (e.g., less than 30 days), a loan is not deemed to
              be impaired.

              When a loan is considered to be impaired, the amount of impairment
              is measured based on the present value of expected future cash
              flows discounted at the loan's effective interest rate or at the
              loan's market price or fair value of the collateral if the loan is
              collateral dependent. Loans are evaluated individually for
              impairment. Smaller balance, homogeneous loans (e.g., primarily
              consumer and residential mortgages) are evaluated collectively for
              impairment. Impairment losses are included in the allowance for
              loan losses. Impaired loans are charged off when management
              believes that the ultimate collectibility of a loan is not likely.

              Interest income on impaired loans is recognized using the cash
              basis method. Such interest ultimately collected is credited to
              income in the period of recovery or applied to reduce principal if
              there is sufficient doubt about the collectibility of principal.
              Interest on impaired loans that are contractually past due ninety
              days and over is reserved.

       (h)    GOODWILL AND OTHER INTANGIBLES

              Goodwill and other intangible assets are amortized using the
              straight-line method over the estimated benefit period of ten
              years. Intangible assets are reviewed annually for possible
              impairment or when events or changed circumstances may affect the
              underlying basis of the asset.

       (i)    PREMISES AND EQUIPMENT

              Premises and equipment are stated at cost less accumulated
              depreciation and amortization. Depreciation is accumulated on a
              straight-line basis over the estimated useful lives of the related
              assets. Estimated lives range from three to thirty years.
              Amortization of leasehold improvements is accumulated on a
              straight-line basis over the terms of the related leases or the
              useful lives of the related assets, whichever is shorter.

       (j)    DEPOSITS

              Interest on deposits is accrued and charged to expense monthly and
              is paid or credited in accordance with the terms of the accounts.


                                                                     (Continued)

                                       57
<PAGE>   58

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       (k)    INCOME TAXES

              The Company joins with its wholly owned subsidiaries, Northwest
              and Jamestown, in filing a consolidated federal income tax return.

              The Company accounts for income taxes using the asset and
              liability method. The objective of the asset and liability method
              is to establish deferred tax assets and liabilities for temporary
              differences between the financial reporting and tax basis of the
              Company's assets and liabilities based on enacted tax rates
              expected to be in effect when such amounts are realized or
              settled.

       (l)    PENSION PLAN

              The Company has noncontributory defined benefit pension plans. The
              net periodic pension cost has been calculated in accordance with
              Statement of Financial Accounting Standards No. 87, "Employers'
              Accounting for Pension."

       (m)    RECLASSIFICATION OF PRIOR YEARS' STATEMENTS

              Certain items previously reported have been reclassified to
              conform with the current year's reporting format.

       (n)    OFF-BALANCE-SHEET INSTRUMENTS

              In the normal course of business, the Company extends credit in
              the form of mortgage commitments, undisbursed lines of credit and
              standby letters of credit. These off-balance-sheet instruments
              involve, to various degrees, elements of credit and interest rate
              risk not reported in the consolidated statement of financial
              condition.

       (o)    USE OF ESTIMATES

              The preparation of financial statements in conformity with
              generally accepted accounting principles requires management to
              make estimates and assumptions that affect the reported amounts of
              assets and liabilities, disclosure of contingent assets and
              liabilities at the date of the financial statements and the
              reported amount of revenues and expenses during the reporting
              period. Actual results could differ from these estimates.

                                                                     (Continued)

                                       58
<PAGE>   59

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(2)    CHARTER CONVERSION

       Effective June 29, 2001, the Company converted its charter from a
       Pennsylvania corporation to a Federal corporation as approved by its
       stockholders at the annual meeting held on December 20, 2000. In
       addition, Northwest Bancorp, MHC, the Company's Mutual Holding Company,
       also changed its charter from a Pennsylvania mutual holding company to a
       federal mutual holding company. As a result of this conversion, the
       primary regulator(s) also changed from the current Board of Governors of
       the Federal Reserve System and the Pennsylvania Department of Banking to
       the Office of Thrift Supervision. The Company's savings bank
       subsidiaries, however, have both retained their state savings bank
       charters.


(3)    BUSINESS COMBINATIONS

       On April 27, 2001, the Company completed its acquisition of Heritage
       Trust Company, an independent investment management and trust company
       headquartered in Erie, Pennsylvania. With assets under management of
       almost $300 million, Heritage provides a wide range of investment
       management and trust services for individuals, businesses and charitable
       organizations throughout northwestern Pennsylvania. The transaction was
       accounted for using the purchase method of accounting resulting in
       goodwill of approximately $4,170,000.

       On January 31, 2001, the Company completed its purchase of the Warren,
       Pennsylvania, office of First Affiliated Investment Group through its
       subsidiary, Northwest Financial Services, Inc. The new office provides
       financial consulting and full service brokerage to the greater Warren
       area. The transaction was accounted for using the purchase method of
       accounting resulting in goodwill of approximately $50,000.

       On November 3, 2000, the Company acquired nine retail office facilities
       in Potter and Tioga counties in north central Pennsylvania from another
       financial institution. The acquisition included approximately $138
       million in deposits and $57 million in consumer and business loans, along
       with the related fixed assets. The transaction was accounted for using
       the purchase method of accounting and resulted in recording an intangible
       asset of approximately $15,325,000.

       In September 1999, the Company purchased eight retail office facilities
       located in Western Pennsylvania from another financial institution. This
       acquisition included approximately $270,000,000 in deposits, $47,000,000
       in consumer and business loans and the related office facilities and
       equipment. The acquisition was accounted for using the purchase method of
       accounting and resulted in an intangible asset of approximately
       $20,400,000.

                                                                     (Continued)

                                       59
<PAGE>   60

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       During fiscal 1999, the Company purchased 11 retail office facilities in
       northwest and central Pennsylvania from two financial institutions and
       assumed deposits of approximately $225,500,000. A premium of
       approximately $20,600,000 was paid for these offices.

       On October 21, 1998, the Company acquired Corry Savings Bank, a
       Pennsylvania chartered mutual savings bank headquartered in Corry,
       Pennsylvania, with assets of approximately $25,000,000 and capital of
       approximately $2,500,000. In conjunction with this acquisition, 146,815
       shares of the common stock of Northwest Bancorp, Inc. were sold in a
       stock offering at an average price of $8.13 per share, net of expenses,
       with priority given to the depositors of Corry Savings Bank. In addition,
       Northwest Bancorp, MHC, the mutual holding company for Northwest Bancorp,
       Inc., received 328,313 shares of the common stock of Northwest Bancorp,
       Inc. in exchange for the assets and liabilities of Corry Savings Bank. As
       a result of this transaction, Northwest Bancorp MHC continued to own
       approximately 69.2% of the outstanding shares of Northwest Bancorp, Inc.
       This acquisition was accounted for using the purchase method of
       accounting and resulted in the Company recording negative goodwill of
       approximately $3,000,000.

       In addition, during fiscal 1999, the Company made a tender offer and
       purchased the remaining outstanding shares of Jamestown from the minority
       shareholders resulting in additional goodwill of approximately
       $3,000,000.


                                                                     (Continued)


                                       60
<PAGE>   61


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(4)    MARKETABLE SECURITIES

       Marketable securities at June 30, 2001, are as follows:


<TABLE>
<CAPTION>
                                                                   GROSS             GROSS
                                                                 UNREALIZED        UNREALIZED
                                               AMORTIZED           HOLDING           HOLDING            MARKET
                                                  COST              GAINS             LOSSES            VALUE
                                                  ----              -----             ------            -----
<S>                                            <C>               <C>               <C>                  <C>
HELD-TO-MATURITY:

U.S. government and agencies:
    Due in five years - ten years               $ 13,744               690                --             14,434
    Due after ten years                           20,774               620                (9)            21,385
Municipal securities:
    Due in five years - ten years                    100                 5                --                105
    Due after ten years                           50,541               811            (1,069)            50,283
Corporate debt issues:
    Due in five years - ten years                  1,027                --               (47)               980
    Due after ten years                           43,805                82            (2,652)            41,235
Mortgage-backed securities:
    Fixed rate pass-through                        3,379                38               (30)             3,387
    Variable rate pass-through                     4,743               115               (24)             4,834
    Fixed rate CMO                                 2,284                89                --              2,373
    Variable rate CMO                            198,934               772            (5,350)           194,356
                                                --------          --------          --------           --------
                   Total mortgage-
                     backed securities           209,340             1,014            (5,404)           204,950
                                                --------          --------          --------           --------
                   Total securities
                     held-to-maturity           $339,331             3,222            (9,181)           333,372
                                                ========          ========          ========           ========
</TABLE>


                                                                     (Continued)

                                       61
<PAGE>   62



                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


<TABLE>
<CAPTION>
                                                                     GROSS             GROSS
                                                                   UNREALIZED        UNREALIZED
                                                AMORTIZED           HOLDING           HOLDING             MARKET
                                                   COST              GAINS             LOSSES             VALUE
                                                   ----              -----             ------             -----
<S>                                             <C>                <C>               <C>                 <C>
AVAILABLE-FOR-SALE:

U.S. government and agencies:
    Due in one year or less                      $ 13,976               229                --             14,205
    Due in one year - five years                    5,516               140                --              5,656
    Due in five years - ten years                   1,494                 7                --              1,501
    Due after ten years                             6,234               197                --              6,431
Equity securities                                   7,123             3,236                --             10,359
Municipal securities:
    Due in one year or less                           450                 3                --                453
    Due in one year - five years                      445                 9                --                454
    Due in five years - ten years                     497                 7                --                504
    Due after ten years                            56,146               354              (323)            56,177
Corporate debt issues:
    Due after ten years                               986                --               (81)               905
Mortgage-backed securities:
    Fixed rate pass-through                        72,522             1,620              (104)            74,038
    Variable rate pass-through                     15,148               109                (5)            15,252
    Fixed rate CMO                                      3                --                --                  3
    Variable rate CMO                             206,149             1,912            (2,420)           205,641
                                                 --------          --------          --------           --------
                   Total mortgage-
                     backed securities            293,822             3,641            (2,529)           294,934
                                                 --------          --------          --------           --------
                   Total securities
                     available-for-sale          $386,689             7,823            (2,933)           391,579
                                                 ========          ========          ========           ========
</TABLE>


                                                                     (Continued)

                                       62
<PAGE>   63

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       Marketable securities at June 30, 2000, are as follows:

<TABLE>
<CAPTION>
                                                                     GROSS             GROSS
                                                                   UNREALIZED        UNREALIZED
                                                AMORTIZED           HOLDING           HOLDING             MARKET
                                                   COST              GAINS             LOSSES             VALUE
                                                   ----              -----             ------             -----
<S>                                             <C>                <C>               <C>                <C>
HELD-TO-MATURITY:

U.S. government and agencies:
    Due in one year or less                     $  6,006                11                --              6,017
    Due in one year - five years                      --                --                --                 --
    Due in five years - ten years                  9,987                --              (365)             9,622
    Due after ten years                           20,000                --            (1,051)            18,949
Municipal securities:
    Due in five years - ten years                    100                 2                --                102
    Due after ten years                           31,748                --            (4,000)            27,748
Corporate debt issues:
    Due in five years - ten years                    250                --                --                250
    Due after ten years                           29,499                --            (5,298)            24,201
Mortgage-backed securities:
    Fixed rate pass-through                        1,298                13                --              1,311
    Variable rate pass-through                     5,967                80               (80)             5,967
    Variable rate CMO                            132,901               510            (5,214)           128,197
                                                --------          --------          --------           --------
                   Total mortgage-
                     backed securities           140,166               603            (5,294)           135,475
                                                --------          --------          --------           --------
                   Total securities
                     held-to-maturity           $237,756               616           (16,008)           222,364
                                                ========          ========          ========           ========
</TABLE>

                                                                     (Continued)


                                       63
<PAGE>   64

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


<TABLE>
<CAPTION>
                                                                     GROSS             GROSS
                                                                   UNREALIZED        UNREALIZED
                                                AMORTIZED           HOLDING           HOLDING             MARKET
                                                   COST              GAINS             LOSSES             VALUE
                                                   ----              -----             ------             -----
<S>                                             <C>                <C>               <C>                <C>
AVAILABLE-FOR-SALE:

U.S. government and agencies:
    Due in one year or less                      $ 25,506                71                (7)            25,570
    Due in one year - five years                   21,973                --              (279)            21,694
    Due in five years - ten years                   3,491                --              (162)             3,329
Equity securities                                   3,441             1,753              (151)             5,043
Municipal securities:
    Due in one year - five years                      795                 7                (3)               799
    Due in five years - ten years                     697                --               (17)               680
    Due after ten years                            54,318                51            (4,461)            49,908
Corporate debt issues:
    Due after ten years                               985                --               (36)               949
Mortgage-backed securities:
    Fixed rate pass-through                        84,487               189            (1,904)            82,772
    Variable rate pass-through                     30,670                 7              (815)            29,862
    Fixed rate CMO                                      8                --                --                  8
    Variable rate CMO                             169,459             1,367            (3,457)           167,369
                                                 --------          --------          --------           --------
                   Total mortgage-
                     backed securities            284,624             1,563            (6,176)           280,011
                                                 --------          --------          --------           --------
                   Total securities
                     available-for-sale          $395,830             3,445           (11,292)           387,983
                                                 ========          ========          ========           ========
</TABLE>


       Expected maturities for mortgage-backed securities will differ from
       contractual maturities because borrowers may have the right to call or
       prepay obligations.

                                                                     (Continued)


                                       64
<PAGE>   65

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       The following table presents information regarding the issuers and the
       carrying value of the Company's mortgage-backed securities:

<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                        --------------------------
                                                          2001              2000
                                                          ----              ----
<S>                                                     <C>                <C>
                Mortgage-backed securities:
                  FNMA                                  $210,548           149,780
                  GNMA                                    91,535           103,537
                  FHLMC                                  181,500           146,309
                  Other (nonagency)                       20,691            20,551
                                                        --------          --------
                         Total mortgage-backed
                           securities                   $504,274           420,177
                                                        ========          ========
</TABLE>


       Marketable securities having a carrying value of $89,165,000 at June 30,
       2001, were pledged under collateral agreements. During the fiscal years
       2001, 2000 and 1999, the Company sold marketable securities classified as
       either available-for-sale or trading for $15,477,000, $30,438,000, and
       $26,630,000, respectively. The gross pretax profit on these sales was
       $368,000, $397,000, and $304,000. In addition, during fiscal 1999, the
       Company experienced trading portfolio writedowns of $990,000.


                                                                     (Continued)

                                       65
<PAGE>   66

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(5)    LOANS RECEIVABLE

       Loans receivable at June 30, 2001 and 2000, are summarized in the table
       below:

<TABLE>
<CAPTION>
                                                              2001                  2000
                                                              ----                  ----
<S>                                                       <C>                     <C>
Real estate loans:
    One- to four-family                                   $ 2,005,020             1,836,154
    Multi-family and commercial                               249,049               192,897
                                                          -----------           -----------
                   Total real estate loans                  2,254,069             2,029,051
Consumer loans:
    Automobile                                                 94,475                72,955
    Home improvement                                           58,435                44,848
    Education                                                  77,753                70,619
    Loans on savings accounts                                   8,923                 8,052
    Other                                                     335,757               314,468
                                                          -----------           -----------
                   Total consumer loans                       575,343               510,942
Commercial loans                                               89,784                49,992
                                                          -----------           -----------
                   Total loans receivable, gross            2,919,196             2,589,985
Deferred loan fees                                             (2,517)               (1,829)
Allowance for loan losses                                     (20,290)              (18,260)
Undisbursed loan proceeds (real estate loans)                 (39,808)              (25,266)
                                                          -----------           -----------
                   Total loans receivable, net            $ 2,856,581             2,544,630
                                                          ===========           ===========
</TABLE>


       At June 30, 2001 and 2000, the Company serviced loans for others
       approximating $110,700,000 and $63,700,000, respectively. These loans
       serviced for others are not assets of the Company and are appropriately
       excluded from the Company's financial statements.

       At June 30, 2001, approximately 94% of the Company's net loan portfolio
       was secured by properties located in Pennsylvania. The Company does not
       believe it has significant concentrations of credit risk to any one group
       of borrowers given its underwriting and collateral requirements.

       Loans receivable at June 30, 2001, include $367,457,000 of adjustable
       rate loans and $2,551,739,000 of fixed rate loans.


                                                                     (Continued)

                                       66
<PAGE>   67

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       Loans receivable at June 30, 2000, include $259,805,000 of adjustable
       rate loans and $2,330,180,000 of fixed rate loans.

       The Company's exposure to credit loss in the event of nonperformance by
       the other party to off-balance-sheet financial instruments is represented
       by the contract amount of the financial instrument. The Company uses the
       same credit policies in making commitments for off-balance-sheet
       financial instruments as it does for on-balance-sheet instruments.
       Financial instruments with off-balance-sheet risk as of June 30, 2001 and
       2000, are presented in the following table:

<TABLE>
<CAPTION>
                                                              JUNE 30,
                                                     --------------------------
                                                       2001              2000
                                                       ----              ----
<S>                                                  <C>                <C>
                Mortgage loan commitments            $ 43,764            29,864
                Undisbursed lines of credit           100,302            84,141
                Standby letters of credit               4,742             3,968
                                                     --------          --------
                                                     $148,808           117,973
                                                     ========          ========
</TABLE>


       Commitments to extend credit are agreements to lend to a customer as long
       as there is no violation of any condition established in the contract.
       Commitments generally have fixed expiration dates or other termination
       clauses and may require payment of a fee. The Company evaluates each
       customer's creditworthiness on a case-by-case basis. The amount of
       collateral obtained, if deemed necessary, by the Company upon extension
       of credit is based on management's credit evaluation of the counterparty.
       Collateral held varies but generally may include cash, marketable
       securities and property.

       Outstanding mortgage loan commitments at June 30, 2001, for fixed rate
       loans, are $39,141,000. The interest rates on these commitments
       approximate market rates at June 30, 2001. Outstanding mortgage loan
       commitments at June 30, 2001, for adjustable rate loans are $4,623,000.
       The fair value of these commitments are affected by fluctuations in
       market rates of interest.

       All of the Company's nonaccrual loans, which totaled $17,635,000 at June
       30, 2001, $10,260,000 at June 30, 2000, and $16,116,000 at June 30, 1999,
       are considered to be impaired loans. Average impaired loans during 2001,
       2000 and 1999 were $12,979,000, $13,886,000, and $14,049,000,
       respectively. All of the Company's impaired loans at June 30, 2001, were
       collateral dependent. At June 30, 2001 and 2000, the value of the
       collateral for each impaired loan exceeded the carrying value of the
       impaired loan and no impairment reserve was established.

       There were no commitments to lend additional funds to debtors on
       nonaccrual status.

                                                                     (Continued)


                                       67
<PAGE>   68


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(6)    ACCRUED INTEREST RECEIVABLE

       Accrued interest receivable as of June 30, 2001 and 2000, is presented in
the following table:

<TABLE>
<CAPTION>
                                                             JUNE 30,
                                                    ------------------------
                                                      2001             2000
                                                      ----             ----
<S>                                                 <C>               <C>
                Investment securities               $ 3,318            2,706
                Mortgage-backed securities            2,027            1,905
                Loans receivable                     13,450           11,367
                                                    -------          -------
                                                    $18,795           15,978
                                                    =======          =======
</TABLE>


(7)    ALLOWANCE FOR LOAN LOSSES

       Changes in the allowance for losses on loans receivable for the years
       ended June 30, 2001, 2000 and 1999, are presented in the following table:

<TABLE>
<CAPTION>
                                                     2001               2000                1999
                                                     ----               ----                ----
<S>                                                <C>                  <C>                <C>
        Balance, beginning of fiscal year          $ 18,260             16,773             15,769
            Provision                                 5,347              4,149              3,629
            Charge-offs                              (3,862)            (3,276)            (3,664)
            Acquisitions                                 --                 25                141
            Recoveries                                  545                589                898
                                                   --------           --------           --------
        Balance, end of fiscal year                $ 20,290             18,260             16,773
                                                   ========           ========           ========
</TABLE>



       Management believes that the allowance for estimated loan losses is
       appropriate as of June 30, 2001. While management uses available
       information to provide for losses, future additions to the allowance may
       be necessary based on changes in economic conditions. In addition,
       various regulatory agencies, as an integral part of their examination
       process, periodically review the Company's allowance for loan losses.
       Such agencies may require the Company to recognize additions to the
       allowance based on their judgments about information available to them at
       the time of their examination.


                                                                     (Continued)

                                       68
<PAGE>   69

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(8)    FEDERAL HOME LOAN BANK STOCK

       The Company's banking subsidiaries are members of the Federal Home Loan
       Bank system. As a member, Northwest maintains an investment in the
       capital stock of the Federal Home Loan Bank of Pittsburgh, at cost, in an
       amount not less than 1% of its outstanding home loans or 1/20 of its
       outstanding notes payable to the Federal Home Loan Bank, whichever is
       greater.


(9)    PREMISES AND EQUIPMENT

       Premises and equipment at June 30, 2001 and 2000, are summarized by major
       classification in the following table:

<TABLE>
<CAPTION>
                                                                 2001             2000
                                                                 ----             ----
<S>                                                             <C>               <C>
        Land and land improvements                              $ 3,726            3,336
        Office buildings and improvements                        40,228           35,132
        Furniture, fixtures and equipment                        31,350           27,372
        Leasehold improvements                                    4,660            3,983
                                                                -------          -------
                           Total, at cost                        79,964           69,823
            Less accumulated depreciation and
               amortization                                      33,197           28,870
                                                                -------          -------
                           Premises and equipment, net          $46,767           40,953
                                                                =======          =======
</TABLE>


Depreciation and amortization expense for the years ended June 30, 2001, 2000
       and 1999, was $4,517,000, $3,840,000, and $2,503,000, respectively.


                                                                     (Continued)

                                       69
<PAGE>   70






                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)



       Premises used by certain of the Company's branches and offices are
       occupied under formal operating lease arrangements. The leases expire on
       various dates through 2013. Minimum annual rentals by fiscal year are
       summarized in the following table:

<TABLE>
<S>                                   <C>
                2002                  $ 1,840
                2003                    1,543
                2004                    1,396
                2005                    1,108
                2006                      819
                Thereafter              3,580
                                      -------
                                      $10,286
                                      =======
</TABLE>


       Rental expense for the years ended June 30, 2001, 2000 and 1999, was
       $2,237,000, $1,962,000 and $1,770,000, respectively.


(10)   DEPOSITS

       Deposit balances at June 30, 2001 and 2000, are shown in the table below:

<TABLE>
<CAPTION>
                                                                  2001                2000
                                                                  ----                ----
<S>                                                            <C>                  <C>
                Savings accounts                               $  455,031             432,908
                Interest-bearing checking accounts                378,334             355,306
                Noninterest-bearing checking accounts             144,246             114,877
                Money market deposit accounts                     208,220             183,257
                Certificates of deposit                         2,079,109           1,800,161
                                                               ----------          ----------
                                                               $3,264,940           2,886,509
                                                               ==========          ==========
</TABLE>


       The aggregate amount of certificates of deposit with a minimum
       denomination of $100,000 was approximately $300,709,000 at June 30, 2001
       and $241,483,000 at June 30, 2000.


                                                                     (Continued)

                                       70
<PAGE>   71

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       The following table summarizes the contractual maturity of the
       certificate accounts:

<TABLE>
<CAPTION>
                                                         2001                2000
                                                         ----                ----
<S>                                                   <C>                  <C>
                Due within 12 months                  $1,691,033           1,042,401
                Due between 12 and 24 months             243,675             523,497
                Due between 24 and 36 months              70,022             137,123
                Due between 36 and 48 months              47,690              37,712
                Due between 48 and 60 months              16,191              46,118
                After 60 months                           10,498              13,310
                                                      ----------          ----------
                                                      $2,079,109           1,800,161
                                                      ==========          ==========
</TABLE>


       The following table summarizes the interest expense incurred on the
       respective deposits:

<TABLE>
<CAPTION>
                                                                 YEARS ENDED JUNE 30,
                                                    --------------------------------------------
                                                      2001              2000               1999
                                                      ----              ----               ----
<S>                                                 <C>                <C>                <C>
        Savings accounts                            $ 13,501            13,650            11,819
        Interest-bearing checking accounts             4,612             4,559             5,001
        Money market deposit accounts                  6,929             6,855             4,830
        Certificate accounts                         115,839            90,386            76,457
                                                    --------          --------          --------
                                                    $140,881           115,450            98,107
                                                    ========          ========          ========
</TABLE>

                                                                     (Continued)


                                       71
<PAGE>   72


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(11)   BORROWED FUNDS

       Borrowed funds at June 30, 2001 and 2000, are presented in the following
       table:

<TABLE>
<CAPTION>
                                                                 2001                            2000
                                                       -------------------------      --------------------------
                                                                         AVERAGE                         AVERAGE
                                                        AMOUNT             RATE        AMOUNT              RATE
                                                        ------             ----        ------              ----
<S>                                                    <C>               <C>          <C>                <C>
Term notes payable to the FHLB of Pittsburgh:
       Due within one year                             $  8,000            6.15%      $  8,000             6.07%
       Due between one and two years                     34,200            6.04          8,000             6.15
       Due between two and three years                      150            4.00         34,200             6.04
       Due between three and four years                  25,000            6.05            150             4.00
       Due between four and five years                       --              --         25,000             6.05
       Due between five and ten years                   175,000            5.13         75,000             5.32
       Due between ten and twenty years                   1,202            2.75          1,252             2.74
                                                       --------                       --------
                                                        243,552            5.37        151,602             5.66
Revolving line of credit, Federal
    Home Loan Bank of Pittsburgh                          2,000            4.11         50,000             6.62
Other borrowings due between
    two and three years                                     180           10.00             --               --
Investor notes payable, due
    various dates through 2004                            6,315            6.55          6,876             6.55
Securities sold under agreement to
    Repurchase, due various dates
    through fiscal 2002                                  24,165            4.47         31,463             6.38
                                                       --------                       --------
                   Total borrowed funds                $276,212                       $239,941
                                                       ========                       ========
</TABLE>



       Borrowings from the Federal Home Loan Bank of Pittsburgh are secured by
       the Company's investment securities, mortgage-backed securities and
       qualifying residential first mortgage loans. Certain of these borrowings
       are subject to restrictions or penalties in the event of prepayment.

       The revolving line of credit with the Federal Home Loan Bank of
       Pittsburgh carries a commitment of $175,000,000 maturing on January 2,
       2002. The rate is adjusted daily by the Federal Home Loan Bank and any
       borrowings on this line may be repaid at any time without penalty.

                                                                     (Continued)

                                       72
<PAGE>   73

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       The securities sold under agreements to repurchase are collateralized by
       various securities held in safekeeping by the Federal Home Loan Bank of
       Pittsburgh. The market value of such securities exceeds the value of the
       securities sold under agreements to repurchase. The average amount of
       agreements outstanding in fiscal years 2001 and 2000 was $24,059,000 and
       $27,627,000, respectively. The maximum amount of security repurchase
       agreements outstanding during fiscal years 2001 and 2000 was $28,997,000
       and $35,215,000, respectively.


(12)   INCOME TAXES

       Total income tax was allocated for the years ended June 30, 2001, 2000
       and 1999, as follows:

<TABLE>
<CAPTION>
                                                               2001               2000                1999
                                                               ----               ----                ----
<S>                                                          <C>                  <C>                <C>
        Income before income taxes                           $ 12,699             13,910             10,914
        Shareholders' equity for unrealized gain/
            (loss) on securities available-for-sale             4,455             (3,951)              (820)
        Shareholders' equity for tax benefit for
            excess of fair value above cost of
            stock option and recognition and
            retention plans                                       (33)              (162)              (214)
                                                             --------           --------           --------
                                                             $ 17,121              9,797              9,880
                                                             ========           ========           ========
</TABLE>


       Income tax expense (benefit) applicable to income before taxes consists
       of:

<TABLE>
<CAPTION>
                                        YEARS ENDED JUNE 30,
                          ----------------------------------------------
                            2001                2000               1999
                            ----                ----               ----
<S>                       <C>                  <C>                <C>
        Current           $ 14,002             15,601             11,668
        Deferred            (1,303)            (1,691)              (754)
                          --------           --------           --------
                          $ 12,699             13,910             10,914
                          ========           ========           ========
</TABLE>

                                                                     (Continued)


                                       73
<PAGE>   74

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       The significant components of deferred income tax expense (benefit) are
       as follows:

<TABLE>
<CAPTION>
                                                               JUNE 30,
                                             -------------------------------------------
                                               2001              2000              1999
                                               ----              ----              ----
<S>                                          <C>                <C>                <C>
        Deferred income tax benefit          $(1,473)           (1,768)             (783)
        NOL carryforward                         170                77                29
                                             -------           -------           -------
                                             $(1,303)           (1,691)             (754)
                                             =======           =======           =======
</TABLE>


       A reconciliation from the expected federal statutory income tax rate to
       the effective rate, expressed as a percentage of pretax income, is as
       follows:

<TABLE>
<CAPTION>
                                                                   YEARS ENDED JUNE 30,
                                                            -----------------------------------
                                                            2001            2000           1999
                                                            ----            ----           ----
<S>                                                         <C>             <C>            <C>
        Expected tax rate                                   35.0%           35.0           35.0
        Tax-exempt interest income                          (5.5)           (4.4)          (4.1)
        State income tax, net of federal benefit             3.6             4.2            4.2
        Valuation allowance                                 (0.3)           (0.1)          (0.5)
        Other                                               (0.6)           (0.9)           0.7
                                                            ----            ----           ----
        Effective tax rate                                  32.2%           33.8           35.3
                                                            ====            ====           ====
</TABLE>

                                                                     (Continued)


                                       74
<PAGE>   75



                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       The tax effects of temporary differences that give rise to significant
       portions of the deferred tax assets and deferred tax liabilities at June
       30, 2001 and 2000, are presented below:

<TABLE>
<CAPTION>
                                                               2001                2000
                                                               ----                ----
<S>                                                          <C>                  <C>
        Deferred tax assets:
           Deferred fee income                               $    907                977
           Deferred compensation expense                        1,221              1,015
           Net operating loss carryforwards                       597                691
           Bad debts                                            4,880              4,226
           Accrued postretirement benefit cost                    447                436
           Pension expense                                        517                511
           Other                                                2,100              1,301
           Marketable securities available-for-sale                --              2,744
                                                             --------           --------
                                                               10,669             11,901
             Valuation allowance                                 (492)              (606)
                                                             --------           --------
                                                               10,177             11,295
        Deferred tax liabilities:
           Marketable securities available-for-sale             1,711                 --
           Other                                                  536                275
                                                             --------           --------
                                                                2,247                275
                                                             --------           --------
                    Net deferred tax asset                   $  7,930             11,020
                                                             ========           ========
</TABLE>


       The Company has recorded a full valuation allowance on the net operating
       loss carryforward related to Jamestown. The Company has determined that
       no valuation allowance is necessary for the remaining deferred tax assets
       because it is more likely that these assets will be realized through
       carryback to taxable income in prior years, future reversals of existing
       temporary differences and, to a lesser extent, through future taxable
       income. The Company will continue to review the criteria related to the
       recognition of deferred tax assets on a quarterly basis.

       Under provisions of the Internal Revenue Code, Northwest has
       approximately $300,000 of net operating losses which expire in years 2006
       through 2020. Jamestown has net operating losses of approximately
       $1,405,000 which expire in years 2011 through 2013.


                                                                     (Continued)

                                       75
<PAGE>   76



                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(13)   SHAREHOLDERS' EQUITY

       Retained earnings are partially restricted in connection with regulations
       related to the insurance of savings accounts which require Northwest and
       Jamestown to maintain certain statutory reserves. Northwest and Jamestown
       may not pay dividends on or repurchase any of their common stock if the
       effect thereof would reduce retained earnings below the level of adequate
       capitalization as defined by federal and state regulators.

       In tax years prior to fiscal 1997, Northwest was permitted, under the
       Internal Revenue Code (the Code), to deduct an annual addition to a
       reserve for bad debts in determining taxable income, subject to certain
       limitations. Bad debt deductions for income tax purposes are included in
       taxable income of later years only if the bad debt reserve is used
       subsequently for purposes other than to absorb bad debt losses. Because
       Northwest does not intend to use the reserve for purposes other than to
       absorb losses, no deferred income taxes have been provided prior to
       fiscal 1987. Retained earnings at June 30, 2001, includes approximately
       $28,293,000 representing such bad debt deductions for which no deferred
       income taxes have been provided.


                                                                     (Continued)

                                       76
<PAGE>   77

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(14)   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. The computation of basic and diluted earnings per share
       is shown in the table below:

<TABLE>
<CAPTION>
                                                                         YEARS ENDED JUNE 30,
                                                               -----------------------------------------
                                                                2001              2000            1999
                                                                ----              ----            ----
<S>                                                            <C>               <C>              <C>
        Net income applicable to common
            stock                                              $26,777           27,203           20,042
        Weighted-average common shares
            outstanding                                         47,392           47,305           46,998
                                                               -------          -------          -------
                           Basic earnings per share            $   .57              .58              .42
                                                               =======          =======          =======
        Net income applicable to common
            stock                                              $26,777           27,203           20,042
                                                               =======          =======          =======
        Weighted-average common shares
            outstanding                                         47,392           47,305           46,998
        Common stock equivalents due to
            effect of stock options                                357              268              490
                                                               -------          -------          -------
        Total weighted-average common
            shares and equivalents                             $47,749           47,573           47,488
                                                               =======          =======          =======
                           Diluted earnings per share          $   .56              .57              .42
                                                               =======          =======          =======
</TABLE>

                                                                     (Continued)


                                       77
<PAGE>   78

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(15)   EMPLOYEE BENEFIT PLANS

       (a)    PENSION PLANS

              The Company maintains noncontributory defined benefit pension
              plans covering substantially all employees and the members of its
              Board of Directors. Retirement benefits are based on certain
              compensation levels, age and length of service. Contributions are
              based on an actuarially determined amount to fund not only
              benefits attributed to service to date but also for those expected
              to be earned in the future. In addition, the Company has an
              unfunded Supplemental Executive Retirement Plan (SERP) to
              compensate those executive participants eligible for the Company's
              defined benefit pension plan whose benefits are limited by section
              415 of the Code of the Internal Revenue Service.

              The Company also sponsors a retirement savings plan in which
              substantially all employees participate. The Company provides a
              matching contribution of 50% of each employee's contribution to a
              maximum of 6% of the employee's compensation.

              Total expense for all retirement plans, including defined benefit
              pension plans, was approximately $2,652,000, $2,310,000 and
              $1,895,000 for the years ended June 30, 2001, 2000 and 1999,
              respectively. Net periodic pension cost for the Company's defined
              benefit pension plans consist of the following:

<TABLE>
<CAPTION>
                                                           YEARS ENDED JUNE 30,
                                                -------------------------------------------
                                                  2001              2000              1999
                                                  ----              ----              ----
<S>                                             <C>                <C>               <C>
        Service cost                            $ 1,913             1,625             1,302
        Interest cost                             1,693             1,444             1,229
        Expected return on plan assets           (1,698)           (1,491)           (1,266)
        Net amortization and deferral                60                55                80
                                                -------           -------           -------
        Net periodic pension cost               $ 1,968             1,633             1,345
                                                =======           =======           =======
</TABLE>

                                                                     (Continued)


                                       78
<PAGE>   79


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


              The following table sets forth, for the Company's defined benefit
              pension plans, the plans' funded status and amounts recognized in
              the Company's consolidated statements of financial condition at
              June 30, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                      2001                2000
                                                                      ----                ----
<S>                                                                 <C>                  <C>
        Change in benefit obligation:
            Benefit obligation at beginning of year                 $ 24,407             20,784
            Service cost                                               1,913              1,625
            Interest cost                                              1,693              1,444
            Actuarial loss                                               394                904
            Benefits paid                                               (454)              (350)
                                                                    --------           --------
            Benefit obligation at end of year                       $ 27,953             24,407
                                                                    ========           ========
        Change in plan assets:
            Fair value of plan assets at beginning of year            21,454             18,799
            Actual return on plan assets                                (216)             1,555
            Employer contribution                                      1,952              1,450
            Benefits paid                                               (454)              (350)
                                                                    --------           --------
            Fair value of plan assets at end of year                $ 22,736             21,454
                                                                    ========           ========
            Funded status                                             (5,217)            (2,953)
            Unrecognized transition asset                               (258)              (298)
            Unrecognized prior service cost                              612                706
            Unrecognized net actuarial loss                            3,510              1,208
            Adjustment to recognize minimum liability                   (151)              (131)
                                                                    --------           --------
            Accrued benefit cost                                    $ (1,504)            (1,468)
                                                                    ========           ========
</TABLE>

                                                                     (Continued)


                                       79
<PAGE>   80


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


              The following table sets forth the assumptions used to develop the
              preceding information for the net pension cost and benefits:

<TABLE>
<CAPTION>
                                                              YEARS ENDED JUNE 30,
                                                           ---------------------------
                                                           2001        2000       1999
                                                           ----        ----       ----
<S>                                                        <C>         <C>        <C>
        Discount rate                                        7%          7          7
        Expected long-term rate of return on assets          8           8          8
        Rate increase in compensation levels                 4           4          4
</TABLE>


              Assets of the Company's qualified noncontributory defined benefit
              plan consists primarily of equity and fixed income securities.

        (b)   POSTRETIREMENT HEALTHCARE PLAN

              In addition to pension benefits, the Company provides
              postretirement healthcare benefits for certain employees who were
              employed by the Company as of October 1, 1993, and were at least
              55 years of age on that date. The Company accounts for these
              benefits in accordance with Statement of Financial Accounting
              Standards No. 106, "Employers' Accounting for Postretirement
              Benefits Other than Pensions" (SFAS 106). SFAS 106 requires the
              accrual method of accounting for postretirement benefits other
              than pensions.

              Net periodic cost for the Company's postretirement healthcare
              benefits consist of the following:

<TABLE>
<CAPTION>
                                                             YEARS ENDED JUNE 30,
                                                     ---------------------------------
                                                     2001           2000          1999
                                                     ----           ----          ----
<S>                                                  <C>            <C>           <C>
                Service cost                         $ 12             32            44
                Interest cost                          65             72            57
                Recognized actuarial gain             (48)            --           (44)
                                                     ----           ----          ----
                Net periodic (benefit) cost          $ 29            104            57
                                                     ====           ====          ====
</TABLE>

                                                                     (Continued)


                                       80
<PAGE>   81


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


              The following table sets forth the funded status of the Company's
              postretirement healthcare benefit plan and the amounts recognized
              in the Company's consolidated statements of financial condition at
              June 30, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                       2001              2000
                                                                       ----              ----
<S>                                                                  <C>                <C>
                Change in benefit obligation:
                    Benefit obligation at beginning of year          $   968             1,049
                    Service cost                                          12                32
                    Interest cost                                         65                72
                    Actuarial gain                                      (166)             (162)
                    Benefits paid                                        (42)              (23)
                                                                     -------           -------
                    Benefit obligation at end of year                    837               968
                Fair value of plan assets at end of year                  --                --
                                                                     -------           -------
                Funded status                                           (837)             (968)
                Unrecognized net actuarial gain                         (262)             (144)
                                                                     -------           -------
                Accrued benefit cost                                 $(1,099)           (1,112)
                                                                     =======           =======
</TABLE>


              The assumptions used to develop the preceding information for
              postretirement healthcare benefits are as follows:


<TABLE>
<CAPTION>
                                                                           YEARS ENDED JUNE 30,
                                                                   ------------------------------------
                                                                            2001      2000        1999
                                                                            ----      ----        ----
<S>                                                              <C>       <C>        <C>        <C>
                Discount rate                                    %              7          7          7
                Monthly cost of healthcare insurance
                    per beneficiary                              $         117.31     134.26     140.00
                Annual rate of increase in healthcare costs      %              4          4          4
</TABLE>


              If the assumed rate of increase in healthcare costs was increased
              by one percentage point to 5% from the level of 4% presented
              above, the service and interest cost components of net periodic
              postretirement healthcare benefit cost would increase by $6,028,
              in the aggregate, and the accumulated postretirement benefit
              obligation for healthcare benefits would increase by $76,391.


                                                                     (Continued)

                                       81
<PAGE>   82

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       (c)    EMPLOYEE STOCK OWNERSHIP PLAN

              The Company has continued its previously leveraged employee stock
              ownership plan (ESOP) for employees who have attained age 21 and
              who have completed a 12-month period of employment with the
              Company during which they worked at least 1,000 hours. The Company
              now makes annual contributions to the ESOP at the Board's
              discretion based on current year earnings. Company shares are then
              purchased periodically in the open market and allocated to
              employee accounts based on each employee's relative portion of the
              Company's total eligible compensation recorded during the year.

              The Company accounts for its ESOP in accordance with AICPA
              Statement of Position 93-6. Accordingly, the debt of the ESOP is
              recorded as debt and the shares pledged as collateral are reported
              as unearned ESOP shares in the Company's consolidated statement of
              financial condition. As shares are earned, the Company reports
              compensation expense equal to the current market price of the
              shares, and the shares become outstanding for earnings-per-share
              computations. Dividends on allocated ESOP shares are recorded as a
              reduction of retained earnings; dividends on unallocated ESOP
              shares are paid to the trustee for debt service. ESOP compensation
              expense was $831,000, $909,000, and $1,600,000 for the fiscal
              years ended June 30, 2001, 2000 and 1999, respectively.

              The ESOP shares as of June 30, 2001 and 2000, were as follows:

<TABLE>
<CAPTION>
                                                                     2001                2000
                                                                     ----                ----
<S>                                                               <C>                  <C>
                Allocated shares                                   1,154,484           1,114,278
                Unearned shares                                           --                  --
                                                                  ----------          ----------
                                                                   1,154,484           1,114,278
                                                                  ==========          ==========
                Fair value of unearned shares at June 30          $       --                  --
                                                                  ==========          ==========
</TABLE>

                                                                     (Continued)


                                       82
<PAGE>   83


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       (d)    RECOGNITION AND RETENTION PLAN

              On November 21, 1995, the Company established a Recognition and
              Retention Plan for Employees and Outside Directors (RRP). The
              objective of the RRP was to enable the Company to provide
              directors, officers and employees with a proprietary interest in
              the Company as an incentive to contribute to its success. The
              number of common shares issued and granted under the RRP was
              552,000 (total market value of $3,243,000 at issuance date).
              Shares of common stock granted pursuant to the RRP were in the
              form of restricted stock and generally are payable over a
              five-year period at the rate of 20% per year, commencing on the
              date of the award grant. Compensation expense, in the amount of
              the fair market value of the common stock at the date of the
              grant, was recognized pro rata over the five years during which
              the shares were payable. The recipients are entitled to all voting
              and other shareholder rights, except that the shares, while
              restricted, may not be sold, pledged or otherwise disposed of and
              are required to be held in a trust.

        (e)   STOCK OPTION PLAN

              On November 21, 1995, the Company adopted the 1995 Stock Option
              Plan. The objective of the Stock Option Plan is to provide an
              additional performance incentive to the Company's employees and
              outside directors. The Stock Option Plan authorized the grant of
              stock options and limited stock appreciation rights for 1,380,000
              shares of the Company's common stock. On December 20, 1995, the
              Company granted 242,000 nonstatutory stock options to its outside
              directors at an exercise price of $5.58 per share (95% of the
              Company's common stock fair market value per share at grant date)
              and 923,200 incentive stock options to employees at an exercise
              price of $5.875 per share. On March 22, 1996, the Company granted
              122,800 incentive stock options to employees at an exercise price
              of $5.625 per share. On December 16, 1998, the Company granted
              15,086 incentive stock options to employees at an exercise price
              of $9.875 per share. On October 20, 1999, the Company granted
              57,700 incentive stock options to employees at an exercise price
              of $7.812 per share. On June 21, 2000, the Company granted the
              remaining 19,214 incentive stock options as well as 9,186
              previously forfeited options at an exercise price of $6.875 per
              share. These options are exercisable for a period of ten years
              from the grant date with each recipient vesting at the rate of 20%
              per year commencing with the grant date.


                                                                     (Continued)

                                       83
<PAGE>   84

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


              The following table summarizes the activity in the Company's
              Option Plan during the periods ending June 30:

<TABLE>
<CAPTION>
                                           2001                           2000                              1999
                                --------------------------     --------------------------        --------------------------
                                                  WEIGHTED                       WEIGHTED                          WEIGHTED
                                                  AVERAGE                        AVERAGE                           AVERAGE
                                                  EXERCISE                       EXERCISE                          EXERCISE
                                 NUMBER            PRICE        NUMBER            PRICE           NUMBER            PRICE
                                 ------            -----        ------            -----           ------            -----
<S>                             <C>               <C>          <C>               <C>             <C>               <C>
Balance at beginning
    of year                     1,228,331          $5.98       1,155,951          $5.86          1,185,600          $5.81
Granted                                --             --          86,100           7.50(a)          15,086           9.87(a)
Exercised                         (84,815)          5.68         (11,480)          5.84            (39,135)          5.70
Forfeited                         (10,800)          5.91          (2,240)          5.68             (5,600)          5.73
                                ---------                      ---------                         ---------
Balance at end of year          1,132,716           6.00       1,228,331           5.98          1,155,951           5.86
                                =========                      =========                         =========
Exercisable at end
    of year                     1,046,750           5.86         904,925           5.84            794,683           5.82
                                =========                      =========                         =========
</TABLE>



(a)      Weighted average fair value of options at grant date: $2.70 and $2.51,
         respectively.

<TABLE>
<CAPTION>
                                EXERCISE        EXERCISE       EXERCISE       EXERCISE       EXERCISE       EXERCISE
                                  PRICE           PRICE          PRICE          PRICE          PRICE          PRICE        TOTAL
                                 $5.580          $5.625         $5.875         $6.875         $7.812         $9.875       $6.003
                                 ------          ------         ------         ------         ------         ------       ------
<S>                             <C>             <C>            <C>            <C>            <C>            <C>          <C>
Options outstanding:
    Number of options            113,000         87,200        831,970         28,000         57,460         15,086      1,132,716
    Weighted average
       remaining contract
       life (years)                 4.50           4.75           4.50           9.00           8.33           7.50           4.86
Options exercisable:
    Number of options            113,000         87,200        831,970          2,800          5,746          6,034      1,046,750
</TABLE>

                                                                     (Continued)


                                       84
<PAGE>   85

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


              The Company applies APB Opinion No. 25 and related interpretations
              in accounting for its plans. Had compensation costs for the Stock
              Option Plan been determined consistent with the fair value method
              of SFAS 123, "Accounting for Stock-Based Compensation," which
              permits 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:

              The following table summarizes the activity in the Company's
              Option Plan during the periods ending June 30:

<TABLE>
<CAPTION>
                                                      2001               2000                1999
                                                      ----               ----                ----
<S>                                                  <C>                    <C>                <C>
                Net income:
                    As reported                      $26,777             27,203             20,042
                    Pro forma                         26,742             26,991             19,859
                Basic earnings per share:
                    As reported                          .57                .58                .42
                    Pro forma                            .56                .57                .42
                Diluted earnings per share:
                    As reported                          .56                .57                .42
                    Pro forma                            .56                .57                .42
</TABLE>



              The fair value of each option grant is estimated on the date of
              grant using the Black-Scholes option-pricing model with the
              following weighted average assumptions: (1) dividend yields
              ranging from 1.60% to 2.30%; (2) expected volatility of 18% to
              33%; (3) risk-free interest rates ranging from 4.75% to 6.50%; and
              (4) expected lives of seven years. The effects of applying SFAS
              No. 123 may not be representative of the effects on reported net
              income in future years.


                                                                     (Continued)


                                       85
<PAGE>   86



                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(16)   DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

       SFAS No. 107, "Disclosure about Fair Value of Financial Instruments"
       (SFAS 107), requires disclosure of fair value information about financial
       instruments whether or not recognized in the consolidated statement of
       financial condition. SFAS 107 excludes certain financial instruments and
       all nonfinancial instruments from its disclosure requirements.
       Accordingly, the aggregate fair value amounts presented do not represent
       the underlying value of the Company. The carrying amounts reported in the
       consolidated statement of financial condition approximate fair value for
       the following financial instruments: cash on hand and interest-earning
       deposits in other institutions, accrued interest receivable, accrued
       interest payable, marketable securities available-for-sale and variable
       rate borrowings.

       The following table sets forth the carrying amount and estimated fair
       value of the Company's financial instruments included in the consolidated
       statement of financial condition as of June 30:

<TABLE>
<CAPTION>
                                                                    2001                                    2000
                                                      -------------------------------         -------------------------------
                                                        CARRYING           ESTIMATED             CARRYING          ESTIMATED
                                                         AMOUNT            FAIR VALUE             AMOUNT           FAIR VALUE
                                                         ------            ----------             ------           ----------
<S>                                                    <C>                 <C>                  <C>                <C>
        Financial assets:
            Cash and equivalents                       $   95,966              95,966              90,766              90,766
            Securities available-for-sale                 391,579             391,579             387,983             387,983
            Securities held-to-maturity                   339,331             333,372             237,756             222,364
            Loans receivable                            2,879,388           2,954,451           2,564,719           2,583,294
            Accrued interest receivable                    18,795              18,795              15,978              15,978
            FHLB stock                                     22,499              22,499              21,269              21,269
                                                       ----------          ----------          ----------          ----------
                  Total financial assets               $3,747,558           3,816,662           3,318,471           3,321,654
                                                       ==========          ==========          ==========          ==========
        Financial liabilities:
            NOW and MMDA accounts                         730,800             730,800             653,440             653,440
            Savings accounts                              455,031             455,031             432,908             432,908
            Time deposits                               2,079,109           2,108,189           1,800,161           1,816,055
            Borrowed funds                                276,212             268,606             239,941             237,174
            Accrued interest payable                        3,720               3,720               2,352               2,352
                                                       ----------          ----------          ----------          ----------
                  Total financial liabilities          $3,544,872           3,566,346           3,128,802           3,141,929
                                                       ==========          ==========          ==========          ==========
</TABLE>


       Fair value estimates are made at a point-in-time, based on relevant
       market data and information about the instrument. The following methods
       and assumptions were used in estimating the fair value of financial
       instruments at June 30, 2001 and 2000.


                                                                     (Continued)

                                       86
<PAGE>   87

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       MARKETABLE SECURITIES

       Estimated market values are based on quoted market prices, dealer quotes
       and prices obtained from independent pricing services. If a quoted market
       price is not available, fair value is estimated using quoted market
       prices for similar securities. Refer to note 4 of the consolidated
       financial statements for the detail of type of investment products.

       LOANS RECEIVABLE

       Loans with comparable characteristics including collateral and repricing
       structures were segregated for valuation purposes. Each loan pool was
       separately valued utilizing a discounted cash flow analysis. Projected
       monthly cash flows were discounted to present value using a market rate
       for comparable loans. Characteristics of comparable loans included
       remaining term, coupon interest and estimated prepayment speeds.
       Delinquent loans were evaluated separately given the impact delinquency
       has on the projected future cash flow of the loan and the approximate
       discount or market rate.

       DEPOSIT LIABILITIES

       SFAS 107 defines the estimated fair value of deposits with no stated
       maturity, which includes demand deposits, money market and other savings
       accounts, to be the amount payable on demand. Although market premiums
       paid for depository institutions reflect an additional value for these
       low-cost deposits, SFAS 107 prohibits adjusting fair value for any value
       expected to be derived from retaining those deposits for a future period
       of time or from the benefit that results from the ability to fund
       interest-earning assets with these deposit liabilities. The fair value
       estimates of deposit liabilities do not include the benefit that results
       from the low-cost funding provided by these deposits compared to the cost
       of borrowing funds in the market. Fair values for time deposits are
       estimated using a discounted cash flow calculation that applies
       contractual cost currently being offered in the existing portfolio to
       current market rates being offered locally for deposits of similar
       remaining maturities. The valuation adjustment for the portfolio consists
       of the present value of the difference of these two cash flows,
       discounted at the assumed market rate of the corresponding maturity.

       BORROWED FUNDS

       Variable rate borrowings were estimated to approximate their carrying
       amounts. The fixed rate advances were valued by comparing their
       contractual cost to the prevailing market cost.


                                                                     (Continued)

                                       87
<PAGE>   88

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

       These financial statements generally are not sold or traded, and
       estimated fair values are not readily available. However, the fair value
       of commitments to extend credit and standby letters of credit is
       estimated using the fees currently charged to enter into similar
       agreements. Commitments to extend credit issued by the Company are
       generally short-term in nature and, if drawn upon, are issued under
       current market terms. At June 30, 2001 and 2000, there was no significant
       unrealized appreciation or depreciation on these financial instruments.


(17)   REGULATORY CAPITAL REQUIREMENTS

       The Company and its banking subsidiaries are subject to various
       regulatory capital requirements administered by the federal and state
       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, specific capital guidelines that involve quantitative measures of
       assets, liabilities and certain off-balance sheet items as calculated
       under regulatory accounting practices must be met. The capital amounts
       and classification are also subject to qualitative judgments by the
       regulators about components, risk weightings and other factors.

       Quantitative measures established by regulation to ensure capital
       adequacy require the Company and its 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). At
       June 30, 2001 and 2000, the Company and its banking subsidiaries exceed
       all capital adequacy requirements to which they are subject.

       As of June 15, 2001, the most recent notification from the FDIC
       categorized Northwest and Jamestown as "well capitalized" under the
       regulatory framework for prompt corrective action. To be categorized as
       "well capitalized," the banks must maintain minimum total risk-based,
       Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table.
       There are no conditions or events since that notification that management
       believes have changed the banks' categories.


                                                                     (Continued)

                                       88
<PAGE>   89

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


       The actual, required and well capitalized levels as of June 30, 2001 and
       2000, are as follows: (in thousands)

<TABLE>
<CAPTION>
                                                                          JUNE 30, 2001
                                       ----------------------------------------------------------------------------------
                                                                         MINIMUM CAPITAL             WELL CAPITALIZED
                                                ACTUAL                    REQUIREMENTS                 REQUIREMENTS
                                       -----------------------       ----------------------       -----------------------
                                       AMOUNT            RATIO       AMOUNT           RATIO       AMOUNT            RATIO
                                       ------            -----       ------           -----       ------            -----
<S>                                   <C>                <C>        <C>               <C>        <C>                <C>
Total capital (to risk
   weighted assets):
       Northwest Bancorp, Inc.        $227,901           10.62%     $171,610           8.00%     $214,512           10.00%
       Northwest Savings Bank          214,670           10.39       165,364           8.00       206,705           10.00
       Jamestown Savings Bank            8,232           10.72         6,142           8.00         7,678           10.00

Tier I capital (to risk
   weighted assets):
       Northwest Bancorp, Inc.         206,155            9.61        85,805           4.00       128,707            6.00
       Northwest Savings Bank          193,570            9.36        82,682           4.00       124,023            6.00
       Jamestown Savings Bank            7,596            9.89         3,071           4.00         4,607            6.00

Tier I capital (leverage)
   (to average assets):
       Northwest Bancorp, Inc.         206,155            5.52       112,100           3.00*      186,833            5.00
       Northwest Savings Bank          193,570            5.33       108,916           3.00*      181,526            5.00
       Jamestown Savings Bank            7,596            5.96         3,821           3.00*        6,368            5.00
</TABLE>

                                                                     (Continued)


                                       89
<PAGE>   90


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


<TABLE>
<CAPTION>
                                                                          JUNE 30, 2000
                                       ----------------------------------------------------------------------------------
                                                                         MINIMUM CAPITAL             WELL CAPITALIZED
                                                ACTUAL                    REQUIREMENTS                 REQUIREMENTS
                                       -----------------------       ----------------------       -----------------------
                                       AMOUNT            RATIO       AMOUNT           RATIO       AMOUNT            RATIO
                                       ------            -----       ------           -----       ------            -----
<S>                                   <C>                <C>        <C>               <C>        <C>                <C>
Total capital (to risk
  weighted assets):
       Northwest Bancorp, Inc.        $217,398           11.73%     $148,279           8.00%     $185,349           10.00%
       Northwest Savings Bank          204,018           11.33       144,043           8.00       180,054           10.00
       Jamestown Savings Bank            7,845           14.21         4,416           8.00         5,520           10.00

Tier I capital (to risk
  weighted assets):
       Northwest Bancorp, Inc.         198,417           10.71        74,139           4.00       111,209            6.00
       Northwest Savings Bank          185,509           10.30        72,022           4.00       108,032            6.00
       Jamestown Savings Bank            7,367           13.35         2,208           4.00         3,312            6.00

Tier I capital (leverage)
  (to average assets):
       Northwest Bancorp, Inc.         198,417            5.93       100,455           3.00*      167,425            5.00
       Northwest Savings Bank          185,509            5.71        97,403           3.00*      162,338            5.00
       Jamestown Savings Bank            7,367            7.57         2,920           3.00*        4,867            5.00
</TABLE>


       *   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 June 30, 2001, the
           Company had not been advised of any additional requirements in this
           regard.


(18)   CONTINGENT LIABILITIES

       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.


                                                                     (Continued)

                                       90
<PAGE>   91

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(19)   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                               ----------------------------------------------------------
                                               SEPTEMBER         DECEMBER          MARCH             JUNE
                                                   30               31               31               30
                                               ---------         --------          -----             ----
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>               <C>               <C>              <C>
FISCAL 2001
Interest income                                 $64,266           67,499           68,544           69,121
Interest expense                                 36,435           39,762           40,143           40,982
                                                -------          -------          -------          -------
                   Net interest income           27,831           27,737           28,401           28,139
Provision for loan losses                         1,295            1,135            1,249            1,668
Noninterest income                                3,198            3,460            3,391            5,005
Noninterest expenses                             19,415           20,440           20,766           21,718
                                                -------          -------          -------          -------
                   Income before
                     income taxes                10,319            9,622            9,777            9,758
Income taxes                                      3,529            3,179            3,140            2,851
                                                -------          -------          -------          -------
                   Net income                   $ 6,790            6,443            6,637            6,907
                                                =======          =======          =======          =======
Basic earnings per share                        $   .14              .14              .14              .15
                                                =======          =======          =======          =======
Diluted earnings per share                      $   .14              .14              .14              .14
                                                =======          =======          =======          =======
</TABLE>


                                                                     (Continued)

                                       91
<PAGE>   92

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                               ----------------------------------------------------------
                                               SEPTEMBER         DECEMBER          MARCH             JUNE
                                                   30               31               31               30
                                               ---------         --------          -----             ----
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>               <C>               <C>              <C>
FISCAL 2000
Interest income                                 $56,824           59,749           60,818           62,333
Interest expense                                 31,650           33,337           33,037           34,075
                                                -------          -------          -------          -------
                   Net interest income           25,174           26,412           27,781           28,258
Provision for loan losses                           624              811            1,153            1,561
Noninterest income                                2,358            2,399            2,824            3,690
Noninterest expenses                             17,442           18,906           18,555           18,731
                                                -------          -------          -------          -------
                   Income before
                     income taxes                 9,466            9,094           10,897           11,656
Income taxes                                      3,473            2,976            3,681            3,780
                                                -------          -------          -------          -------
                   Net income                   $ 5,993            6,118            7,216            7,876
                                                =======          =======          =======          =======
Basic earnings per share                        $   .13              .13              .15              .17
                                                =======          =======          =======          =======
Diluted earnings per share                      $   .13              .13              .15              .16
                                                =======          =======          =======          =======
</TABLE>


                                                                     (Continued)

                                       92
<PAGE>   93

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(20)   COMPONENTS OF COMPREHENSIVE INCOME

       For the year ended June 30:

<TABLE>
<CAPTION>
                                                                  2001                2000               1999
                                                                  ----                ----               ----
<S>                                                             <C>                 <C>                 <C>
        Unrealized gain (loss) on marketable
            securities available-for-sale                       $ 12,502            (10,852)            (1,857)
        Tax (expense) benefit                                     (4,373)             4,047                576
        Reclassification adjustment for (gains) losses
            included in net income, net of tax
            of $(82), $149 and $12, respectively                     153               (277)              (112)
                                                                --------           --------           --------
                           Net unrealized gain (loss)           $  8,282             (7,082)            (1,393)
                                                                ========           ========           ========
</TABLE>

                                                                     (Continued)

                                       93
<PAGE>   94

                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(21)   NORTHWEST BANCORP, INC. (PARENT COMPANY ONLY)

                        Statements of Financial Condition

                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                        JUNE 30,
                                                                               --------------------------
                                ASSETS                                           2001              2000
                                                                                 ----              ----
<S>                                                                            <C>                <C>
        Cash and cash equivalents                                              $    393               187
        Marketable securities available-for-sale                                  4,192             4,149
        Investment in bank subsidiaries                                         268,562           240,121
        Goodwill                                                                  2,138             2,443
        Other assets                                                                441             1,069
                                                                               --------          --------
                           Total assets                                        $275,726           247,969
                                                                               ========          ========
                          LIABILITIES AND SHAREHOLDERS' EQUITY
        Liabilities:
            Other liabilities                                                        13                81
                                                                               --------          --------
                           Total liabilities                                         13                81
        Shareholders' equity                                                    275,713           247,888
                                                                               --------          --------
                           Total liabilities and shareholders' equity          $275,726           247,969
                                                                               ========          ========
</TABLE>

                                                                     (Continued)


                                       94
<PAGE>   95



                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


                              Statements of Income

<TABLE>
<CAPTION>
                                                                    YEARS ENDED
                                                    -----------------------------------------
                                                                      JUNE 30,
                                                    -----------------------------------------
                                                      2001             2000             1999
                                                      ----             ----             ----
Income:
<S>                                                 <C>               <C>              <C>
    Interest income                                 $   212              256              312
    Dividends from bank subsidiary                    6,500            6,350           10,500
    Undistributed earnings from equity
       investment in bank subsidiaries               20,367           20,779            9,714
    Gain on sale of marketable securities
       available-for-sale                               142               39               --
    Other income                                        351              869               --
                                                    -------          -------          -------
                   Total income                      27,572           28,293           20,526
Expense:
    Compensation and benefits                           462              674              185
    Goodwill amortization                               304              307              296
    Other expense                                        29               34               80
                                                    -------          -------          -------
                   Total expense                        795            1,015              561
                                                    -------          -------          -------
                   Net income before taxes           26,777           27,278           19,965
Federal and state income taxes                           --               75              (77)
                                                    -------          -------          -------
                   Net income                       $26,777           27,203           20,042
                                                    =======          =======          =======
</TABLE>

                                                                     (Continued)


                                       95
<PAGE>   96


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                       YEARS ENDED
                                                                      ----------------------------------------------
                                                                                         JUNE 30,
                                                                      ----------------------------------------------
                                                                        2001               2000               1999
                                                                        ----               ----               ----
<S>                                                                   <C>                 <C>                 <C>
Operating activities:
    Net income                                                        $ 26,777             27,203             20,042
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Undistributed earnings of subsidiaries                       (20,367)           (20,779)            (9,714)
          Depreciation and amortization                                    304                325                292
          Noncash compensation expense related to
            stock benefit plans                                              7              1,145              2,244
          Gain on sale of marketable securities
            available-for-sale                                            (142)               (39)                --
          Net change in other assets and liabilities                       432               (454)               820
                                                                      --------           --------           --------
                   Net cash provided by operating activities             7,011              7,401             13,684
                                                                      --------           --------           --------
Investing activities:
    Purchase of stock of subsidiaries                                       --                 --             (6,966)
    Principal payments on loans                                             --               (561)              (910)
    Purchase of marketable securities available-for-sale                   (69)              (497)                --
    Proceeds from sale of marketable securities
       available-for-sale                                                  538              1,261                 --
                                                                      --------           --------           --------

                   Net cash provided (used) by investing
                     activities                                            469                203             (7,876)
                                                                      --------           --------           --------
Cash flows from financing activities:
    Cash dividends paid                                                 (7,582)            (7,577)            (7,556)
    Stock issuance for acquisition                                          --                 --              1,193
    Proceeds from options exercised                                        308                 20                220
                                                                      --------           --------           --------

                   Net cash used by financing
                     activities                                         (7,274)            (7,557)            (6,143)
                                                                      --------           --------           --------

                   Net increase (decrease) increase in cash
                     and cash equivalents                             $    206                 47               (335)
                                                                      ========           ========           ========
Cash and cash equivalents at beginning of year                             187                140                475
Net increase (decrease) in cash and cash equivalents                       206                 47               (335)
                                                                      --------           --------           --------
Cash and cash equivalents at end of year                              $    393                187                140
                                                                      ========           ========           ========
</TABLE>


                                                                     (Continued)


                                       96
<PAGE>   97


                    NORTHWEST BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2001, 2000 and 1999

            (All dollar amounts presented in tables are in thousands)


(22)   SEGMENT REPORTING

       Northwest Bancorp, Inc., through its wholly owned subsidiaries Northwest
       Savings Bank and Jamestown Savings Bank, and affiliated companies
       performs traditional banking services. These financial services include
       making loans to individuals and businesses, offering an array of deposit
       products and investing in marketable securities. The retail network of
       offices is located throughout northwestern, southwestern and central
       Pennsylvania as well as southwestern New York and eastern Ohio. These
       market areas all possess similar characteristics. The operating results
       of the Company as a single entity are used by management in making
       operating decisions. Therefore, the consolidated financial statements, as
       presented, represent the results of a single financial services segment.


(23)   SUBSEQUENT EVENTS (UNAUDITED)

       On August 16, 2001, the Company announced it had entered into a
       definitive agreement to acquire Leeds Federal Bankshares, Inc. of
       Baltimore, Maryland. As of June 30, 2001, Leeds Bankshares had total
       assets of $378.5 million, deposits of $320.5 million and shareholders'
       equity of $50.9 million. Pending approval by Leeds Bankshares'
       stockholders and applicable regulatory authorities, the transaction is
       expected to be completed in the first calendar quarter of 2002.

       Also on August 16, 2001, the Company announced it had reached a
       definitive agreement with Sun Bancorp, Inc. to purchase Sun's Johnsonburg
       and Emporium branch offices. The sale is expected to close in the fourth
       calendar quarter, subject to regulatory approval, and will include
       approximately $57 million in deposits, $21 million in loans and the
       related fixed assets.

       On August 3, 2001, the Company announced its intention to purchase a
       retail office from Prestige Bank. The office is located within the Shop
       `n Save supermarket in Washington, Pennsylvania. The cash purchase
       includes $4.7 million in deposits, as well as related fixed assets, and
       is currently pending regulatory approval.



                                       97
<PAGE>   98



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not Applicable

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

         The "Proposal I--Election of Directors" section of the Company's
definitive proxy statement for the Company's 2001 Annual Meeting of Stockholders
(the "2001 Proxy Statement") is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

         The "Proposal I--Election of Directors" section of the Company's 2001
Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The "Proposal I--Election of Directors" section of the Company's 2001
Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The "Transactions with Certain Related Persons" section of the
Company's 2001 Proxy Statement is incorporated herein by reference.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)(1)  Financial Statements

         The following documents are filed as part of this Form 10-K.

               (A)  Independent Auditors' Report

               (B)  Consolidated Statements of Financial Condition - at June 30,
                    2001 and 2000

               (C)  Consolidated Statements of Income - Years ended June 30,
                    2001, 2000 and 1999

               (D)  Consolidated Statements of Changes in Shareholders' Equity -
                    Years ended June 30, 2001, 2000 and 1999

               (E)  Consolidated Statements of Cash Flows - Years ended June 30,
                    2001, 2000 and 1999

               (F)  Notes to Consolidated Financial Statements.

         (a)(2)  Financial Statement Schedules

         (b)      Reports on Form 8-K

         On June 29, 2001 the company filed an 8-K reporting that it and
         Northwest Bancorp, MHC had converted to Federal charters from
         Pennsylvania certificates of incorporation.

         (c)      Exhibits


                                       98

<PAGE>   99


<TABLE>
<CAPTION>
(a) (3)  Exhibits:
-----------------
                                                                                    Reference to
Regulation                                                                        Prior Filing or
S-K Exhibit                                                                        Exhibit Number
  Number                                 Document                                 Attached Hereto
-----------                              --------                                 ---------------
<S>                  <C>                                                         <C>
2                      Plan of acquisition, reorganization,                             None
                       arrangement, liquidation or succession

3                      Articles of Incorporation and Bylaws                              *

4                      Instruments defining the rights of                                *
                       security holders, including indentures

9                      Voting trust agreement                                           None

10.1                   Restated Deferred Compensation Plan for                           *
                       Directors

10.2                   Retirement Plan for Outside Directors                             *

10.3                   Northwest Savings Bank Nonqualified                               *
                       Supplemental Retirement Plan

10.4                   Employee Stock Ownership Plan                                     *
10.5                   Employment Agreement between the Bank and                         *
                       John O. Hanna, President and Chief Executive
                       Officer

10.6                   Employee Severance Compensation Plan                              *
11                     Statement re: computation of per share earnings                  None

12                     Statement re: computation or ratios                          Not required

16                     Letter re: change in certifying                                  None
                         accountant

18                     Letter re: change in accounting                                  None
                         principles

21                     Subsidiaries of Registrant                                        21

22                     Published report regarding matters                               None
                        submitted to vote of security holders

23                     Consent of experts and counsel                                    23

24                     Power of Attorney                                            Not Required

28                     Information from reports furnished to                            None
                        State insurance regulatory authorities

99                     Additional exhibits                                              None
</TABLE>


                                       99


<PAGE>   100

---------

*    Incorporated by reference to the Company's Registration Statement on
     Form S-4 (File No. 333-31687), originally filed with the SEC on July 21,
     1997, as amended on October 9, 1997 and November 4, 1997.



                                      100

<PAGE>   101



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                         NORTHWEST BANCORP, INC.


Date:    September 28, 2001              By: /s/ William J. Wagner
                                             --------------------------------
                                             William J. Wagner, President and
                                             Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


By: /s/ John O. Hanna                 By: /s/ William J. Wagner
    ------------------------------        -------------------------------------
    John O. Hanna, Chairman               William J. Wagner, President,
                                          Chief Executive Officer and Director
                                          (Principal Executive Officer and
                                          Financial/Accounting Officer)


Date: September 28, 2001                    Date:    September 28, 2001


By: /s/ John M. Bauer                 By: /s/ Richard L. Carr
    ------------------------------        -------------------------------------
    John M. Bauer, Director               Richard L. Carr, Director

Date: September 28, 2001                    Date:    September 28, 2001


By: /s/ Richard E. McDowell           By: /s/ Thomas K. Creal, III
    ------------------------------        -------------------------------------
    Richard E. McDowell, Director         Thomas K. Creal, III, Director

Date: September 28, 2001              Date: September 28, 2001


By: /s/ Joseph T. Stadler             By: /s/ Joseph F. Long
    ------------------------------        -------------------------------------
    Joseph T. Stadler, Director           Joseph F. Long, Director

Date: September 28, 2001              Date: September 28, 2001


By: /s/ A. Paul King                  By: /s/ Robert G. Ferrier
    ------------------------------        -------------------------------------
    A. Paul King, Director                Robert G. Ferrier, Director

Date: September 28, 2001              Date: September 28, 2001




</TEXT>
</DOCUMENT>
