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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

(Mark One)

Registrant’s telephone number, including area code: (219) 836-4400

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

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

There were 2,744,774 shares of the registrant’s Common Stock, without par value, outstanding at June 30, 2003.

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NorthWest Indiana Bancorp
Index

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NorthWest Indiana Bancorp
Consolidated Balance Sheets

See accompanying notes to consolidated financial statements

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See accompanying notes to consolidated financial statements

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NorthWest Indiana Bancorp
Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)

See accompanying notes to consolidated financial statements

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See accompanying notes to consolidated financial statements

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NorthWest Indiana Bancorp
Notes to Consolidated Financial Statements

Note 1 — Basis of Presentation

      The consolidated financial statements include the accounts of NorthWest Indiana Bancorp (the Bancorp), its wholly-owned subsidiary, Peoples Bank SB (the Bank), and the Bank’s wholly-owned subsidiary, Peoples Service Corporation. The Bancorp has no other business activity other than being a holding company for the Bank. The Bancorp’s earnings are dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the balance sheets of the Bancorp as of June 30, 2003 and December 31, 2002, and the statements of income and changes in stockholders’ equity for the three and six months ended June 30, 2003 and 2002, and cash flows for the six months ended June 30, 2003 and 2002. The income reported for the six month period ended June 30, 2003 is not necessarily indicative of the results to be expected for the full year.

Note 2 — Use of Estimates

      Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilites at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, fair values of financial instruments and status of contingencies are particularly susceptible to material change in the near term.

Note 3 — Concentrations of Credit Risk

      The Bancorp grants residential, commercial real estate, commercial business and installment loans to customers in its primary market area of Lake County, in northwest Indiana. Substantially all loans are secured by specific items of collateral including residences, business assets and consumer assets.

Note 4 — Reclassifications

      Certain amounts reported in the December 31, 2002 consolidated financial statements and the June 30, 2002 Form 10-Q have been reclassified to conform to the June 30, 2003 presentation.

      Note 5 — Newly Issued Accounting Guidance

      In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003, except for hedging relationships designated after June 30, 2003. As the Bancorp does not have these instruments this statement is not anticipated to materially affect the Bancorp’s operating results or financial condition.

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how certain financial instruments with characteristics of both liabilities and equity should be classified. All financial instruments that are within the scope of this statement should now be classified as liabilities. This statement is effective for financial statements entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 13, 2003. As the Bancorp does not have these instruments this statement is not anticipated to materially affect the Bancorp’s operating results or financial condition.

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Note 6 — Stock Compensation

      The following proforma information presents net income and basic and diluted earnings per share had the fair value method been used to measure compensation for stock options granted. The exercise price of options granted is equivalent to the market price of the underlying stock at the grant date; therefore, no compensation expense has been recorded for stock options granted.

      The weighted average fair value of stock options granted during the six months ended June 30, 2003 and 2002 were $1.42 and $1.82. The fair value of options granted during the six months ended June 30, 2003 and 2002 were estimated using an option pricing model with the following weighted average information as of the grant dates:

      In future years, as additional options are granted, the proforma effect on net income and earnings per share may increase. Stock options are used to attract and retain the best available personnel, to provide additional incentives for employees and to encourage their continued employment by facilitating employees’ purchases of an equity interest in the Bancorp. Options are issued for ten-year periods and have varying vesting schedules. Information about options available for grant and options granted follows:

      At June 30, 2003, options outstanding had a weighted average remaining life of approximately 6 to 7 years. There were 41,416 options exercisable June 30, 2003 with a weighted-average exercise price of $17.75.

      During the current six month period, pursuant to the Bancorp’s Stock Option and Incentive Plan the Options Committee granted the issuance of restricted stock to several employees. At June 30, 2003, 2,550 restricted shares were issued at a price of $25.25 per share. Stock restrictions generally expire upon completion of five years of service after the date of grant.

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

Summary

      NorthWest Indiana Bancorp (the Bancorp) is a bank holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank SB, an Indiana savings bank, is a wholly owned subsidiary of the Bancorp. The Bancorp has no other business activity other than being the holding company for the Bank.

      At June 30, 2003, the Bancorp had total assets of $496.5 million and total deposits of $412.3 million. Stockholders’ equity totaled $40.4 million or 8.1% of total assets, with book value per share at $14.72. Net income for the six months ended June 30, 2003, was $2.9 million, or $1.06 per common share for basic and $1.05 for diluted calculations. The annualized return on average assets (ROA) was 1.22%, while the annualized return on average stockholders’ equity (ROE) was 14.56%, for the six months ended June 30, 2003.

Financial Condition

      During the six months ended June 30, 2003, total assets increased by $8.5 million (1.8%), with interest-earning assets increasing by $5.6 million (1.2%). At June 30, 2003, interest-earning assets totaled $463.1 million and represented 93.3% of total assets. During the six months ended June 30, 3003, premises and equipment increased by $2.2 million (23.4%), as a result of funding the construction of a new corporate center.

      Loans receivable totaled $395.9 million at June 30, 2003, compared to $380.4 million at December 31, 2002. At June 30, 2003, loans receivable represented 85.6% of interest-earning assets, 79.9% of total assets and 96.0% of total deposits. The loan portfolio, which is the Bancorp’s largest asset, is a significant source of both interest and fee income. The Bancorp’s lending strategy stresses quality loan growth, product diversification, and competitive and profitable pricing. The loan portfolio includes $18.4 million (4.6%) in construction and development loans, $230.8 million (58.3%) in residential mortgage loans, $11.3 million (2.9%) in multifamily loans, $88.1 million (22.3%) in commercial real estate loans, $5.4 million (1.4%) in consumer loans, and $41.9 million (10.5%) in commercial business and other loans. Adjustable rate loans comprised 37.4% of total loans at June 30, 2003. During the six months ended June 30, 2003, loans increased by $15.5 million (4.1%), including $8.5 million in residential mortgage loans, $4.9 million in construction and development loans and $1.7 million in commercial business loans. Management believes that, despite concerns about the pace of economic activity and uncertainty of world affairs, the positive trend in loan growth will continue during the remaining months of 2003 because of a low interest rate environment and an aggressive marketing and call program effort. Management expects to fund loan growth with increased core account balances, borrowed funds and a reduction in investments.

      The Bancorp is primarily a portfolio lender. Mortgage banking activities are generally limited to the sale of fixed rate mortgage loans with contractual maturities exceeding 15 years. These loans are identified as held for sale when originated and sold, on a case-by-case basis, in the secondary market as part of the Bancorp’s efforts to manage interest rate risk. The Bancorp retains the servicing on all loans sold in the secondary market. During the six months ended June 30, 2003, the Bancorp sold $10.3 million in fixed rate mortgages compared to $3.1 million during the six months ended June 30, 2002. Net gains realized from current year sales totaled $316 thousand compared to $53 thousand for the six months ended June 30, 2002. At June 30, 2003, the Bancorp had $614 thousand classified as loans held for sale.

      The primary objective of the Bancorp’s investment portfolio is to provide for the liquidity needs of the Bancorp and to contribute to profitability by providing a stable flow of dependable earnings. Funds are generally invested in federal funds, interest bearing balances in financial institutions, U.S. government securities and federal agency obligations. Investments are generally for terms ranging from one day to seven years. The investment portfolio totaled $66.6 million at June 30, 2003, compared to $76.4 million at December 31, 2002. At June 30, 2003, the investment portfolio represented 14.4% of interest-earning assets, 13.4% of total assets and was invested as follows: 73.5% in U.S. government agency debt securities, 1.6% in municipal securities, and 24.9% in U.S. government agency

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mortgage-backed securities and collateralized mortgage obligations. At June 30, 2003, securities available-for-sale (AFS) totaled $53.7 million or 99.5% of total securities. AFS securities are those the Bancorp may decide to sell if needed for liquidity, asset-liability management or other reasons. In addition, at June 30, 2003, the Bancorp had $9.1 million in interest bearing balances in financial institutions, $787 thousand in federal funds sold, and $2.7 million in Federal Home Loan Bank (FHLB) stock. During the six months ended June 30, 2003, securities decreased by $2.6 million (4.6%), as proceeds from maturing and sold securities with expected calls provided funding for loan growth.

      At June 30, 2003, nonperforming loans, which include those loans that are 90 days or more past due and those loans that have been placed on non-accrual status, totaled $2.0 million, a decrease of $357 thousand from December 31, 2002. The ratio of nonperforming loans to total loans was 0.51% at June 30, 2003, compared to 0.63% at December 31, 2002. The ratio of nonperforming loans to total assets was 0.41% at June 30, 2003, compared to 0.49% at December 31, 2002. The June 30, 2003 balance includes $1.7 million in loans accounted for on a non-accrual basis and $366 thousand in accruing loans which were contractually past due 90 days or more. At June 30, 2003, $2.4 million of the Bancorp’s loans were internally classified as substandard compared to $2.8 million reported at December 31, 2002. There was one loan for $15 thousand classified as doubtful. No loans were classified as loss. Substandard loans include nonperforming loans and potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms. Doubtful loans include nonperforming loans and potential problem loans, where information about possible credit issues or other conditions causes management to believe that there is a strong probability of loss to the Bancorp.

      The balance for nonperforming and substandard loans at June 30, 2003, includes one loan totaling $327 thousand to a commercial customer, which has been classified as impaired. At June 30, 2003, the Bancorp had three loans, including the aforementioned impaired loan, to three borrowers totaling $511 thousand classified as impaired compared to $1.3 million at December 31, 2002. Impaired loans are loans where full payment under the loan terms is not expected. There were no other loans considered to be impaired loans as of, or for the six months ended June 30, 2003.

      At June 30, 2003, management is of the opinion that there are no loans, except those discussed above, where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as non-accrual, past due or restructured loans. Also, at June 30, 2003, there was no other interest bearing assets that would be required to be disclosed as non-accrual, past due, restructured or potential problems if such assets were loans. Management does not anticipate that any of the nonperforming loans or classified loans would materially impact future operations, liquidity or capital resources.

      During the six months ended June 30, 2003, additions to the ALL account totaled $260 thousand compared to $280 thousand for the six months ended June 30, 2002. Charge-offs, net of recoveries, totaled $92 thousand for the current period compared to charge-offs net of recoveries of $304 thousand for the six months ended June 30, 2002. The determination of the amounts of the ALL and provisions for loan losses is based on management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectibility as of the reporting date. The appropriateness of the current year provision and the overall adequacy of the ALL are determined through a disciplined and consistently applied quarterly process that combines a review of the current position with a risk assessment worksheet.

      The risk assessment worksheet covers the residential, commercial real estate, commercial business, and consumer loan portfolios. Management uses a risk rating system to assist in determining the appropriate level for the ALL. Management assigns risk factors to nonperforming loans; loans that management has internally classified as substandard, doubtful, loss, or watch; and, performing loans. Risk factors are based on an evaluation of the Bank’s own historical information, industry trends, and subjective assessment and interpretation. While management evaluates the loan portfolio as a pool, judgment is applied to determine risk factors associated with impaired loans and large commercial loans. In addition to the risk assessment worksheet, management reviews charge-off and recovery

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activity, balances and trends for nonperforming and internally classified loans, current year loan portfolio growth, changes in portfolio mix and general economic conditions.

      The ALL to total loans was 0.96% at both June 30, 2003 and December 31, 2002, while the ALL to nonperforming loans (coverage ratio) was 187.5% compared to 152.4% for the same periods. A consistently strong coverage ratio is an indicator that sufficient provisions for loan losses have been made. The June 30, 2003 balance in the ALL account of $3.8 million is considered adequate by management after evaluation of the loan portfolio, past experience and current economic and market conditions. While management may periodically allocate portions of the allowance for specific problem loans, the whole allowance is available for any loan charge-offs that occur. The allocation of the ALL reflects performance and growth trends within the various loan categories, as well as, consideration of the facts and circumstances that affect the repayment of individual loans, and loans which have been pooled as of the evaluation date, with particular attention given to nonperforming loans and loans which have been classified as substandard, doubtful or loss. Management has allocated general reserves to both performing and nonperforming loans based on current information available.

      At June 30, 2003, foreclosed real estate totaled $700 thousand compared to $127 thousand at December 31, 2002. The current year balance is comprised of one commercial property. Management is actively seeking a purchaser for the property.

      Deposits are a fundamental and cost-effective source of funds for lending and other investment purposes. The Bancorp offers a variety of products designed to attract and retain customers, with the primary focus on building and expanding relationships. At June 30, 2003, deposits totaled $412.3 million. During the six months ended June 30, 2003, deposits increased by $5.6 million (1.4%). Checking accounts increased by $7.8 million (9.0%) and savings accounts increased $4.3 million (6.7%). During the period, money market deposit accounts (MMDA’s) decreased $4.2 million (6.4%) and certificates of deposits decreased by $2.3 million (1.2%). At June 30, 2003, the deposit base was comprised of 22.9% checking accounts, 14.9% MMDA’s, 16.6% savings accounts and 45.6% certificates of deposit. The growth in deposits was a result of competitive product offerings, an aggressive marketing program, and volatility in the financial markets.

      Borrowings are primarily used to fund asset growth not supported by deposit generation. At June 30, 2003, borrowed funds totaled $39.6 million compared to $36.1 million at December 31, 2002, an increase of $3.5 million (9.8%). Retail repurchase agreements totaled $12.5 million at June 30, 2003, compared to $12.6 million at December 31, 2002, a decrease of $161 thousand (1.3%). FHLB advances totaled $24.5 million at June 30, 2003, compared to $21.5 million at December 31, 2002, an increase of $3.0 million, as the Bancorp extended the maturity structure of interest-bearing liabilities at cost effective interest rates. Other short-term borrowings totaled $2.6 million at June 30, 2003, compared to $1.9 million at December 31, 2002, an increase of $705 thousand to meet short-term funding requirements.

Liquidity and Capital Resources

      For the Bancorp, liquidity management refers to the ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, and pay dividends and operating expenses. Because the Bancorp is subject to legal reserve requirements under Federal Reserve Regulation D, liquidity is managed to ensure that the Bancorp maintains an adequate level of legal reserves. In addition, liquidity is managed to meet the cash demands of depositors and its loan customers. Because profitability and liquidity are often conflicting objectives, management attempts to maximize the Bancorp’s net interest margin by making adequate, but not excessive, liquidity provisions.

      Changes in the liquidity position result from operating, investing and financing activities. Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income. The primary investing activities include loan originations, loan repayments, investments in interest bearing balances in financial institutions, and the purchase, sale, and maturity of

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investment securities. Financing activities focus almost entirely on the generation of customer deposits. In addition, the Bancorp utilizes borrowings (i.e., retail repurchase agreements and advances from the FHLB) as a source of funds.

      During the six months ended June 30, 2003, cash and cash equivalents decreased $5.6 million compared to a $4.6 million increase for the six months ended June 30, 2002, as interest bearing balances in financial institutions were used to fund loan portfolio growth during the current six months. The primary sources of cash were proceeds from maturities and sales of securities, loan sales, deposit growth, FHLB advances and cash provided by operating activities. The primary uses of cash were loan originations, purchase of securities, construction disbursements for the new corporate center and the payment of common stock dividends. During the current six months cash provided by operating activities totaled $3.5 million compared to $3.8 million for the six months ended June 30, 2002. Cash outflows from investing activities totaled $16.6 million compared to $16.4 million for the six months ended June 30, 2002. The increase for the current period was due primarily to construction disbursements for the new corporate center. Net cash inflows from financing activities totaled $7.6 million during the current period compared to $17.1 million for the six months ended June 30, 2002. The decrease in net cash inflows was primarily due to planned deposit withdrawals by a local municipality during the first quarter of 2003. The Bancorp paid dividends on common stock of $1.6 million during the current six months compared to $1.5 million for the six months ended June 30, 2002.

      At June 30, 2003, outstanding commitments to fund loans totaled $70.6 million. Approximately 84% of the commitments were at variable rates. Management believes that the Bancorp has sufficient cash flow and borrowing capacity to fund all outstanding commitments and to maintain proper levels of liquidity. The following table presents the Bancorp’s consolidated long term, non-deposit related, contractual obligations as well as commitments to extend credit to our borrowers, in aggregate and by payment due dates at June 30, 2003. Dollar amounts are in thousands.

      During 2003, the Bancorp will complete the construction of a state-of-the-art corporate center in Munster, Indiana. The cost of the new facility is expected to be approximately $5.3 million. During the current six months construction disbursements totaled $2.4 million. Approximately $1.4 million in additional construction disbursements will occur in 2003. For the six months ended June 30, 2003, capitalized interest totaled $29 thousand. The facility will not have a material impact on noninterest expense during 2003. The corporate center will afford the Bancorp the opportunity to continue offering superior customer service, while providing for future growth and operating efficiencies.

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      Management strongly believes that maintaining a high level of capital enhances safety and soundness. During the six months ended June 30, 2003, stockholders’ equity increased by $1.2 million (3.2%). The increase resulted primarily from earnings of $2.9 million during the period. In addition, $51 thousand represents proceeds from the exercise of 3,095 stock options. The Bancorp declared $1.6 million in cash dividends for the six month period ended June 30, 2003. The net unrealized loss on available-for-sale securities, net of tax was $71 thousand for the current period.

      The Bancorp is subject to risk-based capital guidelines adopted by the Board of Governors of the Federal Reserve System (the FRB), and the Bank is subject to risk-based capital guidelines adopted by the FDIC. As applied to the Bancorp and the Bank, the FRB and FDIC capital requirements are substantially identical. The Bancorp and the Bank are required to maintain a total risk-based capital ratio of 8%, of which 4% must be Tier 1 capital. In addition, the FRB and FDIC regulations provide for a minimum Tier 1 leverage ratio (Tier 1 capital to adjusted average assets) of 3% for financial institutions that meet certain specified criteria, including that they have the highest regulatory rating and are not experiencing or anticipating significant growth. All other financial institutions are required to maintain a Tier 1 leverage ratio of 3% plus an additional cushion of at least one to two percent.

      The following table shows that, at June 30, 2003, and December 31, 2002, the Bancorp’s capital exceeded all regulatory capital requirements. The Bancorp’s and the Bank’s regulatory capital ratios were substantially the same at both dates. The dollar amounts are in millions.