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

Registrant’s telephone number, including area code: (219) 836-9690

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 [ ]

There were 2,707,611 shares of the registrant’s Common Stock, without par value, outstanding at June 30, 2000.

Table of Contents

NorthWest Indiana Bancorp
Index

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NorthWest Indiana Bancorp
Consolidated Balance Sheets
(unaudited)

See accompanying notes to unaudited consolidated financial statements.

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NorthWest Indiana Bancorp
Consolidated Statements of Income
(unaudited)

See accompanying notes to unaudited consolidated financial statements.

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

See accompanying notes to unaudited consolidated financial statements.

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NorthWest Indiana Bancorp
Consolidated Statements of Cash Flows
(unaudited)

See accompanying notes to unaudited 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. Peoples Service Corporation is inactive. 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 generally accepted accounting principles 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, 2000 and December 31, 1999, and the statements of income and changes in stockholders’ equity for the three and six months ended June 30, 2000 and 1999, and cash flows for the six months ended June 30, 2000 and 1999. The income reported for the six month period ended June 30, 2000 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 generally accepted accounting principles 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, 1999 consolidated financial statements and the June 30, 1999 Form 10-Q have been reclassified to conform to the June 30, 2000 presentation.

Note 5 – Commitments and Contingencies

      The Bancorp is a party to financial instruments in the normal course of business to meet financing needs of its customers and to reduce its own exposure to fluctuating interest rates. These financial instruments include commitments to make loans and standby letters of credit.

      Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Bancorp uses the same credit policy to make such commitments as it uses for on-balance-sheet items.

      At June 30, 2000 and December 31, 1999, commitments to make loans totaled $69.5 million and $61.3 million, and standby letters of credit totaled $1.2 million and $1.1 million. At June 30, 2000, $57.1 million (82%) of the commitments were at variable rates.

      Since commitments to make loans may expire without being used, this amount does not necessarily represent future cash commitments. Collateral obtained upon exercise of the commitment is determined using management’s credit evaluation of the borrower and may include accounts receivable, inventory, property, land and other items.

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Note 6 – Earnings per Share

      A reconciliation of the numerators and denominators of the basic earnings per common share and diluted earnings per common share computations is presented below:

      Stock options for 25,570 common shares for the three and six months ended June 30, 2000, were not considered in computing diluted earnings per common share because they were anti-dilutive.

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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 (the Bank), 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 Peoples Bank SB.

      At June 30, 2000, the Bancorp had total assets of $382.5 million and total deposits of $315.4 million. Stockholders’ equity totaled $32.4 million or 8.5% of total assets, with book value per share at $11.95. Net income for the six months ended June 30, 2000, was $2.2 million, or $.79 per common share for basic and $.78 diluted calculations. The annualized return on average assets (ROA) was 1.17%, while the annualized return on average stockholders’ equity (ROE) was 13.25%, for the six months ended June 30, 2000.

Financial Condition

      During the six months ended June 30, 2000, total assets increased by $20.8 million (5.7%), with interest-earning assets increasing by $18.9 million (5.6%). At June 30, 2000, interest-earning assets totaled $357.2 million and represented 93.4% of total assets.

      Loans receivable totaled $317.7 million at June 30, 2000, compared to $295.8 million at December 31, 1999. At June 30, 2000, loans receivable represented 88.9% of interest-earning assets, 83.1% of total assets and 100.7% of total deposits. The loan portfolio includes $13.9 million (4.4%) in construction and development loans, $170.0 million (53.5%) in residential mortgage loans, $10.7 million (3.4%) in multifamily loans, $77.5 million (24.4%) in commercial real estate loans, $11.1 million (3.5%) in consumer loans, and $34.5 million (10.8%) in commercial business and other loans. Adjustable rate loans comprised 55% of total loans at June 30, 2000. During the six months ended June 30, 2000, loans increased by $21.9 million (7.4%). Growth during the current six months was a result of a strong local economy and aggressive marketing and call programs. Assuming the continuation of the current strength of the local economy and an aggressive marketing and call program effort, management believes that loan growth should remain strong throughout 2000 despite a rising interest rate environment and increased price competition within the Bancorp’s market area. Management expects to fund loan growth with a mix of deposits and borrowed funds.

      The Bancorp is primarily a portfolio lender. Mortgage banking activities are limited to the sale of fixed rate mortgage loans with contractual maturities of twenty-five years or longer. These loans are 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, 2000, the Bancorp sold $50 thousand in fixed rate mortgages. At June 30, 2000, the Bancorp had $710 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

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securities and federal agency obligations. Interest-bearing balances in financial institutions include overnight deposits at the Federal Home Loan Bank of Indianapolis (FHLB). Investments are generally for terms ranging from one day to five years. At June 30, 2000, the investment portfolio totaled $36.9 million and was invested as follows: 90.2% in U.S. government agency debt securities, 8.1% in U.S. government debt securities, and 1.7% in U.S. government agency mortgage-backed securities. At June 30, 2000, securities available-for-sale totaled $21.0 million or 56.9% of total securities. The available-for-sale portfolio permits the active management of the Bancorp’s liquidity position. During the six months ended June 30, 2000, investment securities decreased by $3.3 million (8.2%). At June 30, 2000, the Bancorp had $1.9 million in FHLB stock.

      Management believes that the credit risk profile of the earning asset portfolio is relatively low. The table that follows sets forth information with respect to the number (#) and balances (Amount) of non-performing assets and related ratios for the periods indicated. The amounts are stated in thousands (000’s).

      At June 30, 2000, $794 thousand of the Bancorp’s loans were internally classified as substandard. The total represents 22 loans. No loans were classified as doubtful or loss. Classified loans include nonperforming loans disclosed in the previous table. Management does not anticipate that any of the non-performing loans or

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classified loans will materially impact future operations, liquidity or capital resources. At June 30, 2000, except as described above, there were no material credits that would cause management to have serious doubts as to the ability of such borrowers to comply with loan repayment terms.

      Because some loans may not be repaid in accordance with contractual agreements an allowance for loan losses (ALL) has been maintained. While management may periodically allocate portions of the allowance for specific problem loans, the entire allowance is available to absorb all credit losses that arise from the loan portfolio and is not segregated for, or allocated to, any particular loan or group of loans. During the six months ended June 30, 2000, additions to the ALL account totaled $84 thousand compared to $100 thousand for the six months ended June 30, 1999. Charge-offs, net of recoveries, totaled $165 thousand during the six months ended June 30, 2000. The amount provided during the current six months was based on loan activity, changes within the loan portfolio mix, and resulting changes in management’s assessment of portfolio risk. At June 30, 2000, the balance in the ALL account totaled $3.2 million compared to $3.3 million at December 31, 1999. The balance in the ALL is considered adequate by management after evaluation of the loan portfolio, past experience and current economic and market conditions.

      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, as well as, loans which have been evaluated on a pooled basis. During the six months ended June 30, 2000, additions to the ALL were allocated to the commercial real estate loans and commercial business loans due to the growth in these portfolios and the additional risk related to these products. At June 30, 2000, no portion of the ALL was allocated to impaired loan balances as the Bancorp had no individual loans considered to be impaired loans as of, or for the six months ended June 30, 2000.

      Deposits are the major source of funds for lending and other investment purposes. At June 30, 2000, deposits totaled $315.4 million. During the six months ended June 30, 2000, deposit growth totaled $8.7 million (2.9%). Checking accounts increased $4.6 million (8.8%), money market deposit accounts (MMDA’s) increased $11.9 million (28.3%), savings accounts increased $478 thousand (1.0%), and certificates of deposit decreased $8.3 million (5.0%). The growth in core deposits (checking accounts, MMDA’s and savings accounts) was a result of competitive product offerings and an aggressive marketing program. At June 30, 2000, the deposit base was comprised of 18.0% checking accounts, 17.2% MMDA’s, 15.0% savings accounts and 49.8% certificates of deposit. Deposit growth has not kept pace with asset growth principally due to a low rate of personal savings by households and competition for depositor funds from higher-yielding investment alternatives. The Bancorp has used borrowings to help fund loan growth. At June 30, 2000, borrowed funds totaled $31.4 million. During the six months ended June 30, 2000, borrowings increased $12.8 million (68.7%). Repurchase agreements totaled $8.2 million, increasing $5.2 million due to the implementation of the Bank’s new sweep repurchase program. FHLB borrowings totaled $21.4 million, increasing $7.3 million to meet short-term funding requirements. Other short-term borrowings totaled $1.8 million.

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Quantitative and Qualitative Disclosures About Market Risk

      The Bancorp’s primary market risk exposure is interest rate risk. Interest rate risk is the risk that the Bancorp’s earnings and capital will be adversely affected by changes in interest rates. The primary approach to interest rate risk management is one that focuses on adjustments to the Bancorp’s asset/liability mix in order to limit the magnitude of interest rate risk. The Board of Directors has delegated the responsibility for measuring, monitoring and controlling interest rate risk to the Bancorp’s asset/liability management committee (ALCO). The ALCO is responsible for developing and implementing interest rate risk management strategies, establishing and maintaining a system of limits and controls, and establishing and utilizing an interest rate risk measurement system. The ALCO, which is made up of members of senior management, generally meets monthly with board presentations occurring quarterly.

      Performance from an interest rate risk perspective can be measured in many ways. Methodologies used by the Bancorp focus on net interest income and the net economic value of equity. Net interest income is defined as interest income less interest expense. Variability in net interest income arises because its components — interest income and interest expense — do not change equally as rates vary. This mismatch occurs because individual assets and liabilities reprice differently as rates change. Factors which affect net interest income include changes in the level of interest rates, changes in the relationship between Bancorp yield rates and interest costs, changes in the volume of assets and liabilities outstanding, and changes in the composition or mix of assets and liabilities. Management uses rate shock (i.e., instantaneous and sustained parallel shifts in the yield curve in 1% increments up and down 2%) for stress testing the net interest income under several rate change levels. In order to simulate activity, maturing balances are replaced with new balances at the new rate level and repricing balances are adjusted to the new rate shock level. The results are compared to limits set by the Board of Directors and are monitored to identify unfavorable trends. Net economic value of equity is the net present value of the Bancorp’s portfolio of assets and liabilities. By marking-to-market the components of the balance sheet, management can compute the net economic value of equity. As rates change over time, the market values of Bancorp assets and liabilities will change, with longer-term products fluctuating more than short-term products. In most cases, rate-sensitive assets and liabilities will not have the same maturity characteristics. Therefore, as rates vary, the market value of the rate-sensitive assets will not change equally with the market value of rate-sensitive liabilities. This will cause the net economic value of equity to vary. The focus of the net economic value of equity is to determine the percentage decline in the net economic value of equity caused by a 2% increase or decrease in interest rates, whichever produces the larger decline. A large value indicates a large percentage decline in the net economic value of equity due to changes in interest rates and, thus, high interest rate sensitivity. A low value indicates a small percentage decline in the net economic value of equity due to changes in interest rates and, thus, low interest rate sensitivity. As with net interest income, the results are compared to limits set by the Board of Directors and are monitored to identify unfavorable trends.

      Presented in the following tables is forward-looking information about the Bancorp’s sensitivity to changes in interest rates as of June 30, 2000. The table incorporates the Bancorp’s internal system generated data as related to the maturity, repricing and repayment/withdrawal of interest-earning assets and interest-bearing liabilities. Prepayment assumptions are based on published data. Present value calculations use current published market interest rates. For core deposits that have no contractual maturity, the table presents principal cash flows and, as applicable, related weighted-average interest rates based on the Bancorp’s historical experience, management’s judgment, and statistical analysis, as applicable, concerning their most likely withdrawal behaviors.

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Interest Rate Risk at June 30, 2000

      The table shows that the Bancorp has managed interest rate risk within the policy limits set by the Board of Directors. At June 30, 2000, an increase in interest rates of 2% would have resulted in a 8.1% decrease in net interest income and a 15.0% decrease in the net economic value of equity.

Liquidity and Capital Resources

      For the Bancorp, liquidity management refers to the ability to generate sufficient cash to fund current loan demand, meet savings deposit withdrawals, and pay dividends and operating expenses. The Bancorp’s primary goal for liquidity management is to ensure that at all times it can meet the cash demands of its depositors and its loan customers. A secondary purpose of liquidity management is profit management. Because profit and liquidity are often conflicting objectives, management attempts to maximize the Bancorp’s net interest margin by making adequate, but not excessive, liquidity provisions. Finally, because the Bank is subject to legal reserve requirements under Federal Reserve Regulation D, liquidity is managed to ensure that the Bank maintains an adequate level of legal reserves.

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

      During the six months ended June 30, 2000, cash and cash equivalents increased $1.7 million compared to a $9.7 million decrease for the six months ended June 30, 1999. The primary sources of cash were deposit growth, borrowed funds, proceeds from maturities of securities and cash provided by operating activities. The primary uses of cash were the loan originations, the payment of common stock dividends and the purchase of treasury stock. During the current six months cash provided by operating activities totaled $2.1 million compared to $2.3 million for the six months ended June 30, 1999, reflecting a decrease in loan sales during the current period. Cash outflows from investing activities reflect strong loan demand during the six months ended June 30, 2000 and 1999. The increase in loans receivable and loan participations purchased totaled $22.1 million during the current period compared to $13.3 million for the six months ended June 30, 1999. Cash flows from financing activities totaled $19.4 million during the current period compared to $6.4 million for the six months ended June 30, 1999. The increase reflects higher deposit growth during the current period

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and additional borrowings. The funds were used for loan originations. Deposit growth totaled $8.7 million compared to $7.3 million for the six months ended June 30, 1999, while borrowed funds and proceeds from FHLB advances increased by $12.8 million compared to $219 thousand for the six months ended June 30, 1999. The Bancorp paid dividends on common stock of $1.3 million during the current six months compared to $1.2 million for the six months ended June 30, 1999. On April 18, 2000, the Bancorp announced that it had completed the repurchase of 50,000 shares or 1.8% of the Bancorp’s outstanding common stock at an average price of $21.40 per share. The repurchase program was begun in August, 1999. The Bancorp also announced that the Board of Directors had authorized the repurchase of an additional 50,000 shares of Common Stock or 1.8% of the outstanding shares. During the six months ended June 30, 2000, the Bancorp purchased 43,564 shares of treasury stock at $20.50 — $21.75 per share for $923 thousand.

      During 2000, the Bancorp will open a state-of-the-art branch facility in Hobart, Indiana. The facility is not anticipated to have a material impact on noninterest expense during 2000. The new facility provides opportunities to expand market share for the Bancorp’s products and services in Hobart and the surrounding areas.

      At June 30, 2000, outstanding commitments to fund loans totaled $69.5 million. Approximately 82% 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.

      During the six months ended June 30, 2000, stockholders’ equity decreased by $111 thousand (0.3%). The change in stockholders’ equity reflects earnings of $2.2 million during the period. In addition, $48 thousand represents proceeds from the exercise of 4,772 stock options. The Bancorp paid $1.3 million in cash dividends and $923 thousand for the purchase of treasury stock during the six month period. The net unrealized loss on available-for-sale securities was $86 thousand for the period. At June 30, 2000, book value per share was $11.95 compared to $11.56 at June 30, 1999.

      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 I capital. In addition, the FRB and FDIC regulations provide for a minimum Tier I leverage ratio (Tier I 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 I leverage ratio of 3% plus an additional cushion of at least one to two percent.

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      The following table shows that, at June 30, 2000, and December 31, 1999, 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.

Results of Operations – Comparison of the Quarter Ended June 30, 2000 to the Quarter Ended
June 30, 1999

      Net income for the three months ended June 30, 2000 was $1.120 million compared to $1.068 million for the quarter ended June 30, 1999, an increase of $52 thousand (4.9%). The earnings represent a ROA of 1.20% for both the current quarter and the quarter ended June 30, 1999. The ROE was 13.79% for the current quarter compared to 13.35% for the quarter ended June 30, 1999.

      Net interest income for the three months ended June 30, 2000 was $3.7 million, up $111 thousand (3.1%) from $3.6 million for the three months ended June 30, 1999. The increase in net interest income was due to higher yields on interest-earning assets and growth in average daily balances for loans. The weighted-average yield on interest-earning assets was 7.86% for the three months ended June 30, 2000 compared to 7.55% for the three months ended June 30, 1999. The weighted-average cost of funds for the quarter ended June 30, 2000, was 3.85% compared to 3.46% for the quarter ended June 30, 1999. The impact of the 7.86% return on interest-earning assets and the 3.85% cost of funds resulted in an interest rate spread of 4.01% for the current quarter compared to 4.09% for the quarter ended June 30, 1999. During the current quarter, total interest income increased by $558 thousand (8.7%) while total interest expense increased by $447 thousand (16.0%). The net interest margin was 3.99% for the three months ended June 30, 2000 compared to 4.06% for the quarter ended June 30, 1999.

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      During the three months ended June 30, 2000, interest income from loans increased by $707 thousand (12.6%) compared to the three months ended June 30, 1999. The increase was due to higher yields and higher average daily balances. The weighted-average yield on loans outstanding was 8.09% for the current quarter compared to 7.90% for the three months ended June 30, 1999. Loan balances averaged $313.3 million for the current quarter, up $28.3 million (9.9%) from $285.0 million for the three months ended June 30, 1999. During the three months ended June 30, 2000, interest income on investments and other deposits decreased by $149 thousand (19.7%) compared to the quarter ended June 30, 1999. The decrease was due to lower average daily balances. The weighted-average yield on securities and other deposits was 6.06% for the current quarter compared to 5.70% for the three months ended June 30, 1999. Securities and other deposits averaged $40.0 million for the current quarter, down $14.3 million (26.3%) from $54.3 million for the three months ended June 30, 1999.

      Interest expense for deposits increased by $370 thousand (14.4%) during the current quarter compared to the three months ended June 30, 1999. The increase was due to a higher cost of funds and growth in average daily balances. The weighted-average rate paid on deposits for the three months ended June 30, 2000 was 3.75% compared to 3.38% for the quarter ended June 30, 1999. The higher cost of funds reflects a rising interest rate environment. Total deposit balances averaged $314.0 million for the current quarter, up $9.7 million (3.2%) from $304.3 for the quarter ended June 30, 1999. Interest expense on borrowed funds increased by $77 thousand (35.6%) during the current quarter due to higher rates and increases in average daily balances. The weighted-average cost of borrowed funds was 5.35% for the current quarter compared to 4.99% for the three months ended June 30, 1999. Borrowed funds averaged $21.9 million during the quarter ended June 30, 2000, up $4.7 million (27.3%) from $17.2 million for the quarter ended June 30, 1999.

      Noninterest income for the quarter ended June 30, 2000 was $484 thousand, up $49 thousand (11.3%) from $435 thousand for the three months ended June 30, 1999. During the period the Bancorp continued to implement initiatives focused on improving income from Bank operations. As a result, fees and service charges increased $58 thousand (17.9%) and income from Trust operations increased $10 thousand (11.1%) compared to the three months ended June 30, 1999.

      Noninterest expense for the quarter ended June 30, 2000 was $2.3 million, up $108 thousand (4.9%) from $2.2 million for the three months ended June 30, 1999. The increase in compensation and benefits was due to additional staffing for current operations and in preparation for the Hobart facility that is expected to open during the fall of 2000. The increase in data processing reflects investments in technology and new products and services. The increase in marketing was due to an aggressive program focused on both loan and deposit products. The Bancorp’s efficiency ratio was 55.2% for the quarter ended June 30, 2000 compared to 54.8% for the three months ended June 30, 1999. The ratio is determined by dividing total noninterest expense by the sum of net interest income and total noninterest income for the period.

      Income tax expenses for the three months ended June 30, 2000 totaled $712 thousand compared to $706 thousand for the three months ended June 30, 1999, an increase of $6 thousand (0.8%). The increase was due to an increase in pretax earnings during the current quarter. The combined effective federal and state tax rates for the Bancorp was 38.9% for the three months ended June 30, 2000 compared to 39.8% for the three months ended June 30, 1999. The reduction during the current period is a result of investments in low-income housing tax credits.

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Results of Operations – Comparison of the Six Months Ended June 30, 2000 to the Six Months Ended June 30, 1999

      Net income for the six months ended June 30, 2000 was $2.2 million compared to $2.0 million for the six months ended June 30, 1999, an increase of $131 thousand (6.5%). The earnings represent a ROA of 1.17% for the current six months compared to 1.16% for the six months ended June 30, 1999. The ROE was 13.25% for the current six months compared to 12.72% for the six months ended June 30, 1999.

      Net interest income for the six months ended June 30, 2000 was $7.3 million, up $359 thousand (5.2%) from $7.0 million for the six months ended June 30, 1999. The increase in net interest income was due to higher yields on interest-earning assets and growth in average daily balances for loans. The weighted-average yield on interest-earning assets was 7.79% for the six months ended June 30, 2000 compared to 7.56% for the six months ended June 30, 1999. The weighted-average cost of funds for the six months ended June 30, 2000, was 3.79% compared to 3.55% for the six months ended June 30, 1999. The impact of the 7.79% return on interest-earning assets and the 3.79% cost of funds resulted in an interest rate spread of 4.00% for the current six months compared to 4.01% for the six months ended June 30, 1999. During the current six months, total interest income increased by $1.1 million (8.4%) while total interest expense increased by $698 thousand (12.5%). The net interest margin was 3.99% for the six months ended June 30, 2000 compared to 4.00% for the six months ended June 30, 1999.

      During the six months ended June 30, 2000, interest income from loans increased by $1.2 million (11.2%) compared to the six months ended June 30, 1999. The increase was due to higher yields and higher average daily balances. The weighted-average yield on loans outstanding was 8.02% for the current six months compared to 7.89% for the six months ended June 30, 1999. Loan balances averaged $308.0 million for the current six months, up $26.2 million (9.3%) from $281.8 million for the six months ended June 30, 1999. During the six months ended June 30, 2000, interest income on investments and other deposits decreased by $189 thousand (13.2%) compared to the six months ended June 30, 1999. The decrease was due to lower average daily balances. The weighted-average yield on securities and other deposits was 6.06% for the current six months compared to 5.76% for the six months ended June 30, 1999. Securities and other deposits averaged $40.8 million for the current six months, down $9.9 million (19.5%) from $50.7 million for the six months ended June 30, 1999.

      Interest expense for deposits increased by $568 thousand (11.1%) during the current six months compared to the six months ended June 30, 1999. The increase was due to a higher cost of funds and growth in average daily balances. The weighted-average rate paid on deposits for the six months ended June 30, 2000 was 3.69% compared to 3.46% for the six months ended June 30, 1999. The higher cost of funds reflects a rising interest rate environment. Total deposit balances averaged $309.6 million for the current six months, up $12.7 million (4.3%) from $296.9 for the six months ended June 30, 1999. Interest expense on borrowed funds increased by $130 thousand (29.7%) during the current six months due to higher rates and increases in average daily balances. The weighted-average cost of borrowed funds was 5.29% for the current six months compared to 5.03% for the six months ended June 30, 1999. Borrowed funds averaged $21.4 million during the six months ended June 30, 2000, up $4.0 million (23.0%) from $17.4 million for the six months ended June 30, 1999.

      Noninterest income for the six months ended June 30, 2000 was $949 thousand, up $162 thousand (20.6%) from $787 thousand for the six months ended June 30, 1999. During the period the Bancorp

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continued to implement initiatives focused on improving income from Bank operations. As a result, fees and service charges increased $198 thousand (35.5%) and income from Trust operations increased $17 thousand (9.6%) compared to the six months ended June 30, 1999.

      Noninterest expense for the six months ended June 30, 2000 was $4.7 million, up $380 thousand (8.9%) from $4.3 million for the six months ended June 30, 1999. The increase in compensation and benefits was due to additional staffing for current operations and in preparation for the Hobart facility that is expected to open during the fall of 2000. The increase in data processing reflects investments in technology and new products and services. The increase in marketing was due to an aggressive program focused on both loan and deposit products. Other expense changes were due to standard increases in operations. The Bancorp’s efficiency ratio was 56.4% for the six months ended June 30, 2000 compared to 55.3% for the six months ended June 30, 1999.

      Income tax expenses for the six months ended June 30, 2000 totaled $1.4 million compared to $1.3 million for the six months ended June 30, 1999, an increase of $26 thousand (1.9%). The increase was due to an increase in pretax earnings during the current six months. The combined effective federal and state tax rates for the Bancorp was 38.8% for the six months ended June 30, 2000 compared to 39.8% for the six months ended June 30, 1999. The reduction during the current period is a result of investments in low-income housing tax credits.

Forward-Looking Statements

      When used in this report and in future filings by the Bancorp with the Securities and Exchange Commission, in the Bancorp’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, including but not limited to changes in economic conditions in the Bancorp’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Bancorp’s market area and competition, all or some of which could cause actual results to differ materially from historical earnings and those presently anticipated or projected.

      The Bancorp wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advise readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Bancorp’s financial performance and could cause the Bancorp’s actual results for future periods to differ materially from those anticipated or projected.

      The Bancorp does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

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PART II – Other Information

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Signatures

Pursuant to the requirement 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.

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