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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

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 2,737,830 shares of the registrant’s Common Stock, without par value, outstanding at June 30, 2002.

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NorthWest Indiana Bancorp
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NorthWest Indiana Bancorp

     See accompanying notes to consolidated financial statements.

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NorthWest Indiana Bancorp

     See accompanying notes to consolidated financial statements.

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NorthWest Indiana Bancorp

     See accompanying notes to consolidated financial statements.

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NorthWest Indiana Bancorp

     See accompanying notes to consolidated financial statements.

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Northwest Indiana Bancorp

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, 2002 and December 31, 2001, and the statements of income and changes in stockholders’ equity for the three and six months ended June 30, 2002 and 2001, and cash flows for the six months ended June 30, 2002 and 2001. The income reported for the six month period ended June 30, 2002 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 liabilities 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, 2001 consolidated financial statements and the June 30, 2001 Form 10-Q have been reclassified to conform to the June 30, 2002 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, 2002 and December 31, 2001, commitments to make loans totaled $50.5 million and $63.0 million, and standby letters of credit totaled $1.9 million and $716 thousand. At June 30, 2002, $41.5 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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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, 2002, the Bancorp had total assets of $461.1 million and total deposits of $377.9 million. Stockholders’ equity totaled $37.5 million or 8.1% of total assets, with book value per share at $13.71. Net income for the six months ended June 30, 2002, was $2.7 million, or $0.98 per common share for basic and $0.97 for diluted calculations. The annualized return on average assets (ROA) was 1.18%, while the annualized return on average stockholders’ equity (ROE) was 14.54%, for the six months ended June 30, 2002.

Financial Condition

     During the six months ended June 30, 2002, total assets increased by $20.4 million (4.6%), with interest-earning assets increasing by $15.0 million (3.6%). At June 30, 2002, interest-earning assets totaled $428.0 million and represented 92.8% of total assets.

     Loans receivable totaled $364.6 million at June 30, 2002, compared to $342.6 million at December 31, 2001. At June 30, 2002, loans receivable represented 85.2% of interest-earning assets, 79.1% of total assets and 96.5% 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 growth, product diversification, and competitive and profitable pricing. The loan portfolio includes $15.2 million (4.2%) in construction and development loans, $208.3 million (57.1%) in residential mortgage loans, $10.9 million (3.0%) in multifamily loans, $85.8 million (23.5%) in commercial real estate loans, $6.4 million (1.8%) in consumer loans, and $38.0 million (10.4%) in commercial business and other loans. Adjustable rate loans comprised 42% of total loans at June 30, 2002. During the six months ended June 30, 2002, loans increased by $21.9 million (6.4%), including $9.7 million in commercial real estate and commercial business loan participations purchased. The most significant growth was in residential real estate, construction and development, and commercial real estate. Management believes that despite concerns about the pace of economic activity, loan growth will continue to improve during the remaining months of 2002 because of the low interest rate environment and an aggressive marketing and call program effort. 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, 2002, the Bancorp sold $3.1 million in fixed rate mortgages compared to $3.3 million during the six months ended June 30, 2001. Net gains realized from current year sales totaled $53 thousand compared to $37 thousand for the six months ended June 30, 2001. At June 30, 2002, the Bancorp had $153 thousand classified as loans held for sale.

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     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. At June 30, 2002, the investment portfolio totaled $60.7 million and was invested as follows: 0.9% in U.S. government debt securities, 68.3% in U.S. government agency debt securities, and 30.8% in U.S. government agency mortgage-backed securities and collateralized mortgage obligations. At June 30, 2002, securities available-for-sale (AFS) totaled $58.5 million or 96.2% 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, 2002, the Bancorp had $2.6 million in FHLB stock. During the six months ended June 30, 2002, securities decreased by $6.5 million (9.7%), as proceeds from maturing securities and the sale of securities with expected calls were used to pay off short-term borrowings and provide funding for loan growth.

     At June 30, 2002, non-performing 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 $2.5 million, a decrease of $425 thousand from December 31, 2001. The ratio of non-performing loans to total assets was 0.54% at June 30, 2002, compared to 0.66% at December 31, 2001. The ratio of non-performing loans to total loans was 0.68% at June 30, 2002, compared to 0.85% at December 31, 2001. The June 30, 2002 balance includes $2.2 million in loans accounted for on a non-accrual basis and $251 thousand in accruing loans which were contractually past due 90 days or more. At June 30, 2002, $2.4 million of the Bancorp’s loans were internally classified as substandard compared to $2.9 million at December 31, 2001. There were no loans classified as doubtful or loss. Substandard loans include non-performing loans and potential problem loans, where information about possible credit problems causes management to question the ability of such borrowers to comply with loan repayment terms.

     The balances for non-performing and substandard loans includes two loans totaling $1.1 million to a company, and its guarantors, that specializes in heavy hauling, trucking and excavating. The two loans have been classified as impaired. Impaired loans are loans where full payment under the loan terms is not expected. No other loans were considered to be impaired loans as of, or for the six months ended June 30, 2002.

     At June 30, 2002, management of the Bancorp 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, 2002, there are no other interest bearing assets that would be required to be disclosed as non-accrual, past due, restructured or potential problem if such assets were loans. Management does not anticipate that any of the non-performing loans or classified loans would materially impact future operations, liquidity or capital resources.

     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, 2002, additions to the ALL account totaled $280 thousand compared to $90 thousand for the six months ended June 30, 2001. The provision is based on management’s current judgments about the credit quality of the loan portfolio, loan portfolio growth, changes in the portfolio mix and local economic conditions. While the quality of the portfolio remains sound, provisions during the six months ended June 30, 2002 were warranted because of increased average daily loan balances, apparent weaknesses in the local economy, the inherent risk associated with growth in

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commercial real estate and commercial business loans, and loan charge-offs. Charge-offs, net of recoveries, totaled $304 thousand for the current six months compared to $557 thousand for the six months ended June 30, 2001. The appropriateness of the current year provision and the overall adequacy of the ALL were determined through a disciplined and consistently applied quarterly process that combines a review of current activity with a risk assessment worksheet.

     At June 30, 2002, the ALL to total loans was 0.86% compared to 0.92% at December 31, 2001, while the ALL to nonperforming loans (coverage ratio) was 126.3% compared to 108.6% for the same periods. A consistently strong coverage ratio is an indicator that sufficient provisions for loan losses have been made. The June 30, 2002 balance in the ALL account of $3.1 million 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 pooled as of the evaluation date, with particular attention given to non-performing loans and loans which have been classified as substandard, doubtful or loss. Management has allocated general reserves to all non-performing loans based on current information available. During the six months ended June 30, 2002, additions to the ALL were allocated to commercial business loans due to the increase in non-performing balances resulting from two impaired loans.

     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, 2002, deposits totaled $377.9 million. During the six months ended June 30, 2002, deposit growth totaled $22.7 million (6.4%). Checking accounts increased $10.0 million (13.4%), money market deposit accounts (MMDA’s) increased $3.6 million (7.8%), savings accounts increased $7.7 million (15.3%), and certificates of deposit increased $1.4 million (0.7%). At June 30, 2002, the deposit base was comprised of 22.5% checking accounts, 13.1% MMDA’s, 15.4% savings accounts and 49.0% 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, 2002, borrowed funds totaled $40.7 million compared to $45.0 million at December 31, 2001, a decrease of $4.3 million (9.5%). Retail repurchase agreements totaled $13.7 million at June 30, 2002, compared to $15.6 million at December 31, 2001, a decrease of $1.9 million (12.1%). FHLB advances totaled $24 million at June 30, 2002, compared to $17 million at December 31, 2001, an increase of $7 million, as the Bancorp extended the maturity structure of interest-bearing liabilities at cost effective interest rates. Other short-term borrowings totaled $3.0 million at June 30, 2002, compared to $12.4 million at December 31, 2001, a decrease of $9.4 million as the Bancorp paid off short-term funding.

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

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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, 2002 and December 31, 2001. The tables incorporate the Bancorp’s internal system generated data as related to the maturity 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, but not as to when they could be repriced.

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     The tables show that the Bancorp has managed interest rate risk within the policy limits set by the Board of Directors. At June 30, 2002, an increase in interest rates of 2% would have resulted in a 7.1% decrease in net interest income and a 17.7% decrease in the net economic value of equity compared to decreases of 7.8% and 19.5% at December 31, 2001. During the six months ended June 30, 2002, the Bancorp has managed interest rate risk by selling fixed rate loans, restructuring security investments, and reducing short-term borrowings.

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 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.

     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 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.

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     During the six months ended June 30, 2002, cash and cash equivalents increased $4.6 million compared to a $15.2 million increase for the six months ended June 30, 2001. The primary sources of cash were deposit growth, proceeds from maturities and sales of securities and cash provided by operating activities. The primary uses of cash were loan originations, loan participations purchased, the repayment of short-term borrowings and the payment of common stock dividends. During the current six months cash provided by operating activities totaled $3.8 million compared to $3.0 million for the six months ended June 30, 2001. The primary source of the increase during the current six months was the increase in net income. Cash outflows from investing activities totaled $16.4 million compared to $8.5 million for the six months ended June 30, 2001. The current period reflects loan growth. Cash flows from financing activities totaled $17.1 million during the current period compared to $20.8 million for the six months ended June 30, 2001. These amounts are primarily a result of deposit growth. The Bancorp paid dividends on common stock of $1.5 million during the current six months compared to $1.4 million for the six months ended June 30, 2001.

     At June 30, 2002, outstanding commitments to fund loans totaled $50.5 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.

     Management strongly believes that maintaining a high level of capital enhances safety and soundness. During the six months ended June 30, 2002, stockholders’ equity increased by $1.6 million (4.6%). The increase resulted primarily from earnings of $2.7 million during the period. In addition, $128 thousand represents proceeds from the exercise of 9,558 stock options. The Bancorp declared $1.5 million in cash dividends. The net unrealized gain on available-for-sale securities, net of tax was $377 thousand for the 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.

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     The following table shows that, at June 30, 2002, and December 31, 2001, 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.