SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

NorthWest Indiana Bancorp

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 þ No o

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

There were 2,782,230 shares of the registrant’s Common Stock, without par value, outstanding at March 31, 2005.

NorthWest Indiana Bancorp
Index

NorthWest Indiana Bancorp

See accompanying notes to consolidated financial statements.

1

NorthWest Indiana Bancorp

See accompanying notes to consolidated financial statements.

2

NorthWest Indiana Bancorp

See accompanying notes to consolidated financial statements.

3

NorthWest Indiana Bancorp

See accompanying notes to consolidated financial statements.

4

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 subsidiaries, Peoples Service Corporation and NWIN, LLC. 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 U.S. 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 consolidated balance sheets of the Bancorp as of March 31, 2005 and December 31, 2004, and the consolidated statements of income and changes in stockholders’ equity for the three months ended March 31, 2005 and 2004, and cash flows for the three months ended March 31, 2005 and 2004. The income reported for the three month period ended March 31, 2005 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 U.S. 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 liabilities at the date of the consolidated 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, 2004 consolidated financial statements and the March 31, 2004 Form 10-Q have been reclassified to conform to the March 31, 2005 presentation.

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Note 5 – 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.

          No stock options were issued during the quarter ended March 31, 2005. Stock options were issued during the first quarter of 2004 totaling 11,450. The weighted average fair value of the grant for 2004 was $3.48. The fair value of options granted during 2004 were estimated using an option pricing model with the following weighted average information as of the grant date:

Note 6 – Earnings Per Share

     Earnings per common share is computed by dividing net income by the weighted average number of common share outstanding. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computation for the three months ended March 31, 2005 and March 31, 2004, is presented below:

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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 March 31, 2005, the Bancorp had total assets of $569.9 million, total loans of $437.6 million and total deposits of $470.2 million. Stockholders’ equity totaled $44.3 million or 7.8% of total assets, with book value per share at $15.93. Net income for the three months ended March 31, 2005, was $1.6 million, or $0.58 earnings per common share for basic and $0.57 for diluted calculations. The annualized return on average assets (ROA) was 1.14%, while the annualized return on average stockholders’ equity (ROE) was 14.45%, for the three months ended March 31, 2005.

Financial Condition

     During the three months ended March 31, 2005, total assets increased by $12.5 million (2.2%), with interest-earning assets increasing by $13.0 million (2.5%). At March 31, 2005, interest-earning assets totaled $529.7 million and represented 93.0% of total assets.

     Loans receivable totaled $437.6 million at March 31, 2005, compared to $433.8 million at December 31, 2004. At March 31, 2005, loans receivable represented 82.6% of interest-earning assets, 76.8% of total assets and 93.1% 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 $39.8 million (9.1%) in construction and development loans, $227.2 million (51.9%) in residential mortgage loans, $9.4 million (2.1%) in multifamily loans, $96.6 million (22.1%) in commercial real estate loans, $4.6 million (1.0%) in consumer loans, $47.4 million (10.8%) in commercial business and $12.6 million (3.0%) in government and other loans. Adjustable rate loans comprised 52.4% of total loans at March 31, 2005. During the three months ended March 31, 2005, loans increased by $3.8 million (0.9%), including $2.3 million in commercial real estate loans, $1.2 million in construction and land development loans, $773 thousand in government loans, and $117 thousand in commercial business loans. During the three months ended March 31, 2005, multifamily loans decreased by $363 thousand, consumer loans decreased by $97 thousand and residential mortgage loans decreased by $63 thousand. During the three months ended March 31, 2005, loan growth was affected by lower than expected origination volume. Management believes that despite the moderate pace of the local economy, a positive trend in loan growth is likely to continue during the rest of 2005. Management expects to fund future loan growth with retail funds.

     The Bancorp is primarily a portfolio lender. Mortgage banking activities are generally limited to the sale of fixed rate mortgage loans with contractual maturities generally 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. In addition, during the current quarter the Bancorp began utilizing forward commitments, selling loans through Freddie Mac’s “Best Efforts” program with servicing released. During the three months ended March 31, 2005, the Bancorp sold $920 thousand in fixed rate mortgages originated for sale compared to $339 thousand during the three months ended March 31, 2004. Net gains realized from current year sales totaled $28 thousand compared to $22 thousand for the three months ended March 31, 2004. At March 31, 2005, the Bancorp had $125 thousand in loans that were 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, federal agency obligations and obligations of state and local municipalities. Investments are generally for terms ranging from one day to seven years. The investment portfolio totaled $86.1 million at March 31, 2005, compared to $82.9 million at December 31, 2004. At March 31, 2005, the investment portfolio represented 17.4% of interest-earning assets, 16.1% of total assets and was invested as follows: 53.7% in U.S. government agency debt securities, 32.7% in U.S. government agency mortgage-backed securities and collateralized mortgage obligations, and 13.6% in municipal securities. At March 31, 2005, securities available-for-sale (AFS) totaled $71.3 million or 85.8% 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 March 31, 2005, the Bancorp had $5.4 million in interest bearing balances in financial institutions, $477 thousand in federal funds sold and $2.9 million in Federal Home Loan Bank (FHLB) stock. During the three months ended March 31, 2005, securities increased by $3.2 million (4.0%). The increase in securities was a result of deposit growth outpacing loan growth.

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     The allowance for loan losses (ALL) is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses, and decreased by charge-offs less recoveries. A loan is charged-off against the allowance by management as a loss when deemed uncollectible, although collection efforts continue and future recoveries may occur.

     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 non-performing loans; loans that management has internally classified as impaired; 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.

     Non-performing loans include those loans that are 90 days or more past due and those loans that have been placed on non-accrual status. Non-performing loans totaled $2.6 million at March 31, 2005 compared to $1.0 million at December 31, 2004, an increase of $1.6 million or 153%. The increase in non-performing loans is primarily due to one commercial borrower, with three loans totaling $1.4 million that are secured by commercial real estate and business assets, and are personally guaranteed by the owner of the business. The loans have been placed in non-accrual status and are classified as impaired. Management has negotiated a repayment schedule that provides for principal and interest payments during the next six months. Management will continue to monitor the borrowers’ compliance with the repayment schedule. The ratio of non-performing loans to total loans was 0.61% at March 31, 2005 compared to 0.24% at December 31, 2004. The ratio of non-performing loans to total assets was 0.47% at March 31, 2005, compared to 0.19% at December 31, 2004. The March 31, 2005 balance includes $2.6 million in loans accounted for on a non-accrual basis and $88 thousand in accruing loans which were contractually past due 90 days or more. Loans, internally classified as substandard totaled $3.3 million at March 31, 2005, an increase of $144 thousand from the $3.2 million reported at December 31, 2004. No loans were classified as doubtful or loss. Substandard loans include non-performing 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. In addition to identifying and monitoring non-performing and other classified loans, management maintains a list of watch loans. Watch loans represent loans management is more closely monitoring due to one or more factors that may cause the loan to become classified. Watch loans totaled $8.2 million at March 31, 2005, compared to $7.7 million at December 31, 2004.

     At March 31, 2005, four loans totaling $1.7 million have been classified as impaired, compared to one loan totaling $266 thousand at December 31, 2004. As discussed earlier, three loans to one commercial borrower totaling $1.4 million are considered impaired. In addition, one loan totaling $266 thousand continues to be classified as impaired. 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 quarter ended, March 31, 2005.

     At March 31, 2005, 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 March 31, 2005, there were 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 presently anticipate that any of the non-performing loans or classified loans would materially impact future operations, liquidity or capital resources.

     During the quarter ended March 31, 2005, additions to the ALL account totaled $65 thousand compared to $60 thousand for the quarter ended March 31, 2004. Charge-offs, net of recoveries, totaled $26 thousand for the current period compared to $1 thousand for the quarter ended March 31, 2004. Changes in the provision are consistent with the current level of non-performing and impaired loans, and take into consideration management’s current judgments about the credit quality of the loan portfolio, loan portfolio growth, changes in the portfolio mix and local economic conditions. In determining the provision for loan loss for the current quarter, management has given additional consideration to increased risks associated within the local economy and changes in loan mix.

     The ALL to total loans was 0.90% at March 31, 2005 compared to 0.90% at December 31, 2004, while the ALL to non-performing loans (coverage ratio) was 148.3% at the end of the current quarter, compared to 371.0% at December

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31, 2004. A consistently strong coverage ratio is an indicator that sufficient provisions for loan losses have been established. The March 31, 2005 balance in the ALL account of $3.9 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 non-performing loans and loans which have been classified as substandard, doubtful or loss. Management has allocated general reserves to both performing and non-performing loans based on current information available.

     At March 31, 2005, foreclosed real estate totaled $147 thousand compared to $280 thousand at December 31, 2004. The current year balance is comprised of two properties. Management is actively seeking a purchaser for the properties.

     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 March 31, 2005, deposits totaled $470.2 million. During the three months ended March 31, 2005, deposits increased by $18.6 million (4.1%). Money market deposit accounts (MMDA’s) increased $18.6 million (25.2%), certificates of deposit increased by $7.2 million (3.7%), and savings accounts increased by $697 thousand (1.0%). The growth in MMDA’s and certificates of deposit was a result of competitive product offerings and an effective marketing program. During the current period, checking accounts decreased by $7.9 million (7.0%). The checking account decrease was a result of reduced balances in several commercial business accounts. At March 31, 2005, the deposit base was comprised of 22.4% checking accounts, 19.6% MMDA’s, 15.2% savings accounts and 42.8% certificates of deposit.

     Borrowings are primarily used to fund asset growth not supported by deposit generation. At March 31, 2005, borrowed funds totaled $51.2 million compared to $57.2 million at December 31, 2004, a decrease of $6.0 million (10.5%). Retail repurchase agreements totaled $14.4 million at March 31, 2005, compared to $11.5 million at December 31, 2004, an increase of $2.9 million (26.1%). FHLB advances totaled $35.5 million at March 31, 2005, compared to $39.5 million at December 31, 2004, a decrease of $4.0 million. In addition, other short-term borrowings totaled $1.2 million at March 31, 2005, compared to $6.2 million at December 31, 2004, a decrease of $5.0 million. During the current quarter, the Bancorp utilized retail deposit growth to repay maturing FHLB advances and 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 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.