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[Northwest Indiana Bancorp Logo]

Selected Consolidated Financial Data
(In Thousands of Dollars, except Per Share Data)

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Business

      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.

      The Bancorp conducts business from its main office in Munster and its other seven full-service offices located in East Chicago, Hammond, Merrillville, Dyer, Schererville and Hobart, Indiana. The Bancorp is primarily engaged in the business of attracting deposits from the general public and the origination of loans secured by single family residences and commercial real estate, as well as, construction loans and various types of consumer loans and commercial business loans. In addition, the Bancorp’s trust department provides estate administration, estate planning, guardianships, land trusts, retirement planning, self-directed IRA and Keogh accounts, investment agency accounts, and serves as personal representative of estates and acts as trustee for revocable and irrevocable trusts.

      The Bancorp’s common stock is traded in the over-the-counter market and quoted in the National Quotation Bureau’s “Pink Sheets”. On February 28, 2001, the Bancorp had 2,709,312 shares of common stock outstanding and 515 stockholders of record. This does not reflect the number of persons or entities who may hold their stock in nominee or “street” name through brokerage firms.

Total Assets
(Dollars in Millions)

[BAR GRAPH]

Total assets have increased from $299.4 million at December 31, 1996 to $392.3 million at December 31, 2000. Growth during 2000 totaled $30.6 million or 8.5%.

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Management’s Discussion and Analysis of
Financial Condition and Results of Operations

General

      The Bancorp’s earnings are dependent upon the earnings of the Bank. The Bank’s earnings are primarily dependent upon net interest margin. The net interest margin is the difference between interest income earned on loans and investments and interest expense paid on deposits and borrowings stated as a percentage of average total assets. The net interest margin is perhaps the clearest indicator of a financial institution’s ability to generate core earnings. Fees and service charges, trust department income, gains and losses from the sale of loans, provisions for loan losses, income taxes and operating expenses also affect the Bancorp’s profitability.

      At December 31, 2000, the Bancorp had total assets of $392.3 million and total deposits of $324.3 million. The Bancorp’s deposit accounts are insured up to applicable limits by the Savings Association Insurance Fund (SAIF) that is administered by the Federal Deposit Insurance Corporation (FDIC), an agency of the federal government. At December 31, 2000, stockholders’ equity totaled $33.5 million, with book value per share at $12.39. Net income for 2000 was $4.4 million, or $1.61 basic earnings per common share and $1.60 diluted earnings per common share. The return on average assets (ROA) was 1.17%, while the return on average stockholders’ equity (ROE) was 13.30%.

      Total Asset Composition
     (Dollars in Millions)

[PIE GRAPH]

Consumer — $10.7 (2.7%)
Commercial Business and Other — $34.0 (8.7%)
Other Assets — $24.1 (6.1%)
Investments and Other — $42.0 (10.7%)
Construction and Land Development — $16.0 (4.1%)
Commercial Real Estate and Multifamily — $91.4 (23.3%)
Residential Real Estate, Including Home Equity — $174.1 (44.4%)

At December 31, 2000, the Bancorp had total assets of $392.3 million. Interest-earning assets totaled $368.2 million and represented 93.9% of total assets.

Asset/Liability Management and Market Risk

      Asset/liability management involves the funding and investment strategies necessary to maintain an appropriate balance between interest sensitive assets and liabilities as well as to assure adequate liquidity. These strategies determine the characteristics and mix of the balance sheet. They affect the interest margins, maturity patterns, interest rate sensitivity and risk, as well as resource allocation. For the Bancorp, the key components of asset/liability management are loans, investments, deposits and borrowed funds. Over the years, the Bancorp has directed its lending efforts toward construction loans, adjustable rate residential loans, equity lines of credit, adjustable rate commercial real estate loans and commercial business loans tied to the prime rate of interest. Consumer loans are generally made for terms of five years or less. Fixed rate residential real estate loans are generally made for contractual terms of fifteen years or less. The actual cash flows from these loans generally results in a duration which is less than the contractual maturity, providing protection against the possibility of rising interest rates.

      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.

      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 five years. Interest-bearing balances in financial institutions include overnight deposits at the Federal Home Loan Bank of Indianapolis (FHLB). Securities are classified as either held-to-maturity or available-for-sale. Held-to-maturity securities are those that the Bancorp has the positive intent and ability to hold to maturity. Available-for-sale securities are those the Bancorp may decide to sell if needed for liquidity, asset-liability management or other reasons. The Bancorp does not have a trading portfolio. During 2000, the Bancorp did not have derivative instruments and was not involved in hedging activities as defined by SFAS 133.

      The Bancorp’s cost of funds reacts rapidly to changes in market interest rates due to the relatively short-term nature of its deposit liabilities. Consequently, the levels of short-term interest rates have influenced the Bancorp’s results of operations. In order to reduce exposure to interest-rate risk, core deposits (checking, NOW accounts, savings and money market accounts) have been aggressively marketed and certificate accounts have been competitively priced. Account activity and maturities are monitored in order to guard against the outflow of funds. Borrowed money is used to compensate for reductions in the availability of other sources of funds and is generally accomplished through repurchase agreements, as well as, through a line of credit and advances from the FHLB. FHLB advances with maturities ranging from one to ten years are used to fund securities and loans of comparable duration, as well as, to reduce the impact that movements in short-term interest rates have on the Bancorp’s overall cost of funds. The Bancorp does not obtain funds through brokers.

      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 develop-

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ing 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 December 31, 2000 and 1999. The tables incorporate 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.

Interest Rate Risk at December 31, 2000

Interest Rate Risk at December 31, 1999

      The tables show that the Bancorp has managed interest rate risk within the policy limits set by the Board of Directors. At December 31, 2000, an increase in interest rates of 2% would have resulted in an 6.5% decrease in net interest income and an 11.9% decrease in the net economic value of equity compared to decreases of 8.9% and 18.0%, at December 31, 1999. The decrease in interest rate risk during 2000 was due to the increase in core funding and the use of a cost effective mix of borrowings with maturities extending beyond one year.

Financial Condition

      During the year ended December 31, 2000, total assets increased by $30.6 million (8.5%), with interest-earning assets increasing by $29.9 million (8.8%). At December 31, 2000, interest-earning assets totaled $368.2 million and represented 93.9% of total assets. Loans totaled $326.2 million and represented 88.6% of interest-earning assets, 83.1% of total assets and 100.6% 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 $16.0 million (4.9%) in construction and land development loans, $174.1 (53.4%) in residential real estate loans, $91.4 million (28.0%) in commercial and multifamily real estate loans, $10.7 million (3.3%) in consumer loans and $34.0 million (10.4%) in commercial business and other loans. During 2000, loans increased by $30.4 million (10.3%). Adjustable rate loans comprised 57% of total loans at year-end. All major areas of lending demonstrated substantial growth during 2000. The most significant growth was in commercial real estate, residential real estate, commercial business, and home equity loans. Growth during 2000 was a result of a strong local economy and aggressive marketing and call pro-

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grams. Management believes that, despite a slowdown in the local economy, loan growth should remain strong during 2001 because of a lower interest rate environment and an aggressive marketing and call program effort. Management expects to fund loan growth with a mix of core deposits and borrowed funds.

      Total Loans
     (Dollars in Millions)

[BAR GRAPH]

Total loans have increased from $244.7 million at December 31, 1996 to $326.2 million at December 31, 2000. During 2000, loans increased by $30.4 million or 10.3%.

During 2000, the Bancorp sold $795 thousand in fixed rate mortgages compared to $2.5 million in 1999 and $3.7 million in 1998. All loans sold had contractual maturities exceeding twenty-five years. Net gains realized from the sales totaled $34 thousand, $30 thousand and $111 thousand for 2000, 1999 and 1998. Net mortgage loan servicing income totaled $15 thousand for 2000, compared to $16 thousand for 1999 and 1998. At December 31, 2000, the Bancorp had $480 thousand classified as loans held for sale. During 2001, the Bancorp expects to continue selling fixed rate mortgage loans, with contractual maturities of twenty-five years or longer, on a case-by-case basis as part of its efforts to manage interest rate risk.

      Loan Composition
     (Dollars in Millions)

[PIE GRAPH]

Commercial Business and Other — $34.0 (10.4%)
Commercial Real Estate and Multifamily — $91.4 (28.0%)
Consumer — $10.7 (3.3%)
Construction and Land Development — $16.0 (4.9%)
Residential Real Estate, Including Home Equity — $174.1 (53.4%)

At December 31, 2000, loans receivable totaled $326.2 million and represented 88.6% of interest-earning assets.

      At December 31, 2000, the Bancorp’s investment portfolio totaled $36.2 million and was invested as follows: 90.5% in U.S. government agency debt securities, 7.0% in U.S. government debt securities, and 2.5% in U.S. government agency mortgage-backed securities. At December 31, 2000, securities available-for-sale totaled $20.5 million or 56.7% of total securities. In addition, at December 31, 2000, the Bancorp had $3.3 million in interest bearing balances in financial institutions, $86 thousand in federal funds sold, and $2.0 million in FHLB stock. During 2000, investment securities decreased by $4.0 million (10.0%) as proceeds from maturing securities were used to provide funding for loan growth.

      Management believes that the credit risk profile of the earning asset portfolio is relatively low. This is accomplished through quality loan underwriting and a proactive approach to loan monitoring. At December 31, 2000, 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 $1.8 million, an increase of $1.0 million from the prior year. The December 31, 2000 balance includes $1.5 million in loans accounted for on a non-accrual basis and $354 thousand in accruing loans which were contractually past due 90 days or more. The ratio of non-performing loans to total loans increased from 0.27% at the end of 1999 to 0.55% at the end of 2000. At December 31, 2000, $2.9 million of the Bancorp’s loans were internally classified as substandard. There were no loans classified as doubtful or loss. Classified 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. Potential problem loans are not included with non-performing loans as they continue to perform. The increase in non-performing and classified loans during 2000 is primarily due to two commercial loans subject to industry-specific developments and, to a lesser extent, to increases for mortgage and consumer loans that are well secured. Management does not anticipate that any of the non-performing loans or classified loans will materially impact future operations, liquidity or capital resources. At December 31, 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.

      At December 31, 2000, the Bancorp had impaired loans totaling $291 thousand, representing three loans to a single borrower and guarantor. The loans were subsequently charged-off during January 2001. No other loans were considered to be impaired loans as of, or for the twelve months ended December 31, 2000. At December 31, 2000, the ALL allocated to the impaired loan balances totaled $233 thousand.

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      Non-performing Loans to Total Loans

[BAR GRAPH]

Management believes that the credit risk profile of the loan portfolio is relatively low. At December 31, 2000, the Bancorp’s ratio of non-performing loans to total loans was 0.55% (fifty-five hundredths of one percent).

      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 2000, additions to the ALL account totaled $175 thousand compared to $200 thousand for 1999 and $110 thousand for 1998. 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 trends. 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. While the quality of the loan portfolio remains sound, provisions during 2000 were warranted because of increased average daily loan balances, the inherent risk associated with growth in commercial real estate and commercial business loans, an increase in the level of charge-offs, and increases in non-performing loans due to a slowdown in the local economy. Charge-offs, net of recoveries, totaled $162 thousand during 2000 compared to $23 thousand during 1999 and $52 thousand for 1998. At December 31, 2000, the ALL to total loans was 1.02%, while the ALL to nonperforming loans (coverage ratio) was 183.5%. The decrease in the 2000 provision was warranted because the coverage ratio and the balance in the ALL account of $3.3 million is considered adequate by management after evaluation of the loan portfolio, past experience and current economic and market conditions. In addition, management does not anticipate that any of the non-performing loans or classified loans would materially impact future operations, liquidity or capital resources.

      Allowance For Loan Losses to Total Loans

At December 31, 2000, the Bancorp had $3.3 million in the Allowance for Loan Losses account. The amount represents 1.02% of loans outstanding and 183.54% of non-performing loans.

      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 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.

      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 December 31, 2000, deposits totaled $324.3 million. During 2000, deposit growth totaled $17.7 million (5.8%). NOW accounts increased $9.7 million (32.9%), checking accounts increased $5.7 million (25.1%), money market deposit accounts (MMDA’s) increased $2.8 million (6.7%), and certificates of deposit increased by $576 thousand (0.3%). Savings accounts decreased $1.1 million (2.4%). The growth in core deposits was a result of competitive product offerings and an aggressive marketing program. At December 31, 2000, the deposit base was comprised of 14.1% savings accounts, 13.9% MMDAs, 12.1% NOW accounts, 8.7% checking accounts and 51.2% certificates of deposit.

      Total Deposits
     (Dollars in Millions)

[BAR GRAPH]

Deposits are the major source of funds for lending and other investment purposes. During 2000, deposits increased by $17.7 million or 5.8%.

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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. Borrowings are primarily used to fund asset growth not supported by deposit generation. At December 31, 2000, borrowed funds totaled $30.6 million compared to $18.6 million at December 31, 1999, an increase of $12.0 million (64.4%). Repurchase agreements implementation of the Bancorp’s sweep repurchase program. FHLB advances totaled $11.5 million, decreasing $2.5 million. Other short-term borrowings totaled $7.2 million, increasing $5.6 million 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 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.

      Capital to Average Assets

[BAR GRAPH]

Management firmly believes that the safety and soundness of the Bancorp is enhanced by maintaining a high level of capital. At December 31, 2000, the Bancorp’s capital exceeded all regulatory requirements. The Bancorp is categorized as “well capitalized”. The ratio of Tier I capital to adjusted average assets reflects the change in capital over the periods presented as a result of profitability and success in managing growth. In addition, Tier I capital to risk-weighted assets was 12.3% and total capital to risk-weighted assets was 13.6%.

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., repurchase agreements and advances from the FHLB) as a source of funds.

      During 2000, cash and cash equivalents increased by $2.8 million, compared to a decrease of $12.7 million for 1999 and an increase of $16.7 million for 1998. The increase for 2000 reflects the growth of interest bearing balances in financial institutions and federal funds sold. During 1999 no balances were reported for these funds as they were used for the Year 2000 cash build-up. During 2000, the primary sources of cash and cash equivalents were deposit growth, borrowed funds, proceeds from maturing securities and cash provided by operating activities. The primary uses of cash and cash equivalents were loan originations and purchases, the construction of the new Hobart branch facility, the payment of common stock dividends and the purchase of treasury stock. During 2000, cash provided by operating activities totaled $5.3 million, compared to $5.1 million for 1999 and $4.4 million for 1998. The primary source of the increase during 2000 was the increase in net income. Cash outflows for investing activities totaled $28.7 million during 2000, compared to $29.8 million for 1999 and $9.1 million for 1998. The increase during 2000 reflects strong loan demand. The net change in loans receivable and loan participations purchased totaled $30.6 million during 2000, compared to $22.6 million for 1999 and $1.8 million for 1998. Cash flows from financing activities totaled $26.2 million during 2000, compared to $12.0 million for 1999 and $21.3 million for 1998. The increase during 2000 reflects deposit growth and increased borrowings. Deposit growth during 2000 totaled $17.7 million, compared to $13.4 million for 1999 and $21.1 million for 1998. The increase in FHLB advances and other borrowed funds totaled $12.0 million during 2000, compared to $1.3 million during 1999 and $2.2 million for 1998 as the Bancorp utilized its line of credit for short-term funding and implemented a sweep repurchase program. The Bancorp paid dividends on common stock of $2.5 million during 2000, compared to $2.3 million for 1999 and $2.0 million for 1998.

      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 began 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 2000, the Bancorp purchased 47,064 shares of treasury stock at $19.75 – $21.75 per share for $993 thousand.

      During the fourth quarter of 2000, the Bancorp opened a state-of-the-art branch facility in Hobart, Indiana. The facility did not 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.

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      At December 31, 2000, outstanding commitments to fund loans totaled $60.5 million. Approximately 86% 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 safety and soundness is enhanced by maintaining a high level of capital. During 2000, stockholders’ equity increased by $1.1 million (3.3%). The increase resulted primarily from earnings of $4.4 million for 2000. In addition, $60 thousand represents proceeds from the exercise of 5,973 stock options. The Bancorp declared $2.6 million in cash dividends and $993 thousand for the purchase of treasury stock during 2000. The net unrealized gain on available-for-sale securities was $223 thousand. At December 31, 2000, book value per share was $12.39 compared to $11.82 at December 31, 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 Bancorp 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 the same. These regulations divide capital into two tiers. The first tier (Tier I) includes common equity, certain non-cumulative perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets. Supplementary (Tier II) capital includes, among other things, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan losses, subject to certain limitations, less required deductions. 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.

      The following table shows that, at December 31, 2000, the Bancorp’s capital exceeded all regulatory capital requirements. At December 31, 2000, the Bancorp’s and the Bank’s regulatory capital ratios were substantially the same. The dollar amounts are in millions.

Results of Operations — Comparison of 2000 to 1999

      Net income for 2000 was $4.4 million, compared to $4.2 million for 1999, an increase of $135 thousand (3.2%). The earnings represent a return on average assets of 1.17% for 2000 compared to 1.20% for 1999. The return on average equity was 13.30% for 2000 compared to 13.17% for 1999.

      Net interest income for 2000 was $14.7 million, up $365 thousand (2.5%) from $14.3 million for 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 7.88% for 2000 compared to 7.61% for 1999. The weighted-average cost of funds was 3.95% for 2000 compared to 3.54% for 1999. The impact of the 7.88% return on interest-earning assets and the 3.95% cost of funds resulted in a net interest spread of 3.93% for 2000 compared to 4.07% for 1999. During 2000, total interest income increased by $2.5 million (9.6%) while total interest expense increased by $2.1 million (18.7%). The net interest margin was 3.92% for 2000 compared to 4.04% for 1999.

      During 2000, interest income from loans increased by $2.9 million (12.8%) compared to 1999. The increase was due to higher yields and higher average daily balances for the loan portfolio. The weighted-average yield on loans outstanding was 8.11% for 2000 compared to 7.90% for 1999. Loan balances averaged $314.9 million for 2000, up $28.3 million (9.9%) from $286.6 million for 1999. During 2000, interest income from securities and other interest earning assets decreased by $431 thousand (14.6%) compared to 1999. The decrease was due to lower average daily balances. The weighted-average yield on securities and other interest earning assets was 6.11% for 2000 compared to 5.92% for 1999. Securities and other interest earning assets averaged $41.3 million for 2000, down $8.6 million (17.2%) from $49.9 million for 1999.

     Net Interest Margin

[BAR GRAPH]

The net interest margin is total interest income minus total interest expense stated as a percentage of average total assets. During 2000, the decrease was primarily due to a rising interest rate environment.

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      Interest expense for deposits increased by $1.7 million (16.3%) during 2000 compared to 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 2000 was 3.83% compared to 3.45% for 1999. The higher cost of funds reflects a rising interest rate environment. Total deposit balances averaged $314.5 million for 2000, up $14.1 million (4.7%) from $300.4 million for 1999. Interest expense on borrowed funds increased by $413 thousand (44.7%) during 2000 due to higher rates and increases in average daily balances. The weighted-average cost of borrowed funds was 5.55% for 2000 compared to 5.11% for 1999. Borrowed funds averaged $24.1 million during 2000, up $6.0 million (33.1%) from $18.1 million for 1999. Borrowed funds have provided a cost-effective supplement to certificates of deposit, as deposit pricing within the Bancorp’s local market area has been very competitive.

      Noninterest income was $2.0 million for 2000, up $336 thousand (20.3%) from $1.7 million during 1999. During 2000, management continued to implement initiatives focused on improving noninterest income from Bancorp operations. As a result, fees and service charges increased $312 thousand (24.8%) and income from Trust operations increased $49 thousand (14.5%) compared to 1999.

      Noninterest expense for 2000 was $9.4 million, up $675 thousand (7.7%) from $8.8 million for 1999. The increase in compensation and benefits was due to additional staffing, annual salary increases and the increased cost of employee benefits. The increase in marketing was due to an aggressive direct mail program focused on loan, deposit and trust products. Other expense changes were due to standard increases in operations. The Bancorp’s efficiency ratio for 2000 was 56.6% compared to 54.9% for 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 2000 totaled $2.7 million compared to $2.8 million for 1999, a decrease of $84 thousand (3.0%). The reduction during 2000 was a result of investments in low-income housing tax credits. The combined effective federal and state tax rates for the Bancorp were 38.1% for 2000 and 39.6% for 1999.

Efficiency Ratio

[BAR GRAPH]

The efficiency ratio measures how much of the Bancorp’s revenue is consumed by operating costs. The efficiency ratio is determined by dividing total noninterest expense by the sum of net interest income and total noninterest income for the period. At December 31, 2000, the Bancorp’s efficiency ratio was 56.6%.

Results of Operations — Comparison of 1999 to 1998

      Net income for 1999 was $4.2 million, compared to $3.8 million for 1998, an increase of $473 thousand (12.6%). The earnings represent a return on average assets of 1.20% for 1999 compared to 1.14% for 1998. The return on average equity was 13.17% for 1999 compared to 12.35% for 1998.

      Net interest income for 1999 was $14.3 million, up $1.4 million (10.8%) from $12.9 million for 1998. The increase in net interest income was primarily due to a lower cost of funds. The weighted-average yield on interest-earning assets was 7.61% for 1999 compared to 8.00% for 1998. The weighted-average cost of funds was 3.54% for 1999 compared to 4.16% for 1998. The impact of the 7.61% return on interest-earning assets and the 3.54% cost of funds resulted in a net interest spread of 4.07% for 1999 compared to 3.84% for 1998. During 1999, total interest income increased by $372 thousand (1.5%) while total interest expense decreased by $1.0 million (8.4%). The net interest margin was 4.04% for 1999 compared to 3.91% for 1998.

      During 1999, interest income from loans increased by $108 thousand (0.5%) compared to 1998. The increase was due to an increase in average daily balances for the loan portfolio. The weighted-average yield on loans outstanding was 7.90% for 1999 compared to 8.31% for 1998. Higher average loan balances contributed to the increase in interest income as loans averaged $286.6 million for 1999, up $15.2 million (5.6%) from $271.4 million for 1998. During 1999, interest income on securities and other interest earning assets increased by $264 thousand (9.8%) compared to 1998. The increase was due to higher average daily balances. The weighted-average yield on securities and other interest earning assets was 5.92% for 1999 compared to 6.13% for 1998. Securities and other interest earning assets averaged $49.9 million for 1999, up $6.0 million (13.7%) from $43.9 million for 1998.

      Interest expense for deposits decreased by $1.0 million (9.2%) during 1999 compared to 1998. The decrease was due to a lower cost of funds. The weighted-average rate paid on deposits for 1999 was 3.45% compared to 4.09% for 1998. The lower cost of funds was due to growth in core deposits (checking accounts, NOW accounts, savings accounts and money market accounts). Core deposits averaged $141.4 million during 1999, up $23.1 million (19.5%) from $118.3 million for 1998. Total deposit balances averaged $300.4 million for 1999, up $21.3 million (7.6%) from $279.1 million for 1998. Interest expense on borrowed funds increased by $18 thousand (2.0%) during 1999 due to higher average daily balances. The weighted-average cost of borrowed funds was 5.11% for 1999 compared to 5.41% for 1998. Borrowed funds averaged $18.1 million during 1999, up $1.4 million (8.4%) from $16.7 million for 1998.

      Noninterest income was $1.7 million for 1999, up $312 thousand (23.2%) from $1.4 million during 1998. During 1999, management continued to implement initiatives focused on improving noninterest income from Bancorp operations. As a result, fees and service charges increased $389 thousand (44.7%) and income from Trust operations increased $42 thousand (14.2%).

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      Noninterest expense for 1999 was $8.8 million, up $836 thousand (10.5%) from $7.9 million for 1998. The increase in compensation and benefits was due to additional staffing, annual salary increases and the increased cost of employee benefits. The increases in occupancy and equipment, and data processing reflect investments in technology and new products and services. Other expense changes were due to costs related to the century date change and standard increases in operations. The Bancorp’s efficiency ratio for 1999 was 54.9% compared to 55.6% for 1998.

      Income tax expenses for 1999 totaled $2.8 million compared to $2.5 million for 1998, an increase of $314 thousand (12.8%). The increase was due to an increase in pretax earnings during 1999. The combined effective federal and state tax rates for the Bancorp were 39.6% for 1999 and 39.5% for 1998.

Impact of Inflation and Changing Prices

      The financial statements and related data presented herein have been prepared in accordance with Generally Accepted Accounting Principles which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. The primary assets and liabilities of the Bancorp are monetary in nature. As a result, interest rates have a more significant impact on the Bancorp’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services.

Forward-Looking Statements

      When used in this report and in other 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.

      Return On Assets

[BAR GRAPH]

Return on assets (ROA) indicates the overall operating efficiency of a company. The ratio is determined by stating net income as a percentage of average total assets. The 1996 results include the one-time special assessment on SAIF-assessable deposits to recapitalize SAIF.

      Return On Equity

[BAR GRAPH]

Return on equity (ROE) is determined by stating net income as a percentage of average stockholders’ equity. The ratio is important to the Bancorp’s stockholders because it measures the return on their invested capital. The increase in ROE for 2000 reflects record earnings. The 1996 results include the one-time special assessment on SAIF-assessable deposits to recapitalize SAIF.

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[CROWE CHIZEK LOGO]

Report of Independent Auditors

Board of Directors and Stockholders
NorthWest Indiana Bancorp
Munster, Indiana

We have audited the accompanying consolidated balance sheets of NorthWest Indiana Bancorp (the Bancorp) as of December 31, 2000 and 1999 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Bancorp’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NorthWest Indiana Bancorp as of December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with generally accepted accounting principles.

As discussed in Note 1, during 1998 the Bancorp adopted new accounting guidance on derivatives.

/s/ Crowe, Chizek and Company LLP

Crowe, Chizek and Company LLP

South Bend, Indiana
January 8, 2001

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Consolidated Balance Sheets

(Dollars in thousands)