Exhibit 13

annual report 2002

     Dear Shareholder:

     Investors across the United States were confronted by numerous challenges to portfolio management during 2002. The resiliency of the national economy in the last decade of the twentieth century gave way to uncertainty and diminished consumer confidence. Within our region the slow down in manufacturing and the resulting stress on the steel industry dampened any enthusiasm for a near term recovery.

     The outlook for investors also was impacted by international events and concern for potential instability associated with the effort to eliminate terrorism throughout the world. Most damaging of all to investor confidence, however, may have been the fall from grace by numerous large corporations whose greed, deceptive practices, and mismanagement shook portfolios from Wall Street to Main Street.

     Despite the challenging economic times, the NorthWest Indiana Bancorp, and its subsidiary Peoples Bank, continued to build shareholder value in 2002 through record earnings. Your company remained focused on solid performance by relying on the proven community banking strategy of growth, strong core earnings, asset quality, increased income from banking activities and operating efficiencies.

e x c e l l e n c e

g r o w t h

a s s e t    q u a l i t y

c o m m u n i t y

i n t e g r i t y

David A. Bochnowski
Chairman and
Chief Executive Officer

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We are committed to providing quality service and delivering products that bring value to our customers.

     The directors and employees of your company take pride in the achievements presented to you in this annual report:

	•		Record earnings of $5.5 million, a 17% increase over the prior year
	•		Earnings per share of $2.01
	•		Return on Equity of 14.58%
	•		Total Investment Return to shareholders of 20.46% as measured by price appreciation and dividend increase

     As a community bank we are committed to providing quality service and delivering products that bring value to our customers. We are connected to our community and use the resources entrusted to us to promote economic activity in Northwest Indiana. Our goal is to enhance shareholder value through cost effective growth and prudent capital management.

     Shareholders should evaluate several key performance highlights as you measure improvement in shareholder value during 2002:

	•		Assets grew $47.3 million or 10.7% to $488 million with stockholders equity at $39.1 million or 8.0% of total assets
	•		Core accounts—-checking, savings, money market and sweep accounts—-grew $42.3 million or 23.3%
	•		Loans grew $37.8 million—-with residential loans increasing 18.6%, commercial real estate increasing 9.5%, and construction and land development increasing 6.3%
	•		Non-performing loans to total assets stood at the manageable level of 0.49%
	•		Core earnings, the difference between interest income from loans and investments and interest paid to funds providers, increased 16.3%
	•		Income from banking activities, including investment and trust services increased 11.4%

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     Financial effectiveness provides one measure of a community bank’s strength and your company has a proven record of achievement. A balanced performance review, however, should take into account not only financial results, but also a commitment to corporate governance, effective capital management, and a response to anticipated shifts in customer preferences in the ever changing financial services environment.

     The integrity of your company’s financial statements has the highest priority in our commitment to sound corporate governance. We have adopted a multifaceted approach that relies upon:

	•		strong independent internal audit function
	•		risk assessment and risk management
	•		management disclosure committee
	•		independent compensation assessment

     The company’s internal auditor, a certified public accountant, reports directly to the Audit Committee of the board. The Audit Committee directs the work of the internal audit staff including the review of all internal controls. Committee meetings include reports by the internal auditor, the compliance officer, questions of management, and as a check and balance on the reporting process deliberations outside the presence of management.

     Risk management has become an increasingly important tool for measuring the efficacy of the controls applied to the complex transactions of daily banking operations. Your company has a Compliance Officer whose responsibilities include monitoring bank practices for consistency with the myriad of federal and state banking regulations designed to provide uniform banking practices. We also have a Loan Review Officer responsible for reviewing loan underwriting and monitoring extensions of credit for consistency with lending policies and regulations. Both of these positions formally report their findings to management as well as your board of directors.

Financial effectiveness provides one measure of a community bank’s strength...

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     This year, the financial reporting process was enhanced by new federal law and securities regulations designed to insure the reliability of reports made to shareholders. As a result, the bank formed a Disclosure Committee comprised of your Chief Executive Officer, Chief Financial Officer, Chief Lending Officer, Corporate Counsel and Trust Officer, as well as the Controller, Retail Banking Officer, Retail Lending Officer, Information Technology Officer, Human Resources Director, Internal Auditor, Compliance Officer, and Loan Review Officer. The committee meets at least quarterly and certifies the integrity of their reports to the Chief Financial Officer and to the Chief Executive Officer.

     The Disclosure Committee results as well as the required certifications of the Chief Financial Officer and Chief Executive Officer are reported to the Audit Committee and the company’s external auditors for review prior to any filing with the Securities and Exchange Commission, and the release of any information about the company to shareholders and the public.

     The board of directors independently exercises its responsibility for matters impacting senior management compensation. During 2002 the Compensation Committee was restructured to exclude members of management while management has historically not been represented on the company’s Options Committee. In addition, the board has engaged outside consultants to assess the competitiveness of the company’s compensation policy.

     During 2003 your company will remain committed to providing the highest standards of product delivery and service to our customers and community. We plan to review opportunities for expansion while adding value to your Bancorp investment. We plan to formally identify and market our “brand”, the characteristics of our operations that distinguish us from our competition. And we plan to implement pricing strategies for our products and services that expand our market presence without compromising our value in the marketplace.

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The bank continues to be committed to technology investments designed to improve the quality of our products...

     Your company remains committed to our community. While others are selling to outside banking interests, we continue to build and utilize our capital for growth. In August of 2002 construction began on our new corporate center creating a two-acre campus at our Munster location. Scheduled for completion in the Fall of 2003, the new configuration provides opportunity for expansion as well as increased operating efficiency to better serve our customers while strengthening our commitment to Northwest Indiana.

     In response to customer demand, we delivered Internet banking to our retail and business customers during 2002 and the response exceeded our expectations. The bank continues to be committed to technology investments designed to improve the quality of our products without compromising personal service to our customers. In order to better serve our customers the configuration of the new corporate center includes a training facility for our staff for sales, service and technology. Customers will also be able to use the facility as a learning environment for the application of our technology to their needs.

     At the end of 2002, Jake Vrabel left the board of directors after eighteen years of service in order to devote more time to his business interests. Jake’s keen intellect contributed to board deliberations and the success of your company. We thank him for his service and wish him well in his endeavors.

     On behalf of your directors and staff thank you for your investment in the NorthWest Indiana Bancorp. We look forward to working with you as we continue our commitment to community banking in NorthWest Indiana.

		Sincerely,
		David A. Bochnowski
		Chairman and
		Chief Executive Officer

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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 on the OTC Bulletin Board. On February 28, 2003, the Bancorp had 2,741,329 shares of common stock outstanding and 523 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.

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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 interest earning 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 assets, provisions for loan losses, income taxes and operating expenses also affect the Bancorp’s profitability.

     A summary of our significant accounting policies is detailed in Note 1 to the Bancorp’s consolidated financial statements included in this report. The preparation of our financial statements requires management to make estimates and assumptions that affect our financial condition and operating results. 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 as further information becomes available and future events occur.

     At December 31, 2002, the Bancorp had total assets of $488.0 million and total deposits of $406.7 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, 2002, stockholders’ equity totaled $39.1 million, with book value per share at $14.29. Net income for 2002 was $5.5 million, or $2.01 basic earnings per common share and $1.99 diluted earnings per common share. The return on average assets (ROA) was 1.18%, while the return on average stockholders’ equity (ROE) was 14.58%.

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 twenty 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 exceeding fifteen years. 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 seven 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 2002, 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 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.

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     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, 2002 and 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.

Interest Rate Risk at December 31, 2001

     The tables show that the Bancorp has managed interest rate risk within the policy limits set by the Board of Directors. At December 31, 2002, an increase in interest rates of 2% would have resulted in a 2.2% decrease in net interest income and a 10.7% decrease in the net economic value of equity compared to decreases of 7.8% and 19.5%, at December 31, 2001. During 2002, the Bancorp managed interest rate risk by selling fixed rate loans, restructuring security investments, increasing core account balances, and reducing short-term borrowings.

Financial Condition

     During the year ended December 31, 2002, total assets increased by $47.3 million (10.7%), with interest-earning assets increasing by $44.4 million (10.7%). At December 31, 2002, interest-earning assets totaled $457.4 million and represented 93.7% of total assets. Loans totaled $380.4 million and represented 83.3% of interest-earning assets, 78.1% of total assets and 93.5% 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 $13.4 million (3.5%) in construction and land development loans, $222.2 million (58.4%) in residential real estate loans, $98.2 million (25.8%) in commercial and multifamily real estate loans, $6.3 million (1.7%) in consumer loans and $40.3 million (10.6%) in commercial business and other loans. During 2002, loans increased by $37.8 million (11.0%), with increases taking place in construction and land development, residential real estate loans, commercial and multifamily loans, and commercial business loans. Adjustable rate loans comprised 37.3% of total loans at year-end. Management believes that, despite concerns about the pace of economic activity, the positive trend in loan growth will continue during 2003 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.

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     During 2002, the Bancorp sold $7.5 million in fixed rate mortgages compared to $4.8 million in 2001 and $795 thousand in 2000. All loans sold had contractual maturities exceeding fifteen years. Net gains realized from the sales totaled $176 thousand, $64 thousand and $34 thousand for 2002, 2001 and 2000. Net mortgage loan servicing losses totaled $7 thousand for 2002, compared to net servicing income of $4 thousand for 2001, and $15 thousand for 2000. At December 31, 2002, the Bancorp had $601 thousand classified as loans held for sale. During 2003, the Bancorp expects to continue selling fixed rate mortgage loans, with contractual maturities exceeding fifteen years, on a case-by-case basis as part of its efforts to manage interest rate risk.

     At December 31, 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 $2.4 million, a decrease of $520 thousand from the prior year. The ratio of non-performing loans to total assets was 0.49% at December 31, 2002, compared to 0.66% at December 31, 2001. The December 31, 2002 balance includes $2.0 million in loans accounted for on a non- accrual basis and $382 thousand in accruing loans which were contractually past due 90 days or more. At December 31, 2002, $2.8 million of the Bancorp’s loans were internally classified as substandard compared to $2.9 million reported 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 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, the Bancorp 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 were $7.0 million and $5.3 million at December 31, 2002 and 2001.

     The balances for non-performing and substandard loans includes two loans totaling $1.0 million to a commercial customer which have been classified as impaired. At December 31, 2002, the Bancorp had five loans, including the aforementioned impaired loans, to three borrowers totaling $1.3 million 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 twelve months ended December 31, 2002. In addition, the Bancorp has two performing loans totaling $769 thousand to one commercial customer that has been classified as substandard due to current cash flow difficulties.

     At December 31, 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 nonaccrual, past due or restructured loans. Also, at December 31, 2002, there are no other interest bearing assets that would be required to be disclosed as nonaccrual, 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 2002, provisions to the ALL account totaled $720 thousand compared to $230 thousand for 2001 and $175 thousand for 2000. Charge-offs, net of recoveries, totaled $241 thousand during 2002, compared to $396 thousand for 2001 and $162 thousand for 2000. 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 loan portfolio remains sound, provisions during 2002 were warranted because of the current balance in classified loans, increased average daily loan balances, apparent weaknesses in the local economy, the inherent risk associated with growth in commercial real estate and commercial business loans, and loan charge-offs. 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 the current position with a risk assessment worksheet.

     At December 31, 2002, the ALL to total loans was 0.96% compared to 0.92% at December 31, 2001, while the ALL to non-performing loans (coverage ratio) was 152.4% compared to 108.6% for the same periods. The December 31, 2002 balance in the ALL account of $3.6 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 both performing and non-performing loans based on current information available. During 2002, provisions to the ALL were allocated to commercial real estate loans due to the balance of impaired loans and loan charge-offs.

     At December 31, 2002, the Bancorp’s investment portfolio totaled $56.6 million and was invested as follows: 70.0% in U.S. government agency debt securities, 0.9% in U.S. government debt securities, 0.9% in municipal securities, and 28.2% in U.S. government agency mortgage-backed securities and collateralized mortgage obligations. At December 31, 2002, securities available-for-sale totaled $56.0 million or 99.0% of total securities. AFS securities are

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those the Bancorp may decide to sell if needed for liquidity, asset-liability management or other reasons. In addition, the Bancorp had $15.4 million in interest bearing balances in financial institutions, $1.6 million in federal funds sold, and $2.7 million in FHLB stock. During 2002, securities decreased by $10.7 million (15.9%), 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.

     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, 2002, deposits totaled $406.7 million. During 2002, deposit growth totaled $51.5 million (14.5%). Checking accounts increased $11.3 million (15.0%), money market deposit accounts (MMDAs) increased $19.8 million (43.4%), savings accounts increased $13.5 million (26.6%), and certificates of deposit increased by $6.9 million (3.7%). At December 31, 2002, the deposit base was comprised of 21.3% checking, 16.1% MMDAs, 15.7% savings accounts, and 46.9% 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 December 31, 2002, borrowed funds totaled $36.1 million compared to $45.0 million at December 31, 2001, a decrease of $8.9 million (19.8%). Repurchase agreements totaled $12.6 million compared to $15.6 million at December 31, 2001, a decrease of $3.0 million (19.1%). FHLB advances totaled $21.5 million, increasing $4.5 million, as the Bancorp extended the maturity structure of interest-bearing liabilities at cost effective interest rates. Other short-term borrowings totaled $1.9 million compared to $12.4 million at December 31, 2001, a decrease of $10.5 million as the Bancorp paid down 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., repurchase agreements and advances from the FHLB) as a source of funds.

     During 2002, cash and cash equivalents increased $18.3 million, compared to a decrease of $483 thousand for 2001, and an increase of $2.8 million for 2000. During 2002, the primary sources of cash and cash equivalents were deposit growth, proceeds from the maturities and sales of securities, loan sales, loan prepayments, and cash from operating activities. The primary uses of cash and cash equivalents were loan originations and loan participations purchased, the purchase of securities, the repayment of short-term borrowings, and the payment of common stock dividends. During 2002, net cash from operating activities totaled $7.6 million, compared to $5.6 million for 2001 and $5.3 million for 2000. The primary source of the increase during 2002 was the increase in net income and the sale of loans originated for sale. Cash outflows from investing activities totaled $29.0 million during 2002, compared to $48.9 million for 2001 and $28.7 million for 2000. The change during 2002 reflects loan growth and a reduction in securities balances. The net change in loans receivable and loan participations purchased totaled $38.8 million during 2002, compared to $17.4 million for 2001 and $30.6 million for 2000. During 2002, available-for-sale securities with expected calls were sold to reduce short-term borrowings. Cash flows from financing activities totaled $39.7 million during 2002, compared to $42.7 million for 2001 and $26.2 million for 2000. The change during 2002 reflects deposit growth and the reduction of short-term borrowing. Deposit growth during 2002 totaled $51.5 million, compared to $30.9 million for 2001 and $17.7 million for 2000. The decrease in FHLB advances and other borrowed funds totaled $8.9 million during 2002, compared to increases of $14.4 million during 2001 and $12.0 million for 2000. During 2002, the Bancorp used low cost advances to extend the maturity structure of interest-bearing liabilities while paying-off its line of credit. The Bancorp paid dividends on common stock of $3.1 million during 2002, compared to $2.8 million for 2001 and $2.5 million for 2000.

     During 2003, the Bancorp will complete the construction of a state-of-the-art corporate center in Munster, Indiana. The cost of the new facility is expected to be approximately $5.3 million. The facility will not have a material impact on noninterest expense during 2003. The corporate center will afford the Bancorp the opportunity to continue offering superior customer service, and to provide for future growth and operating efficiencies.

     At December 31, 2002, outstanding commitments to fund loans totaled $51.9 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. The following table presents the Bancorp’s consolidated long term, non-deposit related, contractual obligations as well as commitments to extend credit to borrowers, in aggregate and by payment due dates at December 31, 2002. Dollar amounts are in thousands.

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     Management strongly believes that safety and soundness is enhanced by maintaining a high level of capital. During 2002, stockholders’ equity increased by $3.3 million (9.1%). The increase resulted primarily from earnings of $5.5 million for 2002. In addition, $144 thousand represents proceeds from the exercise of 10,857 stock options. The Bancorp declared $3.1 million in cash dividends. The net unrealized gain on available-for-sale securities, net of tax, was $696 thousand. At December 31, 2002, book value per share was $14.29 compared to $13.15 at December 31, 2001.

     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 1) 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 2) 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 1 capital. In addition, the FRB and FDIC regulations provide for a minimum Tier 1 leverage ratio (Tier 1 capital to adjusted average assets) of 3% for financial institutions that meet certain specified criteria, including that they have the highest regulatory rating and are not experiencing or anticipating significant growth. All other financial institutions are required to maintain a Tier 1 leverage ratio of 3% plus an additional cushion of at least one to two percent.

     The following table shows that, at December 31, 2002, the Bancorp’s capital exceeded all regulatory capital requirements. At December 31, 2002, 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 2002 to 2001

     Net income for 2002 was $5.5 million, compared to $4.7 million for 2001, an increase of $783 thousand (16.6%). The earnings represent a return on average assets of 1.18% for 2002 compared to 1.15% for 2001. The return on average equity was 14.58% for 2002 compared to 13.49% for 2001.

     Net interest income for 2002 was $17.7 million, up $2.5 million (16.3%) from $15.2 million for 2001. The increase in net interest income was due to growth in average daily balances for interest earning assets and a falling cost of funds. The low interest rate environment of 2002 resulted in lower yields for investments and loans as maturing securities were reinvested at lower rates of return, while loans either repriced or refinanced at lower rates. During 2002, the cost of funds fell faster than yields on earning assets due to the maturity structure of the Bancorp’s certificates of deposit and growth in core accounts. The weighted-average yield on interest-earning assets was 6.26% for 2002 compared to 7.29% for 2001. The weighted-average cost of funds was 2.38% for 2002 compared to 3.55% for 2001. The impact of the 6.26% return on interest-earning assets and the 2.38% cost of funds resulted in a net interest spread of 3.88% for 2002 compared to 3.74% for 2001. During 2002, total interest income decreased by $644 thousand (2.3%) while total interest expense decreased by $3.1 million (23.6%). The net interest margin was 3.99% for 2002 compared to 3.90% for 2001.

     During 2002, interest income from loans decreased by $569 thousand (2.3%) compared to 2001. The decrease was due to lower yields on loans outstanding, as the current interest rate environment resulted in new originations at low rates, and continued increases in prepayment and refinance activity. The weighted-average yield on loans outstanding was 6.73% for 2002 compared to 7.72% for 2001. Loan balances averaged $365.6 million for 2002, up $39.7 million (12.2%) from $325.9 million for 2001. During 2002, interest income from securities and other interest earning assets decreased by $75 thousand (2.3%) compared to 2001. The decrease was due to lower portfolio yields. The weighted-average yield on securities and other interest earning assets was 4.10% for 2002 compared to 5.12% for 2001. Securities and other interest earning assets averaged $77.9 million for 2002, up $14.1 million (22.1%) from $63.8 million for 2001.

     Interest expense for deposits decreased by $3.2 million (27.2%) during 2002 compared to 2001. The decrease was due to a lower cost of funds. The weighted-average rate paid on deposits for 2002 was 2.23% compared to 3.45% for

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2001. The lower cost of funds was caused by core account growth and maturing certificates of deposit during a low interest rate environment. Total deposit balances averaged $383.3 million for 2002, up $42.4 million (12.4%) from $340.9 million for 2001. Interest expense on borrowed funds increased by $76 thousand (5.2%) during 2002 due to increases in average daily balances. The weighted-average cost of borrowed funds was 3.71% for 2002 compared to 4.72% for 2001. Borrowed funds averaged $41.8 million during 2002, up $10.6 million (34.0%) from $31.2 million for 2001, due to favorable interest rates. Borrowed funds have provided a cost-effective supplement to deposits for funding interest-earning asset growth.

     Noninterest income was $2.7 million for 2002, up $273 thousand (11.4%) from $2.4 million during 2001. During 2002, fees and service charges increased $60 thousand (3.5%) and income from Trust operations increased $86 thousand (20.3%) compared to 2001. During 2002, the Bancorp reported $176 thousand in gains on sales of loans compared to $64 thousand for 2001, due to an increase in the amount of loans sold. Gains on securities totaled $143 thousand during 2002 compared to $142 thousand for 2001, as falling interest rates enabled the Bancorp to sell securities with expected calls. In addition, the Bancorp reported $57 thousand in gains on sale of foreclosed real estate during 2002 compared to $12 thousand for 2001.

     Noninterest expense for 2002 was $10.9 million, up $948 thousand (9.6%) from $9.9 million for 2001. The increase in compensation and benefits was due to annual salary increases and additional staffing for current operations. Other expense changes were due to standard increases in operations. The Bancorp’s efficiency ratio for 2002 was 53.4% compared to 56.3% for 2001. 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 2002 totaled $3.3 million compared to $2.8 million for 2001, an increase of $523 thousand (19.0%). The increase was due to increased earnings. The combined effective federal and state tax rates for the Bancorp were 37.4% for 2002 and 36.9% for 2001.

Results of Operations -
Comparison of 2001 to 2000

     Net income for 2001 was $4.7 million, compared to $4.4 million for 2000, an increase of $339 thousand (7.8%). The earnings represent a return on average assets of 1.15% for 2001 compared to 1.17% for 2000. The return on average equity was 13.49% for 2001 compared to 13.30% for 2000.

     Net interest income for 2001 was $15.2 million, up $512 thousand (3.5%) from $14.7 million for 2000. The increase in net interest income was due to growth in average daily balances for interest earning assets. During 2001, the Federal Reserve Board cut interest rates 11 times for a total of 425 basis points, bringing the Fed Funds rate to 1.75%, its lowest level in 40 years. The Fed’s aggressive easing was in response to weakening national economy. The actions of the Federal Reserve Board resulted in significant repricing for both interest-earning assets and interest-bearing liabilities. Falling rates resulted in lower yields for investments and loans as securities were called, while loans either repriced or refinanced at lower rates. Yields fell faster than the cost of funds for most of the year as deposit rates lagged market decreases because of competitive pressures, the maturity structure of the Bancorp’s certificates of deposit, and the existing low rates on core accounts. The weighted-average yield on interest-earning assets was 7.29% for 2001 compared to 7.88% for 2000. The weighted-average cost of funds was 3.55% for 2001 compared to 3.95% for 2000. The impact of the 7.29% return on interest-earning assets and the 3.55% cost of funds resulted in a net interest spread of 3.74% for 2001 compared to 3.93% for 2000. During 2001, total interest income increased by $348 thousand (1.2%) while total interest expense decreased by $164 thousand (1.2%). The net interest margin was 3.90% for 2001 compared to 4.12% for 2000.

     During 2001, interest income from loans decreased by $392 thousand (1.5%) compared to 2000. The decrease was due to increased prepayment activity and lower yields as rates for new originations and refinances fell throughout the year. The weighted-average yield on loans outstanding was 7.72% for 2001 compared to 8.11% for 2000. Loan balances averaged $325.9 million for 2001, up $11.0 million (3.5%) from $314.9 million for 2000. During 2001, interest income from securities and other interest earning assets increased by $740 thousand (29.3%) compared to 2000. The increase was due to higher average daily balances. The weighted-average yield on securities and other interest earning assets was 5.12% for 2001 compared to 6.11% for 2000. Securities and other interest earning assets averaged $63.8 million for 2001, up $22.5 million (54.5%) from $41.3 million for 2000.

     Interest expense for deposits decreased by $302 thousand (2.5%) during 2001 compared to 2000. The decrease was due to a lower cost of funds. The weighted-average rate paid on deposits for 2001 was 3.45% compared to 3.83% for 2000. The lower cost of funds reflects a falling interest rate environment. Total deposit balances averaged $340.9 million for 2001, up $26.4 million (8.4%) from $314.5 million for 2000. Interest expense on borrowed funds increased by $138 thousand (10.3%) during 2001 due to increases in average daily balances. The weighted-average cost of borrowed funds was 4.72% for 2001 compared to 5.55% for 2000. Borrowed funds averaged $31.2 million during 2001, up $7.1 million (29.5%) from $24.1 million for 2000, due to favorable interest rates. Borrowed funds have provided a cost-effective supplement to deposits for funding interest-earning asset growth.

     Noninterest income was $2.4 million for 2001, up $407 thousand (20.4%) from $2.0 million during 2000. During 2001, fees and service charges increased $150 thousand (9.5%) and income from Trust operations increased $36 thousand (9.3%) compared to 2000. During 2001, the Bancorp reported $64 thousand in gains on sales of loans compared to $34 thousand for 2000. Gains on securities totaled $142 thousand during 2001, as falling interest rates enabled the Bancorp to sell securities with expected calls. In addition, the Bancorp reported $12 thousand in gains on sale of foreclosed real estate. No security gains or foreclosed real estate gains were reported during 2000.

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     Noninterest expense for 2001 was $9.9 million, up $462 thousand (4.9%) from $9.4 million for 2000. During 2001, management implemented initiatives focused on limiting the increase of noninterest expenses from Bancorp operations. The increase in compensation and benefits was due to annual salary increases and additional staffing for current operations resulting from the Hobart facility that opened during the fourth quarter of 2000. Other expense changes were due to standard increases in operations and the Hobart facility. The Bancorp’s efficiency ratio for 2001 was 56.3% compared to 56.6% for 2000.

     Income tax expenses for 2001 totaled $2.8 million compared to $2.7 million for 2000, an increase of $63 thousand (2.3%). The increase was due to increased earnings. The combined effective federal and state tax rates for the Bancorp were 36.9% for 2001 and 38.1% for 2000. The reduction during 2001 was a result of investments in low-income housing tax credits.

Impact of Inflation and Changing Prices

     The financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, 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

     Statements contained in this report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 also intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. The Bancorp cautions readers that forward-looking statements, including without limitation those relating to the Bancorp’s future business prospects, interest income and expense, net income, liquidity, and capital needs are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to, among other things, factors identified in this filing, including the following:

     Regulatory Risk. The banking industry is heavily regulated. These regulations are intended to protect depositors, not shareholders. As discussed above, the Bank and Bancorp are subject to regulation and supervision by the DFI, FDIC, FRB, and SEC (Securities and Exchange Commission). The burden imposed by federal and state regulations puts banks at a competitive disadvantage compared to less regulated competitors such as finance companies, mortgage banking companies and leasing companies. The banking industry continues to lose market share to competitors.

     Legislation. Because of concerns relating to the competitiveness and the safety and soundness of the industry, Congress continues to consider a number of wide-ranging proposals for altering the structure, regulation, and competitive relationships of the nation’s financial institutions. Among such bills are proposals to combine banks and thrifts under a unified charter, to combine regulatory agencies, and to further expand the powers of depository institutions, bank holding companies, and competitors of depository institutions. Management cannot predict whether or in what form any of these proposals will be adopted or the extent to which the business of the Bancorp or the Bank may be affected thereby.

     Credit Risk. One of the greatest risks facing lenders is credit risk, that is, the risk of losing principal and interest due to a borrower’s failure to perform according to the terms of a loan agreement. While management attempts to provide an allowance for loan losses at a level adequate to cover probable incurred losses based on loan portfolio growth, past loss experience, general economic conditions, information about specific borrower situations, and other factors, future adjustments to reserves may become necessary, and net income could be significantly affected, if circumstances differ substantially from assumptions used with respect to such factors.

     Exposure to Local Economic Conditions. The Bank’s primary market area for deposits and loans encompasses Lake County, in northwest Indiana, where all of its offices are located. Ninety-five percent of the Bank’s business activities are within this area. This concentration exposes the Bank to risks resulting from changes in the local economy. A dramatic drop in local real estate values would, for example, adversely affect the quality of the Bank’s loan portfolio.

     Interest Rate Risk. The Bancorp’s earnings depend to a great extent upon the level of net interest income, which is the difference between interest income earned on loans and investments and the interest expense paid on deposits and other borrowings. Interest rate risk (IRR) is the risk that the earnings and capital will be adversely affected by changes in interest rates. Further discussion of interest rate risk can be found under the caption “Asset/Liability Management and Market Risk” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this document.

     Competition. The activities of the Bancorp and the Bank in the geographic market served involve competition with other banks as well as with other financial institutions and enterprises, many of which have substantially greater resources than those available to the Bancorp. In addition, non-bank competitors are generally not subject to the extensive regulation applicable to the Bancorp and the Bank.

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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, 2002 and 2001 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, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

		Crowe, Chizek and Company LLP
South Bend, Indiana
January 7, 2003

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Consolidated Balance Sheets