EXHIBIT 13

Annual Report 2004

Dear Shareholder:

     On behalf of your employees and directors, it is my honor to report to you on your company’s 2004 performance.

     For the year, the NorthWest Indiana Bancorp reported earnings of $6.3 million, a 6.0% increase over the prior year. Our return on assets (ROA) was 1.17% and our return on equity (ROE) was 14.64%. As a result, income per basic share was $2.28 and per diluted share was $2.24.

     Improving shareholder value drives our strategic plan. For the year, our price per share rose from $30.00 to $36.50 and the Board increased our dividend 3.3% for a total return of 22.1%. Our dividend payout for the year 2004 was 54.6%, a figure in line with our guidelines for rewarding shareholders while managing our capital for future growth.

     The leverage of our capital permitted assets to grow 9.6% to $557.4 million. At year-end, stockholder equity stood at $44.1 million or 7.9% of total assets, while the book value of shares outstanding stood at $15.90.

     As we look at the last year, the good news of our financial performance is tempered by our commitment to improve. The slow pace of economic activity during the first half of 2004 resulted in lower than anticipated loan demand in the manufacturing, development, and consumer sectors. Sentiment improved during the last six months of the year giving rise to improved performance particularly in the last quarter.

David A. Bochnowski,
Chairman and Chief Executive Officer

NorthWest Indiana Bancorp

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     For today and tomorrow we continue to focus on core account growth, lending in our community, income from banking activities, asset quality, and operating efficiency. Core deposits — checking, savings, and money market accounts — grew $25.7 million and provided funding for a $24.0 million increase in loan balances. Our non-interest income was up $344 thousand or 11.6% while non-performing loans to total assets was a respectable 0.19% at year-end. In addition, at year-end 20.5% of our checking account customers were utilizing on-line banking and another 49.3% had a Peoples ATM or Debit Card.

     Operating expenses were up 9.4% over the prior year, a direct result of additional staffing, a full year of expenses associated with our new corporate facility, and investments in technology. The decision to enhance customer service paid off in the fourth quarter with earnings rising 10.8% as Peoples Bank capitalized on the rebound of the local economy.

     Change continues to be the one constant of our business. Our mission is to deliver the best possible banking, lending, and investment experience to our customers. To enhance shareholder value, we reviewed the alignment of our business operations with the need to link performance to achieving our mission and strategic goals. As a result, we adopted a Balanced ScoreCard management system and reorganized the company to achieve the next level of asset size and operating performance over the next five years.

Banking and Lending Group
Joel Gorelick, Executive Vice President

     The Balanced ScoreCard management system is designed to translate the Bancorp’s mission and strategy into a comprehensive set of financial and non-financial targets and performance drivers. Outcomes are measured against expected results and are communicated on a monthly basis to management and directors.

NorthWest Indiana Bancorp

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     Operating at the next level requires a highly motivated sales force, exceptional support for customers and employees, continued emphasis on asset quality, consistent core account and loan growth, expanded risk management, growing internal and external awareness of our brand, effective communications, and quality training.

     Our growth goals demand an organizational structure that clearly defines the responsibilities and expectations of each employee along with the Balanced ScoreCard reporting system that measures and links our financial and non-financial processes to operating results.

Investment and Trust Services Group
Steve Ziemba

Not pictured: Randall H. Walker

     The organizational structure includes the Banking and Lending Group, the Investment and Trust Services Group, the Operations and Systems Development Group, the Brand Learning and Communications Group, the Finance and Controls Group, and the Risk Management Group.

Banking and Lending Group
Cathy Gonzalez, Dan Moser, Carla Houck, Rod Grove, Todd Scheub

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     The Banking and Lending Group, under the direction of Joel Gorelick, has primary responsibility for all customer contact and sales activities for our Banking Center personnel and loan officers. As we move forward, the banking side of the business will expand into new markets, enter into private banking relationships, and increase customer utilization of the Investment and Trust Services Group’s capabilities. On the lending side we will continue to offer commercial, retail, and consumer loans. New emphasis has been placed on acquisition, construction, and development lending to meet the demands of our market.

Investment and Trust Services Group
Jon DeGuilio, Executive Vice President

     Key personnel in this Group include Rod Grove, Senior Banking Officer; Carla Houck, Director of Banking Center Operations; Cathy Gonzalez, Retail Lending; Dan Moser, Acquisition, Construction, and Development Lending; and, Todd Scheub, Commercial Lending.

     The Investment and Trust Services Group, under the direction of Jon DeGuilio, will continue to serve our customer base with traditional products with an emphasis on annuity sales, college savings plans, and employer benefit plans. They will work closely with the Banking and Lending Group in response to growing customer demand for an expanded choice of investment alternatives.

Operations and Systems Development Group
Mary Mulroe, Tanya Buerger, Christopher Grencik, Donna Germek

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     The Operations and Systems Development Group, under the direction of Tanya Buerger, includes all Loan Administration, Operations, and Information Technology personnel. This Group supports our mission and long-term strategic goals through the secure and reliable delivery of exceptional products and services while providing all employees with the tools, technology, and support needed to perform their duties.

Brand Learning and Communication Group
Shannon Franko, Linda Kollada

     The Brand Learning and Communication Group has responsibility for delivering our brand of “friendly people for today’s banking” to our employees and customers. Linda Kollada directs our Human Resources capability and is responsible for hiring, training, and motivating our employees consistent with our mission. Shannon Franko, our Marketing Director, has responsibility for effectively communicating our brand, products, and services to our employees and customers.

     The Finance and Controls Group, under the direction of Bob Lowry, has responsibility for financial and regulatory reporting as well as budgeting, capital planning, accounting, and internal controls. This Group also measures short and long-term performance goals and makes timely reports to management and your Board of Directors while facilitating reports to shareholders.

Finance and Controls Group
Bob Lowry, Stacy Januszewski, Peymon Torabi

Not pictured: Arlene Wohadlo

NorthWest Indiana Bancorp

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     The Risk Management Group, which consists of our Internal Audit, Compliance, and Loan Review functions, enhances corporate governance through the review of bank operations consistent with accounting and banking rules and regulations. This Group reports independently and directly to your Board of Directors on all aspects of bank performance and assists in verifying the integrity of reports to shareholders.

Risk Management Group
Christine Friel, David Homrich, Linda Nemeth

     During 2004 the Bancorp made several enhancements to corporate governance to meet strategic objectives and protect the interests of shareholders, customers, and community stakeholders. In addition to the existing management Disclosure Committee that certifies financial information to the Chief Executive Officer and the Chief Financial Officer, the Board chartered a Corporate Governance Committee comprised of Board members who are independent of management. They elected Director Stan Mize as their Chairman and among the committee’s duties are the nomination of directors, assignment of Board committees, assessment of director performance, and adherence to the Bancorp’s Code of Ethics by management and directors.

     The effectiveness of our internal control structure was reviewed for compliance with the strict requirements of Federal Deposit Insurance Corporation Improvement Act (FDICIA) that applies to banks over $500 million in assets. We were found to be in full compliance, providing assurance that the Bancorp operates in a manner consistent with this high regulatory standard.

NorthWest Indian Bancorp

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     A significant management change occurred during the year as Ed Furticella, Chief Financial Officer, renewed his academic career with a teaching position at Purdue University Calumet. The transition of his position was coordinated over a three-year period with Bob Lowry taking the reins in November of 2004. Ed has been a source of strength and has made a significant impact on our operating results as well as on the professional and personal development of all his co-workers. We are happy for him as he pursues his dream and at the same time remain grateful that he will continue to guide us as a consultant and director.

The new Munster Banking Center was redesigned in 2004 and will serve as the prototype of future Banking Centers.

     In January of 2005, our Chairman Emeritus, Ben A. Bochnowski, left this earth after a lifetime dedicated to his community and building Peoples Bank. When he started in the mid-1950’s, Peoples had $5 million in assets and eight employees. His warm smile and friendly words will be missed, but his legacy of fair dealing, exceptional customer service, community involvement, and responsiveness to changes in the marketplace lives on.

     Thank you for the confidence demonstrated with your investment in the NorthWest Indiana Bancorp. The fundamentals that guide the leadership of your company are built on commitment and a passion for excellence. In the years ahead, your management team will continue to work hard to build franchise value and market value, as well as to fulfill our role as a leading community bank.

		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 eight 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 Investment and Trust Services 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, 2005, the Bancorp had 2,777,665 shares of common stock outstanding and 422 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, 2004, the Bancorp had total assets of $557.4 million and total deposits of $451.6 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, 2004, stockholders’ equity totaled $44.1 million, with book value per share at $15.90. Net income for 2004 was $6.3 million, or $2.28 basic earnings per common share and $2.24 diluted earnings per common share. The return on average assets (ROA) was 1.17%, while the return on average stockholders’ equity (ROE) was 14.64%.

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 possible changes in interest rates.

     The Bancorp is primarily a portfolio lender. Mortgage banking activities are generally limited to the sale of fixed rate mortgage loans with contractual maturities exceeding fifteen years. These loans are identified as held for sale when originated and sold, on a case-by-case basis, in the secondary market as part of the Bancorp’s efforts to manage interest rate risk.

     The primary objective of the Bancorp’s investment portfolio is to provide for the liquidity needs of the Bancorp and to contribute to profitability by providing a stable flow of dependable earnings. Funds are generally invested in federal funds, interest-bearing balances in financial institutions, U.S. government securities, federal agency securities, and obligations of state and local municipalities. 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 2004, the Bancorp did not have any 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 five 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 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, 2004 and 2003. 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, 2004

Interest Rate Risk at December 31, 2003

     The tables show that the Bancorp has managed interest rate risk within the policy limits set by the Board of Directors. At December 31, 2004, an increase in interest rates of 2% would have resulted in a 3.9% decrease in net interest income and a 13.3% decrease in the net economic value of equity, compared to a 1.2% increase in net interest income and a 18.8% decrease in the net economic value of equity at December 31, 2003. During 2004, the Bancorp has managed interest rate risk by generally selling fixed rate loans with contractual maturities exceeding 15 years, maintaining the short duration of the securities portfolio, growing core account balances, implementing net interest income pricing strategies, and extending the maturity of rate-sensitive liabilities through FHLB advances. In addition, during the third quarter the Bancorp sold $12.2 million in twenty and thirty year fixed rate loans as a part of a balance sheet restructuring strategy to reduce interest rate risk. The restructuring reduced price volatility in the mortgage portfolio, provided for the purchase of bank owned life insurance and funded shorter duration loans.

Financial Condition

     During the year ended December 31, 2004, total assets increased by $48.6 million (9.6%), with interest-earning assets increasing by $40.1 million (8.4%). At December 31, 2004, interest-earning assets totaled $516.7 million and represented 92.7% of total assets. Loans totaled $433.8 million and represented 84.0% of interest-earning assets, 77.8% of total assets and 96.1% of total deposits. The loan portfolio, which is the Bancorp’s largest asset, is a significant source of both interest and fee income. The Bancorp’s lending strategy stresses quality growth, product diversification, and competitive and profitable pricing. The loan portfolio includes $228.0 million (52.6%) in residential real estate loans, $104.1 million (24.0%) in commercial and multifamily real estate loans, $47.5 million (10.9%) in commercial business loans, $38.6 million (8.9%) in construction and land development loans, $11.8 million (2.7%) in government and other loans, and $4.7 million

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(1.1%) in consumer loans. During 2004, loans increased by $24.0 million (5.9%), with increases taking place in construction and land development loans, commercial business loans and government loans. Adjustable rate loans comprised 52.5% of total loans at year-end. During 2004, loan growth was affected by an increase in commercial loan payoffs and a balance sheet restructuring strategy designed to reduce interest rate risk that included the sale of $12.2 million in twenty and thirty year fixed rate loans. Management believes that, despite the moderate pace of its local economy, the positive trend in loan growth is likely to continue during 2005. Management expects to fund future loan growth with retail funds.

     During 2004, the Bancorp sold $3.9 million in fixed rate mortgages originated for sale compared to $19.3 million in 2003 and $7.5 million in 2002. In addition, the Bancorp sold $12.2 million in twenty and thirty year fixed rate loans as a part of a balance sheet restructuring strategy to reduce interest rate risk. The restructuring reduced price volatility in the mortgage portfolio, provided for the purchase of bank owned life insurance and funded shorter duration loans. Net gains realized from the sales totaled $234 thousand, $495 thousand and $176 thousand for 2004, 2003 and 2002. The current year decrease in gain on sale of loans is a result of the current interest rate environment and a reduction of loans originated for sale. Net mortgage loan servicing fees totaled $9 thousand for 2004, compared to net servicing amortization of $47 thousand for 2003 and net servicing amortization of $7 thousand for 2002. At December 31, 2004, the Bancorp had $39 thousand classified as loans held for sale. During 2005, 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.

     Non-performing loans include those loans that are 90 days or more past due and those loans that have been placed on non-accrual status. Non-performing loans totaled $1.0 million at December 31, 2004 compared to $1.7 million at December 31, 2003, a decrease of $670 thousand or 39.0%. The ratio of non-performing loans to total loans was 0.24% at December 31, 2004 compared to 0.42% at December 31, 2003. The ratio of non-performing loans to total assets was 0.19% at December 31, 2004, compared to 0.34% at December 31, 2003. The December 31, 2004 balance includes $983 thousand in loans accounted for on a non-accrual basis and $66 thousand in accruing loans which were contractually past due 90 days or more. Loans internally classified as substandard totaled $3.2 million at December 31, 2004, an increase of $535 thousand from the $2.7 million reported at December 31, 2003. No loans were classified as doubtful or loss. Substandard loans include non-performing loans and potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms. In addition to identifying and monitoring non-performing and other classified loans, management maintains a list of watch loans. Watch loans represent loans management is more closely monitoring due to one or more factors that may cause the loan to become classified. Watch loans were $7.7 million at December 31, 2004, compared to $8.3 million at December 31, 2003.

     At December 31, 2004, one loan totaling $266 thousand has been classified as impaired, compared to three loans totaling $611 thousand at December 31, 2003. 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 year ended December 31, 2004.

     At December 31, 2004, management is of the opinion that there are no loans, except those discussed above, where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as non-accrual, past due or restructured loans. Also, at December 31, 2004, there were no other interest bearing assets that would be required to be disclosed as non-accrual, past due, restructured or potential problems if such assets were loans. Management does not 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 probable incurred losses that arise from the loan portfolio and is not segregated for, or allocated to, any particular loan or group of loans. During the year ended December 31, 2004, additions to the ALL account totaled $385 thousand compared to $420 thousand for the year ended December 31, 2003. Charge-offs, net of recoveries, totaled $280 thousand for the current period compared to $268 thousand for the year ended December 31, 2003. Changes in the provision are directionally consistent with the current level of non-performing and impaired loans, and takes into consideration management’s current judgments about the credit quality of the loan portfolio, loan portfolio growth, changes in the portfolio mix and local economic conditions.

     The determination of the amounts of the ALL and provisions for loan losses is based on management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectibility as of the reporting date. The appropriateness of the current year provision and the overall adequacy of the ALL are determined through a disciplined and consistently applied quarterly process that combines a review of the current position with a risk assessment worksheet. The risk assessment worksheet covers the residential, commercial real estate, commercial business, and consumer loan portfolios. Management uses a risk rating system to assist in determining the appropriate level for the ALL. Management assigns risk factors to non-performing loans; loans that management has internally classified as impaired; loans that management has internally classified as substandard, doubtful, loss, or watch; and performing loans.

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     Risk factors for non-performing and internally classified loans are based on an analysis of the estimated collateral liquidation value for individual loans defined as substandard or doubtful. Estimated collateral liquidation values are based on established loan underwriting standards and adjusted for current mitigating factors on a loan-by-loan basis. Aggregate substandard loan collateral deficiencies are determined for residential, commercial real estate, commercial business, and consumer loan portfolios. These deficiencies are then stated as a percentage of the total substandard balances to determine the appropriate risk factors.

     Risk factors for performing and non-classified loans are based on the average net charge-offs for the most recent five years, which are then stated as a percentage of average loans for the same period. Historical risk factors are calculated for residential, commercial real estate, commercial business, and consumer loans. The historical factors are then adjusted for current subjective risks attributable to: local and national economic factors; loan growth and changes in loan composition; organizational structure; composition of loan staff; loan concentrations; policy changes and out of market lending activity.

     The ALL to total loans was 0.90% at December 31, 2004 compared to 0.92% at December 31, 2003, while the ALL to non-performing loans (coverage ratio) was 371.0% compared to 220.3% for the same periods. The December 31, 2004 balance in the ALL account of $3.9 million is considered adequate by management after evaluation of the loan portfolio, past experience and current economic and market conditions. The allocation of the ALL reflects performance and growth trends within the various loan categories, as well as, consideration of the facts and circumstances that affect the repayment of individual loans, and loans which have been pooled as of the evaluation date, with particular attention given to non-performing loans and loans which have been classified as substandard, doubtful or loss. Management has allocated general reserves to both performing and non-performing loans based on current information available.

     At December 31, 2004, the Bancorp’s investment portfolio totaled $82.9 million and was invested as follows: 51.9% in U.S. government agency debt securities, 31.3% in U.S. government agency mortgage-backed securities and collateralized mortgage obligations, and 13.4% in municipal securities. At December 31, 2004, securities available-for-sale totaled $69.2 million or 83.4% of total securities. Available for sale securities are those the Bancorp may decide to sell if needed for liquidity, asset-liability management or other reasons. In addition, the Bancorp had $2.9 million in FHLB stock. During 2004, securities increased by $16.4 million (24.7%), as deposit growth outpaced loan growth.

     During 2004, the Bank purchased $8.0 million in bank owned life insurance. The business purpose of the bank owned life insurance is to offset the cost of Bancorp sponsored employee benefits. The bank owned life insurance is recorded as an asset on the Bancorp’s balance sheet. Increases in cash value of the policies are recorded as noninterest income.

     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, 2004, deposits totaled $451.6 million. During 2004, deposit growth totaled $29.9 million (7.1%). Checking accounts increased $19.9 million (21.4%), money market deposit accounts (MMDA’s) increased $5.4 million (7.9%), savings accounts increased $415 thousand (0.6%), and certificates of deposit increased by $4.2 million (2.2%). At December 31, 2004, the deposit base was comprised of 25.0% checking, 16.3% MMDAs, 15.6% savings accounts, and 43.1% certificates of deposit. The growth in deposits was a result of competitive product offerings, an aggressive marketing program, and employee incentive programs rewarding new account openings.

     Borrowings are primarily used to fund asset growth not supported by deposit generation. At December 31, 2004, borrowed funds totaled $57.2 million compared to $40.9 million at December 31, 2003, an increase of $16.3 million (39.9%). Repurchase agreements totaled $11.5 million at December 31, 2004 and 2003. FHLB advances totaled $39.5 million, increasing $13.0 million, as the Bancorp extended the maturity structure of interest-bearing liabilities at cost effective interest rates. In addition, the outstanding balance on the FHLB line of credit was $5.2 million at the end of the current year. Other short-term borrowings totaled $1.0 million compared to $1.4 million at December 31, 2003, a decrease of $404 thousand as the Bancorp paid down short-term funding.

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.

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     During 2004, cash and cash equivalents increased $328 thousand, compared to a decrease of $19.1 million for 2003, and an increase of $18.3 million for 2002. During 2004, the primary sources of cash and cash equivalents were from the maturities and sales of securities, loan sales and prepayments, deposit growth, FHLB advances 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 purchase of bank owned life insurance, and the payment of common stock dividends. During 2004, cash from operating activities increased to $7.9 million, compared to $7.3 million for 2003 and $7.2 million for 2002. The 2004 increase in cash provided by operating activities was a result of the sale of loans. Cash outflows from investing activities totaled $50.8 million during 2004, compared to $43.2 million during 2003 and $28.6 million for 2002. The increase during 2004 was due primarily to security purchases, loan originations and the purchase of bank owned life insurance. During 2004, excess liquidity was reinvested into the Bancorp’s securities portfolio. The net change in loans receivable and loan participations purchased totaled $19.0 million during 2004, compared to $22.7 million during 2003 and $24.0 million for 2002. Cash flows from financing activities totaled $43.2 million in 2004, compared to $16.7 million in 2003 and $39.7 million during 2002. The change during 2004 was primarily due to deposit growth. Deposit growth during 2004 totaled $29.9 million, compared to $15.0 million for 2003 and $51.5 million for 2002. FHLB advances increased by $13.0 million during 2004, compared to $5.0 million during 2003 and $4.5 million during 2002. During 2004, the Bancorp used low cost advances to extend the maturity structure of interest-bearing liabilities. The Bancorp paid dividends on common stock of $3.4 million during 2004, compared to $3.2 million during 2003 and $3.0 million for 2002.

     Management strongly believes that safety and soundness is enhanced by maintaining a high level of capital. During 2004, stockholders’ equity increased by $2.5 million (6.1%). The increase resulted primarily from earnings of $6.3 million for 2004. In addition, $406 thousand represents proceeds from the issuance of 18,747 shares of common stock from stock-based compensation plans. The Bancorp declared $3.4 million in cash dividends. The net unrealized loss on available-for-sale securities, net of tax, was $720 thousand. At December 31, 2004, book value per share was $15.90 compared to $15.09 at December 31, 2003.

     The Bancorp is subject to risk-based capital guidelines adopted by the Board of Governors of the Federal Reserve System (the FRB), and the Bank is subject to risk-based capital guidelines adopted by the FDIC. As applied to the Bancorp and the Bank, the FRB and FDIC capital requirements are substantially 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, 2004, the Bancorp’s capital exceeded all regulatory capital requirements. At December 31, 2004, the Bancorp’s and the Bank’s regulatory capital ratios were substantially the same. The dollar amounts are in millions.

Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements

     The following table presents the Bancorp’s consolidated long term, contractual obligations as well as commitments to extend credit to our borrowers, in aggregate and by payment due dates at December 31, 2004. Dollar amounts are in thousands.

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     At December 31, 2004, outstanding commitments to fund loans totaled $68.2 million. Approximately 87% 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. Except for the items disclosed in the table above, the Bancorp has no other off-balance sheet arrangements, which will have a current or future effect on results of operations, liquidity, capital expenditures or resources.

     At December 31, 2004, management is not aware of any current recommendations by the regulatory authorities, which if they were to be implemented would have a material effect on the Bancorp’s liquidity, capital resources or operations.

Results of Operations - Comparison of 2004 to 2003

     Net income for 2004 was $6.3 million, compared to $5.9 million for 2003, an increase of $354 thousand (6.0%). The earnings represent a return on average assets of 1.17% for 2004 compared to 1.20% for 2003. The return on average equity was 14.64% for 2004 compared to 14.65% for 2003.

     Net interest income for 2004 was $19.8 million, up $920 thousand (4.9%) from $18.8 million for 2003. The increase in net interest income was due to the cost of funds falling more rapidly than the yield on earning assets and the growth in average daily balances for interest earning assets and core deposits. The low interest rate environment during 2004 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 2004, 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 deposits. The weighted-average yield on interest-earning assets was 5.31% for 2004 compared to 5.65% for 2003. The weighted-average cost of funds was 1.40% for 2004 compared to 1.67% for 2003. The impact of the 5.31% return on interest-earning assets and the 1.40% cost of funds resulted in a net interest spread of 3.91% for 2004 compared to 3.98% for 2003. During 2004, total interest income increased by $257 thousand (1.0%) while total interest expense decreased by $663 thousand (8.8%). The net interest margin was 3.94% for 2004 compared to 4.04% for 2003.

     During 2004, interest income from loans decreased by $424 thousand (1.8%) compared to 2003. The decrease was due to lower yields on loans outstanding, as existing variable rate portfolio loans are repricing at lower rates, and commercial real estate loan and commercial business loan prepayment activity. The weighted-average yield on loans outstanding was 5.71% for 2004 compared to 6.11% for 2003. Loan balances averaged $415.1 million for 2004, up $20.1 million (5.1%) from $395.0 million for 2003. During 2004, interest income from securities and other interest earning assets increased by $681 thousand (30.6%) compared to 2003. The increase was due to higher average balances and an increase in portfolio yields. The weighted-average yield on securities and other interest earning assets was 3.37% for 2004 compared to 3.13% for 2003. Securities and other interest earning assets averaged $86.1 million for 2004, up $14.9 million (20.9%) from $71.2 million for 2003.

     Interest expense for deposits decreased by $871 thousand (14.0%) during 2004 compared to 2003. The decrease was due to a lower cost of funds. The weighted-average rate paid on deposits for 2004 was 1.21% compared to 1.51% for 2003. 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 $440.8 million for 2004, up $28.6 million (6.9%) from $412.2 million for 2003. Interest expense on borrowed funds increased by $208 thousand (15.9%) during 2004 due to an increase in average daily balances. The weighted-average cost of borrowed funds was 3.10% for 2004 compared to 3.48% for 2003. Borrowed funds averaged $49.0 million during 2004, up $11.3 million (30.0%) from $37.7 million for 2003. Borrowed funds have provided a cost-effective supplement to deposits for funding interest-earning asset growth.

     Noninterest income was $3.3 million for 2004, up $344 thousand (11.6%) from $3.0 million during 2003. During 2004, fees and service charges increased $248 thousand (13.2%). The increase was primarily due to loan prepayment penalties and deposit account growth. Fees from trust operations totaled $498 thousand for 2004, compared to $444 thousand for 2003, an increase of $54 thousand (12.2%). During 2004, the Bancorp reported $234 thousand in gains on sales of loans compared to $495 thousand for 2003. The decrease in gains on sales of loans was a result of fewer loans sold and lower profits recognized due to the changing interest rate environment. Gains on securities totaled $284 thousand during 2004 compared to $132 thousand for 2003, as securities near maturity were sold and reinvested at higher yields. Income from increases in the cash value of bank owned life insurance totaled $147 thousand during the current year, compared to $0 in 2003. In addition, the Bancorp reported $1 thousand in gains on the sale of foreclosed real estate during 2004 compared to losses of $4 thousand for 2003.

     Noninterest expense for 2004 was $13.2 million, up $1.1 million (9.4%) from $12.0 million for 2003. During the current year, compensation and benefits totaled $6.8 million, an increase of $653 thousand (10.6%) compared to $6.2 million for 2003. The increase was primarily due to additional staffing to enhance customer service and standard compensation increases. Occupancy and equipment totaled $2.2 million for 2004, an increase of $164 thousand (8.1%) compared to $2.0 million for 2003. The increase is a result of depreciation expense related to facility, equipment and technology expenditures incurred throughout the year.

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In addition, operating expenses were incurred as a result of utilizing the Bancorp’s new corporate center for a full year. Marketing expense totaled $233 thousand for 2004, an increase of $46 thousand (24.6%), compared to $187 thousand for 2003. The increased marketing expenses were a result of a focused effort to communicate the Bancorp’s brand, while selling its products and services. The change in data processing and other expense was due primarily to account growth, expansion of banking activities and standard increases in operations. The Bancorp’s efficiency ratio for 2004 was 58.0% compared to 56.3% for 2003. 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 2004 totaled $3.2 million compared to $3.4 million for 2003, a decrease of $194 thousand (5.9%). The combined effective federal and state tax rates for the Bancorp were 33.9% for 2004 and 36.5% for 2003. The decrease was due to an increased investment in tax-exempt investments, loans and the purchase of bank owned life insurance.

Results of Operations - Comparison of 2003 to 2002

     Net income for 2003 was $5.9 million, compared to $5.5 million for 2002, an increase of $443 thousand (8.1%). The earnings represent a return on average assets of 1.20% for 2003 compared to 1.18% for 2002. The return on average equity was 14.65% for 2003 compared to 14.58% for 2002.

     Net interest income for 2003 was $18.8 million, up $1.2 million (6.6%) from $17.7 million for 2002. The increase in net interest income was due to the cost of funds falling more rapidly than the yield on earning assets and the growth in average daily balances for interest earning assets. The low interest rate environment of 2003 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 2003, 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 5.65% for 2003 compared to 6.26% for 2002. The weighted-average cost of funds was 1.67% for 2003 compared to 2.38% for 2002. The impact of the 5.65% return on interest-earning assets and the 1.67% cost of funds resulted in a net interest spread of 3.98% for 2003 compared to 3.88% for 2002. During 2003, total interest income decreased by $1.4 million (5.1%) while total interest expense decreased by $2.6 million (25.6%). The net interest margin was 4.04% for 2003 compared to 3.99% for 2002.

     During 2003, interest income from loans decreased by $458 thousand (1.9%) compared to 2002. 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 6.11% for 2003 compared to 6.73% for 2002. Loan balances averaged $395.0 million for 2003, up $29.4 million (8.0%) from $365.6 million for 2002. During 2003, interest income from securities and other interest earning assets decreased by $966 thousand (30.3%) compared to 2002. The decrease was due to lower portfolio yields and average daily balances. The weighted-average yield on securities and other interest earning assets was 3.13% for 2003 compared to 4.10% for 2002. Securities and other interest earning assets averaged $71.2 million for 2003, down $6.7 million (8.6%) from $77.9 million for 2002.

     Interest expense for deposits decreased by $2.3 million (27.4%) during 2003 compared to 2002. The decrease was due to a lower cost of funds. The weighted-average rate paid on deposits for 2003 was 1.51% compared to 2.23% for 2002. 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 $412.2 million for 2003, up $28.9 million (7.5%) from $383.3 million for 2002. Interest expense on borrowed funds decreased by $239 thousand (15.4%) during 2003 due to lower borrowing costs and average daily balances. The weighted-average cost of borrowed funds was 3.47% for 2003 compared to 3.71% for 2002. Borrowed funds averaged $37.7 million during 2003, down $4.1 million (9.8%) from $41.8 million for 2002. Borrowed funds have provided a cost-effective supplement to deposits for funding interest-earning asset growth.

     Noninterest income was $3.0 million for 2003, up $293 thousand (11.0%) from $2.7 million during 2002. During 2003, fees and service charges increased $92 thousand (5.2%). The increase was due to account growth and increased activity. Fees from Trust operations totaled $444 thousand for 2003, compared to $509 thousand for 2002. During 2003, the Bancorp reported $495 thousand in gains on sales of loans compared to $176 thousand for 2002, due to the current low interest rate environment and increase in volume sold. Gains on securities totaled $132 thousand during 2003 compared to $143 thousand for 2002, as securities with higher prepayment speeds were sold and reinvested at higher yields. In addition, the Bancorp reported $4 thousand in losses on the sale of foreclosed real estate during 2003 compared to gains of $57 thousand for 2002.

     Noninterest expense for 2003 was $12.0 million, up $1.2 million (10.8%) from $10.9 million for 2002. The increase in compensation and benefits was due to annual salary increases and additional staffing for current operations. The increase in occupancy expense was due to increased depreciation expense for investment in technology and capital expenditures for the new corporate center. Other expense changes were due to standard increases in operations. The Bancorp’s efficiency ratio for 2003 was 55.2% compared to 53.4% for 2002. The ratio is determined by

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dividing total noninterest expense by the sum of net interest income and total noninterest income for the period.

     Income tax expenses for 2003 totaled $3.4 million compared to $3.3 million for 2002, an increase of $134 thousand (4.1%). The combined effective federal and state tax rates for the Bancorp were 36.5% for 2003 and 37.4% for 2002. The increase was due to increased earnings. The reduction during 2003 was a result of an increase in tax-exempt investments and loans.

Critical Accounting Policies

     Critical accounting policies are those accounting policies that management believes are most important to the portrayal of the Bancorp’s financial condition and that require management’s most difficult, subjective or complex judgments. The Bancorp’s critical accounting policies are summarized below:

     Allowance for Loan Losses – The Bancorp maintains an Allowance for Loan Losses (ALL) to absorb probable incurred credit losses that arise from the loan portfolio. The ALL is increased by the provision for loan losses, and decreased by charge-offs net of recoveries. The determination of the amounts of the ALL and provisions for loan losses is based upon management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectibility. The methodology used to determine the current year provision and the overall adequacy of the ALL includes a disciplined and consistently applied quarterly process that combines a review of the current position with a risk assessment worksheet. Factors that are taken into consideration in the analysis include an assessment of national and local economic trends, a review of current year loan portfolio growth and changes in portfolio mix, and an assessment of trends for loan delinquencies and loan charge-off activity. Particular attention is given to non-accruing loans and accruing loans past due 90 days or more, and loans that have been classified as substandard, doubtful, or loss. Changes in the provision are directionally consistent with changes in observable data.

     Commercial and industrial, and commercial real estate loans that exhibit credit weaknesses and loans that have been classified as impaired are subject to an individual review. Where appropriate, ALL allocations are made to these loans based on management’s assessment of financial position, current cash flows, collateral values, financial strength of guarantors, industry trends, and economic conditions. ALL allocations for homogeneous loans, such as residential mortgage loans and consumer loans, are based on historical charge-off activity and current delinquency trends. Management has allocated general reserves to both performing and non-performing loans based on historical data and current information available.

     Risk factors for non-performing and internally classified loans are based on an analysis of the estimated collateral liquidation value for individual loans defined as substandard or doubtful. Estimated collateral liquidation values are based on established loan underwriting standards and adjusted for current mitigating factors on a loan-by-loan basis. Aggregate substandard loan collateral deficiencies are determined for residential, commercial real estate, commercial business, and consumer loan portfolios. These deficiencies are then stated as a percentage of the total substandard balances to determine the appropriate risk factors.

     Risk factors for performing and non-classified loans are based on the average net charge-offs for the most recent five years, which are then stated as a percentage of average loans for the same period. Historical risk factors are calculated for residential, commercial real estate, commercial business, and consumer loans. The historical factors are then adjusted for current subjective risks attributable to: local and national economic factors; loan growth and changes in loan composition; organizational structure; composition of loan staff; loan concentrations; policy changes and out of market lending activity.

     The risk factors are applied to these types of loans to determine the appropriate level for the ALL. Adjustments may be made to these allocations that reflect management’s judgment on current conditions, delinquency trends, and charge-off activity.

     The Bancorp has not made any significant changes to its overall approach in the determination of the ALL for all periods reported. There have been no material changes in assumptions or estimation techniques. Based on the above discussion, management believes that the ALL is currently adequate, but not excessive, given the risk inherent in the loan portfolio.

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.

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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 report, including the following:

     Regulatory Risk. The banking industry is heavily regulated. 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 Registered Public Accounting Firm

Board of Directors
North West Indiana Bancorp
Munster, Indiana

We have audited the accompanying consolidated balance sheets of North West Indiana Bancorp (“Company”) as of December 31, 2004 and 2003 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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, 2004 and 2003, and the results of their operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with U.S. generally accepted accounting principles.

		Crowe Chizek and Company LLC

South Bend, Indiana
February 18, 2005

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Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Income

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Changes in Stockholders’ Equity

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

NOTE 1 - Summary of Significant Accounting Policies

     Principles of Consolidation - The consolidated financial statements include NorthWest Indiana Bancorp (the Bancorp), its wholly owned subsidiary, Peoples Bank SB (the Bank), and the Bank’s wholly owned subsidiaries, Peoples Service Corporation and NWIN, LLC. The Bancorp has no other business activity other than being a holding company for the Bank. The Bancorp’s earnings are dependent upon the earnings of the Bank. Peoples Service Corporation provides insurance and annuity investments to the Bank’s trust customers. NWIN, LLC began operations on July 25, 2003, as an investment subsidiary based in Las Vegas, Nevada. All significant inter-company accounts and transactions have been eliminated in consolidation.

     Use of Estimates - Preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, fair values of financial instruments and status of contingencies are particularly susceptible to material change in the near term.

     Concentrations of Credit Risk - The Bancorp grants residential, commercial real estate, commercial business and installment loans to customers primarily of Lake County, in northwest Indiana. Substantially all loans are secured by specific items of collateral including residences, commercial real estate, business assets and consumer assets.

     Cash Flow Reporting - For purposes of the statement of cash flows, the Bancorp considers cash on hand, noninterest bearing balances in financial institutions, all interest-bearing balances in financial institutions with original maturities of ninety days or less and federal funds sold to be cash and cash equivalents. The Bancorp reports net cash flows for customer loan and deposit transactions and short-term borrowings with maturities of 90 days or less.

     Interest-bearing Deposits in Other Financial Institutions - Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.

     Securities - The Bancorp classifies securities into held-to-maturity, available-for-sale, or trading categories. Held-to-maturity securities are those, which the Bancorp has the positive intent and ability to hold to maturity, and are reported at amortized cost. Available-for-sale securities are those the Bancorp may decide to sell if needed for liquidity, asset-liability management or other reasons. Available for sale securities are reported at fair value, with unrealized gains and losses reported in other comprehensive income. The Bancorp does not have a trading portfolio. Realized gains and losses resulting from the sale of securities are computed by the specific identification method. Interest and dividend income, adjusted by amortization of premium or discount, are included in earnings. Securities are written down to fair value when a decline in fair value is not temporary.

     Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other than temporary losses, management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) the Bankcorp’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

     Loans Held for Sale - Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value as determined by outstanding commitments from investors in the aggregate. Net unrealized losses are recognized in a valuation allowance by charges to income.

     Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is reduced by the cost allocated to the servicing right. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

     Loans and Loan Income - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated net of loans in process, deferred loan fees and costs, and unearned income. Discounts on consumer loans are recognized over the lives of the loans using the interest method. Interest income on other loans is accrued over the term of the loans based upon the principal outstanding except where serious doubt exists as to the collectibility of a loan, in which case the accrual of interest is discontinued. Income is subsequently recognized only to the extent that cash payments are received until, in management’s judgment, the borrower has the ability to make contractual interest and principal payments, in which case the loan is returned to accrual status. Net deferred loan fees and costs are amortized on the interest method over the loan term.

     Allowance for Loan Losses - The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses, and decreased by charge-offs less recoveries. Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time. While management may periodically allocate portions of the allowance for specific problem loans, the whole allowance is available for any loan charge-offs that occur. Loan losses are charged against the allowance when management determines that a loan is uncollectible.

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     The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

     A loan is impaired when full payment under the loan terms is not expected. Loans considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans. If these allocations cause the allowance for loan losses to require increase, such increase is reported in the provision for loan losses. Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one-to-four family residences, residential construction loans, automobile, home equity and second mortgage loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment.

     Federal Home Loan Bank Stock - The Bank is a member of the Federal Home Loan Bank system and is required to invest in capital stock of the Federal Home Loan Bank (FHLB). The amount of the required investment is based upon the balance of the Bank’s outstanding home mortgage loans and advances from the FHLB and is carried at cost.

     Premises and Equipment - Premises and equipment are stated at cost less accumulated depreciation. Premises and related components are depreciated using the straight-line method with useful lives ranging from 26 to 39 years. Furniture and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 10 years. Maintenance and repairs are charged to expense and improvements are capitalized. The cost and accumulated depreciation applicable to assets retired or otherwise disposed of are eliminated from the accounts and the gain or loss on disposition is credited or charged to operations.

     Foreclosed Real Estate - Real estate properties acquired through, or in lieu of, loan foreclosure are recorded at fair value at the date of foreclosure. Costs relating to improvement of property are capitalized, whereas holding costs are expensed. Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its estimated fair value less selling costs.

     Mortgage Servicing Rights - Mortgage servicing rights are recognized as assets for the allocated value of retained servicing rights on loans sold. Mortgage servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondly as to prepayment characteristics. Any impairment of a grouping is reported as a valuation allowance.

     Investment in Real Estate Limited Partnerships - Investment in real estate limited partnerships represent the Bancorp’s investments in affordable housing projects for the primary purpose of available tax benefits. The method of accounting used for each investment is based on ownership percentage in the investment. One investment is accounted for using the cost method of accounting. The excess of the carrying amount of the investment over its estimated residual value is amortized during the periods in which associated tax credits are allocated to the investor. The annual amortization of the investment is based on the proportion of tax credits received in the current year to total estimated tax credits to be allocated to the Bancorp. The other investment is accounted for using the equity method of accounting. Under the equity method of accounting, the Bancorp records its share of the partnership’s earnings or losses in its income statement and adjusts the carrying amount of the investments on the balance sheet. These investments are reviewed for impairment when events indicate their carrying amounts may not be recoverable from future undiscounted cash flows. If impaired, the investments are reported at fair value. The Bancorp’s involvement in these types of investments is for tax planning purposes only and as such, the Bancorp is not involved in the management or operation of such investments.

     Long-term Assets - These assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

     Bank Owned Life Insurance - The Bank has purchased life insurance policies on certain key management personnel. Bank owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

     Repurchase Agreements - Substantially all repurchase agreement liabilities represent amounts advanced by various customers that are not covered by federal deposit insurance and are secured by securities owned by the Bancorp.

     Postretirement Benefits Other Than Pensions - The Bancorp sponsors a defined benefit postretirement plan that provides comprehensive major medical benefits to all eligible retirees. Postretirement benefits are accrued based on the expected cost of providing postretirement benefits to employees during the years the employees have rendered service to the Bancorp.

     Stock Compensation - Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per common share if expense was measured using the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.

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     The pro forma effects are computed using option pricing models, using the following weighted-average assumptions as of grant date.