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We are saddened to begin our report this year by sharing with you the recent loss of Milton Davis, our friend and colleague for more than 30 years and one of the four founders of ShoreBank. Once called "a giant in South Shore," Milton was also a giant in the life of everyone who knew him.

Throughout 2004, ShoreBank continued to redefine financial services, creating new and exciting ways of bringing together the people and ideas that embody the mission of ShoreBank and its shareholders. Through its commitment to simultaneously build stronger communities, create a healthier environment, and achieve financial success, ShoreBank is demonstrating that profitability, community development, and conservation can be successfully pursued together.

In 2004, ShoreBank attained three important milestones that demonstrate the organization's commitment to serving all of its customers and working toward each of its triple-bottom-line goals:

First, the organization crossed the $2 billion mark in cumulative development lending. ShoreBank reached the $1 billion mark in 2000; it took only four additional years to lend the second billion dollars. New development lending in 2004 increased by 26 percent over 2003 lending, reaching $351 million. These loans are made to businesses, individuals, nonprofits, and faith-based organizations located in communities where median incomes and housing values are below the regions' medians.

Second, ShoreBank more than doubled its conservation lending between 2003 and 2004, reaching $159 million. All but two ShoreBank companies made more conservation loans in 2004 than in 2003, and 37 percent of all loans made by the Chicago/Detroit bank qualified as conservation loans. Conservation loans finance activities that positively contribute to preserving natural resources, including air, land, and water quality.

Third, ShoreBank remained a financially strong and growing institution. The organization ended the year with consolidated net income of $7.5 million, a six percent increase over the previous year. Its largest bank, serving Chicago and Detroit, earned $15.7 million in 2004, representing a 15.5 percent return on equity. Total assets for the Chicago/Detroit bank were $1.5 billion at the end of 2004, and gross loans outstanding at year end exceeded $1 billion. This is a major milestone for a bank holding company as it continues to grow. Furthermore, the Chicago/Detroit bank continues to outperform peer banks on a number of key measures, as can be seen from the accompanying charts. (This comparison includes not only community banks, but also commercial and national banks with assets of $1-10 billion.)

More information on development and conservation activities is available in the Mission Performance section; additional detail on financial results can be found in the Financial Performance section of this annual report.

Awards honoring ShoreBank's leaders and leadership were numerous in 2004. Mary Houghton was named Community Banker of the Year by American Banker; Anne Arvia was selected for "Women to Watch in Banking" by US Banker; ShoreBank Corporation received the 2004 Workforce Chicago 2.0 award for exemplifying best employee-development practices; the Cleveland bank won a $514,000 Bank Enterprise Award; and founder Milton Davis was honored by Shared Interest, a nonprofit social investment fund, for his lifetime achievements and efforts to stimulate economic development in South Africa.

Because community development and conservation impact are more difficult to measure than financial success, we track ShoreBank's community development investment and conservation loans as a way of quantifying our progress in these areas. To provide a fuller appreciation of how ShoreBank brings together the three aspects of its mission, the stories that follow introduce just a few of the projects, communities, customers, partners, and employees that worked together in 2004 to make all three parts of ShoreBank's vision a reality.

We thank you for your continued support—together we are improving communities and the environment in many small ways that change the world.