Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

LAPORTE BANCORP, INC.

(Exact name of Registrant as Specified in Its Charter)

Federal

26-1231235

(State or Other Jurisdiction of

Incorporation or Organization)

001-33733

(Commission File Number)

(I.R.S. Employer

Identification Number)

710 Indiana Avenue

La Porte, IN 46350

(219) 362-7511

(Address, Including Zip Code, and Telephone Number, Including Area Code, of

Registrant’s Principal Executive Officers)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

Number of shares of common stock outstanding at August 13, 2012: 4,660,871

TABLE OF CONTENTS


		Page Number
PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements – LaPorte Bancorp, Inc.
	Consolidated Balance Sheets, June 30, 2012 (Unaudited) and December 31, 2011		3
	Consolidated Statements of Income, Three Months Ended June 30, 2012 and 2011 (Unaudited) Six Months Ended June 30, 2012 and 2011 (Unaudited)		4
	Consolidated Statements of Comprehensive Income, Three Months Ended June 30, 2012 and 2011 (Unaudited) Six Months Ended June 30, 2012 and 2011 (Unaudited)		5
	Consolidated Statements of Changes in Shareholders’ Equity, Six Months Ended June 30, 2012 and 2011 (Unaudited)		6
	Consolidated Statements of Cash Flows, Six Months Ended June 30, 2012 and 2011 (Unaudited)		7
	Notes to Consolidated Financial Statements (Unaudited)		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			40

Item 3. Quantitative and Qualitative Disclosures About Market Risk			54

Item 4. Controls and Procedures			55

PART II – OTHER INFORMATION

Item 1. Legal Proceedings			56

Item 1A. Risk Factors			56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			56

Item 3. Defaults Upon Senior Securities			56

Item 4. Mine Safety Disclosures			56

Item 5. Other Information			56

Item 6. Exhibits			57

Signatures			58

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

LAPORTE BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)


	June 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Cash and due from financial institutions	$	7,614		$	8,146
Interest-earning time deposits in other financial institutions		2,940			—
Securities available for sale		123,515			131,974
Federal Home Loan Bank (FHLB) stock, at cost (restricted)		3,817			3,817
Loans held for sale, at fair value		1,692			3,049
Loans, net of allowance for loan losses of $4,268 at June 30, 2012, $3,772 at December 31, 2011		304,087			295,359
Mortgage servicing rights		319			348
Other real estate owned		909			1,012
Premises and equipment, net		9,653			9,840
Goodwill		8,431			8,431
Other intangible assets		415			474
Bank owned life insurance		11,067			10,876
Accrued interest receivable and other assets		4,091			3,819

Total assets	$	478,550		$	477,145


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	42,332		$	38,977
Interest bearing		300,404			294,583

Total deposits		342,736			333,560
Federal Home Loan Bank advances		66,537			72,021
Subordinated debentures		5,155			5,155
Federal Deposit Insurance Corporation guaranteed unsecured borrowings		—			4,981
Short-term borrowings		830			—
Accrued interest payable and other liabilities		5,590			5,725

Total liabilities		420,848			421,442
Shareholders’ equity
Preferred stock, no par value; 1,000,000 shares authorized; none issued		—			—
Common stock, $0.01 par value; 19,000,000 shares authorized; 4,871,801 shares issued; and 4,660,871 shares outstanding at June 30, 2012 and December 31, 2011		49			49
Additional paid-in capital		21,337			21,221
Surplus		770			770
Retained earnings		35,864			34,267
Accumulated other comprehensive income, net of tax of $1,169 at June 30, 2012 and $1,046 at December 31, 2011		2,271			2,031
Treasury stock, at cost (210,930 shares at June 30, 2012 and December 31, 2011)		(1,278	)		(1,278	)
Unearned Employee Stock Ownership Plan (ESOP) shares		(1,311	)		(1,357	)

Total shareholders’ equity		57,702			55,703

Total liabilities and shareholders’ equity	$	478,550		$	477,145

See accompanying notes to consolidated financial statements (unaudited)

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(dollars in thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Interest and dividend income
Loans, including fees	$	3,999		$	3,505		$	8,108		$	7,403
Taxable securities		497			712			1,000			1,287
Tax exempt securities		343			361			695			725
FHLB stock		27			25			55			51
Other interest income		10			7			15			18

Total interest and dividend income		4,876			4,610			9,873			9,484
Interest expense
Deposits		758			1,026			1,556			2,109
Federal Home Loan Bank advances		313			388			635			783
Subordinated debentures		70			70			140			139
FDIC guaranteed unsecured borrowings		—			51			37			101
Federal funds purchased and other short-term borrowings		1			—			2			—

Total interest expense		1,142			1,535			2,370			3,132

Net interest income		3,734			3,075			7,503			6,352
Provision for loan losses		303			203			531			231

Net interest income after provision for loan losses		3,431			2,872			6,972			6,121
Noninterest income
Service charges on deposits		112			129			219			265
ATM and debit card fees		105			99			202			192
Earnings on life insurance, net		97			99			191			195
Net gains on mortgage banking activities		234			88			456			184
Loan servicing fees, net		(10	)		6			2			19
Net gains on securities		88			3			197			28
Losses on other assets		(56	)		(173	)		(206	)		(194	)
Other income		122			71			220			174

Total noninterest income		692			322			1,281			863
Noninterest expense
Salaries and employee benefits		1,571			1,439			3,229			2,960
Occupancy and equipment		449			448			938			953
Data processing		128			103			255			211
Advertising		46			54			120			93
Bank examination fees		118			172			199			254
Amortization of intangibles		29			56			59			114
FDIC insurance		82			87			166			220
Collection and other real estate owned		37			35			65			69
Other expenses		319			295			704			657

Total noninterest expense		2,779			2,689			5,735			5,531

Income before income taxes		1,344			505			2,518			1,453
Income tax expense		302			18			549			188

Net income	$	1,042		$	487		$	1,969		$	1,265

Earnings per share (Note 3):
Basic	$	0.23		$	0.11		$	0.43		$	0.28
Diluted		0.23			0.11			0.43			0.28

See accompanying notes to consolidated financial statements (unaudited)

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(dollars in thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net income	$	1,042		$	487		$	1,969		$	1,265
Other comprehensive income:
Unrealized gains/losses on securities
Unrealized holding gain arising during the period		380			1,747			504			2,328
Reclassification adjustment for gains included in net income		(88	)		(3	)		(197	)		(28	)

Net unrealized gains		292			1,744			307			2,300
Tax effect		(99	)		(593	)		(105	)		(782	)

Net of tax		193			1,151			202			1,518
Unrealized gains/losses on cash flow hedges
Unrealized holding gain/loss arising during the period		(27	)		(566	)		56			(252	)

Net unrealized gains/losses		(27	)		(566	)		56			(252	)
Tax effect		9			193			(18	)		86

Net of tax		(18	)		(373	)		38			(166	)

Total other comprehensive income		175			778			240			1,352

Comprehensive income	$	1,217		$	1,265		$	2,209		$	2,617

See accompanying notes to consolidated financial statements (unaudited)

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Six months ended June 30, 2012 and 2011

(dollars in thousands, except per share data)


	Common Stock		Additional Paid-In Capital			Surplus		Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Treasury Stock			Unearned ESOP Shares			Total
Balance at January 1, 2011	$	48	$	21,160		$	770	$	31,211		$	(550	)	$	(1,144	)	$	(1,447	)	$	50,048
Net income		—		—			—		1,265			—			—			—			1,265
Other comprehensive income		—		—			—		—			1,352			—			—			1,352
ESOP shares earned, 4,522 shares		—		(2	)		—		—			—			—			45			43

Balance at June 30, 2011	$	48	$	21,158		$	770	$	32,476		$	802		$	(1,144	)	$	(1,402	)	$	52,708


Balance at January 1, 2012	$	49	$	21,221		$	770	$	34,267		$	2,031		$	(1,278	)	$	(1,357	)	$	55,703
Net income		—		—			—		1,969			—			—			—			1,969
Other comprehensive income		—		—			—		—			240			—			—			240
Cash dividends on common stock ($0.08 per share)		—		—			—		(372	)		—			—			—			(372	)
ESOP shares earned, 4,522 shares		—		(6	)		—		—			—			—			46			40
Stock award and option expense		—		122			—		—			—			—			—			122

Balance at June 30, 2012	$	49	$	21,337		$	770	$	35,864		$	2,271		$	(1,278	)	$	(1,311	)	$	57,702

See accompanying notes to consolidated financial statements (unaudited)

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands, except per share data)


	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities
Net income	$	1,969		$	1,265
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		301			342
Provision for loan losses		531			231
Net gains on securities		(197	)		(28	)
Net gains on sales of loans		(413	)		(160	)
Originations of loans held for sale		(19,433	)		(11,273	)
Proceeds from sales of loans held for sale		21,203			14,638
Recognition of mortgage servicing rights		(43	)		(24	)
Amortization of mortgage servicing rights		63			45
Net change in loan servicing rights valuation allowance		9			16
Net losses on sales of other real estate owned		16			116
Write down of other real estate owned		200			58
Earnings on life insurance, net		(191	)		(195	)
Amortization of intangible assets		59			114
ESOP compensation expense		40			43
Stock compensation expense		122			—
Amortization of issuance costs of unsecured borrowings		19			32
Change in assets and liabilities:
Accrued interest receivable and other assets		(395	)		356
Accrued interest payable and other liabilities		(79	)		(237	)

Net cash from operating activities		3,781			5,339
Cash flows from investing activities
Net change in loans		(9,672	)		6,942
Proceeds from sales of other real estate owned		300			601
Proceeds from maturities, calls and principal repayments of securities available for sale		12,181			6,810
Proceeds from sales of securities available for sale		17,653			5,262
Proceeds from redemption of FHLB stock		—			221
Purchase of interest-bearing time deposits at other financial institutions		(2,940	)		—
Purchases of securities available for sale		(20,871	)		(38,753	)
Premises and equipment expenditures, net		(114	)		(145	)

Net cash from investing activities		(3,463	)		(19,062	)
Cash flows from financing activities
Net change in deposits		9,176			3,654
Net change in FHLB advances		(5,484	)		10,674
Net change in short-term borrowings		830			—
Dividends paid on common stock		(372	)		—
Repayment of FDIC guaranteed unsecured borrowing		(5,000	)		—

Net cash from financing activities		(850	)		14,328

Net change in cash and cash equivalents		(532	)		605
Cash and cash equivalents at beginning of period		8,146			5,868

Cash and cash equivalents at end of period	$	7,614		$	6,473

Supplemental cash flow information:
Cash paid during the period for:
Interest paid	$	2,390		$	3,129
Income taxes paid		506			—
Supplemental noncash disclosures:
Transfers from loans receivable to other real estate owned	$	413		$	542

See accompanying notes to consolidated financial statements (unaudited)

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 1 – BASIS OF PRESENTATION AND CONSOLIDATION

The unaudited consolidated financial statements included herein include the accounts of LaPorte Bancorp, Inc. (“the Bancorp”), its wholly owned subsidiary, The LaPorte Savings Bank (“the Bank”) and the Bank’s wholly owned subsidiary, LSB Investments, Inc., Nevada (“LSB Inc.”), together referred to as “the Company”. The Bancorp was formed on October 12, 2007. LSB Inc. was formed on October 1, 2011 to manage a portion of the Bank’s investment portfolio. Intercompany transactions and balances are eliminated in consolidation.

The unaudited consolidated financial statements included herein have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial statements and Article 8 of Regulation S-X of the Securities and Exchange Commission. In the opinion of management, the unaudited consolidated financial statements contain all material adjustments (consisting of normal recurring accruals) and disclosures which are necessary in the opinion of management to make the financial statements not misleading and for a fair presentation of the financial position and results of operations for the interim periods presented herein.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the interim consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011 included in the Form 10-K Annual Report of LaPorte Bancorp, Inc. for the fiscal year ended December 31, 2011.

The results for the three and six month period ended June 30, 2012 may not indicate the results to be expected for the full year ending December 31, 2012.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The effect of adopting this standard did not have a material effect on the Company’s operating results or financial condition, but the additional disclosures are included in Note 6.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of the statement of comprehensive income for the Company to two consecutive statements instead of presented as part of the consolidated statement of shareholders’ equity.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 3 – EARNINGS PER SHARE

Basic earnings per common share is determined by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Employee Stock Ownership Plan (“ESOP”) shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share is determined by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period, adjusted for the dilutive effect of common share equivalents (0 for the three and six months ended June 30, 2012 and 2011). Stock options for 213,678 and 0 shares for the three and six months ended June 30, 2012 and 2011 were not considered in computing diluted earnings per share because they were antidilutive. The factors used in the earnings per common share computation follow:


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Basic
Net income	$	1,042		$	487		$	1,969		$	1,238

Weighted average common shares outstanding		4,660,871			4,586,363			4,660,871			4,589,374
Less: Average unallocated ESOP shares		(132,279	)		(141,324	)		(133,409	)		(151,498	)

Average shares		4,528,592			4,445,039			4,527,462			4,437,876

Basic earnings per common share	$	0.23		$	0.11		$	0.43		$	0.28

Diluted
Net income	$	1,042		$	487		$	1,969		$	1,238

Weighted average common shares outstanding for basic earnings per common share		4,528,592			4,445,039			4,527,462			4,437,876
Add: Diluted effects of assumed exercises of stock options		—			—			—			—

Average shares and dilutive potential common shares		4,528,592			4,445,039			4,527,462			4,437,876

Diluted earnings per common share	$	0.23		$	0.11		$	0.43		$	0.28

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 4 – SECURITIES AVAILABLE FOR SALE

The amortized cost and fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

June 30, 2012


	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. federal agency obligations	$	8,118	$	392	$	—		$	8,510
State and municipal		40,186		3,309		(10	)		43,485
Mortgage-backed securities – residential		15,038		741		—			15,779
Government agency sponsored collateralized mortgage obligations		50,592		1,283		(72	)		51,803
Corporate debt securities		3,936		44		(42	)		3,938

Total	$	117,870	$	5,769	$	(124	)	$	123,515


December 31, 2011
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. federal agency obligations	$	12,187	$	414	$	—		$	12,601
State and municipal		40,012		3,094		—			43,106
Mortgage-backed securities – residential		30,946		872		(29	)		31,789
Government agency sponsored collateralized mortgage obligations		43,491		1,001		(14	)		44,478

Total	$	126,636	$	5,381	$	(43	)	$	131,974

At June 30, 2012 and December 31, 2011, all of our mortgage-backed securities were issued by U.S. government-sponsored enterprises and all of our collateralized mortgage obligations were issued by either U.S. government-sponsored enterprises or the U.S. Small Business Administration.

Securities with unrealized losses at June 30, 2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:


June 30, 2012	Continuing Unrealized Loss For Less Than 12 Months					Continuing Unrealized Loss For 12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
State and municipal	$	1,431	$	(10	)	$	—	$	—	$	1,431	$	(10	)
Government agency sponsored collateralized mortgage obligations		7,016		(72	)		—		—		7,016		(72	)
Corporate debt securities		2,076		(42	)		—		—		2,076		(42	)

Total temporarily impaired	$	10,523	$	(124	)	$	—	$	—	$	10,523	$	(124	)

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 4 – SECURITIES AVAILABLE FOR SALE – continued

Securities with unrealized losses at December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:


December 31, 2011	Continuing Unrealized Loss For Less Than 12 Months					Continuing Unrealized Loss For 12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Mortgage-backed securities – residential	$	5,646	$	(29	)	$	—	$	—	$	5,646	$	(29	)
Government agency sponsored collateralized mortgage obligations		2,147		(14	)		—		—		2,147		(14	)

Total temporarily impaired	$	7,793	$	(43	)	$	—	$	—	$	7,793	$	(43	)

At June 30, 2012, the Company held 12 investments in debt securities which were in an unrealized loss position of which all were in an unrealized loss position for less than twelve months. At December 31, 2011, the Company held 6 investments in debt securities which were in an unrealized loss position of which all were in an unrealized loss position for less than twelve months. Management periodically evaluates each investment security for potential other-than-temporary impairment, relying primarily on industry analyst reports and observation of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities and that the noted declines in fair value are considered temporary and due only to normal market interest rate fluctuations. The Company does not intend to sell the securities and is not more likely than not to be required to sell these debt securities before their anticipated recovery.

Sales of securities available for sale for the three and six months ended June 30, 2012 and 2011 were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Proceeds	$	4,985		$	4,331		$	17,653		$	5,262
Gross gains		103			35			224			60
Gross losses		(15	)		(32	)		(31	)		(32	)

Proceeds from calls of securities available for sale during the three months ended June 30, 2012 and 2011 were $1,125 and $0, with gross gains of $0 and $0 and gross losses of $0 and $0, respectively.

Proceeds from calls of securities available for sale during the six months ended June 30, 2012 and 2011 were $4,400 and $45, with gross gains of $4 and $0 and gross losses of $0 and $0, respectively.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 4 – SECURITIES AVAILABLE FOR SALE – continued

The amortized cost and fair value of debt securities at June 30, 2012 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities and collateralized mortgage obligations (“CMO”), are shown separately.


	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due from one to five years		16,040		16,684
Due from five to ten years		11,885		12,927
Due after ten years		24,315		26,322

Subtotal		52,240		55,933
Mortgage-backed securities and CMOs		65,630		67,582

Total	$	117,870	$	123,515

Securities pledged at June 30, 2012 and December 31, 2011 had a carrying amount of approximately $40,881 and $33,661, respectively, and were pledged to secure public deposits, FHLB advances, short-term borrowings through the Federal Reserve Discount Window, treasury tax and loan payments and cash flow hedges.

NOTE 5 – LOANS

Loans at June 30, 2012 and December 31, 2011 were as follows:


	June 30, 2012			December 31, 2011
Commercial	$	126,678		$	126,559
Mortgage		40,230			45,576
Mortgage warehouse		119,103			103,864
Residential construction		3,218			3,047
Indirect auto		1,619			2,249
Home equity		13,068			12,966
Consumer and other		4,305			4,693

Subtotal		308,221			298,954
Less: Net deferred loan (fees) costs		134			177
Allowance for loan losses		(4,268	)		(3,772	)

Loans, net	$	304,087		$	295,359

As of June 30, 2012, the Bank’s mortgage warehouse division had repurchase agreements with 11 mortgage companies. For the six months ended June 30, 2012, the mortgage companies originated $1,261,508 in mortgage loans and sold $1,246,745 in mortgage loans. The Bank recorded interest income of $1,159 and mortgage warehouse loan fees of $215 which are included in loan interest income and wire transfer fees of $70 which are included in noninterest income during the three months ended June 30, 2012 attributable to the mortgage warehouse lines. For the six months ended June 30, 2012, the Bank recorded interest income of $2,363 and mortgage warehouse loan fees of $382 which are included in loan interest income and wire transfer fees of $124 which are included in noninterest income attributable to the mortgage warehouse lines.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

As of June 30, 2011, the Bank’s mortgage warehouse division had repurchase agreements with nine mortgage companies. For the six months ended June 30, 2011, the mortgage companies originated $879,485 in mortgage loans and sold $884,939 in mortgage loans. The Bank recorded interest income of $547 and mortgage warehouse loan fees of $100 which are included in loan interest income and wire transfer fees of $32 which are included in noninterest income during the three months ended June 30, 2011 attributable to the mortgage warehouse lines. For the six months ended June 30, 2011, the Bank recorded interest income of $1,309 and mortgage warehouse loan fees of $272 which are included in loan interest income and wire transfer fees of $88 which are included in noninterest income attributable to the mortgage warehouse lines.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2012 and 2011:


	Commercial			Mortgage			Mortgage Warehouse		Residential Construction		Indirect Auto			Home Equity			Consumer and Other			Unallocated		Total
For the three months ended June 30, 2012
Allowance for loan losses:
Beginning balance	$	3,000		$	335		$	406	$	4	$	17		$	120		$	82		$	—	$	3,964
Charge-offs		(9	)		(11	)		—		—		(3	)		(15	)		(4	)		—		(42	)
Recoveries		38			2			—		—		—			—			3			—		43
Provision		108			92			122		4		—			36			(59	)		—		303

Ending balance	$	3,137		$	418		$	528	$	8	$	14		$	141		$	22		$	—	$	4,268

For the three months ended June 30, 2011
Allowance for loan losses:
Beginning balance	$	2,635		$	429		$	162	$	17	$	28		$	158		$	101		$	—	$	3,530
Charge-offs		(338	)		—			—		—		(5	)		—			(21	)		—		(364	)
Recoveries		—			—			—		—		1			—			4			—		5
Provisions		122			14			10		3		—			33			21			—		203

Ending balance	$	2,419		$	443		$	172	$	20	$	24		$	191		$	105		$	—	$	3,374

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2012 and 2011:


	Commercial			Mortgage			Mortgage Warehouse		Residential Construction		Indirect Auto			Home Equity			Consumer and Other			Unallocated		Total
For the six months ended June 30, 2012
Allowance for loan losses:
Beginning balance	$	2,774		$	374		$	393	$	3	$	19		$	119		$	90		$	—	$	3,772
Charge-offs		(28	)		(32	)		—		—		(3	)		(15	)		(10	)		—		(88	)
Recoveries		38			2			—		—		3			—			10			—		53
Provision		353			74			135		5		(5	)		37			(68	)		—		531

Ending balance	$	3,137		$	418		$	528	$	8	$	14		$	141		$	22		$	—	$	4,268

For the six months ended June 30, 2011
Allowance for loan losses:
Beginning balance	$	3,147		$	389		$	139	$	17	$	28		$	142		$	81		$	—	$	3,943
Charge-offs		(706	)		(70	)		—		—		(5	)		—			(31	)		—		(812	)
Recoveries		—			—			—		—		2			—			10			—		12
Provisions		(22	)		124			33		3		(1	)		49			45			—		231

Ending balance	$	2,419		$	443		$	172	$	20	$	24		$	191		$	105		$	—	$	3,374

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2012:


	Commercial		Mortgage		Mortgage Warehouse		Residential Construction		Indirect Auto		Home Equity		Consumer and Other		Unallocated		Total
June 30, 2012
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,170	$	133	$	—	$	—	$	—	$	10	$	—	$	—	$	1,313
Collectively evaluated for impairment		1,967		285		528		8		14		131		22		—		2,955
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—		—

Total ending allowance	$	3,137	$	418	$	528	$	8	$	14	$	141	$	22	$	—	$	4,268

Loans:
Loans individually evaluated for impairment	$	5,704	$	1,659	$	—	$	—	$	—	$	39	$	—	$	—	$	7,402
Loans collectively evaluated for impairment		120,332		38,415		119,103		3,209		1,618		13,079		4,308		—		300,064
Loans acquired with deteriorated credit quality		740		149		—		—		—		—		—		—		889

Total ending loan balance	$	126,776	$	40,223	$	119,103	$	3,209	$	1,618	$	13,118	$	4,308	$	—	$	308,355

The recorded investment in loans does not include accrued interest.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011:


	Mortgage		Commercial		Mortgage Warehouse		Residential Construction		Indirect Auto		Home Equity		Consumer and Other		Unallocated		Total
December 31, 2011
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	112	$	128	$	—	$	—	$	—	$	11	$	—	$	—	$	251
Collectively evaluated for impairment		2,662		246		393		3		19		108		90		—		3,521
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—		—

Total ending allowance	$	2,774	$	374	$	393	$	3	$	19	$	119	$	90	$	—	$	3,772

Loans:
Loans individually evaluated for impairment	$	4,630	$	1,630	$	—	$	—	$	—	$	14	$	—	$	—	$	6,274
Loans collectively evaluated for impairment		121,236		43,788		103,864		3,045		2,249		13,002		4,697		—		291,881
Loans acquired with deteriorated credit quality		824		152		—		—		—		—		—		—		976

Total ending loan balance	$	126,690	$	45,570	$	103,864	$	3,045	$	2,249	$	13,016	$	4,697	$	—	$	299,131

The recorded investment in loans does not include accrued interest.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

The following table presents information related to impaired loans by class of loans as of June 30, 2012:


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
June 30, 2012
With no related allowance recorded:
Commercial:
Real estate	$	909	$	907	$	—
Land		1,459		1,459		—
Mortgage		863		863		—
Home equity		25		25		—

Subtotal		3,256		3,254		—

With an allowance recorded:
Commercial:
Real estate		1,730		1,732		489
Land		1,605		1,606		681
Mortgage		797		796		133
Home equity		14		14		10

Subtotal		4,146		4,148		1,313

Total	$	7,402	$	7,402	$	1,313


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
December 31, 2011
With no related allowance recorded:
Commercial:
Real estate	$	1,299	$	1,298	$	—
Land		2,248		2,248		—
Mortgage		945		945		—

Subtotal		4,492		4,491		—

With an allowance recorded:
Commercial:
Commercial and other		28		29		6
Real estate		502		503		29
Land		552		552		77
Mortgage		685		685		128
Home equity		14		14		11

Subtotal		1,781		1,783		251

Total	$	6,273	$	6,274	$	251

The recorded investment in loans does not include accrued interest.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2012 and 2011:


	Three Months Ended June 30, 2012				Six Months Ended June 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial:
Commercial and other	$	—	$	—	$	11	$	—
Real estate		1,045		2		1,234		4
Land		1,459		—		1,994		3
Mortgage		933		5		1,006		8
Home equity		25		—		12		—
Subtotal		3,462		7		4,257		15
With an allowance recorded:
Commercial:
Real estate		1,734		—		1,118		—
Land		1,610		—		1,080		—
Mortgage		797		—		715		—
Home equity		14		—		14		—
Subtotal		4,155		—		2,927		—
Total	$	7,617	$	7	$	7,184	$	15


	Three Months Ended June 30, 2011				Six Months Ended June 30, 2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial:
Real estate	$	1,164	$	—	$	1,163	$	4
Land		2,248		—		2,248		12
Mortgage		605		4		623		15
Residential construction:
Land		87		—		87		—
Subtotal		4,104		4		4,121		31
With an allowance recorded:
Commercial:
Commercial and other		60		—		45		—
Real estate		1,254		—		1,275		6
Land		707		—		710		—
Mortgage		610		—		443		—
Home equity		377		—		377		—
Subtotal		3,008		—		2,850		6
Total	$	7,112	$	4	$	6,971	$	37

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of June 30, 2012 and December 31, 2011:


	Nonaccrual				Loans Past Due Over 90 Days Still Accruing
	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
Commercial:
Commercial and other	$	32	$	62	$	—	$	—
Real estate		2,580		2,027		—		—
Land		3,064		2,800		—		—
Mortgage		1,489		1,454		—		—
Indirect auto		6		8		—		—
Home equity		39		14		—		—

Total	$	7,210	$	6,365	$	—	$	—

The recorded investment in loans does not include accrued interest.

The following table presents the aging of the recorded investment in past due loans as of June 30, 2012 by class of loans:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
June 30, 2012
Commercial:
Commercial and other	$	—	$	—	$	—	$	—	$	20,396	$	20,396
Real estate		848		1,207		1,719		3,774		79,684		83,458
Five or more family		—		—		—		—		12,953		12,953
Construction		—		—		—		—		1,197		1,197
Land		—		31		2,527		2,558		6,214		8,772
Mortgage		—		409		1,199		1,608		38,615		40,223
Mortgage warehouse		—		—		—		—		119,103		119,103
Residential construction:
Construction		—		—		—		—		2,798		2,798
Land		—		—		—		—		411		411
Indirect		22		—		6		28		1,590		1,618
Home equity		209		9		39		257		12,861		13,118
Consumer and other		—		—		—		—		4,308		4,308

Total	$	1,079	$	1,656	$	5,490	$	8,225	$	300,130	$	308,355

The recorded investment in loans does not include accrued interest.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:


	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
December 31, 2011
Commercial:
Commercial and other	$	—	$	—	$	29	$	29	$	18,077	$	18,106
Real estate		1,057		128		1,589		2,774		77,702		80,476
Five or more family		43		—		—		43		17,670		17,713
Construction		—		—		—		—		1,172		1,172
Land		216		—		2,248		2,464		6,759		9,223
Mortgage		1,293		55		1,115		2,463		43,107		45,570
Mortgage warehouse		—		—		—		—		103,864		103,864
Residential construction:
Construction		—		—		—		—		2,629		2,629
Land		—		—		—		—		416		416
Indirect auto		27		—		8		35		2,214		2,249
Home equity		—		—		14		14		13,002		13,016
Consumer and other		—		14		—		14		4,683		4,697

Total	$	2,636	$	197	$	5,003	$	7,836	$	291,295	$	299,131

The recorded investment in loans does not include accrued interest.

Troubled Debt Restructurings:

At June 30, 2012 and December 31, 2011, the outstanding balance of loans that were modified as troubled debt restructurings totaled $247 and $254, respectively. All of these loans were considered nonperforming troubled debt restructurings. The Company has allocated $13 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2012 and December 31, 2011. The Company has not committed to lend additional amounts as of June 30, 2012 to customers with outstanding loans that are classified as troubled debt restructurings.

During the three and six months ended June 30, 2012, the Bank did not modify any loans which were considered to be troubled debt restructurings. During the year ending December 31, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

For the three and six months ended June 30, 2012, no troubled debt restructurings defaulted within twelve months following the modification.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s management loan committee.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

Credit Quality Indicators

The Company categorized loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. The analysis includes loans with risk ratings of Special Mention, Substandard and Doubtful. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The Bank monitors credit quality on loans not rated through the loan’s individual payment performance. As of June 30, 2012, the most recent analysis performed, the risk category of loans by class of loans is as follows:


	Not Rated		Pass		Special Mention		Substandard		Doubtful
June 30, 2012
Commercial:
Commercial and other	$	215	$	19,835	$	346	$	—	$	—
Real estate		88		68,050		7,071		8,249		—
Five or more family		202		9,000		3,751		—		—
Construction		—		1,197		—		—		—
Land		—		4,905		803		3,064		—
Mortgage		32,812		4,904		459		2,048		—
Mortgage warehouse		119,103		—		—		—		—
Residential construction:										—
Construction		2,798		—		—		—		—
Land		411		—		—		—		—
Indirect auto		1,618		—		—		—		—
Home equity		12,718		129		89		182		—
Consumer and other		3,440		868		—		—		—

Total	$	173,405	$	108,888	$	12,519	$	13,543	$	—

The recorded investment in loans does not include accrued interest.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

As of December 31, 2011 the risk category of loans by class of loans is as follows:


	Not Rated		Special Pass		Mention		Substandard		Doubtful
December 31, 2011
Commercial:
Commercial and other	$	67	$	17,500	$	510	$	29	$	—
Real estate		16		65,136		11,658		3,605		61
Five or more family		208		13,520		3,985		—		—
Construction		—		1,079		93		—		—
Land		—		5,447				694		3,082
Mortgage		37,769		4,946		722		2,133		—
Mortgage warehouse		103,864		—		—		—		—
Residential construction:
Construction		2,629		—		—		—		—
Land		416		—		—		—		—
Indirect auto		2,249		—		—		—		—
Home equity		12,623		121		92		180		—
Consumer and other		3,776		921		—		—		—

Total	$	163,617	$	108,670	$	17,754	$	9,029	$	61

The recorded investment in loans does not include accrued interest.

Purchased Loans

The Company purchased loans during 2007, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding balance and carrying amount of those loans is as follows:


	June 30, 2012		December 31, 2011
Commercial:
Commercial and other	$	32	$	36
Real estate		741		923
Mortgage		150		154

Outstanding balance	$	923	$	1,113

Carrying amount, net of allowance of $0	$	889	$	977

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

Accretable yield, or income expected to be collected, is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Beginning balance	$	179		$	235		$	193		$	250
Reclassification from non-accretable yield		—			8			4			15
Accretion of income		(21	)		(22	)		(39	)		(44	)
Disposals		(3	)		—			(3	)

Ending balance	$	155		$	221		$	155		$	221

For the purchased loans disclosed above, the Company did not increase the allowance for loan losses during 2012 or 2011. No allowance for loan losses were reversed during 2012 or 2011.

NOTE 6 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial asset:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

Loans Held for Sale and Loan Commitment Derivatives: The fair value of loans held for sale and residential mortgage loan commitments are determined by obtaining quoted prices for similar loans and commitments with similar interest rates and maturities from major secondary markets (Level 2).

Derivatives-Interest Rate Swaps: The fair value of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE - continued

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals performed by qualified independent third-party appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including cost, comparable sales and the income approach. The cost approach is based on the cost to replace the existing property. The comparable sales approach evaluates the sales prices of comparable properties within the same market area. The income approach considers net operating income generated by the property and the rate of return required by an investor. Adjustments are routinely made in the appraisal process by the independent third-party appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals performed by qualified independent third-party appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including cost, comparable sales and the income approach. The cost approach is based on the cost to replace the existing property. The comparable sales approach evaluates the sales prices of comparable properties within the same market area. The income approach considers net operating income generated by the property and the rate of return required by an investor. Adjustments are routinely made in the appraisal process by the independent third-party appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

The President/Chief Financial Officer (“President/CFO”) and Executive Vice President – Credit (“EVP – Credit”) are responsible for determining the valuation processes and procedures for the fair value measurement of impaired loans and other real estate owned properties. The President/CFO and EVP – Credit review impaired loans and other real estate owned properties on a quarterly basis to determine the accuracy of third party appraisals, auction values, values derived from trade publications and any additional data received from the borrower, and the appropriateness of unobservable inputs, generally discounts due to collection issues and current market conditions which are utilized in determining the fair value. The EVP – Credit determines discounts based on the valuation source and asset type for impaired loans. These discounts are reviewed periodically, annually at a minimum, for appropriateness. Current trends in market values and gains and losses on sales of similar assets are also considered when determining discounts of asset categories.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE - continued

The table below presents the valuation methodology and unobservable inputs for impaired loans and other real estate owned at June 30, 2012.


	Valuation Methodology	Unobservable Inputs	Range of Inputs	Average of Inputs
Impaired loans
Commercial:
Real estate	Appraisals	Discounts for collection issues and changes in market conditions	0-35%	16.9%
Land	Appraisals	Discounts for collection issues and changes in market conditions	15%-35%	28.3%
Mortgage	Appraisals	Discounts for collection issues and changes in market conditions	0%-20%	8.8%
Home equity	Appraisals	Discounts for collection issues and changes in market conditions	10%	10%
Other real estate owned, net
Commercial:
Real estate	Appraisals	Discounts for changes in market conditions	16%-100%	57.9%
Land	Appraisals	Discounts for changes in market conditions	6%-14%	10.3%
Mortgage	Appraisals	Discounts for changes in market conditions	8%-39%	23.6%

Mortgage Servicing Rights: On a quarterly basis, loan servicing rights are evaluated for impairment based on the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level, based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2). Fair value at June 30, 2012 was determined using a discount rate of 9%, prepayment speeds ranging from 13.2% to 25.6%, depending on the stratification of the specific right, and a weighted average default rate of approximately 0.5%. Fair value at December 31, 2011 was determined using a discount rate of 9.0%, prepayment speeds ranging from 14.3% to 23.8%, depending on the stratification of the specific right, and a weighted average default rate of approximately 0.5%.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE - continued

Assets and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:


				Fair Value Measurements at June 30, 2012
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets
Investment securities available for sale
U.S. federal agency obligations	$	8,510		$	—	$	8,510		$	—
State and municipal		43,485			—		43,485			—
Mortgage-backed securities-residential		15,779			—		15,779			—
Government agency sponsored collateralized mortgage obligations		51,803			—		51,803			—
Corporate debt securities		3,938			—		3,938			—

Total investment securities Available-for-sale	$	123,515		$	—	$	123,515		$	—

Loans held for sale	$	1,692		$	—	$	1,692		$	—

Derivatives – residential mortgage loan commitments	$	112		$	—	$	112		$	—

Financial Liabilities
Derivatives – interest rate swaps	$	(2,205	)	$	—	$	(2,205	)	$	—

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE - continued


				Fair Value Measurements at December 31, 2011
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets
Investment securities available for sale
U.S. federal agency obligations	$	12,601		$	—	$	12,601		$	—
State and municipal		43,106			—		43,106			—
Mortgage-backed securities – residential		31,789			—		31,789			—
Government agency sponsored collateralized mortgage obligations		44,478			—		44,478			—

Total investment securities available-for-sale	$	131,974		$	—	$	131,974		$	—

Loans held for sale	$	3,049		$	—	$	3,049		$	—

Derivatives – residential mortgage loan commitments	$	57		$	—	$	57		$	—

Financial Liabilities
Derivatives – interest rate swaps	$	(2,283	)	$	—	$	(2,283	)	$	—

There were no transfers between Level 1 and Level 2 during the periods indicated above.

Loans held for sale were carried at the fair value of $1,692, which was made up of the outstanding balance of $1,665 and an unrealized gain of $27 at June 30, 2012, resulting in a change of unrealized gains of $(20) and $(16) for the three and six months ended June 30, 2012. At June 30, 2011, loans held for sale were carried at the fair value of $951, which was made up of the outstanding balance of $939, net a valuation of $12, resulting in income of $2 and $(34) for the three and six months ended June 30, 2011.

The difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding for loans held for sale was:


	June 30, 2012
	Aggregate Fair Value		Difference		Contractual Principal
Loans held for sale	$	1,692	$	27	$	1,665

	December 31, 2011
	Aggregate Fair Value		Difference		Contractual Principal
Loans held for sale	$	3,049	$	43	$	3,006

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE – continued

For items for which the fair value option has been elected, interest income is recorded within the consolidated statements of income and comprehensive income based on the contractual amount of interest income earned on financial assets (none were delinquent or in nonaccrual status).

The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets carried at fair value for the three and six months ended June 30, 2012 and 2011:


	Changes in Fair Values for the three months ended June 30, 2012 and 2011, for the Items Measured at Fair Value Pursuant to Election of the Fair Value Option
	Other Gains and Losses			Interest Income		Interest Expense		Total Changes in Fair Values Included in Current Period Earnings
Three Months Ended June 30, 2012
Assets:
Loans held for sale	$	(20	)	$	11	$	—	$	(9	)

Three Months Ended June 30, 2011
Assets:
Loans held for sale	$	2		$	2	$	—	$	4

	Changes in Fair Values for the six months ended June 30, 2012 and 2011, for the Items Measured at Fair Value Pursuant to Election of the Fair Value Option
	Other Gains and Losses			Interest Income		Interest Expense		Total Changes in Fair Values Included in Current Period Earnings
Six Months Ended June 30, 2012
Assets:
Loans held for sale	$	(16	)	$	23	$	—	$	7

Six Months Ended June 30, 2011
Assets:
Loans held for sale	$	(34	)	$	12	$	—	$	(22	)

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE – continued

Assets measured at fair value on a non-recurring basis are summarized below:


			Fair Value Measurements at June 30, 2012
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans
Commercial:
Real estate	$	1,241	$	—	$	—	$	1,241
Land		924		—		—		924
Mortgage		664		—		—		664
Home equity		4		—		—		4
Other real estate owned, net
Commercial:
Real estate		143		—		—		143
Land		412		—		—		412
Mortgage		166		—		—		166
Mortgage servicing rights		260		—		260		—


			Fair Value Measurements at December 31, 2011
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans
Commercial:
Commercial and other	$	22	$	—	$	—	$	22
Real Estate		473		—		—		473
Land		475		—		—		475
Mortgage		557		—		—		557
Home equity		3		—		—		3
Other real estate owned, net
Commercial:
Real Estate		365		—		—		365
Mortgage		93		—		—		93
Mortgage servicing rights		271		—		271		—

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE - continued

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $4,146, with a valuation allowance of $1,313 at June 30, 2012, resulting in an additional provision for loan losses of $1,009 and $1,080 for the three and six months ended June 30, 2012. At June 30, 2011, impaired loans had a carrying amount of $2,631, with a valuation allowance of $333, resulting in an additional provision for loan losses of $117 and $214 for the three and six months ended June 30, 2011.

Other real estate owned, which is measured at the lower of cost or fair value less costs to sell, had a net carrying amount of $721, which was made up of the outstanding balance of $922 net a valuation allowance of $201 at June 30, 2012, resulting in a write-down of $64 and $201 for the three and six months ended June 30, 2012. At June 30, 2011, other real estate owned had a net carrying amount of $543, which was made up of the outstanding balance of $599 net a valuation allowance of $56, resulting in a write-down of $56 and $58 for the three and six months ended June 30, 2011.

Mortgage servicing rights, which are carried at lower of cost or fair value, were carried at their fair value of $260, which was made up of the outstanding balance of $388, net of a valuation allowance of $128, resulting in a charge of $14 and $9 for the three and six months ended June 30, 2012. At June 30, 2011, mortgage servicing rights were carried at their fair value of $285, which was made up of the outstanding balance of $393, net of a valuation allowance of $108, resulting in a charge of $16 and $16 for the three and six months ended June 30, 2011.

The carrying amounts and estimated fair values of financial instruments, at June 30, 2012 are as follows:


				Fair Value Measurements at June 30, 2012
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial assets
Cash and due from financial institutions	$	7,614		$	7,614	$	—		$	—
Interest-earning time deposits at other financial institutions		2,940			—		2,940			—
Securities available for sale		123,515			—		123,515			—
Federal Home Loan Bank stock		3,817			N/A		N/A			N/A
Loans held for sale		1,692			—		1,692			—
Loans, net		304,087			—		—			309,948
Accrued interest receivable		1,416			—		796			620

Financial liabilities
Deposits		(342,736	)		—		(343,288	)		—
Federal Home Loan Bank advances		(66,537	)		—		(68,773	)		—
Subordinated debentures		(5,155	)		—		—			(4,910	)
Short-term borrowings					—		(830	)		—
Accrued interest payable		(376	)		—		(370	)		(6	)
Derivatives – interest rate swaps		(2,205	)		—		(2,205	)		—

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE – continued

The carrying amounts and estimated fair values of financial instruments, at December 31, 2011 are as follows:


	Carrying Amount			Fair Value
Financial assets
Cash and due from financial institutions	$	8,146		$	8,146
Securities available-for-sale		131,974			131,974
Federal Home Loan Bank stock		3,817			N/A
Loans held for sale		3,049			3,049
Loans, net		295,359			301,293
Accrued interest receivable		1,518			1,518

Financial liabilities
Deposits	$	(333,560	)	$	(331,486	)
Federal Home Loan Bank advances		(72,021	)		(74,307	)
Subordinated debentures		(5,155	)		(4,582	)
FDIC guaranteed unsecured borrowings		(4,981	)		(4,989	)
Accrued interest payable		(396	)		(396	)
Derivatives – interest rate swaps		(2,283	)		(2,283	)

The methods and assumptions, not previously presented, used to estimate fair value are described as follows:

Cash and due from financial institutions: The carrying amounts of cash and due from financial institutions approximate fair values and are classified as Level 1.

Interest-earning time deposits at other financial institutions: The carrying amounts of interest-earning time deposits at other financial institutions approximate fair values and are classified as Level 2.

Federal Home Loan Bank stock: It is not practical to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

Loans: The fair values of loans is based on discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in Level 2 classification.

Deposits: The fair values disclosed for demand deposits are estimated using a cash flow calculation reduced by decay rate assumptions. These cash flows are discounted to the current market rate and a functional cost to recognize the inherent costs of servicing these accounts. This results in a Level 2 classification. Fair values of fixed rate certificates of deposit are estimated using a cash flow calculation reduced by known maturities, estimated principal payments and estimated early withdrawal amounts. These cash flows are discounted to the current market rate. This results in a Level 2 calculation.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE - continued

Federal Home Loan Bank Advances: The fair values of the Company’s Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Subordinated Debentures: The fair value of the Company’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

Short-term Borrowings: The carrying amounts of short-term borrowings approximate fair values and are classified Level 2.

Accrued Interest Receivable/Payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification based on the underlying asset or liability.

NOTE 7 – DERIVATIVES

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent an amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreement.

Interest Rate Swaps Designated as Cash Flow Hedges: Interest rate swaps with notional amounts of $30.25 million as of June 30, 2012 and December 31, 2011, were designated as cash flow hedges of subordinated debentures, certain CDARS deposits and FHLB advances, and were determined to be fully effective during all periods presented. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The hedge would no longer be considered effective if a portion of the hedge becomes ineffective, the item hedged is no longer in existence or the Company discontinues hedge accounting. The Company expects the hedges to remain fully effective during the remaining terms of the swaps. The Company does not expect any amounts to be reclassed from other comprehensive income (loss) over the next 12 months.

Information related to the interest-rate swaps designated as cash flow hedges as of June 30, 2012 and December 31, 2011 are as follows:


	June 30, 2012			December 31, 2011
Subordinated debentures
Notional amount	$	5,000		$	5,000
Fixed interest rate payable		5.54	%		5.54	%
Variable interest rate receivable (Three month LIBOR plus 3.10%)		3.56	%		3.67	%
Unrealized losses		(168	)		(192	)
Maturity date		March 26, 2014

CDARS deposits
Notional amount	$	10,250		$	10,250
Fixed interest rate payable		3.19	%		3.19	%
Variable interest rate receivable (One month LIBOR plus 0.55%)		0.79	%		0.84	%
Unrealized losses		(519	)		(569	)
Maturity date		October 9, 2014

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 7 – DERIVATIVES - continued


	June 30, 2012			December 31, 2011
FHLB advance
Notional amount	$	5,000		$	5,000
Fixed interest rate payable		3.54	%		3.54	%
Variable interest rate receivable (Three month LIBOR plus 0.22%)		0.69	%		0.78	%
Unrealized losses		(433	)		(443	)
Maturity date		September 20, 2015

FHLB advance
Notional amount	$	10,000		$	10,000
Fixed interest rate payable		3.69	%		3.69	%
Variable interest rate receivable (Three month LIBOR plus 0.25%)		0.72	%		0.66	%
Unrealized losses		(1,085	)		(1,057	)
Maturity date		July 19, 2016

Interest expense recorded on these swap transactions totaled $(197) and $(250) during the three months ended June 30, 2012 and 2011, respectively, and $(390) and $(496) for the six months ended June 30, 2012 and 2011, respectively, and is reported as a component of interest expense on subordinated debentures, deposits and FHLB advances.

The following table presents the net losses recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of Income relating to the cash flow derivative instruments for the three months ended June 30, 2012 and 2011:


	Net amount of gain (loss) recognized in OCI (Effective Portion) 2012			Net amount of gain (loss) reclassified from OCI to interest income 2012		Net amount of gain (loss) recognized in other non interest income (Ineffective Portion) 2012
Interest rate contracts	$	(18	)	$	—	$	—

	Net amount of gain (loss) recognized in OCI (Effective Portion) 2011			Net amount of gain (loss) reclassified from OCI to interest income 2011		Net amount of gain (loss) recognized in other non interest income (Ineffective Portion) 2011
Interest rate contracts	$	(373	)	$	—	$	—

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 7 – DERIVATIVES - continued


	Net amount of gain (loss) recognized in OCI (Effective Portion) 2012		Net amount of gain (loss) reclassified from OCI to interest income 2012		Net amount of gain (loss) recognized in other non interest income (Ineffective Portion) 2012
Interest rate contracts	$	38	$	—	$	—

	Net amount of gain (loss) recognized in OCI (Effective Portion) 2011		Net amount of gain (loss) reclassified from OCI to interest income 2011		Net amount of gain (loss) recognized in other non interest income (Ineffective Portion) 2011
Interest rate contracts	$	166	$	—	$	—

The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011:


	June 30, 2012						December 31, 2011
	Notional Amount			Fair Value			Notional Amount			Fair Value
Included in other liabilities:
Interest rate swaps related to Subordinated debentures	$	(5,000	)	$	(168	)	$	(5,000	)	$	(192	)
CDARS deposits		(10,250	)		(519	)		(10,250	)		(569	)
FHLB advances		(15,000	)		(1,518	)		(15,000	)		(1,500	)

Total included in other liabilities				$	(2,205	)				$	(2,261	)

Interest Rate Swaps Designated as Fair Value Hedges: An interest rate swap with a notional amount of $5.0 million as of June 30, 2012 and December 31, 2011 was designated as a fair value hedge of certain brokered deposits. Information related to the interest rate swap designated as a fair value hedge is as follows:


	June 30, 2012			December 31, 2011
Brokered deposits
Notional amount	$	5,000		$	5,000
Variable interest rate payable (One month LIBOR less 0.25%)		0.00	%		0.03	%
Fixed interest rate receivable		1.25	%		1.25	%
Maturity date		September 15, 2020

Interest income recorded on this swap transaction totaled $16 for the three months ended June 30, 2012 and 2011, and $31 for the six months ended June 30, 2012 and 2011, and is reported as a component of interest expense on deposits. Gains (losses) on the fair market value hedge are recorded in other noninterest income and totaled $2 and $(7) for the three months ended June 30, 2012 and 2011, respectively, and $2 and $(11) for the six months ended June 30, 2012 and 2011, respectively.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 7 – DERIVATIVES - continued

The following table reflects the fair value hedge included in the Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011:


	June 30, 2012					December 31, 2011
	Notional Amount			Fair Value		Notional Amount			Fair Value
Included in other liabilities:
Interest rate swaps related to Brokered deposits	$	(5,000	)	$	9	$	(5,000	)	$	(22	)

Total included in other liabilities				$	9				$	(22	)

The counterparty to the Company’s derivatives is exposed to credit risk whenever the derivative is in a liability position. As a result, the Company has collateralized the liability with cash and security collateral held in safekeeping by Bank of New York. At June 30, 2012 and December 31, 2011, the Company had $220 in cash and securities with a fair value of $3,214 and $3,761, respectively, posted as collateral for these derivatives.

NOTE 8 – STOCK-BASED COMPENSATION

During the month of September 2011, the Company implemented the 2011 Equity Incentive Plan (the “Plan”) which was approved by shareholders on May 10, 2011. The Plan provides for issuance of stock options or restricted share awards to employees and directors. Total shares authorized for issuance under the Plan is 316,561 which is further discussed below. Total compensation cost that has been charged against income for those plans totaled $61 and $0 for the three months ended June 30, 2012 and 2011, respectively, and $122 and $0 for the six months ended June 30, 2012 and 2011, respectively.

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards issued to employees or directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 8 – STOCK-BASED COMPENSATION - continued

Stock Options

The Plan permits the grant of stock options to its employees or directors for up to 226,115 shares of common stock. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods of 5 years and have 10-year contractual terms. Options granted generally vest 20% annually.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of companies within La Porte Bancorp, Inc.’s peer group. The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The fair value of options granted was determined using the following weighted-average assumptions as of the grant date.


		2011
Risk-free interest rate		1.42%
Expected term		7¹/₂ Years
Expected stock price volatility		27.34%
Dividend yield		1.60%

A summary of the activity in the stock option plan for the three months ended June 30, 2012 follows:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at April 1, 2012		213,678	$	8.50		9.5 years		—
Granted		—		—
Exercised		—		—
Forfeited or expired		—		—

Outstanding at June 30, 2012		213,678	$	8.50		9.2 years		—

Fully vested and expected to vest		213,678	$	8.50		9.2 years		—
Exercisable at end of period		—		n/a		n/a		n/a

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 8 – STOCK-BASED COMPENSATION - continued

A summary of the activity in the stock option plan for the six months ended June 30, 2012 follows:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

LaPorte Bancorp, Inc. 10-Q