LaPorte Bancorp 10-K 2008 FY Annual report

SECURITIES AND EXCHANGE COMMISSION

100 F Street NE

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2008

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from             to             

Commission File No. 001-33733

LaPorte Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Federal	26-1231235
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

710 Indiana Avenue, LaPorte, Indiana	46350
(Address of Principal Executive Offices)	Zip Code

(219) 362-7511

(Registrant’s telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value	The NASDAQ Stock Market, LLC

Securities Registered Pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  x

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 twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.    YES  x    NO  ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨.

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

As of March 26, 2009, there were issued and outstanding 4,635,663 shares of the Registrant’s Common Stock.

As of June 30, 2008, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was $33,003,825.

DOCUMENTS INCORPORATED BY REFERENCE

• Proxy Statement for the 2009 Annual Meeting of Stockholders of the Registrant (Part III).

TABLE OF CONTENTS

PART I
Item 1.	Business	3
Item 1A.	Risk Factors	38
Item 1B.	Unresolved Staff Comments	40
Item 2.	Properties	41
Item 3.	Legal Proceedings	41
Item 4.	Submission of Matters to a Vote of Security Holders	41
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	42
Item 6.	Selected Financial Data	44
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	65
Item 8.	Financial Statements and Supplementary Data	65
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	65
Item 9A.	Controls and Procedures	65
Item 9B.	Other Information	66
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	67
Item 11.	Executive Compensation	67
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	67
Item 13.	Certain Relationships and Related Transactions, and Director Independence	67
Item 14.	Principal Accountant Fees and Services	67
PART IV
Item 15.	Exhibits, Financial Statement Schedules	67

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PART I

Item 1. Business

Forward Looking Statements

This Annual Report (including information incorporated by reference) contains, and future oral and written statements of LaPorte Bancorp, Inc. (“LaPorte Bancorp” or the “Company”) and its management may contain, forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of LaPorte Bancorp. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of LaPorte Bancorp’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and LaPorte Bancorp undertakes no obligation to update any statement in light of new information or future events. By identifying these forward-looking statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

LaPorte Savings Bank, MHC

LaPorte Savings Bank, MHC is our federally-chartered mutual holding company parent. As a mutual holding company, LaPorte Savings Bank, MHC is a non-stock company. As of December 31, 2008, LaPorte Savings Bank, MHC owned 54.14% of LaPorte Bancorp’s common stock. As long as LaPorte Savings Bank, MHC exists, it is required to own a majority of the voting stock of LaPorte Bancorp and, through its board of directors, will be able to exercise voting control over most matters put to a vote of shareholders. LaPorte Savings Bank, MHC does not engage in any business activity other than owning a majority of the common stock of LaPorte Bancorp.

LaPorte Bancorp, Inc.

LaPorte Bancorp, Inc. is the federally-chartered mid-tier stock holding company formed by The LaPorte Savings Bank to be its holding company as part of its mutual holding company reorganization and initial public offering. LaPorte Bancorp owns all of The LaPorte Savings Bank’s capital stock. LaPorte Bancorp’s primary business activities, apart from owning the shares of The LaPorte Savings Bank, currently consists of loaning funds to the Laporte Savings Bank’s ESOP and investing in checking and money market accounts at The LaPorte Savings Bank. For parent only financial statements, see Note 19 of the Notes to Consolidated Financial Statements.

LaPorte Bancorp, as the holding company of The LaPorte Savings Bank, is authorized to pursue other business activities permitted by applicable laws and regulations, which may include the acquisition of banking and financial services companies. See “Supervision and Regulation—Holding Company Regulation” for a discussion of the activities that are permitted for savings and loan holding companies. We currently have no specific arrangements or understandings regarding any such other activities.

LaPorte Bancorp’s cash flow depends on dividends received from The LaPorte Savings Bank. LaPorte Bancorp neither owns nor leases significant infrastructure, but instead pays a fee to The LaPorte Savings Bank for the use of its premises, equipment and furniture of The LaPorte Savings Bank. At the present time, we employ only persons who are officers of The LaPorte Savings Bank to serve as officers of LaPorte Bancorp. We, however, use the support staff of The LaPorte Savings Bank from time to time. We pay a fee to The LaPorte Savings Bank for the time devoted to LaPorte Bancorp by employees of The LaPorte Savings Bank. However, these persons are not separately compensated by LaPorte Bancorp. LaPorte Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future.

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The LaPorte Savings Bank

The LaPorte Savings Bank (the “Bank”) is an Indiana-chartered savings bank that operates from eight full-service locations in LaPorte and Porter Counties, Indiana. We offer a variety of deposit and loan products as well as trust and investment services to individuals and small businesses, most of which are located in our primary market of LaPorte County, Indiana.

Our website address iswww.laportesavingsbank.com. Information on our website is not and should not be considered a part of this Annual Report.

The LaPorte Savings Bank’s business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in residential loans, commercial real estate loans, construction loans, home equity loans and lines of credit, commercial loans, automobile and other consumer loans as well as agency securities and mortgage-backed securities. In addition, we offer trust and brokerage services.

Mutual Holding Company Reorganization, Initial Public Offering and City Savings Bank Merger

On March 8, 2007, The LaPorte Savings Bank entered into an agreement to acquire City Savings Financial Corporation and its subsidiary City Savings Bank (“City Savings Bank Merger”) for $34.00 per share with 50% to be paid in stock and 50% to be paid in cash. To support this acquisition, The LaPorte Savings Bank reorganized into the mutual holding company form of organization and completed its initial public offering of its common stock. The mutual holding company reorganization, initial public offering and City Savings Bank Merger were completed on October 12, 2007.

Following the completion of the mutual holding company reorganization, initial public offering and City Savings Bank Merger, LaPorte Savings Bank, MHC held 2,522,013 shares, or 52.7% of LaPorte Bancorp’s outstanding common stock, with public shareholders, including former City Savings Financial Corporation shareholders, owning the remaining 2,261,150 shares. The consideration paid in the City Savings Bank merger consisted of 961,931 shares of LaPorte Bancorp’s common stock and $9.6 million in cash. The Company sold 1,299,219 shares of common stock at $10.00 per share in a subscription and community offering which resulted in gross proceeds of $12,992,190.

As of February 1, 2009, LaPorte Savings Bank, MHC held 2,522,013 shares, or 54.40%, of LaPorte Bancorp’s outstanding common stock. The increase in LaPorte Savings Bank, MHC’s ownership as a percentage of outstanding shares is due to stock repurchases by LaPorte Bancorp. LaPorte Bancorp’s common stock trades on the NASDAQ Capital Market under the ticker symbol “LPSB.”

Market Area

Our primary market for both loans and deposits is currently concentrated around the areas where our full-service banking offices are located in LaPorte and Porter Counties, Indiana. The City Savings Bank Merger increased our market presence in LaPorte and Porter Counties, particularly in Michigan City, Rolling Prairie and Chesterton, Indiana.

We further increased our market presence in LaPorte County with the opening of our Westville, Indiana full-service banking office in July 2008. As of December 31, 2008, the Westville office had total deposits of $2.2 million.

Because of its location at the southern tip of Lake Michigan, LaPorte County is a major access point to the Chicago market for both rail and highway. LaPorte County is the second largest county in Indiana. The southern part of the county is rural and agricultural in nature. The northern part of the county is where LaPorte and Michigan City are located and the majority of the population is centered. The economy of LaPorte and Michigan City were once built around large manufacturing, however both have made the transition to light industry and service industry. Michigan City because of its location on Lake Michigan has seen a growth in tourism. As of June 30, 2008, The LaPorte Savings Bank had a deposit market share of approximately 18% in LaPorte County, which represented the second largest share in LaPorte County of any FDIC insured financial institution. Both land and labor costs in

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LaPorte County have remained below the surrounding market areas, while the population has remained stable and historically property values have not experienced large increases. We have experienced declining property values in certain areas of LaPorte County in 2008, in particular near Lake Michigan.

Porter County to the west has seen much higher growth because of its proximity to the Chicago market. As a result of the acquisition of City Savings Financial we acquired a branch in Chesterton in Porter County. We have also acquired a site in the city of Valparaiso for a possible new branch office. As of June 30, 2008, the LaPorte Savings Bank had a deposit market share of 0.39% in Porter County.

Lending Activities

Historically, our principal lending activity has been the origination of first mortgage loans for the purchase or refinancing of one- to four-family residential real property. During the past several years, we have increased our originations of commercial real estate loans in an effort to increase interest income and reduce our one- to four-family residential loan portfolio as a percentage of our total loans. In the future, we intend to maintain our focus on originating fixed rate one- to four-family residential loans and selling a majority of such loans. In addition, we intend to continue to seek to originate residential adjustable rate mortgages for the portfolio, subject to consumer demand. In addition, subject to market and economic conditions, we intend to continue to increase our commercial real estate lending as a percentage of our total loan portfolio. Finally, we anticipate decreasing our other loans, specifically the indirect automobile loans, due to declining profitability and pricing factors.

The volume of and risk associated with our loans are affected by general economic conditions, including the current economic recession and weakness in real estate values.

Loan Approval Procedures and Authority. Our loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan, and the adequacy of the value of the property that will secure the loan. To assess the borrower’s ability to repay, we review each borrower’s employment and credit history and information on the historical and projected income and expenses of mortgagors. All residential mortgage loans in excess of the individual officer’s loan authority but less than an amount requiring board approval must be approved by the Management Loan Committee. The Management Loan Committee consists of the President, the Executive Vice President – Credit, the Senior Vice President Residential Lending, Vice President Commercial Lending, and the Executive Vice President/Chief Financial Officer. Committee approval is required for all real estate loans above Freddie Mac eligible guidelines but less than an aggregate of $750,000. Other non Freddie Mac loans require Committee approval if they exceed individual authorities but have an aggregate of less than $750,000. Board approval is required for all real estate loans above Freddie Mac guidelines or for loans for which the customer has aggregate balance of $750,000 or more.

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Loan Portfolio Composition.The following table sets forth the composition of our loan portfolio, by type of loan at the dates indicated.

	December 31,
	2008					2007					2006					2005					2004
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real estate:
One- to four-family	$	84,706		38.10	%	$	93,439		42.05	%	$	63,973		46.72	%	$	69,596		49.21	%	$	77,562		51.65	%
Five or more family		5,200		2.34			712		0.32			204		0.15			—		—			60		0.04
Commercial		65,078		29.27			59,332		26.70			35,578		25.98			33,076		23.39			26,363		17.55
Construction		7,736		3.48			11,268		5.07			2,578		1.88			2,132		1.51			6,991		4.66
Land		11,016		4.95			4,829		2.17			74		0.06			299		0.21			70		0.05
Total real estate		173,736		78.14			169,580		76.32			102,407		74.79			105,103		74.32			111,046		73.95
Consumer and other loans:
Home equity		15,579		7.01			16,996		7.65			7,303		5.33			7,844		5.55			9,228		6.14
Commercial		19,390		8.72			17,356		7.81			9,569		6.99			5,753		4.07			5,489		3.66
Automobile and other loans(1)		13,622		6.13			18,276		8.22			17,650		12.89			22,713		16.06			24,405		16.25
Total consumer and other loans		48,591		21.86			52,628		23.68			34,522		25.21			36,310		25.68			39,122		26.05
Total loans	$	222,327		100.00	%	$	222,208		100.00	%	$	136,929		100.00	%	$	141,413		100.00	%	$	150,168		100.00	%
Net deferred loan (fees) costs		111					86					189					228					207
Allowance for loan losses		(2,512	)				(1,797	)				(1,041	)				(1,064	)				(965	)
Total loans, net	$	219,926				$	220,497				$	136,077				$	140,577				$	149,410

⁽¹⁾ Includes $6,041 of indirect automobile and $7,581 of direct automobile and other loans at December 31, 2008, $9,604 and $8,672 at December 31, 2007, $14,091 and $3,559 at December 31, 2006, $18,900 and $3,813 at December 31, 2005, and $19,580 and $4,825 at December 31, 2004.

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Loan Portfolio Maturities and Yields.The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2008. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

	One- to Four-Family				Five or More Family				Commercial Real Estate				Commercial Non-Real Estate				Construction and Land				Consumer, Automobile and Other				Total
	Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate
	(Dollars in thousands)
Due During the Years EndingDecember 31,
2009	$	513	7.22	%	$	3,031	5.00	%	$	7,902	5.32	%	$	9,426	4.54	%	$	14,496	5.54	%	$	3,081	5.59	%	$	38,449	5.23	%
2010		664	7.24			—	—			6,210	6.17			1,351	6.69			2,103	5.42			3,147	5.85			13,475	6.08
2011		2,008	6.92			—	—			3,215	6.55			883	6.04			87	7.38			4,208	6.54			10,401	6.58
2012 to 2013		3,700	5.58			1,712	6.18			21,014	6.16			4,796	5.86			1,164	6.27			9,143	6.07			41,529	6.06
2014 to 2018		18,335	5.82			225	5.64			11,129	5.67			2,934	7.27			686	4.98			6,632	6.17			39,941	5.93
2019 to 2023		13,293	5.93			57	6.50			8,451	6.36			—	—			59	8.00			2,591	6.77			24,451	6.17
2024 and beyond		46,193	6.30			175	6.63			7,157	6.71			—	—			157	7.01			399	8.49			54,081	6.37
Total	$	84,706	6.13	%	$	5,200	5.49	%	$	65,078	6.08	%	$	19,390	5.50	%	$	18,752	5.58	%	$	29,201	6.18	%	$	222,327	6.01	%

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The following table sets forth the scheduled repayments of fixed- and adjustable rate loans at December 31, 2008 that are contractually due after December 31, 2009.

	Due After December 31, 2009
	Fixed		Adjustable		Total
	(In thousands)
Real Estate:
One- to four-family	$	66,344	$	17,849	$	84,193
Five or more family		1,582		587		2,169
Commercial		20,611		36,565		57,176
Construction		—		—		—
Land		1,530		2,726		4,256
Total real estate loans		90,067		57,727		147,794
Consumer and other loans:
Home equity		3,472		10,271		13,743
Commercial		7,380		2,584		9,964
Automobile and other		12,119		258		12,377
Total consumer and other loans		22,971		13,113		36,084
Total loans	$	113,038	$	70,840	$	183,878

One- to Four-Family Residential Loans.Historically, our primary lending activity has consisted of the origination of one- to four-family residential mortgage loans secured primarily by local properties. At December 31, 2008, approximately $84.7 million, or 38.10% of our loan portfolio, consisted of one- to four-family residential loans. The majority of the one- to four-family residential loans we originate are conventional programs but we also offer FHA loans to a lesser extent.The Bank does not, nor has it ever engaged in subprime lending or investment activities, which are defined as mortgage loans to borrowers who do not qualify for market interest rates because of problems with their credit history. Our one- to four-family residential mortgage loans are currently originated in amounts up to 80% of the lesser of the appraised value or purchase price of the property, although loans may be made with higher loan-to-value ratios at a higher interest rate to compensate for the increased credit risk. Private mortgage insurance is generally required on loans with a loan-to-value ratio in excess of 80%. Fixed-rate loans are originated for terms of 10 to 40 years. Depending on market conditions, we generally sell a majority of our fixed rate one- to four-family loans as part of our asset/liability management strategy. At December 31, 2008, our largest loan secured by one- to four-family real estate had a principal balance of approximately $914,000 and was secured by a single-family residence. This loan was performing in accordance with its repayment terms at December 31, 2008.

We also offer, to a lesser extent, adjustable rate mortgage loans with fixed terms of one, three, five, seven or ten years before converting to an annual adjustment schedule based on changes in a designated United States Treasury index. We originated $35,000 of adjustable rate one- to four-family residential loans during the year ended December 31, 2008 and $213,000 during the year ended December 31, 2007. The adjustable rate mortgage loans that we originate provide for maximum rate adjustments of 200 basis points per adjustment, with a lifetime maximum adjustment of 600 basis points, and amortize over terms of up to 30 years.

Adjustable rate mortgage loans help decrease the risk associated with changes in market interest rates by periodically repricing. However, adjustable rate mortgage loans involve other risks because, as interest rates increase, the interest payments on the loan increase, which increases the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate is also limited by the maximum periodic and lifetime interest rate adjustments permitted by our loan documents, and therefore, is potentially limited in effectiveness during periods of rapidly rising interest rates. At December 31, 2008, $17.8 million, or 21.2%, of our one- to four-family residential loans contractually due after December 31, 2009 had adjustable rates of interest.

We acquired a substantial amount of our adjustable rate one- to four-family residential mortgage loans in connection with our acquisition of City Savings Bank in 2007. At December 31, 2008, $26.2 million of our one- to four-family residential loans were

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acquired from City Savings Bank, of which $15.3 million were adjustable rate loans. Most of City Savings Bank’s adjustable rate loans were originated with rates that were fixed for an initial term of five years and then adjust on an annual basis thereafter, pegged to the one-year United States Treasury index. These loans also provide for a maximum interest rate adjustment of 200 basis points over a one-year period and a maximum adjustment of 600 basis points over the life of the loan, and are amortized over terms up to 30 years.

At December 31, 2008, $449,000 of our one- to four-family residential mortgage loans were classified as non-performing. $422,000, or 94.0%, of these nonperforming loans were acquired with City Savings Bank, and all are adjustable rate loans.

All one- to four-family residential mortgage loans that we originate include “due-on-sale” clauses, which give us the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid.

Regulations guide the amount that a savings bank may lend relative to the appraised value of the real estate securing the loan, as determined by an appraisal of the property at the time the loan is originated. For all loans, we utilize outside independent appraisers approved by the board. All borrowers are required to obtain title insurance. We also require fire and casualty insurance and, where circumstances warrant, flood insurance.

Commercial Real Estate Loans.At December 31, 2008, $65.1 million, or 29.27% of our total loan portfolio consisted of commercial real estate loans. Our commercial real estate loans are secured by retail, industrial, warehouse, service, medical and other commercial properties. Because, on average, our commercial real estate loans have a shorter term to repricing and a higher yield than our residential loans, such loans can be a helpful asset/liability management tool.

We originate both fixed- and adjustable-rate commercial real estate loans. Our originated fixed-rate commercial real estate loans generally have initial terms of up to five years, with a balloon payment at the end of the term. Our originated adjustable-rate commercial real estate loans generally have an initial term of three- to five-years and a repricing option. Our originated commercial real estate loans generally amortize over 15 to 20 years. The maximum loan-to-value ratio of our commercial real estate loans is generally 80%. At December 31, 2008, our largest commercial real estate loan balance was $2.1 million. At December 31, 2008, this loan was performing in accordance with its repayment terms.

We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the mortgaged property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service) to ensure that it is at least 120% of the monthly debt service. Personal guarantees are obtained from commercial real estate borrowers although we will consider waiving this requirement based upon the loan-to-value ratio and the debt coverage ratio of the proposed loan. All purchase money and asset refinance borrowers are required to obtain title insurance. We also require fire and casualty insurance and, where circumstances warrant, flood insurance.

We acquired a number of commercial real estate loans as a result of the acquisition of City Savings Bank. The majority of these loans were adjustable-rate commercial real estate loans generally having terms no greater than 20 years. Acquired loans that showed evidence of credit deterioration on the date of the City Savings Bank acquisition were recorded at an allocated fair value. Since the date of acquisition we have not recorded any specific reserves related to these loans. At December 31, 2008, the balance of these loans acquired with City Savings Bank was $1.3 million. For further information about the accounting treatment of purchased loans subject to SOP 03-3, see Note 3 to Consolidated Financial Statements included in Part IV hereof.

Loans secured by commercial real estate generally are considered to present greater risk than one- to four-family residential loans. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment

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of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general, including today’s economic crisis and declining real estate values. Accordingly, the nature of these loans makes them more difficult for management to monitor and evaluate and more vulnerable to adverse economic conditions.

Set forth below is information regarding our commercial real estate loans at December 31, 2008.

Industry Type	Number of Loans	Balance
		(Dollars in thousands)
Real estate development and rental	131	$	18,949
Health care and social	10		5,170
Retail trade	37		6,647
Accommodation and food	36		9,129
Other services	43		5,608
Manufacturing	26		5,705
Construction	40		5,078
Other miscellaneous	55		8,792
	378	$	65,078

At December 31, 2008, $3.0 million of our commercial real estate loans were classified as non-performing. $2.3 million, or 76.2%, of these loans were acquired from City Savings Bank.

During recent years, we have increased our emphasis on commercial real estate lending. We expect to continue this increased emphasis in the future, subject to market and economic conditions.

Construction and Land Loans.At December 31, 2008, $18.8 million, or 8.43%, of our total loan portfolio consisted of construction and land loans. A majority of our mortgage construction loans are for the construction of residential properties and carry fixed rates. Most of our current residential construction loan originations are structured for permanent mortgage financing once the construction is completed. At December 31, 2008, our largest residential construction loan balance was $490,000. At December 31, 2008 this loan was performing in accordance with its terms.

The majority of our current construction loans are subject to our normal underwriting procedures prior to being converted to permanent financing. Most of our current construction loans, once converted to permanent financing, repay over a thirty-year period. In addition, most of our current construction loans require only the payment of interest during the construction period. Most of our current construction loans are made in amounts of up to 80% of the lesser of the appraised value of the completed property or contract price plus value of the land improvements. Funds are disbursed based on our inspections in accordance with a schedule reflecting the completion of portions of the project.

For all construction and land loans, we utilize outside independent appraisers approved by the board. All borrowers are required to obtain title insurance. We also require fire and casualty insurance on construction loans and, where circumstances warrant, flood insurance on properties.

We also occasionally make loans to builders and developers “on speculation” to finance the construction of residential property where justified by an independent appraisal. We acquired a number of such loans in the City Savings Bank merger. Whether we are willing to provide permanent takeout financing to the purchaser of the home is determined independently of the construction loan by a separate underwriting process. At December 31, 2008, we had construction loans with outstanding aggregate balances of $561,000 secured by one- to four-family residential property built on speculation. Given the current state of the economy and overall concerns with the construction development industry, we have significantly reduced our exposure in this type of lending and do not anticipate a change in this strategy in the near future.

We also make commercial land development and residential land loans. The growth in this area has been primarily from loans to real estate developers for the acquisition and development of one- to four-family residential developments. These loans generally have an interest-only phase during construction then convert to permanent financing. The maximum loan-to-value ratio applicable to

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these loans is generally 80%. At December 31, 2008, our total balance of commercial land development and residential land loans was $11.0 million, and the balance of such loans acquired with City Savings Bank was $3.8 million. At December 31, 2008, our largest commercial real estate development loan balance was $1.2 million. At December 31, 2008, this loan was performing in accordance with its terms.

We also make construction loans for commercial development projects such as multi-family, apartment and small retail and office buildings. These loans generally have an interest-only phase during construction then convert to permanent financing. Disbursements of construction loan funds are at our discretion based on the progress of construction. The maximum loan-to-value ratio limit applicable to these loans is generally 80%. At December 31, 2008, we had construction loans with an outstanding aggregate balance of $4.0 million and $1.6 million of undrawn commitments which were secured by multi-family residential or commercial property, $2.9 of such loans were acquired with City Savings Bank. At December 31, 2008, our largest commercial construction loan balance was $1.6 million. At December 31, 2008, this loan was performing in accordance with its terms.

We also occasionally make loans to builders and developers for the development of one- to four-family lots in our market area. We acquired a number of such loans in the City Savings Bank merger. Land loans are generally made in amounts up to a maximum loan-to-value ratio of 75% based upon an independent appraisal. When feasible, we obtain personal guarantees for our land loans.

The table below sets forth, by type of collateral property, the number and amount of our construction and land loans at December 31, 2008, all of which are secured by properties located in our market area. Loans acquired with City Savings Bank represent $1.2 million or 76.2% of the non-performing construction and land loans.

	Net Principal Balance		Non-Performing
	(Dollars in thousands)
One- to four-family construction	$	3,720	$	378
Commercial construction		4,016		1,210
Land		11,016		—
Total construction and land loans	$	18,752	$	1,588

Construction and land lending generally affords us an opportunity to receive higher origination and other loan fees. In addition, such loans are generally made for relatively short terms. Nevertheless, construction and land lending to persons other than owner-occupants generally involve a higher level of credit risk than permanent one- to four-family residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on construction projects (including the current economic crisis), real estate developers and managers. In particular, today’s very slow real estate market will likely have a very significant impact on the ability of the borrower to sell the newly constructed units. In addition, the nature of these loans is such that they are more difficult to evaluate and monitor. Our risk of loss on a construction or land loan is dependent largely upon the accuracy of the initial estimate of the property’s value upon completion of the project (which may fluctuate based on market demand) and the estimated cost (including interest) of the project. If the estimate of value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project with a value which is insufficient to assure full repayment and/or the possibility of having to make substantial investments to complete and sell the project. Because defaults in repayment may not occur during the construction period, it may be difficult to identify problem loans at an early stage. When loan payments become due, the cash flow from the property may not be adequate to service the debt. In such cases, we may be required to modify the terms of the loan. During 2008, we suffered a significant increase in our nonperforming construction loans.

Commercial Loans. At December 31, 2008, $19.4 million, or 8.72% of our total loan portfolio consisted of commercial loans, of which $1.5 million of such commercial loans were acquired in the City Savings Bank merger. Purchased loans that showed evidence as of the date of acquisition of credit deterioration since their origination were recorded at an allocated fair value.

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Commercial credit is offered primarily to small business customers, usually for asset acquisition, business expansion or working capital purposes. Current term loan originations generally have a three- to five-year term with a balloon payment. Current term loan originations will not exceed 15 years without approval from the board. The maximum loan-to-value ratio of our current commercial loan originations is generally 80%. The extension of a commercial credit is based on the ability and stability of management, whether cash flows support the proposed debt repayment, earnings projections and the assumptions for such projections and the volume and marketability of any underlying collateral. At December 31, 2008, our largest commercial loan balance was $2.8 million, and secured by a trust security portfolio. At December 31, 2008, this loan was performing in accordance with its terms.

Set forth below is information regarding The LaPorte Savings Bank’s commercial business (non-real estate) loans at December 31, 2008.

Industry Type	Balance
	(Dollars in thousands)
Real estate development and rental	$	3,096
Health care and social		521
Retail trade		2,015
Accommodation and food		1,709
Other services		403
Manufacturing		3,926
Construction		629
Other miscellaneous		7,091
	$	19,390

Commercial loans generally have a greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself which may be highly vulnerable to changes in general economic conditions (including the current recession). Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. We seek to minimize these risks through our underwriting standards. At December 31, 2008, $1,535 of our commercial loans were classified as nonperforming, $972,000, or 63.3% of these nonperforming loans were acquired from City Savings Bank.

Home Equity Loans and Lines of Credit.We originate fixed and variable rate home equity loans and variable rate home equity lines of credit secured by a lien on the borrower’s residence. The home equity products we originate generally are limited to 80% of the property value less any other mortgages. The variable interest rates for home equity loans and lines of credit are determined by theWall Street Journal prime rate and may not exceed a designated maximum over the life of the loan. We currently offer home equity loans with terms of up to 10 years with principal and interest paid monthly from the closing date. Our home equity lines of credit provide for an initial draw period of up to 10 years, and payments include principal and interest calculated based on 2% of the outstanding principal balance. We offer interest-only home equity loans up to a five year term with payments of monthly interest. At the end of the initial term, the line must be paid in full or renewed. At December 31, 2008, $15.6 million or 7.01% of our total loan portfolio consisted of home equity loans and lines of credit. At December 31, 2008, our largest home equity loan balance was $374,000. This loan was secured by a residential property and was performing in accordance with its terms.

Home equity loans acquired in connection with the City Savings Bank merger were $6.6 million at December 31, 2008, of which $4.5 million of these loans were interest only home equity loans with principal to be repaid at maturity.

Home equity lending is subject to the same risks as one-to four-family residential lending except that, since home equity loans tend to carry higher loan to value ratios and more household debt than one-to four-family loans, there is often a somewhat higher degree of credit risk, particularly in a period of economic difficulties such as is currently occurring.

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At December 31, 2008, $121,000 of our home equity loans were classified as non-performing. $93,000, or 76.9%, of these loans were acquired with City Savings Bank.

Consumer and Other Loans.We offer a variety of loans that are either unsecured or secured by property other than real estate. These loans include loans secured by deposits, recreational vehicles or boats, personal and bond loans and indirect and direct automobile loans. At December 31, 2008, these consumer and other loans totaled $13.6 million, or 6.13% of the total loan portfolio. We acquired a significant portfolio of these loans in connection with the City Savings Bank merger. At December 31, 2008, we had $4.0 million of such loans acquired with the City Savings Bank merger. At December 31, 2008, $6.0 million or 2.72% of our total loan portfolio consisted of indirect automobile loans, down from $9.6 million of such loans at December 31, 2007.

The terms of our consumer and other loans vary according to the type of collateral, length of contract, and creditworthiness of the borrower. We generally will write indirect and direct automobile loans for up to 100% of the retail value for a new automobile and up to 100% of the wholesale value for a used automobile. The repayment schedule of loans covering both new and used vehicles is consistent with the expected life and normal depreciation of the vehicle. The majority of the loans for recreational vehicles and boats were originated by City Savings Bank prior to the City Savings Bank merger and were written for no more than 80% of the estimated sales price of the collateral, for a term that is consistent with its expected life and normal depreciation.

Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are likely to be affected by adverse personal circumstances and the overall economy, including the current economic downturn. Furthermore, the application of various state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. At December 31, 2008 we had $21,000 of consumer loans that were non-performing. $5,000, or 23.81%, of these loans were acquired with City Savings Bank. In view of the possible increase in the amount and scope of our consumer lending activities, there can be no assurance that delinquencies in our consumer loan portfolio will not increase in the future.

Loan Originations, Purchases and Sales. Our loan origination activities have been primarily concentrated in our local market area. New loans are generated primarily from local realtors, walk-in customers, customer referrals, and other parties with whom we do business, and from the efforts of employees and advertising. Loan applications are underwritten and processed at our main office.

From time to time, we purchase loans from third parties to supplement loan production. In particular, we may purchase loans of a type that are not available, or that are not available with as favorable terms, in our own market area. We generally use the same underwriting standards in evaluating loan purchases as we do in originating loans. During 2008, we did not purchase any additional loans from third parties. At December 31, 2008, $2.0 million, or less than 1.0% of our portfolio consisted of purchased loans. At December 31, 2008, all of our purchased loan portfolio was serviced by others.

On occasion, we sell some of our originated loans in the secondary market. We generally make decisions regarding the amount of loans we wish to sell based on interest rate and/or credit risk management considerations. For instance, we often sell participation interests in our large, multi-family and commercial real estate loans in order to diversify our risk. At December 31, 2008, we serviced $53.4 million of loans for others, the majority of which were mortgage loans serviced for Freddie Mac.

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The following table shows our loan origination, sale and principal repayment activities during the periods indicated.

	Years Ended December 31,
	2008			2007
	(In thousands)
Total loans at beginning of period	$	222,208		$	136,929
Loans originated:
Real estate:
One- to four-family		29,310			24,488
Five or more family		5,873			—
Commercial		31,444			21,632
Construction		10,273			8,011
Land		6,825			449
Consumer and other loans:
Home equity		5,876			3,478
Commercial		14,550			11,840
Automobile and other		3,252			4,592
Total loans originated		107,403			74,490
Loans acquired through merger:
Real estate:
One- to four-family		—			38,540
Five or more family		—			518
Commercial		—			27,790
Construction		—			3,096
Land		—			4,508
Consumer and other loans:
Home equity		—			11,079
Commercial		—			5,701
Automobile and other		—			5,858
Total loans acquired		—			97,090
Loans purchased:
Real estate:
One- to four-family		—			—
Five or more family		—			—
Commercial		—			2,018
Construction		—			—
Land		—			—
Consumer and other loans:
Home equity		—			—
Commercial		—			—
Automobile and other		—			—
Total loans purchased		—			2,018
Loans sold:
Real estate:
One- to four-family		(21,883	)		(13,189	)
Five or more family		—			—
Commercial		—			—
Construction		—			—
Land		—			—
Consumer and other loans:
Home equity		—			—
Commercial		—			—
Automobile and other		—			—
Total loans sold		(21,883	)		(13,189	)
Deduct:
Principal repayments		(85,401	)		(75,130	)
Net loan activity		119			85,279
Total loans at end of period (excluding net deferred loan fees and costs)	$	222,327		$	222,208

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Nonperforming Assets.The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.

	At December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands)
Nonaccrual loans:
Real estate:
One- to four- family(1)	$	449		$	186		$	241		$	215		$	—
Five or more family		—			—			—			—			—
Commercial(2)		3,036			1,061			74			157			670
Construction		1,588			—			—			—			—
Land		—			—			—			—			—
Total real estate	$	5,073		$	1,247		$	315		$	372		$	670
Consumer and other loans:
Home equity(3)		121			299			—			10			7
Commercial(4)		1,535			50			—			—			—
Automobile and other		21			28			5			45			1
Total consumer and other loans		1,677			377			5			55			8
Total nonaccrual loans	$	6,750		$	1,624		$	320		$	427		$	678
Troubled debt restructured commercial real estate		—		$	462		$	517		$	546		$	—
Total troubled debt restructured		—		$	462		$	517		$	546		$	—
Loans greater than 90 days delinquent and still accruing:
Real estate:
One- to four- family	$	—		$	—		$	—		$	—		$	657
Five or more family		—			—			—			—			—
Commercial		—			—			—			—			—
Construction		—			—			—			—			—
Land		—			—			—			—			—
Total real estate	$	—		$	—		$	—		$	—		$	657
Consumer and other loans:
Home equity		—			—			—			—			—
Commercial		—			—			—			—			—
Automobile and other		—			—			—			—			—
Total consumer and other loans	$	—		$	—		$	—		$	—		$	—
Total nonperforming loans	$	6,750		$	2,086		$	837		$	973		$	1,335
Foreclosed assets:
One- to four- family	$	917		$	—		$	—		$	111		$	71
Five or more family		—			—			—			—			50
Commercial		—			268			453			465			—
Construction		—			150			—			—			—
Land		4			36			—			—			—
Consumer		—			—			—			—			—
Business assets		—			—			—			—			—
Total foreclosed assets	$	921		$	454		$	453		$	576		$	121
Total nonperforming assets	$	7,671		$	2,540		$	1,290		$	1,549		$	1,456
Ratios:
Nonperforming loans to total loans		3.04	%		0.94	%		0.61	%		0.69	%		0.89	%
Nonperforming assets to total assets		2.08	%		0.69	%		0.48	%		0.60	%		0.56	%

(1) $135 and $134 of the nonaccrual one- to four-family loans at December 31, 2008 and 2007 were included for treatment under SOP 03-3 after the acquisition of City Savings Bank.

(2) $191 and $523 of the nonaccrual commercial real estate loans at December 31, 2008 and 2007 were included for treatment under SOP 03-3 after the acquisition of City Savings Bank.

(3) $21 of the nonaccrual home equity loans at December 31, 2008 were included for treatment under SOP 03-3 after the acquisition of City Savings Bank.

(4) $50 of the nonaccrual commercial loans at December 31, 2007 were included for treatment under SOP 03-3 after the acquisition of City Savings Bank.

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Total nonperforming loans increased $4.7 million from $2.1 million at December 31, 2007 to $6.8 million at December 31, 2008. This increase is primarily attributable to one loan relationship with a chemical manufacturing company located in Valparaiso, Indiana totaling $3.3 million at December 31, 2008, which was acquired in the acquisition of City Savings Financial in the fourth quarter of 2007. This relationship consists of one commercial real estate loan secured by the chemical manufacturing facility, one commercial construction loan secured by an addition to the chemical manufacturing facility and one commercial and industrial loan secured by the equipment within the chemical manufacturing facility. Also contributing to this increase was another commercial relationship which totaled $848,000 at December 31, 2008 and consisted of two commercial real estate loans and one commercial and industrial loan. During the first quarter of 2009, all three of these loans were paid in full. At December 31, 2008, $4.7 million of our nonperforming loans were originated by City Savings Financial prior to the acquisition in the fourth quarter of 2007.

For the years ended December 31, 2008 and 2007, contractual gross interest income of $148,000 and $56,000 would have been recorded on non-performing loans if those loans had been current. For the year ended December 31, 2006, gross interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was insignificant.

Troubled Debt Restructurings: Our troubled debt restructurings at December 31, 2008, 2007 and 2006 consisted of one commercial loan relationship. In 2005 the loan was classified as doubtful when the borrower sold the company and the loan was renegotiated at a significantly reduced interest rate with a new borrower. As a result of the interest rate restructure the loan was discounted and reported as a troubled debt restructuring in accordance with SFAS No. 114 guidance as of December 31, 2005. This loan was a loan participation involving three other local financial institutions. City Savings Bank also held a portion of this same commercial loan in its portfolio at the time of the acquisition, however they did not classify the loan as troubled debt restructured status and instead charged down a portion of the loan in 2005. The loan had paid as agreed since the restructuring with the new borrower until November 2008. At December 31, 2008, this loan was placed in non-accrual status and is included in non-accrual commercial loans in the previous table. The remaining balance on this loan as renegotiated was $358,000 as of March 23, 2009. The value of the collateral underlying this loan is estimated to be $250,000. For the years ended December 31, 2008, 2007 and 2006, gross interest income that would have been recorded had our troubled debt restructurings been current in accordance with their original terms was $40,000, $43,000 and $58,000, respectively. For the year ended December 31, 2008, 2007 and 2006, gross interest income that was recorded related to our troubled debt restructurings totaled $16,000, $18,000 and $17,000, respectively.

Accounting for Acquired Loans: The Company acquired a group of loans through the acquisition of City Savings Bank on October 12, 2007. Acquired loans that showed evidence of credit deterioration since their origination were recorded at an allocated fair value, in light of the fact that there is no carryover of the seller’s specific reserve for loan losses. After acquisition, incurred losses are recognized by an increase in the allowance for loan losses.

Acquired loans are accounted for individually or aggregated into pools of loans based on common risk characteristics (e.g., credit score, loan type, and date of origination). The Company estimates the amount and timing of expected cash flows for each purchased loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

For further information about the accounting treatment of acquired loans subject to SOP 03-3, see Note 3 of the Notes to Consolidated Financial Statements included in Part IV hereof.

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Delinquencies. The following table sets forth certain information with respect to our loan portfolio delinquencies by type and amount at December 31, 2008.

	Loans Delinquent For									Total
	30-59 Days			60-89 Days			90 Days and Over
	Number	Amount		Number	Amount		Number	Amount		Number	Amount
	(Dollars in thousands)
Real estate:
One- to four-family	14	$	1,076	2	$	118	3	$	314	19	$	1,508
Five or more family	1		57	—		—	—		—	1		57
Commercial	6		739	1		2,023	3		777	10		3,539
Construction	—		—	1		953	4		635	5		1,588
Land	—		—	1		111	—		—	1		111
Total real estate	21		1,872	5		3,205	10		1,726	36		6,803
Consumer and other loans:
Home equity	4		105	1		17	5		99	10		221
Commercial	2		68	4		1,075	4		491	10		1,634
Automobile and other	15		142	1		6	4		21	20		169
Total consumer and other loans	21		315	6		1,098	13		611	40		2,024
Total	42	$	2,187	11	$	4,303	23	$	2,337	76	$	8,827

After a real estate secured loan becomes 15 days late (10 days for consumer and commercial loans), we deliver a computer generated late charge notice to the borrower and will attempt to contact the borrower by telephone. When a loan becomes 25 days delinquent, we contact the borrower to make arrangements for payment. We attempt to make satisfactory arrangements to bring the account current, including interviewing the borrower, until the mortgage is brought current or a determination is made to recommend foreclosure, deed-in-lieu of foreclosure or other appropriate action. After a loan becomes delinquent 90 days or more, we will generally refer the matter to the Management Collections Committee, which may authorize legal counsel to commence foreclosure proceedings.

Mortgage loans are reviewed on a regular basis and such loans are placed on nonaccrual status when they become more than 90 days delinquent. When loans are placed on nonaccrual status, unpaid accrued interest for the current year is fully charged off against interest income, any prior year unpaid accrued interest is charged-off against allowance for loan losses, and further income is recognized only to the extent received, if there is no risk of loss of principal, in which case all payments are applied to principal.

Classified Assets.Banking regulations and our Asset Classification Policy provide that loans and other assets considered to be of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention. While such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, thereby adversely affecting the repayment of the asset.

An institution is required to establish general allowances for loan losses in an amount deemed prudent by management for loans classified substandard or doubtful, as well as for other problem loans. General allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. Our determination as to the classification of our assets and the amount of our valuation allowances are subject to review by the Indiana Department of Financial Institutions and the Federal Deposit Insurance Corporation which can order the establishment of additional general or specific loss allowances.

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On the basis of management’s review of its assets, at December 31, 2008, we classified approximately $5.2 million of our assets as special mention, of which $1.7 million were originated by City Savings Bank, $13.0 million as substandard, of which $8.1 million were originated by City Savings Bank, and $250,000 as doubtful all of which was originated by City Savings Bank. At December 31, 2008, none of our assets were classified as loss.

The loan portfolio is reviewed on a regular basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute nonperforming assets.

On the basis of this review of our assets, we had classified or held as special mention the following assets as of the date indicated:

	At December 31,
	2008		2007
	(In thousands)
Special mention	$	5,164	$	7,125
Substandard		13,023		9,929
Doubtful		250		168
Loss		—		—
Total classified and special mention assets	$	18,437	$	17,222

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

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. All individually classified commercial loans are evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

The Bank is subject to periodic examinations by its federal and state regulatory examiners and may be required by such regulators to recognize additions to the allowance for loan losses based on their assessment of credit information available to them at the time of their examinations. The process of assessing the adequacy of the allowance for loan losses is necessarily subjective. Further, and particularly in times of economic downturns, it is reasonably possible that future credit losses may exceed historical loss levels and may also exceed management’s current estimates of incurred credit losses inherent within the loan portfolio. As such, there can be no assurance that future charge-offs will not exceed management’s current estimate of what constitutes a reasonable allowance for loan losses.

The Company acquired a group of loans through the acquisition of City Savings Bank on October 12, 2007. Acquired loans that showed evidence of credit deterioration since their origination were recorded at an allocated fair value, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, incurred losses are recognized by an increase in the allowance for loan losses. For further information about the accounting treatment of purchased loans subject to SOP 03-3, see Note 3 of the Notes to Consolidated Financial Statements included in Part IV hereof.

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While management uses available information to recognize probable and reasonably estimable loan losses, future loss provisions may be necessary based on changing economic conditions. Payments received on impaired loans that are on nonaccrual are applied first to principal until there is no risk of loss of the principal. The allowance for loan losses is maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio, and such losses were both probable and reasonably estimable.

The following table sets forth activity in our allowance for loan losses for the periods indicated.

	At or For the Years Ended December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands)
Balance at beginning of period	$	1,797		$	1,041		$	1,064		$	965		$	1,296
Charge-offs:
Real estate:
One- to four- family		(130	)		—			(11	)		—			(31	)
Five or more family		—			—			—			—			—
Commercial		—			(8	)		—			(12	)		(131	)
Construction		—			—			—			—			(10	)
Land		—			—			—			—			—
Total real estate		(130	)		(8	)		(11	)		(12	)		(172	)
Consumer and other loans:
Home equity		(35	)		—			—			—			—
Commercial		(222	)		—			(97	)		(13	)		(120	)
Automobile and other		(96	)		(157	)		(134	)		(184	)		(132	)
Total consumer and other loans		(353	)		(157	)		(231	)		(197	)		(252	)
Total charge-offs		(483	)		(165	)		(242	)		(209	)		(424	)
Recoveries:
Real estate:
One- to four- family		1			6			—			—			—
Five or more family		—			—			—			—			—
Commercial		—			—			—			—			—
Construction		—			—			—			—			6
Land		—			—			—			—			—
Total real estate		1			6			—			—			6
Consumer and other loans:
Home equity		2			1			—			—			—
Commercial		5			15			—			1			12
Automobile and other		65			59			76			92			67
Total consumer and other loans		72			75			76			93			79
Total recoveries		73			81			76			93			85
Net (charge-offs) recoveries		(410	)		(84	)		(166	)		(116	)		(339	)
Provision for loan losses		1,125			64			143			215			8
Allowance acquired through merger (general reserve only)		—			776			—			—			—
Balance at end of year	$	2,512		$	1,797		$	1,041		$	1,064		$	965
Ratios:
Net charge-offs to average loans outstanding		0.19	%		0.05	%		0.12	%		0.08	%		0.22	%
Allowance for loan losses to nonperforming loans at end of period		37.21	%		86.15	%		124.37	%		109.35	%		72.28	%
Allowance for loan losses to total loans at end of period		1.13	%		0.81	%		0.76	%		0.75	%		0.64	%

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Allocation of Allowance for Loan Losses.The following table sets forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At December 31,
	2008						2007						2006
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate:
One- to four- family	$	372	$	84,706	38.10	%	$	124	$	93,439	42.05	%	$	141	$	63,973	46.72	%
Five or more family		55		5,200	2.34			—		712	0.32			—		204	.15
Commercial		933		65,078	29.27			886		59,332	26.70			373		35,578	25.98
Construction		52		7,736	3.48			80		11,268	5.07			9		2,578	1.88
Land		138		11,016	4.95			—		4,829	2.17			—		74	0.06
Total real estate		1,550		173,736	78.14			1,090		169,580	76.32			523		102,407	74.79
Consumer and other:
Home equity		86		15,579	7.01			15		16,996	7.65			9		7,303	5.33
Commercial		747		19,390	8.72			357		17,356	7.81			283		9,569	6.99
Automobile and other		129		13,622	6.13			335		18,276	8.22			226		17,650	12.89
Total consumer and other		962		48,591	21.86			707		52,628	23.68			518		34,522	25.21
Total loans (excluding net deferred loan fees and costs)	$	2,512	$	222,327	100.00	%	$	1,797	$	222,208	100.00	%	$	1,041	$	136,929	100.00	%

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	At December 31,
	2005						2004
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate:
One- to four- family	$	129	$	69,596	49.21	%	$	142	$	77,562	51.65	%
Five or more family		—		—	—			—		60	0.04
Commercial		366		33,076	23.39			348		26,363	17.55
Construction		8		2,132	1.51			5		6,991	4.66
Land		—		299	0.21			—		70	0.05
Total real estate		503		105,103	74.32			495		111,046	73.95
Consumer and other:
Home equity		25		7,844	5.55			26		9,228	6.14
Commercial		125		5,753	4.07			103		5,489	3.66
Automobile and other		411		22,713	16.06			341		24,405	16.25
Total consumer and other		561		36,310	25.68			470		39,122	26.05
Total loans	$	1,064	$	141,413	100.00	%	$	965	$	150,168	100.00	%

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We use the accrual method of accounting for all performing loans. The accrual of interest income is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is currently performing. When a loan is placed on nonaccrual status, unpaid interest previously credited to income is reversed. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectibility of principal. Generally, loans are restored to accrual status when the obligation is brought in accordance with the contractual terms for a reasonable period of time and ultimate collectibility of total contractual principal and interest is no longer in doubt.

In our collection efforts, we will first attempt to cure any delinquent loan. If a real estate secured loan is placed on nonaccrual status, it will be subject to transfer to the other real estate owned (“OREO”) portfolio (properties acquired by or in lieu of foreclosure), upon which our loan servicing department will pursue the sale of the real estate. Prior to this transfer, the loan balance will be reduced, with a charge-off against the allowance for loan losses if necessary, to reflect its current market value less estimated costs to sell. Write downs of OREO that occur after the initial transfer from the loan portfolio and costs of holding the property are recorded as other operating expenses, except for significant improvements which are capitalized to the extent that the carrying value does not exceed estimated net realizable value.

Fair values for determining the value of collateral are estimated from various sources, such as real estate appraisals, financial statements and from any other reliable sources of available information. For those loans deemed to be impaired, collateral value is reduced for the estimated costs to sell. Reductions of collateral value are based on historical loss experience, current market data, and any other source of reliable information specific to the collateral.

This analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance for loan losses at levels to absorb probable and estimable losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.

Securities Activities

Our securities investment policy is established by our board. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our interest rate risk management strategy.

Our investment policy is reviewed annually by our board and all policy changes recommended by management must be approved by the board. Authority to make investments under the approved guidelines are delegated to appropriate officers. While general investment strategies are developed and authorized by the board, the execution of specific actions with respect to securities held by The LaPorte Savings Bank rests with the Chief Executive Officer and Chief Financial Officer. The Chief Executive Officer and Chief Financial Officer are authorized to execute investment transactions with respect to securities held by The LaPorte Savings Bank within the scope of the established investment policy.

We have retained an independent financial institution to provide us with portfolio accounting services, including a monthly portfolio performance analysis of our securities portfolio. These reports, together with another third party review provided quarterly, are reviewed by management in making investment decisions. The Asset/Liability Management Committee and the Board review a summary of these reports on a monthly basis. It should be noted that we use this financial institution along with other third party brokers to effect security purchases and sales.

Until July 30, 2008, a significant portion of our investment securities were held by our subsidiary LPSB Investments Ltd., Cayman (“LPSB Ltd.”). LPSB Ltd., a wholly-owned subsidiary of The LaPorte Savings Bank, began operations in 2002 when The LaPorte Savings Bank received approval from the Federal Deposit Insurance Corporation to form the subsidiary in the Cayman Islands. Because LPSB Ltd. is located in the Grand Cayman Islands, the earnings attributable on such securities are not taxable to us for Indiana state income tax purposes. Investment decisions with respect to LPSB Ltd. were made by its Board of Directors which consisted of Paul Fenker, Jerry Mayes and Lee A. Brady, all of whom are members of our Board, as well as Andrew Johnson, who

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was a dual-employee of LPSB Ltd. and Wilmington Trust. In general, the directors of LPSB Ltd. utilized investment guidelines similar to ours. On July 30, 2008 the securities held and managed by LPSB Ltd. were transferred to the Bank. Due to the substantial state income tax net operating loss carry forward brought over from City Savings Bank, in addition to the operating costs of maintaining the subsidiary, management made the decision to dissolve LPSB Ltd.LPSB Ltd. was deemed to be dissolved on March 17, 2009.

Our current investment policy generally permits security investments in debt securities issued by the U.S. government and U.S. agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of government sponsored enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank of Indianapolis (federal agency securities). Securities in these categories are generally classified as “securities available-for-sale” for financial reporting purposes. The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. The aggregate of all mortgage-backed securities may not exceed 75% of the overall investment portfolio, and the aggregate total of any one mortgage-backed issuer is limited to 75% of the aggregate mortgage-backed securities portfolio. We may also invest in Collateralized Mortgage Obligations (“CMOs”), Real Estate Mortgage Investment Conduits (“REMICs”) and other mortgage-related products, although such products are limited to 75% of the overall investment portfolio. In addition, we may invest in commercial paper, corporate debt, asset-backed securities and municipal securities. We acquired various investment securities from City Savings Bank, all of which complied with our investment policy.

Our current investment strategy uses a risk management approach of diversified investing in fixed-rate securities with short- to intermediate-term maturities, as well as adjustable rate securities, which may have a longer term to maturity. We have retained an independent financial institution to provide us with portfolio accounting services, including a monthly portfolio performance analysis of our securities portfolio. These reports, together with another third party review provided quarterly, are reviewed by management in making investment decisions. The emphasis of this approach is to increase overall investment security yields while managing interest rate risk. As of December 31, 2008, we held no asset-backed securities, and other equity securities consisted almost exclusively of securities issued by Freddie Mac.

SFAS No. 115 requires that, at the time of purchase, we designate a security as held-to-maturity, available-for-sale, or trading, depending on our ability and intent. Securities available-for-sale are reported at fair value, while securities held-to-maturity are reported at amortized cost. Some of our securities are callable by the issuer or contain other features of financial engineering. Although these securities may have a yield somewhat higher than the yield of similar securities without such features, these securities are subject to the risk that they may be redeemed by the issuer prior to maturing in the event general interest rates decline. At December 31, 2008, we had $14.5 million of securities which were subject to redemption by the issuer prior to their stated maturity.

We purchase mortgage-backed securities in order to generate positive interest rate spreads with limited administrative expense, limited credit risk and significant liquidity. We also use mortgage-backed securities to supplement our lending activities. Mortgage-backed securities are created by pooling mortgages and issuing a security collateralized by the pool of mortgages with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although most of our mortgage-backed securities are collateralized by single-family mortgages. The issuers of such securities (generally U.S. government agencies and U.S. government sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors, such as The LaPorte Savings Bank, and guarantee the payment of principal and interest to these investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize borrowings and other liabilities.

Investments in mortgage-backed securities involve a risk that actual prepayments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby affecting the net yield on such securities. We review prepayment estimates for our mortgage-backed securities at the time of purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral

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for the securities at issue and current interest rates, and to determine the yield and estimated maturity of the mortgage-backed securities portfolio. Periodic reviews of current prepayment speeds are performed in order to ascertain whether prepayment estimates require modification that would cause amortization or accretion adjustments.

Collateralized Mortgage Obligations are also backed by mortgages; however, they differ from mortgage-backed securities because the principal and interest payments of the underlying mortgages are financially engineered to be paid to the security holders of pre-determined classes or tranches of these securities at a faster or slower pace. The receipt of these principal and interest payments, which depends on the proposed average life for each class, is contingent on a prepayment speed assumption assigned to the underlying mortgages. Variances between the assumed payment speed and actual payments can significantly alter the average lives of such securities. To quantify and mitigate this risk, we undertake a high level of payment analysis before purchasing these securities. We invest in CMO classes or tranches in which the payments on the underlying mortgages are passed along at a pace fast enough to provide an average life of two to four years with no change in market interest rates. At December 31, 2008, our CMO portfolio had a fair value of $25.6 million.

We hold Federal Home Loan Bank of Indianapolis common stock to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank of Indianapolis advance program. There is no trading market for the Federal Home Loan Bank of Indianapolis stock. The aggregate carrying value of our Federal Home Loan Bank of Indianapolis stock as of December 31, 2008 was $4.2 million based on its par value. No unrealized gains or losses have been recorded because we have determined that the par value of the Federal Home Loan Bank of Indianapolis stock represents its carrying value. However, in light of the current economic downturn, there can be no assurance that the value of such securities will not decline in the future. We owned shares of Federal Home Loan Bank of Indianapolis stock at December 31, 2008 with a par value that was $154,692 more than we were required to own to maintain our membership in the Federal Home Loan Bank System and to be eligible to obtain advances. We are required to purchase additional stock if our outstanding advances increase.

We review equity and debt securities with significant declines in fair value on a periodic basis to determine whether they should be considered temporarily or other than temporarily impaired. In making these determinations, 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 LaPorte Savings Bank’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value. For fixed maturity investments with unrealized losses due to interest rates where we have the positive intent and ability to hold the investment for a period of time sufficient to allow a market recovery, declines in value below cost are not assumed to be other than temporary. If a decline in the fair value of a security is determined to be other than temporary, we are required to reduce the carrying value of the security to its fair value and record a non-cash impairment charge for the amount of the decline, net of tax effect, against our current income. On September 7, 2008, the Federal Housing Finance Agency placed Fannie Mae and Freddie Mac in conservatorship. As a result, the Company recorded an other-than-temporary impairment charge of $1.2 million related to the Freddie Mac preferred stock issues it held in the investment portfolio at September 30, 2008, At December 31, 2008, these securities were carried at $10,000, or less than 1% of the original par value. In addition, due to the bankruptcy filing of Lehman Brothers Holdings, during the third quarter of 2008 the Company recorded an other-than-temporary impairment charge of $480,000, or 100% of its carrying value, with respect to the Lehman debt securities it owns. Our investment securities portfolio contains unrealized losses of securities, including mortgage-related instruments issued or backed by the full faith and credit of the United States government, privately held collateralized mortgage obligations, corporate debt securities and debt obligations of states or political subdivisions.

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All of our securities are classified as available for sale. The following table sets forth the composition of our investment securities portfolio at the dates indicated.

	December 31,
	2008				2007				2006
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Securities available-for-sale:
U.S. Treasury and federal agency	$	10,855	$	11,035	$	29,633	$	30,001	$	41,896	$	41,551
State and municipal		6,293		6,200		9,361		9,272		10,574		10,484
Mortgage-backed securities		51,928		52,958		37,482		37,529		11,751		11,528
Government agency sponsored collateralized mortgage obligations		17,718		17,711		16,921		16,288		18,682		18,125
Privately held collateralized mortgage obligations		8,024		7,888		1,748		1,716		2,183		2,125
Corporate debt securities		6,042		5,649		—		—		—		—
Fannie Mae and Freddie Mac preferred stock		10		10		1,242		1,242		3,800		4,725
Total securities available-for-sale	$	100,870	$	101,451	$	96,387	$	96,048	$	88,886	$	88,538

At December 31, 2008, we had no investments in a single entity (other than United States government or agency sponsored securities) that had an aggregate book value in excess of 10% of our shareholders’ equity.

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The composition and contractual maturities of the investment securities portfolio at December 31, 2008 are summarized in the following table. Mortgage-backed securities are anticipated to be repaid in advance of their contractual maturities as a result of projected mortgage loan prepayments. In addition, under the structure of some of our CMOs, the short- and intermediate-tranche interests have repayment priority over the longer term tranches of the same underlying mortgage pool. Finally, some of our U.S. Treasury and other securities are callable at the option of the issuer.

	One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total Securities
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Securities available-for-sale:
U.S. Treasury and federal agency	$	—	—	%	$	2,499	5.33	%	$	4,378	4.64	%	$	3,978	5.25	%	$	10,855	$	11,035	5.02	%
State and municipal		—	—			873	3.37			1,837	4.16			3,583	4.23			6,293		6,200	4.09
Mortgage-backed securities		—	—			1,914	4.31			4,055	4.69			45,959	5.31			51,928		52,958	5.22
Government agency sponsored collateralized mortgage obligations		—	—			—	—			604	4.13			17,114	4.48			17,718		17,711	4.47
Privately held collateralized mortgage obligations		—	—			—	—			1,209	4.63			6,815	5.35			8,024		7,888	5.24
Corporate debt securities		537	8.66			1,500	5.17			4,005	4.85			—	—			6,042		5,649	5.27
Fannie Mae and Freddie Mac preferred stock		—	—			—	—			—	—			10	—			10		10	—
Total securities available-for-sale	$	537	8.66	%	$	6,786	4.75	%	$	16,088	4.63	%	$	77,459	5.08	%	$	100,870	$	101,451	5.00	%

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The following table shows our mortgage-backed securities and collateralized mortgage obligations purchase, sale and repayment activity during the periods indicated:

	For the years ended December 31,
	2008			2007
	(In thousands)
Total at beginning of period	$	56,151		$	32,616
Purchases of:
Mortgage-backed securities		24,374			28,383
Government agency sponsored collateralized mortgage obligations		3,531			1,472
Privately held collateralized mortgage obligations		6,755			—
Deduct:
Principal repayments		(10,544	)		(6,320	)
Sales of:
Mortgage-backed securities		(2,597	)		—
Collateralized mortgage obligations		—			—
Net activity		21,519			23,535
Total at end of period	$	77,670		$	56,151

Sources of Funds

General.Deposits, borrowings, repayments and prepayments of loans and securities, proceeds from maturing securities and cash flows from operations are the primary sources of our funds for use in lending, investing and for other general purposes.

Deposits.We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, health savings accounts, NOW accounts, checking accounts, money market accounts, certificates of deposit and IRAs. We also provide commercial checking accounts for businesses.

At December 31, 2008, our deposits totaled $234.8 million. Interest-bearing NOW, regular and other savings and money market deposits totaled $79.6 million at December 31, 2008. At December 31, 2008, we had a total of $127.6 million in certificates of deposit and individual retirement accounts. Non-interest bearing demand deposits totaled $27.6 million. Although we have a significant portion of our deposits in shorter-term certificates of deposit, we monitor activity on these accounts and, based on historical experience and our current pricing strategy, we believe we will retain a large portion of these accounts upon maturity.

Our deposits are obtained predominantly from the areas in which our branch offices are located. We rely on our favorable locations, customer service and competitive pricing to attract and retain these deposits. While we accept certificates of deposit in excess of $100,000 for which we may provide preferential rates, we generally do not solicit such deposits as they are more difficult to retain than core deposits. At December 31, 2008, we held no brokered certificates of deposits. Brokered certificates of deposits are purchased only through pre-approved brokers.

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The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.

	At December 31,
	2008						2007						2006
	Balance		Percent		Weighted Average Rate		Balance		Percent		Weighted Average Rate		Balance			Percent		Weighted Average Rate
	(Dollars in thousands)
Noninterest-bearing demand	$	27,584	11.75	%	—	%	$	28,148	11.43	%	—	%	$	47,810	(1)	23.69	%	—	%
Money market/NOW accounts		36,812	15.68		0.79			37,089	15.06		2.15			20,427		10.12		1.75
Regular savings		42,775	18.21		0.15			43,754	17.77		0.51			39,350		19.49		0.50
Total transaction accounts		107,171	45.64		0.33			108,991	44.26		0.94			107,587		53.30		0.52
CDs and IRAs		127,643	54.36		3.62			137,280	55.74		4.63			94,272		46.70		4.65
Total deposits	$	234,814	100.00	%	2.12	%	$	246,271	100.00	%	3.00	%	$	201,859		100.00	%	2.45	%

(1) Included $21.0 million of temporary public funds.

The following table sets forth the amount and maturities of time certificates and IRA deposits at December 31, 2008.

	Less Than One Year		Over One Year to Two Years		Over Two Years to Three Years		Over Three Years		Total		Percentage of Total Certificate Accounts
	(Dollars in thousands)
Interest Rate:
Less than 2.00%	$	4,339	$	1,777	$	176	$	—	$	6,292	4.93	%
2.00% - 2.99%		18,584		331		10,024		461		29,400	23.03
3.00% - 3.99%		16,987		7,142		10,139		1,555		35,823	28.07
4.00% - 4.99%		10,326		25,492		2,827		863		39,508	30.95
5.00% - 5.99%		6,912		6,471		330		2,811		16,524	12.95
6.00% - 6.99%		17		6		53		—		76	0.06
7.00% - 7.99%		—		—		3		—		3	0.00
8.00% and over		—		—		14		3		17	0.01
Total	$	57,165	$	41,219	$	23,566	$	5,693	$	127,643	100.00	%

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As of December 31, 2008, the aggregate amount of our outstanding time certificates and IRA deposits in amounts greater than or equal to $100,000 was approximately $30.3 million. The following table sets forth the maturity of these certificates as of December 31, 2008.

	At December 31, 2008
	(In thousands)
Three months or less	$	2,843
Over three months through six months		3,686
Over six months through one year		7,093
Over one year		16,682
Total	$	30,304

The following table sets forth our deposit activities for the periods indicated.

	Years Ended December 31,
	2008			2007
	(In thousands)
Beginning balance	$	246,271		$	201,859
Deposits acquired through merger		—			84,080
Net deposits (withdrawals) before interest credited		(16,495	)		(46,410	)
Interest credited		5,038			6,742
Net increase (decrease) in deposits		(11,457	)		44,412
Ending balance	$	234,814		$	246,271

The following table sets forth the time certificates and IRA deposits in The LaPorte Savings Bank classified by interest rate as of the dates indicated.

	At December 31,
	2008		2007
	(In thousands)
Interest Rate
Less than 2.00%	$	6,292	$	—
2.00% - 2.99%		29,400		120
3.00% - 3.99%		35,823		20,712
4.00% - 4.99%		39,508		58,955
5.00% - 5.99%		16,524		56,921
6.00% - 6.99%		76		90
7.00% - 7.99%		3		3
8.00% and over		17		479
Total	$	127,643	$	137,280

Borrowings

From time to time during recent years, we have utilized short-term borrowings to fund loan demand. We have also used borrowings where market conditions permit us to purchase securities of a similar duration in order to increase our net interest income by the amount of the spread between the asset yield and the borrowing cost. Finally, from time to time, we have obtained advances with terms of three years or more to extend the term of our liabilities.

We may obtain advances from the Federal Home Loan Bank of Indianapolis collateralized by our capital stock in the Federal Home Loan Bank of Indianapolis and certain of our mortgage loans and mortgage-backed securities. Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. To the extent such borrowings have different maturities or repricing terms than our deposits, they can change our interest rate risk profile. We also acquired additional Federal Home Loan Bank of Indianapolis advances through the acquisition of City Savings Financial in 2007.

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Our borrowings at December 31, 2008 consisted of advances and overnight borrowings from the Federal Home Loan Bank of Indianapolis and overnight borrowings from the Federal Reserve Bank discount window. At December 31, 2008, we had access to additional Federal Home Loan Bank advances of up to $3.0 million and access to additional overnight borrowings of up to $4.8 million at the Federal Reserve Bank discount window. The following table sets forth information concerning balances and interest rates on our borrowings at the dates and for the periods indicated.

FHLB Advances

	At or For the Years Ended December 31,
	2008			2007			2006
	(Dollars in thousands)
Balance at end of period	$	78,728		$	66,516		$	36,500
Average balance during period		67,153			43,866			45,733
Maximum outstanding at any month end		78,728			66,516			50,000
Weighted average interest rate at end of period		4.08	%		4.74	%		5.42	%
Average interest rate during period		4.80	%		5.41	%		5.07	%

FRB Discount Window

	At or For the Years Ended December 31,
	2008			2007	2006
	(Dollars in thousands)
Balance at end of period	$	650		—	—
Average balance during period		2		—	—
Maximum outstanding at any month end		650		—	—
Weighted average interest rate at end of period		0.50	%	—	—
Average interest rate during period		0.50	%	—	—

In 2007, LaPorte Bancorp, Inc. assumed subordinated debentures as a result of the City Savings Financial acquisition. In 2003, City Savings Financial formed the City Savings Bank Statutory Trust I (the “Trust”) and the trust issued 5,000 floating Trust Preferred Securities with a liquidation amount of $1,000 per preferred Security in a private placement to an offshore entity for an aggregate offering price of $5,000,000. The proceeds of the $5,000,000 were used by the Trust to purchase $5,155,000 in Floating Rate Subordinated Debentures from City Savings Financial Corporation. The Debentures and Securities have a term of 30 years and carry an interest rate adjusted quarterly of three month LIBOR plus 3.10%. At December 31, 2008, this rate was 4.57%.

In addition, during February 2009, the Bank issued a $5 million note due February 15, 2012 under the FDIC Temporary Debt Guarantee Program. The note bears an interest rate of 2.74% in addition to the 100 basis point FDIC guarantee fee paid by the Bank. All legal and placement fees associated with this transaction were capitalized as debt issuance costs and will be amortized to interest expense over the repayment period.

Competition

We face significant competition in both originating loans and attracting deposits. LaPorte County, Indiana has a significant concentration of financial institutions, many of which are significantly larger than us and have greater financial resources than we do. Our competition for loans comes principally from commercial banks, savings banks, mortgage banking companies, credit unions, leasing companies, insurance companies and other financial service companies. Our most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. We face additional competition for deposits from nondepository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies.

We seek to meet this competition by the convenience of our branch locations, emphasizing personalized banking and the advantage of local decision-making in our banking business. Specifically, we promote and maintain relationships and build customer loyalty within local communities by focusing our marketing and community involvement on the specific needs of our local

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communities. As of June 30, 2008, The LaPorte Savings Bank had the 2nd largest deposit market share in LaPorte County, Indiana. As of June 30, 2008, The LaPorte Savings Bank had the 12th largest deposit market share in Porter County, Indiana. We do not rely on any individual, group, or entity for a material portion of our deposits.

Employees

As of December 31, 2008, we had 105 full-time employees and 11 part-time employees. The employees are not represented by a collective bargaining unit and we consider our relationship with our employees to be good.

Subsidiary Activities

The LaPorte Savings Bank currently has no subsidiaries. LPSB Investments, Ltd., Cayman, which formerly managed a portion of our investment portfolio until July 30, 2008 when the securities were transferred to the Bank, was deemed to be dissolved on March 17, 2009.

SUPERVISION AND REGULATION

General

The LaPorte Savings Bank is examined and supervised by the Indiana Department of Financial Institutions and the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance funds and depositors. These regulators are not, however, generally charged with protecting the interests of shareholders of LaPorte Bancorp. Under this system of state and federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. The LaPorte Savings Bank also is a member of and owns stock in the Federal Home Loan Bank of Indianapolis, which is one of the twelve regional banks in the Federal Home Loan Bank System. The LaPorte Savings Bank’s relationship with its depositors and borrowers also is regulated to a great extent by both federal and state laws, especially in matters concerning the ownership of deposit accounts and the form and content of The LaPorte Savings Bank’s mortgage documents.

Certain regulatory requirements applicable to The LaPorte Savings Bank and LaPorte Bancorp are referred to below or appear elsewhere in this Form 10-K. The regulatory discussion, however, does not purport to be an exhaustive treatment of applicable laws and regulations and is qualified in its entirety be reference to the actual statutes and regulations. Any change in these laws or regulations, whether by the Federal Deposit Insurance Corporation, the Indiana Department of Financial Institutions or Congress, could have a material adverse impact on LaPorte Bancorp and The LaPorte Savings Bank, and their operations.

Savings Bank Regulation

As an Indiana savings bank, The LaPorte Savings Bank is subject to federal regulation and supervision by the Federal Deposit Insurance Corporation and to state regulation and supervision by the Indiana Department of Financial Institutions. The LaPorte Savings Bank’s deposit accounts are insured by Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. The LaPorte Savings Bank is not a member of the Federal Reserve System.

Both federal and Indiana law extensively regulate various aspects of the banking business such as reserve requirements, truth-in-lending and truth-in-savings disclosures, equal credit opportunity, fair credit reporting, trading in securities and other aspects of banking operations. Current federal law also requires savings banks, among other things, to make deposited funds available within specified time periods.

Under Federal Deposit Insurance Corporation regulations, an insured state chartered bank, such as The LaPorte Savings Bank, is prohibited from engaging as principal in activities that are not permitted for national banks, unless: (i) the Federal Deposit Insurance Corporation determines that the activity would pose no significant risk to the appropriate deposit insurance fund and (ii) the bank is, and continues to be, in compliance with all applicable capital standards.

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Branching and Interstate Banking.The establishment of branches by The LaPorte Savings Bank is subject to approval of the Indiana Department of Financial Institutions and Federal Deposit Insurance Corporation and geographic limits established by state laws. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”) facilitates the interstate expansion and consolidation of banking organizations by permitting, among other things, (i) bank holding companies that are adequately capitalized and managed to acquire banks located in states outside their home state regardless of whether such acquisitions are authorized under the law of the host state, (ii) the interstate merger of banks, subject to the right of individual states to “opt out” of this authority, and (iii) banks to establish new branches on an interstate basis provided that such action is specifically authorized by the law of the host state.

Transactions with Affiliates.Under federal law, The LaPorte Savings Bank is subject to Sections 22(h), 23A and 23B of the Federal Reserve Act, which restrict transactions between banks and insiders and affiliated companies, such as LaPorte Bancorp. The statute limits credit transactions between a bank and its executive officers and its affiliates, prescribes terms and conditions for bank affiliate transactions deemed to be consistent with safe and sound banking practices, and restricts the types of collateral security permitted in connection with a bank’s extension of credit to an affiliate.

Capital Requirements.Under Federal Deposit Insurance Corporation regulations, state chartered banks that are not members of the Federal Reserve System, such as The LaPorte Savings Bank, are required to maintain a minimum leverage capital requirement consisting of a ratio of Tier 1 capital to total assets of 3% if the Federal Deposit Insurance Corporation determines that the institution is not anticipating or experiencing significant growth and has well-diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings, and in general, a strong banking organization, rated composite 1 under the Uniform Financial Institutions Rating System (the CAMELS rating system) established by the Federal Financial Institutions Examination Council. For all but the most highly rated institutions meeting the conditions set forth above, the minimum leverage capital ratio is 4%. Tier 1 capital is the sum of common shareholders’ equity, noncumulative perpetual preferred stock (including any related surplus) and minority interests in consolidated subsidiaries, minus all intangible assets (other than certain mortgage servicing assets, purchased credit card relationships, credit-enhancing interest-only strips and certain deferred tax assets), identified losses, investments in certain financial subsidiaries and non-financial equity investments.

In addition to the leverage capital ratio (the ratio of Tier I capital to total assets), state chartered nonmember banks must maintain a minimum ratio of qualifying total capital to risk-weighted assets of at least 8%, of which at least half must be Tier 1 capital. Qualifying total capital consists of Tier 1 capital plus Tier 2 capital (also referred to as supplementary capital) items. Tier 2 capital items include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and preferred stock with a maturity of over 20 years, certain other capital instruments and up to 45% of pre-tax net unrealized holding gains on equity securities. The includable amount of Tier 2 capital cannot exceed the institution’s Tier 1 capital. Qualifying total capital is further reduced by the amount of the bank’s investments in banking and finance subsidiaries that are not consolidated for regulatory capital purposes, reciprocal cross-holdings of capital securities issued by other banks, most intangible assets and certain other deductions. Under the Federal Deposit Insurance Corporation risk-weighted system, all of a bank’s balance sheet assets and the credit equivalent amounts of certain off-balance sheet items are assigned to one of four broad risk-weight categories from 0% to 100%, based on the risks inherent in the type of assets or item. The aggregate dollar amount of each category is multiplied by the risk weight assigned to that category. The sum of these weighted values equals the bank’s risk-weighted assets.

U.S. Treasury’s TARP Capital Purchase Program. On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008, which provides the United States Secretary of the Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S. markets. One of the provisions resulting from the Act is the Treasury Capital Purchase Program (“CPP”), which provides direct equity investment in perpetual preferred stock (or, in the case of S-Corporations, investment in debt securities) by the Treasury in qualified financial institutions. The program is voluntary and requires an institution to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and

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declaration of dividends. The CPP provides for a minimum investment of 1 percent of Total Risk-Weighted Assets, with a maximum investment equal to the lesser of 3 percent of Total Risk-Weighted Assets or $25 billion. Participation in the program is not automatic and is subject to approval by the Treasury.

Prior to the November 14, 2008 deadline for CPP applications, LaPorte Bancorp and LaPorte Savings Bank, MHC submitted a nonbinding application to receive an investment of up to $4 million. Treasury has not yet provided the terms for CPP participation by companies in the mutual holding company structure. By filing the application before the deadline, the board preserved the option to participate and was able to carefully consider the pros and cons of participating in the program. Since the application was filed, the board of directors has determined that the additional CPP funds will not be needed based on our current capital and anticipated capital needs. On March 24, 2009, the board of directors directed that the application be withdrawn, and on March 26, 2009, the CPP application was withdrawn.

On February 10, 2009, Treasury announced its Capital Assistance Program (“CAP”) under which Treasury will make capital available to financial institutions through Treasury’s purchase of cumulative mandatorily convertible preferred stock. The preferred shares will mandatorily convert to common stock after seven years. Prior to that time, the preferred shares are convertible in whole or in part at the option of the institution, subject to the approval of the institution’s primary federal regulator. The minimum investment is an amount equal to 1% of risk-weighted assets and the maximum is an amount equal to 2% of risk-weighted assets. Institutions may receive additional capital to the extent such funds are used to redeem preferred shares issued in the CPP, effectively exchanging the CAP convertible preferred stock for the preferred stock sold under the CPP.

As with the CPP, Treasury has not yet provided the terms for CAP participation by companies in the mutual holding company structure. The deadline for applying to participate in the CAP is May 25, 2009. LaPorte Bancorp currently does not intend to apply for a CAP investment.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was enacted. ARRA is intended to provide a stimulus to the U.S. economy in the wake of the current economic downturn. The new law includes additional corporate governance requirements and limitations on executive compensation for financial institutions that receive an investment from Treasury.

Dividend Limitations.LaPorte Bancorp is a legal entity separate and distinct from The LaPorte Savings Bank. The primary source of LaPorte Bancorp’s cash flow, including cash flow to pay dividends on LaPorte Bancorp’s common stock, is the payment of dividends to LaPorte Bancorp by The LaPorte Savings Bank. Under Indiana law, The LaPorte Savings Bank may pay dividends of so much of its undivided profits (generally, earnings less losses, bad debts, taxes and other operating expenses) as is considered expedient by The LaPorte Savings Bank’s board. However, The LaPorte Savings Bank must obtain the approval of the Indiana Department of Financial Institutions for the payment of a dividend if the total of all dividends declared by The LaPorte Savings Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years. For this purpose, “retained net income” means net income as calculated for call report purposes, less all dividends declared for the applicable period. Also, the Federal Deposit Insurance Corporation has the authority to prohibit The LaPorte Savings Bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice in light of the financial condition of The LaPorte Savings Bank. In addition, since The LaPorte Savings Bank will be a subsidiary of a savings and loan holding company, The LaPorte Savings Bank must file a notice with the Office of Thrift Supervision at least 30 days before the board declares a dividend or approves a capital distribution.

Federal Deposit Insurance.The LaPorte Savings Bank is a member of the Deposit Insurance Fund (“DIF”), which is administered by the Federal Deposit Insurance Corporation (“FDIC”). Deposit accounts in The LaPorte Savings Bank are insured by the FDIC, generally up to a maximum of $100,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. However, the Emergency Economic Stabilization Act of 2008 increased the deposit insurance available on all deposit accounts to $250,000, effective until December 31, 2009. In addition, certain noninterest-bearing transaction accounts maintained with financial institutions participating in the FDIC’s Temporary Liquidity Guarantee Program are fully insured regardless of the dollar amount until December 31, 2009. The LaPorte Savings Bank has opted to participate in the FDIC’s Temporary Liquidity Guarantee Program. See “–FDIC Temporary Liquidity Guarantee Program” below.

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The FDIC imposes an assessment on all depository institutions for deposit insurance. This assessment is based on the risk category of the institution and, prior to 2009, ranged from five to 43 basis points of the institution’s deposits. On December 22, 2008, the FDIC published a final rule that raises the current deposit insurance assessment rates uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) effective for the first quarter of 2009. On February 27, 2009, the FDIC issued a final rule that revises the way the FDIC calculates federal deposit insurance assessment rates beginning in the second quarter of 2009 and thereafter. Under the new rule, the FDIC will first establish an institution’s initial base assessment rate. This initial base assessment rate will range, depending on the risk category of the institution, from 12 to 45 basis points. The FDIC will then adjust the initial base assessment (higher or lower) to obtain the total base assessment rate. The adjustments to the initial base assessment rate will be based upon an institution’s levels of unsecured debt, secured liabilities, and brokered deposits. The total base assessment rate will range from 7 to 77.5 basis points of the institution’s deposits. Additionally, the FDIC issued an interim rule that will impose a special 20 basis points assessment on June 30, 2009, which will be collected on September 30, 2009. Later, the FDIC reduced this special assessment to 10 basis points, subject to congressional action. Under the interim rule, additional special assessments could be imposed.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that might lead to termination of deposit insurance.

In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended December 31, 2008, the annualized FICO assessment was equal to 1.10 basis points on domestic deposits maintained at an institution.

FDIC Temporary Liquidity Guarantee Program. On October 14, 2008, the FDIC announced a new program – the Temporary Liquidity Guarantee Program (“TLGP”). This program has two components. One guarantees newly issued senior unsecured debt of the participating organizations, up to certain limits established for each institution, issued between October 14, 2008 and June 30, 2009. The FDIC will pay the unpaid principal and interest on an FDIC-guaranteed debt instrument upon the uncured failure of the participating entity to make a timely payment of principal or interest in accordance with the terms of the instrument. The guarantee will remain in effect until June 30, 2012. In return for the FDIC’s guarantee, participating institutions will pay the FDIC a fee based on the amount and maturity of the debt. The Company has opted to participate in this component of the TLGP, and on February 11, 2009, it issued approximately $5 million of FDIC guaranteed debt due in February 2012.

The other component of the program provides full FDIC insurance coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount, until December 31, 2009. An annualized 10 basis point assessment on balances in noninterest-bearing transaction accounts that exceed the existing deposit insurance limit of $250,000 will be assessed on a quarterly basis to insured depository institutions that have not opted out of this component of the TLGP. The Company has opted to participate in this component of the TLGP.

Federal Home Loan Bank System.The LaPorte Savings Bank is a member of the Federal Home Loan Bank of Indianapolis, which is one of 12 regional Federal Home Loan Banks. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the Federal Home Loan Bank system. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the Federal Home Loan Bank. As a member, The LaPorte Savings Bank is required to purchase and maintain stock in the Federal Home Loan Bank of Indianapolis in an amount equal to the greater of 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of our outstanding advance from the Federal Home Loan Bank. At December 31, 2008, The LaPorte Savings Bank was in compliance with this requirement The Federal Home Loan Bank of Indianapolis deferred the declaration of the fourth quarter dividend, normally paid in January 2009 The dividend was deferred because of the need to finalize the review of the Federal Home

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Loan Bank of Indianapolis’ private label mortgage backed securities for other-than-temporary impairment. On February 20, 2009 the Federal Home Loan Bank of Indianapolis did announce the declaration of the fourth quarter 2008 dividend. The dividend declared on the stock was 4.00%, a decrease from 4.75% for the previous quarter. In the February 20, 2009 letter to its members, the Federal Home Loan Bank of Indianapolis indicated that they determined that none of its private-label mortgage backed securities were other-than-temporarily impaired as of December 31, 2008. Should the decision be made to suspend dividend payments on the Federal Home Loan Bank of Indianapolis stock at some point in the future, this would have a negative impact on the Company’s earnings. Based on the most recent quarter’s dividend, a suspension of the dividend would cause a reduction in pretax income of approximately $168,000 in 2009.

Community Reinvestment Act.Under the Community Reinvestment Act (“CRA”), The LaPorte Savings Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the Federal Deposit Insurance Corporation in connection with its examination of The LaPorte Savings Bank, to assess its record of meeting the credit needs of its community and to take that record into account in its evaluation of certain applications by The LaPorte Savings Bank. For example, the regulations specify that a bank’s CRA performance will be considered in its expansion (e.g., branching) proposals and may be the basis for approving, denying or conditioning the approval of an application. As of the date of its most recent regulatory examination, The LaPorte Savings Bank was rated “satisfactory” with respect to its CRA compliance.

Prompt Corrective Regulatory Action. The Federal Deposit Insurance Corporation Improvement Act requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For these purposes, the statute establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.

The Federal Deposit Insurance Corporation may order savings banks which have insufficient capital to take corrective actions. For example, a savings bank which is categorized as “undercapitalized” would be subject to growth limitations and would be required to submit a capital restoration plan, and a holding company that controls such a savings bank would be required to guarantee that the savings bank complies with the restoration plan. A “significantly undercapitalized” savings bank would be subject to additional restrictions. Savings banks deemed by the Federal Deposit Insurance Corporation to be “critically undercapitalized” would be subject to the appointment of a receiver or conservator.

The USA PATRIOT Act. The USA PATRIOT Act of 2001 gave the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. The USA PATRIOT Act also required the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve a merger or other acquisition application of a member institution. Accordingly, if we engage in a merger or other acquisition, our controls designed to combat money laundering would be considered as part of the application process. We have established policies, procedures and systems designed to comply with these regulations.

Holding Company Regulation

General. LaPorte Savings Bank, MHC and LaPorte Bancorp are nondiversified savings and loan holding companies within the meaning of the Home Owners’ Loan Act. As such, LaPorte Savings Bank, MHC and LaPorte Bancorp are registered with the Office of Thrift Supervision and are subject to Office of Thrift Supervision regulations, examinations, supervision and reporting requirements. In addition, the Office of Thrift Supervision has enforcement authority over LaPorte Bancorp and LaPorte Savings Bank, MHC, and their subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution. As federal corporations, LaPorte Bancorp and LaPorte Savings Bank, MHC are generally not subject to state business organization laws.

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Permitted Activities. Pursuant to Section 10(o) of the Home Owners’ Loan Act and Office of Thrift Supervision regulations and policy, a mutual holding company, such as LaPorte Savings Bank, MHC and a federally chartered mid-tier holding company, such as LaPorte Bancorp may engage in the following activities: (i) investing in the stock of a savings bank, (ii) acquiring a mutual savings bank through the merger of such savings bank into a savings bank subsidiary of such holding company or an interim savings bank subsidiary of such holding company, (iii) merging with or acquiring another holding company, one of whose subsidiaries is a savings bank, (iv) investing in a corporation, the capital stock of which is available for purchase by a savings bank under federal law or under the law of any state where the subsidiary savings bank or savings banks share their home offices, (v) furnishing or performing management services for a savings bank subsidiary of such company, (vi) holding, managing or liquidating assets owned or acquired from a savings subsidiary of such company, (vii) holding or managing properties used or occupied by a savings bank subsidiary of such company, (viii) acting as trustee under deeds of trust, (ix) any other activity (A) that the Federal Reserve Board, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act of 1956, unless the Director, by regulation, prohibits or limits any such activity for savings and loan holding companies; or (B) in which multiple savings and loan holding companies were authorized (by regulation) to directly engage on March 5, 1987, (x) any activity permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act, including securities and insurance underwriting, and (xi) purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such savings and loan holding company is approved by the Director of the Office of Thrift Supervision. If a mutual holding company acquires or merges with another holding company, the holding company acquired or the holding company resulting from such merger or acquisition may only invest in assets and engage in activities listed in (i) through (xi) above, and has a period of two years to cease any nonconforming activities and divest of any nonconforming investments.

The Home Owners’ Loan Act prohibits a savings and loan holding company, including LaPorte Bancorp and LaPorte Savings Bank, MHC, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or holding company thereof, without prior written approval of the Office of Thrift Supervision. It also prohibits the acquisition or retention of, with certain exceptions, more than 5% of a nonsubsidiary company engaged in activities other than those permitted by the Home Owners’ Loan Act; or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

The Office of Thrift Supervision is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies, and (ii) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions.

Waivers of Dividends by LaPorte Savings Bank, MHC. Office of Thrift Supervision regulations require LaPorte Savings Bank, MHC to notify the Office of Thrift Supervision of any proposed waiver of its receipt of dividends from LaPorte Bancorp. The Office of Thrift Supervision reviews dividend waiver notices on a case-by-case basis, and, in general, does not object to any such waiver if: the waiver would not be detrimental to the safe and sound operation of the subsidiary savings bank; and the mutual holding company’s board of directors determines that such waiver is consistent with such directors’ fiduciary duties to the mutual holding company’s depositors. We anticipate that LaPorte Savings Bank, MHC will waive any dividends paid by LaPorte Bancorp. As long as The LaPorte Savings Bank remains an Indiana chartered savings bank, (i) any dividends waived by LaPorte Savings Bank, MHC must be retained by LaPorte Bancorp or The LaPorte Savings Bank and segregated, earmarked, or otherwise identified on the books and records of LaPorte Bancorp or The LaPorte Savings Bank, (ii) such amounts must be taken into account in any valuation of the institution, and factored into the calculation used in establishing a fair and reasonable basis for exchanging shares in any subsequent conversion of LaPorte Savings Bank, MHC to stock form and (iii) such amounts shall not be available for payment to, or the value thereof transferred to, minority shareholders, by any means, including through dividend payments or at liquidation.

Conversion of LaPorte Savings Bank, MHC to Stock Form. Office of Thrift Supervision regulations permit LaPorte Savings Bank, MHC to convert from the mutual form of organization to the capital stock form of organization (a “Conversion Transaction”).

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There can be no assurance when, if ever, a Conversion Transaction will occur, and the board of directors has no current intention or plan to undertake a Conversion Transaction. In a Conversion Transaction a new holding company would be formed as the successor to LaPorte Bancorp (the “New Holding Company”), LaPorte Savings Bank, MHC’s corporate existence would end, and certain depositors of The LaPorte Savings Bank would receive the right to subscribe for shares of the New Holding Company. In a Conversion Transaction, each share of common stock held by shareholders other than LaPorte Savings Bank, MHC (“Minority Shareholders”) would be automatically converted into a number of shares of common stock of the New Holding Company determined pursuant to an exchange ratio that ensures that Minority Shareholders own the same percentage of common stock in the New Holding Company as they owned in LaPorte Bancorp immediately prior to the Conversion Transaction subject to adjustment for any mutual holding company assets or waived dividends, as applicable. The total number of shares of common stock held by Minority Shareholders after a Conversion Transaction also would be increased by any purchases by Minority Shareholders in the stock offering conducted as part of the Conversion Transaction.

Any Conversion Transaction would require the approval of a majority of the outstanding shares of common stock of LaPorte Bancorp held by Minority Shareholders and by two thirds of the total outstanding shares of common stock of LaPorte Bancorp. Any Conversion Transaction also would require the approval of a majority of the eligible votes of depositors of LaPorte Savings Bank, MHC.

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with certain accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the Securities and Exchange Commission, under the Securities Exchange Act of 1934.

The Sarbanes-Oxley Act includes specific additional disclosure requirements, requires the Securities and Exchange Commission and national securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules, and mandates further studies of certain issues by the Securities and Exchange Commission. The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

FEDERAL AND STATE TAXATION

Federal Taxation. Historically, savings institutions, such as The LaPorte Savings Bank, had been permitted to compute bad debt deductions using either the bank experience method or the percentage of taxable income method. However, In August, 1996, legislation was enacted that repealed the reserve method of accounting for federal income tax purposes.

Depending on the composition of its items of income and expense, a savings bank may be subject to the alternative minimum tax. A savings bank must pay an alternative minimum tax equal to the amount (if any) by which 20% of alternative minimum taxable income (“AMTI”), as reduced by an exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular taxable income increased or decreased by certain tax preferences and adjustments, including depreciation deductions in excess of that allowable for alternative minimum tax purposes, tax-exempt interest on most private activity bonds issued after August 7, 1986 (reduced by any related interest expense disallowed for regular tax purposes), the amount of the bad debt reserve deduction claimed in excess of the deduction based on the experience method and 75% of the excess of adjusted current earnings over AMTI (before any alternative tax net operating loss). AMTI may be reduced only up to 90% by net operating loss carryovers, but alternative minimum tax paid can be credited against regular tax due in later years.

For federal income tax purposes, The LaPorte Savings Bank reports its income and expenses on the accrual method of accounting. LaPorte Bancorp and The LaPorte Savings Bank file a consolidated federal income tax return for each fiscal year ending December 31. The federal income tax returns filed by The LaPorte Savings Bank have not been subject to an IRS examination in the last five years.

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State Taxation. The LaPorte Savings Bank is subject to Indiana’s Financial Institutions Tax (“FIT”), which is imposed at a flat rate of 8.5% on “adjusted gross income.” “Adjusted gross income,” for purposes of FIT, begins with taxable income as defined by Section 63 of the Code and, thus, incorporates federal tax law to the extent that it affects the computation of taxable income. Federal taxable income is then adjusted by several Indiana modifications. Other applicable state taxes include generally applicable sales and use taxes plus real and personal property taxes. In the last five years, The LaPorte Savings Bank’s state income returns have not been subject to any other examination by a taxing authority.

Item 1A. Risk Factors

The current economic crisis coupled with turmoil and uncertainty in the financial markets may adversely impact us and our ability to successfully execute our business plan.

The current economic crisis is adversely impacting the financial condition of the households and businesses comprising our loan customers. Such a deteriorating financial condition could arise from loss of employment or business revenue exacerbated by a reduction in the value of real estate collateralizing our customers’ loans. As a consequence, we may experience an increase in nonperforming loans which will negatively impact earnings through reduced collections of interest income coupled with possible increases in the provision for loan losses, charge offs and foreclosure costs. Our ability to originate new loans in accordance with our business plan goals and objectives may also be diminished as a result of these same factors.

Moreover, the general level of uncertainty and volatility in the marketplace has greatly diminished the sources of funding readily available to many large financial institutions. Consequently, such institutions are placing greater emphasis on their retail deposit channel to attract funding thereby placing upward pressure on retail deposit rates in the marketplace. As a result, despite the recent reduction in overall market interest rates, our cost of deposits may remain stable or increase while our yield on earning assets is reduced. This condition would reduce our net interest spread and margin and our earnings in future periods.

Finally, although the Federal government has initiated a number of programs designed to both stimulate the economy as well stabilize the real estate and banking sectors, it is unclear how effective they will be over the short- and long-term. Also, it is unclear what long-term effects these initiatives will have on our operations.

Changing interest rates may hurt our profits and asset values.

Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between:

• the interest income we earn on our interest-earning assets, such as loans and securities; and

• the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings.

Our liabilities generally have shorter maturities than our assets. This imbalance can create significant earnings volatility as market interest rates change. In periods of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities, resulting in a decline in our net interest income. In periods of declining interest rates, our net interest income is generally positively affected although such positive effects may be reduced or eliminated by prepayments of loans and redemptions of callable securities. In addition, when long-term interest rates are not significantly higher than short-term rates thus creating a “flat” yield curve, the Company’s interest rate spread will decrease thus reducing net interest income. Finally, federal initiatives designed to reduce mortgage interest spreads may reduce our loan income without a corresponding reduction in funding costs, thus decreasing our spreads. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

Changes in interest rates also affect the current market value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. As December 31, 2008, the fair value of our securities classified as available for sale totalled $101.5 million. Unrealized net gains on available-for-sale securities totalled $581,000 at December 31, 2008 and are

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reported, net of tax, as a separate component of shareholder’s equity. However, a rise in interest rates could cause a decrease in the fair value of securities available for sale in future periods which would have an adverse effect on shareholder’s equity.

Depending on market conditions, we often place more emphasis on enhancing our net interest margin rather than matching the interest rate sensitivity of our assets and liabilities. In particular, we believe that the increased net interest income resulting from a mismatch in the maturity of our asset and liabilities portfolios can, during periods of stable or declining interest rates provide high enough returns to justify increased exposure to sudden and unexpected increases in interest rates. As a result, our results of operations and the economic value of our equity will remain vulnerable to increases in interest rates and to declines in the difference between long- and short-term rates. See “Managements Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

We have increased our commercial real estate loan originations, which increases the risk in our loan portfolio.

In order to enhance the yield and shorten the term-to-maturity of our loan portfolio, we have expanded our commercial real estate lending during recent years. In addition, we acquired a significant portfolio of such loans in the City Savings Bank merger in 2007. Commercial real estate lending has increased as a percentage of our total loan portfolio from 18.5% at December 31, 2002 to 29.27% at December 31, 2008.

Given their larger balances and the complexity of the underlying collateral, commercial real estate loans generally expose a lender to greater credit risk than loans secured by owner occupied one- to four-family real estate. In addition, our commercial real estate loan portfolio is not as seasoned as the loan portfolios of some of our competitors. In light of the current dramatic weakness in the real estate market and economy, we may begin to experience higher levels of nonperforming loans and provisions for loan losses.

Slow growth in our market area has adversely affected and may continue to adversely affect our performance.

Economic and population growth within our market area has for several decades been below the national average. Management believes that these factors have adversely affected our profitability and our ability to increase our loans and deposits. Although our acquisition of City Savings Financial Corporation facilitated our entrance into the Michigan City and Chesterton, Indiana markets, which are growing more rapidly than Eastern LaPorte County, our operations remain subject to market conditions in Eastern LaPorte County.

Strong competition within our market area could hurt our profits and slow growth.

We face intense competition in making loans, attracting deposits and hiring and retaining experienced employees. This competition has made it more difficult for us to make new loans and attract deposits. Price competition for loans and deposits sometimes results in us charging lower interest rates on our loans and paying higher interest rates on our deposits, which reduces our net interest income. Competition also makes it more difficult and costly to attract and retain qualified employees. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area. For more information about our market area and the competition we face, see “Item 1. Business—Market Area” and “Item 1. Business—Competition.”

We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Federal Deposit Insurance Corporation, as insurer of our deposits, and by the Indiana Department of Financial Institutions as our primary regulator. LaPorte Savings Bank, MHC and LaPorte Bancorp are subject to regulation and supervision by the Office of Thrift Supervision. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the

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insurance fund and the depositors and borrowers of The LaPorte Savings Bank rather than for holders of LaPorte Bancorp common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. In light of the current economic downturn and banking concerns, we expect that Congress and the regulatory agencies will implement new restrictions and reporting requirements on our activities and operations. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations including complains costs.

Stock price may be volatile due to limited trading volume.

LaPorte Bancorp, Inc.’s common stock is traded on the NASDAQ Capital Market System. However, the average daily trading volume in the Stock Company’s common stock has been relatively small, averaging less than approximately 5,633 shares per day during the month of December 2008. Our trading volume may be even lower in 2009 as we terminated our stock repurchase program effective February 27, 2009. As a result, trades involving a relatively small number of shares may have a significant effect on the market price of the common stock, and it may be difficult for investors to acquire or dispose of large blocks of stock without significantly affecting the market price.

Public stockholders own a minority of LaPorte Bancorp, Inc.’s common stock and will not be able to exercise voting control over most matters put to a vote of stockholders.

LaPorte Bancorp, Inc.’s holding company, LaPorte Savings Bank, MHC owns approximately 54.14% of its common stock, as of December 31, 2008. Directors and executive officers own or control approximately 2.89% of the common stock. The same directors and executive officers that manage LaPorte Bancorp, Inc., also manage LaPorte Savings Bank, MHC. Public stockholders who are not associated with the MHC or LaPorte Bancorp, Inc. own approximately 42.97% of the common stock. The Board of Directors of LaPorte Savings Bank, MHC will be able to exercise voting control over most matters put to a vote of stockholders because the MHC owns a majority of LaPorte Bancorp, Inc.’s common stock. For example, LaPorte Savings Bank, MHC may exercise its voting control to prevent a sale or merger transaction in which stockholders could receive a premium for their shares or to approve employee benefit plans.

We could potentially recognize goodwill impairment charges.

In connection with our acquisition of City Savings Financial, we recorded goodwill equaling $8.4 million. Pursuant to the provisions of SFAS No. 142, LaPorte Bancorp annually measures the fair value of its investment in The LaPorte Savings Bank to determine that such fair value equals or exceeds the carrying value of its investment, including goodwill. If the fair value of our investment in The LaPorte Savings Bank does not equal or exceed its carrying value, we will be required to record goodwill impairment charges which may adversely affect future earnings. The fair value of a banking franchise can fluctuate downward based on a number of factors that are beyond management’s control, (e.g. adverse trends in the general economy or interest rates). Based on the timing of the City Savings Financial acquisition in the fourth quarter of 2007, the first annual impairment review was performed in the fourth quarter of 2008. As a result of impairment testing performed as of September 30, 2008, no impairment charge was recorded by the Company. There can be no assurance that our banking franchise value will not decline in the future to a level necessitating goodwill impairment charges to operations that could be material to our results of operations.

Item 1B. Unresolved Staff Comments

None

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Item 2. Properties

As of December 31, 2008, the net book value of our properties was $9.8 million. The following is a list of our offices:

Location	Leased or Owned	Year Acquired or Leased	Square Footage	Net Book Value of Real Property
				(In thousands)
Main Office (including land):
710 Indiana Avenue La Porte, Indiana 46350	Owned	1916	57,000	$	3,368
Full Service Branches: (including land)
6959 W. Johnson Road La Porte, Indiana 46350	Owned	1987	3,500		338
301 Boyd Blvd. La Porte, Indiana 46350	Owned	1997	4,000		1,190
1222 W. State Road #2 La Porte, Indiana 46350	Owned	1999	2,200		414
2000 Franklin Street Michigan City, Indiana 46360	Owned	2007	5,589		837
851 Indian Boundary Road Chesterton, Indiana 46304	Owned	2007	7,475		1,240
101 Michigan Street Rolling Prairie, Indiana 46371	Owned	2007	1,850		104
1 Parkman Drive Westville, Indiana 46390	Owned	2006	4,000		1,465
Lots Owned:
1201 E. Lincolnway Valparaiso, Indiana 46383	Owned	2006	N/A		375
Cleveland Crossing Michigan City, Indiana 46360	Owned	2007	N/A		506

The net book value of our furniture, fixtures and equipment (including computer software) at December 31, 2008 was $1.9 million.

Item 3. Legal Proceedings

The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

During the fourth quarter of the fiscal year covered by this report, the Company did not submit any matters to the vote of security holders.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our shares of common stock are traded on the Nasdaq Capital Market under the symbol “LPSB”. The approximate number of holders of record of LaPorte Bancorp, Inc.’s common stock as of December 31, 2008 was 732. Certain shares of LaPorte Bancorp, Inc. are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. The following table presents quarterly market information for LaPorte Bancorp, Inc.’s common stock for each quarter since trading commenced on October 15, 2007. The following information was provided by the Nasdaq Stock Market.

	High		Low		Dividends
2007(1)
Quarter ended December 31, 2007	$	9.15	$	6.62	$	—
2008
Quarter ended March 31, 2008		7.77		6.35		—
Quarter ended June 30, 2008		7.43		6.20		—
Quarter ended September 30, 2008		8.30		5.90		—
Quarter ended December 31, 2008		7.00		4.55		—

(1) LaPorte Bancorp’s common stock began trading on the Nasdaq Capital Market on October 15, 2007.

The Board of Directors has the authority to declare cash dividends on shares of common stock, subject to statutory and regulatory requirements. However, no decision has been made with respect to the payment of cash dividends. In determining whether and in what amount to pay a cash dividend, the Board is expected to take into account a number of factors, including capital requirements, our consolidated financial condition and results of operations, tax considerations, statutory and regulatory limitations and general economic conditions. No assurances can be given that any cash dividends will be paid or that, if paid, will not be reduced or eliminated in the future.

The available sources of funds for the payment of a cash dividend in the future are interest and principal payments with respect to LaPorte Bancorp, Inc.’s loan to the Employee Stock Ownership Plan, and dividends from LaPorte Savings Bank.

If LaPorte Bancorp pays dividends to its shareholders, it also will be required to pay dividends to LaPorte Savings Bank, MHC, unless LaPorte Savings Bank, MHC elects to waive the receipt of dividends. We anticipate that LaPorte Savings Bank, MHC will waive any dividends that LaPorte Bancorp may pay. Any decision to waive dividends will be subject to regulatory approval. As long as The LaPorte Savings Bank remains an Indiana chartered savings bank, (i) any dividends waived by LaPorte Savings Bank, MHC must be retained by LaPorte Bancorp or The LaPorte Savings Bank and segregated, earmarked, or otherwise identified on the books and records of LaPorte Bancorp or The LaPorte Savings Bank, (ii) such amounts must be taken into account in any valuation of the institution, and factored into the calculation used in establishing a fair and reasonable basis for exchanging shares in any subsequent conversion of LaPorte Savings Bank, MHC to stock form and (iii) such amounts shall not be available for payment to, or the value thereof transferred to, minority shareholders, by any means, including through dividend payments or at liquidation.

LaPorte Bancorp is generally not subject to regulatory restrictions on the payment of dividends. However, if we choose to participate in the Treasury’s CPP program, our ability to pay dividends to our stockholders will be restricted. See “Supervision and Regulation — Savings Bank Regulation — U.S. Treasury’s TARP Capital Purchase Program.

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In addition, our ability to pay dividends largely depends upon dividends we receive from The LaPorte Savings Bank, which are subject to regulatory restrictions on dividends. Applicable regulations limit dividends and other distributions from The LaPorte Savings Bank to us. See Item 1 Business – Supervision and Regulation Dividend Limitations. In addition, The LaPorte Savings Bank may not make a distribution that would constitute a return of capital during the three-year term of the business plan submitted in connection with the offering. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized.

At December 31, 2008, there were no compensation plans under which equity securities of LaPorte Bancorp, Inc. were authorized for issuance other than the Employee Stock Ownership Plan.

The following table presents a summary of the Company’s share repurchases during the quarter ended December 31, 2008.

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs(1)	Maximum number of shares that may yet be purchased under the plans or programs(1)
October 1- October 31	—	$	—	—	—
November 1- November 30	50,000		6.40	50,000	0
December 1- December 31	75,000		6.05	75,000	0
Total	125,000	$	6.19	125,000	0

(1) On November 13, 2008, the Board of Directors authorized a stock repurchase program pursuant to which the Company would repurchase, in the open market and in privately negotiated transactions, up to 50,000 of its common shares. On November 26, 2008, the Board of Directors authorized a stock repurchase program pursuant to which the Company would repurchase, in the open market and in privately negotiated transactions, up to 60,000 of its common shares. On December 23, 2008, the Board of Directors authorized a stock repurchase program pursuant to which the Company would repurchase, in the open market and in privately negotiated transactions, up to 55,000 of its common shares. On February 26, 2009, the Board of Directors terminated this program after 37,500 shares had been repurchased at a weighted average cost of $5.41 per share.

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Item 6. Selected Financial Data

The following information is derived from the audited consolidated financial statements of LaPorte Bancorp, Inc. For additional information, reference is made to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements of LaPorte Bancorp, Inc. and related notes included elsewhere in this Annual Report.

	At December 31,
	2008			2007		2006		2005		2004
	(In thousands)
Selected Financial Condition Data:
Total assets	$	368,558		$	367,260	$	266,472	$	256,861	$	261,535
Cash and cash equivalents		5,628			9,937		21,047		8,664		8,472
Investment securities		101,451			96,048		88,538		85,996		83,429
Federal Home Loan Bank stock		4,206			4,187		2,661		2,773		2,716
Loans held for sale		124			—		—		707		602
Loans, net		219,926			220,497		136,077		140,577		149,410
Deposits		234,814			246,271		201,859		182,348		186,793
Federal Home Loan Bank of Indianapolis advances and other long-term borrowings		83,883			71,671		36,500		48,500		49,500
Short-term borrowings		650			—		—		—		—
Shareholders’ equity		46,142			46,705		26,386		24,542		24,108
	For the Year Ended December 31,
	2008			2007		2006		2005		2004
	(In thousands)
Interest and dividend income	$	19,357		$	15,244	$	13,585	$	12,412	$	11,839
Interest expense		9,432			8,135		6,945		6,021		6,049
Net interest income		9,925			7,109		6,640		6,391		5,790
Provision for loan losses		1,125			64		143		215		8
Net interest income after provision for loan losses		8,800			7,045		6,497		6,176		5,782
Noninterest income		879			2,857		1,956		1,890		110
Noninterest expense		10,621			8,917		7,093		7,102		6,782
Income (loss) before income taxes		(942	)		985		1,360		964		(890	)
Income tax expense (benefit)		(542	)		268		243		73		(650	)
Net income (loss)	$	(400	)	$	717	$	1,117	$	891	$	(240	)

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	At or For the Years Ended December 31,
	2008		2007		2006		2005		2004
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income (loss) to average total assets)	(0.11	)%	0.26	%	0.43	%	0.34	%	(0.09	)%
Return on equity (ratio of net income (loss) to average equity)	(0.86	)%	2.32	%	4.44	%	3.62	%	(1.00	)%
Interest rate spread(1)	2.74	%	2.39	%	2.44	%	2.35	%	2.14	%
Net interest margin(2)	3.08	%	2.86	%	2.85	%	2.68	%	2.47	%
Efficiency ratio(3)	98.31	%	89.47	%	82.52	%	85.76	%	114.95	%
Noninterest expense to average total assets	2.91	%	3.22	%	2.76	%	2.72	%	2.65	%
Average interest-earning assets to average interest-bearing liabilities	111.72	%	114.57	%	113.56	%	113.11	%	112.86	%
Loans to deposits	94.68	%	90.23	%	67.83	%	77.55	%	80.39	%
Asset Quality Ratios:
Nonperforming assets to total assets	2.08	%	0.69	%	0.48	%	0.60	%	0.56	%
Nonperforming loans to total loans	3.04	%	0.94	%	0.61	%	0.69	%	0.89	%
Allowance for loan losses to nonperforming loans	37.21	%	86.15	%	124.37	%	109.35	%	72.28	%
Allowance for loan losses to total loans	1.13	%	0.81	%	0.76	%	0.75	%	0.64	%
Capital Ratios:
Average equity to average assets	12.75	%	11.19	%	9.78	%	9.43	%	9.36	%
Equity to total assets at end of period	12.52	%	12.72	%	9.90	%	9.55	%	9.22	%
Total capital to risk-weighted assets(4)	16.5	%	17.5	%	17.7	%	17.0	%	16.3	%
Tier 1 capital to risk-weighted assets(4)	15.4	%	16.7	%	17.0	%	16.2	%	15.7	%
Tier 1 capital to average assets(4)	10.4	%	11.6	%	10.2	%	9.8	%	9.5	%
Other Data:
Number of full service offices	8		7		4		4		4

(1) Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.

(2) Represents net interest income as a percent of average interest-earning assets for the period.

(3) Represents noninterest expense divided by the sum of net interest income and noninterest income. The efficiency ratio presented above includes other than temporary impairment losses on investments totaling $1,711, $228, $0, $0 and $1,486 for 2008 through 2004, respectively. The efficiency ratio excluding these losses would be 84.87%, 87.47%, 82.52%, 85.76% and 91.82% for 2008 through 2004.

(4) Represents capital ratios of The LaPorte Savings Bank.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Our results of operations depend mainly on our net interest income, which is the difference between the interest income earned on our loan and investment portfolios and interest expense paid on our deposits and borrowed funds. Results of operations are also affected by fee income from banking operations, provisions for loan losses, gains (losses) on sales and other than temporary impairment charges of loans and securities and other miscellaneous income. Our noninterest expenses consist primarily of salaries and employee benefits, occupancy and equipment, data processing, advertising, bank examination fees, amortization of intangibles, general administrative expenses, deposit insurance fees and income tax expense (benefit). Our results of operations are also significantly affected by general economic and competitive conditions, particularly with respect to changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially affect our financial condition and results of operations. See “Item 1A. Risk Factors.”

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Critical Accounting Policies

We consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies:

Securities. Securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available-for-sale when they might be sold before maturity. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income (loss), net of tax, and as a separate component of shareholders’ equity. Other securities, such as Federal Home Loan Bank of Indianapolis stock, are carried at cost.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities and collateralized mortgage obligations where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

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 LaPorte Savings Bank’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

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 with specific allowance amounts allocated, if applicable, in accordance with SFAS. No. 114 when full payment under the loan terms is not expected. Loans included for analysis for potential impairment under SFAS No. 114 are all commercial and commercial real estate loans classified by The LaPorte Savings Bank as Substandard, Doubtful or Loss. Such loans are analyzed to determine if specific allowance allocations are required under either the fair value of collateral method, for all collateral dependent loans, or using the present value of estimated future cash flows method, using the loan’s existing interest rate as the discount factor. Other factors considered in the potential specific allowance allocation measurement are the timing and reliability of collateral appraisals or other collateral valuation sources, the confidence in The LaPorte Savings Bank’s lien on the collateral, historical losses on similar loans, and any other factors known to management at the time of the measurement that may affect the valuation. Based on management’s consideration of these factors for each individual loan that is reviewed for potential impairment, a specific allowance allocation is assigned to the loan, if applicable, and such allocations are periodically monitored and adjusted as appropriate

Non-specific general allowance amounts are allocated in accordance with SFAS No. 5. Loans included for analysis under SFAS No. 5 are all other loans not considered in the specific allowance allocation analysis under SFAS No. 114 described above. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly they are not separately identified for impairment disclosures. A minimum and maximum allowance allocation estimate is determined for each general loan category or loan pool based on the current three year historical average annual loss ratios as well as consideration of significant recent changes in annual historical loss ratios, classified loan trends by category, delinquency ratios and inherent risk factors attributable to current local and national economic conditions.

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All of the allowance for loan losses is allocated under the specific and general allowance allocation methodologies described above. Management reviews its allowance allocation estimates and loan collateral values on at least a quarterly basis and adjusts the allowance for loan losses for changes in specific and general allowance allocations, as appropriate. Any differences between the estimated and actual observed loan losses are adjusted through increases or decreases to the allowance for loan losses on at least a quarterly basis and such losses are then factored into the revised historical average annual loss ratios for future quarterly allowance allocations.

The Bank is subject to periodic examinations by its federal and state regulatory examiners and may be required by such regulators to recognize additions to the allowance for loan losses based on their assessment of credit information available to them at the time of their examinations. The process of assessing the adequacy of the allowance for loan losses is necessarily subjective. Further, and particularly in times of economic downturns, it is reasonably possible that future credit losses may exceed historical loss levels and may also exceed management’s current estimates of incurred credit losses inherent within the loan portfolio. As such, there can be no assurance that future charge-offs will not exceed management’s current estimate of what constitutes a reasonable allowance for loan losses.

The Company acquired a group of loans through the acquisition of City Savings Financial Corporation on October 12, 2007. Purchased loans that showed evidence of credit deterioration since their origination were recorded at an allocated fair value, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, incurred losses are recognized by an increase in the allowance for loan losses. For further information about the accounting treatment of purchased loans subject to SOP 03-3, see Note 3 of the Notes to Consolidated Financial Statements included in Part IV hereof.

Income Taxes. Income tax expense (benefit) is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

The Company adopted FASB Interpretation 48,Accounting for Uncertainty in Income Taxes (“FIN 48”), as of January 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s consolidated financial condition or results of operations.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Valuation of Goodwill and Other Intangible Assets. We assess the carrying value of our goodwill at least annually in order to determine if this intangible asset is impaired. In reviewing the carrying value of our goodwill, we assess the recoverability of such assets by evaluating the fair value of the related business unit. If the carrying amount of goodwill exceeds its fair value, an impairment loss is recognized for the amount of the excess and the carrying value of goodwill is reduced accordingly. Any impairment would be required to be recorded during the period identified.

Statement of Financial Accounting Standard (SFAS) No. 142,Goodwill and Other Intangible Assets, establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill. At December 31, 2008, the Company had core deposit intangibles of $1.3 million subject to amortization and $8.4 million of goodwill, which is not subject to amortization. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets arising from the acquisition of City Savings Financial in 2007. SFAS No. 142 requires an annual evaluation of goodwill for potential impairment using various estimates and assumptions. The Company became a publicly traded entity in October 2007 and due to the deteriorating financial environment that began at that time, the Company’s common stock has traded below book value since origination. The market price of the Company’s common stock at the close of business on December 31, 2008 was $5.25 per common share, compared to a book value of $9.91 per common share. Management believes the lower market price in relation to book value of the Company’s common stock is due to the overall decline in the financial industry sector and is not specific to the Company. Further, the Company engaged an independent third party specialist to perform an impairment test of its goodwill. The evaluation included three approaches:

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1) income approach using a discounted cash flow analysis based on earnings capacity, 2) comparable sales transactions approach and 3) control premium price to book value ratios. Approaches 2 and 3 used median results from 50 bank sale transactions that occurred during 2007 and 2008. The selling banks ranged in size from $107 million to $976 million. The impairment test was performed as of September 30, 2008 and resulted in an implied fair value for the Company sufficiently above the book value of its common stock to support the carrying value of goodwill.

Based on the annual evaluation performed as of September 30, 2008 and completed in January 2009, management determined that the fair value of the reporting unit, which is defined as the Company as a whole, exceeded the carrying value of the goodwill, based on the opinion of the independent third party specialist that a control premium would be paid by a potential acquirer, such that the Company’s sale price per common share would exceed its book value per common share. Accordingly, no goodwill impairment was recognized in 2008. As the Company’s stock price per common share is currently less than its book value per common share, it is reasonably possible that management may conclude that goodwill, totaling $8.4 million at December 31, 2008, is impaired as a result of a future assessment. If our goodwill is determined to be impaired, the related charge to earnings could be material.

Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from a whole bank acquisition. They are initially measured at fair value and then are amortized on an accelerated method over their estimated useful lives, which range from 4 to 15 years. These intangible assets are also periodically evaluated for impairment. In the future, if these other intangible assets are determined to be impaired, our financial results could be materially impacted.

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Business Strategy

Our business strategy is to enhance operations by:

• Increasing Commercial Real Estate Lending. In order to increase the yield of and reduce the term to repricing of our loan portfolio, we have increased our originations and, to a lesser extent, purchases of commercial real estate loans. However, we may limit the growth of such lending over the next several quarters until economic conditions begin to improve.

• Maintaining Our Status As An Independent Community Oriented Institution.We intend to use our customers’ connections and our knowledge of our local community to enhance our status as an independent community financial institution.

• Managed Growth. We believe that it can be helpful to increase our loans and deposits, if possible, in order to help cover the costs of operating in a highly competitive and regulated marketplace. Our acquisition of City Savings Financial was a part of this effort. In the future, we will continue, subject to market and economic conditions, to explore ways to grow our franchise both through internal growth and external acquisitions.

• Maintaining the Quality of our Loan Portfolio. Maintaining the quality of our loan portfolio is a key factor in managing our operations, particularly during a period of economic downturn. We will continue to use customary risk management techniques, such as independent internal and external loan reviews, portfolio credit analysis and field inspections of collateral in overseeing the performance of our loan portfolio.

• Managing Interest Rate Risk. We believe that it is difficult to achieve satisfactory levels of profitability in the financial services industry without assuming some level of interest rate risk. However, we believe that such risk must be carefully managed to avoid undue exposure to changes in interest rates. Accordingly, we seek to manage to the extent practical our interest rate risk.

We believe that these strategies will guide our investment of the net proceeds of the 2007 stock offering. We intend to continue to pursue our business strategy after the reorganization and the offering, subject to changes necessitated by future market conditions and other factors.

Comparison of Financial Condition At December 31, 2008 and December 31, 2007

General:Total assets increased $1.3 million, or 0.4%, to $368.6 million at December 31, 2008 from $367.3 million at December 31, 2007. The increase was primarily due to an increase in securities available-for-sale of $5.4 million, or 5.6%, offset by a decrease in cash and due from financial institutions of $4.3 million, or 43.4%. The continued competitive pressure on deposit interest rates contributed to an increase in Federal Home Loan Bank advances of $12.2 million and a decrease in total deposits of $11.5 million as of December 31, 2008.

Investment Securities:Securities available-for-sale increased $5.4 million, or 5.6%, to $101.5 million at December 31, 2008 from $96.0 million at December 31, 2007 funded primarily by a decrease in cash and due from financial institutions of $4.3 million and a decrease in net loans receivable of $571,000. During 2008, the Company recorded other-than-temporary impairment charges of $1.2 million related to the Freddie Mac preferred stock issues it held in the investment portfolio. At December 31, 2008 these securities are carried at $10,400. In 2008 the Company also recorded an other-than-temporary impairment charge of $480,000, or 100% of its carrying value, with respect to a Lehman Brothers Holdings bond it held. At December 31, 2008, the Company held $5.6 million in corporate debt securities, all of which are considered investment grade securities.

Net Loans:There was no material change in the balance of net loans at December 31, 2008 compared to December 31, 2007; however the Company did experience a change in composition of its loan portfolio.

Commercial business loans increased $2.0 million, or 11.7%, to $19.4 million at December 31, 2008 from $17.4 million at December 31, 2007. This increase is primarily attributable to an increase in loans to states and political subdivisions of $4.4 million

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to $4.6 million at December 31, 2008 compared to $218,000 at December 31, 2007.These loans are primarily short term tax anticipation warrants issued by local schools and cities. This increase was partially offset by a decrease in commercial and industrial loans of $2.3 million.

One- to four-family residential loans decreased $8.7 million, or 9.3%, to $84.7 million at December 31, 2008 compared to $93.4 million at December 31, 2007. The Bank has continued to sell the majority of its fixed rate one- to four-family residential real estate loans originated, which along with repayment and refinance activity accounted for the decrease. Residential construction loans decreased $3.0 million, or 44.5%, to $3.7 million at December 31, 2008 compared to $6.7 million at December 31, 2007, primarily attributable to the slowdown in new home construction in the markets we serve.

Commercial real estate loans increased $5.7 million, or 9.7%, to $65.1 million at December 31, 2008 compared to $59.3 million at December 31, 2007 primarily attributable to an increase in loan demand in the new markets served as a result of the City Savings Financial Corporation acquisition on October 12, 2007. Commercial construction loans decreased $551,000, or 12.1%, to $4.0 million at December 31, 2008 from $4.6 million at December 31, 2007, primarily due to the lack of demand during the current economic challenges.

Consumer and home equity loans, including indirect automobile loans, decreased $6.1 million, or 17.2%, to $29.2 million at December 31, 2008 compared to $35.3 million at December 31, 2007. This decrease is primarily attributable to a decrease of $3.6 million in indirect automobile loans, attributable to the pricing changes management implemented over the last several years in order to decrease the Bank’s exposure in this type of lending. The indirect automobile loan portfolio was at $6.0 million at December��31, 2008 compared to $9.6 million at December 31, 2007, and management expects to see this portfolio continue to decline in the future. Home equity lines of credit and loans also decreased at December 31, 2008 by $1.4 million at December 31, 2008 compared to December 31, 2007 due to the lack of demand at this time. Management elected to change the loan to value requirements on home equity loans and lines of credit in the third quarter of 2008 to a maximum of 80% from a maximum of 90%, due to the current conditions in the housing market. The Bank has an interest rate floor on its outstanding variable rate home equity lines of credit of 4.00%.

The allowance for loan losses balance increased $715,000, or 39.8%, to $2.5 million at December 31, 2008 compared to $1.8 million at December 31, 2007, primarily attributable to the increase in nonperforming loans and a $326,000 increase in net charge-offs from $84,000 for 2007 to $410,000 for 2008. Total nonperforming loans increased $4.7 million, to $6.7 million at December 31, 2008 compared to $2.1 million at December 31, 2007. This increase in nonperforming loans is primarily attributable to one loan relationship totaling $3.3 million, acquired in the acquisition of City Savings Financial. Total nonperforming loans to total loans were 3.04% at December 31, 2008 compared to 0.94% at December 31, 2007. Total nonperforming assets to total assets at December 31, 2008 were 2.08% compared to 0.69% at December 31, 2007. Other real estate owned increased $467,000, or 102.9%, to $921,000 at December 31, 2008 compared to $454,000 at December 31, 2007. This increase is primarily attributable to loans acquired through the City Savings Financial acquisition that subsequently were taken into other real estate.

Mortgage servicing rights decreased $83,000, or 20.1%, to $329,000 at December 31, 2008 compared to $412,000 at December 31, 2007, primarily due to a valuation allowance of $42,000 established in the fourth quarter of 2008. This valuation allowance is a result of the increase in mortgage refinance activity as well as the overall cost of collection and foreclosure costs associated with the serviced loan portfolio built into the assumptions used in a third party valuation. Management expects that the value of its mortgage servicing rights may continue to decline based on the current housing market conditions and the potential acceleration of loan prepayments and potential increase in loan charge-offs.

Goodwill and Other Intangible Assets:The Company’s goodwill totaled $8.4 million at December 31, 2008 and December 31, 2007. Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”),Goodwill and Other Intangible Assets (as amended), requires goodwill to be tested for impairment on an annual basis, or more frequently if circumstances indicate that an asset might be impaired, by comparing the fair value of such goodwill to its recorded or carrying amount. If the carrying amount of the goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess. Based on the timing of the City Savings Financial acquisition in the fourth quarter of 2007, the first annual impairment review of the $8.4 million of goodwill previously recorded was performed in the fourth quarter of 2008. As a result of impairment testing performed, no impairment charge was recorded by the Company.

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The fair value of goodwill was estimated using a number of measurement methods. These included the application of various metrics from bank sale transactions for institutions comparable to LaPorte Bancorp, Inc., including the application of market-derived multiples of tangible book value and earnings, as well as estimations of the present value of future cash flows. Based on this evaluation completed in January 2009, management determined that the fair value of the reporting unit, which is defined as the Company as a whole, exceeded the carrying value of the goodwill, based on the opinion of an independent third party specialist that a control premium would be paid by a potential acquirer, such that the sale price per common share of the Company would exceed its book value per common share. Accordingly, no goodwill impairment was recognized in 2008. As the Company’s stock price per common share is currently less than its book value per common share, it is reasonably possible that management may conclude that goodwill, totaling $8.4 million at December 31, 2008, is impaired as a result of a future assessment. If our goodwill is determined to be impaired, the related charge to earnings could be material.

Premises and Equipment:Net premises and equipment increased $800,000, or 7.3%, to $11.7 million at December 31, 2008 compared to $10.9 million at December 31, 2007, primarily attributable to the completion and opening of the Bank’s retail branch in Westville, Indiana.

Deposits:Total deposits decreased $11.5 million, or 4.7%, to $234.8 million at December 31, 2008 from $246.3 million at December 31, 2007, with the decrease primarily in certificate of deposits and IRAs and passbook savings. Management continued to decrease interest rates offered throughout 2008 on savings and other interest-bearing deposits in response to the overall decrease in market interest rates. Some of our competition has priced their deposits more aggressively in order to attract deposits. Management has elected to remain competitive, but has not offered what we consider to be excessive rates of interest on deposits when compared to other sources of funding, which has contributed to the decrease in deposits. If commercial loan demand continues to increase, this strategy may be altered in order to attract deposits.

Borrowed Funds:Federal Home Loan Bank of Indianapolis borrowings increased $12.2 million, or 18.4%, to $78.7 million at December 31, 2008 from $66.5 million at December 31, 2007. The increase is primarily attributable to replenishing our funding sources due to the decrease in deposits and the lower cost of funding for Federal Home Loan Bank advances when compared to deposits.

Total Shareholders’ Equity: Total shareholders’ equity decreased $563,000, or 1.2%, to $46.1 million at December 31, 2008 compared to $46.7 million at December 31, 2007 primarily attributable to a net loss of $400,000 for 2008 and purchases of $774,000 of treasury stock during the fourth quarter of 2008. These decreases were partially offset by a decrease of $607,000 in accumulated other comprehensive loss, net of tax from a loss of $224,000 at December 31, 2007 to income of $383,000 at December 31, 2008. The decrease in accumulated other comprehensive loss, net of tax, of $607,000 was primarily due to the decrease in interest rates during 2008 and its positive impact on the market values on securities held in the Company’s available for sale investment portfolio at December 31, 2008. In the last quarter of 2008, the Company participated in a stock buyback program in which it purchased $774,000 or 125,000 shares of its common stock, now held as treasury stock.

Comparison of Operating Results For The Years Ended December 31, 2008 and December 31, 2007

Net Income (Loss):Net income decreased $1.1 million, to a net loss of $400,000, for the year ended December 31, 2008, from net income of $717,000 for the year ended December 31, 2007. This decrease is primarily attributable to a $1.5 million increase in other-than-temporary impairment charges recorded in 2008 compared to 2007, a $1.1 million increase in the provision for loan losses for 2008 compared to 2007, a $1.7 million increase in noninterest expense for 2008 as compared to 2007, as well as a decrease in net gains on securities of $633,000 from the prior year. These reductions in earnings were partially offset by a $2.8 million increase in net interest income and a $810,000 decrease in tax expense for 2008 as compared to 2007. These changes are explained in the following discussion.

Net Interest Income:Net interest income increased $2.8 million to $9.9 million for the year ended December 31 2008 from $7.1 million for the year ended December 31, 2007. This increase is primarily attributable to the increase in average interest-earning assets

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of $74.3 million for 2008 compared to 2007, primarily a result of the City Savings Financial acquisition in the fourth quarter of 2007. This increase was partially offset by the increase in average interest-bearing liabilities of $72.1 million for the year ended December 31, 2008 compared to the prior year. Net interest spread increased 35 basis points from 2.39% for 2007 to 2.74% for 2008, primarily due to the overall decline in interest rates as well as a decrease in the average cost of Federal Home Loan Bank of Indianapolis advances acquired from City Savings Financial compared to the Company’s existing long-term advances at the time of the acquisition. The yield on average interest-earning assets decreased 14 basis points from 6.14% for 2007 to 6.00% for 2008, primarily attributable to the decline in interest rates. Partially offsetting the effects of the decline in interest rates was an increase in the average loans to total average interest-earning assets ratio to 67.3% for the year ended December 31, 2008 compared to 62.1% for the prior year, primarily a result of the mix of the City Savings Bank interest-earning assets.

Interest and Dividend Income:Interest and dividend income increased $4.1 million, or 27.0%, to $19.4 million for the year ended December 31, 2008 from $15.2 million for the year ended December 31, 2007. This increase is primarily attributable to the acquisition of City Savings Financial.

Interest income on loans, including fees, increased $3.4 million, or 31.6%, for the year ended December 31, 2008 compared to the prior year, primarily due to the increase in average loans from the City Savings Financial acquisition in the fourth quarter of 2007. Offsetting this increase in income on loans is a decrease in the annualized average loan yield of 45 basis points from 7.00% for 2007 to 6.55% for 2008. This decrease was primarily the result of a decline in the prime rate over the prior year and its impact on the yield on variable rate loans as well as the pricing on new and renewed loans. This decrease was partially offset by additional income recorded in 2008 under SOP 03-3 for the accounting for a number of commercial and industrial loans and a home equity loan acquired through the acquisition of City Savings Financial that paid off during the year ended December 31, 2008. We recorded $59,000 in additional income on commercial and industrial loans and $91,000 in additional interest income on consumer and home equity loans that paid off during the year ended December 31, 2008, which increased the overall annualized average loan yield by 7 basis points for the year ended December 31, 2008.

Interest income from taxable securities increased $871,000, or 23.1%, to $4.6 million for the year ended December 31, 2008 compared to $3.8 million for the year ended December 31, 2007. This increase is primarily due to the increase in the average balance of taxable securities of $13.2 million for the year ended December 31, 2008 as compared to 2007 attributable to the City Savings Financial acquisition in the fourth quarter of 2007. The annualized average yield on taxable securities increased 26 basis points from 4.80% for 2007 to 5.06% for 2008, primarily due to the higher yielding securities acquired with City Savings Financial in the fourth quarter of 2007 as well as the affect of investment portfolio restructuring that occurred after the acquisition. This increase was partially offset by the elimination of the dividend on the Freddie Mac Preferred stock as well as the interest on Lehman Brothers Holdings Inc. bonds that were written down in 2008 due to other than temporary impairment. The annualized impact on interest income from this lost income is expected to be a reduction of approximately $128,000. We experienced a decrease in interest income from tax-exempt securities of $171,000, or 44.6%, primarily due to a decrease in the average balance of tax exempt securities of $3.9 million for the year ended December 31, 2008 as compared to 2007. The decrease was primarily due to the sale of a portion of tax-free municipal securities during 2008 that were reinvested into taxable securities during 2008, due to a change in the Company’s state tax planning objectives, given the tax effect of the City Savings Financial acquisition.

Dividend income of Federal Home Loan Bank of Indianapolis stock increased $68,000, or 48.2%, for the year ended December 31, 2008 compared to the prior year, primarily attributable to the increase in stock acquired in the City Savings Financial acquisition in the fourth quarter of 2007 as well as an increase of 27 basis points in the annualized average yield from 4.72% for 2007 to 4.99% for 2008. The Federal Home Loan Bank of Indianapolis decreased the dividend paid in the fourth quarter of 2008 to 4.75% from 5.25% in the previous quarter. The Federal Home Loan Bank of Indianapolis deferred the declaration of the fourth quarter dividend, normally paid in January 2009. The decision was deferred because of the need to finalize the review of the Federal Home Loan Bank of Indianapolis’ private label mortgage backed securities for other-than-temporary impairment. On February 20, 2009 the Federal Home Loan Bank of Indianapolis (FHLBI) did announce the declaration of the fourth quarter 2008 dividend. The dividend declared on the stock was 4.00%, a decrease from 4.75% for the previous quarter. In the February 20, 2009 letter to its members, the FHLBI indicated that they determined that none of its private-label mortgage backed securities were other-than-temporarily impaired as of December 31, 2008. Should the decision be made to suspend dividend payments on the Federal Home Loan Bank of

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Indianapolis stock at some point in the future, it would have a negative impact on the Company’s earnings. Based on the most recent quarter’s dividend rate of 4.00%, dividend income would be decreased by approximately $168,000. Interest income from federal funds sold and other interest bearing deposits decreased $71,000, or 48.0%, for the year ended December 31, 2008 compared to the prior year, primarily due to a decrease in the annualized average yield of 300 basis points from 5.00% for 2007 to 2.00% for 2008.

Interest Expense:Interest expense increased $1.3 million, or 15.9%, to $9.4 million for 2008 compared to $8.1 million for 2007. This increase is primarily attributable to the increase of $72.1 million in average interest earning liabilities for 2008 compared to 2007 primarily due to the acquisition of City Savings Bank in the fourth quarter of 2007. This increase was partially offset by a decrease in the annualized average cost of interest bearing liabilities of 49 basis points, to 3.26% for 2008 from 3.75% for 2007. This decrease is due to the continued decrease in interest rates paid on interest-bearing deposits as well as the decrease in the average cost of Federal Home Loan Bank of Indianapolis advances and subordinated debentures for 2008 compared to 2007.

The annualized average cost of savings deposits decreased 26 basis points, to 0.25%, for 2008 compared to 0.51% for 2007, primarily due to management’s decision to decrease interest rates offered during 2008. In the third quarter of 2008 the interest rates being offered on savings deposits was lowered to 0.15%, which is not fully reflected in the 2008 annual results. The annualized average cost of money market and NOW accounts decreased 86 basis points from 1.98% for 2007 to 1.12% for 2008, primarily due to the decline in market interest rates during 2008. The annualized average cost of certificates of deposits and IRA time deposits for the year ended December 31, 2008 decreased 70 basis points to 3.94% for 2008 from 4.64% for 2007, primarily due to the overall decrease in interest rates offered for new or renewed deposits during 2008 compared to the interest rates on maturing deposits. Management does not expect to see a significant continued decrease on the annualized average cost of certificates of deposit and IRAs in the next year.

Interest expense on Federal Home Loan Bank of Indianapolis advances increased $872,000, or 37.1%, for 2008 compared to 2007, primarily due to the additional advances acquired in the City Savings Bank acquisition in the fourth quarter of 2007. The average balance on advances also increased for the year ended December 31, 2008 due to the lower cost of funding on these advances compared to deposits. Interest expense on subordinated debentures increased $237,000 for 2008 compared to 2007, primarily attributable to the City Savings Bank acquisition in the fourth quarter of 2007. The average cost of the subordinated debentures was 6.38% for 2008 compared to 8.35% for 2007. The interest rate adjusts quarterly at the rate of the three month libor plus 3.10%. The subordinated debentures bore an interest rate of 4.57% as of December 31, 2008 compared to 7.96% at December 31, 2007.

Provision for Loan Losses:The Bank recognizes a provision for loan losses, which is charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loan loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect borrowers’ ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur. After an evaluation of these factors, management recognized a provision for loan losses of $1.1 million for 2008 compared to a $64,000 for 2007. Net charge-offs for the same periods were $410,000 and $84,000, respectively. The increase in the provision for loan losses was primarily due to an increase in nonperforming loans, most of which were acquired through the City Savings Financial acquisition, an increase in classified loans, growth in commercial loans as well as the overall increased national and local economic concerns and the $326,000 increase in net charge-offs for 2008 as compared to 2007.

The allowance for loan losses to total loans ratio increased to 1.13% at December 31, 2008 compared to 0.81% at December 31, 2007. The allowance for loan losses to nonperforming loans ratio was 37.21% at December 31, 2008 compared to 86.15% at December 31, 2007. Management’s assessment of losses that are probable and reasonably estimable at December 31, 2008 on the loans accounted for under SOP 03-3 were not included as part of the allowance for loan losses unless the loans further deteriorated since the acquisition date, but instead were accounted for under SOP 03-3. See Note 3 of the Notes to Consolidated Financial Statements for further information about the accounting treatment of purchased loans subject to SOP 03-3.

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Noninterest Income:Noninterest income decreased $2.0 million, or 69.2%, to $879,000 for 2008 compared to $2.9 million for 2007. This decrease was primarily attributable to a $1.5 million increase in other-than-temporary impairment charges recorded in 2008 compared to 2007, as well as a decrease in net gains on securities of $633,000 from the prior year. During 2007, the Company sold the majority of its Fannie Mae and Freddie Mac preferred stock and recorded a gain of $896,000. The Company continued to hold $1.2 million in Freddie Mac preferred stock, for which we recorded approximately $1.2 million of other-than-temporary impairment charges during 2008. Additionally, in view of the bankruptcy filing of Lehman Brothers Holdings, the Company also recorded an other-than-temporary impairment charge of $480,000 during 2008 with respect to 100% of the Lehman debt securities it owned. Brokerage fee income decreased $71,000, or 33.2%, for 2008 compared to 2007 primarily due to the overall instability in the market and its negative impact on the volume of brokerage activity. Loan servicing fees decreased $69,000, or 69.7%, for 2008 compared to 2007, primarily attributable to a $42,000 valuation allowance provision taken against the Company’s mortgage servicing rights asset. Other income decreased $148,000, or 61.4%, for 2008 primarily due to a decrease in net gains on sales of other assets of $147,000. This decrease was partially a result of net losses of $67,000 on the sale of other real estate owned during 2008 compared to net losses of $48,000 during 2007.

Partially offsetting the decrease in noninterest income for 2008 as compared to 2007 was an increase of $170,000 in service charges on deposit accounts as well as a $61,000 increase in ATM and debit card fees, both of which are attributable to the increase in checking accounts as a result of the City Savings Financial acquisition in the fourth quarter of 2007. Earnings on life insurance increased $106,000 for 2008 compared to 2007 primarily due to the additional bank owned life insurance acquired in the City Savings Financial acquisition in the fourth quarter of 2007. Net gains on mortgage banking activities increased $98,000, or 41.7%, for 2008 compared to 2007 primarily attributable to an additional loan originator working in the new markets as a result of the acquisition, in addition to an increase in loan refinancing activity in the fourth quarter of 2008.

Noninterest Expense:Noninterest expense increased $1.7 million, or 19.1%, to $10.6 million for 2008 compared to $8.9 million for 2007, primarily due to the acquisition of City Savings Financial in the fourth quarter of 2007. Salaries and employee benefits increased $627,000, or 12.7%, primarily due to the additional employees brought on through the acquisition, as well as the addition of a Controller, Vice President of Commercial Lending, and a Commercial Lender in the Porter County market in late 2007. The Company did not accrue or award a management bonus for 2008 based on the current net income requirements of the bonus plan compared to a $114,000 bonus expense for 2007. Occupancy and equipment expense increased $326,000, or 20.1%, for 2008 compared to 2007, primarily due to the addition of three branch locations acquired through City Savings Financial in the fourth quarter of 2007, as well as the new Westville branch that opened in June of 2008. Increased real estate tax expense accounted for $95,000 of the increase as well as an increase in depreciation expense of $77,000, an increase in utilities and telephone of $64,000, and an increase in building maintenance and services of $79,000, all of which are primarily attributable to the increase in branch locations.

Data processing expense decreased $156,000, or 28.1%, for 2008 compared to 2007, primarily due to $167,000 in initial conversion costs from our providers of technology during the third quarter of 2007 related to the conversion costs with the acquisition, as well as operating efficiencies gained as a result of the acquisition and the consolidation to one core processor.

Advertising expense increased $65,000, or 48.2%, for 2008 compared to 2007, primarily attributable to the new markets served and the opening of the Westville branch.

Bank examination fees increased $150,000, or 37.6%, of which $88,000 of this increase was in the first quarter of 2008 due to additional costs attributable to our first external audit and annual SEC reporting as a public company, including a review of our purchase accounting entries for the acquisition of City Savings Financial in the fourth quarter of 2007. Internal audit fees also increased by approximately $74,000 attributable to the implementation of internal control assessment requirements under SOX Section 404 during 2008.

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The amortization of intangibles expense increased $306,000 for 2008 compared to 2007, as a result of a full year of amortization expense for 2008 compared to one quarter’s amortization expense for 2007 as a result of the acquisition of City Savings Financial in the fourth quarter of 2007.

Other expenses increased $386,000 for 2008 as compared to 2007, primarily due to an increase in collection and OREO related expenses of $165,000 in 2008 as compared to 2007 as well as an increase in legal expense of $100,000 in 2008 as compared to 2007. The increase in legal expense is a result of our first annual Form 10-K review and our first annual shareholders’ meeting, as well as an increase in legal work associated with loan foreclosure and collection activity.

Correspondent bank charges increased $38,000 for 2008 compared to 2007 primarily attributable to an increase in the Bank’s Federal Reserve monthly charges as a result of the increase in processed items due to the acquisition of City Savings Financial in the fourth quarter of 2007.

FDIC insurance expense, included in other expenses, increased $28,000, or 87.6%, for 2008 compared to 2007, primarily attributable to the increase in deposits due to the acquisition of City Savings Financial in the fourth quarter of 2007. Since June 2007, our FDIC assessment has been reduced by a special credit. This credit was substantially exhausted by year end 2008. In addition, the premium rates set by the FDIC for 2009 have substantially increased over prior year rates. Management estimates this could result in an increase of approximately $312,000 in FDIC insurance expense in 2009 compared to 2008. On March 2, 2009 the FDIC adopted an interim rule setting a special assessment of 20 basis points for June 30, 2009, to be collected September 30, 2009. Management estimates this additional increase to be approximately $490,000 in FDIC insurance expense in 2009. Later, the FDIC reduced this special assessment to 10 basis points, subject to congressional action. Management estimates that a special assessment of 10 basis points would result in a cost of $245,000 for 2009. The Company’s other insurance expenses increased $34,000 for 2008 compared to 2007, attributable to an increase in property and casualty insurance premiums as well as an increase in the coverage limits attributable to the acquisition of City Savings Financial in the fourth quarter of 2007. Other miscellaneous services expense decreased $31,000 for 2008 compared to 2007, primarily attributable to $47,000 in recruitment expenses paid in 2007. These recruitment fees were attributable to the hiring of the Vice President of Commercial Lending and a new Commercial Lender for the Porter County market.

Income Taxes:Income tax expense decreased $810,000, or 302.2%, to a tax benefit of $542,000 for 2008 compared to an income tax expense of $268,000 for 2007. This substantial decrease is primarily due to the decrease in income before taxes of $1.9 million. The income tax expense recorded for 2007 also reflected an additional $183,000 of expense to increase the valuation allowance for deferred tax assets for the portion of the net state deferred tax asset that management feels is not realizable as a result of the additional state net operating loss carry forward brought over from City Savings Financial. The total additional income tax expense related to the adjustment of the valuation allowance for the net state deferred tax asset was $71,000 for 2008, compared to $495,000 for 2007. The resulting effective income tax rate was a (57.5%) benefit for 2008 and a 27.2% expense for 2007.

Comparison of Operating Results For The Years Ended December 31, 2007 and December 31, 2006

Net Income:Net income decreased $400,000 or 35.8% to $717,000 for 2007 from $1.1 million for 2006, primarily attributed to $658,000 in noninterest expenses related to the reorganization, stock offering and acquisition of City Savings Financial Corporation in the fourth quarter of 2007. All indirect costs related to the acquisition were expensed as they were incurred. In addition, an other-than-temporary securities impairment loss of $228,000 was recorded in the fourth quarter of 2007. The increase in non-interest expenses was partially offset by an increase in net interest income of $469,000 as well as an increase in net gains on securities of $918,000.

Net Interest Income:Net interest income increased $469,000 or 7.1% to $7.1 million for 2007 from $6.6 million for 2006, primarily attributable to the increase in net interest earning assets acquired from City Savings Financial in the fourth quarter of 2007. Although the net interest rate spread decreased by five basis points in 2007, the net interest margin remained stable at 2.86% for 2007 as compared to 2.85% for 2006. The yield on average interest-earning assets increased 32 basis points, offset by an increase in the cost on average interest-bearing liabilities of 37 basis points. The increase in the cost of funds was the result of the increased competitive pressure to raise our interest rates on interest-bearing checking accounts and certificates of deposit early in 2007 as well as the cost on the subordinated debt issue acquired from City Savings Financial in the fourth quarter of 2007.

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Interest and Dividend Income: Interest and dividend income increased $1.7 million or 12.2% to $15.2 million for 2007 from $13.6 million for 2006. The increase was primarily attributable to the increase in the average yield on both loans and investments for 2007 compared to 2006, as well as the increase in total loans and investments due to the City Savings Financial acquisition in the fourth quarter of 2007.

The average yield on taxable securities increased 21 basis points to 4.80% for 2007 compared to 4.59% for 2006. The average yield on loans increased 34 basis points to 7.00% for 2007 as compared to 6.66% for 2006. This increase was attributable to a higher yield on our one- to four-family residential real estate loans as well as the increase in the yield on our indirect auto loan portfolio. The average yield on one- to four-family real estate loans increased 34 basis points, primarily because of new originations at higher rates as well as the acquisition of the City Savings Bank higher yielding one-to four-family residential loans in the fourth quarter of 2007. The yield on our indirect portfolio increased by 42 basis points for 2007 compared to 2006 due to management’s decision to change its pricing structure in 2006, due to credit risk involved, realizing that the balance on the portfolio would be decreasing over time.

Other interest income decreased $104,000 for 2007 due to a decrease of $2.2 million in average federal funds sold and other interest bearing deposits compared to 2006.

Interest Expense:Interest expense increased $1.2 million or 17.1% to $8.1 million for 2007 from $6.9 million for 2006. This increase was attributable to the increase in interest-bearing deposits and borrowings acquired from City Savings Financial in the fourth quarter of 2007, as well as an increase in the average cost of interest bearing liabilities of 37 basis points. The average balance on total interest bearing deposits and borrowings increased $11.3 million for 2007 compared to 2006.

The average cost of interest-bearing deposits increased 40 basis points for 2007 compared to 2006 due to the continued competitive pressure on interest rates paid for deposits earlier in 2007. This trend had begun to abate as interest rates declined significantly in the last six months of 2007. The average balance on total interest bearing deposits increased $12.1 million due to the acquisition of City Savings Financial in the last quarter of 2007.

In the second half of 2006, management elected to tier and increase the rates paid on NOW and money market accounts in order to compete with other banks in the marketplace. This resulted in an increase in the average cost of NOW and money market deposits of 72 basis points for 2007 compared to 2006. As interest rates started to decline significantly in the second half of 2007, management significantly lowered the interest rates on these accounts.

Interest expense on borrowings increased $146,000 or 6.3% to $2.5 million for 2007 from $2.3 million for 2006. This increase was largely attributable to the interest cost on the subordinated debt acquired from City Savings Financial in the fourth quarter of 2007. The average cost of the subordinated debt was 8.35% for 2007. As mentioned previously, the preferred debt adjusts quarterly at the rate of the 3 month labor plus 3.10%. The preferred debt bore an annual rate of 7.96% as of December 31, 2007.

Provision for Loan Losses:Our allowance for loan loss is the estimated amount considered necessary to reflect probable incurred losses in the loan portfolio at the balance sheet date. Our analysis of the appropriate allowance includes a review of identifiable problem loans for which a specific allowance is required as well as general allowance allocations for the remainder of the loan portfolio. The Company acquired a group of troubled loans through the acquisition of City Savings Financial on October 12, 2007. Acquired loans that showed evidence of credit deterioration since their origination were recorded at an allocated fair value, such that there was no carryover of the seller’s allowance for loan losses. After acquisition, incurred losses were recognized by an increase in the allowance for loan losses. For further information about the accounting treatment of purchased loans subject to SOP 03-3, see Note 3 of the Notes to Consolidated Financial Statements included in Part IV hereof.

A provision for loan losses of $64,000 was recorded for 2007 compared to a provision of $143,000 for 2006. Net loan charge offs for 2007 were $84,000 compared to the provision for loan losses of $64,000. Total nonperforming loans increased $1.2 million or

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149.2% to $2.1 at December 31, 2007 from $837,000 at December 31, 2006 of which $707,000 were loans acquired from City Savings Bank in the fourth quarter of 2007 that were accounted for under SOP 03-3. See Note 3 of the Notes to Consolidated Financial Statements included in Part IV hereof. Total nonperforming loans to total loans increased from 0.61% at December 31, 2006 to 0.94% at December 31, 2007. The allowance for loan losses to nonperforming loans decreased to 86.2% at December 31, 2007 from 124.4% at December 31, 2006. The allowance for loan losses to total loans increased to 0.81% at December 31, 2007 compared to 0.76% at December 31, 2006.

Noninterest Income:Noninterest income increased $901,000 or 46.1% to $2.9 million for 2007 from $2.0 million for 2006. The increase was primarily due to the increase in net gains on securities of $918,000 as well as an increase in trust and brokerage fees of $96,000 and an increase in earnings on life insurance of $50,000.

In the first quarter of 2007, management elected to sell a majority of the Fannie Mae and Freddie Mac preferred stock issues it had previously written down in 2004 due to an other than temporary impairment classification. The market value on these securities substantially recovered in early 2007 and management elected to sell the majority of these securities and realize a gross gain of $896,000. A majority of the proceeds from this sale were reinvested in fixed rate mortgage backed securities. Management did elect to continue to hold two of the preferred stock issues. At December 31, 2007 these securities further declined in market value resulting in an other-than-temporary impairment charge of $228,000 in the fourth quarter of 2007. The investments were carried at $1.2 million, or 1.3% of the total investment portfolio at December 31, 2007.

Brokerage and trust fees increased due to steady growth in both areas attributable to a continued emphasis on cross-selling and business development efforts.

Income on life insurance increased $50,000 in 2007 due to the life insurance policies acquired from City Savings Financial in the fourth quarter of 2007.

Noninterest Expense: Noninterest expense increased $1.8 million or 25.7% to $8.9 million for 2007 from $7.1 million for 2006, primarily due to nonrecurring costs associated with the reorganization, stock offering and acquisition of City Savings Financial in the fourth quarter of 2007, as well as ongoing increased costs due to public company reporting requirements and the amortization of the core deposit and other intangibles beginning in the fourth quarter of 2007.

Salaries and wages increased $634,000 or 14.7% for 2007 due to the 25 additional employees added from the City Savings Financial acquisition in the fourth quarter of 2007, as well as the addition of two key positions to staff in 2007. The Bank added a Controller and a Vice President of Commercial/Consumer Lending during the first six months of 2007. In addition, management elected to create a new position to oversee all of the credit and underwriting functions for commercial lending. This position was filled by the Executive Vice President of Commercial Lending at that time and as a result created the need to hire a new head of commercial lending. This position was filled in August 2007. Also contributing to this increase in salaries and wages was the creation and expense of the employee stock ownership plan. The ESOP expense for 2007 was $70,000.

Occupancy expense increased $227,000 or 16.3% to $1.6 million for 2007 from $1.4 million for 2006. The increase was primarily due to nonrecurring expenses related to the acquisition of City Savings Financial in the fourth quarter of 2007. Costs associated with converting the City Savings ATM’s, wiring and other building costs at the new branches, as well as furniture and fixtures expense amounted to $95,000 for 2007. In addition to these costs, all other occupancy expenses increased due to the addition of three additional City Savings branch locations during the fourth quarter of 2007.

Data processing expenses increased $256,000 or 85.6% to $555,000 for 2007 from $299,000 for 2006. The Bank incurred $141,000 in expenses attributable to the core conversion of City Savings Bank, as well as $26,000 for the ATM conversion in preparation for the acquisition. In addition to the acquisition costs, annual data processing maintenance costs increased in 2007 compared to 2006 due to the addition of new software products and costs associated with upgrading the Bank’s online banking product in 2007.

Advertising costs increased $35,000 or 35.0% to $135,000 for 2007 from $100,000 for 2006, primarily due to $26,000 in signage and advertising costs associated with the acquisition.

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Bank examination expense increased $177,000 or 79.2% to $399,000 for 2007 from $222,000 for 2006, primarily attributable to the increase in external audit fees due to the change in public company status. There were also $25,000 in nonrecurring expenses attributable to fees paid to the regulatory agencies in conjunction with the reorganization.

Amortization of intangibles and other expenses increased $495,000 or 65.1% to $1.3 million for 2007 from $760,000 for 2006, of which $173,000, was attributable to the acquisition of City Savings Financial in the fourth quarter of 2007. These expenses included $84,000 for legal and consulting, $48,000 for recruitment fees, and approximately $30,000 for general supplies associated with the initial acquisition. Amortization of the core deposit and customer relationship intangibles was $130,000 for 2007, which we did not have in 2006. Other miscellaneous services increased $14,000 due to a temporary consulting engagement to assist with conversion activities as well as $7,000 for ESOP annual administration. We also experienced an increase in postage of $27,000 in 2007 due to the additional mailings in conjunction with the acquisition. Donations increased $15,000 in 2007, and FDIC insurance premium expense increased $9,000, both which were due to the acquisition.

Income Tax Expense:Income tax expense was $268,000 for 2007, an increase of $25,000 or 10.3%, compared to $243,000 for 2006, principally due to a substantial increase in the valuation allowance for deferred tax assets for the portion of the net state deferred tax asset that management feels is not realizable. An addition to the valuation allowance of $183,000 was taken at the end of 2007 as a result of the additional state net operating loss carry forward brought over from City Savings Financial. The resulting effective tax rate was 27.21% for 2007 compared to 17.87% for 2006. The effective tax rate increased due to the increase in the state tax valuation reserve. The effective tax rate is below the expected federal income tax rate of 34% due to tax-exempt securities and life insurance income.

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Interest Rate Margin Analysis

The following tables set forth average balance sheets, average yields and costs, and certain other information at the date and for the periods indicated. No tax-equivalent yield adjustments were made. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred loan fees, discounts and premiums that are amortized or accreted to interest income or expense.

	Years Ended December 31,
	2008						2007						2006
	Average Outstanding Balance		Interest		Yield/ Cost		Average Outstanding Balance		Interest		Yield/ Cost		Average Outstanding Balance		Interest		Yield/ Cost
	(Dollars in thousands)
Assets:
Loans	$	217,102	$	14,210	6.55	%	$	154,151	$	10,794	7.00	%	$	139,668	$	9,306	6.66	%
Taxable securities		91,881		4,649	5.06			78,670		3,778	4.80			74,741		3,428	4.59
Tax exempt securities		5,751		212	3.69			9,654		383	3.97			11,130		468	4.20
Federal Home Loan Bank of Indianapolis stock		4,187		209	4.99			2,987		141	4.72			2,732		131	4.80
Fed funds sold and other interest-bearing deposits		3,842		77	2.00			2,961		148	5.00			5,098		252	4.94
Total interest-earning assets		322,763		19,357	6.00	%		248,423		15,244	6.14	%		233,369		13,585	5.82	%
Noninterest-earning assets		42,800						28,237						23,995
Total assets	$	365,563					$	276,660					$	257,364
Liabilities and equity:
Savings deposits	$	43,625		111	0.25	%	$	39,665		203	0.51	%	$	42,478		212	0.50	%
Money market/NOW accounts		37,195		418	1.12			25,038		495	1.98			19,625		247	1.26
CDs and IRAs		135,774		5,354	3.94			107,150		4,973	4.64			97,661		4,168	4.27
Total interest bearing deposits		216,594		5,883	2.72			171,853		5,671	3.30			159,764		4,627	2.90
FHLB advances and federal funds purchased		67,153		3,220	4.80			43,866		2,372	5.41			45,733		2,318	5.07
Subordinated debentures		5,155		329	6.38			1,102		92	8.35			—		—	—
Other secured borrowings		2		—	—			—		—	—			—		—	—
Total interest-bearing liabilities		288,904		9,432	3.26	%		216,821		8,135	3.75	%		205,497		6,945	3.38	%
Noninterest-bearing demand deposits		26,948						25,522						24,948
Other liabilities		3,111						3,354						1,748
Total liabilities		318,963						245,697						232,193
Equity		46,600						30,963						25,171
Total liabilities and equity	$	365,563					$	276,660					$	257,364
Net interest income			$	9,925					$	7,109					$	6,640
Net interest rate spread					2.74	%					2.39	%					2.44	%
Net interest-earning assets	$	33,859					$	31,602					$	27,872
Net interest margin					3.08	%					2.86	%					2.85	%
Average of interest-earning assets to interest-bearing liabilities					111.72	%					114.57	%					113.56	%

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Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

	Years Ended December 31, 2008 vs. 2007									Years Ended December 31, 2007 vs. 2006
	Increase (Decrease) Due to						Total			Increase (Decrease) Due to						Total
	Volume			Rate			Increase (Decrease)			Volume			Rate			Increase (Decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	4,160		$	(744	)	$	3,416		$	998		$	490		$	1,488
Taxable securities		660			211			871			185			165			350
Tax exempt securities		(146	)		(25	)		(171	)		(60	)		(25	)		(85	)
Federal Home Loan Bank of Indianapolis stock		59			9			68			12			(2	)		10
Fed funds sold and other interest-bearing deposits		35			(106	)		(71	)		(108	)		4			(104	)
Total interest-earning assets		4,768			(655	)		4,113			1,027			632			1,659
Interest-bearing liabilities:
Savings deposits		19			(111	)		(92	)		(14	)		5			(9	)
Money market/NOW accounts		185			(262	)		(77	)		81			167			248
CDs and IRAs		1,201			(820	)		381			424			381			805
Total interest-bearing deposits		1,405			(1,193	)		212			491			553			1,044
FHLB advances and federal funds purchased		1,142			(294	)		848			(97	)		151			54
Subordinated debentures		263			(26	)		237			92			—			92
Other secured borrowings		—			—			—			—			—			—
Total interest-bearing liabilities		2,810			1,513			1,297			486			704			1,190
Change in net interest income	$	1,958		$	858		$	2,816		$	541		$	(72	)	$	469

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Management of Interest Rate Risk

Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings.

Historically, we have relied on funding longer term higher interest-earning assets with shorter term lower interest-bearing deposits to earn a favorable net interest rate spread. As a result, we have been vulnerable to adverse changes in interest rates. Over the past several years, management has implemented an asset/liability strategy to manage, subject to our profitability goals, our interest rate risk. Among the techniques we are currently using to manage interest rate risk are: (i) selling on the secondary market the majority of our originations of long-term fixed-rate one- to four-family residential mortgage loans; (ii) subject to market conditions and consumer demand, originating residential adjustable rate mortgages for our portfolio; (iii) expanding, subject to market conditions, our commercial real estate loans as they generally reprice more quickly than residential mortgage loans; and (iv) reducing the amount of long term, fixed rate mortgage-backed and CMO securities, which are vulnerable to a decreasing interest rate environment and will extend in duration. We have also used structured rates with redemption features to improve yield and may consider interest rate swaps and other hedging instruments although we have not done so recently.

While this strategy has helped manage our interest rate exposure, it does pose risks. For instance, the prepayment options embedded in adjustable rate one- to four-family residential loans and the mortgage-backed securities and CMOs, which allow for early repayment at the borrower’s discretion may result in prepayment before the loan reaches the fully indexed rate. Conversely, in a falling interest rate environment, borrowers may refinance their loans and redeemable securities may be called. In addition, commercial real estate lending generally present higher credit risks than residential one- to four-family lending.

Our Board of Directors is responsible for the review and oversight of management’s asset/liability strategies. Our Asset/Liability Committee is charged with developing and implementing an asset/liability management plan. This committee meets monthly to review pricing and liquidity needs and assess our interest rate risk. We currently utilize a third party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates. In addition, on a monthly basis, the committee reviews our current liquidity position, investment activity, deposit and loan repricing and terms, and Federal Home Loan Bank and other borrowing strategies.

Depending on market conditions, we often place more emphasis on enhancing net interest margin rather than matching the interest rate sensitivity of our assets and liabilities. In particular, we believe that the increased net interest income resulting from a mismatch in the maturity of our asset and liabilities portfolios can, during periods of stable interest rates, provide high enough returns to justify increased exposure to sudden and unexpected increases in interest rates. As a result of this philosophy, our results of operations and the economic value of our equity will remain vulnerable to increases in interest rates and to declines in the difference between long- and short-term interest rates.

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Quantitative Analysis. The table below sets forth, as of December 31, 2008, the estimated changes in the economic value of equity that would result from the designated changes in the United States Treasury yield curve over a 12 month non-parallel ramp. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

Changes in Interest Rates (basis points) (1)			Estimated Increase (Decrease) in EVE					EV as a Percentage of Economic Value of Assets(3)
	Estimated EVE (2)		Amount			Percent		EV Ratio	Changes in Basis Points
	(Dollars in thousands)
+300	$	39,847	$	(6,470	)	(13.97	)%	11.42	(1.12	)
+200		43,247		(3,070	)	(6.63	)	12.15	(0.39	)
+100		45,874		(443	)	(0.96	)	12.63	0.09
0		46,317		—		—		12.54	—
-100		44,203		(2,114	)	(4.56	)	11.85	(0.69	)
-200		41,182		(5,135	)	(11.09	)	10.96	(1.58	)
-300		38,390		(7,927	)	(17.11	)	10.18	(2.36	)

(1) Assumes changes in interest rates over a 12 month non-parallel ramp.

(2) EVE or Economic Value of Equity at Risk measures the Bank’s exposure to equity due to changes in a forecast interest rate environment.

(3) EVE Ratio represents Economic Value of Equity divided by the economic value of assets which should translate into built in stability for future earnings.

The table above indicates that at December 31, 2008, in the event of a 100 basis point decrease in interest rates over a 12 month non-parallel ramp, we would experience a 4.56% decrease in net portfolio value. In the event of a 100 basis point increase in interest rates over a 12 month non-parallel ramp, the economic value would remain relatively stable with a.96% decrease in net portfolio value,

As a result of the current interest rate environment, the table above reflects a greater exposure to declining interest rates in the event of a 200 and 300 basis point movement in interest rates over a 12 month non-parallel ramp. This is primarily due to the significant decline in the intrinsic value normally attributable to NOW, savings and non-interest bearing demand deposits in the analysis. The intrinsic value is normally derived from the value of funding the balance sheet through these types of low cost deposits versus wholesale funding. At December 31, 2008 the cost of wholesale funding was actually below the cost of these types deposits, creating this decline in economic value. The Company has, and will continue to, take advantage of wholesale funding where prudent, however we believe that the utilization of NOW, savings and non-interest bearing demand deposits is the best long-term funding strategy for the Bank.

The Company is also continuing to take steps to address its exposure to rising interest rates. For instance management is considering the use of an interest rate swap to address the exposure on its $5.0 million floating rate trust preferred debenture in the future. We are also continuing to sell a majority of the fixed rate one-to-four family residential real estate loans originated and continuing to originate the majority of commercial real estate loans at a variable rate with interest rate floors attached.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in the economic portfolio value of equity require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in interest rates. In this regard, the economic value of equity table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that particular changes in interest rates occur at different times and in different amounts in response to a designed change in the yield curve for U.S. Treasuries. Furthermore, although the economic value of equity table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income. Finally, the above table does not take into account the changes in the credit risk of our assets which can occur in connection with change in interest rates.

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Liquidity and Capital Resources

We maintain liquid assets at levels we consider adequate to meet both our short- and long-term liquidity needs. We adjust our liquidity levels to fund deposit outflows, repay our borrowings and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.

Our primary sources of liquidity are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations, as well as access to Federal Home Loan Bank advances and other borrowings. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits.

A portion of our liquidity consists of cash and cash equivalents and borrowings, which are a product of our operating, investing and financing activities. At December 31, 2008, $5.6 million of our assets were invested in cash and cash equivalents. Our primary sources of cash are principal repayments on loans, proceeds from the maturities of securities, principal repayments of mortgage-backed securities and increases in deposit accounts. Short-term investment securities (maturing in one year or less) totaled $520,000 at December 31, 2008, not including scheduled or pre-payments from mortgage backed securities and CMO’s. As of December 31, 2008, we had $78.7 million in borrowings outstanding from the Federal Home Loan Bank of Indianapolis and we have access to additional Federal Home Loan Bank advances of up to approximately $3.0 million. As of December 31, 2008, we had $650,000 in borrowings from the Federal Reserve Bank discount window and access to additional borrowings of up to approximately $4.8 million. The market value of unpledged available for sale securities which could be pledged for additional borrowing purposes was $57.3 million at December 31, 2008.

At December 31, 2008, we had $38.2 million in loan commitments outstanding, of which $15.6 million was committed to originate unused home equity lines of credit, $2.5 million was committed to originate commercial lines of credit, $3.4 million was committed to originate unused commercial standby letters of credit, $7.2 was committed to unused overdraft lines of credit and $9.5 million was committed to originate commercial real estate and one- to four-family residential loans. Certificates of deposit and IRAs due within one year of December 31, 2008 totaled $57.2 million, or 44.8% of certificates of deposit and IRAs. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit, IRAs and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2009. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

As reported in the Consolidated Statements of Cash Flows, our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $3.6 million and $445,000 for years ended December 31, 2008 and December 31, 2007, respectively. Net cash used in investing activities was $8.6 million during the year ended December 31, 2008 and net cash provided by investing activities was $9.5 million during the year ended December 31, 2007. Investment securities cash flows had the most significant effect, as net cash from sales and maturities amounted to $44.1 million and $32.8 million and net cash utilized in purchases amounted to $50.0 million and $33.7 million during the years ended December 31, 2008 and December 31, 2007, respectively. During 2008 we used $774,000 to purchase treasury stock. Net cash provided by financing activities was $631,000 for the year ended December 31, 2008. Deposit and borrowing cash flows have comprised most of our financing activities in 2008 and 2007. In 2007, we also received $9.9 million in proceeds from issuing stock in our initial public offering, which resulted in net cash used of $21.0 million during the year ended December 31, 2007. The net effect of our operating, investing and financing activities was to reduce our cash and cash equivalents from $9.9 million at the beginning of fiscal year 2007 to $5.6 million at December 31, 2008.

We also have obligations under our post retirement plans as described in Notes 9 and 12 of the Notes to Consolidated Financial Statements. The post retirement benefit plans will require future payments to eligible plan participants. We contributed $111,000 to our 401(k) plan in 2008 and $94,000 in 2007. In addition, as part of the reorganization and offering, the employee stock ownership plan trust borrowed funds from LaPorte Bancorp and used those funds to purchase shares to be allocated to participants in our ESOP.

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Off-Balance-Sheet Arrangements.In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transaction involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit and standby letters of credit. For information about our loan commitments, letters of credit and unused lines of credit, see Note 16 of the Notes to Consolidated Financial Statements.

For the years ended December 31, 2008 and 2007, we did not engage in any off-balance-sheet transactions other than loan origination commitments, unused lines of credit and standby letters of credit in the normal course of our lending activities. During 2007, we did acquire several additional letters of credit and a substantial increase in unused lines of credit through the City Savings Financial acquisition, however, this increase is in proportion to the commercial loan portfolio acquired.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157,Fair Value Measurements(“FAS 157”). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (“FSP”) 157-2,Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption on January 1, 2008 was not material to the Company’s consolidated financial condition or results of operations. In October 2008, the FASB issued FSP 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. This FSP clarifies the application of FAS 157 in a market that is not active. The impact of adoption was not material to the Company’s consolidated financial condition or results of operations.

In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new standard was effective for the Company on January 1, 2008. The Company elected the fair value option prospectively on January 1, 2008 for loans held for sale. The Company did not elect the fair value option for any other financial assets or financial liabilities as of January 1, 2008.

In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4,Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement. The required accrued liability is based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. The issue was effective for fiscal years beginning after December 15, 2007. The impact of the adoption of this standard on January 1, 2008, resulted in a $55 decrease to deferred tax assets and retained earnings.

In November 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 109 (SAB No. 109),Written Loan Commitments Recorded at Fair Value through Earnings superseding SAB No. 105,Application of Accounting Principles to Loan Commitments, which stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB No. 109 supersedes SAB No. 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB No. 105 also indicated that internally-developed

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intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB No. 109 retains that view. SAB No. 109 became effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The adoption of this standard on January 1, 2008 did not have a material effect on the Company’s consolidated financial condition or results of operations.

In December 2007, the FASB issued Statement No. 141 (revised 2007),Business Combinations (“FAS 141(R)”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The impact of adoption of this standard is dependent on future business combinations.

In March 2008, the FASB issued Statement No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133. FAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 for derivative instruments and hedging activities. FAS No. 161 requires qualitative disclosure about objectives and strategies for using derivative and hedging instruments, quantitative disclosures about fair value amounts of the instruments and gains and losses on such instruments, as well as disclosures about credit-risk features in derivative agreements. FAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of this standard is not expected to have a material effect on the Company’s consolidated results of operations or financial condition.

Impact of Inflation and Changing Prices

The financial statements and related notes of LaPorte Bancorp, Inc. have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

For information regarding market risk see Item 7- “Management’s Discussion and Analysis of Financial Conditions and Results of Operation.”

Item 8. Financial Statements and Supplementary Data

The information regarding financial statements is incorporated herein by reference to LaPorte Bancorp’s 2008 Annual Report to Stockholders in the Financial Statements and the Notes thereto.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable

Item 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

The Company has adopted disclosure controls and procedures designed to facilitate financial reporting. The Company’s disclosure controls currently consist of communications among the Company’s Chief Executive Officer, the Company’s Chief Financial Officer and each department head to identify any transactions, events, trends, risks or contingencies which may be material to its operations. These disclosure controls also contain certain elements of the Company’s internal controls adopted in connection with applicable accounting and regulatory guidelines. In addition, the Company’s Chief Executive Officer, Chief Financial Officer, Audit Committee and independent registered public accounting firm meet on a quarterly basis to discuss disclosure matters. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report and found them to be effective.

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(b) Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, and management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 based upon the criteria set forth in a report entitledInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, the Company’s management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2008.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

(c) Changes in internal controls

There were no significant changes made in our internal control over financial reporting during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

Not Applicable

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The “Proposal I—Election of Directors” section of the Company’s definitive proxy statement for the Company’s 2009 Annual Meeting of Stockholders (the “2009 Proxy Statement”) is incorporated herein by reference.

Item 11. Executive Compensation

The “Proposal I—Election of Directors” section of the Company’s 2009 Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The “Proposal I—Election of Directors” section of the Company’s 2009 Proxy Statement is incorporated herein by reference.

The Company does not have any equity compensation program that was not approved by stockholders, other than its employee stock ownership plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The “Transactions with Certain Related Persons” section of the Company’s 2009 Proxy Statement is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The “Proposal III—Ratification of Appointment of Independent Registered Public Accounting Firm” Section of the Company’s 2009 Proxy Statement is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)(1)Financial Statements

The following are filed as a part of this report by means of incorporation by reference to LaPorte Bancorp’s 2008 Annual Report to Stockholders:

(A) Report of Independent Registered Public Accounting Firm

(B) Consolidated Balance Sheets—at December 31, 2008, 2007 and 2006

(C) Consolidated Statements of Income—Years ended December 31, 2008, 2007 and 2006

(D) Consolidated Statements of Changes In Shareholders’ Equity—Years ended December 31, 2008, 2007 and 2006

(E) Consolidated Statements of Cash Flows—Years ended December 31, 2008, 2007 and 2006

(F) Notes to Consolidated Financial Statements.

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(a)(2)Financial Statement Schedules

None.

(a)(3)Exhibits

3.1	Certificate of Incorporation of LaPorte Bancorp, Inc. (1)
3.2	Bylaws of LaPorte Bancorp, Inc. (1)
4	Form of Common Stock Certificate of LaPorte Bancorp, Inc. (1)
10.1	Form of Employment Agreements between for Lee A. Brady and Michele M. Thompson (1)
10.2	First Amendment to the Employment Agreement for Lee A. Brady
10.3	First Amendment to the Employment Agreement for Michele M. Thompson
10.4	Supplemental Executive Retirement Plan (1)
10.5	First Amendment to the Supplemental Executive Retirement Plan for Lee A. Brady
10.6	First Amendment to the Supplemental Executive Retirement Plan for Russell L. Klosinski
10.7	Second Amendment to the Supplemental Executive Retirement Plan for Lee A. Brady
10.8	Second Amendment to the Supplemental Executive Retirement Plan for Russell L. Klosinski
10.9	Third Amendment to the Supplemental Executive Retirement Plan for Lee A. Brady
10.10	Third Amendment to the Supplemental Executive Retirement Plan for Russell L. Klosinski
10.11	Deferred Compensation Agreement (1)
10.12	First Amendment to the Deferred Compensation Agreement
10.13	Group Term Carve Out Plan (1)
10.14	Employee Stock Ownership Plan and Trust (1)
13	Consolidated Financial Statements
21	Subsidiaries of Registrant
23	Consent of Crowe Horwath LLP
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to the Registration Statement on Form S-1 of LaPorte Bancorp, Inc. (file no. 333-143526), originally filed with the Securities and Exchange Commission on June 5, 2007.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LAPORTE BANCORP, INC.
Date: March 31, 2009	By:	/s/ Lee A. Brady
		Lee A. Brady
		Chief Executive Officer and President
		(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Lee A. Brady	President and Chief Executive Officer (Principal Executive Officer)	March 31, 2009
Lee A. Brady
/s/ Michele M. Thompson	Executive Vice President, Chief	March 31, 2009
Michele M. Thompson	Financial Officer and Director (Principal Financial and Accounting Officer)
/s/ Joan M. Ulrich	Chairman of the Board	March 31, 2009
Joan M. Ulrich
/s/ Paul G. Fenker	Vice Chairman of the Board	March 31, 2009
Paul G. Fenker
/s/ Mark A. Krentz	Secretary of the Board	March 31, 2009
Mark A. Krentz
/s/ Ralph F. Howes	Director	March 31, 2009
Ralph F. Howes
/s/ L. Charles Lukmann, III	Director	March 31, 2009
L. Charles Lukmann, III

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/s/ Jerry L. Mayes	Director	March 31, 2009
Jerry L. Mayes
/s/ Dale A. Parkison	Director	March 31, 2009
Dale A. Parkison
/s/ Thomas D. Sallwasser	Director	March 31, 2009
Thomas D. Sallwasser

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