LaPorte Bancorp 10-Q 2013 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

OR

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

For the transition period from              to             

LAPORTE BANCORP, INC.

(Exact name of Registrant as Specified in Its Charter)

Maryland	001-35684	35-2456698
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File Number)	(I.R.S. Employer Identification Number)

710 Indiana Avenue

La Porte, IN 46350

(219) 362-7511

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

Registrant’s Principal Executive Officers)

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

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

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

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

Number of shares of common stock outstanding at May 10, 2013: 6,205,250

TABLE OF CONTENTS

	Page Number
PART I – FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements – LaPorte Bancorp, Inc.
Consolidated Balance Sheets, March 31, 2013 (Unaudited) and December 31, 2012		3
Consolidated Statements of Income, Three Months Ended March 31, 2013 and 2012 (Unaudited)		4
Consolidated Statements of Comprehensive Income, Three Months Ended March  31, 2013 and 2012 (Unaudited)		5
Consolidated Statements of Changes in Shareholders’ Equity, Three Months Ended March  31, 2013 and 2012 (Unaudited)		6
Consolidated Statements of Cash Flows, Three Months Ended March 31, 2013 and 2012 (Unaudited)		7
Notes to Consolidated Financial Statements (Unaudited)		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Item 3. Quantitative and Qualitative Disclosures About Market Risk		52
Item 4. Controls and Procedures		53
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		54
Item 1A. Risk Factors		54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		54
Item 3. Defaults Upon Senior Securities		54
Item 4. Mine Safety Disclosures		54
Item 5. Other Information		54
Item 6. Exhibits		54
Signatures		55

2

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

LAPORTE BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

	March 31, 2013			December 31, 2012
	(Unaudited)
ASSETS
Cash and due from financial institutions	$	4,704		$	6,857
Interest-earning time deposits in other financial institutions		7,876			7,141
Securities available for sale		139,097			125,620
Federal Home Loan Bank (FHLB) stock, at cost (restricted)		3,817			3,817
Loans held for sale, at fair value		2,296			1,155
Loans, net of allowance for loan losses of $4,220 at March 31, 2013, $4,308 at December 31, 2012		291,507			313,692
Mortgage servicing rights		370			344
Other real estate owned		1,320			902
Premises and equipment, net		9,685			9,575
Goodwill		8,431			8,431
Other intangible assets		339			363
Bank owned life insurance		11,356			11,263
Accrued interest receivable and other assets		3,450			3,595
Total assets	$	484,248		$	492,755
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	53,399		$	50,892
Interest bearing		287,127			298,078
Total deposits		340,526			348,970
Federal Home Loan Bank advances		47,712			49,009
Subordinated debentures		5,155			5,155
Short-term borrowings		1,000			—
Accrued interest payable and other liabilities		5,244			5,566
Total liabilities		399,637			408,700
Shareholders’ equity
Preferred stock, no par value; 1,000,000 shares authorized; none issued		—			—
Common stock, $0.01 par value; 100,000,000 shares authorized; 6,205,250 shares issued and outstanding at March 31, 2013 and December 31, 2012		62			62
Additional paid-in capital		47,372			47,302
Retained earnings		38,585			37,745
Accumulated other comprehensive income, net of tax of $1,011 at March 31, 2013 and $1,218 at December 31, 2012		1,965			2,364
Unearned Employee Stock Ownership Plan (ESOP) shares		(3,373	)		(3,418	)
Total shareholders’ equity		84,611			84,055
Total liabilities and shareholders’ equity	$	484,248		$	492,755

See accompanying notes to consolidated financial statements (unaudited)

3

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(dollars in thousands, except per share data)

	Three Months Ended March 31,
	2013			2012
Interest and dividend income
Loans, including fees	$	3,577		$	4,109
Taxable securities		462			503
Tax exempt securities		342			352
FHLB stock		34			28
Other interest income		25			5
Total interest and dividend income		4,440			4,997
Interest expense
Deposits		578			798
Federal Home Loan Bank advances		227			322
Subordinated debentures		69			70
FDIC guaranteed unsecured borrowings		—			37
Federal funds purchased and other short-term borrowings		—			1
Total interest expense		874			1,228
Net interest income		3,566			3,769
Provision for loan losses		3			228
Net interest income after provision for loan losses		3,563			3,541
Noninterest income
Service charges on deposits		99			107
ATM and debit card fees		98			97
Earnings on life insurance, net		93			94
Net gains on mortgage banking activities		340			222
Loan servicing fees, net		24			12
Net gains on sales and calls of securities		253			109
Losses on other assets		(91	)		(150	)
Other income		90			98
Total noninterest income		906			589
Noninterest expense
Salaries and employee benefits		1,667			1,658
Occupancy and equipment		456			489
Data processing		185			127
Advertising		91			74
Bank examination fees		81			81
Amortization of intangibles		24			30
FDIC insurance		83			84
Collection and other real estate owned		65			28
Other expenses		395			385
Total noninterest expense		3,047			2,956
Income before income taxes		1,422			1,174
Income tax expense		334			247
Net income	$	1,088		$	927
Earnings per share (Note 3):
Basic	$	0.19		$	0.16
Diluted		0.19			0.16

See accompanying notes to consolidated financial statements (unaudited)

4

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(dollars in thousands, except per share data)

	Three Months Ended March 31,
	2013			2012
Net income	$	1,088		$	927
Other comprehensive income:
Unrealized gains/losses on securities
Unrealized holding gain arising during the period		(551	)		124
Reclassification adjustment for gainsincluded in net income		(253	)		(109	)
Net unrealized gains		(804	)		15
Tax effect		274			(6	)
Net of tax		(530	)		9
Unrealized gains/losses on cash flow hedges
Unrealized holding gain arising during the period		198			83
Net unrealized gains		198			83
Tax effect		(67	)		(27	)
Net of tax		131			56
Total other comprehensive income		(399	)		65
Comprehensive income	$	689		$	992

See accompanying notes to consolidated financial statements (unaudited)

5

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three months ended March 31, 2013 and 2012

(dollars in thousands, except per share data)

	Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss) Net of Tax			Treasury Stock			Unearned ESOP Shares			Total
Balance at January 1, 2012	$	49	$	21,991		$	34,267		$	2,031		$	(1,278	)	$	(1,357	)	$	55,703
Net income		—		—			927			—			—			—			927
Other comprehensive income		—		—			—			65			—			—			65
Cash dividends on common stock ($0.03 per share)		—		—			(186	)		—			—			—			(186	)
ESOP shares earned, 2,982 shares		—		(3	)		—			—			—			23			20
Stock award and option expense		—		61			—			—			—			—			61
Balance at March 31, 2012	$	49	$	21,279		$	35,008		$	2,096		$	(1,278	)	$	(1,334	)	$	56,590
Balance at January 1, 2013	$	62	$	47,302		$	37,745		$	2,364		$	—		$	(3,418	)	$	84,055
Net income		—		—			1,088			—			—			—			1,088
Other comprehensive income (loss)		—		—			—			(399	)		—			—			(399	)
Cash dividends on common stock ($0.04 per share)		—		—			(248	)		—			—			—			(248	)
ESOP shares earned, 5,621 shares		—		9			—			—			—			45			54
Stock award and option expense		—		61			—			—			—			—			61
Balance at March, 2013	$	62	$	47,372		$	38,585		$	1,965		$	—		$	(3,373	)	$	84,611

See accompanying notes to consolidated financial statements (unaudited)

6

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands, except per share data)

	Three Months Ended March 31,
	2013			2012
Cash flows from operating activities
Net income	$	1,088		$	927
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		141			150
Provision for loan losses		3			228
Net gains on securities		(253	)		(109	)
Net gains on sales of loans		(296	)		(204	)
Originations of loans held for sale		(10,106	)		(10,890	)
Proceeds from sales of loans held for sale		9,261			10,611
Recognition of mortgage servicing rights		(44	)		(19	)
Amortization of mortgage servicing rights		38			29
Net change in loan servicing rights valuation allowance		(20	)		(4	)
Net losses on sales of other real estate owned		—			14
Write down of other real estate owned		91			137
Earnings on life insurance, net		(93	)		(94	)
Amortization of intangible assets		24			30
ESOP compensation expense		54			20
Stock compensation expense		61			61
Amortization of issuance costs of unsecured borrowings		—			19
Change in assets and liabilities:
Accrued interest receivable and other assets		352			417
Accrued interest payable and other liabilities		(124	)		45
Net cash from operating activities		177			1,368
Cash flows from investing activities
Net change in loans		21,673			436
Proceeds from sales of other real estate owned		—			224
Proceeds from maturities, calls and principal repayments of securities available for sale		3,854			7,388
Proceeds from sales of securities available for sale		5,260			12,668
Purchase of interest-earning time deposits at other financial institutions		(735	)		(2,450	)
Purchases of securities available for sale		(23,142	)		(13,143	)
Premises and equipment expenditures, net		(251	)		(80	)
Net cash from investing activities		6,659			5,043
Cash flows from financing activities
Net change in deposits		(8,444	)		8,311
Proceeds from FHLB long-term advances		5,000			7,500
Repayment of FHLB long-term advances		(4,999	)		(22,499	)
Net change in FHLB short-term advances		(1,298	)		2,985
Net change in short-term borrowings		1,000			—
Dividends paid on common stock		(248	)		(186	)
Repayment of FDIC guaranteed unsecured borrowing		—			(5,000	)
Net cash from financing activities		(8,989	)		(8,889	)
Net change in cash and cash equivalents		(2,153	)		(2,478	)
Cash and cash equivalents at beginning of period		6,857			8,146
Cash and cash equivalents at end of period	$	4,704		$	5,668
Supplemental cash flow information:
Cash paid during the period for:
Interest paid	$	887		$	1,270
Income taxes paid		—			—
Supplemental noncash disclosures:
Transfers from loans receivable to other real estate owned	$	509		$	119

See accompanying notes to consolidated financial statements (unaudited)

7

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 1 – BASIS OF PRESENTATION AND CONSOLIDATION

The unaudited consolidated financial statements included herein include the accounts of LaPorte Bancorp, Inc., a Maryland corporation (“New LaPorte”), successor to LaPorte Bancorp, Inc., a Federal corporation (“LaPorte-Federal”), its wholly owned subsidiary, The LaPorte Savings Bank (the “Bank”), the Bank’s wholly owned subsidiary, LSB Investments, Inc., (“LSB Inc.”) and LSB Inc.’s wholly owned subsidiary, LSB Real Estate, Inc., (“LSB REIT”), together referred to as “the Company”. LaPorte-Federal was formed in October 2007. New LaPorte was formed in June 2012. LSB Inc. was formed on October 1, 2011 to manage a portion of the Bank’s investment portfolio. LSB REIT was formed on January 1, 2013. LaPorte-Federal was a majority owned (54.1%) subsidiary of LaPorte Savings Bank, MHC through September 30, 2012. These financial statements do not include the transactions and balances of LaPorte Savings Bank, MHC. Intercompany transactions and balances are eliminated in consolidation.

On October 4, 2012, the Company completed its conversion and reorganization to the stock holding company form of organization. New LaPorte, the new stock holding company for the Bank, sold 3,384,611 shares of common stock at $8.00 per share, for gross offering proceeds of $27.1 million, in its stock offering. Concurrent with the completion of the offering, shares of common stock of LaPorte-Federal owned by the public have been exchanged for 1.3190 shares of New LaPorte’s common stock so that LaPorte-Federal’s existing shareholders now own approximately the same percentage of New LaPorte’s common stock as they owned of LaPorte-Federal’s common stock immediately prior to the conversion, as adjusted for the assets of LaPorte Savings Bank, MHC and their receipt of cash in lieu of fractional exchange shares. As a result of the offering and the exchange of shares, New LaPorte has approximately 6,205,250 shares outstanding. All share and per share information in this report for periods prior to conversion has been revised to reflect the 1.3190:1 conversion ratio on shares outstanding, including shares of LaPorte-Federal held by the former mutual holding company that were not publicly traded.

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

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the interim consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2012 included in the Form 10-K Annual Report of the Company for the fiscal year ended December 31, 2012.

The results for the three month period ended March 31, 2013 may not indicate the results to be expected for the full year ending December 31, 2013.

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

8

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

In January 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-01 “Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities.” This ASU clarifies that ordinary trade receivables and receivables are not in the scope of ASU 2011-11. ASU 2011-11 applies only to derivatives, repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria in the Accounting Standards Codification or subject to a master netting arrangement or similar agreement. ASU 2013-01 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Retrospective disclosure is required for all comparative periods presented. The Company has adopted this standard. The effect of applying this standard is reflected in Note 10.

In February 2013, the FASB issued ASU No. 2013-02 “Comprehensive Income (Topic 220) – Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This ASU states that accumulated other comprehensive income is to be presented either on the face of the statement where net income of significant amounts reclassified out of accumulated other comprehensive income – but only if the item is required to be reclassified to net income in its entirety in the same reporting period. The Company has adopted this standard. The effect of applying this standard for the three months ended March 31, 2013 is reflected in Note 9.

9

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 3 – EARNINGS PER SHARE

Basic earnings per common share is determined by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Employee Stock Ownership Plan (“ESOP”) shares are considered outstanding for this calculation unless unearned. Diluted earnings per common share is determined by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period, adjusted for the dilutive effect of common share equivalents (50,522 and 0, for the three months ended March 31, 2013 and 2012, respectively). Stock options of 231,319 and 281,841 shares for the three months ended March 31, 2013 and 2012, respectively, were not considered in computing diluted earnings per share because they were antidilutive. The factors used in the earnings per common share computation follow:

	Three Months Ended March 31, 2013			Three Months Ended March 31, 2012
Basic
Net income	$	1,088		$	927
Weighted average common shares outstanding		6,205,250			6,147,689
Less: Average unallocated ESOP shares		(424,421	)		(177,450	)
Average shares		5,780,830			5,970,239
Basic earnings per common share	$	0.19		$	0.16
Diluted
Net income	$	1,088		$	927
Weighted average common shares outstanding for basic earnings per common share		5,780,830			5,970,239
Add: Dilutive effects of assumed exercises of stock options		50,522			—
Average shares and dilutive potential common shares		5,831,352			5,970,239
Diluted earnings per common share	$	0.19		$	0.16

10

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 4 – SECURITIES AVAILABLE FOR SALE

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

March 31, 2013	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. federal agency obligations	$	10,007	$	335	$	—		$	10,342
State and municipal		43,444		3,129		(54	)		46,519
Mortgage-backed securities – residential		16,518		328		(70	)		16,776
Government agency sponsored collateralized mortgage obligations		59,927		1,244		(159	)		61,012
Corporate debt securities		4,439		15		(6	)		4,448
Total	$	134,335	$	5,051	$	(289	)	$	139,097
December 31, 2012	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. federal agency obligations	$	8,045	$	360	$	—		$	8,405
State and municipal		42,161		3,479		(26	)		45,614
Mortgage-backed securities – residential		11,819		572		(6	)		12,385
Government agency sponsored collateralized mortgage obligations		54,070		1,198		(112	)		55,156
Corporate debt securities		3,959		110		(9	)		4,060
Total	$	120,054	$	5,719	$	(153	)	$	125,620

At March 31, 2013 and December 31, 2012, all of our mortgage-backed securities were issued by U.S. government-sponsored enterprises and all of our collateralized mortgage obligations were issued by either U.S. government-sponsored enterprises or the U.S. Small Business Administration.

Securities with unrealized losses at March 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

March 31, 2013	Continuing Unrealized Loss For Less Than 12 Months					Continuing Unrealized Loss For 12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
State and municipal	$	4,439	$	(54	)	$	—	$	—	$	4,439	$	(54	)
Mortgage-backed Securities – residential		8,316		(70	)						8,316		(70	)
Government agency sponsored collateralized mortgage obligations		15,440		(159	)		—		—		15,440		(159	)
Corporate debt securities		2,314		(6	)		—		—		2,314		(6	)
Total temporarily impaired	$	30,509	$	(289	)	$	—	$	—	$	30,509	$	(289	)

11

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 4 – SECURITIES AVAILABLE FOR SALE – continued

Securities with unrealized losses at December 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

December 31, 2012	Continuing Unrealized Loss For Less Than 12 Months					Continuing Unrealized Loss For 12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
State and municipal	$	1,611	$	(26	)	$	—	$	—	$	1,611	$	(26	)
Mortgage-backed securities – residential		1,012		(6	)		—		—		1,012		(6	)
Government agency sponsored collateralized mortgage obligations		12,392		(112	)		—		—		12,392		(112	)
Corporate debt securities		1,489		(9	)		—		—		1,489		(9	)
Total temporarily impaired	$	16,504	$	(153	)	$	—	$	—	$	16,504	$	(153	)

At March 31, 2013, the Company held 36 investments in debt securities which were in an unrealized loss position of which all were in an unrealized loss position for less than twelve months. At December 31, 2012, the Company held 18 investments in debt securities which were in an unrealized loss position of which all were in an unrealized loss position for less than twelve months. Management periodically evaluates each investment security for potential other-than-temporary impairment, relying primarily on industry analyst reports and observation of market conditions and interest rate fluctuations. Management believes it will be able to collect all amounts due according to the contractual terms of the underlying investment securities and that the noted declines in fair value are considered temporary and due only to normal market interest rate fluctuations. The Company does not intend to sell the securities and is not more likely than not to be required to sell these debt securities before their anticipated recovery.

Sales of securities available for sale for the three months ended March 31, 2013 and 2012 were as follows:

	Three Months Ended March 31,
	2013		2012
Proceeds	$	5,260	$	12,668
Gross gains		253		121
Gross losses		—		(16	)

Proceeds from calls of securities available for sale during the three months ended March 31, 2013 and 2012 were $0 and $3,275, with gross gains of $0 and $4 and gross losses of $0 and $0, respectively.

12

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 4 – SECURITIES AVAILABLE FOR SALE – continued

The amortized cost and fair value of debt securities at March 31, 2013 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities and collateralized mortgage obligations (“CMO”), are shown separately.

	Amortized Cost		Fair Value
Due in one year or less	$	2,048	$	2,080
Due from more than one to five years		12,887		13,497
Due from more than five to ten years		20,977		22,021
Due after ten years		21,978		23,711
Subtotal		57,890		61,309
Mortgage-backed securities and CMOs		76,445		77,788
Total	$	134,335	$	139,097

Securities pledged at March 31, 2013 and December 31, 2012 had a carrying amount of approximately $38,461 and $42,151, respectively, and were pledged to secure public deposits, FHLB advances, short-term borrowings through the Federal Reserve Discount Window, treasury tax and loan payments and cash flow hedges.

NOTE 5 – LOANS

Loans at March 31, 2013 and December 31, 2012 were as follows:

	March 31, 2013			December 31, 2012
Commercial	$	121,364		$	124,563
Mortgage		35,407			36,996
Mortgage warehouse		120,182			137,467
Residential construction		1,789			1,475
Indirect auto		963			1,154
Home equity		11,884			12,267
Consumer and other		3,901			3,864
Subtotal		295,490			317,786
Less: Net deferred loan (fees) costs		237			214
Allowance for loan losses		(4,220	)		(4,308	)
Loans, net	$	291,507		$	313,692

As of March 31, 2013, the Bank’s mortgage warehouse division had repurchase agreements with 11 mortgage companies. For the three months ended March 31, 2013, the mortgage companies originated $604,680 in mortgage loans and sold $622,341 in mortgage loans. The Bank recorded interest income of $1,163 and mortgage warehouse loan fees of $193 which are included in loan interest income and wire transfer fees of $67 which are included in noninterest income during the three months ended March 31, 2013 attributable to the mortgage warehouse lines.

13

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

As of March 31, 2012, the Bank’s mortgage warehouse division had repurchase agreements with 10 mortgage companies. For the three months ended March 31, 2012, the mortgage companies originated $538,161 in mortgage loans and sold $534,786 in mortgage loans. The Bank recorded interest income of $1,204 and mortgage warehouse loan fees of $167 which are included in loan interest income and wire transfer fees of $54 which are included in noninterest income during the three months ended March 31, 2012 attributable to the mortgage warehouse lines.

14

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2013 and 2012:

	Commercial			Mortgage			Mortgage Warehouse			Residential Construction		Indirect Auto			Home Equity			Consumer and Other			Unallocated		Total
For the three months ended March 31, 2013
Allowance for loan losses:
Beginning balance	$	3,131		$	401		$	601		$	2	$	7		$	130		$	36		$	—	$	4,308
Charge-offs		(66	)		(19	)		—			—		(4	)		(22	)		(3	)		—		(114	)
Recoveries		—			19			—			—		—			—			4			—		23
Provision		57			(42	)		(71	)		—		3			14			42			—		3
Ending balance	$	3,122		$	359		$	530		$	2	$	6		$	122		$	79		$	—	$	4,220
For the three months ended March 31, 2012
Allowance for loan losses:
Beginning balance	$	2,774		$	374		$	393		$	3	$	19		$	119		$	90		$	—	$	3,772
Charge-offs		(19	)		(21	)		—			—		—			—			(6	)		—		(46	)
Recoveries		—			—			—			—		3			—			7			—		10
Provisions		245			(18	)		13			1		(5	)		1			(9	)		—		228
Ending balance	$	3,000		$	335		$	406		$	4	$	17		$	120		$	82		$	—	$	3,964

15

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2013:

	Commercial		Mortgage		Mortgage Warehouse		Residential Construction		Indirect Auto		Home Equity		Consumer and Other		Unallocated		Total
March 31, 2013
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,283	$	77	$	—	$	—	$	—	$	—	$	—	$	—	$	1,360
Collectively evaluated for impairment		1,839		282		530		2		6		122		79		—		2,860
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—		—
Total ending allowance	$	3,122	$	359	$	530	$	2	$	6	$	122	$	79	$	—	$	4,220
Loans:
Loans individually evaluated for impairment	$	5,667	$	2,084	$	—	$	—	$	—	$	39	$	—	$	—	$	7,790
Loans collectively evaluated for impairment		115,182		33,187		120,182		1,780		963		11,899		3,903		—		287,096
Loans acquired with deteriorated credit quality		703		138		—		—		—		—		—		—		841
Total ending loan balance	$	121,552	$	35,409	$	120,182	$	1,780	$	963	$	11,938	$	3,903	$	—	$	295,727

The recorded investment in loans does not include accrued interest.

16

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2012:

	Commercial		Mortgage		Mortgage Warehouse		Residential Construction		Indirect Auto		Home Equity		Consumer and Other		Unallocated		Total
December 31, 2012
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,137	$	132	$	—	$	—	$	—	$	22	$	—	$	—	$	1,291
Collectively evaluated for impairment		1,994		269		601		2		7		108		36		—		3,017
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—		—
Total ending allowance	$	3,131	$	401	$	601	$	2	$	7	$	130	$	36	$	—	$	4,308
Loans:
Loans individually evaluated for impairment	$	6,337	$	2,125	$	—	$	—	$	—	$	53	$	—	$	—	$	8,515
Loans collectively evaluated for impairment		117,682		34,731		137,467		1,466		1,154		12,267		3,867		—		308,634
Loans acquired with deteriorated credit quality		712		139		—		—		—		—		—		—		851
Total ending loan balance	$	124,731	$	36,995	$	137,467	$	1,466	$	1,154	$	12,320	$	3,867	$	—	$	318,000

The recorded investment in loans does not include accrued interest.

17

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

The following table presents information related to impaired loans by class of loans as of and for the three months ended March 31, 2013:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Commercial:
Real estate	$	2,211	$	1,893	$	—	$	2,007	$	2	$	—
Land		213		213		—		213		—		—
Mortgage		1,336		1,337		—		1,176		—		—
Home equity		39		39		—		46		—		—
Subtotal		3,799		3,482		—		3,442		2		—
With an allowance recorded:
Commercial:
Real estate		820		821		331		821		—		—
Land		2,739		2,740		952		2,757		—		—
Mortgage		747		747		77		749		—		—
Subtotal		4,306		4,308		1,360		4,327		—		—
Total	$	8,105	$	7,790	$	1,360	$	7,769	$	2	$	—

The recorded investment in loans does not include accrued interest.

18

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

The following table presents information related to impaired loans by class of loans as of and for the three months ended March 31, 2012:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Commercial:
Commercial and other	$	—	$	—	$	—	$	23	$	—	$	—
Real estate		1,408		1,408		—		1,422		2		—
Land		2,527		2,527		—		2,528		3		—
Mortgage		1,044		1,044		—		1,079		3		—
Subtotal		4,979		4,979		—		5,052		8		—
With an allowance recorded:
Commercial:
Real estate		500		501		76		502		—		—
Land		544		544		120		549		—		—
Mortgage		597		597		98		633		—		—
Home equity		14		14		10		14		—		—
Subtotal		1,655		1,656		304		1,698		—		—
Total	$	6,634	$	6,635	$	304	$	6,750	$	8	$	—

The recorded investment in loans does not include accrued interest.

19

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

The following table presents information related to impaired loans by class of loans as of December 31, 2012:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
December 31, 2012
With no related allowance recorded:
Commercial:
Real estate	$	2,150	$	2,152	$	—
Land		214		214		—
Mortgage		1,296		1,296		—
Home equity		31		31		—
Subtotal		3,691		3,693		—
With an allowance recorded:
Commercial:
Real estate		1,461		1,199		365
Land		2,772		2,772		772
Mortgage		829		829		132
Home equity		22		22		22
Subtotal		5,084		4,822		1,291
Total	$	8,775	$	8,515	$	1,291

The recorded investment in loans does not include accrued interest.

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of March 31, 2013 and December 31, 2012:

	Nonaccrual				Loans Past Due Over 90 Days Still Accruing
	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Commercial:
Commercial and other	$	45	$	29	$	—	$	—
Real estate		2,656		3,292		—		—
Land		2,953		2,985		—		—
Mortgage		2,084		1,958		—		—
Indirect auto		4		5		—		—
Home equity		39		53		—		—
Consumer and other		37		39		—		—
Total	$	7,818	$	8,361	$	—	$	—

The recorded investment in loans does not include accrued interest.

20

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS - continued

The following tables present the aging of the recorded investment in past due loans as of March 31, 2013 and December 31, 2012 by class of loans:

	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
March 31, 2013
Commercial:
Commercial and other	$	—	$	—	$	17	$	17	$	19,195	$	19,212
Real estate		188		—		2,023		2,211		75,344		77,555
Five or more family		37		—		—		37		13,756		13,793
Construction		—		—		—		—		1,651		1,651
Land		644		—		2,470		3,114		6,227		9,341
Mortgage		674		163		1,439		2,276		33,133		35,409
Mortgage warehouse		—		—		—		—		120,182		120,182
Residential construction:
Construction		—		—		—		—		1,416		1,416
Land		—		—		—		—		364		364
Indirect		10		—		4		14		949		963
Home equity		24		—		12		36		11,902		11,938
Consumer and other		—		—		—		—		3,903		3,903
Total	$	1,577	$	163	$	5,965	$	7,705	$	288,022	$	295,727
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Loans Not Past Due		Total
December 31, 2012
Commercial:
Commercial and other	$	67	$	—	$	—	$	67	$	20,208	$	20,275
Real estate		1,019		24		2,644		3,687		76,193		79,880
Five or more family		—		—		—		—		14,286		14,286
Construction		—		—		—		—		1,795		1,795
Land		—		109		2,494		2,603		5,892		8,495
Mortgage		523		283		1,469		2,275		34,720		36,995
Mortgage warehouse		—		—		—		—		137,467		137,467
Residential construction:
Construction		—		—		—		—		1,099		1,099
Land		—		—		—		—		367		367
Indirect auto		10		—		5		15		1,139		1,154
Home equity		21		—		25		46		12,274		12,320
Consumer and other		3		—		—		3		3,864		3,867
Total	$	1,643	$	416	$	6,637	$	8,696	$	309,304	$	318,000

The recorded investment in loans does not include accrued interest.

21

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

Troubled Debt Restructurings:

A loan modification is considered a troubled debt restructuring when a borrower is experiencing financial difficulty and the Company grants a concession it would not otherwise consider but for the borrower’s financial difficulties. At March 31, 2013 and December 31, 2012, the outstanding balance of loans that were modified as troubled debt restructurings totaled $826 and $842, respectively. All of these loans were considered nonperforming troubled debt restructurings. The Company has allocated $0 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2013 and December 31, 2012. Troubled debt restructurings previously disclosed resulted in charge offs of $0 during the three months ended March 31, 2013. The Company has not committed to lend additional amounts as of March 31, 2013 and December 31, 2012 to customers with outstanding loans that are classified as troubled debt restructurings.

During the three months ended March 31, 2013 and 2012, the Bank did not modify any loans which were considered to be troubled debt restructurings.

For the three months ended March 31, 2013 and 2012, no troubled debt restructurings defaulted within twelve months following the modification.

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

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

Credit Quality Indicators

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

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

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

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

22

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The Bank monitors credit quality on loans not rated through the loan’s individual payment performance. As of March 31, 2013, the most recent analysis performed, the risk category of loans by class of loans was as follows:

	Not Rated		Pass		Special Mention		Substandard		Doubtful
March 31, 2013
Commercial:
Commercial and other	$	12	$	18,555	$	645	$	—	$	—
Real estate		3		64,491		6,444		6,617		—
Five or more family		195		9,958		3,640		—		—
Construction		—		1,651		—		—		—
Land		—		5,632		111		3,598		—
Mortgage		28,692		3,975		441		2,301		—
Mortgage warehouse		120,182		—		—		—		—
Residential construction:
Construction		1,416		—		—		—		—
Land		364		—		—		—		—
Indirect auto		963		—		—		—		—
Home equity		11,717		92		85		44		—
Consumer and other		3,091		812		—		—		—
Total	$	166,635	$	105,166	$	11,366	$	12,560	$	—

The recorded investment in loans does not include accrued interest.

As of December 31, 2012 the risk category of loans by class of loans was as follows:

	Not Rated		Pass		Special Mention		Substandard		Doubtful
December 31, 2012
Commercial:
Commercial and other	$	11	$	19,945	$	319	$	—	$	—
Real estate		—		66,427		6,131		7,322		—
Five or more family		203		10,410		3,673		—		—
Construction		—		1,795		—		—		—
Land		—		4,754		755		2,986		—
Mortgage		30,121		4,077		447		2,350		—
Mortgage warehouse		137,467		—		—		—		—
Residential construction:
Construction		1,099		—		—		—		—
Land		367		—		—		—		—
Indirect auto		1,154		—		—		—		—
Home equity		12,060		115		86		59		—
Consumer and other		3,036		831		—		—		—
Total	$	185,518	$	108,354	$	11,411	$	12,717	$	—

The recorded investment in loans does not include accrued interest.

23

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 5 – LOANS – continued

Purchased Loans

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

	March 31, 2013		December 31, 2012
Commercial:
Commercial and other	$	29	$	29
Real estate		705		714
Mortgage		138		139
Outstanding balance	$	872	$	882
Carrying amount, net of allowance of $ 0	$	841	$	851

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

	Three Months Ended March 31,
	2013			2012
Beginning balance	$	128		$	193
Reclassification from
non-accretable yield		1			4
Accretion of income		(15	)		(18	)
Ending balance	$	114		$	179

For the purchased loans disclosed above, the Company did not increase the allowance for loan losses during 2013 or 2012. No allowance for loan losses were reversed during 2013 or 2012.

24

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE

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

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

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

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

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

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

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

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

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

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals performed by qualified independent third-party appraisers.

25

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE - continued

These appraisals may utilize a single valuation approach or a combination of approaches including cost, comparable sales and the income approach. The cost approach is based on the cost to replace the existing property. The comparable sales approach evaluates the sales prices of comparable properties within the same market area. The income approach considers net operating income generated by the property and the rate of return required by an investor. Adjustments are routinely made in the appraisal process by the independent third-party appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

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

The table below presents the valuation methodology and unobservable inputs for impaired loans and other real estate owned at March 31, 2013.

	Valuation Methodology		Unobservable Inputs	Range of Inputs	Average of Inputs
Impaired loans
Commercial:
Real estate		Appraisals	Discounts for collection issues and changes in market conditions	10-30%		20	%
Land		Appraisals	Discounts for collection issues and changes in market conditions	0-55%		19	%
Mortgage		Appraisals	Discounts for collection issues and changes in market conditions	0-20%		5	%
Other real estate owned, net
Commercial:
Real estate		Appraisals	Discounts for changes in market conditions	40%		40	%
Land		Appraisals	Discounts for changes in market conditions	16%-26%		21	%
Mortgage		Appraisals	Discounts for changes in market conditions	27%-29%		28	%

The table below presents the valuation methodology and unobservable inputs for impaired loans and other real estate owned at December 31, 2012.

	Valuation Methodology		Unobservable Inputs	Range of Inputs	Average Inputs
Impaired loans
Commercial:
Real estate		Appraisals	Discounts for collection issues and changes in market conditions	10-30%		20	%
Land		Appraisals	Discounts for collection issues and changes in market conditions	0-40%		17	%
Mortgage		Appraisals	Discounts for collection issues and changes in market conditions	0-20%		11	%
Other real estate owned, net Commercial:
Real estate		Appraisals	Discounts for changes in market conditions	40%		40	%
Land		Appraisals	Discounts for changes in market conditions	6%-17%		11	%
Mortgage		Appraisals	Discounts for changes in market conditions	7%-29%		18	%

26

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE - continued

Mortgage Servicing Rights: On a quarterly basis, loan servicing rights are evaluated for impairment based on the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level, based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2). Fair value at March 31, 2013 was determined using a discount rate of 10%, prepayment speeds ranging from 12.6% to 25.0%, depending on the stratification of the specific right, and a weighted average default rate of approximately 0.5%. Fair value at December 31, 2012 was determined using a discount rate of 10.0%, prepayment speeds ranging from 14.9% to 30.3%, depending on the stratification of the specific right, and a weighted average default rate of approximately 0.5%.

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

				Fair Value Measurements at March 31, 2013
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets
Investment securities available for sale
U.S. federal agency obligations	$	10,342		$	—	$	10,342		$	—
State and municipal		46,519			—		46,519			—
Mortgage-backed securities-residential		16,776			—		16,776			—
Government agency sponsored collateralized mortgage obligations		61,012			—		61,012			—
Corporate debt securities		4,448			—		4,448			—
Total investment securities Available-for-sale	$	139,097		$	—	$	139,097		$	—
Loans held for sale	$	2,296		$	—	$	2,296		$	—
Derivatives – residential mortgage loan commitments	$	97		$	—	$	97		$	—
Financial Liabilities
Derivatives – interest rate swaps	$	(1,786	)	$	—	$	(1,786	)	$	—

27

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE – continued

				Fair Value Measurements at December 31, 2012
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets
Investment securities available for sale
U.S. federal agency obligations	$	8,405		$	—	$	8,405		$	—
State and municipal		45,614			—		45,614			—
Mortgage-backed securities – residential		12,385			—		12,385			—
Government agency sponsored collateralized mortgage obligations		55,156			—		55,156			—
Corporate debt securities		4,060			—		4,060			—
Total investment securities available-for-sale	$	125,620		$	—	$	125,620		$	—
Loans held for sale	$	1,155		$	—	$	1,155		$	—
Derivatives – residential mortgage loan commitments	$	79		$	—	$	79		$	—
Financial Liabilities
Derivatives – interest rate swaps	$	(1,984	)	$	—	$	(1,984	)	$	—

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

Loans held for sale were carried at the fair value of $2,296 which was made up of the outstanding balance of $2,231 and an unrealized gain of $65 at March 31, 2013, resulting in a change in unrealized gains of $31 for the three months ended March 31, 2013. At March 31, 2012, loans held for sale were carried at the fair value of $3,532, which was made up of the outstanding balance of $3,485 and an unrealized gain of $47, resulting in a change in unrealized gains of $4 for the three months ended March 31, 2012.

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

	March 31, 2013
	Aggregate Fair Value		Difference		Contractual Principal
Loans held for sale	$	2,296	$	65	$	2,231
Loans held for sale	$	1,155	$	34	$	1,121

28

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE – continued

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

The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets carried at fair value for the three months ended March 31, 2013 and 2012:

	Changes in Fair Values for the three months ended March 31, 2013 and 2012, for the Items Measured at Fair Value Pursuant to Election of the Fair Value Option
	Other Gains and Losses		Interest Income		Interest Expense		Total Changes in Fair Values Included in Current Period Earnings
Three Months Ended March 31, 2013
Assets:
Loans held for sale	$	31	$	6	$	—	$	37
Three Months Ended March 31, 2012
Assets:
Loans held for sale	$	4	$	12	$	—	$	16

29

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE – continued

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

			Fair Value Measurements at March 31, 2013
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans
Commercial:
Real estate	$	489	$	—		$	—	$	489
Land		1,787		—			—		1,787
Mortgage		670		—			—		670
Other real estate owned, net Commercial:
Real estate		102		—			—		102
Land		302		—			—		302
Mortgage		124		—			—		124
Mortgage servicing rights		234		—			234		—
			Fair Value Measurements at December 31, 2012
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans
Commercial:
Real Estate	$	833	$	—		$	—	$	833
Land		2,000		—	��		—		2,000
Mortgage		697		—			—		697
Other real estate owned, net
Commercial:
Real Estate		102		—			—		102
Land		385		—			—		385
Mortgage		133		—			—		133
Mortgage servicing rights		273		—			273		—

30

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE – continued

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a gross carrying amount of $4,306, with a valuation allowance of $1,360 at March 31, 2013, resulting in an additional provision for loan losses of $164 for the three months ended March 31, 2013. At March 31, 2012, impaired loans had a carrying amount of $1,655, with a valuation allowance of $304, resulting in an additional provision for loan losses of $71 for the three months ended March 31, 2012.

Other real estate owned, which is measured at the lower of cost or fair value less costs to sell, had a net carrying amount of $528, which was made up of the outstanding balance of $873 net a valuation allowance of $344 at March 31, 2013, resulting in a write-down of $91 for the three months ended March 31, 2013. At March 31, 2012, other real estate owned had a net carrying amount of $590, which was made up of the outstanding balance of $727 net a valuation allowance of $137, resulting in a write-down of $137 for the three months ended March 31, 2012.

Mortgage servicing rights, which are carried at lower of cost or fair value, were carried at their fair value of $234, which was made up of the outstanding balance of $372, net of a valuation allowance of $138, resulting in a charge of $(20) for the three months ended March 31, 2013. At March 31, 2012, mortgage servicing rights were carried at their fair value of $275, which was made up of the outstanding balance of $389, net of a valuation allowance of $114, resulting in a charge of $(5) for the three months ended March 31, 2012.

The carrying amounts and estimated fair values of financial instruments, at March 31, 2013 are as follows:

				Fair Value Measurements at March 31, 2013
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial assets
Cash and due from financial institutions	$	4,704		$	4,704	$	—		$	—
Interest-earning time deposits at other financial institutions		7,876			—		7,928			—
Securities available for sale		139,097			—		139,097			—
Federal Home Loan Bank stock		3,817			N/A		N/A			N/A
Loans held for sale		2,296			—		2,296			—
Loans, net		291,507			—		—			297,470
Accrued interest receivable		1,517			1		855			661
Financial liabilities
Deposits		(340,526	)		—		(336,685	)		—
Federal Home Loan Bank advances		(47,712	)		—		(49,623	)		—
Subordinated debentures		(5,155	)		—		—			(5,152	)
Short-term borrowings		(1,000	)		—		(1,000	)		—
Accrued interest payable		(185	)		—		(177	)		(8	)
Derivatives – interest rate swaps		(1,786	)		—		(1,786	)		—

31

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE – continued

The carrying amounts and estimated fair values of financial instruments, at December 31, 2012 are as follows:

Fair Value Measurements at

				December 31, 2012
	Carrying Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial assets
Cash and due from financial institutions	$	6,857		$	6,857	$	—		$	—
Interest-earning time deposits at other financial institutions		7,141			—		7,197			—
Securities available for sale		125,620			—		125,620			—
Federal Home Loan Bank stock		3,817			N/A		N/A			N/A
Loans held for sale		1,155			—		1,155			—
Loans, net		313,692			—		—			318,534
Accrued interest receivable		1,481			2		802			677
Financial liabilities
Deposits		(348,970	)		—		(347,348	)		—
Federal Home Loan Bank advances		(49,009	)		—		(51,059	)		—
Subordinated debentures		(5,155	)		—		—			(5,188	)
Accrued interest payable		(198	)		—		(196	)		(2	)
Derivatives – interest rate swaps		(1,984	)		—		(1,984	)		—

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

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

Interest-earning time deposits at other financial institutions: The fair values of the Company’s interest-earning time deposits at other financial institutions are estimated using discounted cash flow analyses based on current rates for similar types of interest-earning time deposits and are classified as Level 2.

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

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

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

32

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 6 – FAIR VALUE – continued

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

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

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

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

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

NOTE 7 – DERIVATIVES

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

Interest Rate Swaps Designated as Cash Flow Hedges: Interest rate swaps with notional amounts of $30.25 million as of March 31, 2013 and December 31, 2012, were designated as cash flow hedges of subordinated debentures, certain CDARS deposits and FHLB advances, and were determined to be fully effective during all periods presented. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The hedge would no longer be considered effective if a portion of the hedge becomes ineffective, the item hedged is no longer in existence or the Company discontinues hedge accounting. The Company expects the hedges to remain fully effective during the remaining terms of the swaps. The Company does not expect any amounts to be reclassified from other comprehensive income (loss) over the next 12 months.

33

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 7 – DERIVATIVES – continued

Information related to the interest-rate swaps designated as cash flow hedges as of March 31, 2013 and December 31, 2012 were as follows:

	March 31, 2013			December 31, 2012
Subordinated debentures
Notional amount	$	5,000		$	5,000
Fixed interest rate payable		5.54	%		5.54	%
Variable interest rate receivable (Three month LIBOR plus 3.10%)		3.38	%		3.41	%
Unrealized losses		(105	)		(131	)
Maturity date					March 26, 2014
CDARS deposits
Notional amount	$	10,250		$	10,250
Fixed interest rate payable		3.19	%		3.19	%
Variable interest rate receivable (One month LIBOR plus 0.55%)		0.75	%		0.76	%
Unrealized losses		(369	)		(428	)
Maturity date					October 9, 2014
FHLB advance
Notional amount	$	5,000		$	5,000
Fixed interest rate payable		3.54	%		3.54	%
Variable interest rate receivable (Three month LIBOR plus 0.22%)		0.50	%		0.53	%
Unrealized losses		(358	)		(395	)
Maturity date					September 20, 2015
FHLB advance
Notional amount	$	10,000		$	10,000
Fixed interest rate payable		3.69	%		3.69	%
Variable interest rate receivable (Three month LIBOR plus 0.25%)		0.55	%		0.57	%
Unrealized losses		(954	)		(1,030	)
Maturity date					July 19, 2016

Interest expense recorded on these swap transactions totaled $(247) and $(193) during the three months ended March 31, 2013 and 2012, respectively, and is reported as a component of interest expense on subordinated debentures, deposits and FHLB advances.

34

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 7 – DERIVATIVES – continued

The following table presents the net losses recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of Income relating to the cash flow derivative instruments for the three months ended March 31, 2013 and 2012:

	Net amount of gain (loss) recognized in OCI (Effective Portion) 2013		Net amount of gain (loss) reclassified from OCI to interest income 2013		Net amount of gain (loss) recognized in other non interest income (Ineffective Portion) 2013
Interest rate contracts	$	1,178	$	—	$	—
	Net amount of gain (loss) recognized in OCI (Effective Portion) 2012		Net amount of gain (loss) reclassified from OCI to interest income 2012		Net amount of gain (loss) recognized in other non interest income (Ineffective Portion) 2012
Interest rate contracts	$	1,437	$	—	$	—

The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012:

	March 31, 2013						December 31, 2012
	Notional Amount			Fair Value			Notional Amount			Fair Value
Included in other liabilities:
Interest rate swaps related to Subordinated debentures	$	(5,000	)	$	(105	)	$	(5,000	)	$	(131	)
CDARS deposits		(10,250	)		(369	)		(10,250	)		(428	)
FHLB advances		(15,000	)		(1,312	)		(15,000	)		(1,425	)
Total included in other liabilities				$	(1,786	)				$	(1,984	)

35

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 7 – DERIVATIVES – continued

The counterparty to the Company’s derivatives is exposed to credit risk whenever the derivative is in a liability position. As a result, the Company has collateralized the liability with cash and security collateral held in safekeeping by Bank of New York. At March 31, 2013 and December 31, 2012, the Company had $220 in cash and securities with a fair value of $2,636 and $2,586, respectively, posted as collateral for these derivatives.

NOTE 8 – STOCK-BASED COMPENSATION

During the month of September 2011, the Company implemented the 2011 Equity Incentive Plan (the “Plan”) which was approved by shareholders on May 10, 2011. The Plan provides for issuance of stock options or restricted share awards to employees and directors. Total shares authorized for issuance under the Plan is 417,543 which is further discussed below. Total compensation cost that has been charged against income for those plans totaled $61 for the three months ended March 31, 2013 and 2012.

Stock-Based Compensation

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

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

Stock Options

The Plan permits the grant of stock options to its employees or directors for up to 298,246 shares of common stock. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods of 5 years and have 10-year contractual terms. Options granted generally vest 20% annually.

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

	2011
Risk-free interest rate	1.42%
Expected term	7 1/2 Years
Expected stock price volatility	27.34%
Dividend yield	1.60%

36

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 8 – STOCK-BASED COMPENSATION - continued

A summary of the activity in the stock option plan for the three months ended March 31, 2013 was as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2013		281,829	$	6.44		8.7 years	$	2,474
Granted		—		—
Exercised		—		—
Forfeited or expired		—		—
Outstanding at March 31, 2013		281,829	$	6.44		8.5 years	$	2,790
Fully vested and expected to vest		281,829	$	6.44		8.5 years	$	2,790
Exercisable at end of period		56,366	$	6.44		8.5 years	$	195

A summary of the activity in the stock option plan for the three months ended March 31, 2012 was as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2012		281,829	$	6.44		9.7 years	$	—
Granted		—		—
Exercised		—		—
Forfeited or expired		—		—
Outstanding at March 31, 2012		281,829	$	6.44		9.5 years	$	—
Fully vested and expected to vest		281,829	$	6.44		9.5 years	$	—
Exercisable at end of period		—		n/a		n/a		n/a

Information related to the stock option plan for 2011 follows:

	2011
Weighted average fair value of options granted	$	2.16

There were no options exercised during the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, there was $320 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.5 years.

37

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 8 – STOCK-BASED COMPENSATION - continued

Restricted Share Awards

The Plan provides for the issuance of up to 119,298 of restricted shares to directors and employees. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. The fair value of the stock was determined by obtaining the listed price of the Company’s stock on the grant date. Shares vest 20% annually over five years. 2,388 shares were available for future grants at March 31, 2013.

A summary of changes in the Company’s nonvested shares for the three months ended March 31, 2013 was as follows:

Nonvested Shares	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2013		93,528	$	6.44
Granted		—		—
Vested		—		6.44
Forfeited		—		—
Nonvested at March 31, 2013		93,528	$	6.44

A summary of changes in the Company’s nonvested shares for the three months ended March 31, 2012 follows:

Nonvested Shares	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2012		116,910	$	6.44
Granted		—		—
Vested		—		—
Forfeited		—		—
Nonvested at March 31, 2012		116,910	$	6.44

As of March 31, 2013, there was $521 of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.5 years. For the three months ended March 31, 2013, there were 23,382 shares vested. The total fair value of shares vested at March 31, 2013 was $231. There were no shares vested for the three months ended March 31, 2012.

38

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME

A summary of the changes in accumulated other comprehensive income by component for the three months ended March 31, 2013 is as follows:

	Gains and Losses on Cash Flow Hedges			Unrealized Gains and Losses on Available- for-Sale Securities			Total
Beginning balance	$	(1,309	)	$	3,673		$	2,364
Other comprehensive income before reclassification		131			(363	)		(232	)
Amounts reclassified from accumulated other comprehensive income		—			(167	)		(167	)
Net current period other comprehensive income		131			(530	)		(399	)
Ending balance	$	(1,178	)	$	3,143		$	1,965

A summary of the reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2013 is as follows:

Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement Where Net Income is Presented
Unrealized gains and losses on available-for-sale securities
	$	253		Net gains on sales and calls of securities
		253		Total before tax
		(86	)	Income tax (expense) benefit
	$	167		Net of tax

39

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 10 – OFFSETTING FINANCIAL ASSETS AND LIABILITIES

On January 1, 2013, the Company adopted changes issued by the FASB to the disclosure of offsetting assets and liabilities. These changes require an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the consolidated balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. The enhanced disclosures will enable users of an entity’s financial statements to understand and evaluate the effect or potential effect of master netting arrangements on an entity’s financial position, including the effect of rights to setoff associated with certain financial instruments and derivative instruments. Other than the additional disclosure requirements, the adoption of these changes had no impact on the Consolidated Financial Statements.

							Gross Amounts Not Offset in the Consolidated Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Financial Instruments			Cash Collateral Pledged			Net Amount
Description:
Derivatives	$	1,786	$	—	$	1,786	$	(2,636	)	$	(220	)	$	(1,070	)
Repurchase agreements		436		—		436		(436	)		—			—
Total	$	2,222	$	—	$	2,222	$	(3,072	)	$	(220	)	$	(1,070	)

40

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS - continued

LAPORTE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(dollars in thousands, except per share data)

NOTE 10 – OFFSETTING FINANCIAL ASSETS AND LIABILITIES – continued

December 31, 2012

							Gross Amounts Not Offset in the Consolidated Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet		Financial Instruments			Cash Collateral Pledged			Net Amount
Description:
Derivatives	$	1,984	$	—	$	1,984	$	(2,586	)	$	(220	)	$	(822	)
Repurchase agreements		517				517		(517	)		—			—
Total	$	2,501	$	—	$	2,501	$	(3,103	)	$	(220	)	$	(822	)

If an event of default occurs causing an early termination of an interest rate swap derivative, an early termination amount payable to one party by the other party may be reduced by set-off against any other amount payable by the one party to the other party. If a default in performance of any obligation of a repurchase agreement occurs, each party will set-off property held in respect of transactions against owing in respect of any other transactions.

41

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This document (including information incorporated by reference) contains future oral and written statements of the Company and its management and 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 the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’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 the Company undertakes no obligation to update any statement in light of new information or future events.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors which could have a material adverse effect on the operations and future prospects of the Company and certain subsidiaries are detailed in “Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012. In addition to these risk factors, there are other factors that may impact any public company, including ours, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries. These additional factors include, but are not limited to, the following:

• changes in prevailing real estate values and loan demand both nationally and within our current and future market area;

• increased competitive pressures among financial services companies;

• changes in consumer spending, borrowing and savings habits;

• the amount of assessments and premiums we are required to pay for FDIC deposit insurance;

• legislative or regulatory changes that affect our business including the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and its impact on our compliance costs;

• our ability to successfully manage our commercial lending;

• the financial health of certain entities, including government sponsored enterprises, the securities of which are owned or acquired by the Company;

• adverse changes in the securities market;

• the costs, effects and outcomes of existing or future litigation;

• the economic impact of past and any future terrorist attacks, acts of war or threats thereof and the response of the United States to any such threats and attacks;

• the success of our mortgage warehouse lending program including the impact of the Dodd-Frank Act on the mortgage companies; and

• the ability of the Company to manage the risks associated with the foregoing factors as well as anticipated risk factors.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

42

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - continued

Comparison of Financial Condition at March 31, 2013 and December 31, 2012

General:Total assets decreased $8.5 million, or 1.7%, to $484.2 million at March 31, 2013 from $492.8 million at December 31, 2012. The decrease was primarily due to a decrease in net loans of $22.2 million which was offset in part by an increase in securities available for sale of $13.5 million. The Company experienced a decrease in total deposits of $8.4 million, or 2.4%, primarily due to a decrease in brokered time deposits, which matured and the Company did not renew, totaling $10.0 million. Federal Home Loan Bank of Indianapolis (“FHLBI”) advances decreased $1.3 million, or 2.7%, to $47.7 million at March 31, 2013 due to a decrease in short-term borrowings. Total shareholders’ equity increased $556,000 primarily due to net income of $1.1 million for the three months ended March 31, 2013 offset by a decrease in other comprehensive income of $399,000 and dividends paid during the first quarter of 2013 of $248,000.

Investment Securities:Total securities available for sale increased $13.5 million, or 10.7%, to $139.1 million at March 31, 2013 from $125.6 million at December 31, 2012 primarily attributable to the decrease in net loans of $22.2 million.

At March 31, 2013, management reviewed the securities portfolio for possible other-than-temporary impairment and determined there were no impairment charges to be recorded. The total available-for-sale securities portfolio reflected a net unrealized gain of $4.8 million at March 31, 2013 compared to a net unrealized gain of $5.6 million at December 31, 2012.

Loans Held for Sale: Loans held for sale increased $1.1 million, or 98.8%, to $2.3 million at March 31, 2013 compared to $1.2 million at December 31, 2012 primarily due to the timing of when residential mortgage loans were originated and subsequently sold to the secondary market.

Net Loans: Net loans decreased $22.2 million, or 7.1%, to $291.5 million at March 31, 2013 compared to $313.7 million at December 31, 2012. This decrease was primarily due to a decrease in mortgage warehouse loans due to a decrease in originations and an increase in competition for this type of lending during the first quarter of 2013.

Mortgage warehouse loans decreased $17.3 million, or 12.6%, to $120.2 million at March 31, 2013 compared to $137.5 million at December 31, 2012. During the first quarter of 2013, the Bank experienced a decrease in loan volume related to a decrease in refinance activity which typically occurs during the first quarter and an increase in competition from other Banks providing this service.

Commercial real estate loans decreased $2.4 million, or 2.9%, to $77.5 million at March 31, 2013 compared to $79.8 million at December 31, 2012. This decrease in commercial real estate loans was primarily the result of two loans being paid off prior to maturity during the first quarter which totaled $1.4 million at December 31, 2012, in addition to normal amortization of all other commercial real estate loans.

One- to four-family residential loans decreased $1.6 million, or 4.3%, to $35.4 million at March 31, 2013 compared to $37.0 million at December 31, 2012. The decrease in this portfolio was primarily attributable to continued refinance activity and normal amortization of the seasoned loan portfolio during the first quarter of 2013. We have continued to sell the majority of our fixed rate one- to four-family residential loans originated. Management expects to continue selling the majority of the long term fixed rate one- to four-family residential loans originated in the near future to reduce interest rate risk exposure of generally lower yielding fixed rate long term mortgages remaining on the balance sheet.

There was no material change in balances of commercial business, five or more family residential, construction, land, home equity or consumer loans at March 31, 2013 when compared to December 31, 2012.

The allowance for loan losses balance decreased $88,000, or 2.0%, to $4.2 million at March 31, 2013 compared to $4.3 million at December 31, 2012 due to net charge-offs of $91,000, partially offset by a provision for loan losses of $3,000 during the first quarter of 2013. Net charge-offs of $69,000 had been specifically reserved for in prior periods. The allowance for loan losses to total loans ratio was 1.43% at March 31, 2013 compared to 1.35% at December 31, 2012.

43

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - continued

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

	March 31, 2013			December 31, 2012
	(Dollars in thousands)
Nonaccrual loans:
Real estate:
One-to four-family	$	1,957		$	1,831
Five or more family		—			—
Commercial		2,020			2,642
Construction		—			—
Land		2,953			2,985
Total real estate	$	6,930		$	7,458
Consumer and other loans:
Home equity		39			53
Commercial		17			—
Automobile and other		4			5
Total consumer and other loans		60			58
Total troubled debt restructured (1)		823			842
Total nonaccrual loans	$	7,813		$	8,358
Loans greater than 90 days delinquent and still accruing:
Real estate:
One-to four-family	$	—		$	—
Five or more family		—			—
Commercial		—			—
Construction		—			—
Land		—			—
Total real estate	$	—		$	—
Consumer and other loans:
Home equity		—			—
Commercial		—			—
Automobile and other		—			—
Total consumer and other loans	$	—		$	—
Total nonperforming loans	$	7,813		$	8,358
Foreclosed assets:
One-to four-family	$	253		$	133
Five or more family		—			—
Commercial		765			384
Construction		—			—
Land		302			385
Consumer		—			—
Total foreclosed assets	$	1,320		$	902
Total nonperforming assets	$	9,133		$	9,260
Ratios:
Nonperforming loans to total loans		2.64	%		2.63	%
Nonperforming assets to total assets		1.89	%		1.88	%

(1) At March 31, 2013, $ 126 of one—to four-family res identical loans, $ 631 commercial real estate loans , $ 29 commercial loans and $ 37 auto mo bile and other loans were classified as troubled debt re structured loans . At December 31, 2012, $ 127,000 of one—to four-family residential loans, $ 648,000 commercial real estate loans, $ 29,000 commercial loans and $ 38,000 auto mo bile and other loans were classified as troubled debt re structured loans.

44

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - continued

Total nonperforming loans were $7.8 million at March 31, 2013 down from $8.4 million at December 31, 2012. Total nonperforming loans to total loans ratio was 2.64% at March 31, 2013 compared to 2.63% at December 31, 2012 primarily due to the decrease in net loans of $22.2 million during the first quarter as nonperforming loans decreased $545,000 from December 31, 2012. The decrease in nonperforming loans was due to three relationships totaling $404,000 at December 31, 2012 moving to other real estate owned during the first quarter of 2013. A nonaccrual loan relationship in the entertainment and recreation business decreased by $301,000 as a result of payments being received from the bankruptcy courts during the first quarter of 2013. Three one- to four-family residential loans totaling $280,000 moved to nonaccrual status during the first quarter of 2013.

At March 31, 2013, nonaccrual loans to rental, real estate and land developers totaled $4.4 million, to accommodation and food services totaled $1.0 million, to construction businesses $279,000 and to all other commercial industry types totaled $122,000. One- to four-family residential loans on nonaccrual totaled $2.0 million at March 31, 2013. All other consumer loans on nonaccrual status totaled $80,000 at March 31, 2013.

Total nonperforming assets to total assets ratio increased to 1.89% at March 31, 2013 compared to 1.88% at December 31, 2012 primarily due to a decrease in total assets of $8.5 million during the first quarter as nonperforming assets decreased $127,000 from December 31, 2012. Other real estate owned increased $418,000, or 46.3%, to $1.3 million at March 31, 2013 compared to $902,000 at December 31, 2012. Three properties were transferred into other real estate owned during the first quarter of 2013 with a recorded fair value of $509,000. For the three months ended March 31, 2013, write-downs totaling $92,000 were recorded on other real estate owned properties. The current balance in other real estate owned includes the current market value of a property the Company acquired in its acquisition of City Savings Bank in 2007, which was held for future branch development. The current market value of this property was $230,000 at March 31, 2013. The Company anticipates listing this property for sale in the future but does not anticipate that to occur in the near term. Subsequent to March 31, 2013, two properties were sold resulting in a decrease of $662,000 in other real estate owned.

Goodwill and Other Intangible Assets: Our goodwill totaled $8.4 million at March 31, 2013 and December 31, 2012. Accounting standards require goodwill to be tested for impairment on an annual basis, or more frequently if circumstances indicate that an asset might be impaired. Impairment exists when a reporting unit’s carrying value of goodwill exceeds it fair value, which is determined through a two-step impairment test. Step 1 includes the determination of the carrying value of the reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, we are required to perform a second step to the impairment test. The most recent annual impairment review of the $8.4 million of goodwill previously recorded was performed in February 2013 as of October 31, 2012. Based on this evaluation completed in February 2013, management determined that the fair value of the reporting unit, which is defined as LaPorte Bancorp, Inc. as a whole, exceeded the book value of the goodwill, based on the opinion of an independent expert in valuations, such that the sales price per common share would exceed our book value per common share. Accordingly, no goodwill impairment was recognized in 2012.

Our stock price has increased from the previous analysis and earnings have continued to increase, therefore, management determined that an updated analysis from an independent third party as of the end of the first quarter of 2013 was not necessary. As our market price per common share is currently less than its tangible book value per common share, it is reasonably possible that management may conclude that goodwill, totaling $8.4 million at March 31, 2013, 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.

Deposits: Total deposits decreased $8.4 million, or 2.4%, to $340.5 million at March 31, 2013 compared to $349.0 million at December 31, 2012, primarily due to a decrease in certificate of deposit and IRA balances partially offset by increases in noninterest bearing demand deposit and savings accounts.

Certificates of deposit and IRA balances decreased $12.0 million, or 9.6%, to $112.8 million at March 31, 2013 compared to $124.8 million at December 31, 2012, primarily due to a decrease in brokered time deposits of $10.0 million, which matured and were not renewed during the first quarter of 2013. Non-brokered certificates of deposit and IRA time deposits decreased $2.0 million during the first quarter of 2013, due to the continued competitive and low interest rate environment. Although management believes the interest rates offered on certificates of deposit have remained competitive, we have positioned them at or below the average rates offered in the market due to the pricing on alternative sources of funding.

45

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - continued

Noninterest bearing demand deposits increased $2.5 million, or 4.9%, to $53.4 million at March 31, 2013 compared to $50.9 million at December 31, 2012. This increase was primarily due to the continued increase in balances of commercial deposit accounts as well as personal estate accounts during the first quarter of 2013. Savings accounts increased $2.3 million, or 4.0%, to $58.9 million at March 31, 2013 compared to $56.6 million at December 31, 2012.

Borrowed Funds:Total borrowed funds decreased $297,000, or 0.5%, to $53.9 million at March 31, 2013 compared to $54.2 million at December 31, 2012. FHLBI advances decreased $1.3 million primarily due to a decrease in short-term borrowings when comparing March 31, 2013 to December 31, 2012 which was offset by an increase in other borrowings of $1.0 million at March 31, 2013. The Company has been granted unsecured lines of credit at First Tennessee Bank in the amount of $15.0 million and at Zions Bank in the amount of $9.0 million. At March 31, 2013, the Company did not utilize the line of credit with First Tennessee Bank. At March 31, 2013, the Company borrowed $1.0 million from its line of credit with Zions Bank.

Total Shareholders’ Equity:Total shareholders’ equity increased $556,000, or 0.66%, to $84.6 million at March 31, 2013 compared to $84.1 million at December 31, 2012 due to an increase in retained earnings of $840,000 offset by a decrease in other comprehensive income of $399,000. The increase in retained earnings was primarily due to net income for the three months ended March 31, 2013 of $1.1 million which was offset in part by $248,000 in shareholder dividends paid during the first quarter. The decrease in other comprehensive income was primarily due to a decrease in the fair market value of securities of $804,000 ($530,000 net of tax effect) offset by an increase in the fair market value of interest rate swap derivatives of $198,000 ($131,000 net of tax effect).

Comparison of Operating Results for Three Month Periods Ended March 31, 2013 and March 31, 2012

Net Income:Net income increased $161,000, or 17.4%, to $1.1 million for the three months ended March 31, 2013 compared to $927,000 for the three months ended March 31, 2012. Return on average assets for the first quarter 2013 was 0.92% compared to 0.79% for the prior year period. The increase was primarily attributable to an increase in non-interest income of $317,000 as well as a decrease in the provision for loan losses of $225,000, partially offset by a decrease of $203,000 in net interest income.

Net Interest Income:Net interest income decreased $203,000, or 5.4%, to $3.6 million for the three months ended March 31, 2013 compared to $3.8 million for the same prior year period. Net interest margin also decreased to 3.27% compared to 3.53%, over the same time period. The decrease in net interest income was partially due to the recognition of adjustments of approximately $112,000 in interest income on loans during the first quarter of 2013. A purchased USDA commercial real estate loan with a remaining premium of approximately $70,000 paid off prior to maturity as well as a reduction of approximately $42,000 in interest income on adjustable rate mortgage loans acquired through the acquisition of City Savings Bank in which the interest rates were not properly adjusted. Excluding these adjustments, the net interest margin would have been 3.38% for the three month period ended March 31, 2013. Also substantially impacting the net interest margin was the increase in lower yielding short-term interest earning deposits attributable to the capital raised in the second step conversion which was not fully deployed at March 31, 2013. Downward pressure on interest rates on both loans and investments continues to impact net interest margin as well, however our average cost of interest bearing liabilities decreased 29 basis points during the same time period, partially offsetting the decrease in net interest margin.

Interest and Dividend Income:Interest and dividend income decreased $557,000, or 11.2%, to $4.4 million for the three months ended March 31, 2013 compared to $5.0 million for the prior year period, primarily attributable to a decrease in interest and fee income on loans of $532,000. The yield on interest-earning assets decreased 59 basis points to 4.08% over the same time period due to the low market interest rates. Average outstanding loan balances decreased $17.8 million, primarily due to decreases in one-to-four family residential, five or more family residential, and commercial real estate loans. Over the same time period, average outstanding balances on both taxable and non-taxable securities increased $4.1 million and $2.2 million respectively.

Interest and fee income on one-to-four family residential loans decreased $191,000, or 29.9%, for the three months ended March 31, 2013 compared to the same prior year period, primarily due to a decrease in the average outstanding balance of $8.1 million, as well as a decrease in the average yield. The average yield for the current quarter decreased 82 basis points, of which 45 basis points were attributable to the $42,000 adjustment to interest income on variable rate mortgages.

46

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - continued

Interest and fee income on commercial real estate loans decreased $146,000, or 12.7%, for the three months ended March 31, 2013 compared to the prior year period. The decrease was primarily attributable to the $70,000 write-off of the remaining premium on a purchased USDA loan which paid off prior to maturity, in addition to a decrease of 99 basis points in the average yield on the portfolio. An increase in competition, along with the decrease in overall interest rates has led to the decline in the average yield.

Interest and fee income on five or more family residential loans decreased $61,000, or 24.3%, primarily due to a decrease in average outstanding balances of $3.7 million. The decrease in average balance was attributable to a loan relationship that the Bank chose to exit and refinanced elsewhere.

Interest and fee income on mortgage warehouse loans remained relatively unchanged for the current quarter compared to the same prior year period, however volume has decreased from the previous quarter. Management anticipates refinance volume may continue to slow in the near future given the current interest rate environment and near term outlook. Management is working to add additional mortgage companies to assist in mitigating the impact to the overall volume in the future.

Interest and fee income from taxable securities decreased $41,000, or 8.2% to $462,000, for the three months ended March 31, 2013, attributable to a decrease in the average yield of 27 basis points. The average outstanding balance increased $4.1 million over the same time period; however the continued low interest rate environment continues to negatively impact the overall yield on the portfolio. Interest income from other interest-earning deposits increased to $25,000 for the first quarter of 2013, compared to $5,000 for the same prior year period, attributable to an increase in the average outstanding balance of $19.6 million. A majority of the capital raised through the second step conversion in October 2012 were placed into shorter term certificates of deposit and federal funds sold until they are fully deployed into higher earning loans or longer-term investments.

Interest Expense:Interest expense decreased $354,000, or 28.8%, to $874,000 for the three months ended March 31, 2013 compared to $1.2 million for the same prior year period, primarily attributable to a decrease in the average cost of interest bearing liabilities of 29 basis points. The average balance of interest bearing liabilities decreased $32.2 million, which also contributed to the decrease in interest expense.

Interest expense on certificates of deposit and IRA time deposits decreased $207,000, or 30.8%, to $464,000 for the three months ended March 31, 2013 compared to $671,000 for the same prior year period. The continued decrease in interest rates offered on new and renewing certificates of deposit and IRA time deposits compared to the rates on those maturing have contributed to a 27 basis point decrease in the average cost of those deposits. The average outstanding balance of certificates of deposit and IRA time deposits decreased $27.3 million due to the non-renewal of certain brokered time deposits. In addition, savings deposits and money market/NOW deposits combined average outstanding balances increased $21.7 million over the same time period, at a much lower average cost to the Company. Interest expense on money market accounts decreased $14,000, or 11.7%, due to a 12 basis point decrease in the average cost of such deposits.

Interest expense on FHLBI advances decreased $95,000, or 29.5%, to $227,000 for the three months ended March 31, 2013 compared to $322,000 for the same prior year period, primarily due to a decrease in the average outstanding balance of $24.0 million over the same time period as maturing long-term advances were paid off. Both decreased loan balances and the additional capital raised in the second step conversion contributed to our ability to pay off the advances instead of renewing them.

47

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - continued

The following table sets forth the average balance sheet, average annualized yield and cost and certain other information for the three months ended March 31, 2013 and March 31, 2012. 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 annualized yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	For the Three Months Ended March 31,
	2013							2012
	(Dollars in thousands)
	Average Outstanding Balance		Interest		Annualized Yield/Cost			Average Outstanding Balance		Interest		Annualized Yield/Cost
Loans	$	273,385	$	3,577		5.23	%	$	291,228	$	4,109		5.64	%
Taxable securities		93,381		462		1.98	%		89,283		503		2.25	%
Tax exempt securities		39,938		342		3.43	%		37,782		352		3.73	%
Federal Home Loan Bank of Indianapolis stock		3,817		34		3.56	%		3,817		28		2.93	%
Federal funds sold and other interest-earning deposits		25,118		25		0.40	%		5,477		5		0.37	%
Total interest earning assets		435,639		4,440		4.08	%		427,587		4,997		4.67	%
Non-interest earning assets		39,738							40,247
Total assets	$	475,377						$	467,834
Savings deposits	$	57,350		8		0.06	%	$	51,515		7		0.05	%
Money market and NOW accounts		116,765		106		0.36	%		100,857		120		0.48	%
CDs and IRAs		114,703		464		1.62	%		141,972		671		1.89	%
Total interest-bearing deposits		288,818		578		0.80	%		294,344		798		1.08	%
FHLB advances		40,495		227		2.24	%		64,501		322		2.00	%
Subordinated debentures		5,155		69		5.35	%		5,155		70		5.43	%
FDIC guaranteed unsecured borrowing		—		—		0.00	%		2,464		37		6.01	%
Short-term borrowings		33		—		0.00	%		259		1		1.54	%
Total interest-bearing liabilities		334,501		874		1.05	%		366,723		1,228		1.34	%
Non-interest bearing deposits		50,934							38,784
Other liabilities		5,699							6,017
Total liabilities		391,134							411,524
Shareholders’ equity		84,243							56,310
Total liabilities & shareholders’ equity	$	475,377						$	467,834
Net interest income			$	3,566						$	3,769
Net interest rate spread						3.03	%						3.34	%
Net interest margin						3.27	%						3.53	%

48

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - continued

Provision for Loan Losses:We recognize a provision for loan losses, which is charged to earnings, to increase the allowance for loan losses to 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 portfolio, adverse situations that may affect borrowers’ ability to repay, the estimated value of any underlying collateral 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 $3,000 provision for loan losses for the first quarter of 2013 compared to $228,000 for the prior year period. The primary reason for the decrease in the provision for loan losses was attributable to the decrease in the average outstanding loan balances of $17.8 million, in addition to a decrease in non-performing loans of $545,000 during the first quarter 2013 from the previous quarter ended December 31, 2012. Net charge-offs were $91,000 for the first quarter of 2013, of which $69,000 was specifically reserved for in prior periods.

Noninterest Income:Noninterest income increased $317,000, or 53.8%, to $906,000 for the three months ended March 31, 2013 compared to $589,000 for the same prior year period. Net gains on sales of securities increased $144,000 for the current quarter compared to the prior year period. Gains on mortgage banking activities increased $118,000 due to continued refinance activity over the same time period. The Bank is starting to experience a slight increase in purchase activity; however the majority of the originations continue to be from refinance activity. Losses on other assets decreased $59,000 for the three months ended March 31, 2013 compared to the same prior year period, due to a decrease in the amount of write-downs recorded on other real estate owned. Service charge income, ATM and debit card fees and all other income remained relatively unchanged over the same time period.

Noninterest Expense:Noninterest expense for the three months ended March 31, 2013 and 2012 remained consistent at $3.0 million. Salaries and wages remained relatively unchanged at 0.54% increase. Data processing expense increased $58,000, or 45.7%, primarily due to costs associated with changes to our general ledger accounting software to integrate both our real estate investment trust and investment subsidiaries. The nonrecurring costs associated with this change were approximately $28,000, which affected the first quarter 2013 when compared to the same prior year period. Also contributing to the increase in data processing are the costs associated with the mobile banking product and upgrades to the credit analyzing software, which were implemented late in 2012 and not reflected in the prior year period expense, which accounted for approximately $14,000 of the increase. Collection and other real estate related expenses increased $37,000, primarily attributable to the legal fees related to the workout and collection of troubled credits. Advertising expense increased $17,000, which was primarily attributable to the increase in fees associated with the printing and XBRL detail tagging of the Company’s public filings, when compared to the prior year period.

Other expenses remained relatively unchanged with an increase of $10,000, or 2.6%, however other miscellaneous services increased $28,000 compared to the prior year period, primarily attributable to consulting fees associated with strategic planning as well as recruitment fees. Attorney fees, as a part of other expenses, decreased $34,000 primarily due to a lower level of expenses incurred related to troubled loans during the three months ended March 31, 2013 when compared to the prior year period.

Partially offsetting these increases in noninterest expense was a decrease in occupancy expense of $58,000, or 6.8%, attributable to a decrease in real estate taxes of $28,000 as well as an increase in rent income on an OREO property of $22,000. This rent income helped to offset occupancy expenses, however this rent will not continue in future periods, as the property was subsequently sold after the quarter ended March 31, 2013.

Income Taxes:Income tax expense increased $87,000, or 35.2%, to $334,000 for the three months ended March 31, 2013 compared to $247,000 for the same prior year period, primarily due to an increase in income before taxes of $248,000, as well as an increase in the effective tax rate. The effective tax rate for the three months ended March 31, 2013 was 23.5% compared to 21.1% for the same prior year period. The effective tax rates fluctuate based on the ratio of total income before tax attributable to tax-exempt securities, income derived from the REIT subsidiary, and life insurance income, in addition to the amount of loan charge-offs during the year.

49

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - continued

Liquidity and Capital Resources

Maintenance of adequate liquidity requires that sufficient resources be available at all times to meet cash flow requirements of the Company. Liquidity in a banking institution is required primarily to provide for deposit withdrawals and the credit needs of customers and to take advantage of investment opportunities as they arise. A bank may achieve desired liquidity from both assets and liabilities. Cash and deposits held in other financial institutions, Federal funds sold, other short term investments in interest-earning time deposits in other financial institutions and securities available-for-sale, maturing loans and investments, payments of principal and interest on loans and investments, and potential loan sales are sources of asset liquidity. Deposit growth and access to credit lines established with correspondent banks, the Federal Home Loan Bank and market sources of funds are sources of liability liquidity. The Company reviews its liquidity position on a regular basis based upon its current position and expected trends of loans and deposits. The policy of the Board of Directors is to maintain sufficient capital at not less than the “well-capitalized” thresholds established by banking regulators. Management believes that the Company maintains adequate sources of liquidity to meet its liquidity needs.

The Company’s liquid assets, defined as cash and due from financial institutions interest earning time deposits in other financial institutions and the market value of unpledged securities available-for-sale, totaled $113.2 million at March 31, 2013 and constituted 23.4% of total assets at that date, compared to $97.4 million, or 19.8%, of total assets at December 31, 2012.

The Company also maintains lines of credit with the Federal Home Loan Bank. The total of these lines of credit were $74.3 million at March 31, 2013, of which $47.7 million in Federal Home Loan Bank advances were outstanding. The Company has additional securities and certain approved real estate loans available to pledge as collateral in order to increase our lines of credit with the Federal Home Loan Bank. At March 31, 2013, we had $100.6 million in unpledged securities available for sale. The Company actively utilizes its borrowing capacity with the Federal Home Loan Bank to manage liquidity and to provide a funding alternative to time deposits, if the Federal Home Loan Bank’s rates and terms are more favorable. The advances from the Federal Home Loan Bank can have maturities from overnight to multiple years. At March 31, 2013, $7.7 million of these advances were due within one year, and $40.0 million had maturities greater than a year.

The Company may also utilize the Federal Reserve discount window as a source of short-term funding. At March 31, 2013, the Company had no outstanding overnight borrowings with the Federal Reserve Bank discount window. The Company’s borrowing capacity at the Federal Reserve Bank discount window is based on the collateral value of pledged securities. During the second quarter of 2010, the Federal Reserve announced the discount window would return to its original intent of being a “lender of last resort”. The collateral value of securities pledged to the Federal Reserve discount window at March 31, 2013 totaled $6.8 million.

During the third quarter of 2012, the Company was extended an accommodation from First Tennessee Bank National Association to borrow federal funds up to the amount of $15.0 million. This federal funds accommodation is not and shall not be a confirmed line or loan, and First Tennessee Bank National Association may cancel such accommodation at any time, in whole or in part, without cause or notice, in its sole discretion. At March 31, 2013, the Company had no outstanding borrowings from First Tennessee Bank National Association.

Also during 2012, the Company signed a Federal Funds Line Agreement with Zions First National Bank to borrow federal funds up to the amount of $9.0 million. The credit limit amount is at the discretion of Zions First National Bank and may be modified at any time. At March 31, 2013, the Company’s borrowings from Zions First National Bank totaled $1.0 million.

Federal regulations establish guidelines for calculating “risk-adjusted” capital ratios and minimum ratio requirements. Under these regulations, banks are required to maintain a total risk-based capital ratio of 8.0% of risk-weighted assets and a Tier 1 risk-based capital ratio (primarily total shareholders’ equity less intangible assets) of at least 4.0% of risk-weighted assets. The Bank had total and Tier 1 risk-based capital ratios of 20.2% and 19.0%, respectively, at March 31, 2013, and was “well-capitalized” under the regulatory guidelines.

In addition, regulators have adopted a minimum leverage ratio standard for Tier 1 capital to average assets. The minimum ratio for top-rated institutions may be as low as 3%. However, regulatory agencies have stated that most institutions should maintain ratios at least 1 to 2 percentage points above the 3% minimum. As of March 31, 2013, the Bank’s leverage ratio was 14.1%. Capital levels for the Bank remain above the established regulatory capital requirements.

50

PART I – FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - continued

Impact of Inflation

The primary impact of inflation on the Bank is its effect on interest rates. The Bank’s primary source of income is net interest income, which is affected by changes in interest rates. The Bank attempts to limit the impact of inflation on its net interest margin through management of interest rate-sensitive assets and liabilities and analyses of interest rate sensitivity. The effect of inflation on premises and equipment as well as on noninterest expenses has not been significant for the periods presented.

51

PART I – FINANCIAL INFORMATION

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Proper management of the interest rate sensitivity and maturities of our assets and liabilities is required to protect and enhance our net interest margin and asset values, subject to market conditions. Interest rate sensitivity spread management is an important tool for achieving this objective and for developing ways in which to improve profitability.

The Company constantly monitors interest earning asset and deposit levels, developments and trends in interest rates, liquidity, capital adequacy and marketplace opportunities. Management responds to all of these to protect and possibly enhance net interest income while managing risks within acceptable levels as set forth in the Company’s policies. In addition, alternative business plans and transactions are contemplated for their potential impact. This process is known as asset/liability management and is carried out by changing the maturities and relative proportions of the various types of loans, investments, deposits and borrowings in the ways described above.

A commonly used tool to manage and analyze the interest rate sensitivity of a bank is a computer simulation model. To quantify the extent of risks in both the Company’s current position and in transactions it might make in the future, the Company uses a model to simulate the impact of different interest rate scenarios on net interest income. The hypothetical impact of a 12 month nonparallel ramp (generally, a nonparallel change in interest rates of +/- 3.00%) and smaller incremental interest rate changes are modeled at least quarterly, representing the primary means the Company uses for interest rate risk management decisions.

At March 31, 2013, given a +3.00% or –1.00% shock in interest rates, our model results in the Bank’s net interest income for the next twelve months changing by $1,166,000, or 7.63%, and $(478,000), or (3.13)%, respectively. The Bank’s Interest Rate Risk Management (“IRRM”) Policy sets limits for changes in net interest income given a +3.00% or -1.00% shock in interest rates of (15.00)% and (5.00)%, respectively.

The Company measures its economic value of equity at risk on a quarterly basis. Economic value of equity at risk measures the Company’s exposure to changes in its economic value of equity due to changes in a forecast interest rate environment. At March 31, 2013, given a +3.00% or -1.00% shock in interest rates, our model results in the Bank’s economic value of equity at risk for the next twelve months changing by (3.52)%, and (3.56)%, respectively. The Bank’s IRRM Policy sets limits for changes in the Bank’s economic value of equity at risk given a +3.00% or -1.00% shock in interest rates of (25.00)% and (15.00)%, respectively.

At March 31, 2013, the Bank was in compliance with its IRRM Policy limits regarding shocks in interest rates for changes in its net interest income and its economic value of equity.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in the economic portfolio value of equity and net interest margin 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 information above 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 this information 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 information does not take into account the changes in the credit risk of our assets which can occur in connection with changes in interest rates.

When preparing its modeling, the Company makes significant assumptions about the lag in the rate of change in various asset and liability categories. The Company bases its assumptions on past experience and comparisons with other banks, and tests the validity of its assumptions by reviewing actual results with projected expectations.

52

PART I – FINANCIAL INFORMATION

ITEM 4. 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 also 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 Company’s disclosure controls and procedures as of the end of the period covered by this report and found them to be effective.

The Company maintains internal control over financial reporting. There have not been any significant changes in such internal control over financial reporting in the last quarter that has materially affected, or is likely to materially affect, our internal control over financial reporting.

53

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of March 31, 2013, there are no material pending legal proceedings to which the Company or its subsidiaries is a party other than ordinary routine litigation incidental to their respective businesses.

ITEM 1A. RISK FACTORS

As of March 31, 2013, there were no material changes to the “Risk Factors” disclosed in the Company’s Annual Report for the year ended December 31, 2012 on Form 10-K filed on March 27, 2013. However, the risks described in our 2012 Annual Report on Form 10-K are not the only risks that we face. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Unregistered Sales of Equity Securities: Not applicable

(b) Use of Proceeds: Not applicable

(c) Repurchase of Our Equity Securities: Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit Number	Description
31.01	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.02	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.01	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (ii) the Consolidated Statements of Income for the three months ended March 31, 2013 and 2012, (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2013 and 2012, (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012, and (vi) the notes to the Consolidated Financial Statements.*

* This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of Section 18 of the Securities Exchange Act of 1934.

54

SIGNATURES

Pursuant to the requirements 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.
May 13, 2013	/s/ Lee A. Brady
Date	Lee A. Brady,
	Chief Executive Officer
May 13, 2013	/s/ Michele M. Thompson
Date	Michele M. Thompson,
	President and
	Chief Financial Officer

55