LaPorte Bancorp 10-Q 2014 Q2 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 June 30, 2014

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	(Commission	(I.R.S. Employer
Incorporation or Organization)	File Number)	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, 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 August 8, 2014: 5,753,945

TABLE OF CONTENTS

	Page Number
PART I – FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements – LaPorte Bancorp, Inc.
Consolidated Balance Sheets (Unaudited)	3
Consolidated Statements of Income (Unaudited)	4
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	5
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	6
Consolidated Statements of Cash Flows (Unaudited)	7
Condensed Notes to Consolidated Financial Statements (Unaudited)	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3. Quantitative and Qualitative Disclosures About Market Risk	48
Item 4. Controls and Procedures	50
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	50
Item 1A. Risk Factors	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3. Defaults Upon Senior Securities	50
Item 4. Mine Safety Disclosures	51
Item 5. Other Information	51
Item 6. Exhibits	51
Signatures	52

LAPORTE BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

	June 30, 2014			December 31, 2013
	(Dollars in thousands, except share data)
	(Unaudited)
ASSETS
Cash and due from financial institutions	$	14,690		$	18,219
Interest-earning time deposits in other financial institutions	7,126			6,642
Securities available-for-sale	159,728			164,272
Federal Home Loan Bank stock, at cost (restricted)	4,375			4,375
Loans held for sale, at fair value	3,836			1,118
Loans, net of allowance for loan losses of $3,761 at June 30, 2014 and $3,905 at December 31, 2013	307,325			293,285
Mortgage servicing rights	355			368
Other real estate owned	864			1,188
Premises and equipment, net	9,271			9,464
Goodwill	8,431			8,431
Other intangible assets	238			274
Bank owned life insurance	14,390			13,677
Accrued interest receivable and other assets	4,533			5,568
Total assets	$	535,162		$	526,881
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	52,911		$	51,017
Interest bearing	303,945			295,684
Total deposits	356,856			346,701
Federal Home Loan Bank advances	84,992			86,777
Subordinated debentures	5,155			5,155
Short-term borrowings	—			2,415
Accrued interest payable and other liabilities	5,628			5,584
Total liabilities	452,631			446,632
Commitments and contingencies
Shareholders’ equity
Preferred stock, no par value; 50,000,000 shares authorized; none issued	—			—
Common stock, $0.01 par value; 100,000,000 shares authorized at June 30, 2014 and December 31, 2013; 5,761,645 and 5,924,209 shares issued and outstanding at June 30, 2014 and December 31, 2013	58			59
Additional paid-in capital	42,864			44,495
Retained earnings	42,368			40,771
Accumulated other comprehensive income (loss), net of tax expense of $200 at June 30, 2014 and a tax benefit of $947 at December 31, 2013	389			(1,838		)
Unearned Employee Stock Ownership Plan (ESOP) shares	(3,148		)	(3,238		)
Total shareholders’ equity	82,531			80,249
Total liabilities and shareholders’ equity	$	535,162		$	526,881

See accompanying condensed notes to consolidated financial statements (unaudited).

3

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(Dollars in thousands, except per share data)
Interest and dividend income:
Loans, including fees	$	3,521		$	3,541		$	6,771		$	7,118
Taxable securities	510			468			1,048			930
Tax exempt securities	414			353			828			695
Federal Home Loan Bank stock	41			33			93			67
Other interest income	19			22			42			47
Total interest and dividend income	4,505			4,417			8,782			8,857
Interest expense:
Deposits	461			548			938			1,126
Federal Home Loan Bank advances	302			231			555			458
Subordinated debentures	45			70			110			139
Federal funds purchased and other short-term borrowings	2			1			2			1
Total interest expense	810			850			1,605			1,724
Net interest income	3,695			3,567			7,177			7,133
Provision for loan losses	—			103			—			106
Net interest income after provision for loan losses	3,695			3,464			7,177			7,027
Noninterest income:
Service charges on deposit accounts	107			109			211			208
ATM and debit card fees	114			113			214			211
Earnings on bank owned life insurance, net	109			103			213			196
Net gains on mortgage banking activities	235			203			354			543
Loan servicing fees, net	22			20			56			44
Net gains on the sale of securities	90			237			100			490
Losses on other assets	(48		)	(23		)	(84		)	(114		)
Other income	108			139			194			229
Total noninterest income	737			901			1,258			1,807
Noninterest expense:
Salaries and employee benefits	1,710			1,652			3,483			3,319
Occupancy and equipment	422			433			905			889
Data processing	133			131			283			316
Advertising	96			54			169			145
Bank examination fees	117			120			160			201
Amortization of intangible assets	18			23			36			47
FDIC insurance	77			71			160			154
Collection and other real estate owned	74			51			127			116
Other expenses	334			326			763			721
Total noninterest expense	2,981			2,861			6,086			5,908
Income before income taxes	1,451			1,504			2,349			2,926
Income tax expense	237			355			285			689
Net income	$	1,214		$	1,149		$	2,064		$	2,237
Earnings per share (Note 3):
Basic	$	0.23		$	0.20		$	0.38		$	0.39
Diluted	0.22			0.20			0.37			0.38

See accompanying condensed notes to consolidated financial statements (unaudited).

4

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(Dollars in thousands)
Net income	$	1,214		$	1,149		$	2,064		$	2,237
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	1,641			(4,245		)	3,140			(4,796		)
Reclassification adjustment for net gains included in net income	(90		)	(237		)	(100		)	(490		)
Gross unrealized gains (losses)	1,551			(4,482		)	3,040			(5,286		)
Related income tax (expense) benefit	(527		)	1,523			(1,034		)	1,797
Net unrealized gains (losses)	1,024			(2,959		)	2,006			(3,489		)
Unrealized gains on cash flow hedges:
Gross unrealized gains	151			283			334			481
Related income tax expense	(52		)	(96		)	(113		)	(163		)
Net unrealized gains	99			187			221			318
Total other comprehensive income (loss)	1,123			(2,772		)	2,227			(3,171		)
Comprehensive income (loss)	$	2,337		$	(1,623	)	$	4,291		$	(934	)

See accompanying condensed notes to consolidated financial statements (unaudited).

5

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Tax			Unearned ESOP Shares			Total
	(Dollars in thousands, except per share data)
Balance at January 1, 2013	$	62		$	47,302		$	37,745		$	2,364		$	(3,418	)	$	84,055
Net income	—			—			2,237			—			—			2,237
Other comprehensive loss	—			—			—			(3,171		)	—			(3,171		)
Cash dividends on common stock ($0.08 per share)	—			—			(496		)	—			—			(496		)
ESOP shares earned, 11,242 shares	—			20			—			—			90			110
Stock based compensation expense	—			120			—			—			—			120
Balance at June 30, 2013	$	62		$	47,442		$	39,486		$	(807	)	$	(3,328	)	$	82,855
Balance at January 1, 2014	$	59		$	44,495		$	40,771		$	(1,838	)	$	(3,238	)	$	80,249
Net income	—			—			2,064			—			—			2,064
Other comprehensive income	—			—			—			2,227			—			2,227
Cash dividends on common stock ($0.08 per share)	—			—			(467		)	—			—			(467		)
Repurchase of common stock	(1		)	(1,801		)	—			—			—			(1,802		)
ESOP shares earned, 11,242 shares	—			32			—			—			90			122
Stock activity under stock compensation plans (2,236 shares)	—			14			—			—			—			14
Stock based compensation expense	—			124			—			—			—			124
Balance at June 30, 2014	$	58		$	42,864		$	42,368		$	389		$	(3,148	)	$	82,531

See accompanying condensed notes to consolidated financial statements (unaudited).

6

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2014			2013
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	2,064		$	2,237
Adjustments to reconcile net income to net cash from operating activities:
Depreciation	278			285
Provision for loan losses	—			106
Net gains on securities available-for-sale	(100		)	(490		)
Net amortization on securities available-for-sale	509			541
Net gains on sales of loans	(341		)	(468		)
Originations of loans held for sale	(7,581		)	(18,887		)
Proceeds from sales of loans held for sale	5,204			18,503
Recognition of mortgage servicing rights	(13		)	(75		)
Amortization of mortgage servicing rights	31			77
Net change in loan servicing rights valuation allowance	(5		)	(36		)
Net losses on sales of other real estate owned	8			7
Write downs of other real estate owned and assets held for sale	122			109
Earnings on bank owned life insurance, net	(213		)	(196		)
Amortization of intangible assets	36			47
ESOP compensation expense	122			110
Stock based compensation expense	124			120
Change in assets and liabilities:
Accrued interest receivable and other assets	(112		)	478
Accrued interest payable and other liabilities	378			(45		)
Net cash provided by operating activities	511			2,423
Cash flows from investing activities:
Net changes in interest-earning time deposits at other financial institutions	(484		)	(490		)
Proceeds from sales of securities available-for-sale	11,111			16,769
Proceeds from maturities, calls, and principal repayments of securities available-for-sale	8,977			7,792
Purchases of securities available-for-sale	(12,913		)	(57,016		)
Net change in loans	(14,104		)	42,307
Proceeds from sales of other real estate owned	288			719
Purchase of bank owned life insurance	(500		)	(2,000		)
Premises and equipment expenditures, net	(115		)	(299		)
Net cash (utilized for) provided by investing activities	(7,740		)	7,782
Cash flows from financing activities:
Net change in deposits	10,155			(5,822		)
Proceeds from FHLB long-term advances	15,000			15,000
Repayment of FHLB long-term advances	—			(4,998		)
Net change in FHLB short-term advances	(16,785		)	(8,988		)
Net change in short-term borrowings	(2,415		)	—
Stock options exercised	14			—
Dividends paid on common stock	(467		)	(496		)
Repurchase of common stock	(1,802		)	—
Net cash provided by (utilized for) financing activities	3,700			(5,304		)
Net (decrease) increase in cash and cash equivalents	(3,529		)	4,901
Cash and cash equivalents at beginning of period	18,219			6,857
Cash and cash equivalents at end of period	$	14,690		$	11,758

(continued)

7

LAPORTE BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

	Six Months Ended June 30,
	2014		2013
	(Dollars in thousands)
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	1,607	$	1,733
Income taxes	200		500
Supplemental noncash disclosures:
Transfers from loans receivable to other real estate owned	$	64	$	1,363

See accompanying condensed notes to consolidated financial statements (unaudited).

8

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND CONSOLIDATION

The unaudited consolidated financial statements included herein include the accounts of LaPorte Bancorp, Inc., a Maryland corporation (the “Bancorp”), its wholly owned subsidiaries, LSB Risk Management LLC, 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”. The Bancorp was formed in June 2012. LSB Risk Management LLC was formed on December 27, 2013 as a captive insurance company. 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 to invest in assets secured by residential or commercial real estate properties originated by the Bank. Intercompany transactions and balances are eliminated in consolidation.

The unaudited consolidated financial statements included herein have been prepared by management in accordance with U.S. generally accepted accounting principles for interim financial statements and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”). 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 SEC. Accordingly, the interim consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements included in the Form 10-K Annual Report of the Company for the fiscal year ended December 31, 2013. The results for the three and six month periods ended June 30, 2014 may not indicate the results to be expected for any other interim period or for the full year ending December 31, 2014.

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

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-04 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure.” This ASU clarifies when an in-substance repossession or foreclosure occurs and states that a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed-in-lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The new requirements are effective for public companies for interim and annual periods beginning after December 15, 2014. Adopting this standard is not expected to have a significant impact on the Company’s financial condition or results of operation.

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606).” This ASU clarifies that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this Update recognized at the date of initial application. Adopting this standard is not expected to have a significant impact on the Company’s financial condition or results of operation.

9

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In June 2014, the FASB issued ASU No. 2014-11 “Transfers and Servicing (Topic 860) - Repurchase to Maturity Transactions, Repurchase Financings, and Disclosures.” This ASU aligns the accounting for repurchase to maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. ASU 2014-11 is effective for the first interim or annual period beginning after December 15, 2014. In addition the disclosure of certain transactions accounted for as a sale is effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Adopting this standard is not expected to have a significant impact on the Company’s financial condition or results of operation.

In June 2014, the FASB issued ASU No. 2014-12 “Compensation - Stock Compensation (Topic 718) - Accounting for Share Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for interim and annual periods beginning after December 15, 2015. The amendments can be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented and to all new or modified awards thereafter. Adopting this standard is not expected to have a significant impact on the Company’s financial condition or results of operation.

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.

The factors used in the earnings per common share computation follow:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(Dollars in thousands, except per share data)
Basic:
Net income	$	1,214		$	1,149		$	2,064		$	2,237
Weighted average common shares outstanding	5,789,895			6,205,250			5,837,718			6,205,250
Less: Average unallocated ESOP shares	(396,313		)	(418,800		)	(399,124		)	(421,610		)
Average shares	5,393,582			5,786,450			5,438,594			5,783,640
Basic earnings per common share	$	0.23		$	0.20		$	0.38		$	0.39
Diluted:
Net income	$	1,214		$	1,149		$	2,064		$	2,237
Weighted average common shares outstanding for basic earnings per common share	5,393,582			5,786,450			5,438,594			5,783,640
Add: Diluted effects of assumed exercises of stock options	82,209			66,633			81,067			59,419
Average shares and dilutive potential common shares	5,475,791			5,853,083			5,519,661			5,843,059
Diluted earnings per common share	$	0.22		$	0.20		$	0.37		$	0.38

10

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4 – SECURITIES AVAILABLE-FOR-SALE

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

	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
U.S. federal agency obligations	$	6,953	$	33	$	(82	)	$	6,904
State and municipal	54,880		2,535		(169		)	57,246
Mortgage-backed securities – residential	28,224		211		(110		)	28,325
Government agency sponsored collateralized mortgage obligations	65,113		394		(1,376		)	64,131
Corporate debt securities	3,122		23		(23		)	3,122
Total	$	158,292	$	3,196	$	(1,760	)	$	159,728

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
U.S. federal agency obligations	$	6,249	$	43	$	(142	)	$	6,150
State and municipal	54,892		1,505		(674		)	55,723
Mortgage-backed securities – residential	28,197		107		(366		)	27,938
Government agency sponsored collateralized mortgage obligations	74,417		274		(2,380		)	72,311
Corporate debt securities	2,121		29		—			2,150
Total	$	165,876	$	1,958	$	(3,562	)	$	164,272

At June 30, 2014 and December 31, 2013, 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.

11

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Securities with unrealized losses at June 30, 2014 and December 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

	June 30, 2014
	Continuing Unrealized Loss For Less Than 12 Months					Continuing Unrealized Loss For 12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(Dollars in thousands)
U.S. federal agency obligations	$	300	$	(1	)	$	2,918	$	(81	)	$	3,218	$	(82	)
State and municipal	2,030		(4		)	9,144		(165		)	11,174		(169		)
Mortgage-backed securities – residential	996		(4		)	8,238		(106		)	9,234		(110		)
Government agency sponsored collateralized mortgage obligations	8,397		(146		)	32,998		(1,230		)	41,395		(1,376		)
Corporate debt securities	977		(23		)	—		—			977		(23		)
Total temporarily impaired	$	12,700	$	(178	)	$	53,298	$	(1,582	)	$	65,998	$	(1,760	)

	December 31, 2013
	Continuing Unrealized Loss For Less Than 12 Months					Continuing Unrealized Loss For 12 Months or More						Total
	Fair Value		Unrealized Loss			Fair Value			Unrealized Loss			Fair Value		Unrealized Loss
	(Dollars in thousands)
U.S. federal agency obligations	$	2,858	$	(142	)	$	—		$	—		$	2,858	$	(142	)
State and municipal	17,352		(558		)	1,524			(116		)	18,876		(674		)
Mortgage-backed securities – residential	22,432		(366		)	—			—			22,432		(366		)
Government agency sponsored collateralized mortgage obligations	46,555		(2,023		)	6,708			(357		)	53,263		(2,380		)
Total temporarily impaired	$	89,197	$	(3,089	)	$	8,232	��	$	(473	)	$	97,429	$	(3,562	)

At June 30, 2014, the Company held 86 investments in debt securities totaling $66.0 million, or 41.3% of its total debt securities, in an unrealized loss position, of which 16 were in an unrealized loss position for less than twelve months and 70 were in an unrealized loss position for more than twelve months. At December 31, 2013, the Company held 122 investments in debt securities totaling $97.4 million, or 59.3% of its total debt securities, in an unrealized loss position, of which 110 were in an unrealized loss position for less than twelve months and 12 were in an unrealized loss position for more 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. The unrealized losses on the Company’s investments in U.S. federal agency obligations, mortgage-backed securities, and agency collateralized mortgage obligations were a result of changes in interest rates and not a result of a decline in credit quality. 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. The unrealized losses on the Company’s investment in state and municipal securities were also caused by changes in interest rates. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company does not intend to sell the securities and is not more likely than not to be required to sell them before their anticipated recovery.

12

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Sales of securities available-for-sale for the three and six months ended June 30, 2014 and 2013 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(Dollars in thousands)
Proceeds	$	10,431	$	11,509	$	11,111	$	16,769
Gross gains	90		237		100		490
Gross losses	—		—		—		—

The amortized cost and fair value of debt securities at June 30, 2014 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.

	June 30, 2014
	Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	2,004	$	2,017
Due from more than one to five years	13,735		14,001
Due from more than five to ten years	35,565		36,613
Due after ten years	13,651		14,641
Subtotal	64,955		67,272
Mortgage-backed securities and government agency sponsored collateralized mortgage obligations	93,337		92,456
Total	$	158,292	$	159,728

Securities pledged at June 30, 2014 and December 31, 2013 had a carrying amount of approximately $50.9 million and $57.7 million, respectively, and were pledged to secure Federal Home Loan Bank (“FHLB”) advances, short-term borrowings through the Federal Reserve Discount Window, and cash flow hedges.

13

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – LOANS

Loans at June 30, 2014 and December 31, 2013 were as follows:

	June 30, 2014			December 31, 2013
	(Dollars in thousands)
Commercial	$	124,650		$	128,922
Mortgage	36,867			35,438
Mortgage warehouse	132,163			115,443
Residential construction	1,058			792
Home equity	11,611			11,397
Consumer and other	4,484			4,920
Subtotal	310,833			296,912
Less: Net deferred loan costs	253			278
Allowance for loan losses	(3,761		)	(3,905		)
Loans, net	$	307,325		$	293,285

As of June 30, 2014 and 2013, the Bank’s mortgage warehouse division had repurchase agreements with 25 and 14 mortgage companies, respectively. The following table identifies the activity and related interest and fee income attributable to the mortgage warehouse division for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(Dollars in thousands)
Mortgage Warehouse:
Originations	$	516,097	$	603,542	$	930,693	$	1,208,222
Sold Loans	501,886		615,672		913,848		1,238,013
Interest income	1,141		1,124		2,035		2,287
Warehouse fees	162		177		287		370
Wire transfer fees	51		66		92		133

14

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – ALLOWANCE FOR LOAN LOSSES

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2014 and 2013:

	Three Months Ended June 30, 2014
	Commercial			Mortgage			Mortgage Warehouse			Residential Construction		Home Equity			Consumer and Other			Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Beginning balance	$	2,633		$	535		$	520		$	1	$	106		$	73		$	—	$	3,868
Charge-offs	—			(107		)	—			—		—			(7		)	—		(114		)
Recoveries	—			—			—			—		5			2			—		7
Provision	(131		)	79			61			1		(4		)	(6		)	—		—
Ending balance	$	2,502		$	507		$	581		$	2	$	107		$	62		$	—	$	3,761
	Three Months Ended June 30, 2013
	Commercial			Mortgage			Mortgage Warehouse			Residential Construction		Home Equity			Consumer and Other			Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Beginning balance	$	3,122		$	359		$	530		$	2	$	122		$	85		$	—	$	4,220
Charge-offs	(37		)	(49		)	—			—		—			(3		)	—		(89		)
Recoveries	—			—			—			—		—			3			—		3
Provision	76			90			(60		)	—		(3		)	—			—		103
Ending balance	$	3,161		$	400		$	470		$	2	$	119		$	85		$	—	$	4,237

15

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2014 and 2013.

	Six Months Ended June 30, 2014
	Commercial			Mortgage			Mortgage Warehouse			Residential Construction		Home Equity			Consumer and Other			Unallocated			Total
	(Dollars in thousands)
Allowance for loan losses:
Beginning balance	$	2,725		$	458		$	508		$	—	$	111		$	83		$	20		$	3,905
Charge-offs	—			(144		)	—			—		—			(14		)	—			(158		)
Recoveries	—			—			—			—		5			9			—			14
Provision	(223		)	193			73			2		(9		)	(16		)	(20		)	—
Ending balance	$	2,502		$	507		$	581		$	2	$	107		$	62		$	—		$	3,761
	Six Months Ended June 30, 2013
	Commercial			Mortgage			Mortgage Warehouse			Residential Construction		Home Equity			Consumer and Other			Unallocated			Total
	(Dollars in thousands)
Allowance for loan losses:
Beginning balance	$	3,131		$	401		$	601		$	2	$	130		$	43		$	—		$	4,308
Charge-offs	(103		)	(68		)	—			—		(22		)	(10		)	—			(203		)
Recoveries	—			19			—			—		—			7			—			26
Provision	133			48			(131		)	—		11			45			—			106
Ending balance	$	3,161		$	400		$	470		$	2	$	119		$	85		$	—		$	4,237

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2014:

	June 30, 2014
	Commercial		Mortgage		Mortgage Warehouse		Residential Construction		Home Equity		Consumer and Other		Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	831	$	45	$	—	$	—	$	28	$	—	$	—	$	904
Collectively evaluated for impairment	1,671		462		581		2		79		62		—		2,857
Acquired with deteriorated credit quality	—		—		—		—		—		—		—		—
Total ending allowance	$	2,502	$	507	$	581	$	2	$	107	$	62	$	—	$	3,761
Loans:
Individually evaluated for impairment	$	10,045	$	1,932	$	—	$	43	$	38	$	—	$	—	$	12,058
Collectively evaluated for impairment	113,968		34,816		132,163		1,015		11,573		4,484		—		298,019
Acquired with deteriorated credit quality	637		119		—		—		—		—		—		756
Total ending loan balance	$	124,650	$	36,867	$	132,163	$	1,058	$	11,611	$	4,484	$	—	$	310,833

16

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2013:

	December 31, 2013
	Commercial		Mortgage		Mortgage Warehouse		Residential Construction		Home Equity		Consumer and Other		Unallocated		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	792	$	135	$	—	$	—	$	32	$	—	$	—	$	959
Collectively evaluated for impairment	1,933		323		508		—		79		83		20		2,946
Acquired with deteriorated credit quality	—		—		—		—		—		—		—		—
Total ending allowance	$	2,725	$	458	$	508	$	—	$	111	$	83	$	20	$	3,905
Loans:
Individually evaluated for impairment	$	9,930	$	1,472	$	—	$	—	$	43	$	—	$	—	$	11,445
Collectively evaluated for impairment	118,324		33,842		115,443		792		11,354		4,920		—		284,675
Acquired with deteriorated credit quality	668		124		—		—		—		—		—		792
Total ending loan balance	$	128,922	$	35,438	$	115,443	$	792	$	11,397	$	4,920	$	—	$	296,912

The following table presents information related to impaired loans by class of loans as of June 30, 2014:

	June 30, 2014
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(Dollars in thousands)
With no related allowance recorded:
Commercial:
Real estate	$	2,773	$	2,773	$	—
Five or more family	3,728		3,728		—
Land	212		199		—
Mortgage	1,781		1,706		—
Residential construction
Land	43		43		—
Home equity	11		10		—
Subtotal	8,548		8,459		—
With an allowance recorded:
Commercial:
Real estate	839		806		317
Land	2,749		2,539		514
Mortgage	296		226		45
Home equity	28		28		28
Subtotal	3,912		3,599		904
Total	$	12,460	$	12,058	$	904

17

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents information related to impaired loans by class of loans as of December 31, 2013:

	December 31, 2013
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(Dollars in thousands)
With no related allowance recorded:
Commercial:
Real estate	$	2,832	$	2,832	$	—
Five or more family	3,508		3,508		—
Land	201		200		—
Mortgage	769		770		—
Home equity	11		11		—
Subtotal	7,321		7,321		—
With an allowance recorded:
Commercial:
Real estate	843		843		275
Land	2,547		2,547		517
Mortgage	702		702		135
Home equity	32		32		32
Subtotal	4,124		4,124		959
Total	$	11,445	$	11,445	$	959

The following table presents loans individually evaluated for impairment by class of loans for the three months ended June 30, 2014 and 2013:

	Three Months Ended June 30,
	2014				2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial:
Real estate	$	2,788	$	41	$	678	$	2
Five or more family	3,738		61		—		—
Land	200		—		204		—
Mortgage	1,682		2		1,187		—
Residential construction:
Land	43		—		—		—
Home equity	11		—		12		—
Subtotal	8,462		104		2,081		2
With an allowance recorded:
Commercial:
Real estate	812		—		1,389		—
Land	2,550		—		2,724		—
Mortgage	260		—		869		—
Home equity	28		—		27		—
Subtotal	3,650		—		5,009		—
Total	$	12,112	$	104	$	7,090	$	2

18

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents loans individually evaluated for impairment by class of loans for the six months ended June 30, 2014 and 2013:

	Six Months Ended June 30,
	2014				2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
With no related allowance recorded:
Commercial:
Real estate	$	2,500	$	80	$	1,297	$	4
Five or more family	3,625		110		—		—
Land	200		—		209		—
Mortgage	1,457		8		1,223		—
Residential construction:
Land	22		—		—		—
Home equity	11		—		25		—
Subtotal	7,815		198		2,754		4
With an allowance recorded:
Commercial:
Real estate	813		—		1,106		—
Land	2,562		—		2,740		—
Mortgage	218		—		809		—
Home equity	28		—		13		—
Subtotal	3,621		—		4,668		—
Total	$	11,436	$	198	$	7,422	$	4

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of June 30, 2014 and December 31, 2013:

	Nonaccrual				Loans Past Due Over 90 Days Still Accruing
	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	27	$	27	$	—	$	—
Real estate	859		897		—		—
Land	2,738		2,748		—		—
Mortgage	1,656		1,190		—		—
Residential construction:
Land	43		—		—		—
Home equity	38		43		—		—
Consumer and other	2		3		—		—
Total	$	5,363	$	4,908	$	—	$	—

19

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the aging of the recorded investment in past due loans as of June 30, 2014 by class of loans:

	June 30, 2014
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	—	$	—	$	27	$	27	$	18,177	$	18,204
Real estate	—		384		859		1,243		77,471		78,714
Five or more family	—		—		—		—		18,049		18,049
Construction	—		—		—		—		1,852		1,852
Land	—		—		2,324		2,324		5,507		7,831
Mortgage	—		228		1,488		1,716		35,151		36,867
Mortgage warehouse	—		—		—		—		132,163		132,163
Residential construction:
Construction	—		—		43		43		731		774
Land	—		—		—		—		284		284
Home equity	60		—		38		98		11,513		11,611
Consumer and other	—		—		2		2		4,482		4,484
Total	$	60	$	612	$	4,781	$	5,453	$	305,380	$	310,833

The following table presents the aging of the recorded investment in past due loans as of December 31, 2013 by class of loans:

	December 31, 2013
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	2	$	—	$	—	$	2	$	17,638	$	17,640
Real estate	2,377		—		874		3,251		80,531		83,782
Five or more family	76		—		—		76		15,326		15,402
Construction	—		—		—		—		3,949		3,949
Land	—		—		2,317		2,317		5,832		8,149
Mortgage	640		7		1,161		1,808		33,630		35,438
Mortgage warehouse	—		—		—		—		115,443		115,443
Residential construction:
Construction	—		—		—		—		503		503
Land	—		—		—		—		289		289
Home equity	4		—		12		16		11,381		11,397
Consumer and other	176		—		3		179		4,741		4,920
Total	$	3,275	$	7	$	4,367	$	7,649	$	289,263	$	296,912

20

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Troubled Debt Restructurings

A loan modification is considered a troubled debt restructuring (“TDR”) 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. The following table presents the Company’s TDRs as of the dates indicated:

	June 30, 2014		December 31, 2013
	(Dollars in thousands)
TDRs:
Performing in accordance with modified repayment terms	5,731		$	1,917
Nonperforming	224		$	227
	$	5,955	$	2,144
Specific reserve	$	—	$	61

TDRs previously disclosed resulted in no charge-offs during the three and six months ended June 30, 2014 and 2013. The Company has not committed to lend additional amounts as of June 30, 2014 and December 31, 2013 to customers with outstanding TDR loans.

The following tables present loans by class modified as TDRs that occurred during the three and six months ended June 30, 2014 and 2013.

	Three Months Ended June 30,
	2014					2013
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Commercial:
Real Estate	1	$	1,880	$	1,880	—	$	—	$	—
Total	1	$	1,880	$	1,880	—	$	—	$	—

	Six Months Ended June 30,
	2014					2013
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Commercial:
Real Estate	2	$	2,799	$	2,799	—	$	—	$	—
Five or more family	1	3,507		3,750		—	—		—
Total	3	$	6,306	$	6,549	—	$	—	$	—

There were no TDRs that defaulted within twelve months following the modification during the three and six months ended June 30, 2014 and 2013.

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.

21

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Credit Quality Indicators

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. The Bank monitors credit quality on loans not rated through the loan’s individual payment performance. As of June 30, 2014, the most recent analysis performed, the risk category of loans by class was as follows:

	June 30, 2014
	Not Rated		Pass		Special Mention		Substandard		Doubtful
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	88	$	17,857	$	245	$	14	$	—
Real estate	101		67,954		5,526		5,110		23
Five or more family	182		14,139		—		3,728		—
Construction	—		1,852		—		—		—
Land	—		4,989		104		2,738		—
Mortgage	31,642		2,987		130		2,108		—
Mortgage warehouse	132,163		—		—		—		—
Residential construction:
Construction	774		—		—		—		—
Land	241		—		—		43		—
Home equity	11,375		119		76		41		—
Consumer and other	3,826		658		—		—		—
Total	$	180,392	$	110,555	$	6,081	$	13,782	$	23

22

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of December 31, 2013, the risk category of loans by class of loans was as follows:

	December 31, 2013
	Not Rated		Pass		Special Mention		Substandard		Doubtful
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	83	$	17,159	$	380	$	18	$	—
Real estate	—		71,943		6,705		5,111		23
Five or more family	188		11,706		—		3,508		—
Construction	—		3,949		—		—		—
Land	—		5,296		106		2,747		—
Mortgage	29,977		3,323		471		1,667		—
Mortgage warehouse	115,443		—		—		—		—
Residential construction:
Construction	503		—		—		—		—
Land	289		—		—		—		—
Home equity	11,116		133		101		47		—
Consumer and other	3,985		703		232		—		—
Total	$	161,584	$	114,212	$	7,995	$	13,098	$	23

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:

	June 30, 2014		December 31, 2013
	(Dollars in thousands)
Commercial:
Commercial and industrial	$	27	$	27
Real estate	639		670
Mortgage	119		123
Outstanding balance	$	785	$	820
Carrying amount, net of allowance of $0	$	756	$	791

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(Dollars in thousands)
Beginning balance	$	59		$	114		$	73		$	128
Reclassification from non-accretable yield	—			1			—			2
Accretion of income	(14		)	(15		)	(28		)	(30		)
Ending balance	$	45		$	100		$	45		$	100

For the purchased loans disclosed above, the Company did not increase the allowance for loan losses during 2014 or 2013. No allowance for loan losses was reversed during 2014 or 2013.

23

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 – 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 values 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, less estimated costs to sell. 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 foreclosures are initially recorded at fair value less cost to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals performed by qualified independent third-party appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including cost, comparable sales, and the income approach. The cost approach is based on the cost to replace the existing property. The comparable sales approach evaluates the sales prices of comparable properties within the same market area. The income approach considers net operating income generated by the property and the rate of return required by an investor. Adjustments are routinely made in the appraisal process by the independent third-party appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

The President and 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

24

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 June 30, 2014.

	June 30, 2014
	Valuation Methodology	Unobservable Inputs	Range of Inputs	Average of Inputs
Impaired loans:
Commercial:
Real estate	Appraisals	Discounts for changes in market conditions	20-65%	29%
Land	Appraisals	Discounts for changes in market conditions	10-20%	15%
Mortgage	Appraisals	Discounts for changes in market conditions	0-20%	10%
Other real estate owned, net:
Commercial:
Real estate	Appraisals	Discounts for changes in market conditions	16-100%	48%
Land	Appraisals	Discounts for changes in market conditions	32-40%	36%
Mortgage	Appraisals	Discounts for changes in market conditions	18-40%	29%

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

	December 31, 2013
	Valuation Methodology	Unobservable Inputs	Range of Inputs	Average of Inputs
Impaired loans:
Commercial:
Real estate	Appraisals	Discounts for changes in market conditions	10-65%	21%
Land	Appraisals	Discounts for changes in market conditions	0-10%	8%
Mortgage	Appraisals	Discounts for changes in market conditions	0-20%	10%
Other real estate owned, net:
Commercial:
Real estate	Appraisals	Discounts for changes in market conditions	6-100%	39%
Land	Appraisals	Discounts for changes in market conditions	25-26%	26%
Mortgage	Appraisals	Discounts for changes in market conditions	19-45%	26%

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Mortgage Servicing Rights: On a quarterly basis, loan servicing rights are evaluated for impairment based on the fair value of the rights as compared to the carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level, based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2).

Fair value at June 30, 2014 was determined using a discount rate of 10.0%; prepayment speeds ranging from 7.6% to 23.1%, depending on the stratification of the specific right; and a weighted average default rate of approximately 0.5%. Fair value at December 31, 2013 was determined using a discount rate of 10.0%; prepayment speeds ranging from 6.5% to 23.0%, 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 in the following tables:

				June 30, 2014
	Carrying Value			Quoted Prices in Active Markets  for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Financial Assets:
Investment securities available-for-sale:
U.S. federal agency obligations	$	6,904		$	—	$	6,904		$	—
State and municipal	57,246			—		57,246			—
Mortgage-backed securities-residential	28,325			—		28,325			—
Government agency sponsored collateralized mortgage obligations	64,131			—		64,131			—
Corporate debt securities	3,122			—		3,122			—
Total investment securities available-for-sale	$	159,728		$	—	$	159,728		$	—
Loans held for sale	$	3,836		$	—	$	3,836		$	—
Derivatives – residential mortgage loan commitments	$	85		$	—	$	85		$	—
Financial Liabilities:
Derivatives – interest rate swaps	$	(847	)	$	—	$	(847	)	$	—

26

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

				December 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)
	(Dollars in thousands)
Financial Assets:
Investment securities available-for-sale:
U.S. federal agency obligations	$	6,150		$	—	$	6,150		$	—
State and municipal	55,723			—		55,723			—
Mortgage-backed securities-residential	27,938			—		27,938			—
Government agency sponsored collateralized mortgage obligations	72,311			—		72,311			—
Corporate debt securities	2,150			—		2,150			—
Total investment securities available-for-sale	$	164,272		$	—	$	164,272		$	—
Loans held for sale	$	1,118		$	—	$	1,118		$	—
Derivatives – residential mortgage loan commitments	$	45		$	—	$	45		$	—
Financial Liabilities:
Derivatives – interest rate swaps	$	(1,181	)	$	—	$	(1,181	)	$	—

There were no transfers between Level 1, Level 2, and Level 3 during the periods indicated above.

Loans held for sale were carried at the fair value of $3.8 million which was made up of the outstanding balance of $3.7 million and an unrealized gain of $108,000 at June 30, 2014. At December 31, 2013, loans held for sale were carried at the fair value of $1.1 million, which was made up of the outstanding balance of $1.1 million and an unrealized gain of $30,000.

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

	June 30, 2014
	Aggregate Fair Value		Difference		Contractual Principal
	(Dollars in thousands)
Loans held for sale	$	3,836	$	108	$	3,728
	December 31, 2013
	Aggregate Fair Value		Difference		Contractual Principal
	(Dollars in thousands)
Loans held for sale	$	1,118	$	30	$	1,088

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

27

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets carried at fair value for the three and six months ended June 30, 2014 and 2013:

	Three Months Ended June 30,					Six Months Ended June 30,
	2014		2013			2014		2013
	(Dollars in thousands)
Assets:
Loans held for sale
Other gains (losses)	$	81	$	(13	)	$	78	$	18
Interest income	9		3			13		9
Interest expense	—		—			—		—
Total changes in fair values included in current period earnings	$	90	$	(10	)	$	91	$	27

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

			June 30, 2014
	Carrying Value		Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Impaired loans:
Commercial:
Real estate	$	489	$	—	$	—	$	489
Land	2,025		—		—		2,025
Mortgage	181		—		—		181
Other real estate owned, net:
Commercial:
Real estate	522		—		—		522
Land	187		—		—		187
Mortgage	109		—		—		109
Residential construction - land	46		—		—		46
Mortgage servicing rights	178		—		178		—

28

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

			December 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)
	(Dollars in thousands)
Impaired loans:
Commercial:
Real estate	$	568	$	—	$	—	$	568
Land	2,030		—		—		2,030
Mortgage	567		—		—		567
Other real estate owned, net:
Commercial:
Real estate	646		—		—		646
Land	205		—		—		205
Mortgage	91		—		—		91
Residential construction - land	56		—		—		56
Mortgage servicing rights	190		—		190		—

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a gross carrying amount of $3.6 million, with a valuation allowance of $904,000 at June 30, 2014, resulting in a reversal of provision for loan losses of $7,000 for the three months ended June 30, 2014 and an additional provision for loan losses of $88,000 for the six months ended June 30, 2014. At June 30, 2013, impaired loans had a carrying amount of $5.0 million, with a valuation allowance of $1.7 million, resulting in an additional provision for loan losses of $310,000 and $474,000 for the three and six months ended June 30, 2013, respectively.

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 $864,000 at June 30, 2014, which resulted in write-downs of $19,000 and $92,000 for the three and six months ended June 30, 2014, respectively. At June 30, 2013, other real estate owned had a net carrying amount of $511,000, which resulted in write-downs of $18,000 and $109,000 for the three and six months ended June 30, 2013, respectively.

Mortgage servicing rights, which are carried at lower of cost or fair value, were carried at their fair value of $178,000 at June 30, 2014, which was made up of the outstanding balance of $279,000, net of a valuation allowance of $101,000, resulting in a charge of $1,000 for the three months ended June 30, 2014 and a reversal of $5,000 for the six months ended June 30, 2014. At June 30, 2013, mortgage servicing rights were carried at their fair value of $206,000, which was made up of the outstanding balance of $328,000, net of a valuation allowance of $122,000, resulting in reversals of $16,000 and $36,000, respectively, for the three and six months ended June 30, 2013.

29

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The carrying amounts and estimated fair values of financial instruments at June 30, 2014 are as follows:

				June 30, 2014
	Carrying Value			Quoted Prices in Active  Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Financial assets:
Cash and due from financial institutions	$	14,690		$	14,690	$	—		$	—
Interest-earning time deposits at other financial institutions	7,126			—		7,142			—
Securities available-for-sale	159,728			—		159,728			—
Federal Home Loan Bank stock	4,375			N/A		N/A			N/A
Loans held for sale	3,836			—		3,836			—
Loans, net	307,325			—		—			310,285
Accrued interest receivable	1,571			—		911			660
Financial liabilities:
Deposits	(356,856		)	—		(357,262		)	—
Federal Home Loan Bank advances	(84,992		)	—		(86,227		)	—
Subordinated debentures	(5,155		)	—		—			(5,147		)
Accrued interest payable	(175		)	—		(172		)	(3		)
Derivatives – interest rate swaps	(847		)	—		(847		)	—

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

				December 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)
	(Dollars in thousands)
Financial assets:
Cash and due from financial institutions	$	18,219		$	18,219	$	—		$	—
Interest-earning time deposits at other financial institutions	6,642			—		6,671			—
Securities available-for-sale	164,272			—		164,272			—
Federal Home Loan Bank stock	4,375			N/A		N/A			N/A
Loans held for sale	1,118			—		1,118			—
Loans, net	293,285			—		—			296,575
Accrued interest receivable	1,612			—		962			650
Financial liabilities:
Deposits	(346,701		)	—		(347,625		)	—
Federal Home Loan Bank advances	(86,777		)	—		(88,077		)	—
Subordinated debentures	(5,155		)	—		—			(5,152		)
Short-term borrowings	(2,415		)	—		(2,415		)	—
Accrued interest payable	(177		)	—		(174		)	(3		)
Derivatives – interest rate swaps	(1,181		)	—		(1,181		)	—

30

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 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.

Loans: The fair values of loans are 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.

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. Thismethod 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 method 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 as 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 8 – 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 $25.3 million and $30.3 million as of June 30, 2014 and December 31, 2013, respectively, 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.

31

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Information related to the interest-rate swaps designated as cash flow hedges as of June 30, 2014 and December 31, 2013 were as follows:

	June 30, 2014			December 31, 2013
	(Dollars in thousands)
Subordinated debentures:
Notional amount	$	—		$	5,000
Unrealized losses	—			(26		)
Fixed interest rate payable	—		%	5.54		%
Variable interest rate receivable (Three month LIBOR plus 3.10%)	—			3.35
Maturity date	March 26, 2014
CDARS deposits:
Notional amount	$	10,250		$	10,250
Unrealized losses	(71		)	(192		)
Fixed interest rate payable	3.19		%	3.19		%
Variable interest rate receivable (One month LIBOR plus 0.55%)	0.70			0.71
Maturity date	October 9, 2014
FHLB advance:
Notional amount	$	5,000		$	5,000
Unrealized losses	(186		)	(253		)
Fixed interest rate payable	3.54		%	3.54		%
Variable interest rate receivable (Three month LIBOR plus 0.22%)	0.45			0.46
Maturity date	September 20, 2015
FHLB advance:
Notional amount	$	10,000		$	10,000
Unrealized losses	(590		)	(710		)
Fixed interest rate payable	3.69		%	3.69		%
Variable interest rate receivable (Three month LIBOR plus 0.25%)	0.48			0.49
Maturity date	July 19, 2016

Interest expense is reported as a component of interest expense on subordinated debentures, deposits, and FHLB advances as appropriate. Interest expense recorded on these swap transactions totaled $190,000 and $207,000 during the three months ended June 30, 2014 and 2013, respectively. Interest expense recorded on these swap transactions totaled $397,000 and $411,000 for the six months ended June 30, 2014 and 2013, respectively.

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 periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(Dollars in thousands)
Interest rate contracts:
Net amount of gain (loss):
Recognized in OCI (Effective Portion)	$	99	$	187	$	221	$	318
Reclassified from OCI to interest income	—		—		—		—
Recognized in other non-interest income (Ineffective Portion)	—		—		—		—

32

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table reflects the cash flow hedges included in the Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013:

	June 30, 2014						December 31, 2013
	Notional Amount			Fair Value			Notional Amount			Fair Value
	(Dollars in thousands)
Included in other liabilities:
Interest rate swaps related to:
Subordinated debentures	$	—		$	—		$	(5,000	)	$	(26	)
CDARS deposits	(10,250		)	(71		)	(10,250		)	(192		)
FHLB advances	(15,000		)	(776		)	(15,000		)	(963		)
Total included in other liabilities				$	(847	)				$	(1,181	)

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 The Bank of New York.

At June 30, 2014 and December 31, 2013, the Company had securities with a fair value of $2.0 million and $2.6 million, respectively, posted as collateral for these derivatives. At December 31, 2013, the Company also had $220,000 in cash posted as collateral for the derivatives related to the subordinated debenure which matured March 26, 2014.

NOTE 9 – STOCK-BASED COMPENSATION

During the month of September 2011, the Company implemented the 2011 Equity Incentive Plan (the “2011 Plan”) which was approved by shareholders on May 10, 2011. The 2011 Plan provides for the issuance of stock options or restricted share awards to employees and directors. Total shares authorized for issuance under the 2011 Plan were 417,544.

On May 13, 2014, the Company’s shareholders approved the 2014 Equity Incentive Plan (the “2014 Plan”) which provides for the issuance of stock options or restricted share awards to employees and directors. The total shares authorized for issuance under the 2014 Plan are 473,845 shares of the Company’s common stock plus, at the date the 2014 Plan was approved, there were 14,471 shares of stock that were rolled over from the terminated 2011 Plan and added to the shares available for awards under the 2014 Plan. In addition, any stock awards that had been granted under the 2011 Plan and subsequently forfeited are also included for issuance under the 2014 Plan. The Company has not granted any awards under the 2014 Plan as of June 30, 2014.

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. 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. Total compensation cost that has been charged against income for the 2011 Plan totaled $62,000 and $59,000 for the three months ended June 30, 2014 and 2013, respectively. Total compensation cost that has been charged against income for the 2011 Plan totaled $124,000 and $120,000 for the six months ended June 30, 2014 and 2013, respectively.

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. Option awards have vesting periods of 5 years and 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 the assumptions noted in the table below. Expected volatilities are based on historical volatilities of companies within the Company’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

33

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

A summary of the activity in the stock option plan for the six months ended June 30, 2014 was as follows:

	Six Months Ended June 30, 2014
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(Dollars in thousands, except per share data)
Outstanding at January 1, 2014	271,194		$	6.55	7.8 years	$	1,239
Granted	—		—
Exercised	(2,236	)	6.44
Forfeited or expired	—		—
Outstanding at June 30, 2014	268,958		6.55		7.3 years	1,196
Exercisable at end of period	96,334		6.44		7.3 years	439

During the six months ended June 30, 2014, 2,236 options were exercised which had an intrinsic value of $10,000. The Company received $14,000 in cash and realized $5,000 in tax benefits related to the exercise of these options. The weighted average fair value of options granted was $2.16.

As of June 30, 2014, there was $213,000 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 2.4 years.

Restricted Share Awards

The Plan provides for the issuance of up to 119,298 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 5 years.

A summary of changes in the Company’s nonvested shares for the six months ended June 30, 2014 was as follows:

	Six Months Ended June 30, 2014
	Shares	Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2014	72,146	$	6.54
Granted	—	—
Vested	—	—
Forfeited	—	—
Nonvested at June 30, 2014	72,146	$	6.54

As of June 30, 2014, there was $350,000 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 2.3 years. As of June 30, 2014, there were 46,764 shares vested. The total fair value of shares vested at June 30, 2014 was $514,000.

34

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

A summary of the changes in accumulated other comprehensive income (loss) by component for the three months ended June 30, 2014 and 2013 is as follows:

	Three Months Ended June 30,
	2014									2013
	Gains (Losses) on Cash Flow Hedges			Unrealized  Gains (Losses) on Available- for-Sale Securities			Total			Gains (Losses) on Cash Flow Hedges			Unrealized  Gains (Losses) on Available- for-Sale Securities			Total
	(Dollars in thousands)
Beginning balance	$	(657	)	$	(77	)	$	(734	)	$	(1,178	)	$	3,143		$	1,965
Other comprehensive income (loss) before reclassification	99			1,083			1,182			187			(2,803		)	(2,616		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			(59		)	(59		)	—			(156		)	(156		)
Net current period other comprehensive income (loss)	99			1,024			1,123			187			(2,959		)	(2,772		)
Ending balance	$	(558	)	$	947		$	389		$	(991	)	$	184		$	(807	)

A summary of the reclassifications out of accumulated other comprehensive income (loss) for the three months ended June 30, 2014 and 2013 is as follows:

	Three Months Ended June 30,
	2014			2013
Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
	(Dollars in thousands)
Unrealized gains and losses on available-for-sale securities:
Net gains on securities	$	90		$	237
Total before tax	90			237
Income tax expense	(31		)	(81		)
Net of tax	$	59		$	156

A summary of the changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2014 and 2013 is as follows:

	Six Months Ended June 30,
	2014									2013
	Gains (Losses) on Cash Flow Hedges			Unrealized  Gains (Losses) on Available- for-Sale Securities			Total			Gains (Losses) on Cash Flow Hedges			Unrealized  Gains (Losses) on Available- for-Sale Securities			Total
	(Dollars in thousands)
Beginning balance	$	(779	)	$	(1,059	)	$	(1,838	)	$	(1,309	)	$	3,673		$	2,364
Other comprehensive income (loss) before reclassification	221			2,072			2,293			318			(3,166		)	(2,848		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			(66		)	(66		)	—			(323		)	(323		)
Net current period other comprehensive income (loss)	221			2,006			2,227			318			(3,489		)	(3,171		)
Ending balance	$	(558	)	$	947		$	389		$	(991	)	$	184		$	(807	)

35

LAPORTE BANCORP, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of the reclassifications out of accumulated other comprehensive income (loss) for the six months ended June 30, 2014 is as follows:

	Six Months Ended June 30,
	2014			2013
Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
	(Dollars in thousands)
Unrealized gains and losses on available-for-sale securities:
Net gains on securities	$	100		$	490
Total before tax	100			490
Income tax expense	(34		)	(167		)
Net of tax	$	66		$	323

NOTE 11 – OFFSETTING FINANCIAL ASSETS AND LIABILITIES

The following tables summarize gross and net information about financial instruments and derivative instruments that are offset in the Company’s statement of Consolidated Balance Sheets or that are subject to an enforceable master netting arrangement at June 30, 2014 and December 31, 2013.

	June 30, 2014
	Gross Amounts of Recognized Liabilities		Gross  Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheet
							Financial Instruments			Cash  Collateral Pledged		Net Amount
	(Dollars in thousands)
Description:
Derivatives	$	847	$	—	$	847	$	(2,008	)	$	—	$	(1,161	)
Repurchase agreements	342		—		342		(342		)	—		—
Total	$	1,189	$	—	$	1,189	$	(2,350	)	$	—	$	(1,161	)

	December 31, 2013
	Gross Amounts of Recognized Liabilities		Gross  Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheet
							Financial Instruments			Cash  Collateral Pledged			Net Amount
	(Dollars in thousands)
Description:
Derivatives	$	1,181	$	—	$	1,181	$	(2,150	)	$	(220	)	$	(1,189	)
Repurchase agreements	710		—		710		(710		)	—			—
Total	$	1,891	$	—	$	1,891	$	(2,860	)	$	(220	)	$	(1,189	)

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 obligations owing in respect of any other transactions.

36

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 LaPorte Bancorp, Inc. (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, 2013. 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;

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

• our ability to manage the impact of changes in interest rates, spreads on interest earning assets and interest-bearing liabilities, and interest rate sensitivity;

• rising interest rates and their impact on mortgage loan volumes;

• 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 new capital rules which will take effect on January 1, 2015;

• implementation of the “qualified mortgage” rule;

• 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; 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.

37

Comparison of Financial Condition at June 30, 2014 and December 31, 2013

General: Total assets at June 30, 2014 increased $8.3 million, or 1.6%, to $535.2 million compared to $526.9 million at December 31, 2013 primarily due to a $13.9 million, or 4.7%, increase in gross loans to $311.1 million from $297.2 million at December 31, 2013. Total deposits at June 30, 2014 increased $10.2 million, or 2.9%, to $356.9 million from $346.7 million at December 31, 2013 primarily due to increases of $10.0 million in money market accounts and $2.5 million in savings accounts. Borrowings totaled $90.1 million at June 30, 2014, down 4.5% from $94.3 million at December 31, 2013 primarily due to a decrease in short-term overnight borrowings as the increase in deposits was utilized to fund the increase in mortgage warehouse loan balances at June 30, 2014. Total shareholders’ equity increased $2.3 million, or 2.8%, to $82.5 million at June 30, 2014, compared to $80.2 million at December 31, 2013 primarily due to net income totaling $2.1 million for the six months ended June 30, 2014 combined with a $2.2 million increase in accumulated other comprehensive income as unrealized securities gains increased at June 30, 2014. These increases were partially offset by a $1.8 million decrease in shareholders’ equity related to the Company repurchasing 164,800 shares of its common stock in accordance with its previously announced repurchase plans and cash dividends paid totaling $467,000 during the six months ended June 30, 2014.

Investment Securities: Total securities available-for-sale decreased $4.5 million, or 2.8%, to $159.7 million at June 30, 2014 from $164.3 million at December 31, 2013 as a number of securities were sold to reduce the volatility within the securities portfolio in a rising rate environment, as well as, to provide additional liquidity to fund the increases in gross loan balances.

At June 30, 2014, management reviewed the securities portfolio for possible other-than-temporary impairment and determined there were no impairment charges to be recorded. The net unrealized gains on the available-for-sale securities portfolio totaled $1.4 million at June 30, 2014, an increase of $3.0 million from net unrealized losses totaling $1.6 million at December 31, 2013.

Loans Held for Sale: Loans held for sale increased $2.7 million, or 243.1%, to $3.8 million at June 30, 2014 compared to $1.1 million at December 31, 2013 primarily due to the timing of when residential mortgage loans were originated and subsequently sold to the secondary market combined with an increase in purchase activity during the second quarter of 2014.

Net Loans: Net loans increased by $14.0 million, or 4.8%, to $307.3 million at June 30, 2014 compared to $293.3 million at December 31, 2013 primarily due to a $16.7 million, or 14.5%, increase in mortgage warehouse lending to $132.2 million at June 30, 2014 compared to $115.4 million at December 31, 2013. This increase was primarily attributable to an increase in purchase activity at the end of March 2014 that continued through the second quarter of 2014. The higher mortgage warehouse loan balances were also a result of new utilization as management diversified and added new warehouse lenders in 2014 in different geographical markets nationwide.

Commercial loans decreased by $4.3 million, or 3.3%, to $124.7 million at June 30, 2014 compared to $128.9 million at December 31, 2013. Although the commercial loan segment realized new loan originations totaling $7.2 million since December 31, 2013, including $3.2 million in five or more family, $1.6 million in commercial real estate, $1.2 million in commercial and industrial loans, and $1.0 million in commercial construction loans, total commercial loans decreased during the six months ended June 30, 2014. Commercial real estate and commercial construction loans decreased $5.1 million and $2.1 million, respectively. The decrease in commercial real estate loans was primarily due to three loan relationships totaling $3.1 million at December 31, 2013 which were paid off prior to their stated maturities, in addition to normal repayments on the remainder of the portfolio. Commercial construction loans decreased $2.1 million due to one loan relationship totaling $1.3 million being paid off and two relationships totaling $1.9 million moving to permanent financing during the first six months of 2014. Partially offsetting these decreases was an increase in five or more family loans of $2.6 million. One existing five or more family lending relationship increased their total borrowings with us by $3.1 million during the first six months of 2014, offset by one relationship totaling $932,000 being paid off prior to its stated maturity.

Mortgage loans increased $1.4 million, or 4.0%, to $36.9 million at June 30, 2014 from $35.4 million at December 31, 2013. The increase in mortgage loans was due to an increase in the percentage of loans retained in the portfolio as opposed to being sold into the secondary market. The Company has elected to only retain adjustable-rate or fixed-rate loans with a maximum term of 15 years.

The allowance for loan losses balance decreased $144,000, or 3.7%, to $3.8 million at June 30, 2014 compared to $3.9 million at December 31, 2013. The allowance for loan losses to nonperforming loans ratio decreased to 70.1% at June 30, 2014 compared to 79.6% at December 31, 2013 primarily due to a decrease in the allowance for loan losses combined with an increase in nonperforming loans. Net charge-offs for the first six months of 2014 totaled $144,000 compared to $177,000 for the first six months of 2013. The Company did not record a provision for loan losses during the six months ended June 30, 2014, as compared

38

to the provision recorded during the prior year period of $106,000. The Company’s analysis for the allowance for loan losses for the second quarter of 2014 reflected continued improvement in several asset quality metrics and trends, including classified assets, charge-off ratios, delinquencies, and current economic conditions. The allowance for loan losses to total loans ratio decreased to 1.21% at June 30, 2014 compared to 1.31% at December 31, 2013, primarily due to the increase in gross loans of $13.9 million during the six months ended June 30, 2014.

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

	June 30, 2014			December 31, 2013
	(Dollars in thousands)
Nonaccrual loans:
Commercial:
Real estate	$	806		$	843
Land	2,738			2,748
Total commercial	3,544			3,591
Mortgage	1,512			1,044
Residential construction:
Land	43			—
Total residential construction	43			—
Home equity	38			43
Consumer and other	2			3
Nonaccruing troubled debt restructured loans (1)	224			227
Total nonaccrual loans	5,363			4,908
Foreclosed assets:
Commercial:
Real estate	522			646
Land	187			205
Total commercial	709			851
Mortgage	109			281
Residential construction:
Land	46			56
Total residential construction	46			56
Total foreclosed assets	864			1,188
Total nonperforming assets	$	6,227		$	6,096
Ratios:
Nonperforming loans to total loans	1.72		%	1.65		%
Nonperforming assets to total assets	1.16			1.16

(1) At June 30, 2014, $144,000 of mortgage loans, $53,000 of commercial real estate loans, and $27,000 of commercial and industrial loans were classified as troubled debt restructured loans. At December 31, 2013, $146,000 of mortgage loans, $54,000 of commercial real estate loans, and $27,000 of commercial loans were classified as troubled debt restructured loans.

Total nonperforming loans were $5.4 million at June 30, 2014 compared to $4.9 million at December 31, 2013 primarily due to an increase in nonperforming mortgage loans. At June 30, 2014, our nonperforming loans to total loans ratio was 1.72% compared to 1.65% at December 31, 2013. The increase in nonperforming mortgage loans resulted from six loans being transferred to nonaccrual status during the first six months of 2014 totaling $614,000 which were partially offset by two mortgage loans being transferred to other real estate owned during the same period.

39

Total nonperforming assets were $6.2 million at June 30, 2014 compared to $6.1 million at December 31, 2013. Our nonperforming assets to total assets ratio was stable at 1.16% at June 30, 2014 and December 31, 2013 with the $455,000 increase in nonperforming loans offset by a $324,000 decrease in other real estate owned. During the first six months of 2014, two residential properties were transferred into other real estate owned with a recorded fair value of $64,000 at the date of transfer and five properties were sold resulting in proceeds of $289,000. Write-downs totaling $92,000 were recorded during the six months ended June 30, 2014 on other real estate owned properties.

Subsequent to June 30, 2014, we received a $980,000 partial paydown on a $3.1 million nonperforming commercial real estate and commercial land relationship and anticipate a further decrease over the third quarter of 2014 as we continue to exit this relationship.

Goodwill and Other Intangible Assets: Our goodwill totaled $8.4 million at June 30, 2014 and December 31, 2013. 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 its 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 our goodwill previously recorded was performed in February 2014 as of October 31, 2013. Based on this evaluation, 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 during the first six months of 2014.

Our stock price has increased from the previous analysis and the Company continues to be profitable, therefore, management determined that an updated analysis from an independent third party as of the end of the second quarter of 2014 was not necessary. As our market price per common share is currently less than our tangible book value per common share, it is reasonably possible that management may conclude that goodwill 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 increased $10.2 million, or 2.9%, to $356.9 million at June 30, 2014 compared to $346.7 million at December 31, 2013 primarily due to increases in money market and savings deposits which were offset by decreases in certificates of deposit and IRA balances.

Money market deposits increased $10.0 million, or 15.8%, to $72.9 million at June 30, 2014 compared to $62.9 million at December 31, 2013, primarily due to increases totaling $9.0 million in two public fund accounts during the six months ended June 30, 2014. Savings deposits increased $2.5 million, or 4.1%, to $63.6 million at June 30, 2014 compared to $61.1 million at December 31, 2013. Non-interest bearing and interest bearing demand deposits increased $1.9 million, or 3.7%, and $1.6 million, or 2.9%, respectively, at June 30, 2014 when compared to December 31, 2013.

Certificates of deposit and IRA balances decreased $5.8 million, or 4.9%, to $112.0 million at June 30, 2014 compared to $117.8 million at December 31, 2013 due to a decrease in customer time deposits of $4.4 million and a decrease in brokered deposits of $1.4 million. Although management believes the interest rates offered on certificates of deposit have remained competitive, we have positioned our non-brokered deposits at or below the average rates offered in the market due to the pricing on alternative sources of funding.

Borrowed Funds: Total borrowed funds decreased $4.2 million, or 4.5%, to $90.1 million at June 30, 2014 compared to $94.3 million at December 31, 2013 due to a decrease of $2.4 million in overnight borrowings and a decrease of $1.8 million in Federal Home Loan Bank of Indianapolis (“FHLBI”) advances. Borrowed funds decreased primarily due to the $10.2 million increase in total deposits. The Bank has unsecured lines of credit at First Tennessee Bank totaling $15.0 million and Zions Bank totaling $9.0 million. During the six months ended June 30, 2014, the Company utilized both the First Tennessee Bank and Zions Bank lines with average balances totaling $90,000 and $829,000, respectively, at an average cost of 101 basis points and 39 basis points, respectively. The maximum amount borrowed on the First Tennessee Bank line and the Zions Bank line during the six months ended June 30, 2014 was $4.2 million and $9.0 million, respectively.

40

Total Shareholders’ Equity: Total shareholders’ equity increased $2.3 million, or 2.8%, to $82.5 million at June 30, 2014 compared to $80.2 million at December 31, 2013 primarily due to net income of $2.1 million and a $2.2 million increase in accumulated other comprehensive income as unrealized securities gains increased during the six months ended June 30, 2014. These increases were partially offset by dividends declared totaling $467,000 and repurchases of 164,800 shares of the Company’s common stock totaling $1.8 million in accordance with its repurchase plans during the six months ended June 30, 2014. During January 2014, the Company repurchased the final 14,800 shares authorized under its first repurchase plan announced in October 2013. During the six months ended June 30, 2014, the Company repurchased all 150,000 shares under its second plan announced in January 2014. During June 2014, at the completion of the second plan, the Board of Directors announced a third repurchase plan for up to 145,000 shares.

Comparison of Operating Results for Three Month Periods Ended June 30, 2014 and June 30, 2013

Net Income: Net income totaled $1.2 million, or $0.22 per diluted share, for the three months ended June 30, 2014 compared to $1.1 million, or $0.20 per diluted share, for the three months ended June 30, 2013. The increase in net income was primarily due to an increase in net interest income of $128,000, a decrease in provision for loan losses of $103,000, and a decrease in income tax expense of $118,000, which were partially offset by a decrease in noninterest income of $164,000 and an increase in noninterest expense of $120,000.

Net Interest Income: Net interest income increased $128,000, or 3.6%, to $3.7 million for the three months ended June 30, 2014 compared to $3.6 million for the same prior year period. The increase in net interest income was attributable to an $88,000, or 2.0%, increase in interest income on interest-earning assets and a $40,000, or 4.7%, decrease in interest expense on interest-bearing liabilities. Net interest margin decreased to 3.13% for the three months ended June 30, 2014 compared to 3.25% for the same prior year period. The decrease in the net interest margin was primarily due to a decrease in interest and fee income on loans which was partially offset by increases in interest and dividend income on investment securities and FHLB stock and decreases in interest expense on deposits.

Interest and Dividend Income: Interest income increased $88,000, or 2.0%, to $4.5 million for the three months ended June 30, 2014 compared to $4.4 million for the prior year period. During the second quarter of 2014, interest income on investment securities increased $103,000 primarily due to a 15.5% increase in the average outstanding balances, which was partially offset by a six basis point decrease in the average yield on these investments. Interest income on loans decreased $20,000 compared to the prior year period primarily due to a 30 basis point decrease in average yields earned on loans due to current lower market interest rates and lower fees earned on commercial, mortgage warehouse, and consumer loans during the second quarter of 2014. This decrease was partially offset by a 5.5%, or $14.9 million, increase in the average balance of loans outstanding from the prior year period.

Interest and fee income on mortgage warehouse loans were relatively stable at $1.3 million for the three months ended June 30, 2014 when compared to the prior year period. The average balance of mortgage warehouse loans increased $10.1 million, or 10.1%, for the three months ended June 30, 2014 when compared to the prior year period due to an increase in purchase activity combined with an increase in the number of mortgage warehouse lenders during the current quarter. Partially offsetting the increase in average balances was a 47 basis point decrease in the average yield earned on such loans during the second quarter of 2014 from the 2013 period due to lower current market interest rates as a result of greater competition for mortgage warehouse loans.

Interest and fee income on commercial real estate loans was also relatively stable at $1.2 million for the three months ended June 30, 2014 when compared to the prior year period. The average balance of these loans increased $4.3 million, or 5.7%, during the second quarter of 2014 from the 2013 period due to new loan originations since June 30, 2013. Partially offsetting the increase in average balances was a 31 basis point decrease in the average yield earned on these loans during the second quarter of 2014 from the 2013 period due to lower current market interest rates on new and renewed loans.

Interest and fee income on commercial construction loans increased $56,000, or 294.7%, for the three months ended June 30, 2014 compared to the same prior year period, primarily due to late fees received on a commercial construction loan relationship that was paid off during the second quarter of 2014.

Interest and fee income on commercial and industrial loans decreased $22,000, or 10.9%, for the three months ended June 30, 2014 compared to the same prior year period which was primarily related to a 43 basis point decrease in the average yield earned on these loans as loans were renewing at lower market interest rates than the prior year period.

Interest income from taxable securities increased $42,000, or 9.0%, for the three months ended June 30, 2014 compared to the same prior year period. The $13.1 million, or 12.6%, increase in the average outstanding balance during the 2014 period

41

compared to the prior year period provided the increase in interest income, however the new investments and the cash flow derived from the existing portfolio were reinvested at lower interest rates resulting in a decrease in the average yield on these securities of six basis points for the 2014 time period.

Interest income from tax exempt securities increased $61,000, or 17.3%, for the three months ended June 30, 2014 compared to the same prior year period due to an increase in the average outstanding balance of $9.8 million, or 22.7%, and was partially offset by a decrease in the average yield of 15 basis points as tax exempt securities purchases have been at lower interest rates since the first quarter of 2013.

The following table sets forth the average balance sheet, average annualized yield and cost, and certain other information for the three months ended June 30, 2014 and 2013. All average balances are daily average balances. 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.

	Three Months Ended June 30,
	2014						2013
	Average Outstanding Balance		Interest		Annualized Yield/Cost		Average Outstanding Balance		Interest		Annualized Yield/Cost
	(Dollars in thousands)
Assets:
Loans (1)	$	283,957	$	3,521	4.96	%	$	269,061	$	3,541	5.26	%
Taxable securities	117,273		510		1.74		104,191		468		1.80
Tax exempt securities (2)	52,678		414		3.14		42,925		353		3.29
Federal Home Loan Bank of Indianapolis stock	4,375		41		3.75		3,817		33		3.46
Federal funds sold and other interest-earning deposits	13,719		19		0.55		19,201		22		0.46
Total interest earning assets	472,002		4,505		3.82		439,195		4,417		4.02
Non-interest earning assets	44,210						41,335
Total assets	$	516,212					$	480,530
Liabilities and equity:
Savings deposits	$	64,536	9		0.06	%	$	58,658	8		0.05	%
Money market accounts	67,706		63		0.37		61,755		62		0.40
Interest-bearing checking	54,219		30		0.22		53,719		36		0.27
CDs and IRAs	106,352		359		1.35		114,239		442		1.55
Total interest-bearing deposits	292,813		461		0.63		288,371		548		0.76
FHLB advances	77,784		302		1.55		46,240		231		2.00
Subordinated debentures	5,155		45		3.49		5,155		70		5.43
Short-term borrowings	1,395		2		0.57		520		1		0.77
Total borrowings	84,334		349		1.66		51,915		302		2.33
Total interest-bearing liabilities	377,147		810		0.86		340,286		850		1.00
Non-interest bearing deposits	52,368						49,972
Other liabilities	5,001						5,555
Total liabilities	434,516						395,813
Shareholders’ equity	81,696						84,717
Total liabilities & shareholders’ equity	$	516,212					$	480,530
Net interest income			$	3,695					$	3,567
Net interest rate spread					2.96	%					3.02	%
Net interest margin					3.13						3.25

(1) The average balance of loans includes loans held for sale and nonperforming loans, interest on which is recognized on a cash basis.

(2) No tax-equivalent yield adjustments have been made.

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Interest Expense: Interest expense decreased $40,000, or 4.7%, to $810,000 for the three months ended June 30, 2014 compared to $850,000 for the same prior year period, primarily attributable to a decrease in the average cost of interest bearing liabilities of 14 basis points which was partially offset by an increase in the average outstanding balance of interest bearing liabilities of $36.9 million.

Interest expense on certificates of deposit and IRA time deposits decreased $83,000, or 18.8%, for the three months ended June 30, 2014 compared to the same prior year period, primarily due to a decrease in average outstanding balances of $7.9 million combined with a 20 basis point decrease in the average cost of these deposits. The Company has been able to shift a significant percentage of its deposit mix from fixed, higher cost certificates of deposit into lower cost money market, savings, and interest bearing checking accounts, which has assisted in lowering the Company’s average cost of funds. Interest expense on money market deposits was relatively stable at $63,000 for the three months ended June 30, 2014 compared to $62,000 for the same prior year period due to a decrease in the average cost of these deposits of three basis points which offset the increase of $6.0 million in the average outstanding balance of these accounts during the same period.

Interest expense on FHLBI advances increased $71,000, or 30.7%, to $302,000 for the three months ended June 30, 2014 compared to $231,000 for the same prior year period, attributable to an increase in the average outstanding balance of FHLBI advances of $31.5 million and partially offset by a decrease in the average cost of these borrowings of 45 basis points. As interest rates have remained low in the latter part of 2013 and early 2014, the Company utilized additional FHLBI borrowings at lower rates to fund increases in investment securities and loans, including mortgage warehouse loans, since the 2013 period.

In addition, interest expense on the Company’s subordinated debt decreased $25,000 during the three months ended June 30, 2014 compared to the same prior year period due to an interest rate swap maturing in March 2014 which reduced the average cost of the borrowings by 194 basis points to 3.49% for the second quarter of 2014 from 5.43% for the 2013 period. The average cost of these borrowings should remain at the lower cost in future periods.

Provision for Loan Losses: We recognize a provision for loan losses, which is charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loan loss experience, the types of loans and the amount of loans in the portfolio, adverse situations that may affect our borrowers’ ability to repay, the estimated fair 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 determined that a provision for loan losses was not necessary for the three months ended June 30, 2014 compared to $103,000 for the same prior year period. The Company’s analysis of the allowance for loan losses for the second quarter of 2014 reflected continued improvement in asset quality metrics and various trends, including classified assets, charge-off ratios, delinquencies, and current economic conditions. Net charge-offs for the three months ended June 30, 2014 totaled $107,000, of which $96,000 related to amounts previously reserved, compared to $86,000 for the prior year period, of which none had been previously reserved.

Noninterest Income: Noninterest income decreased $164,000, or 18.2%, to $737,000 for the three months ended June 30, 2014 compared to $901,000 for the same prior year period. The primary reason for the decrease in noninterest income was due to a $147,000 decrease in net gains on sales of securities during the second quarter of 2014 compared to the prior year period. During the three months ended June 30, 2014, losses on other assets included a $30,000 write-down to fair market value less costs to sell the property that previously housed our Rolling Prairie branch which we have closed. Other income decreased $31,000 during the three months ended June 30, 2014 compared to the prior year period primarily due to lower wire transfer fee income related to mortgage warehouse lending as the number of loans funded decreased. These decreases were partially offset by a $32,000 increase in gain on mortgage banking activities as purchase activity increased during the second quarter of 2014 from the prior year period.

Noninterest Expense: Noninterest expense increased $120,000, or 4.2%, to $3.0 million for the three months ended June 30, 2014 compared to $2.9 million for the prior year period. The increase in noninterest expense was primarily due to an increase of $58,000 in salaries and wages expense, including an increase in payroll expense of $48,000 related to annual merit pay increases and open positions in the second quarter of 2013 that were filled prior to the end of 2013. Commission expense increased by $13,000 from the prior year period due to the increased dollar volume of mortgage originations during the second quarter of 2014 as volume increased related to purchase activity while refinance activity decreased. In addition, total deferred loan origination costs decreased $20,000 during the 2014 second quarter due to a lower number of loan originations compared to the 2013 second quarter. Advertising and printing costs also increased by $42,000 for the three months ended June 30, 2014 compared to the prior year period due to increased costs related to public relations, customer surveys, and the annual shareholder meeting. Collection and other real estate owned expenses increased $23,000 for the three months ended June 30, 2014 compared to the

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prior year period due to legal expenses associated with one large nonperforming loan combined with increased real estate taxes for other real estate owned properties.

Income Taxes: Income tax expense decreased $118,000, or 33.2%, to $237,000 for the three months ended June 30, 2014 from $355,000 for the same prior year period, primarily due to a decrease in income before taxes of $53,000, as well as a decrease in our effective tax rate. The effective tax rate for the three months ended June 30, 2014 was 16.3% compared to 23.6% for the same prior year period. The Company’s effective tax rate has been favorably impacted by its tax planning strategies including the captive insurance company which was formed in December 2013, the real estate investment trust company established in January 2013, and the impact of the increase in income from bank owned life insurance.

Comparison of Operating Results for Six Month Periods Ended June 30, 2014 and June 30, 2013

Net Income: Net income totaled $2.1 million, or $0.37 per diluted share, for the six months ended June 30, 2014 compared to $2.2 million, or $0.38 per diluted share, for the six months ended June 30, 2013. The slight decrease in net income was primarily due to a decrease in noninterest income of $549,000 and an increase in noninterest expense totaling $178,000 and was partially offset by a decrease of $106,000 in provision for loan losses for the six months ended June 30, 2014 compared to the same 2013 period.

Net Interest Income: Net interest income increased $44,000, or 0.6%, to $7.2 million for the six months ended June 30, 2014 compared to $7.1 million for the same prior year period. The increase in net interest income was primarily attributable to a $119,000, or 6.9%, decrease in interest expense on interest-bearing liabilities, which was partially offset by a $75,000 decrease in interest income on interest-earning assets. Net interest margin decreased 17 basis points to 3.09% for the six months ended June 30, 2014 from 3.26% during the prior year period due to a 26 basis point decrease in the average yield earned on interest-earning assets which was partially offset by a 15 basis point decrease in the average cost of interest-bearing liabilities from the prior year period.

Interest and Dividend Income: Interest and dividend income decreased $75,000, or 0.8%, to $8.8 million for the six months ended June 30, 2014 compared to $8.9 million for the prior year period. The average yield on interest earning assets decreased 26 basis points to 3.79% for the six months ended June 30, 2014 from 4.05% for the prior year period. These decreases were primarily related to decreases in the average yields earned on both loans and investment securities which were partially offset by a $29.1 million, or 20.8%, increase in the average balances of investment securities for the 2014 period.

Interest and fee income on mortgage warehouse loans decreased $335,000, or 12.6%, for the six months ended June 30, 2014 compared to the same prior year period which was primarily related to a 53 basis point decrease in the average yield earned on these loans due to lower current market interest rates as a result of greater competition for mortgage warehouse loans.

Interest and fee income on commercial and industrial loans decreased $73,000, or 17.7%, for the six months ended June 30, 2014 compared to the same prior year period which was primarily related to a 53 basis point decrease in the average yield earned on these loans as loans were renewing at lower market interest rates than the prior year period.

Partially offsetting the decrease in interest and fee income on loans was a $97,000 increase in interest and fee income related to commercial construction loans for the six months ended June 30, 2014 compared to the same prior year period. The increase was primarily related to late fees received on one loan relationship that was paid off in the second quarter of 2014 combined with a $1.3 million increase in the average balance of these loans in the 2014 period compared to the 2013 period.

In addition, interest and fee income related to commercial real estate loans increased $51,000 for the six months ended June 30, 2014 compared to the same prior year period. The increase was primarily due to a $4.2 million increase in the average balance of these loans and was partially offset by a 16 basis point decrease in the average yields on such loans during the 2014 period when compared to the 2013 period due to lower current market interest rates.

Interest income from taxable securities increased $118,000, or 12.7%, for the six months ended June 30, 2014 compared to the same prior year period. The $18.2 million, or 18.4%, increase in the average outstanding balance during the 2014 period compared to the prior year period provided the increase in interest income, however the new investments and the cash flow derived from the existing portfolio was reinvested at lower interest rates resulting in a decrease in the average yield of these securities of nine basis points for the 2014 time period.

Interest income from tax exempt securities increased $133,000, or 19.1%, for the six months ended June 30, 2014 compared to the same prior year period due to an increase in the average outstanding balance of $10.9 million, or 26.4%, and was partially

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offset by a decrease in the average yield of 19 basis points as tax exempt securities purchases have been at lower interest rates since the first quarter of 2013.

The following table sets forth the average balance sheet, average annualized yield and cost, and certain other information for the six months ended June 30, 2014 and 2013. All average balances are daily average balances. 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.

	Six Months Ended June 30,
	2014						2013
	Average Outstanding Balance		Interest		Annualized Yield/Cost		Average Outstanding Balance		Interest		Annualized Yield/Cost
	(Dollars in thousands)
Assets:
Loans (1)	$	271,578	$	6,771	4.99	%	$	271,663	$	7,118	5.24	%
Taxable securities	117,019		1,048		1.79		98,816		930		1.88
Tax exempt securities (2)	52,381		828		3.16		41,440		695		3.35
Federal Home Loan Bank of Indianapolis stock	4,375		93		4.25		3,817		67		3.51
Federal funds sold and other interest-earning deposits	18,567		42		0.45		21,876		47		0.43
Total interest earning assets	463,920		8,782		3.79		437,612		8,857		4.05
Non-interest earning assets	43,857						40,356
Total assets	$	507,777					$	477,968
Liabilities and equity:
Savings deposits	$	63,618	18		0.06	%	$	58,007	16		0.06	%
Money market accounts	67,592		125		0.37		62,792		129		0.41
Interest-bearing checking	54,001		59		0.22		53,324		75		0.28
CDs and IRAs	108,444		736		1.36		114,470		906		1.58
Total interest-bearing deposits	293,655		938		0.64		288,593		1,126		0.78
FHLB advances	70,163		555		1.58		43,383		458		2.11
Subordinated debentures	5,155		110		4.27		5,155		139		5.39
Short-term borrowings	920		2		0.43		278		1		0.72
Total borrowings	76,238		667		1.75		48,816		598		2.45
Total interest-bearing liabilities	369,893		1,605		0.87		337,409		1,724		1.02
Non-interest bearing deposits	51,241						50,422
Other liabilities	5,257						5,656
Total liabilities	426,391						393,487
Shareholders’ equity	81,386						84,481
Total liabilities & shareholders’ equity	$	507,777					$	477,968
Net interest income			$	7,177					$	7,133
Net interest rate spread					2.92	%					3.03	%
Net interest margin					3.09						3.26

(1) The average balance of loans includes loans held for sale and nonperforming loans, interest on which is recognized on a cash basis.

(2) No tax-equivalent yield adjustments have been made.

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Interest Expense: Interest expense decreased $119,000, or 6.9%, to $1.6 million for the six months ended June 30, 2014 compared to $1.7 million for the same prior year period, primarily attributable to a decrease in the average cost of interest bearing liabilities of 15 basis points which was partially offset by a 9.6% increase in the average outstanding balance of interest bearing liabilities of $32.5 million.

Interest expense on certificates of deposit and IRA time deposits decreased $170,000, or 18.8%, for the six months ended June 30, 2014 compared to the same prior year period, primarily due to a decrease in average outstanding balances of $6.0 million combined with a 22 basis point decrease in the average cost of these deposits. The Company has been able to shift a significant percentage of its deposit mix from fixed, higher cost certificates of deposit into lower cost money market, savings, and interest bearing checking accounts, which assisted in lowering the Company’s average cost of funds.

Interest expense on FHLBI advances increased $97,000, or 21.2%, to $555,000 for the six months ended June 30, 2014 compared to $458,000 for the same prior year period, attributable to a 61.7% increase in the average outstanding balance of FHLBI advances of $26.8 million and partially offset by a decrease in the average cost of these borrowings of 53 basis points. As interest rates have remained low in the latter part of 2013 and early 2014, the Company utilized additional FHLBI borrowings at lower rates to fund increases in investment securities and loans, including mortgage warehouse loans, since the 2013 period.

In addition, interest expense on the Company’s subordinated debt decreased $29,000 during the six months ended June 30, 2014 compared to the same prior year period due to an interest rate swap maturing in March 2014 which reduced the average cost of the borrowings by 112 basis points to 4.27% for the 2014 period from 5.39% for the 2013 period.

Provision for Loan Losses: During the six months ended June 30, 2014, no provision for loan losses was recorded compared to $106,000 for the same prior year period. Net charge-offs for the six months ended June 30, 2014 totaled $144,000 compared to $177,000 for the prior year period. Of the total net charge-offs for 2014 period, $119,000 were previously reserved for prior to 2014.

Noninterest Income: Noninterest income decreased $549,000, or 30.4%, to $1.3 million for the six months ended June 30, 2014 from $1.8 million for the prior year period primarily due to a $390,000 decrease on net gains on the sales of securities as a result of fewer security sales in the current period as compared to the prior year period. Net gains on mortgage banking activities decreased $189,000 as higher mortgage interest rates during 2014 reduced mortgage purchase and refinance activity primarily during the first quarter of 2014 resulting in fewer mortgage loans sold in the current period as compared to the prior year period. Other income decreased $35,000 primarily due to lower wire transfer fee income related to mortgage warehouse lending as the number of loans funded decreased from the prior year period. Noninterest income for the six months ended June 30, 2014 was also impacted by a $30,000 write-down on the Rolling Prairie branch facility which was offset by a decrease in write-downs on other real estate owned when compared to the prior year period.

Noninterest Expense: Noninterest expense for the six months ended June 30, 2014 totaled $6.1 million, an increase of $178,000, or 3.0%, from $5.9 million for the prior year period. The increase was primarily related to a $164,000 increase in salaries and employee benefits due to higher payroll costs as certain open positions in the prior year period were filled in the latter part of 2013. In addition, total deferred loan origination costs decreased $83,000 during the first six months of 2014 due to a lower number of loan originations compared to the 2013 period. Advertising and printing costs also increased $24,000 during the first six months of 2014 due to increased public relations, customer surveys, marketing promotions, and printing costs.

Income Taxes: Income tax expense decreased $404,000, or 58.6%, to $285,000 for the six months ended June 30, 2014 from $689,000 for the same prior year period, primarily due to a decrease in income before taxes of $577,000, as well as a decrease in our effective tax rate. The effective tax rate for the six months ended June 30, 2014 was 12.1% compared to 23.5% for the same prior year period. The Company’s effective tax rate has been favorably impacted by its tax planning strategies including the captive insurance company which was formed in December 2013, the real estate investment trust company established in January 2013, and the impact of the increase in income from bank owned life insurance.

Liquidity and Capital Resources

We maintain liquid assets at levels we consider adequate to meet both our short- and long-term liquidity needs. We adjust our liquidity levels to fund loan commitments, repay our borrowings, and fund deposit outflows. We also adjust liquidity as appropriate to meet asset and liability management objectives. Liquidity levels fluctuate significantly based upon the demand in the mortgage warehouse lending division.

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

Our 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 $130.6 million at June 30, 2014 and constituted 24.4% of total assets at that date, compared to $131.4 million, or 24.9%, of total assets at December 31, 2013.

The Company also maintains lines of credit with the FHLBI. The total of these lines of credit were $87.5 million at June 30, 2014, of which $85.0 million in FHLBI advances were outstanding, including $10.0 million in overnight borrowings. 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 FHLBI. At June 30, 2014, we had $108.8 million in unpledged securities available-for-sale. The Company actively utilizes its borrowing capacity with the FHLBI to manage liquidity and to provide a funding alternative to time deposits, if the FHLBI’s rates and terms are more favorable. The advances from the FHLBI can have maturities from overnight to multiple years. At June 30, 2014, $35.0 million of these advances were due within one year and $50.0 million had maturities greater than a year. At June 30, 2014, $25.0 million of the FHLBI advances were variable-rate; of which $15.0 million are currently part of two interest rate swaps. One of the variable rate advances was in the amount of $10.0 million and was swapped for a fixed rate of 3.69% which will mature in July 2016. The other variable rate advance was in the amount of $5.0 million and is swapped for a fixed rate of 3.54% and will mature in September 2015. The remaining $60.0 million in FHLBI advances were at fixed rates.

The Company has an accommodation from First Tennessee Bank National Association (“FTN”) to borrow federal funds up to the amount of $15.0 million. This federal funds accommodation is not a confirmed line or loan, and FTN may cancel such accommodation at any time, in whole or in part, without cause or notice, in its sole discretion. At June 30, 2014, the Company did not have an outstanding balance on this line. For the three months ended June 30, 2014, the Company had average borrowings totaling $180,000 with a maximum balance during the period of $4.2 million.

The Company also has an agreement with Zions First National Bank (“Zions”) for an unsecured line of credit to borrow federal funds up to $9.0 million. This line of credit was established at the discretion of Zions and may be terminated at any time in its sole discretion. At June 30, 2014, the Company did not have an outstanding balance on this line. For the three months ended June 30, 2014, the Company had average borrowings totaling $1.2 million with a maximum balance during the period of $8.9 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 19.1% and 18.0%, respectively, at June 30, 2014, 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 June 30, 2014, the Bank’s leverage ratio was 13.0%. Capital levels for the Bank remain above the established regulatory capital requirements.

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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management of Interest Rate Risk

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

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

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

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

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

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Quantitative Analysis

The table below sets forth, as of June 30, 2014, the estimated changes in the net interest margin and the economic value of equity that would result from the designated changes in the United States Treasury yield curve over a 12 month non-parallel ramp for The LaPorte Savings Bank. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

Changes in Interest  Rates (basis points) (1)			Estimated Increase (Decrease) in NIM							Estimated Increase (Decrease) in EVE					EVE as Percentage of  Economic Value of Assets
	Estimated NIM (2)		Amount			Percent		Estimated EVE (3)		Amount			Percent		EVE  Ratio(4)		Changes in Basis Points
(Dollars in thousands)
+300	$	16,299	$	419		2.64	%	$	72,840	$	(16,984	)	(18.91	)%	14.43	%	(2.48	)%
+200	16,189		309			1.95		80,675		(9,149		)	(10.19	)	15.70		(1.21	)
+100	16,036		156			0.98		86,606		(3,218		)	(3.58	)	16.58		(0.33	)
0	15,880		—			—		89,824		—			—		16.91		—
-100	15,350		(530		)	(3.34	)	87,642		(2,182		)	(2.43	)	16.29		(0.62	)

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

(2) NIM or Net Interest Margin measures The LaPorte Savings Bank’s exposure to net interest income due to changes in a forecast interest rate environment.

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

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

The table above indicates that at June 30, 2014, in the event of a 100 basis point decrease in interest rates over a 12 month non-parallel ramp, we would experience a 3.34% decrease in net interest income. In the event of a 100 basis point increase in interest rates over a 12 month non-parallel ramp, the net interest income would increase 0.98%.

The table above indicates that at June 30, 2014, in the event of a 100 basis point decrease in interest rates over a 12 month non-parallel ramp, we would experience a 2.43% decrease in economic value of equity. In the event of a 100 basis point increase in interest rates over a 12 month non-parallel ramp, the economic value would decrease 3.58% in economic value of equity.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. 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 table 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 the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income. Finally, the above table does not take into account the changes in the credit risk of our assets which can occur in connection with changes in interest rates.

The Company has taken steps to address its exposure to rising interest rates. For instance management executed an interest rate swap to address the exposure on its $5.0 million floating rate trust preferred debenture in April 2009, by swapping for a fixed five year effective rate of 5.54% which matured on March 26, 2014. In October 2009, the Company executed a $10.3 million interest rate swap which took $10.3 million five year floating rate brokered certificates of deposit and swapped for a fixed five year effective rate of 3.19%. In February 2010, The LaPorte Savings Bank executed two interest rate swaps against $15.0 million in maturing FHLB advances. The first interest rate swap was against a $10.0 million adjustable rate advance tied to the three month LIBOR plus 0.25% for six years at an effective fixed rate of 3.69% and began in July 2010. The second interest rate swap was against a $5.0 million adjustable rate advance tied to the three month LIBOR plus 0.22% for five years with an effective fixed rate of 3.54% and began in September 2010. We will continue to look for opportunities to address our exposure to rising interest rates utilizing hedging strategies in the future. We are also continuing to sell most of the fixed rate one- to-four family residential real estate loans originated and continuing to originate the majority of commercial real estate loans at a variable rate with interest rate floors attached.

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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, Chief Accounting 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, Chief Accounting 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.

ITEM 1. LEGAL PROCEEDINGS

As of June 30, 2014, 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 June 30, 2014, there were no material changes to the “Risk Factors” disclosed in the Company’s Annual Report for the year ended December 31, 2013 on Form 10-K filed on March 18, 2014. However, the risks described in our 2013 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) Not applicable

(b) Not applicable

(c) The following table presents information related to purchases made by or on behalf of the Company of shares of the Company’s common stock during the periods indicated:

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1-30, 2014	—	$	—	—	63,315
May 1-31, 2014	53,600	10.95		53,600	9,715
June 1-30, 2014	9,715	10.90		9,715	145,000
Total	63,315	10.94		63,315	145,000

(1) On January 28, 2014, the Company publicly announced a second share repurchase program for an additional 150,000 shares. Prior to April 1, 2014, a total of 86,685 shares were repurchased under the second program. On June 4, 2014, the Company publicly announced a third share repurchase program for 145,000 shares. During the second quarter of 2014, there were no repurchases under the third program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

	Description
31.1	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*
31.2	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*
32.1	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 June 30, 2014 and December 31, 2013, (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2014 and 2013, (iii) the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2014 and 2013, (v) the Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, and (vi) the notes to the Consolidated Financial Statements.

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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.
Date:	August 13, 2014	/s/ Lee A. Brady
		Lee A. Brady,
		Chief Executive Officer
Date:	August 13, 2014	/s/ Michele M. Thompson
		Michele M. Thompson,
		President and Chief Financial Officer

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